REPUBLIC OF KENYA

OFFICE OF THE AUDITOR-GENERAL

ITOR-GENERAL

ON

THE FINANCIAL STATEMENTS OFNATIONAL URBAN TRANSPORT

IMPROVEMENT PROJECT CR. NO. IDA 5140-KE(KRC COMPONENT)

FOR THE YEAR E30 JUNE 2

KENYA RAILWAYS COR I

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KENYA RAILWAYS

NATIONAL URBAN TRANSPORT IMPROVEMENT PROJECT (NUTRIP)

KENYA RAILWAYS CORPORATION

PROJECT GRANT/CREDIT NUMBER: IDA 5140 -KE

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDEDJUNE 30, 2018

Prepared in accordance with the Cash Basis of Accounting Method under the InternationalPublic Sector Accounting Standards (IPSAS)

Natlonal Urban Improvement Project (NUTRIP)Reports and Financial StatementsFor the financial year ended June 30, 2018

CONTENTS PAGE

1. PROJECT INFORMATION AND OVERALL PERFORMANCEROR

2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES................................................................ viii3. REPORT OF THE INDEPENDENT AUDITORS ON THE NUTRIP PROJECT.................................................... ix4. STATEMENT OF RECEIPTS AND PAYMENTS FOR THE PERIOD ENDED 30TH JUNE 2018.......................6. STATEMENT OF CASHFLOW FOR THE PERIOD 30TH JUNE 2018 ................................................................ 37. STATEMENT OF COMPARATIVE BUDGET AND ACTUAL AMOUNTS...................MOU..............................48. NOTES TO THE FINANCIAL STATEMENTS

9. OTHER IMPORTANT DISCLOSURESCLOSURES.........-..-.-..........-.-...--..---.-.---........ ... .........15. ........... 1510. PROGRESS ON FOLLOW UP OF AUDITOR RECOMMENDATIONS..........................................................16

National Urban Improvement Project (NUTRIP)Reports and Financial StatementsFor the financial year ended June 30, 2018

1. PROJECT INFORMATION AND OVERALL PERFORMANCE

1.1 Name and registered office

Name: The project's official name is National Urban Transport Improvement Project.

Objective: The key objective of the project is,a. Improve the efficiency of the road transport along northern corridor

b. Improve the institutional capacity and arrangements in urban transport sub-sector

c. Promote public sector participation in the operation, financing and management of

transport system

Address: The project headquarters offices are in Nairobi, Nairobi County, Kenya.

The address of its registered office is:

Kenya Railways HeadquartersLR No. 209/11954/2Haile Selassie Avenue/Workshop Road

P. O. BOX 30121-00100

Contacts:TTh1following are theproject-contacts-

Telephone: (254) 020-2221211Website: www.krc.co.ke

1.2 Project Information

Project Start Date: The project start date is 26.12.2012

Project End Date: The project end date is 31.12.2018

Project Manager: The project manager is Eng. Mucemi Gakuru

Project Sponsor: The project sponsor is World Bank

National Urban Improvement Project (NUTRIP)Reports-and Financial StatementsFor ,the finan cia ear endled June 30, 2018

1.3 Project Overview

Line Ministry/State The project is under the supervision of the Ministry of Transport and

Department of the Infrastructure, Housing and Urban Development -MoTI-IUD.

project

Proiect number P 126321

Strategic goals of the The strategic goals of the project are as follows:project (i) Improve efficiency of the road transport along northern corridor

(ii) Improve the institutional capacity and arrangements in the urban

transport sub- sector(iii) Promote private sector participation in the operation, financing

and management of transport systems

Achievement of The project management aims to achieve the goals through the following

strategic goals means:(i) Carrying out feasibility studies and detailed designs; and preparing

the necessary bidding documents for construction of selected

commuter rail systems in Nairobi and other major towns through

provision of technical advisory services required for that

purpose.

(ii) Preparing bidding and contract documents for the selection of

private sector operators providing commuter rail operations and

associated services; through provision of advisory services

required for that purpose.

(iii) Supplying and installing information systems (IT) and buildingthe capacity of KRC in IT, management of private sectorinvolvement, planning, management of contracts including forconcessionaires; and other oversight functions; all throughprovision of goods, training and services required for thatpurpose.

Current situation that The project was formed to intervene in the following areas:

the project was (i) Have feasibility and detailed engineering design and studies for

formed to intervene commuter rail in Nairobi, Mombasa and Kisumu cities

(ii) Have technical assistance and advisory services related to theservices of Nairobi, Mombasa and Kisumu Commuter rail.

