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FINAL REPORT

KENYA REVENUE AUTHORITY

PROCUREMENT REVIEW

REVIEW PERIOD: 1 JULY 2007-30 JUNE 2008

MARCH 2010

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1 EXECUTIVE SUMMARY ............................................................................................ 3 2 INTRODUCTION ......................................................................................................... 4

3 BACKGROUND AND ORGANIZATION OF KENYA REVENUE AUTHORITY ... 13 4 GENERAL FINDINGS, RECOMMENDATIONS AND RESPONSES ....................... 15

5 SPECIFIC FINDINGS ................................................................................................. 34 6 ACTION PLAN ........................................................................................................... 40

7 CONCLUSION ............................................................................................................ 42 8 APPENDIX ................................................................................................................. 44

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ACRONYMS

AIE Authority to Incur Expenditure AO Accounting Officer CAPL Consolidated Annual Procurement Plan D Minor Deviations DAP Departmental Annual Procurement Plan DD Moderate Deviations DDD Major Deviations DP Direct Procurement FY Financial Year GOK Government of Kenya IPR Independent Procurement Review KACC Kenya Anti Corruption Commission LPO Local Purchase Order LSO Local Service Order LVP Low value Procurement MCA Millennium Challenge Account KRA Kenya Revenue Authority OIT Open International Tender ONT Open National Tender PC Procurement Committee PE Procuring Entity PIN Personal Identification Number PPDA Public Procurement and Disposal Act PPDR Public Procurement and Disposal Regulations PPOA Public Procurement Oversight Authority PR Purchase Requisition PS Permanent Secretary PU Procurement Unit PV Payment Voucher RFP Request for Proposal RFQ Request for Quotations RRI Rapid Results Initiative RT Restricted Tender SP Satisfactory Performance SPP Specially Permitted Procurement TC Tender Committee TC1 Term Contract TP Threshold Program USAID United States Agency for International Development VAT Value Added Tax

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EXECUTIVE SUMMARY This report presents the results of the procurement review of the Kenya Revenue Authority carried out by the Public Procurement Oversight Authority between the months of March and May, 2009. The objective of the exercise was to review KRA’s procurement processes for the period 1st July, 2007 to 30th June, 2008, in order to determine the level of compliance with the Public Procurement and Disposal Act, 2005, the Public Procurement and Disposal Regulations, 2006, and circulars and directives issues by the Public Procurement Oversight Authority and benchmark the processes with other generally accepted principles of good procurement practice.

The methodology of the review involved verification of the relevant procurement documents such as the tender/procurement committee minutes, standard tender documents, payment vouchers, local purchase/service orders, letters of notification, contracts, etc. The review also considered the reports of earlier reviews carried out in the KRA including External Audit Report for YR2006-2007(TLB section); periodic internal audit reports; and the Management System Certification Audit Report. The review evaluated the implementation of the findings and recommendations of these reports. Most of the recommendations made in earlier reports had not been addressed by the entity. Officers involved in the procurement function were interviewed to clarify on issues of concern to the reviewers. In the management structure of the entity, the procurement unit is headed by a Deputy Commissioner who reports to the Board Secretary, a Senior Deputy Commissioner. There are 45 procurement and supplies staff who serve both in KRA headquarter and regional offices. Most of the officers were either qualified in procurement or were pursuing professional qualifications in procurement. During the period of review, Kenya Revenue Authority did not have a consolidated annual procurement plan duly approved by the management and Board of Directors. Purchases were not linked to any plan but rather to the availability of funds to undertake the procurement. Quotations were being floated beyond the stipulated thresholds. Procurement of low value items were being undertaken without the requisite approvals. There were variations between the quantities requested for in the purchase requisitions and the quantities quoted for in the quotation forms. The team also found that quotations for similar items with same quotation number were opened on different dates and later evaluated as one and that the procurement unit did not maintain register(s) for procurement requisitions. It was observed that all procurement of goods, works and services whose value exceeds Kshs. 500,000 were undertaken in the headquarters. The regional offices are only mandated to undertake procurements whose values are below the Kshs.500,000 threshold. The team also noted that the Board Oversight Committee approved all purchases beyond Kshs. 500,000. The team observed that the standing committees i.e. Tender Committee, Procurement Committee, Inspection & Acceptance Committee and Disposal Committee were duly appointed as per the provisions of the law. Even though the entity has constituted Inspection & Acceptance committee, the review team was not provided with any completion certificate(s) for major contracts for works and services undertaken by the KRA. The evaluation committees were duly appointed in cases of open national tender (ONT), but for procurement using alternative methods, there was no evidence of appointment of evaluation committees even for procurement of items that require evaluations to ensure specifications are met.

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Even though the Act provides for open tender as the most preferred method of procurement, this was not reflected from the information provided. It was noted that advertising requirements were as per the provisions of the Act, however, advertisement notices are not filed in the individual procurement files. During the period of review, KRA did not publish invitations to candidates to submit applications to be pre-qualified for specialized, complex tenders for works and services. There exists a list of registered suppliers, but there was no evidence that the list was obtained through competitive bidding, as there was no clearly documented competitive procedure that had been used to come up with the list. In addition, the list did not cover all the categories of goods and services frequently procured by the KRA. Splitting of orders through direct procurements to avoid recommended thresholds, repeat quotations for particular items and retrospective approvals of procurement proceedings were evident in KRA records contrary to the provisions of the law. Termination of procurement proceedings were done without regard to the provisions of the law. Bidders we never notified of the terminations and the terminations were never reported to the Authority. The entity does not submit to PPOA details of all contracts awarded, whose values exceed Kshs.5 million as required by PPDA 2005 Sec 46 and PPOA Circular Ref. No.3/2008 of 26th August 2008. Records available at PPOA indicate that the submissions received were not inclusive of all procurements whose value exceeded Kshs.5 million including quotations. The systems in place do not facilitate to collect and collate comprehensive documentation and data related to particular procurement activities and to report regularly and reliably any information required by various users including PPOA. There was no single comprehensive procurement file for each procurement activity. A lot of data and information needed for verification purposes could not be readily accessed. Direct procurements were not referenced in any way making it difficult to track particular transactions. This coupled with repetitiveness of the data provided made it difficult to separate transactions. The direct procurements above Kshs.500, 000 were not reported to the PPOA within 14 days as required by the provisions of the law.

The report has documented an action plan outlining various corrective measures with specific timelines to be implemented by the Procuring Entity to address the anomalies identified during the review and improve the compliance level of the procurement function. This action plan was discussed and agreed upon for implementation during an exit meeting held on 7th December, 2009. PPOA will monitor and evaluate the implementation of the action steps contained in the plan.

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INTRODUCTION 1.1 Mandate of PPOA

The Act mandates PPOA to carry out comprehensive procurement reviews (audits) to determine the level of compliance with the laws and adherence to best procurement practices in procuring entities. In assessing compliance, “procurement reviews” have been used in place of “audits,” to distinguish these activities from those of the Kenya National Audit Office. Section 49.1(a) of the PPDA, provides for the PPOA’s procurement review function, which states that the Director-General or anyone authorized by him may inspect at any reasonable time the records and accounts of a procuring entity, and the procuring entity and contractor shall co-operate with and assist whoever does such an inspection. 1.2 Responsibility of procuring entity Section 27(1) of the Public Procurement and Disposal Act 2005 provides that a public entity shall ensure that this Act, the regulations, and any directions of the PPOA are complied with respect to each of its procurements. 1.3 Entry meeting An entry meeting with the KRA’s management team was held on 10th March 2009 to discuss the scope of the review, the review plan, the reviewers’ expectations, access to documentation and other administrative issues. Mr. Maurice Juma, the Ag.Interim Director General PPOA, led the review team to the entry meeting (Appendix) .The KRA team was led by Mr John Njiraini, Chair of the Tender Committee, representing Commissioner General and included among others, Heads of User Departments, and the Head of the Procurement Unit. 1.4 Specific Review Objectives The specific objectives of this procurement review were: a) To verify the procurement and contracting procedures, processes and documentation

followed by KRA, in order to determine whether they were carried out in accordance with the Public Procurement and Disposal Act 2005 and the associated Regulations;

b) To establish the KRA's adherence to the general principles of economy and efficiency; equal opportunities; transparency; integrity; fairness; and value for money;

c) To determine the technical compliance, physical completion and price competitiveness of each contract in the selected representative sample;

d) To review the capacity of KRA to handle procurement efficiently; comment on the quality of procurement and contracting; and identify reasons for delays, if any;

e) To establish whether adequate systems are in place for procurement planning, implementation and monitoring and whether reliable documentation is maintained as required by the regulations;

f) To establish whether recommended actions made in the previous reviews have been carried out successfully;

g) To assist in clarification of areas where KRA may have misunderstood the requirements of the legislation;

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h) To identify weaknesses e.g. staff shortages, lack of equipment, which impede good performance and need to be rectified; and

i) To make recommendations for improvement in an action plan, this will be followed up to establish whether these improvements have been implemented.

