COUNTY BUDGET FOCUS

January, 2023

Analysis of the Auditor General’s Reports on

the Financial Statements of Kisumu County
Executive for the FY 2018/19-2019/20
1.0 Introduction
The Constitution of Kenya 2010, Article 229(5) The audit report upon submission to the county
requires the auditor general to audit and report assembly is scrutinized by the county assembly’s
on the accounts of any entity that is funded from Public Account Committee (PAC) where the
public funds. The audit report confirms whether county public officers share insight on the audit
or not public monies have been applied lawfully queries. The Public Audit Act (PAA) section 50(2)
and in an effective way. These audited reports requires PAC to complete scrutiny process within
are submitted to the relevant county assembly or a span of three months upon receipt of the report.
parliament for debate and an appropriate action After the discussions are complete with PAC, the
arising from the report is supposed to be taken. county shall within 3 months after the county
Additionally, the Public Finance Management Act assembly recommendations take the relevant
(PFM) Section 116 (7) requires the administrator steps to implement the recommendations.
of funds at the county level to prepare accounts
for the funds for each financial year and not later The County Chief Officer of Finance is responsible
than three months after the end of each financial for reporting any suspected offences to the
year, submit the financial statement relating relevant authorities and if there are any criminal
to those accounts to the Auditor-General and matters arising from the report, then the police,
present the financial statement to the county the Anti-corruption Commission (EACC),
assembly. The Auditor General is required by law Director of Public Prosecution (DPP) and any
to produce audit report within six months after other relevant body may take up the process of
the end of each financial year. Thereafter, the the execution of the offences committed. Often
Auditor General share the report with the county when the audit queries are reluctantly addressed
assemblies and is required to publish these may lead to increasingly misuse of public
reports within fourteen days after submitting the resources which is not healthy for programme
report to the county assemblies.

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 1
implementation at the county level. It is therefore A forensic audit is an evaluation of an entity
prudent for citizen’s, CSOs and the media to financial information for use as evidence in
always be on the lookout whenever the PAC court. A forensic audit can be conducted in order
report have been released and published and to prosecute a party for fraud, embezzlement or
check what issues have been resolved and what other financial misappropriations. This involves
remain unresolved from the original auditor the application of accounting methods to
general report. track and collect forensic evidence, usually for
investigation and prosecution of criminal acts
Types of Audits such as misappropriation of funds.

Compliance audit is the independent assessment Special Audits are for “special purpose” audits,
of whether a particular subject matter is in examples include environmental audits,
compliance with applicable authorities identified information technology audits, procurement
as criteria. The auditors, assess whether activities, audits etc. These audits respond to specific
financial transactions and information are, in requests, normally from Parliament or the
all material respects, in compliance with the County Assembly.
authorities which govern the audited entity.
(At the Office of the Auditor-General, the Overview of types of audit Opinions
financial and compliance audits are conducted
simultaneously). Audit opinion is a very important component in
the auditing process because it makes a statement
Procurement audit is a form of compliance audit about an entity financial position. The audit
where the auditor assesses whether procurement report usually provides a picture of the entity
for goods and services is done in accordance financial performance over a given period of time
with the Public Procurement and Asset Disposal which is normally a 12 months period. The audit
Act,2015. opinion is based on several variables including
how available the data was made to the auditors,
Financial audit involves an independent, objective whether the entity had the opportunity to follow
evaluation of an entity’s financial statements in all the dues procedures, the materiality aspect
order to give stakeholders a reasonable assurance and whether each of the variables considered in
that the financial statements are presented in the audit are subjective in nature and the entirely
accordance with the financial reporting and depend on the opinion of the auditor.
regulatory framework.
There are four different types of audit opinions
Performance audit is an independent, objective and auditors have an option of choosing from
and reliable examination of whether government which are stated as below;
undertakings, systems, programmes and activities
are operating in accordance with the principles 1. Unqualified opinion
of economy, efficiency and effectiveness. 2. Qualified opinion
Performance auditing therefore seeks to provide 3. Disclaimer of opinion
an analysis of decisions, implementation, impact 4. Adverse opinion
and recommendations where appropriate.

2
Unqualified opinion - clean Report Disclaimer of opinion – disclaimer report

This opinion by the auditor is considered A disclaimer opinion means that the auditor
as a report that does not have any kind of has no basis to undertake the audit because the
adverse comments and it does not include any accounting records are unreliable. The financial
disclaimers about the audit process. The auditor statements exhibit serious and significant
determines that each of the financial records misstatements which arise from inadequate
provided by the entity is free from material information such that the auditor general is unable
misrepresentation and the financial reports to form an opinion on the entity’s operations. The
are prepared in accordance with the applicable auditor distance themselves from providing any
financial reporting framework. The opinion opinion at all related to the financial statement.
indicate that the auditors are satisfied with the The auditor is unable to determine whether the
entity financial reporting. situation is qualified or adverse which is a serious
lapse in compliance and should be a concern to
Qualified opinion – modified report oversight institutions.

