An Assessment of the Public Expenditure and Financial Accountability – Makueni County Kenya Institute for Public Policy Research and Analysis Special Paper No. 21 2019 An assessment of the public expenditure and financial accountability - Makueni County KIPPRA in Brief The Kenya Institute for Public Policy Research and Analysis (KIPPRA) is an autonomous institute whose primary mission is to conduct public policy research leading to policy advice. KIPPRA’s mission is to produce consistently high-quality analysis of key issues of public policy and to contribute to the achievement of national long-term development objectives by positively influencing the decision-making process. These goals are met through effective dissemination of recommendations resulting from analysis and by training policy analysts in the public sector. KIPPRA therefore produces a body of well-researched and documented information on public policy, and in the process assists in formulating long-term strategic perspectives. KIPPRA serves as a centralized source from which the Government and the private sector may obtain information and advice on public policy issues. Published 2019 © Kenya Institute for Public Policy Research and Analysis Bishops Garden Towers, Bishops Road PO Box 56445-00200 Nairobi, Kenya tel: +254 20 2719933/4; fax: +254 20 2719951 email: admin@kippra.or.ke website: http://www.kippra.org ISBN 9966 817 05 1 The KIPPRA Special Reports Series deals with specific issues that are of policy concern. The reports provide in-depth survey results and/or analysis of policy issues. They are meant to help policy analysts in their research work and assist policy makers in evaluating various policy options. Deliberate effort is made to simplify the presentation in the reports so that issues discussed can be easily grasped by a wide audience. KIPPRA appreciates any comments and suggestions arising from this report. 2 Acknowledgements The PEFA report for Makueni County was prepared by a team led by the KIPPRA Executive Director, Dr Rose W. Ngugi. The team members included Dr Christopher Hugh Onyango, Simon Githuku, Manasseh Otieno and Paul Odhiambo. The oversight committee which provided strategic guidance for the assessment comprised Dr Rose Ngugi, Dr Augustus Muluvi, Dr Christopher Onyango, Simon Githuku, Benson Kiriga, Dr Douglas Kivoi (from KIPPRA), Christine A. Owuor, Tim Williamson (from World Bank), Joseph Kungu (Council of Governors), Warui Maina, Joel Bett (PFMR Secretariat), Joshua Musyimi, Grace Kimitei (Office of the Controller of Budget) and George Otieno (Office of the Auditor General). The report benefitted from technical guidance from the lead consultant - Jean- Marc Philip and Samuel Kiautha. Other experts who contributed during the assessment period included Dr Bernadette Wanjala (KIPPRA) and Duncan Ndirangu (National Treasury), Maimuna Mohamed (Commission for Revenue Allocation), Fredrick Owino (State Department of Planning), Sylvanus Obondi (Office of the Auditor General) Robert Ng’ang’a (Kenya School of Government) and Kennedy Okoth (Kenya Revenue Authority). The report was reviewed by PEFA Secretariat, Jens Kristensen, Timothy Williamson, Kathy Whimp, Oleksii Balabushko, Eric Enagnon, Jane Kiringai and Christine Owuor (World Bank), Office of the Controller of Budget, the PFMR Secretariat, the Kajiado County government and SIDA. Also acknowledged are comments from other KIPPRA staffs as part of the internal peer review process. We appreciate the PEFA Secretariat for the quality assurance through the PEFA CHECK which ensured that the processes used in planning and implementing the assessment were of requisite standards. The assessment was done with financial support from the International Development Research Centre (IDRC) in collaboration with the World Bank (Kenya Office). The report could not have been completed without the support and collaboration of the County Government of Makueni. 3 Currency and indicative exchange rates Local currency unit = Kenyan Shilling (Ksh) 1 EUR = 118.7000 Ksh (December, 2017) 1 USD = 100.7520 Ksh UGX (March 2017) Fiscal Year: 1 July to 30 June EXECUTIVE SUMMARY The basis of the public expenditure and financial accountability (PEFA) assessment is to give a better understanding of how public finance management systems work, how the processes and the institutions are organized and to what extent they provide an entry point for public expenditure management (PFM) reform efforts in Makueni County. This assessment will become a benchmark for the upgrade of the PFM system(s) in counties that are still in the early stages of development. The assessment period covers the last three completed fiscal years (FY) after the introduction of the devolved system of government; that is, financial years 2013/14, 2014/15 and 2015/16 depending on the indicators and dimensions of the assessment. Main Outputs of the Assessment Fiscal discipline Budget reliability is hampered by a low rate of global budget execution and high level of reallocation. Variance in expenditure composition by economic and functional classification was more than 15 per cent over the three-year period. Aggregate expenditure outturn was below 85 per cent of the approved aggregate budgeted expenditure in the last three years. With less than 92 per cent in the last three years, actual revenue was also far below target, but this did not lead to a budget deficit because of the low rate of budget execution. The budget is prepared in accordance with National Treasury guidelines which require budget proposals to be presented using administrative, economic and programme-based approach using government finance statistics (GFS). However, budget execution and reporting is made only on the basis of administrative and economic classification. Expenditure outside government financial reports represents less than 5 per cent of the total BCG expenditure. They are also reported. All major investment projects are prioritized based on the established public participation framework, but no economic analysis are conducted to assess major investment projects. Only one public corporation operates in the county and has not prepared its AFS. Projection of major investment projects and total capital cost is included in the budget documents, and project monitoring is performed by technical departments and other stakeholders including the public, but no monitoring and evaluation reports are established. 