1.5 Review Methodology

Key documents The fieldwork of the review concentrated on gathering sufficient evidence to support any findings regarding the compliance and performance of the KRA. The team reviewed the supporting documentation, such as tender files, quotation files, contract files, project documentation and budgets. Other documents included Kenya Revenue Authority Third Corporate Plan 2006/07-2008/09, Public Procurement and Disposal Act, 2005 and Regulations, 2006, Internal Audit Reports, Kenya National Audit reports.

Interviews and Discussions The team held discussions with staff of KRA directly involved in the procurement process to ascertain general and specific information about the procurement/disposal process, procedures, and existing capacity at the KRA. 1.5.1.1 Persons met during the review

Name Title Role/Department Grace Murichu Deputy Commissioner, Supplies and

Procurement Head of Procurement Unit

Mary Wamalwa Senior Assistant Commissioner Procurement Daniel Oganga Senior Assistant Commissioner Procurement Patrick Wanjuki Assistant Commissioner Procurement Teresia Gachee Assistant Commissioner Procurement Joseph Kimani Ag. Principal Procurement Officer Procurement Ronald Nginda Ag. Principal Procurement Officer Procurement Dominic Oporo Procurement Officer I Procurement Titus Mwele Procurement Assistant Procurement Paul Waini Procurement Assistant Procurement Geoffrey Migwi Clerical Officer Procurement J. B. Kamau Senior Deputy Commissioner Internal Audit Andrew Njoroge Deputy Commissioner Internal Audit Wilson Muraya Senior Assistant commissioner Internal Audit Penlope Mutune Senior Assistant Commissioner Finance

Sampling

A total sample of 27 Procurement transactions and one disposal (it was the only disposal for the period of review) was selected in accordance with the procedures outlined in the Procurement Review Manual. The sampling method and scope of review was discussed with the Procurement Unit.

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Details of the samples reviewed

TENDER / QUOATION NO METHOD DESCRIPTION VALUE No number Direct

Procurement Supply and delivery of computer consumables 7,752,174.00

No number Direct Procurement

Supply and delivery of computer consumables 7,752,294.00


Supply and delivery of 387,741 packets (1/2 litre) of fresh milk 8,143,191.00


Supply and delivery of computer consumables 12,202,800.00


Provision of recruitment services for Senior Deputy Commissioner - Human Resources

1,492,920.00 No number Direct

Procurement Repair and maintenance of photocopiers & fax machines for financial year 2007/2008


Procurement Provision of additional Lotus Note licenses


Procurement Provision of consultancy services on the implementation of integrated tax management system 15,313,848.00

KRA/HQS/016/2007-08 Request for quotation

Supply and delivery of laboratory sampling materials 70,700.00


Opening of windows in the Banking Hall Times Tower 4,372,000.00


Supply And Delivery Of Tyres


Production of sun visor caps 202,500.00


Printing of Turnover Tax Certificate of registration (TOT-2) 114,000.00


Partitioning of ground and mezzanine floors of Kiptagich House - Eldoret offices 4,923,162.09


Erecting flowerbeds around the boundary wall of Ndekwa Estate - South C 210,530.00


Supply and delivery of one central server and twenty five UPS 700VA 1,294,215.00


Supply and delivery of fibre media converters 238,867.20


Supply and delivery of electricals 155,000.00


HP Fuser Unit FOR hp 2420 dn Printer 46,400.00


Supply and delivery of fridge and office dispenser 85,830.00


Supply and delivery of library books 1,469,511.51


Production Of press Advertisement, Television and Radio Infomercials For Campaign During Filing Of 2007 Income Tax Returns 2,482,400.00


Hiring Of Space For Indoor Digital Advertising To Promote Turn Over Tax 2,122,280.00

KRA/HQS/003/2007-2008

Open National Tender

Renovations of lower hostels at KRATI Mombasa 12,110,051.00

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KRA/HQS/006/2007-2008


Provision of cleaning services 102,882,984.90

KRA/HQS/008/2007-2008


Supply and delivery of Desktop Computers, Laptops and Printers 52,305,000.00

KRA/SR/004/2007-2008 Request for quotation

Road repairs (Pothole patching) 64,800.00


Supply and delivery of Beef and Meat products 873,155.00


Supply of Tea for staff at Customs House, Mombasa 271,440.00

The review team estimated the compliance level they would be looking for at 50% and the probability of non-conformity to be 99.61 %. The number of contracts, which were selected for review in order that a realistic review report is achieved, included all departments, procurement methods and categories or procurement functions. With systematic selection of eight procurement activities, there is a high probability of finding a transaction, which does not comply with the Act and regulations. This sampling table is adapted from European Standards EN45503.1996. Number of samples

Estimated initial compliance with Public Procurement and Disposal Act 2005 10 20 30 40 50 60 70 80 90 100

Probability of finding a sample which does not comply with PPDA 2005 % 3 99.90 99.20 97.30 93.60 87.50 78.40 65.70 48.80 27.10 0 4 99.99 99.84 99.19 97.44 93.75 87.04 75.99 59.04 34.39 0 5 100 99.97 99.76 98.98 96.88 92.22 83.19 67.23 40.95 0 6 100 99.99 99.93 99.59 98.44 95.33 88.24 73.79 46.86 0 7 100 100 99.98 99.84 99.22 97.20 91.76 79.03 52.17 0 8 100 100 99.99 99.93 99.61 98.32 94.24 83.22 56.95 0 9 100 100 100 99.97 99.80 98.99 95.96 86.58 61.26 0 10 100 100 100 99.99 99.90 99.40 97.18 89.26 65.13 0

The level of estimated compliance level was based on the discussion with the staff of the procurement unit on the overall management and organisation of procurement functions in the KRA. The procuring entity staff handling the procurement related functions i.e. tender committee members, procurement committee members and procuring unit staff have undergone sensitization training on the Public Procurement and Disposal Act conducted by PPOA and Kenya Institute of Supplies Management, KISM. Internal Audit reports and Kenya National Audit Office report FY2006-2007 presented very pertinent issues concerning procurement management in the entity.

Rating Criteria The reviewed procurements were categorized according to the procurement/disposal deviation rating criteria, as discussed with the management in the entry meeting. These are general criteria as developed in the Procurement Review Manual and are applied to all Procuring Entities in the course of a procurement review. The features that apply to KRA are indicated later in this report. The extents of deviation have been grouped under four ratings, namely:

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Major deviation DDD

Where the major requirements of the PP&D Act and Regulations were not adequately followed. This could cause material, financial loss or carry risk for the regulatory system or the entity’s reputation. These cases include deficiencies in the structures and systems to implement the law and regulations, or where the procedures have been so flawed that there is severe risk of mis-procurement or procurement fraud such as: Procuring entity is not established and operational; Procurement procedures are not integrated within the financial

framework of the entity; Main structures are not appointed and operationalised e.g.

Accounting Officer Tender Committee Procurement Unit Procurement Committee Disposal Committee Inspection and Acceptance Committee Tender Opening Committee Evaluation Committees.

Coverage not complete Procurement process Contract management Disposal Categories

Standard and specific committees not meeting as stipulated; No consolidated procurement plan linked to approved budget; Lack of procedures for making procurement decisions; Not adhering to the threshold matrix; Open tenders not advertised as provided for in the Act and

Regulations Choice of improper procurement procedures; Procurements split or inflated; Contracts are not awarded to qualified person; Unjustified termination of procurement proceedings; Lack of approved prequalified list for suppliers; Lack of annual disposal plan; Inappropriate influence on evaluation; Inadequate protection of confidential information; Lack of comprehensive procurement records; Restricted /direct procurement tendering not approved by MTC; Standard tender documents not used; Not reporting to PPOA as required for

Contracts of over Ksh 5million Direct Procurement Terminated proceedings Disposal to staff

External observers not invited for large contracts of over Ksh50

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million; Failure to advertise bid opportunities for contracts above certain

value thresholds; Many key procurement records that are stipulated by law for

retention are missing Such cases warrant immediate attention by the Accounting Officer.