The auditor expresses this kind of an opinion when Scope of audit reports
the auditor general has found some problems in
the accounts but they are not widespread and The audit reports have to be conducted in
the auditor is unsatisfied with the accuracy of accordance with the International Standards
certain expenditures. The auditor received all for Supreme Audit Institutions (ISSAIs). The
the information required for the process and the standards require that the audit be planned and
financial transactions were recorded which to a be performed to obtain a reasonable assurance
large extent are in agreement with the underlying that true and fair presentation of facts is achieved
records except that the auditor notes that there in the annual financial statements. The audit
are some material misrepresentation or omission includes an examination on a test basis of
in the financial statement. A common trend for evidence supporting the amounts and disclosures
the auditor issuing this kind of opinion is the in the financial statements, assessment of the
failure for the entity concerned not following accounting principles used and an evaluation of
the Generally Accepted Accounting Principles the overall financial statement.
(GAAP).
Significance of the audit findings
Adverse opinion – adverse report
The Constitution of Kenya 2010, requires
An adverse opinion by an auditor indicates that the auditor general to regularly publish and
the financial reports contain high level material publicize the audit reports. These reports are
misstatement or irregularities and that they have usually technical in nature and Civil Society
potential for a fraud. This type of an opinion is Organizations (CSOs) can play a good role of
a red flag. It means that the financial statements reviewing making these reports simpler for
and the underlying books of accounts have citizens to engagement meaningfully.
widespread misrepresentation of facts which
are persistent and they require considerable The audit finding is important as they help
intervention by the management to resolve. This the county government to have systems that
kind of findings should be a concern to oversight safeguard its internal operations and help the
bodies. county to determine whether their mechanisms

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 3
to mitigate financial risks, engage in awareness creation for the various stakeholders to check whether
resources are being used prudently. These findings help the county concerned to determine whether
there are conditions dealing with irregulates, waste, inefficiency, conflict of interest and control
weaknesses.

This therefore form the basis of analysing a simplified Kisumu County Auditors General’s report on
the financial statement for financial years 2018/2019 and 2019/2020.The analysis is for engagement
with Kisumu County government especially oversight bodies in the county to promote transparency
and accountability in resources management.

Classification of Audit issues

Audit issues can be classified as follow;

Lack of supporting documents • Failure to provide records
• No documentary evidence
Violation of financial regulations • Irregular expenditure
• Unbudgeted expenditure
• Ineligible expenditure
• Violation of public procurement regulations
Pending bills • Bills not paid during the year
• Failure to settle pending bills
No value for money • Poor quality/harmful purchases
• Nugatory expenditure
Failure to reconcile books of accounts • Variance in cash and bank balances
• Unexplained/unreconciled variance
• Unexplained difference. accuracy of opening
balance and closing cannot be confirmed
long outstanding balances • Long outstanding uncleared debtors
• Long outstanding bills
Others • Weak internal control systems
Source: Author’s Compilation from Auditors General’s report

2.0 Overall Expenditure

Figure 1 shows the trends in total expenditure for the five financial years beginning 2015/16. It is these
expenditures that the auditor general reviews, audits and expresses an opinion regarding whether the
facts in the financial statements are presented truly and fairly. Total expenditure for Kisumu County
shows a general upward trend, with an annual increment averaging Ksh 0.69 billion.

4 County Budget Focus

Figure 1: Trends in total expenditure, FY 2015/16-2019/20 (Ksh Billion)

Source: Office of Controller of Budget Reports

Approximately, Ksh 6.44 billion was spent in 2015/16 to Ksh 9.12 billion in 2019/20, implying a general
increase in the funds entrusted with the public officers, hence demand for enhanced accountability.

3.0 Overview of Audit Opinion

The auditor general awarded an adverse opinion on the financial expenditure of county executive of
Kisumu government for all the financial years under review except for 2015/16 where the auditor
gave a disclaimer of opinion, this denotes consistent deteriorated performance. On the other hand,
their legislature counterparts, were awarded an adverse opinion for the first three years from 2015/16
but for the two years since 2018/19, they have been awarded a qualified opinion, denoting improved
performance, even though the performance is short of the best: unqualified opinion.

Table 1: Summary of Auditor General’s opinion FY 2015/16-2019/20

Financial Year 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Executive Disclaimer Adverse Adverse Adverse Adverse Adverse
Assembly Adverse Adverse Adverse Qualified Qualified Qualified
Source: Auditor General’s Reports

A disclaimer of opinion means that the financial misstatement that do not reflect the true and
statements exhibit serious and significant fair financial position of an entity. On the other
misstatements which arise from inadequate hand, a qualified opinion means that the auditor
information such that the auditor general received all the information required for the
is unable to form an opinion on the entity’s process and the financial transactions were
operations. Whereas, an adverse opinion means recorded which to a large extent are in agreement
that the financial records do not show material with the underlying records except that the

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 5
auditor notes that there were some material misrepresentation or omission in the financial statement
which may have arisen due to the failure in following the Generally Accepted Accounting Principles
(GAAP).