5 An assessment of the public expenditure and financial accountability - Makueni County The county maintains a record of its holdings in all categories of financial assets, which are essentially cash at hand and its participation in one public enterprise. Rules for transfer or disposal of financial assets have been defined and partial information on transfers and disposal is included in the AFS. The county maintains a register of its holdings of fixed assets and updates records upon acquisition of new assets, but does not report information on their usage and age. Information on contingent liabilities is not provided in AFSs. The county has not acquired any debt and has not developed a debt management strategy and does not report the debt inherited from the defunct authority. The OAG recommends that the county expedites taking over of the assets and liabilities of the defunct local authorities in liaison with the Transition Authority. Strategic resource allocation Budget elaboration is based on a clear annual budget calendar. The CFSP reflects ministry ceilings, but they are not approved by the government before the first budget circular is issued. Medium-term fiscal forecasts are established, but the county does not prepare any fiscal policy scenarios. A report that describes progress made against its fiscal strategy is proposed to the legislature, but the reasons for any deviation from the objectives are not explained. Legislature’s review of strategic resource allocation and other elements of the budget proposal is based on organizational arrangements including specialized review committees, technical support, negotiation procedures and public consultation. The annual budget presents an estimate of expenditure for the budget year and the two following fiscal years, but these estimates are not supported by macroeconomic forecasts. Further, no explanation of changes to expenditure estimates between the second year of the last medium-term budget and the first year of the current medium-term budget is provided. The county only assesses proposed changes in revenue policies in the finance bill. Efficient service delivery No survey estimates of the resources received by service delivery units have been performed. Performance indicators for measuring the outputs or outcomes of the different ministries have not yet been put in place, but evaluations for services delivered have been performed by independent units, albeit not being published. Consequently, no information related to performance achieved for service delivery is being published. However, Auditor’s report is available in the website of the OAG, and on the website of the County Government of Makueni. 6 Executive summary Information on revenues is consolidated into a report, and revenue collections are transferred weekly to the Treasury. However, payers do not have sufficient access to information on their rights and obligations. Further, there are no systematic approaches for assessing and prioritizing compliance risks for revenue streams. Finally, no audit of revenue from any of the sources has been undertaken, while the stock of revenue arrears is above 40 per cent of the total revenue collection. Appropriate segregation of duties is clearly laid down and comprehensive expenditure commitment controls are in place. Budgetary units are provided with reliable information on commitment ceilings quarterly in advance and limit commitments to projected cash availability and approved budget allocations. However, significant in-year adjustments to budget allocations are done once a year. Changes to personnel and payroll records result in an audit trail. Reconciliation of the payroll with personnel records takes place at least every six months through a payroll audit. Required changes to the personnel records and payroll are updated in time and retroactive adjustments are rare, but there is no evidence that staff hiring is controlled by a list of approved staff positions. Payroll audits are periodically conducted. Regarding public procurement, legal and regulatory frameworks, bidding opportunities and data on resolution of procurement complaints are available to the public. However, no database is maintained to provide information for contracts, value of procurement or who has been awarded contracts, while open tendering was used for less than 40 per cent of the total procurement. The procurement complaint system is nevertheless compliant with good practices, except for charging fees that may prohibit access by concerned parties. In theory, internal audits are focused on evaluation of the adequacy and effectiveness of internal controls, but no quality assurance process has been put in place to show adherence to professional standards. Practically, internal audit remains focused on financial compliance, with an indication that most payments are compliant with regular payment procedures. Access and changes to records during budget implementation is restricted and recorded, but no operational body, unit or team has been established to verify financial data integrity. Monthly reporting on budget execution with production of quarterly budget implementation reports enables a partial follow up of service delivery. These reports produced on a cash basis provide a comparison between actual and budgeted expenditure with partial aggregation. Commitment expenditure are presented in a separate report. 7 An assessment of the public expenditure and financial accountability - Makueni County AFSs are generally completed and available for audit, respectively three and four months after the end of the year. They contain information on revenue, expenditure, financial assets, financial liabilities, guarantees, but not on long- term obligations. External audits of the county are still performed at the national level by the OAG. No independent constitutional body has been put in place at the county level. Material weaknesses are highlighted in the management letters that are issued to the County. For 2013/14, which was the first year of operation, the OAG stated that the County Executive and County Assembly had challenges in adhering to the existing PFM Regulation and Procedures, the Public Procurement and Asset Disposal Act 2015 and Regulations 2016 and to general human resources management policies and procedures. Consequently, the OAG did not give a positive opinion on the accounts. The OAG expressed a non-qualified opinion in its audit report for 2014/15, but a positive opinion on the accounts for 2015/16, which underlines a general improvement in the budget management and follow up by the county