Moderate Deviation DD

Where procurement procedures were considered to have significant omissions or deviations, including: Some procurement records are missing; Lack of central comprehensive procurement files; Open tenders not the main method of procurement; Procurement unit not functioning as per the regulations. Lack of signatures on key minutes Choice of selection procedure not justified; Consolidated Procurement plan not updated; Contracts awarded not from the approved list of suppliers; Criteria for the evaluation of proposals not specified in the tender

documents; Award Letter missing; Description of goods, works or services in the bid not adequate; Direct procurement is created by dilatory conduct of the PE; Disposal procedures not followed; Entities with recurring or ongoing requirements have not analyzed

their medium to long term needs to adopt long-term arrangements or framework contracts;

No evidence of analysis of bid documents by Tender Evaluation Committee;

No evidence of award by Tender Committee; Lack of evidence of commencement certificate in contract missing; Lack of evidence of contract being countersigned by AO; Evidence of performance bond not in the contract file; No evidence of the use of weighting in the award criteria in tender

documents; Inspection and acceptance certificates confirming delivery not

available; No justification/Authorization for Applying the method; No authorized procurement requisitions; No schedules of duties for initiating, certifying and approving

officers; Non-disclosure of tender evaluation details; Lack of notice of invitation of expressions of interest and

preparation of shortlists for RFPs; No specified period of validity of tenders; Unjustified modification and withdrawal of tenders; Pre-qualification proceedings not adequate; Absence of award criteria in tender documents; Absence of procurement requisitions;

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Record of procurement proceedings not comprehensive; Lack of justification for direct and restricted procurement; Termination of procurement proceedings not reported to PPOA; and Inadequate oversight by internal auditor.

These weaknesses warrant immediate attention of the senior management.

Minor Deviation D

Where procurement practices and procedures conformed to most regulations, though there were deviations, which are relatively small in quantity, size or degree and are low in risk. These weaknesses warrant immediate attention of the procurement unit or user department. The deviations include:

Absence of an award letter in procurement file; Absence of authorization date of LPO; Absence of invoice copy in the procurement file; Absence of LPO Authorization; Absence of LPO or LSO in the procurement file; Absence of payment voucher copy in the procurement file; Absence of Procurement Request in the procurement file; All tenderers not informed of the result of a tendering process in accordance with the law; Anti corruption mechanisms not defined and published; Commencement of contract date missing; Date of evaluation committee report or recommendation letter missing; Date of the bid opening missing; Date of the MTC meeting awarding the contract missing; Evidence of award by Tender Committee not in file; No evidence of contract being countersigned by AO in procurement file; No evidence of performance bond in the contract file missing; Goods or Services Received Note missing in file; Inadequate monitoring of contracts awarded; Incomplete procurement plan; Methods and criteria for selecting firms and for awarding contracts are not documented; Records are available but not in the procurement file; and Time limits for replies not adhered to

Senior management as part of an ongoing improvement plan should address these weaknesses.

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Satisfactory Performance

Where procurement practices and procedures met the requirements of the law and regulations and were considered to meet standards of good practice.

Limitation of scope

The review team scope was limited by the following: Difficulty in document location and retrieval. This was because of the lack of

central storage of information and absence of an efficient records management and control system;

Incompleteness of records, data and documentation relating to the procurement transactions/proceedings selected;

Difficulty to verify the authenticity of the documents sampled against authorized official schedules of responsibilities.

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BACKGROUND AND ORGANIZATION OF KENYA REVENUE AUTHORITY 1.6 Mandate

The Kenya Revenue Authority is charged with the responsibility of collecting revenue on behalf of the Government of Kenya. Its purpose is Assessment, Collection, Administration and Enforcement of laws relating to revenue.

1.7 Functions of the KRA

The KRA was established by an Act of Parliament, Chapter 469 of the laws of Kenya, which became effective on 1st July 1995. The Authority is a Government agency that runs its operations in the same way as a private enterprise. In order to offer better single-window services to taxpayers, KRA is divided into five Regions as follows:

Rift Valley Region Western Region Southern Region Northern Region Central Region

In terms of revenue collection and other support functions, the Authority is divided into the following Departments, each headed by a Commissioner:

Customs Services Department Domestic Taxes Department

i) Domestic Revenue ii) Large Taxpayers Office

Road Transport Department Support Services Department Investigations & Enforcement Department

In addition to the four divisions, the Authority had seven service Departments that enhance its operational efficiency. These are as follows:

Human Resources Department Finance Department Board Corporate Services & Administration Department Internal Audit Department Information & Communication Technology Department Research & Corporate Planning Department Marketing & Communication

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Role of KRA in the economy

To administer and to enforce written laws or specified provisions of written laws pertaining to assessment, collection and accounting for all revenues in accordance with these laws.

Advise on matters pertaining to the administration or and the collection of revenue under written laws.

Enhance efficiency and effectiveness of tax administration by eliminating Bureaucracy, Procurement, Promotion, Training and Discipline.

Eliminate tax evasion by simplifying and streamlining procedures and improving taxpayer service and education thereby increasing the rate of compliance.

Promote professionalism and eradicate corruption amongst K.R.A. employee by paying adequate salaries that enables the institution to attract and retain competent professionals of integrity and sound ethical morals.

Restore Economic Independence and Sovereign pride of Kenya by eventually eliminating the perennial budget deficits by creating organizational structures that maximize revenue collection.

Ensure protection of local Industries and facilitate economic growth through effective administration of tax laws relating to trade.

Ensure effective allocation of scarce resources in the economy by effectively enforcing tax policies thereby sending the desired incentives and shift signals throughout the country.

Facilitate distribution of income in socially acceptable ways by effectively enforcing tax laws affecting income in various ways.

Facilitate economic stability and moderate cyclic fluctuations in the economy by providing effective tax administration as an implementation instrument of the fiscal and stabilization policies.

Be a 'watchdog' for the Government agencies ( such as Ministries of Health, Finance, etc ) by controlling exit and entry points to the country to ensure that prohibited and illegal goods do not pass through Kenyan borders.

1.8 Vision

To be the leading Revenue Authority in the world respected for professionalism, integrity and fairness.

1.9 Mission

To promote compliance with Kenya’s tax, trade and border legislation by promoting the standard set out in the taxpayer’s charter and responsible enforcement by highly motivated and professional staff thereby maximising revenue collection at the least possible cost for the socio economic well-being of Kenyans

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GENERAL FINDINGS, RECOMMENDATIONS AND RESPONSES

1.10 Organization Structure

Finding: The Procuring unit is headed by a Deputy Commissioner who is reporting to Board Secretary, a Senior Deputy Commissioner. There are 45 procurement and supplies staff who are distributed in the regions and the headquarters. Based on the curriculum vitae of the staff that the reviewers scrutinized, it indicates that most of the staff are either qualified in procurement or were pursuing professional qualifications in procurement. The review team were of the view that the current reporting structure does not facilitate efficient and quick decision-making. Recommendation: There is need to re-organize the organization structure in such a way that the head of procurement reports directly to Commissioner General just like other Commissioners to enhance effective decision making in matters relating to procurement and disposal. The staff who are engaged in procurement and disposal matters and have not acquired the necessary professional qualifications should expedite in order to comply with the requirements of the Supplies Practioners Act. Response: The Departmental structure arose out of the organisational restructuring of the

Authority. The nature of procurement activities is such that there is a continuous need for high level consultations, which is facilitated by the Office of the Senior Deputy Commissioner – Board, Corporate Services and Administration.

Further, all contracts have to be executed by the Commissioner General and the Board Secretary.

Procurement is a fairly new profession. However, procurement staffs have embarked on relevant training/courses and the Authority has adopted a comprehensive training programme, which includes self-sponsored courses, courses funded by the Authority and others by donor agencies.

1.11 Management Structure

Finding: The review team was informed that all procurement of goods, works and services whose value exceeds Kshs.500, 000 were undertaken in the headquarters. With regions undertaking procurements below the Ksh.500, 000. Based on the information gathered in the review exercise, the team noted that the Board Oversight Committee examined all purchases beyond Kshs.500, 000, which tends to lengthen the procurement process. The Tender Committee recommends procurement and disposal decisions to the Board Procurement Oversight Committee after evaluation and subsequent deliberation. The same are scrutinized and referred back to the committee after the Board Oversight Committee has examined them. This action is contrary to the spirit of the Procurement Act and the Regulations as it lengthens the procurement process. The role of the Oversight Board Committee needs to be strategic and not operational as clarified in the Permanent Secretary/Treasury Circular Ref: PPD .4/07 VOL. 1 (47) dated 2nd February 2007.

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Recommendation: The mandate of the Tender and Procurement Committees are clearly set out in Section 26 of the Public Procurement and Disposal Act, 2005 read together with Regulations 10 – 15 of the Public Procurement and Disposal Regulations, 2006. It is imperative that such Committees are given the autonomy to make procurement and disposal decisions and periodically notify the oversight board. The Procuring Entity is reminded to adhere to the relevant provisions of the Act and the Regulations in dealing with all procurements. Response: The Tender Committee awards contracts valued at KShs.500, 000.00 and above.

However, the proposals are forwarded to the Board Oversight Committee for examination only and not award bearing in mind that the Board has an oversight role in any organization.