(iii) Have capacity building by Training of Staff.

Proect duration The project started on 26. 12 .2012 and is expected to run until 31. 12. 2018

National Urban Improvement Project (NUTRIP)Reports and Financial StatementsFor the financial year ended June 30, 2018

1.4 3ankers

The following are the bankers for the current year:i. Special Account:

Commercial Bank of Africa

NUTRIP- Project E-(KRC)-MAIN

ACCOUNT NO. 6968530013

ii. Principal Bankers:

NIC BANK LIMITED

USD A/C NO.1001004057

KSH A/CNO.1001004049

Masaba Road.Branch, Upper hill

P.O. Box 44599, 00100

NAIROBI

1.5 Auditors

The project is audited by the Office of the Auditor General.

Auditor GeneralOffice of the Auditor GeneralAnniversary TowersP.O. Box 30084-00100NAIROBI

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National Urban Iniprovement Project (NUTRIP)Reports. and Financial StatenienisFor the financial year ended June 30, 2018

1.6 Roles and Responsibilities

The team responsible of the project management and coordination functions are as tabulated below:

Names Title designation Key qualification ResponsibilitiesEng.jIlhicemi Gakuru Program BSC (Electrical Eng.) -Overall management

Coordinator PhD(Electrical Eng.) and monitoring of allRegistered Eng. (EBK) projects

-Undertake contractnegotiations-Ensure reports areprepared andsubmitted on time-Liaise with bank onproject activitiesAttend POC and PITLbriefings and meetings- Publication qfawards and reports inWB client connection

Peter Kamakia Finance Management BBM (Finance Option) -Preparation ofExpert -GPA(K)- -project Financial- -

reports, budgets andmonitoring-Ensure timelypayment-Ensure financialaudits are carried out

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National Urban Improvement Project (NUTRIP)Reports and Financial StatementsFor the financial year ended June 30, 2018

1.7 Funding summary

The Project is for duration of six years from 2012 to 2018 with an approved budget of US$11,930,000/- equivalent to KShs 1,071,552,600 as highlighted in the table below:

Below is the funding sumrnary:

(i)_Grant

IDA 11,930,000 1,071,552,600 1,370,708 123,116,993 10,559,292 948,435,607

(ii) Loan

(iii) Counterpart___ funds

Government of

-Kenya

Total 11,930,000 1,071,552,600 1,370,708 123,116,993 10,559,292 948,435,607

1.8 Summary of Overall Project Performance:During the year under review the project received USD 574,531.57/- from World Bank.However, there was expenditure incurred of KShs 52,896,849/-. Interest on funds held isKShs 76,237/-Receipt UtilisationThe Project did not receive any disbursement from World Bank. However, Interest earned onfunds held is KShs 76,237/-Payment UtilisationThe Project paid KShs 52,896,849/- against a budget of KShs 260 million.

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National Urban Improvement Project (NUTRIP)Reports (nd Financial StatementsFor the fin ancial pear ended June 30, 20.18

Challenges Encountered:

Challenges Recommendation/ Way Forward1. Receivihg of Project Funds from We have experiencing challenges of receiving

DA Account. funds and would prefer the same to be expeditedto accelerate absorption of funds.

2. Dispute of Track Recording The process was repeated in FYI 7/18 to fast trackEquipment Procurement Tender the earlier delay. However, it is awaiting review

by the Public Procurement Administrative ReviewBoard after the intention to award was contestedby one of the bidders.

1.9 Summary of Project Compliance:The Program has ensured that all its activities carried out are within the laws of the Republicof Kenya and that all regulations and procedures have been followed. The project financialreporting has also complied with the International Public Sector Accounting Standards ofAccounting (IPSAS) cash basis.

In cases of inconsistency between the GOK Regulations and those of the donors, the latterhave been applied.

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National Urban Improvement Project (NUTRIP)Reports and Financial Statements.For the financial year ended June 30, 2018

2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES

The Ag Managing Director, Kenya Railways and the Project Coordinator for NUTRIP project areresponsible for the preparation and presentation of the Project's financial statements, which give a trueand fair view of the state of affairs of the Project for and as at the end of the financial year (period)ended on June 30, 2018. This responsibility includes: (i) maintaining adequate financial managementarrangement and ensuring that these continue to be effective throughout the reporting period; (ii)maintaining proper accounting records, which disclose with reasonable accuracy at any time thefinancial position of the Project; (iii) designing, implementing and maintaining internal controlsrelevant to the preparation and fair presentation of the financial statement, and ensuring that they arefree from material misstatements, whether due to error or fraud; (iv) safeguarding the assets of theProject; (v) selecting and applying appropriate accounting policies; and (vi) making accountingestimates that are reasonable in the circumstances.