4.0 Queried Amounts

This section provides a summary of the queried amounts for the County Executive for Kisumu County
for 2019/20 and 2018/19. Queried amounts refer to the amount relating to the audit queries raised by
the auditor during an investigation as having been transacted unlawfully with respect to International
Public Sector Accounting Standards (IPSAS).

Figure 2 shows a summary of total queried amounts for each of the two financial years. The queried
amounts are also expressed as a share of total expenditure. The findings show that, in nominal terms,
the queried amount at Ksh 7.1 billion and Ksh 4.3 billion for 2018/19 and 2019/20. However, as a
share of total county expenditure, this represents 85% and 47% respectively.

Figure 2: Distribution of the queried amounts and as percentage of total annual expenditure

Source: Compilation from the Auditor General’s reports-various publications

Noteworthy, the high value of the queried amount in both years denotes the widespread
misrepresentation of facts which are persistent and require considerable intervention by the
management to resolve. This kind of findings should be a concern to oversight bodies.

6 County Budget Focus

4.1 Overview of audit queries

Table 2 summarises audit queries across two financial years: 2018/2019 and 2019/2020. Although
there is a decrease in the number of audit queries from 31 in financial year 2018/19 to 29 in financial
year 2019/20, issues relating to weak internal controls, lack of supporting documents and unresolved
prior year matters continue to persist.

Table 2: Summary of the number of audit queries by financial year

Query 2018/19 2019/20

1. Violation of financial regulations 12 9
2. Lack of supporting documents 2 7
3. Violation of procurement regulations 4 3

4. Weak internal controls 0 3

5. Unresolved Prior Year Matters 0 2
6. Failure to reconcile books of account 8 1
7. Lack of Updated Fixed Assets Register 0 1
8. Long Outstanding Imprests 0 1
9. Long Outstanding Rates Arrears 0 1
10. Unreturned Funds to CRF 0 1
11. Failure to Operationalize Emergency Fund 1 0
12. Outstanding Imprests 1 0
13. Payment for Works Not Done 1 0
14. Payments for Goods not Delivered 1 0
15. Pending Bills 1 0
Total 31 29
Source: Compilation from the Auditor General’s reports-various publications

The 29 audit queries raised in 2019/20, were dominated by those falling under the Violation of financial
regulations (9) and Lack of supporting documents (7) classes. Lack of supporting documents and
Violation of procurement regulations are examples of the classes of audit queries that have persisted
for the two years under review. Weak internal controls and Unresolved Prior Year Matters are
prominently emerging audit queries that the county government should take concern of. Other audit
matters raise during the audit of 2019/20 reports include Lack of Updated Fixed Assets Register, Long
Outstanding Imprests, Long Outstanding Rates Arrears and Unreturned Funds to CRF. Overall, it can
be concluded that...........

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 7
4.2 Review and findings for FY 2019/20

Based on the audit report for Kisumu County executive for financial year 2019/20, the Auditor
General raised fourteen (29) audit queries. The queried amount of the audit issues on expenditure
and the corresponding shares is as shown below (see annex 1 for further details);
Query Sub Query Queried Amount (Ksh) Share (%)
Failure to reconcile books of Unreconciled variance 692,404,600
account Unreconciled variance 667,749,633
Inaccuracies in the Statement of 369,017,342
Receipts and Payments
Lack of Reconciliations of Cash and 323,168,000
Bank Balances
Variance Between Compensation of 71,142,777 30%
Employees Amounts in the Financial
Statement and IPPD Payroll
Unreconciled variance 10,000,001
Violation of financial Inaccuracies in the Statement of Cash 842,612,182
regulations Flows
Inaccuracies in the Statement of Cash 786,994,412
Flows
Inaccuracies in the Statement of 714,694,604
Assets and Liabilities
Non-Disclosure of County Assembly 684,802,036
Receipts
58.1%
Inaccuracies in the Statement of Cash 536,164,128
Flows
Irregular Transfers to Other 151,641,045
Government Units
Unaccounted for Health 146,657,998
Appropriations-in- Aid
Inaccuracies in the Statement of Cash 127,917,218
Flows
Inaccuracies in the Statement of Cash 101,069,500
Flows
Inaccuracies in the Statement of 21,843,566
Assets and Liabilities
Error 21,843,565
Outstanding Imprests 783,346,771 11.0%
Pending Bills 47,741,927 0.7%
Irregular Purchase of Land 18,363,462 0.3%
Payment for Works Not Done (Acquisition of Assets) 1,286,540 0.02%
Total 7,120,461,307 100%