1.12 Various Committees

Finding: All the standing committees i.e. Tender Committee, Procurement Committee, Inspection & Acceptance Committee and Disposal Committee are duly appointed as per the provisions of the law. Inspection & Acceptance committee Finding: Even though the entity has constituted Inspection & Acceptance committee as provided for in the Regulation 17 to inspect, test, and review the works, goods, and services and issue completion certificates in accordance with the contractual terms, the review team was not provided with any completion certificate(s) for major contracts for works and services undertaken by the KRA. Recommendation: The Accounts department should not make any payment for works and services without the certificate issued by the designated committee. A field for sign-off date should be included on the procurement checklist for each procurement document to be tracked through the system. The data obtained from the checklist will be beneficial for planning procurement schedules and timelines. Response: Noted. However, there are challenges with the inspection and acceptance of services e.g.

catering services or team building events. The evidence of service provision is documentary and cannot be inspected. Payments are effected upon confirmation of provision of services by the user department.

In case of Works/Renovations, a certificate of Completion is issued by the consultant/ Property Officers, which then forms the basis of payment.

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Evaluation Committee Evaluation committees are duly appointed in cases of open national tender (ONT). However, for procurement using other alternative methods, there is no evidence of appointment of evaluation committees even for procurement of items that require evaluations to ensure specifications are met. Quotations are forwarded to the user departments who submit back individual reports signed by individual officers in the name of evaluation reports. There is no evidence of appointment of the officer by the relevant authority to conduct evaluation e.g. quotation no. KRA/HQ’S/501/2007-2008 for supply and delivery of fibre media converters. This is a breach to the provisions of the law and open to manipulation and abuse.

Recommendation: Whenever, there is need for evaluation, it has to be conducted by a duly appointed evaluation committee as provided for in the procurement law. For quotations below tender committee threshold, they should be evaluated as provided for under regulation 61

Response: Noted. However, there are challenges taking into account the nature of the

Authority’s work as the majority of the officers are engaged in the core function of the Authority’s which is revenue collection.

An average of three hundred (300) quotations valued over KShs.500,000.00 are floated annually. The availability of officers to sit in committee meetings therefore poses a challenge and it is against this background that bids arising from quotations are sent to the technical departments for evaluation. The evaluation reports are thereafter forwarded to the Procurement Unit by the Heads of the Department. Thus, the risk of manipulation is negligible.

Procurement Unit Finding: The Procurement Unit is established in accordance with the PPDA Section (4). Functions of the procurement unit as stipulated in regulation 8 of the public procurement and disposal regulations are but not limited to the following:

REQUIREMENTS OF REGULATION

OBSERVATION RESPONSES

1. Maintain and update annually standing lists of registered tenderers required by the procuring entity and liaise with the Authority in respect of the Authority’s register of suppliers and procuring agents.(Regulation 8.3.a)

List of registered suppliers for the FY2007-2008 exists but the list has been generated from introduction letters from the suppliers.

The authority was using a standing list and quotations were floated to candidates on the list as per Regulation 8.3a.

2. Prepare, publish and distribute procurement and disposal opportunities including invitations to tender, pre-qualification documents and invitations for expressions of interest.(Regulation 8.3.b)

Performed as per the provisions of the law

No further action

3. Coordinate the receiving and opening No evidence that Opening Committees Noted. Appointment of

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of tender documents (Regulation 8.3.c) are formally appointed Tender Opening Committee is now requested for in the same memo for evaluation committees.

4. Maintain and safeguard procurement and disposal documents and records (Regulation 8.3.d )

Should be performed pursuant to provisions of Section 45(2) of the Act.

All procurement and disposal documents are maintained in subject files e.g. for RFP’s, Quotations, Advertisements etc as opposed to individual files being opened for each transaction.

5. Submit shortlists and lists of pre-qualified tenderers to the tender committee or procurement committee for approval. (Regulation 8.3.e)

No pre-qualification was conducted in the period of review

For the period under review, the Authority was using a standing list as per Regulation 8.3e.

6. Issue procurement and disposal documents to candidates in accordance with the Act and these Regulations. (Regulation 8.3.f)


No further action

7. Propose the membership of evaluation committee to the Accounting Officer for approval.(Regulation 8.3.g)

Conducted as per the law for tender evaluations but not for quotations that require evaluation. The evaluations for quotations are not conducted or signed by the evaluation committee. No evaluation committees were appointed to evaluate quotations e.g. Quotation no. KRA/HQS/501/2007-2008

Noted and will comply for quotations above Kshs. 500,000

8. Coordinate the evaluation of tenders, quotations and proposals. (Regulation 8.3h)

No evidence that this is being done, as the team was not provided with a comprehensive procurement file for any transaction requested. This can be improved.

In every evaluation committee, there is always a procurement officer whose role among others includes the coordination of the evaluation exercise. In the course of their work, procurement officers coordinate all processes for purposes of preparing proposals for approval by the relevant committees. The preparation of the proposals for award by the relevant committees is evidence of coordination.

9. Recommend a negotiating team for appointment by the Accounting Officer where negotiations are allowed by the Act and these Regulations and participate in negotiations. (Regulation 8.3i)

The team was not provided with any negotiation report.

No negotiations were carried out during the period under review.

10. Prepare and publish notices of award and notices of tender acceptance. (Regulation 8.3j)

This is being done by CEO for notification to the winning bidder and the head of procurement for notification to the unsuccessful bidders

No further action.

11. Prepare contract documents, in line with the award decision. (Regulation 8.3k)

Contract documents are prepared at the Board Secretary Office.

During the period under review, draft contracts were prepared by procurement unit and forwarded to the board secretary’s office prior to forwarding to legal services

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department. 12. Prepare and issue rejection and

debriefing letters. (Regulation 8.3.l) This is being done by Procurement Unit. No further action.

13. Prepare contract variations and modifications to documents. (Regulation 8(3)(m) )


No further action

14. Maintain and archiving documents and records of the procurement and disposal activities for the required period. (Regulation 8.3.n).

See No.4 above. Noted.

15. Provide information, as required, for any petition or investigation to debar a tenderers or contractor or any investigation under review procedures. (Regulation 8.3o)

Cooperated with the review team on the exercise appointed by Director General of PPOA.

No further action.

16. Implement the decisions of the procurement, tender and disposal committees including coordinating all activities of these committees. (Regulation 8.3.p)

Done Implementation is done by notifying the supplier and user department and follow up on delivery dates.

17. Act as a secretariat to the tender, procurement and disposal committees. (Regulation 8.3q)

Being done. No further action.

18. Liase with the Authority and other bodies on matters related to procurement and disposal. (Regulation 8.3r)

Done, there is continuous liaison No further action.

19. Monitor contract management by user departments to ensure implementation of contracts in accordance with the terms and conditions of the contracts. (Regulation 8.3t)

Once the contracts have been signed, the Procurement Unit could not ascertain the status/ progress of the implementation

Contract management was being carried out for stock items. Informal management of services and non-stock items was being undertaken, However, efforts are underway to formalise the latter.

20. Report any significant departures from the terms and conditions of the contract to the head of the procuring entity. (Regulation 8.3u)

Undertaken. No further action.

21. Prepare and submit to the Authority reports required under the Act, these Regulations and guidelines of the Authority. (Regulation 8.3s)

Being done on quarterly basis for contract awards as required. But for other reporting requirements, not being reported within 14 days as required by the law

Noted and is now being complied with.

22. Advise the procuring entity on aggregation of procurement to promote economies of scale (Regulations 8.3x).

There are numerous quotations and direct procurements yet there is no annual procurement plan with aggregated items

User departments were advised accordingly but there were challenges arising out of funding constraints which translated to departments splitting requisitions.

23. Co-ordinate internal monitoring and evaluation of the supply chain function. (Regulation 8.3y)


No further action

24. Carry out periodic market surveys to inform the placing of orders or adjudication by the relevant award committee. (Regulation 8.3z)

No evidence that this is being done by PU.

No market survey was carried out but competitive bidding was undertaken through use of open tender and floating of quotations.

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But that not withstanding there are challenges of funding if an effective market survey has to be undertaken.

25. Conduct periodic and annual stocktaking. (Regulation.8.3aa)


No further action

26. Certify the invoices and payment vouchers to suppliers. (Regulation 8.3bb)


No further action

27. Approve extension of the tender validity period. (Regulation 8.3cc)


No further action

28. Verify that the available stock levels warrant initiating a procurement process. (Regulation 8.3ee)


No further action

Recommendations:

The Commissioner General should ensure that the KRA continues to engage procurement professionals in their procurement units with adequate knowledge, skills and leadership capacity that meet the requirements of strategic procurement tasks in the KRA.

The procurement unit should improve its record management in accordance with PPDA section 45.

The procurement function in the Kenya Revenue Authority is both a high risk and strategic function. The unit should be strengthened and provided with adequate tools and skills to enable it adopt strategic procurement methods including framework contracts that will increase value for money procurements.

The unit should put in place a procurement strategic focus on: Optimizing costs; Simplifying transactions; Streamlining the process; Contract management; Compliance with PPDA provisions; and Comprehensive filing systems.

Response:

KRA has engaged Professional Procurement Staff and will continue to do so. A centralised Control Register is maintained. The Procurement Unit has put in place strategies that optimise costs and streamline

the procurement process. Also note that due to the nature of the Authority’s core business procurement is not a high risk activity.

