1. FCPA Benson Okundi Partner PwC
Workshop on Quality Review Feedback on FY2017/18 annual financial statements PwC opening remarks – Progress made in the TA to County governments
3rd December 2018
FCPA Benson Okundi
Partner PwC

2. Presentation overview
1. Background
2. Objectives
3. Scope of the assignment
4. Overview of key activities undertaken
5. Recommendations

3. 1. Background of the TA assignment
The PFM Act, 2012 mandates the National Treasury to formulate financial and economic policies, effective coordination of government financial operations, and management of public finances for the rapid and sustainable economic development of Kenya. In fulfilling its mandate, the National Treasury through the Directorate of Accounting Services has over the past three years provided technical support to County Governments, through consultancy from PricewaterhouseCoopers (PwC), on the preparation and consolidation of annual financial statements and in-year reporting. PwC is in its third year in provision of technical assistance to County Governments, with the current contract focusing on the annual financial statements for FY 2017/2018 and in-year reports for FY 2018/2019.

4. 2. Objectives of the assignment
The general objectives of this assignment are to:
Provide technical support to Accountants and Accounting Officers in County Governments and County Government Entities in the preparation of financial statements for their respective entities; and
Provide support in the consolidation of these financial statements.
The Accounting Officers of County Government Entities are responsible for the accuracy and fair presentation of the financial statements and the underlying books of accounts, while the role of PwC is to provide technical assistance.
As we offer our technical support, we work very closely with the National Treasury, Directorate of Accounting Services and Quality Assurance; and the Public Sector Accounting Standards Board (PSASB) who are key stakeholders in this engagement.

5. 3. Scope of the assignment
The assignment broadly covers the following key activities:
Inception and scoping work;
Training and capacity building;
Support in preparation of annual individual and consolidated financial statements;
Support in in-year/quarterly financial reporting;
Support in reconciliation of financial statements to IFMIS;
Support on implementation of issues arising from OAG audits; and
Close out activities.

6. 4. Overview of key activities undertaken
a) Preparation of annual financial statements Annual financial statements for Individual County entities for FY2017/18 were submitted to the OAG by 30th September 2018 and copies delivered to the National Treasury for quality review and Government consolidation. The table below shows that status of timely submission to OAG and copies to National Treasury as at 30th September 2018: *Homa Bay County Assembly and Wajir County Executive did not meet the timeline for submission of 30th September.
Entity
Population
No of FY2017/18 FS submitted to OAG
No of copies received at NT
County Executive 47
*46 36
County Assembly 32
Funds and other self reporting entities
163 71 63

7. 4. Overview of key activities undertaken (Continued)
b) County level consolidation of financial statements Section 163 of the PFM Act requires County Treasuries to consolidate the financial statements of all County Government Entities and submit the consolidated financial statements to the Auditor General by 31st October. We have seen great improvement in this activity over the years, but there is still room for improvement especially with regards to compliance with the statutory deadline of 31st October. As of 31st October 2018, only 23 counties (Last year: 19) had submitted copies of the consolidated financial statements to National Treasury. The remaining counties have since submitted after the deadline of 31st October.

8. 4. Overview of key activities undertaken (Continued)
c) Consolidation of financial statements at National Treasury level
Part of the TA assignment is to support the National Treasury in the consolidation of the 47 County Governments’ financial statements.
Consolidated financial statements for all 47 Counties were submitted to the OAG by 31st October This included financial statements for the 47 County Executives and 47 County Assemblies.
We are in the process of revision of the consolidation with the following:
Use of comparatives from audited financial statements for FY2016/17 following release of the reports by OAG
Use of County-level consolidated financial statements submitted by the Counties by 31st October 2018
Key findings and observations from the consolidation process will be discussed with the Heads of Treasury and Accountants in the Group 2 workshop.

9. 4. Overview of key activities undertaken (Continued)
d) Post submission quality review
We have carried out a quality review of all financial statements received at the National Treasury and prepared feedback quality letters to each County.
Key findings cutting across all counties include the following:
Variances between amounts in the financial statements and those in IFMIS – Both actual and budget
Omission of key information required in the reporting formats/templates prescribed by PSASB
Significant budget over/underutilization without explanations as required in IPSAS and the reporting templates. NB: This has led to an emphasis of matter in most OAG opinions
Financial statements for funds and other entities not prepared on accrual basis as required by Gazette Note 5440 by the PSASB.
Separate financial statements for funds and other County entities not submitted to National Treasury (Only 63 out of 163).