administration. The table below gives an overview of the scores for each of the PEFA indicators. ID_ Indicator Method 1 2 3 4 Global Indicator HLG-1 Transfers from a higher M1 B D D D+ level of government PI-1 PI-1. Aggregate M1 D D expenditure outturn PI-2 PI-2. Expenditure M1 D D A D+ composition outturn PI-3 PI-3. Revenue outturn M2 D D D PI-4 PI-4. Budget M1 C C classification PI-5 PI-5. Budget M1 D D documentation PI-6 PI-6. Central M2 D D D D government operations outside financial reports PI-7 PI-7. Transfers to sub- M2 N/A N/A N/A national governments PI-8 PI-8. Performance M2 D D D D D information for service delivery PI-9 PI-9. Public access to M1 D D fiscal information 8 PI-10 PI-10. Fiscal risk M2 C N/A D D+ reporting PI-11 PI-11. Public investment M2 D A C D C management PI-12 PI-12. Public asset M2 D D D D management PI-13 PI-13. Debt management M2 D N/A D D PI-14 PI-14. Macroeconomic M2 C C D D+ and fiscal forecasting PI-15 PI-15. Fiscal strategy M2 D B C C PI-16 PI-16. Medium M2 A D D D D+ term perspective in expenditure budgeting PI-17 PI-17. Budget M2 B C B B preparation process PI-18 PI-18. Legislative M1 A A C B C+ scrutiny of budgets PI-19 PI-19. Revenue M2 D D D D D administration PI-20 PI-20. Accounting for M1 A B C C+ revenue PI-21 PI-21. Predictability of in M2 D C B B C+ year resource allocation PI-22 PI-22. Expenditure M1 D D D arrears PI-23 PI-23. Payroll controls M1 D A D B D+ PI-24 PI-24. Procurement M2 D D C A C management PI-25 PI-25. Internal controls M2 A C B B on no salary expenditure PI-26 PI-26. Internal audit M1 B B D D D+ PI-27 PI-27. Financial data M2 B D D B C integrity PI-28 PI-28. In year budget M1 B B B B reports PI-29 PI-29. Annual financial M1 B D C D+ reports PI-30 PI-30. External audit M1 B B A A B+ PI-31 PI-31. Legislative M2 D D C D D scrutiny of audit reports 9 An assessment of the public expenditure and financial accountability - Makueni County 10 ABBREVIATIONS AND ACRONYMS CBIRR County Governments Budget Implementation Report CIDPs County Integrated Development Plans CoG Council of Governors CRF County Revenue Fund CRA Commission on Revenue Allocation CRF County Revenue Fund IFMIS Integrated Financial Management Information System IPPD Integrated Payroll Personnel Data ITRC Intergovernmental Technical Relations Committee IDA International Development Association IDRC International Development Research Centre IPSAS International Public Sector Accounting Standards KADP Kenya Accountable Devolution Programme KDSP Kenya Devolution Support Programme KSG Kenya School of Government MTEF Medium Term Expenditure Framework MCAs Members of the County Assembly NHIF National Hospital Insurance Fund NSSF National Social Security Fund OAG Office of the Auditor General OCoB Office of the Controller of Budget PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PFMR Public Financial Management Reforms PSASB Public Sector Accounting Standards Board SIDA Swedish International Development Assistance SRC Salaries and Remuneration Commission SCOA Standard Chart of Accounts SOP Standard Operating Procedure TSA Treasury Single Account 11 TABLE OF CONTENTS Acknowledgements ..................................................................................................3 Executive Summary .................................................................................................5 List of Acronyms .....................................................................................................11 1. Introduction .....................................................................................................17 1.1 Rationale and Purpose ....................................................................................17 1.2 Objectives of the PEFA Assessments ............................................................. 18 1.3 Assessment Methodology ............................................................................... 18 2. Makueni County Background Information ....................................................20 2.1 Economic Context ..........................................................................................20 2.2 Fiscal and Budgetary Trends ..........................................................................22 2.3 Legal and Regulatory Arrangements for PFM ...............................................25 2.4 Institutional Arrangements for PFM .............................................................28 3. Assessment of PFM Performance .................................................................. 31 3.1 Sub-national Government Profile .................................................................. 31 3.2 Pillar I: Budget Reliability ..............................................................................33 3.3 Pillar II: Transparency of Public Finances ....................................................42 3.4 Pillar III: Management of Assets and Liabilities ...........................................53 3.5 Pillar IV: Policy-based Fiscal Strategy and Budgeting ..................................63 3.6 Pillar V: Predictability and Control in Budget Execution .............................. 76 3.7 Pillar VI: Accounting and Reporting ..............................................................98 3.8 Pillar VII: External Scrutiny and Audit .......................................................106 4. Conclusions of the Analysis of PFM Systems ...............................................114 4.1 Integrated Assessment of PFM Performance ...............................................114 4.2 Effectiveness of the Internal Control Framework ........................................118 4.3 PFM Strengths and Weaknesses .................................................................. 122 5. Government PFM Reform Process .............................................................. 123 5.1 Approach to PFM Reforms ........................................................................... 123 5.2 Recent and On-going Reform Actions ......................................................... 124 5.3 Institutional Considerations ........................................................................ 125 13 An assessment of the public expenditure and financial accountability - Makueni County Annex 1: Performance indicator summary ......................................................... 126 Annex 2: Summary of observations on the internal control framework ............ 134 Annex 3: Sources of information ........................................................................ 