8 County Budget Focus

 Query Sub Query Queried Amount (Ksh) Share (%)
Other audit matters
Irregular Procurement of Advertising, Media and Branding Services
Irregular Procurement of Gravel
Violation of procurement
regulations Irregular Procurement of Consultancy Services
Irregular Procurement of Desk Top Computers
Unsupported Leasing of Medical Equipment
Failure to Remit Returned CRF Issues to County Revenue Fund
Non-Compliance with Annual Reporting by Accounting Officers
Non-Compliance with Expenditure Threshold Regulations and Employment Laws
Failure to Operationalize Emergency Fund
Source: Compilation from the Auditor General’s reports-various publications

Out of the Ksh 8.92 billion queried amount for 2018/19, the largest share was composed of the audit
query related to the Violation of financial regulations at 58.1%, it is followed closely by Failure to
reconcile books of account (30%). Other audit queries are: Outstanding Imprests (11%), Pending
Bills (0.7%), Irregular Purchase of Land (0.3%) and Payment for Works Not Done, Acquisition of
Assets, (0.02%). Other audit matters included: - Violation of procurement regulations, Unsupported
Leasing of Medical Equipment, Failure to Remit Returned CRF Issues to County Revenue Fund, Non-
Compliance with Annual Reporting by Accounting Officers, Non-Compliance with Expenditure
Threshold Regulations and Employment Laws and Failure to Operationalize Emergency Fund.

Further analysis of the above queries reveals the following: -

• The leading query under Failure to reconcile books of account amounting to Ksh 0.69 billion
was due to the un-explained variance of the combined Ksh 0.30 and Ksh 0.39 billion leading to
inaccuracies in the statement of receipts and payments.

• In addition, the leading query under Failure to reconcile books of account amounting to Ksh 71
million was due to the variance between compensation of employees amounts in the financial
statement and IPPD Payroll. The statement of receipts and payments reflects a figure of Ksh 3.44
billion as compensation of employees. However, a review of the IPPD payroll for the twelve-
months showed that a total of Ksh 3.51 billion was paid as employees cost resulting to a difference
of Ksh 71 million which has not been reconciled. As a consequence, the accuracy, completeness
and validity of the financial statements for the year ended 30 June, 2019 could not be confirmed.

• Furthermore, the leading query under Violation of financial regulations relating to unsupported
receipts inaccuracies in the Statement of Assets and Liabilities amounting to Ksh 0.84 billion
resulted from the unexplained difference of a net increase in cash and cash equivalents of Ksh
0.572 million which differs from the surplus for the year of Ksh 1.414 million.

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 9
• Furthermore, the leading query under Violation of financial regulations relating to Inaccuracies
in the Statement of Cash Flows amounting to Ksh 0.787 billion resulted from the unexplained
difference of a cash and cash equivalents of Ksh 2.241 billion which differs with the cash and cash
equivalents figure of Ksh 1.45 billion reflected in the statement of assets and liabilities.

4.4 Unresolved Prior Year Matters

In the audit report of the previous year, several issues were raised under the Report on Financial
Statements, Report on Lawfulness and Effectiveness in Use of Public Resources, and Report on
Effectiveness of Internal Controls, Risk Management and Governance. However, the Management
has not resolved the issues nor given any explanation for failure to adhere to the provisions of the
Public Sector Accounting Standards Board templates.

These include;

• Failure to reconcile books of account

• Lack of supporting documents
• Failure to remit funds issues to County Revenue Fund account
• Non-compliance with the law on fiscal responsibility on wage bill
• Long outstanding imprests

5.0 Opportunity Cost

i) Irregular Payment for Debt Collection Services

In 2019/20 payments amounting to Ksh 38.05 million were made to a debt collection consultant.
However, review of the signed contract agreement revealed that the contract document had terms
that reimbursable costs of Ksh 7.9 million were charged to the County Executive yet they were
not initially in the tender documents. These costs were also not supported with receipts and search
reports for the reimbursements claimed. The invoices issued by consultant indicated the rates were
exclusive of VAT but the contract stated that they were to be inclusive.

Further, for the digitized 17,408 plots as at 30 June, 2020 the consultant had billed and been paid
a sum of Ksh 30.1 million. However, the signed contract agreement had specified the rate of Ksh
1,500 inclusive of VAT per plot, the cost would have been Ksh 26.1 million thereby resulting in
overpayment by Ksh 4.0 million. Consequently, the value for money on the additional cost spent
on the contract may not have been realized.

The reimbursable costs of Ksh 7.9 million that were charged to the County Executive yet they
were not initially in the tender documents and an overpayment by Ksh 4.0 million for the plots
work out to approximately combined total of Ksh 12 million.