The AgManaging Director, Kenya Railways and the Project Coordinator for NUTRIP project acceptresponsibility for the Project's financial statements, which have been prepared on the Cash BasisMethod of Financial Reporting, using appropriate accounting policies in accordance with InternationalPublic Sector Accountirig Standards.

The Ag.Managing Director, Kenya Railways and the Project Coordinator for NUTRIP project are ofthe opinion that the Project's financial statements give a true and fair view of the state of Project'stransactions during the financial year/period ended-june 30,-2018; and ofthe-Project's financial-position-as at that date. The Ag .Managing Director, Kenya Railways and the Project Coordinator for NUTRIPproject further confirm the completeness of the accounting records maintained for the Project, whichhave been relied upon in the preparation of the Project financial statements as well as the adequacy ofthe systems of internal financial control.

The Ag Managing Director, Kenya Railways and the Project Coordinator for NUTRIP projectconfirm that the Project has complied fully with applicable Government Regulations and the terms ofexternal financing covenants, and that Project funds received during the financial period under auditwere used for the eligible purposes for which they were intended and were properly accounted for.

Approval of the Project financial statements

The Project financial statements were approved by the Ag. Managing Director, Kenya Railways and theProject Coordir o for NUTRIP project on/ 2018 and signed by them.

-nainNic tor IP r prJec_ ____

Ag . anagng irctor Pr jec Coordinator Project Accountant:Philip J. Mainga Dr. Mucemi Gakuru Peter Kamakia

ICPAK Member Number: 9926

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REPUBLIC OF KENYA

Telephone: +254-20-342330 P.O. Box 30084-00100Fax: +254-20-311482E-mail: oag@oagkenya.go.ke NAIROBIWebsite: www.kenao.go.ke

OFFICE OF THE AUDITOR-GENERAL

REPORT OF THE AUDITOR-GENERAL ON NATIONAL URBAN TRANSPORTIMPROVEMENT PROJECT CR. NO. IDA 5140-KE (KRC COMPONENT) FORTHE YEAR ENDED 30 JUNE 2018 - KENYA RAILWAYS CORPORATION

REPORT ON THE FINANCIAL STATEMENTS

Opinion

I have audited the accompanying financial statements of National Urban TransportImprovement Project Credit No. 5140 KRC Component) for the year ended 30 June2018 set out on pages 1 to 18 which comprise the statement of financial assetsand liabilities as at 30 June 2018, and the statement of receipts and payments, thestatement of cash flows and the statement of comparison of budget and actualamount for the year then ended and a summary of significant accounting policiesand other explanatory information in accordance with provisions of Article 229 ofthe Constitution of Kenya, Section 35 of the Public Audit Act, 2015 and Part B (3)of Section II of the Financing Agreements dated 26 September, 2012 between theInternational Development Association (IDA) and the Government of the Republicof Kenya (GoK). I have obtained all the information and explanations which to thebest of my knowledge and belief were necessary for the purpose of the audit.In my opinion, the financial statements present fairly, in all material respects, thefinancial position of National Urban Transport Improvement Project as at 30 June2018 and of its financial performance and its cash flows for the year then ended, inaccordance with International Public Sector Accounting Standards (Cash Basis)and conforms to the Financing Agreements dated 26 September 2012.

In addition, the Special Accounts Statements do represent fairly the specialaccounts transaction and the closing balance has been reconciled with the booksof account.

Basis for Opinion

The audit was conducted in accordance with International Standards of SupremeAudit Institutions (ISSAls). I am independent of National Urban TransportImprovement Project Management in accordance with ISSAI 30 on Code of Ethics.I have fulfilled other ethical responsibilities in accordance with the ISSAI and inaccordance with other ethical requirements applicable to performing audits offinancial statements in Kenya. I believe that the audit evidence I have obtained issufficient and appropriate to provide a basis for my audit opinion. /

Report ofthe Auditor-General on the Financial Statements ofiVational Urban Transport Improvement ProjectCR. No. IDA 5140-KE (KRC Component) for the year ended 30 June 2018- Kenya Railways Corporation

Promoting Accountability in the Public Sector

Key Audit Matters

Key audit matters are those matters that, in my professional judgement, were ofmost significance in the audit of the financial statements. There were no Key AuditMatters to report in the year under review.