1.13 Consolidated Procurement plans

Finding: During the period of review, the Kenya Revenue Authority did not have a consolidated annual procurement plan duly approved by the management and Board of Directors pursuant to provisions of section 26(3) of the Public Procurement and Disposal Act, 2005. Purchases were not linked to any plan but rather to the

21

availability of funds to undertake the procurement. During the year under review, various user departments prepared and forwarded “procurement plans” to the procurement unit. However, the departmental procurement plans, were not directly linked to any budget line or based on any approved budget. However, it is commendable to note that the procurement unit did commence the process of preparing the annual consolidated procurement plan for FY2008-2009 during the review period. Recommendations: Procuring Entity should implement the comprehensive consolidated

procurement plan that is currently in place to manage all aspects of its procurements including the procurement of professionals/works/goods/ services.

All future procurement requests should be linked to the consolidated procurement plan. The timing of both the procurement department’s activities and the development of document content by others should be derived from this plan.

A master procurement schedule, showing the target dates for procurement-related activities and the actual progress achieved, should be generated to serve as a communication tool for future procurement planning with project managers and subsequent progress tracking.

The procurement plan should be updated as appropriate to meet changing needs and changes in budgetary provisions.

Response Noted.

1.14 Departmental procurement plans

Findings: section 26(3) (a) of the Act stipulates that the heads of departments submit their annual procurement plans to the accounting officer at least thirty days before the close of each financial year as part of the annual budget preparation process. KRA departments did not comply with this provision of the law during the period of review. Recommendation The KRA should ensure that in future all departments prepare their procurement plans in accordance with the Act and regulations. Response

Noted.

1.15 Procurement thresholds

The review team noted that quotations were being floated beyond the stipulated thresholds i.e. 1million for goods and 2million for works. This is contrary to Section

22

26(3) (b) of the Act, which clear states: ‘All procurement shall be undertaken by a procuring entity as per the threshold matrix as set out in the regulations’ Recommendation: KRA should conduct all its procurements as per the recommended thresholds set out in the threshold matrix. All the necessary approvals for particular procurements should be obtained before proceeding with the procurement process. Response The Threshold matrix of the Regulations indicate that minimum expenditure for

advertising national open tender for goods and services is Kshs. 6 million while for works is 3million. This conflicts with the provisions for Requests for Quotations which places the Maximum for quotations as Kshs.1,000,000.00 for goods and works and Kshs.2,000,000.00 for services.

We have raised this issue previously for advice during the various consultative forums but the issue is yet to be addressed.

1.16 Purchase requisitions

Finding: The procurement requests from the user departments have official standard purchasing requisitions as stipulated in the Regulation 22(1). There is evidence that the purchase requests had been approved by the person specified in the First Schedule, prior to the initiation of procurement proceedings (Regulation 22.3-4). However, there are variations between the quantities requested for in the purchase requisitions and the quantities quoted for in the quotation forms. There is no evidence of approvals/authorisation for the varied quantities. Moreover, the review team could not verify the received quantities of the sampled cases, as the delivery notes could not be availed. The requisitions did not relate to any procurement plan and have no estimated realistic value (Regulation 22.2), which could guide the procurement unit and/or MTC on choice of procurement method. The procurement unit did not maintain a central register for procurement requisitions for monitoring. Recommendations All future procurement requests should be linked to a consolidated procurement plan and approved budget. Maintain a central register for procurement requisitions.

Response

All the procurements undertaken during the period under review were committed

against an approved budget. The RPFs and Proposals were approved by relevant person(s).

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1.17 Advertisement of bids

Findings: Advertising requirements were as per the provisions of the Act. However, advertisement notices were not filed in the individual procurement files. Response Noted.

1.18 Pre-qualification

Finding: During the period of review, KRA did not publish invitations to candidates to submit applications to be pre-qualified for specialized, complex tenders for works and services. (Regulation 23) Recommendation: This requirement should be implemented to encourage the use of the pre-qualification procedure for suppliers of specialised works, goods, and professional services whenever possible and appropriate. Response

The Authority used Open Tendering procurement of Specialised Works, Goods and

Services and therefore did not need to pre-qualify bidders.

1.19 Registration of Suppliers

Finding: There exists a list of registered suppliers for use for solicitation of RFQ and LVP bids, which was generated from applications and introductory letters received by the PE. The review team also noted that the list did not cover all the categories of goods and services frequently procured by the KRA. The regulations allow KRA to either establish its own list or use lists established by other procuring entities. Recommendation: The procurement unit should improve their systems to shorten the procurement process, have a list of pre-qualified suppliers available for quick response times, reduce costs, and achieve value for money. Response: A Pre-qualification of suppliers has been undertaken for the period July 2009 to

June 2011. Scope for reduction in lead times is subject to the requirements by the legislation.

1.20 Splitting of Orders Findings: External auditor’s report indicate split of orders through direct procurements amounting to up to 38,933,365.60. and the PE has addressed the anomalies.

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Recommendation: - The procurement entity’s attention is drawn to the provisions of Section 30 of the Act relating to splitting of procurements. There is also need for the entity to aggregate the user requirements, engage in a tendering method that achieves value for money, and avoid repetitive purchase of same items Response: All Audit queries have been responded to. Aggregation is being done on a continuous basis.

1.21 Retrospective Approval Retrospective approvals of procurement awards were noted e.g. in procurement of catering services in Times Tower caterers (it is a direct procurement without reference number). The approvals were sought after award of the contract. Recommendation: Retrospective approvals of contract awards are not provided for in the procurement law and therefore the entity should stick to the provisions of the law Response:

Noted.

1.22 Termination of Procurement Proceedings

Finding: Termination of procurement proceedings were done without regard to the provisions of the law e.g. in the case of procurement of a luxury bus and procurement of steel stamps. The procurement proceedings were terminated, bidders we never notified of the termination and the termination was never reported to the Authority as required under section 36 of the Act. Recommendation: The user departments should improve the quality of information on definition of scope, technical information, cost estimation and detailed requirements being forwarded to procurement unit. Accurate procurement data input will save time for the procurement units and will ensure that bidders have sufficient information to bid hence avoid unnecessary termination of procurement proceedings. Recommendation 2: The KRA should report to PPOA of terminated procurement proceedings as required by law and in the required format. The procurement unit should keep comprehensive records of the terminated proceedings Response

The Tenders for the Luxury Bus was Re-advertised following the revision of

specifications and all bidders were notified. The requirement for the Steel Stamps is under review and it was anticipated that

the tender would be re-advertised.

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1.23 Records Management

Findings: In all procurements, access to information is critical to the many users and stakeholders in the systems. Systems in place do not facilitate to collect and collate comprehensive documentation and data related to particular procurement activities and to report regularly and reliably any information required by various users including PPOA. The system of filing and record keeping is fragmented and scattered amongst various departments of the KRA. This hampers document location, retrieval, and traceability. There was no single comprehensive procurement file for each procurement activity selected for sampling. A lot of data and information needed for verification purposes could not be accessed and therefore the accuracy of information was highly compromised.

Recommendation: The KRA should upgrade the record keeping in line with the requirements of section 45 of the Public Procurement and Disposal Act and Regulation 34(3) requiring Procuring Entities to maintain comprehensive file for each procurement activity.

Response:

Procurement Unit has maintained all records on procurements undertaken during

the period under review in subject files. Efforts are underway to have individual files opened for each transaction.

1.24 Methods of procurement

Finding: Even though the Act provides for open tender as the most preferred method of procurement, this was not reflected in the information provided Summary of KRA Procurements 2007/2008 FY

Headquarters Procurement Method No of Procurements Value

Open National Tender 12 375,477,786.83 International Tenders 4 392,744,739.65 Request for quotation 552 580,801,320.58 Direct Procurements 244 473,666,089.89 Low Value Procurements 287 5,003,207.80 Total KRA 1,099 1,827,693,144.75 Open National Tender 1. Goods 6 144,679,628.81 2. Services 6 230,798,158.02 3. Works 0 0 Total Open National Tender 12 375,477,786.83 Open International Tender 1. Goods 3 178,866,099.65

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2. Services 1 213,878,640.00 3. Works Total Open International Tender 4 392,744,739.65 Request for quotations 1. Goods 360 229,269,766.00 2. Services 168 298,747,714.71 3. Works 24 52,783,839.87 Total Request for quotations 552 580,801,320.58 Direct Procurements 1. Goods 65 202,335,749.92 2. Services 176 271,119,809.97 3. Works 1 210,530.00 Total Direct Procurements 242 473,666,089.89 Low Value Procurements 1. Goods 196 3,374,060.88 2. Services 91 1,629,146.92 3. Works 0 0.00 Total Direct Procurements 287 5,003,207.80

N/B: Data based on information provided at the time of review

1.25 Direct procurement Findings: Direct procurements are not referenced in any way making it difficult to track particular transactions i.e. there are no numbers for particular transactions. This coupled with repetitiveness of the data provided makes it difficult to separate transactions. The direct procurements above Kshs.500, 000 were not reported to the authority within 14 days as required by the provisions of the law.