138 Annex 3A: Calculation Sheet for PFM Performance Indicators PI-1 and PI-2 (i) ................................................................................................... 138 Annex 3B: Lists of persons who have been interviewed and provided information for the PFM Performance Report ................................................................. 142 Annex 3C: Sources of information used to extract evidence for scoring each indicator. ....................................................................................................... 142 Annex 3D: County government entities audited for the last 3 fiscal years. ....... 148 14 LIST OF TABLES Table 2.1: Basic economic data and indicators for Makueni County ...............21 Table 2.2: Aggregate fiscal performance data for the last 3 fiscal years (in % of total revenues) ....................................................................................... 23 Table 2.3: Budget allocations by sectors (as a % of total expenditures) ......... 24 Table 2.4: Budget allocations by economic classification (as a % of total expenditures) ..........................................................................................25 Table 2.5: Structure of the public sector (Ksh millions), 2015/16 .................. 29 Table 2.6: Financial structure of county government (Ksh millions), 2015/16 .................................................................................................. 29 Table 3.1: Parameters used to share revenue for the last 3 fiscal years .......... 32 Table 3.2: Estimate and actual revenue for the last 3 fiscal years (in million Ksh and in %) ....................................................................... 32 Table 3.3: Source of revenue for the last 3 fiscal years (in million Ksh and in %) ......................................................................................... 33 Table 3.4: Aggregate expenditure outturn (%) ................................................ 34 Table 3.5: Expenditure composition outturn by administrative/function classification (Ksh millions and %) ....................................................... 36 Table 3.6: Expenditure composition outturn by economic type (Ksh millions and %) .....................................................................................................37 Table 3.7: List of contingency items for the fiscal years2015/16 (Ksh millions) ........................................................................................ 38 Table 3.8: Updated contingency items for the fiscal year 2015/16 (Ksh millions) ........................................................................................ 39 Table 3.9: Aggregate revenue outturn (%) ........................................................41 Table 3.10: Revenue Composition Outturn for the last 3 fiscal years (Ksh millions) ................................................................................................. 42 Table 3.11: Compliance of elements contained in the budget documentation with basic elements of the PEFA methodology ..................................... 45 Table 3.12: Categories of non-financial assets, 2014/15 and 2015/16 (Ksh millions) ................................................................................................. 60 Table 3.13: Forecasting for total revenue and expenditure for the budget year and the two following years. .......................................................... 65 Table 3.14: Budget calendar 2015/16 ............................................................... 70 Table 3.15: Deadlines of the budget calendar and compliance for 2015/16 and 2016/17 ..............................................................................72 Table 3.16: Payroll adjustments in the 2015/16 (Ksh millions and %) ........... 87 Table 3.17: Fees for review by the Public Procurement Administrative Review Board according to amount of tender (Ksh) ......................................... 93 Table 3.18: Procurement complaints management ......................................... 93 Table 3.19: Different stages of control of budget execution ............................ 95 Table 3.20: County imprests and clearance accounts (Ksh millions) ............ 101 15 An assessment of the public expenditure and financial accountability - Makueni County Table 3.21: Submission of audit reports to the legislature ............................ 108 Table 3.22: Timing of audit reports .................................................................111 16 1. INTRODUCTION 1. This sub-national PEFA assessment seeks to ascertain the performance of the PFM system of county governments using the PEFA methodology. So far, the Government of Kenya has gained experience in application of the PEFA methodology by undertaking four national PEFA assessments over the years, the latest carried out in 2017 and report due for completion in 2018. However, this is the first sub-national assessment to be carried out in Kenya following adoption of a devolved system of government. It is notable that the national and sub-national PEFA assessments are almost being done concurrently and this is important because both levels of government share the same PFM system, implying that evidence-based reforms can be implemented simultaneously after areas that require improvements are identified. The sub-national assessments, which covered six (6) out of forty-seven (47) counties, have been jointly financed by the World Bank and IDRC through KIPPRA. 1.1 Rationale and Purpose 2. The main rationale of this assessment is to give a better understanding of the PFM systems, processes and institutions that will provide an entry point for PFM reform efforts at the county level. This would then be used to leverage on existing capacity building efforts, e.g. PFMR Strategy, National Capacity Building Framework, World Bank Kenya Accountable Devolution Programme (KADP) and KDSP. The findings will further facilitate identification of capacity needs especially in terms of human capacity gaps in different components of PFM system in the counties for which KIPPRA seeks to strengthen as part of its capacity building and policy development mandates. 3. The assessment will also be useful in identifying priorities for PFM reforms in the future to ensure sustainable, effective and transparent allocation and use of public resources. The PEFA assessment will become a benchmark for the upgrade of the PFM systems in Kenya’s counties, which are still in early stage of development. Indeed, fiscal discipline and efficient allocation of resources according to the priorities of the County of Makueni are viewed as important prerequisites to deployment of a well-functioning public finance system. 