REPORT ON COMPLIANCE WITH LAWFULNESS AND EFFECTIVENESS INUSE OF PUBLIC MONEY

As required by Article 229(6) of the Constitution, based on the proceduresperformed, I confirm that, nothing has come to my attention to cause me to believethat public money has not been applied lawfully and in an effective way.

REPORT ON INTERNAL CONTROLS EFFECTIVENESS, GOVERNANCE ANDRISK MANAGEMENT

As required by Section 7(1) (a) of the Public Audit Act, 2015, based on theprocedures performed, I confirm that, nothing has come to my attention to causeme to believe that internal controls, risk management and overall governance werenot effective

Responsibilities of Management and Those Charged with Governance for theFinancial Statements

Management is responsible for the preparation and fair presentation of thesefinancial statements in accordance with International Public Sector AccountingStandards (Cash basis) and for such internal control as management determinesis necessary to enable the preparation of financial statements that are free frommaterial misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing theProject's ability to continue sustaining services, disclosing as applicable, mattersrelated to sustainability of services and using the going concern basis of accountingunless the management either intends to cease operations of the project, or haveno realistic alternative but to do so.

The management is also responsible for the submission of its financial statementsto the Auditor-General in accordance with the provisions of Section 47 of the PublicAudit Act, 2015.

Those charged with governance are responsible for overseeing the Project'sfinancial reporting process.

Auditor-General's Responsibilities for the Audit of the Financial Statements

The audit objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement, whether due to fraudor error, and to issue an auditor's report that includes my opinion in accordancewith the provisions of Section 48 of the Public Audit Act, 2015 and submit the audit

Report of the Auditor-General on the Financial Statements of National Urban Transport ImprovementProject CR. No. IDA 5140-KE (KRC Component) for the year ended 30 June 2018 - Kenya RailwaysCorporation

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report in compliance with Article 229(7) of the Constitution of Kenya. Reasonableassurance is a high level of assurance, but is not a guarantee that an auditconducted in accordance with ISSAls will always detect a material misstatementwhen it exists. Misstatements can arise from fraud or error and are consideredmaterial if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these financialstatements.

As part of an audit in accordance with ISSAls, I exercise professional judgementand maintain professional scepticism throughout the audit. I also:

* Identify and assess the risks of material misstatement of the financialstatements, whether due to fraud or error, design and perform audit proceduresresponsive to those risks, and obtain audit evidence that is sufficient andappropriate to provide a basis for my opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error, asfraud may involve collusion, forgery, intentional omissions, misrepresentations,or the override of internal control.

* Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the project'sinternal control.

* Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by themanagement.

* Conclude on the appropriateness of the management's use of the going concernbasis of accounting and based on the audit evidence obtained, whether amaterial uncertainty exists related to events or conditions that may castsignificant doubt on the project's ability to continue as a going concern. If Iconclude that a material uncertainty exists, I am required to draw attention inthe auditor's report to the related disclosures in the financial statements or, ifsuch disclosures are inadequate, to modify my opinion. My conclusions arebased on the audit evidence obtained up to the date of my audit report.However, future events or conditions may cause the project to cease to continueas a going concern.

* Evaluate the overall presentation, structure and content of the financialstatements, including the disclosures, and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.

* Obtain sufficient appropriate audit evidence regarding the financial informationof the entities or business activities to express an opinion on the financialstatements.

Report of the Auditor-General on the Financial Statements of National Urban Transport lnproveinentProject CR. No. IDA 5140-KE (KRC Component) for the year ended 30 June 2018 - Kenya RailwaysCorporation

* Perform such other procedures I consider necessary in the circumstances.

I communicate with the management regarding, among other matters, the plannedscope and timing of the audit and significant audit findings, including any significantdeficiencies in internal control that are identified during the audit.

I also provide management with a statement that I have complied with relevantethical requirements regarding independence, and to communicate with them allrelationships and other matters that may reasonably be thought to bear on myindependence, and where applicable, related safeguards.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

As required by the International Development Association (IDA), I report based onmy audit that:

i. I have obtained all the information and explanations which, to the best of myknowledge and belief, were necessary for the purpose of the audit.

ii. In my opinion, adequate accounting record have been kept by the project,so far as appears from the examination of those records; and,

iii. The project's financial statements are in agreement with the accountingrecord and returns.

FCPA Edward R. 0. Ouko, CBSAUDITOR-GENERAL

Nairobi

18 December 2018

Report of the A uditor-General on the Financial Statements of National Urban Transport ImprovementProject CR. No. IDA 5140-KE (KRC Component) fbr the year ended 30 June 2018 - Kenya RailwaysCorporation

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