10 County Budget Focus

 In 2019/20, the county government collected Own Source Revenue (OSR) amounting to Ksh 301
million. This implies that the above combined Irregular Payment for Debt Collection Services
present a high opportunity cost for the county government worthy two weeks of Own Source
Revenue collections.

ii) Non-compliance with the Law on Fiscal Responsibility-Wage Bill

In 2019/20, the County Government contravened section 25(1)(b) of the Public Finance
Management County Governments Regulations 2015 which requires that compensation of
employees not to exceed thirty-five (35%) percent of the County Government’s total revenue
for that year. However, the audit findings reveal that during the year, the total compensation
of employees amounted to Ksh 4.26 billion which is 49% of total receipts of Ksh 8.73 billion as
reflected in the statements of receipts and payments.

Had the county government ensured that the wage bill does not exceed the 35% threshold, the
maximum possible spending on the wage bill would have amounted to Ksh 3.06 billion leading to
a saving of Ksh 1.2 billion worth of revenue.

It can therefore be concluded that failure to comply with the law on the minimum wage bill has
resulted in huge opportunity costs.

6.0 Recommendations

i) The County assembly should provide adequate oversight to ensure that the executive strengthens
budgetary control and performance

The county executive should ensure that the annual budgets are balanced to reduce recurrence of
underfunding and under expenditure. The county should enforce modules prepared through the
support of a consultant to automate revenue collection to improve own generated revenue and fully
fund the budget. In 2019/20 out of the projected revenue receipts amounting to Ksh11.5 billion
and the county realised actual revenue amounting to Ksh 8.73 billion resulting to an under-funding
of Kshs.2.77 billion or 24% of the budget. Similarly, the statement reflects final expenditure budget
and actual on comparable basis of Ksh 11.5 billion and Ksh 8.35 respectively, resulting to an under
spending of Ksh 3.15 billion or 27% of the budget. The expenditure was limited to the amount realised.
Management explained that the variances noted above were as a result of delays in the disbursement
of funds from the National Government. The delay has the effect of denying the residents of Kisumu
County the benefits accruing from the planned projects. The underfunding and under-expenditure
affected the planned activities and impacted adversely on service delivery to the residents of Kisumu
County.

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 11
ii) The County assembly should provide adequate oversight to ensure that the executive addresses
the pending Unresolved Prior Year Matters

The county executive should ensure that recurrent issues as raised by the Auditor General are
addressed appropriately. Especially in areas of no value for money in order to achieve the county’s
development agenda and enhance service delivery. There should be proper checks and balances in the
county internal control systems so as to ensure effective and efficient use of public resources.

In the audit report of 2018/19, several audit issues were raised under the Report on Financial
Statements, Report on Lawfulness and Effectiveness in Use of Public Resources, and Report on
Effectiveness of Internal Controls, Risk Management and Governance. However, by the end of 2019/20
the Management is yet to resolve the issues nor given any explanation for failure to adhere to the
provisions of the Public Sector Accounting Standards Board templates and The National Treasury’s
Circular No. AG.4/16/3 Vol.1(9) dated 24 June, 2020.

iii) Ensure compliance with the Law on Ethnic Composition

The County government of Kisumu is in breach of the law on Ethnic Composition as per Section
7(1) and (2) of the National Cohesion and Integration Act, 2008 which states that, “all public offices
shall seek to represent the diversity of the people of Kenya in employment of staff and that no public
institution shall have more than one third of its staff establishment from the same ethnic community”.
An analysis of the June, 2020 payroll revealed that the County Executive had a total of 3,346 permanent
and pensionable employees out of which 2,890 (86%) were from the dominant ethnic community in
the county.

iv) The County assembly should provide adequate oversight to ensure that the executive ensures
compliance with law on the budget process
For the year under review, 2019/20, the county government of Kisumu did not provide supporting
documents for the County Executive budget for the financial year 2019/2020. There was no evidence
provided to show that the County Budget Review and Outlook Paper (CBROP) and the debt policy
document were submitted to the County Executive Committee for approval by 14 October, 2018,
published and publicized by 30 October, 2018. Further, the budget policy statement and public
participation process documents including invitation notices, attendance registers and minutes of the
forums/meetings were not availed for audit review. This is contrary to the Public Finance Management
Act, 2012 section 125 – 137, Section 87 of the County Governments Act 2012 and Section 21 – 28 of
the Kisumu County Public Participation Act 2015. Hence, the county government was breach of the
law.

12 County Budget Focus

v) The county executive should ensure adherence to the Public Procurement and Assets Disposal
Act, 2015

The audit findings reveal irregular Procurement of High Roof Ambulances and also evidence of failure to
prepare a procurement plan and absence of E-Procurement.