No of Procurements

1%

51%

0%22%

26% Open National TenderRequest for quotationInternational TendersDirect ProcurementsLow Value Procurements

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In the Kenya National Audit Office report, a tender that was awarded to De La Rue Security Print, but the order was made to Madras security printer of India. The reasons being that the licence stickers were needed immediately and De La Rue could not supply immediately so the order was made to madras. No evidence of relevant approvals was provided to the review team Recommendation: - Develop a reference system to track all direct procurements preferably by use of a register for easy of reference and control. Submit reports of all direct procurements whose values exceed Kshs.500, 000 pursuant to Sec. 62(3) of the Regulations and subsequent PPOA circular Ref. No.3/2008 of 26th August 2008 Response: The Authority has reviewed its referencing system to track all Direct

Procurements. Noted. Further, as relates to the procurement of licence stickers from Madras, the

relevant approval is available.

1.26 Request for Quotations Findings: Quotations are being floated beyond the recommended thresholds e.g. the following quotations

Quotation Number Item Description Amount KRA/HQS/018/2007-2008 Opening of windows in the Banking Hall Times

Tower 4,372,000.00 KRA/HQS/523/2007-2008 Hiring Of Space For Indoor Digital Advertising To

Promote Turn Over Tax 2,122,280.00

Quotation are evaluated and awarded without evaluation committee e.g. KRA/HQS/217/2007-2008 Recommendation: There is need for the entity to adhere to the provisions of Section 88-89 of the Act read together with Regulations 59-61 of the subsequent Regulations when handling procurements under the Request for Quotations threshold. The entity should conduct all its procurements as per the recommended thresholds set out in the threshold matrix. Response: See 4.6(Procurement thresholds) and 4.14(Publication of contract awards) above.

1.27 Low Value Procurement Findings: LVP are conducted and procured based on the requisitions without approvals from the relevant body i.e. procurement committee. This is in contravention

28

of Regulation 63. Most LVP were for stationeries that could be consolidated in a procurement plan and tendered for as annual tender or through framework arrangement. Recommendation: The entity should adhere to the provisions of Sections 90 of the Act together with Section 63 of the regulations when dealing with low value procurements. The entity should consolidate the LVP in a procurement plan and tender for as annual tender or through framework arrangements Response: Noted and will comply. However, the Matrix in the Regulations 2006 indicates that

Low Value items should be procured upon the approval of the head of the User Department. This contradicts the above stated requirement.

1.28 Use of term contracts

Findings: The Authority uses framework contracts mainly in maintenance contract. Recommendation: - KRA should strive to use term contracts for procurement of their common user items Response: The Authority has been using term/framework items such as Milk, Sugar,

Newspapers and Airtime in addition to Maintenance contracts.

1.29 Procurement manual

Finding: The KRA has developed a manual (Pursuant to PPDA 2005 section 9(c) (i), and Regulation 30) of procurement policies and procedures that sets out the procurement policies, procedures, instructions, and regulations that KRA employees must adhere to in matters relating to procurement. The purpose of the manual is to draw together the key policy principles and procedures to be followed by those who are responsible for managing or delivering major road construction projects (either in one of the specific Client roles or in providing Client support and advice). Recommendation: The KRA should develop a comprehensive procurement procedures manual for the personnel involved in procurement process. Such manuals are meant to strengthen financial and oversight management procedures that should be observed at various levels of procurement management. They would also ensure linkages between procurement procedures with the act and regulations and the financial functions. The Manual should aim:

29

To disseminate good practice in public sector procurement, including guidance on roles and responsibilities, procurement strategies and the appointments process, health and safety, design quality and sustainability;

To deliver value for money (VFM) and sound financial management; and To achieve compliance with procurement law, regulations and PPOA Directives.

Response: The Authority has been using the Procurement and Disposal Manual developed for

ISO Certification. A Users Manual shall be developed during year 2009/2010.

1.30 Disposal of stores

Finding: There was only one disposal activity during the period under review. The disposal was not completed during the period of review. Recommendation: The Disposal committee to develop an annual disposal plan for obsolete and surplus equipment and stores. Response: The Disposal was started in 2007-2008 and completed in 2008-2009 financial year. The Authority shall develop a Disposal Plan for year 2009/2010.

1.31 Contract management

Findings: There was no procurement file(s) opened for signed contracts and the procurement unit was not aware of the progress made in the implementation of the signed contracts.

Recommendation: Procurement unit and user departments should organise periodic operation

meetings, involving project management and procurement staff. This will enable procurement department to update their schedules and documentation.

There is an urgent need to strengthen contract management functions that involve various departments

Response: User departments do management of contracts and any significant departures are

reported to the Procurement Unit. The Procurement unit also has periodic meetings with the various project teams. Regular Divisional and Departmental meetings are also carried out and the status of contracts is discussed.

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1.32 PROCUREMENT SPEND DATA

Spend analysis for Departments

DEPARTMENT AMOUNT ADM 208,351,887.22

BS 199,557.60 CSD 161,857,276.62 DTD 482,350,007.10 FIN 1,615,200.00 HQS 244,229,557.70 HR 36,488,780.80 I&E 2,429,276.00 ICT 145,751,331.20

IN & EN 49,903.20 LTO 66,262.00

M & C 2,329,616.00 MC 5,110,800.35 N/A 61,929,894.94 NR 234,518.00 OPP 6,380.00 PR 1,168,940.00 PSS 15,548,723.72 QMP 3,380,000.00 RTD 16,526,511.40 SR 2,070,054.23

SSD 5,996,561.63 TPS 85,020.00

1,397,776,059.71

Finding: In order to provide an overall reflection of the level of compliance, the team selected a sample of 27 procurement transactions. Procurement spend analysis and spend visibility provides the necessary foundation for procurement unit seeking to make better-informed procurement decisions. This enables the entity to improve strategic sourcing efforts, track contract compliance with regulations, limiting eccentric spend and expand procurement operations and procurement scope

By analysing reports generated from expenditure data, stakeholders within and outside the KRA can discover what the KRA is procuring, who they are procuring from (and at what cost), how frequently they are procuring and which category of works, goods or services are being procured.

Recommendation: The Procurement Unit should institute a central control register for the purchase requisitions initiated from various departments.

Response: Noted.

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1.33 Procurement Complaints

Finding: The KRA had one case that was lodged with the Public Procurement Administrative Review Board. The team was not provided with documentations of the status of implementation of the Boards’ rulings.

Recommendation: Procurement unit should develop comprehensive filing systems for cases with complaints. These should be monitored to determine the causes of the complaints and progress in the implementation of the Boards’ rulings.

Response

There was only one case with the Public Procurement Administrative Review

Board during the period and the documents pertaining to the case were presented. The ruling was that the tender be re-advertised which was done.

KRA Regional Offices 1.34 Southern Region

Stock outs

Finding: The KRA procures items of general stationery centrally and requires the regions to collect their requirements from the central stores monthly. The region often finds these items are not sufficient for their needs thus resulting in stock outs. These are remedied by the use of low value procurement to satisfy the demand e.g. on 17th February, 2009 when Photocopying papers worth Ksh.29, 754.00 were purchased from Murtaza Enterprises using LPO No.A047922.

Recommendation: The regions should also adhere to their procurement plans to assist in control of stock levels and use of framework contracts for common user items. Response Noted.

Procurement Procedures

Finding: The KRA region did not forward quarterly reports of their direct procurements and low value procurements to the procurement committee and the tender committee in accordance to Section 74 of the Act and Sections 62 and 63 of the Regulations. Recommendation: The region should adhere to the provisions of Sections 90 of the Act together with Section 63 of the regulations when dealing with low value procurements and Section 74 of the Act together with Sections 62 of the Regulations when dealing with direct procurements. The region should consolidate the LVP in a procurement plan and tender for as annual tender or through framework arrangements

32

Response Noted.

Kenya Revenue Training Institute

Finding: The Kenya Revenue Training Institute stores and procurement functions are being manned by persons who are not under the authority of the procurement officer southern region. They report to the administrator of the institute and the Principal Procurement Officer Southern Region has no authority over them. Recommendation: KRA should consider harmonising the reporting structure at their southern region offices to facilitate procurement and disposal activities. Response At present, the Institute is served by the Regional Headquarters’ Procurement Unit.

There are no procurement activities being undertaken at the institute. A Procurement Officer goes to the institute to oversee deliveries.

The Institute is supposed to raise requisitions, which are then processed at the Regional HQS. They are also supposed to indicate the suitability of items delivered for purposes of the Inspection and Acceptance Committee.