17 An assessment of the public expenditure and financial accountability - Makueni County 4. Effective PFM institutions and systems in county governments are important for the successful implementation of devolution. The PEFA assessments are founded on the principles of openness, accountability and public participation in public finance a contained in Section 201 (a) of the Constitution of Kenya 2010. Their assessment will provide a baseline of current state of PFM within the county and for the entire financial system and indicate areas that require improvements. National and county PEFA assessments are almost being done concurrently, which is important because both levels of government share the same PFM system, implying that evidence-based reform agenda can be implemented simultaneously after areas that require improvements are identified. 5. Apart from Makueni, the other counties which voluntarily expressed interest in undertaking the PEFA assessments were Baringo, Kajiado, West Pokot, Nakuru and Kakamega. It should be noted that the selected counties do not represent particular interests, neither is there a basis for comparison of their performances. 1.2 Objectives of the PEFA Assessments The specific objectives of the PEFA assessment in Makueni county include the following: (a) Assess the state of financial management capacities in the county government; (b) Identify gaps in terms of capacity, systems, policies and processes in PFM in the county; (c) Provide basis for informing entry points for PFM reform engagements in counties that will be used to leverage on existing capacity building efforts; and (d) Facilitate and develop self-assessment capacity at the county level and build capacities of key staff to carry out assessments in the future. 1.3 Assessment Methodology Coverage of the assessment 6. This sub-national PEFA assessment covers the county of Makueni and is part of the assessment covering one-eighth of the counties in Kenya, which totals to six (6) counties. Kajiado, Baringo, Makueni, West Pokot, Nakuru 18 Introduction and Kakamega counties expressed their interest in undergoing a PEFA assessment and commitment to design and implement a reform agenda based on the assessment. 7. The assessment applies the PEFA 2016 methodology and specifically the supplementary version meant for sub-national entities. Sub-national PEFA uses the same indicators as the national ones, but with some modifications. The main modification is the introduction of “HLG” indicators for assessing transfers and earmarked grants to counties by the national government. Sources of information 8. The key documents that have been used in the assessment are mainly: (i) Constitution of Kenya, 2010; (ii) Government of Kenya Review of the Public Finance Management Reforms (PFMR Strategy) 2013-2018 report (2016); and (iii) the Public Finance Management (PFM) Act 2012. The exhaustive list of all documents and materials used and referred to in this PEFA assessment is contained in the Annex 3C. 19 An assessment of the public expenditure and financial accountability - Makueni County 2. MAKUENI COUNTY BACKGROUND INFORMATION 2.1 Economic Context An overview of the Kenyan economy 9. Kenya has a unitary but devolved system of government consisting of the National and 47 County Governments as provided in the Constitution. All counties do not have detailed economic data such as GDP growth, inflation rates etc. However, the Kenya National Bureau of Statistics (KNBS) has developed county-specific statistical abstracts. The National Treasury together with the World Bank is set to undertake compilation of county- specific Gross Domestic Products (GDPs). 10. The Kenyan economy has sustained its robust growth in the past decade supported by significant structural and economic reforms. The economy grew by 5.7 per cent, 5.9 per cent and 4.9 per cent in 2015, 2016 and 2017, respectively. The leading sectors in growth during 2017 included tourism, building and construction, transport and ICT. The agriculture sector declined tremendously to 1.6 per cent from 5.1 per cent the previous year due to drought coupled with pests and diseases. 11. Inflation rate in 2017 was 8.0 per cent, a rise from 6.3 per cent in 2016. The inflationary pressure was mainly attributed to significant increases in oil, and high food prices. 12. Economic growth is expected to accelerate during the year 2018 due to improved political stability and favourable macroeconomic environment. In addition, on-going investments in infrastructure, improved business confidence and strong private consumption are likely to support a strong growth. Besides, favourable climatic conditions are likely to boost agriculture production and electricity and water sectors, hence support manufacturing growth. However, rising oil prices and depressed growth of credit to the private sector which started in 2016 are likely to undermine the growth prospects. The adverse effects are likely to be offset by the strong favourable factors and result into better growth in 2018. Overview of Makueni county economy 13. Makueni County is one of the forty-seven counties in Kenya. It is situated in South Eastern part of the country. It borders Machakos County to the north, Kitui County to the east, Kajiado County to the west and Taita Taveta County 20 Makueni County background information to the south. The county lies in the arid and semi-arid zones of the eastern region of the country. The major physical features in Makueni County include the volcanic Chyulu hills which lie along the southwest border of the county in Kibwezi West constituency, Mbooni Hills in Mbooni constituency and Kilungu Hills in Kaiti constituency which rise to 1,900m above sea level. The county terrain is generally low-lying from 600m above sea level in Tsavo at the southern end of the county. 