In 2019/20, the County Government spent Ksh 28.4 million for the purchase of three (3) high roof
ambulances. The tender evaluation committee minutes indicated that only one (1) bidder submitted
the bid and was awarded the tender. This was contrary to regulation 54(3) of the Public Procurement
and Disposal Regulations, 2006 that requires minimum of at least ten (10) suppliers from prequalified
list for use of restricted tendering. Even though the committee recommended negotiations with the
bidder on the price, there is no evidence that this was done.

In addition, in the same year, the County Government did not prepare the procurement plan in
accordance with the Section 53 of the Public Procurement and Asset Disposal Act, 2015 which requires
the plan to contain a description of the procuring items, unit Cost, estimated contract value, and the
procurement method to be used. Further, bid documents for the year to suppliers were delivered
manually instead of using the e-procurement as per the Presidential Executive Order on Procurement
of Public Goods, Works and Services by Public Entities issued on 13 June, 2018 that required that
from the 1 January, 2019, all public procurement will be undertaken through the electronic platform
of the Integrated Financial Management Information System (IFMIS).

vi) The county executive should ensure compliance with the Law on Fiscal Responsibility-Wage
Bill

In 2019/20, the County Government contravened section 25(1)(b) of the Public Finance Management
County Governments Regulations 2015 which requires that compensation of employees not to
exceed thirty-five (35%) percent of the County Government’s total revenue for that year. However,
the audit findings reveal that during the year, the total compensation of employees amounted to Ksh
4.26 billion which is 49% of total receipts of Ksh 8.73 billion as reflected in the statements of receipts
and payments.

vii) The county executive should ensure that imprests are surrendered

In 2019/20, the County Government was in breach of regulations 93(5) of the Public Finance
Management County Governments Regulations 2015 that requires imprest to be surrendered or
accounted for within 7 working days after returning to duty station. However, the audit findings reveal
outstanding imprests of Ksh 114.8 million. Moreover, there was no evidence that imprests had been
surrendered or accounted for as at 30 June, 2020. Further, a sample of employees with outstanding
imprest indicated that several employees were issued with multiple imprests before surrender of
others previously issued to them.

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 13
viii) The county executive should ensure that the fixed assets register is up-to-date

Audit findings for 2019/20 reveal that the County Executive did not have an up-to-dated consolidated
fixed assets register as only three (3) departments namely; Department for Education, ICT &
Human Resource Development, Department for Water and Sewerage Services and Department
for Agriculture, Irrigation, Livestock and Fisheries had submitted their asset registers to the assets
register consolidation committee that is charged with the responsibility of consolidating the assets
owned by the County Executive. However, the register kept by the Department for Education did
not include the construction of ECD facilities. In addition, the County Executive had not valued
its parcels of land for complete recording in the register. In addition, assets previously held by the
defunct local authorities had not been fully identified, secured and taken on charge. Consequently,
the ownership, accuracy and completeness of existing assets register could not be confirmed for the
year ended 30 June, 2020.

7.0 Conclusion
Despite the county executive having improved in terms of the queried the 2019/20 audit findings
reveal a grim picture of the financial position for the county government of Kisumu. The audit
confirms weak and ineffective internal controls, risk management and governance systems in the
county. There is need for the county assembly and CSOs to provide adequate oversight to ensure
effective and efficient use of public funds. The misappropriation of public resources as highlighted
across the audit findings are indication of loopholes and low accountability by the County Assembly
and citizens. The main concerns in the audit report for financial year 2019/20 is no value for money
where money has been spent but the intended services are not offered or are not worth the money
spent on.

Glossary
Term Meaning
Audit Query This is the clarification sort by the auditor general on a specific issue in
order to make a conclusion during the audit process
Emphasis of the matter This refers to a paragraph that is included by the auditor in his report to
direct attention of users of financial statements to a matter that has been
discussed appropriately in the financial statement (usually a disclosure)
Pending bills These are bills which are yet to be settled by an entity during the reporting
period the financial year under auditing or unsettled financial obligation
that occur at the end of the financial year as a result of failure to pay for
good and services that has been properly procured
Stalled incomplete projects A stall project is that one project that is still active but for a given reason
has no actions pending or cannot move forward
Unsupported expenditure All expenditures must be supported by adequate for example original copy
pf receipts, invoices or even bills
Value for money Refers to whether something that is well worth the money spent on it.