Methods of procurement Finding: Even though the Act provides for open tender as the most preferred method of procurement, this was not reflected from the information provided this was due to the fact that the region only handled procurements of below Kshs.500, 000 with the rest being handled by the tender committee in Nairobi.

Summary of KRA Procurements 2007/2008 FY - Southern Region

Procurement Method No of Procurements Value

Request for quotation 351 30,909,446.57 Direct Procurements 105 14,907,774.23 Low Value Procurements 1,144 14,627,242.21 Total KRA Southern Region 1,600 60,444,463.01 Request for quotations 1. Goods 329 26,691,496.37 2. Services 10 2,450,322.20 3. Works 12 1,767,628.00 Total Request for quotations 351 30,909,446.57 Direct Procurements 1. Goods 77 12,491,008.08 2. Services 24 1,891,062.92 3. Works 4 525,703.23

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Total Direct Procurements 105 14,907,774.23 Low Value Procurements 1. Goods 652 8,808,950.49 2. Services 492 5,818,291.72 3. Works 0 0.00 Total Direct Procurements 1,144 14,627,242.21

N/B: Data based on information provided at the time of review

No. of Procurements

22%

71%

7%

Request for quotationLow Value ProcurementsDirect Procurements

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SPECIFIC FINDINGS 1.35 Specific Findings HQ

TENDER METHOD

FINDINGS DDD DD D SP

KRA/HQS/016/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No Delivery notes availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X

KRA/HQS/018/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No technical evaluation report availed No Inspection and Acceptance Certificates availed No Delivery notes availed No Invoice availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X X X

KRA/HQS/120/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No LPO’s availed No documents availed

X X X

X

X

KRA/HQS/135/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Invoice availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

KRA/HQS/206/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed

X X

35

No procurement file No Inspection and Acceptance Certificates availed No counter receipt voucher (S13) availed No Payment documents availed

X X X X

KRA/HQS/217/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No Delivery notes availed No Invoice availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X X

KRA/HQS/308/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No Delivery notes availed No Invoice availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X X

KRA/HQS/422/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No Invoice availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X

KRA/HQS/501/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X

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KRA/HQS/502/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No Delivery notes availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X

KRA/HQS/505/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X

KRA/HQS/508/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No Invoice availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X

KRA/HQS/509/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No LPO’s availed for some winners No Inspection and Acceptance Certificates availed No Delivery notes availed for some winners No Invoice availed some winners No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X X X

KRA/HQS/520/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No Inspection and Acceptance Certificates availed No Delivery notes availed

X X X

X X

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No Invoice availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

KRA/HQS/523/2007-2008

RFQ No Procurement Plan availed Information on budget allocation not availed No procurement file No technical evaluation report availed No Inspection and Acceptance Certificates availed No Delivery notes availed No Invoice availed No counter receipt voucher (S13) availed No Payment documents availed

X X X

X X X X X X

KRA/HQS/003/2007-2008

ONT No Procurement Plan availed Information on budget allocation not availed No procurement file No notification letters availed No performance bond availed No Inspection and Acceptance Certificates availed No Invoice availed No Payment documents availed

X X X

X X X X X

KRA/HQS/006/2007-2008

ONT No Procurement Plan availed Information on budget allocation not availed No procurement file No LPO’s availed No documents availed

X X X

X

X

KRA/HQS/008/2007-2008

ONT No Procurement Plan availed Information on budget allocation not availed No procurement file No LPO’s availed No documents availed

X X X

X

X

No Number (Supply and delivery of computer

DP No procurement plan Information on budget allocation not availed No procurement file No LPO’s availed

X X X

X

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consumables for Kshs. 7,752,174.00)

No documents availed X

No Number (Supply and delivery of computer consumables for Kshs. 7,752,294.00)

DP No procurement plan Information on budget allocation not availed No procurement file No LPO’s availed No documents availed

X X X

X

X

No Number (Supply and delivery of 387,741 packets (1/2 litre) of fresh milk for Kshs. 8,143,191.00)


X X X

X

X

No Number (Supply and delivery of computer consumables for Kshs. 12,202,800.00)


X X X

X

X

No Number (Provision of recruitment services for Senior Deputy Commissioner - Human Resources for Kshs. 1,492,920.00)


X X X

X

X

No Number DP No procurement plan X

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(Repair and maintenance of photocopiers & fax machines for financial year 2007/2008 for Kshs. 2,161,497.60)

Information on budget allocation not availed No procurement file No LPO’s availed No documents availed

X X

X

X

No Number (Provision of additional Lotus Note licenses for Kshs. 14,259,380.00)


X X X

X

X

No Number (Provision of consultancy services on the implementation of integrated tax management system for Kshs. 15,313,848.00)


X X X

X

X

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ACTION PLAN

Tasks Lead Accountable

Timeline PPOA Review Date

Prepare and implement a comprehensive consolidated annual procurement plan to better manage all aspects of its procurements including the procurement of professional / works / goods / other services.

Commissioner General

DC-P&SS

The procurement plans for the year 2008/09 and 2009/10 were prepared and copies are attached hereto and marked as 1 and 2

Immediate

Develop operations manual outlining schedules of responsibilities and authorisation levels for procurement documents

DC-P&SS 1 year Dec 2010

Submit all reports for procurements in time to PPOA as required by the PPDA and associated directives.

DC-P&SS This has been done for awards. A detailed report on terminations is under preparation

March 2010

Adhere to the threshold matrix DC-P&SS This has been effected as from December 2010

March 2010

Ensure all tenders have reference numbers

DC-P&SS This has been done

Immediate

Ensure evaluation committees are appointed at all times including in the evaluation of quotations within the threshold of the tender committee

DC-P&SS This has been done. Evaluation committees for all transactions above Kshs. 500,000 have been appointed for the current financial year (2009/2010)

June 2010

Ensure approval for use of low value procurement method is obtained as required by the law

DC-P&SS A proposal for all low items will be presented to the procurement committee in January, 2010

June 2010

Ensure all bidders are notified in case of termination of procurement proceedings

DC-P&SS This is to be effected as from January 2010

March 2010

Open and maintain an individual file for each procurement activity.

DC-P&SS This has been done

March 2010

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Tasks Lead Accountable

Timeline PPOA Review Date

Each file to be complete with all key documents for entire procurement cycle. Documents in each file to be correctly organized to reflect correct sequence of transactions. File scheme revised to provide linkage between procurement files and accounts documents. Procurement unit to be updated and involved in monitoring implementation of contracts.

DC-P&SS This is a challenge given our current establishment. However, arrangements are being made to comply

June 2010

A records management procedures and policy manual prepared.

DC-P&SS This is under preparation

June 2010

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CONCLUSION

The procurement law is established to ensure that in the acquisition of works, goods and services, the following objectives are met; maximize economy and efficiency; promote competition and ensure that competitors are treated fairly; promote integrity and fairness of procurement procedures; increase transparency and accountability in procurement procedures; increase public confidence in procurement procedures; and facilitate promotion of local industry and economic development. We started our review against the background of other comparable past reviews. These include internal audit reports, Kenya National Audit Office reports and ISO certification report. We found that the KRA has not adequately addressed recommendations of the previous reviews. We have included a follow-up phase in our recommendations to ensure that the corrective measures are implemented in order to improve compliance, efficiency, and effectiveness in procurement management. We have assessed whether the procurement-related functions comply with the Public Procurement and Disposal Act 2005, Public Procurement and Disposal Regulations 2006, directives of Public Procurement Oversight Authority and generally accepted good practices. We have identified deviations in general and specific areas of procurement stages and attached ratings to them. The policies that describe how the KRA conducts procurement and contracting for works, goods and services are lacking. There is sufficient evidence that the provisions of the Act and regulations have not been adequately implemented in the KRA. There is no documented evidence that the KRA has discovered and remedied any lapses in compliance. In the selected cases, we concluded that the KRA compliance level is relatively low in major areas of the Act and regulations. We urge the management to demonstrate greater commitment to follow the Act in their operations. It is important for KRA to embrace the Act by preparing an organization-wide compliance program. The office of the internal auditor, on its mandate to verify, examine and determine that individual transactions comply with the objectives and provisions of the Act and regulations, has clearly pointed out in their various reports the deviations in the implementation of the law. Irrespective of the observations pointed out by the internal audit office, there is no improvement in the procurement operations of KRA. The major challenge in the KRA is in the areas of record keeping, data and documentation controls and contract management. Retrieving records for review purposes was difficult and, time consuming. Some records pertaining to execution of the procurement process were incomplete, limiting the review scope. The area needs an urgent attention of the Accounting Officer, since poor record keeping compromises validity, authenticity, quality and reliability of the information coming from the entity. The Procurement Unit should keep in regular touch with PPOA, seek their guidance on matters of doubt, and if possible get directives from them in writing in matters arising whose areas where documents or policies are yet to be developed. While PPOA are tasked with measuring and enforcing compliance, KRA needs to reduce risk and ensure that all departments implement the regulations. An effective compliance program can make the KRA effective and efficient in reducing the risk of internal and external threats, while at the same time providing proof of compliance demanded by PPOA across multiple compliance initiatives. There are adverse risks from non-compliance with procurement law and

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regulations, which can have far reaching consequences to KRA like fraud, corruption, mis-procurement collusion and financial loss. An active compliance program enables the organization to accurately detect the violations, to take the appropriate action (even blocking the payment from being made), and to quickly find and review the violation in order to address the situation, preventing further damage or loss.