14. The county is currently divided into nine (9) sub-counties and twenty-five (25) divisions. The sub-counties are Makueni, Kilungu, Mukaa, Kibwezi, Kathonzweni, Makindu, Mbooni East, Mbooni West and Nzaui. There are six parliamentary constituencies, namely Kaiti, Makueni, Kibwezi East, Kibwezi West, Mbooni and Kilome. There are 30 county assembly wards. The main economic activities are: subsistence agriculture, beekeeping, small-scale trade, dairy farming and limited coffee growing, ecotourism and commercial businesses. In the year 2014, the projected population in the county was 939,879 consisting of 461,688 males and 478,191 females. The 2015 projected population in the county was 961,738 consisting of 468,298 males and 493,440 females. This is an increase from 884,253 persons as per the 2009 by Kenya National Population and Housing Census. The key socio- economic indicators for Makueni County are presented in a Table 2.1. Table 2.1: Basic economic data and indicators for Makueni county Indicator Value Area (km2) 8,008.7 No. of constituencies 6 County assembly wards 30 Population 939,879 Population density per km2 100 Wage employment by sector 15,084 National government 3,263 County government 1,437 Teachers Service Commission (TSC) 10,384 ECDE centres: 1510 Public Private No. of primary schools: Public 894 21 An assessment of the public expenditure and financial accountability - Makueni County Private 103 No. of secondary schools: Public 358 Private 78 No. of health facilities 156 Doctor to population ratio 1/22,712 Data source: Commission on Revenue Allocation (CRA), CIDP and Makueni County Statistical Abstract 2015 2.2 Fiscal and Budgetary Trends Revenue performance 15. According to Article 203 of the Constitution of Kenya 2010, a minimum of 15 per cent of the total audited revenue collected by the National Government should be disbursed to County Governments every fiscal year. Counties are also supposed to collect their own revenues to fund their operations, but internal revenue generation has been low accounting for approximately 2 per cent of the county resource envelope (Table 2.2). 16. During 2015/16, the County received Ksh 5,970 million from the national shareable revenue as equitable share from the National Government. Transfers had a 14.6 per cent increase in comparison to the previous year. 17. During 2015/16 , the county collected Ksh 221 million as own source revenue against a target of Ksh 280 million. Revenue collection increased by 1.2 per cent compared to 2014/15. However, the collected revenue declined by 0.65 per cent as a proportion of total budget. The shortfall in revenue collection was partly attributed to delays in passing the 2015 Finance Bill and inadequate legal and institutional framework, delayed revenue automation and weaknesses in collection mechanisms. The county also collected Ksh 124.7 million in respect of Appropriations in Aid (AIA) against a target of Ksh 89 million, which was a 40 per cent increase above the target. The 6 constituencies’ allocations had an upward trend from total allocations of Ksh 508.5 million in 2013/14 to Kshs 79.431 million in 2015/16. Expenditure performance 18. The total expenditure for 2015/16 amounted to Ksh 5,520 million, which was the highest compared to the previous years. The County Executive received Ksh 6,464 million for both development and recurrent expenditure. The actual expenditure and commitments amounted to 78.2 per cent of 22 Makueni County background information the budget. Despite the increase in the resource envelope, a reduction in investments was noted in some sectors that are fully devolved such as health, roads and agriculture. The performance expenditure and revenue of Makueni County is illustrated in Table 2.2. Table 2.2: Aggregate fiscal performance data for the last 3 fiscal years (in % of total revenues) 2013/2014 2014-2015 2015-2016 Receipts 0.0 0.0 0.0 Tax receipts 0.0 Social security Ccontributions 0.0 Proceeds from domestic and 0.1 0.5 1.9 foreign grants Exchequer releases 93.0 95.7 92.3 Transfers from other government 1.3 1.2 entities Proceeds from domestic 0.0 borrowings Domestic currency and domestic 0.1 deposits Proceeds from sale of assets 0.0 Reimbursements and refunds 0.0 Returns of equity holdings 0.0 Other receipts 5.5 3.8 4.6 Total receipts 100.0 100.0 100.0 Payments 0.0 0.0 0.0 Compensation of Eemployees 34.9 35.6 35.0 Use of goods and services 17.5 18.7 27.0 Subsidies 0.0 Transfers to other government 9.6 2.3 1.3 entities Other grants and transfers 2.4 2.2 1.2 Social Ssecurity benefits 0.0 Acquisition of assets 10.0 18.8 20.6 Finance costs, including loan 0.0 0.1 interest 23 An assessment of the public expenditure and financial accountability - Makueni County Repayment of principal on 0.0 domestic and foreign borrowing Other payments 2.8 0.1 0.0 0.0 0.0 Total payments 77.2 77.6 85.4 0.0 0.0 Surplus/Deficit 22.8 22.4 14.6 Source: AFSs 19. Table 2.3 presents actual budgetary allocations by sectors (as a % of total expenditures). According to this table, the largest budgetary allocation goes to the Health Department and General Public Service. Table 2.3: Budget allocations by sectors (as a % of total expenditures) Functional head 2013/14 2014/15 2015/16 General public services 20.6 26.5 19.0 Department of Lands, Physical Planning 4.4 2.0 1.5 and Mining Department of Trade, Tourism and 4.2 2.9 3.1 Cooperatives Department of Gender, Youth and Social 4.6 3.3 3.1 Services Department of Finance and Socio- 4.4 4.4 9.1 Economic Planning Department of Education and ICT 5.6 7.8 7.1 Department of Transport and Infrastructure 7.4 6.3 8.8 Department of Agriculture, Livestock and 6.9 7.8 6.1 Fisheries Development Department of Water, Irrigation and 7.3 9.0 11.7 Environment Department of Health 27.5 29.9 30.5 Donor-funded projects 7.1 0.0 0.0 Total 100.0 100.0 100.0 Source: CBROPs 20. According to the economic classification, the 2014/15 budget ratios for recurrent and development budget were 51.87 per cent and 48.13 per cent, respectively. Out of the overall expenditure in 2015/16, the recurrent 24 Makueni County background information and development expenditure stood at 72.2 per cent and 27.8 per cent, respectively. The expenditures on salaries were 46 per cent of the total expenditures while expenditure on operations and maintenance was 26 per cent of the total expenditure. The delay in approval of the 2014/15 budget led to delays in implementation of development programmes. Table 2.4 presents actual budgetary allocations by economic classification. Table 2.4: Budget allocations by economic classification (as a % of total expenditures) Economic head 2013/14 2014/15 2015/16 Compensation of employees 28.1 0.0 32.5 Use of goods and services 33.1 0.0 26.4 Consumption of fixed capital 38.8 100.0 41.1 Interest 0.0 0.0 0.0 Other expenses 0.0 0.0 0.0 Total expenditure 100.0 100.0 100.0 Source: AFSs 2.3 Legal and Regulatory Arrangements for PFM 21. The 2010 Constitution introduced significant changes to the political