10. 4. Overview of key activities undertaken (Continued)
e) Post submission quality review As senior officers, it is your responsibility to ensure that that quality review findings and recommendations are addressed and where possible, revised financial statements submitted to the OAG (with a copy to NT) before commencement of the audit. Detailed findings and observations from the consolidation process will be discussed with the Heads of Treasury and Accountants in the Group 2 workshop.

11. 4. Overview of key activities undertaken (Continued)
e) Support in the audit process
Audit certificates for FY2016/2017 were released by OAG in November 2018.
We have reviewed the reports and analysed the issues raised by OAG as well as a trend analysis of the audit opinions over the last 4 years.
Summary Analysis of Opinion For FY 2016/2017 and FY 2015/2016
These will be discussed in detail in a separate session later in the day.
As audits of FY2017/2018 continue, the Counties are encouraged to seek technical support from National Treasury and PwC in responding to queries raised by the Auditors.
Status
No. of CEs
No. of CA
Improved Opinion 21 19
Maintained Opinion 24
Dropped Opinion 2 4
TOTAL 47

12. 4. Overview of key activities undertaken (Continued)
f) In-year reporting Section 166 of the PFM Act requires the Accounting Officers of County Government entities to prepare financial reports for each quarter and submit to the County Treasury by 15th of the subsequent month. The County Treasury should then consolidate these and submit the consolidated report to the County Assembly with copies to Controller of Budget, National Treasury and Commission on Revenue Allocation within one month after the end of the quarter. In Quarter 1 of FY 2018/19, we received a total of 35 quarterly reports, compared to 38 received in PY (drop).

13. 4. Overview of key activities undertaken (Continued)
g) Support in reconciliation of financial statements to IFMIS
A key task in our TA is to work with the National Treasury to support Counties in reconciliation of financial statements to IFMIS.
This involves the following:
Supporting counties to ensure all receipts and payments transactions are posted in IFMIS (AR and AP)
Supporting counties in performing bank reconciliations in IFMIS to ensure that the balances of the statement of assets and liabilities reconcile to the balances in IFMIS (CM)
Supporting counties in cleaning up the TB to ensure that any suspense balances are cleared.
Generation of complete and accurate financial statements from IFMIS.

14. 4. Overview of key activities undertaken (Continued)
g) Support in reconciliation of financial statements to IFMIS
The table below shows the status of actual receipts and payments captured in IFMIS for FY2017/2018:
From our analysis, the following counties are lagging behind in this process:
Wajir County is yet to capture any CARA receipts in IFMIS
Machakos, Marsabit and Wajir counties are yet to capture their OSR in IFMIS
Kisii, Turkana, Uasin Gishu, Nakuru, Vihiga and Tharaka Nithi counties are lagging behind in capturing payments in IFMIS having captured less than 50% of their total payments.
Details of actual captured per County will be discussed in a detailed session with the accountants
% captured
CARA receipts captured in IFMIS, compared to NT Disbursements records
88%
Own Source Revenue captured in IFMIS, compared to financial statements
73%
Payments captured in IFMIS, compared to financial statements
70%

15. 5. Recommendations
Counties should make use of the TA from PwC and the FRU. Kitui and Nyandarua counties have been very cooperative in this.
Counties should be open to PwC and FRU teams on audit queries raised by OAG – This way, audit queries can be resolved before audit finalization.
With improved system speed, counties should endeavor to ensure receipts and payments are posted in IFMIS and bank reconciliations performed in the system.
Counties to form task forces reporting to the CECM Finance with a key mandate of solving audit issues and tracking progress on any outstanding issues.

16. 5. Recommendations
County taskforces/ working groups liaising with NT and TA from PwC to solve variances between IFMIS and County Financial statements/ underlying records
As key accounting officers, set the right tone at the top.
Minimize staff transfers especially for key staff in the financial reporting.
Have internal quality review mechanisms at the county level to ensure financial statements are quality reviewed before submission to the relevant bodies.
Compliance with PFM Act reporting requirements

17. Feedback & interaction…
Let’s hear from you…