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APPENDIX 1.36 Entry meeting

In attendance:

No. Name Position

Organization 1 Mr J. Njiraini Commissioner DTD - LTO KRA

2 Mrs W. Namu Commissioner Customs Services KRA

3 Mr S. Ole Kirgotty Commissioner Motor Vehicles

KRA

4 Mr. J. Karanja Representing Commissioner Investigations & Enforcement

KRA

5 Mrs L. Malinda SDC - Human Resources KRA

6 Mr E. Saina SDC - ICT KRA

7 Ms K. Nginda DC - Research & Corporate Planning

KRA

8 Grace N. Murichu DC - Procurement & Supplies KRA

9 Mr D. Oganga SAC - Procurement & Supplies

KRA

10 Mrs. M. Wamalwa SAC - Procurement. KRA

11 Maurice Juma Ag. Interim Director General PPOA

12 Peter Ndungu Ag. Deputy Manager, Compliance PPOA

13 Michael Obuya Compliance Officer, Compliance PPOA

14 Isaac Kigen Compliance Officer, Policy & Research PPOA

15 Stanley Miheso Compliance Officer, Compliance PPOA

Purpose The purpose of the meeting was to introduce the PPOA review team to Kenya Revenue Authority management. The meeting’s objective was also to inform KRA management the purpose of carrying out the review that is to establish the status of KRA’s procurement contracting, and implementation processes and systems, in order to determine the level of compliance with the new procurement law, regulations, circulars, and directives issued by the Public Procurement Oversight Authority. Matters Arising Maurice Juma, Ag.Interim Director General, PPOA took the team through an introduction of the entire review Program. Mr Juma reported that Reviews at KRA

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would be the responsibility of PPOA staff; therefore, the purpose of the meeting was to kick-start the review process. Mr Juma stressed the importance of the review so that procurement system in Kenya can be improved. Mr Peter Ndungu, Ag. Deputy Manager, Compliance Department of PPOA took the team through the process that was to be used to carry out the review. The review was meant to assist Procuring Entities improve on their procurement procedures which should be carried out according to the Act & Regulations. Ndungu reported that after the review, PPOA would prepare a draft report, which would then be forwarded to KRA management. The review would look at the mandate of KRA, structures, committees, procurement plans and whether they are linked to the budgets, record keeping, minutes of Tender Committee meetings amongst others. Mr. Ndungu requested KRA to have all documentation ready before the review team reports in March 2008. Mr. Ndungu reported that the review team would use the PPDA and the related regulations as the reference point and the review would focus on the period covering the FY2007-2008. It shall include procurements of services, goods, and works. Ndungu went further to elaborate on the rating criteria to be used. He estimated that the time needed to carry out this intensive review would be 25 days, which would also be determined by the availability of the documents. Mr. Ndungu also requested KRA to provide appropriate workstation for the review team.

1.37 Tender Committee members

Name Designation Mr. J. K. Njiriani Commissioner Domestic Taxes – Large

Taxpayers Office Chairman

Mrs. E. N. Kin’ori Senior Deputy Commissioner - Finance Vice Chairman Mr. Ezekiel K. Saina Senior Deputy Commissioner – Information &

Communication Technology Member

Mrs. Wambui Namu Commissioner Customs Services Member Mr. Fidelis Mulei Commissioner Domestic Taxes – Domestic

Revenue Member

Mr. Simeon Kirgotty Registrar of Motor Vehicles Member Mrs. L. M. Malinda Senior Deputy Commissioner – Human

Resources Member

Ms. W. G. Ng’ang’a Senior Deputy Commissioner – Board, Corporate Services & Administration

Member

Mr. Kennedy Onyonyi Ag. Senior Deputy Commissioner – Marketing and Communication

Member

Ms. G. N. Murichu Deputy Commissioner – Procurement & Supplies Services

Secretary

1.38 Procurement Committee

1.38.1 Nairobi

Name Designation Ms. Alice Senior Deputy Commissioner – Domestic Tax

Department Chairman

Mr. Peter Nguru Ag. Senior Deputy Commissioner – Road Transport Department

Member

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Mr. S. Analo Deputy Commissioner - Human Resource Member Mrs. Ruth Wachira Deputy Commissioner – Post Clearance Audit –

Customs services Department Member

Ms. Jacqueline Musyoka Deputy Commissioner - Finance Member Mrs. Teresia Gachee Assistant Commissioner - Procurement Secretary

1.38.2 Western Region

Name Designation Mr. Kuria Wagachira Senior Deputy Commissioner Chairman Mr. G. Omao Assistant Commissioner – Domestic Tax

Department Member

Mr. P. K. Mwangi Ag. Assistant Commissioner - Finance Member Mrs. E. Opondi Principal Revenue Officer – Customs services

Department Member

Mrs. Nancy Rono Revenue Officer I – Road Transport Department

Member

Mr. Ruben Kiprono Procurement Officer I Secretary

1.38.3 Southern Region

Name Designation Ms. Beatrice Memo Senior Deputy Commissioner Chairman Mr. A. Limungi Senior Assistant Commissioner – Finance Member Mr. D. Ngugi Senior Assistant Commissioner - Domestic

Tax Department Member

Ms. M. Muhoro Senior Assistant Commissioner - Roads Transport Department

Member

Ms. Sarah Mopel Principal Procurement Officer Secretary

1.38.4 Rift Valley Region

Name Designation Ms. Helen Bila Senior Deputy Commissioner Chairman Mr. Francis Muiruri Senior Assistant Commissioner – Domestic Tax

Department Member

Mr. Simon Luseno Senior Assistant Commissioner - Investigation & Enforcement

Member

Mrs. Violet Jembe Assistant Commissioner – Domestic Tax Department

Member

Mr. Samuel Msomerei Senior Accountant Member Mr. Nesphat Gitonga Procurement Officer I Secretary

1.39 Inspection and Acceptance Committee

1.39.1 Nairobi

Name Designation Mr. Nick Wanbugu Senior Assistant Commissioner - ICT Chairman Mr. Samuel Limo Senior Assistant Commissioner – Lab Member Mr. Daniel Ogola Senior Assistant Commissioner – Property Member Mr. Francis Rangara Senior Assistant Commissioner – Transport Member Mr. Patrick Wanuki Assistant Commissioner - Procurement Secretary

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1.39.2 Western Region

Name Designation Mr. Hantone Olero Assistant Commissioner Chairman Mr. Churchill Otieno Principal Property Officer Member Mr. Dancun Mwangoria Principal Revenue Officer Member Mr. Ruben Kiprono Procurement Officer I Secretary

1.39.3 Southern Region

Name Designation Mrs. Salma Bashir Ag. Senior Assistant Commissioner Chairman Mrs. Beatrice Sapuro Senior Human Resource Officer Member Mr. Simon Mwaniki Property Officer Member Mr. Daniel Ogola Senior Assistant Commissioner - Property Member Ms. Sarah Mopel Principal Procurement Officer Secretary

1.39.4 Rift Valley Region

Name Designation Mr. Eliud Khaemba Senior Deputy Commissioner - Domestic Tax

Department Chairman

Mr. Frederick Osamba Assistant Commissioner – Investigation & Enforcement

Member

Mr. Peter Nalyanya Assistant Commissioner - Domestic Tax Department

Member

Ms. Jane Murunga Assistant Commissioner – Domestic Tax Department

Member

Mr. Nesphat Gitonga Procurement Officer Secretary

1.40 Disposal Committee members

Name Designation Mr. F. Mulei Commissioner of Domestic Tax Department –

Domestic Revenue Chairman

Ms. W. G. Ng’ang’a Senior Deputy Commissioner – Board, Corporate Services & Administration

Member

Mr. Kennedy Onyonyi Ag. Senior Deputy Commissioner – Marketing and Communications

Member

Mr. J. W. Karimi Deputy Commissioner - Administration Member Mr. Derrick Kimathi Senior Assistant Commissioner – Transport Member Mr. Francis Rangara Senior Assistant Commissioner – Facility Member Mr. Robert Inagira Senior Accountant (Road Transport

Department) Member

Mr. Daniel Ogola Senior Assistant Commissioner – Property Member Mr. J Oduong Assistant Commissioner – Road Transport

Department Member

Ms. Grace Murichu Deputy Commissioner – Procurement and Supplies

Secretary

Mr. Daniel Oganga Senior Assistant Commissioner – Procurement and Supplies (Projects)

Taking notes