system of governance of Kenya. There are presently two levels of government: National Government and 47 County Governments that are described in Chapter 11 of the Constitution of Kenya. The legal and regulatory framework providing support for public finance management in the county of Makueni derives from the Constitution, Acts and Regulations developed by the National Government and which are as follows: • The Constitution of Kenya (2010) Chapter 11 and 12. Principles of Public Finance are contained in Article 201. Institutional arrangements for PFM including the Commission on Revenue Allocation (Article 216), the National Treasury (Article 225(1)), Controller of Budget (Article 228), Auditor General (Article 229), Salaries and Remuneration Commission (Article 230), Central Bank of Kenya (Article 231), Parliament (Article 93) and County Assemblies (Article 176 (1)). Article 227 (2) provides for the creation of a framework for procurement and asset disposal by all public entities through an Act of Parliament. • The Public Financial Management Act (2012): Part IV of this Act details 25 An assessment of the public expenditure and financial accountability - Makueni County responsibilities with respect to management of public funds in the counties. This Act covers all PFM aspects including but not limited to the budget-making process and public participation; operation of a Treasury Single Account (TSA); financial accounting and reporting; internal auditing, among others. Section 103 creates the County Treasury whose general responsibilities and powers in relation to public finance are spelt out in Sections 104 and 105. According to Section 106, upon request, the National Treasury can second public officers to the County Treasury to enhance its capacity. Section 107 places the role of enforcing fiscal responsibility principles as contained in Chapter 12 of the Constitution on the County Treasury. The County Treasury is responsible for some of the key documents related to public finance such as the Budget, County Fiscal Strategy Paper (CFSP) and County Budget and Review Outlook Paper (CBROP) and thereafter present them to the County Assembly. • The Public Financial Management Regulations (2015) for County Governments: Some highlights include: strengthening of inter- governmental fiscal relations; restricting wages to 35 per cent of realized revenue; development budgets should be 30% of total budget, etc. • The Public Procurement Asset and Disposal Act (2015): The Act provides for procedures for efficient public procurement and procedures for disposal of assets by public entities. The regulations are under development. • Public Audit Act (2015): Provides for the organization, the functions and the powers of the Office of the Auditor-General (OAG), which are spelt out in accordance with the Constitution. The Auditor General is required to present audit reports to Parliament and relevant county assemblies six months after the end of the fiscal year. Under Section 4, the OAG was established, replacing the Kenya National Audit Office (KENAO). Section 10 provides explicitly for the independence of the Auditor General. Section 11 significantly reinforces the process for selecting competent persons to the position of the Auditor General in case of any vacancy. The President may nominate a candidate and submit it to Parliament for its approval. Section 24 provides for outsourcing. Section 25 provides for an Audit Advisory Board in place of the National Audit Commission (established under the 2003 Act to consider and approval of the annual budget for KENAO and to determine the remuneration and other terms of appointment of staff). It affirmed that only a person registered and practicing as an accountant under the Accountants Act 2008, should be qualified for the purpose of provision of a financial audit opinion. Sections 47-48 provide for the auditing of 26 Makueni County background information financial statements required by the PFM Act (2012) and the time deadlines to be adhered to. Framework for the devolved system of government The Constitution of Kenya 2010 introduced two levels of governments, namely the National and County Governments. The legal and regulatory framework providing support for PFM in the County Government of Makueni, are Chapter(s) 11 and 12 on devolved governments and principles of public finance, respectively. A fundamental change was the major devolution of central government responsibilities to 47 newly created county governments (Chapter 11, Articles 174-200). Part 2 of the Fourth Schedule enlists fourteen (14) roles and functions of the county governments. They are, namely: 1. Agriculture; 2. County health services; 3. Control of air pollution, noise pollution, other public nuisances and outdoor advertising; 4. Cultural activities, public entertainment and public amenities; 5. County transport; 6. Animal control and welfare; 7. Trade development and regulation; 8. County planning and development; 9. Pre-primary education, village polytechnics, home craft centres and childcare facilities; 10. Implementation of specific national government policies on natural resources and environmental conservation; 11. County public works and services; 12. Firefighting services and disaster management; 13. Control of drugs and pornography; and 14. Ensuring and coordinating the participation of communities and locations in governance at the local level and assisting communities and locations to develop the administrative capacity for the effective exercise of the functions and powers and participation in governance at the local 27 An assessment of the public expenditure and financial accountability - Makueni County The county governments comprise the Executive, headed by elected Governors and the county assemblies comprising of elected members. The counties are also represented by Senators who are elected and constitute the Senate, which is the upper house of Parliament. Institutional arrangements for PFM include the Commission on Revenue Allocation (Article 216), the National Treasury (Article 225(1)), Controller of Budget (Article 228), Auditor General (Article 229), Salaries and Remuneration Commission (Article 230), Central Bank of Kenya (Article 231), Parliament (Article 93) and County Assemblies (Article 176 (1)). Article 227 (2) provides for the creation of a framework for procurement and asset disposal by all public entities through an Act of Parliament. Generally, internal and external controls are performed at the national level. Internal control is made by the Controller of the Budget (COB) through IFMIS while external control is performed by the Office of the Auditor General (OAG). The legal framework under the 2012 PFM Act and its Regulations also apply to county governments. The Policy on Devolved System of Government (2015) has identified institutional, inter-governmental and resource-related challenges to be overcome to improve implementation and service delivery. 