14 County Budget Focus

Annex 1: Audit queries - Kisumu County executive for financial year 2019/20
(This represents detailed explanation of the audit findings in Table 4.2 on page 8)

Query Sub-Query Queried Amount Cosequence/detailed explanation

(Ksh)
Failure to reconcile Unexplained 1,485,270,418 The statement of receipts and payments reflects various
books of accounts variance receipts balances which are at variance with similar
balances as per the IFMIS Miscellaneous Receipts Report
(MRR)
Lack of supporting Unsupported 12,114,979 As disclosed in Note 9 to the financial statements,
documents receipts the statement of receipts and payments reflects
county own generated receipts of Ksh 811,076,124.
The balance includes payroll revenue surcharge of
Kshs.6,228,243 that was not supported with detailed
schedules of employee deductions. Revenue totalling
to Ksh 5,886,736 collected by Maseno – Agriculture
Training Centre was not remitted to the County
Revenue Fund (CRF) account as per the requirements
of Section 80 and 81 of the Public Finance
Management (County Governments) Regulations,
2015 which states that all revenue collected by the
County Government should be remitted to the CRF.
Further, out of the total collections of Kshs.5,886,736,
it was noted that Kshs.4,328,198 was spent at
source and no approval or documentation was
provided during audit to support the expenditure.
In the circumstances, the accuracy of county own
generated receipts amounting to Ksh 811,076,124 in
the financial statements could not be confirmed.
Unreturned Funds to CRF 24,377,272 The transfers of Ksh 24,377,272 were done on 7
August, 2019. Consequently, the accuracy and
completeness of receipts of Ksh 24,377,272 reflected
as returned County Revenue Fund issues in the
statement of receipts and payments for the year
ended 30 June, 2020, could not be confirmed.
Violation of financial regulations 129,674,986 Represents mis-posting of the basic wages of
temporary employees’ balance of Kshs.129,674,986
which had not been corrected
Lack of supporting Unsupported 10,135,479 Represents unsupported expenditures amounting to
documents expenditure Ksh 10,135,479 that was not supported with relevant
documents
Violation of finan- Misclassification 641,439 Represents payment of Kshs.641,439 to a travel agent
cial regulations of Domestic for purchase of air tickets that was misclassified as
Travel and domestic travel and subsistence.
Subsistence
Expenses

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 15
 Query Sub-Query Queried Amount Cosequence/detailed explanation
(Ksh)
Violation of finan- Irregular Foreign 4,774,172 Represents shipping charges for a hyacinth harvester
cial regulations Travel and donated by the Indian Government on 19 May, 2020
Subsistence which does not relate to foreign travel.
Expenses
Violation of finan- Misclassification 237,259,339 Represents payments to suppliers and contractors
cial regulations of Expenditure totalling Kshs.237,259,339 for various works, goods
and services provided. It has been noted that the
suppliers and contractors were not government
agencies or entities established under the Public
Finance Management County Government
Regulations Sections 197(1) and 200(1) which set
the guidelines for establishment of county funds and
county corporations respectively.
Lack of supporting Unsupported 18,760,000 There were no acknowledgement letters from
documents Transfer to Vo- recipients or evidence for transfers of Kshs.18,760,000
cational Training to confirm that the institutions received the funds or
Institutions expenditure returns to ensure that the funds were
utilized as planned.
Failure to rec- Unexplained 12,000,000 Represents unexplained difference of Kshs.12,000,000
oncile books of expenditure in the reported balance
accounts
Violation of finan- Irregular Off-set- 1,116,320,347 Consequently, the accuracy, validity and
cial regulations ting of Expen- completeness of Kshs.1,116,320,347 in respect of
diture acquisition of assets reflected in the statements of
receipts and payments for the year ended 30 June,
2020 could not be confirmed.
Violation of financial regulations 5,000,000 The balance were not supported
As listed in Note 21A to the financial statements, the
balance includes bank balances of Kshs.1,890,819,766
which comprised of fifty-three (53) bank account
balances . However, the cashbooks and bank
reconciliations for twenty-four (24) of the bank
accounts totalling to Kshs.260,758,079 were not
provided for audit review.
Lack of supporting documents 260,758,079
Violation of finan- unpresented 33,481,351 The balance includes two deposit account balances
cial regulations cheques held in Co-operative Bank and Commercial Bank
of Kenya with unpresented cheques amounting to
Kshs.23,716,953 and Kshs.9,764,398 respectively,
which were stale and had not been reversed in the
respective cashbooks

16 County Budget Focus

 Query Sub-Query Queried Amount Cosequence/detailed explanation
(Ksh)
Violation of finan- Payments in the 9,257,620 Payments in the bank but not yet recorded in
cial regulations bank but not yet the cashbooks amounted to Kshs.9,257,620 for
recorded in the Kisumu County Deposit account as per the bank
cashbooks reconciliation statement provided. There were no
explanations on why the transactions were not posted
to the cashbooks. The county did not also maintain
a cheque register for tracking the movement of
cheques issued.
Lack of supporting documents 54,600 No board of cash survey certificates were provided
for audit review.
Violation of financial regulations 96,635,084 The statement of cash flows reflects an increase
(Inaccuracies in the Statement of Cash in accounts receivables of Kshs.96,635,084 which
Flows) differs significantly with the actual movement in
accounts receivables of Kshs.668,515,761 which was
a decrease from Kshs.783,346,771 as at 30 June, 2019
to Kshs.114,831,010 as at 30 June, 2020 as per the
statement of assets and liabilities.
Lack of supporting documents 27,768,566 The statement of assets and liabilities reflects
(Unsupported Accounts Payables) accounts payables – deposits and retentions balance
of Kshs.27,768,566. However, no schedule was
provided for audit review to confirm the entities or
firms that the amounts related to. It was not possible
to confirm that the payments had been made after
year end for projects that had been handed over and
the retention period lapsed as there was no record of
the same.
Unresolved Prior Year Matters 645,737,153 The statement of assets and liabilities reflects a prior
year adjustments of Kshs.645,737,153 (2018/2019:
Kshs.842,611,821) debits which had not been
supported with journal vouchers or explanations
of the errors as stipulated in the reporting template
and the International Public Sector Accounting
Standards 3 - Accounting Policies, Changes in
Accounting Estimates and Errors Para. 54.
Irregular Purchase of a Bus 4,915,000 The Management entered into a contract with a motor
dealer for the purchase and delivery of a twenty-nine
(29) sitter bus at a cost of Kshs.4,915,000 which was
paid in the year under review. However, a review
of the procurement documents indicated that the
tender was declared unresponsive by the evaluation
committee on 4 April, 2019 and recommended for
re-tendering.

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 17
 Query Sub-Query Queried Amount Cosequence/detailed explanation
(Ksh)
Non-Compliance with Law on Ethnic Composition An analysis of the June, 2020 payroll revealed that
the County Executive had a total of 3,346 permanent
and pensionable employees out of which 2,890 (86%)
were from the dominant ethnic community in the
county. This is contrary to Section 7(1) and (2) of the
National Cohesion and Integration Act, 2008 which
states that, “all public offices shall seek to represent
the diversity of the people of Kenya in employment
of staff and that no public institution shall have more
than one third of its staff establishment from the
same ethnic community”
Non-Compliance with Law on the Budget Process There was no evidence provided to show that the
County Budget Review and Outlook Paper (CBROP)
and the debt policy document were submitted to
the County Executive Committee for approval by
14 October, 2018, published and publicized by 30
October, 2018.
Non-Compliance with the Public Procurement and Assets The Management spent an amount of Kshs.28,438,500
Disposal Act, 2015 (Irregular Procurement of High Roof for purchase of three (3) high roof ambulances. The
Ambulances) tender evaluation committee minutes indicated
that only one (1) bidder submitted the bid and was
awarded the tender. This was contrary to Regulation
54(3) of the Public Procurement and Disposal
Regulations, 2006 that requires minimum of at least
ten (10) suppliers from prequalified list for use of
restricted tendering. Even though the committee
recommended negotiations with the bidder on the
price, there is no evidence that this was done.
Procurement Plan and Lack of E-Procurement The Management did not prepare the procurement
plan in accordance with the Section 53 of the Public
Procurement and Asset Disposal Act, 2015 which
requires the plan to contain a description of the
procuring items, unit Cost, estimated contract value,
and the procurement method to be used.
Non-compliance with the Law on Fiscal Responsibility- During the year under review, the total compensation
Wage Bill of employees amounted to Kshs.4,261,475,456 which
is 49% of total receipts of Kshs.8,733,502,114 as
reflected in the statements of receipts and payments.
This contravenes section 25(1)(b) of the Report of
the Auditor-General on County Executive of Kisumu
for the year ended 30 June, 2020. Public Finance
Management County Governments Regulations
2015 which states that compensation of employees
should not exceed thirty-five (35%) percent of the
County Government’s total revenue for that year.

18 County Budget Focus

 Query Sub-Query Queried Amount Cosequence/detailed explanation
(Ksh)
Long Outstanding Imprests 114,831,010 The statement of assets and liabilities reflects
accounts receivables – outstanding imprests of
Kshs.114,831,010. However, there was no evidence
that imprests had been surrendered or accounted for
as at 30 June, 2020.
Review of the Human Resource Management records
revealed that the County Executive did not have: -
Violation of procurement regulations i) An approved staff establishment, an annual
recruitment plan and clear basis for transfers and
promotions. In the circumstance, it is not known
how and on what basis the County Public Service
Board managed the recruitment of human resources.
Violation of procurement regulations A training committee as provided in Section 9.6 of
the County Public Service Human Resource Policy
and Procedures Manual 2015,
Violation of procurement regulations An integrated Human Resource Management
Information System. As a result, reports relating to
employees such as the employees hired, employee
exits, and promotions made during the year could
not be obtained.
Failure to reconcile books of account Review of revenue records revealed that the
County Executive has been collecting local revenue
from three main platforms namely:- E-Citizen
platform used for trade licenses, public health and
E- construction; LAIFOMS used in collection of
building plans revenue, rent, land rates; and County
Pro used in collection of business permit.

Analysis of the Auditor General’s Reports on the Financial Statements of Kisumu County Executive for the FY 2018/19 - 2019/20 19
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