2.4 Institutional Arrangements for PFM 22. According to the County Government Act 2012, a county is comprised of the County Executive headed by a Governor and a County Assembly comprising Members of the County Assembly (MCAs) representing the Wards. The County Governor is responsible for the general policy and strategic direction of the county. The Constitution transferred various powers and functions (including limited fiscal authority) to the counties. This is in recognition of fiscal decentralization as a mechanism for enhancing delivery of social services at the grassroots and promoting enhanced accountability. Moreover, a central objective of the Constitution was to promote good governance in PFM through the establishment of sound institutional and regulatory environment at both national and county levels. 23. Members of the County Executive are nominated by the Governor but their appointment has to be approved by the County Assembly. Part IV of the PFM Act 2012 gives the county government the responsibility of managing public finances in the county. Section 103 of PFM Act 2012 establishes the County Treasury comprising the County Executive Committee (CEC) member in charge of finance, the Chief Officer (CO) and department(s) of the County Treasury responsible for financial and fiscal matters. According to Section 28 Makueni County background information 103 (3), the CEC member for finance shall be the head of the County Treasury. The COs are the chief accounting officers in their respective departments. 24. In addition to its primary function of passing legislation, the County Assembly also approves nominees to other county public service offices. Most of the MCAs are elected during a General Election but some are also nominated by political parties. The County Assembly has the oversight role over the County Executive in terms of use of public finances. Key public finance documents such as the budgets, CFSP and CBROPs have to be presented by the County Executive for approval. All funds including Emergency Funds and any other funds by the County Executive must be approved by the County Assembly. 25. The County Government Act 2012 also outlines the structure and operation of county governments as comprising Sub-Counties, Wards and Villages. The structure of the public sector and public finances in Makueni County is presented in Tables 2.5 and 2.6. Table 2.5: Structure of the public sector (Ksh millions), 2015/16 Government sub-sector Social Public corporation sub- security sector funds[1] Budgetary Extra- Non- Financial Unit budgetary financial public Units public corporations corporations County 6,981.0 [2] N.A N.A N.A N.A government Source: AFS 2015/16 Notes: 1 /Social security fund are still managed at the national level; 2/ Budgetary county government comprises all county government entities included in the county government budget. Table 2.6: Financial structure of county government (Ksh millions), 2015/16 Budgetary Extra Social Total unit budgetary security units funds Revenue 6,464.7 n.a. n.a. 6,464.7 Expenditure 5,520.4 n.a. n.a. 5,520.4 29 An assessment of the public expenditure and financial accountability - Makueni County Transfers 85.3 n.a. n.a. 85.3 to County Assembly Liabilities 7.4 n.a. n.a. 7.4 Financial 1,331.9 n.a. n.a. 1,331.9 assets Non-financial 668.7 n.a. n.a. 668.7 assets Source: AFS 2015/16 26. Public participation is part of the Constitution of Kenya and is stipulated as a function of Makueni county covernment. Sections 87 to 92 and 115 of the County Governments Act 2012 outline the principles of public participation and the imperative for facilitating public participation in the work of the county government. 30 3. ASSESSMENT OF PFM PERFORMANCE 3.1 Sub-national Government Profile Summary of scores and performance table Performance sub-national D+ Brief justification for score PEFA indicators (M1) HLG-1.1 Outturn of transfers B Actual transfers have represented from higher-level government at least 90% of the original budget estimate in the last three years HLG-1.2 Earmarked grants D* The breakdown of the conditional outturn grants originating from the national government is not available for the last 3 years HLG-1.3 Timeliness of D* Actual transfers normally distributed transfers from higher-level quarterly across the year through government IFMIS but actual dates were not provided HLG-1.1: Outturn of transfers from higher-level government 27. Article 216 mandates the Commission to make recommendations on the equitable basis for revenue sharing among county governments. Article 217 (1) mandates the Senate to determine once every five years the basis for allocating among counties the share of national revenue that is annually allocated to county governments. The Sixth Schedule Section 16 provides for preparation of the first and second basis of sharing revenue to be made at three-year intervals. The first formula was approved by the 10th Parliament in November 2012. 28. The Formula reported in the Table 3.1 has been used to share revenue for financial years 2012/13, 2013/14, 2014/15 and 2015/16. The CRA recommends to introduce a development factor of 1 per cent and to reduce basic equal share by the same level. 31 An assessment of the public expenditure and financial accountability - Makueni County Table 3.1: Parameters used to share revenue for the last 3 fiscal years Parameter Current formula (%) Population 45% Basis equal share 25% Poverty 20% Land area 8% Fiscal responsibility 2% Total 100% Source: Commission of Revenue Allocation 29. According to Annual Financial Statements (AFS), the main sources of revenue for the county governments in Kenya are equitable share, conditional grants and own source revenues. Local revenues are not covered by HLG-1, and grants from international organizations (see PI-3). Table 3.2 presents the breakdown of these different sources of revenue. It indicates that actual transfers represented 92.5 per cent of total revenue in 2013/14, 93.9 per cent in 2014/15 and 91.1 per cent in 2015/16. Table 3.2: Estimate and actual revenue for the last 3 fiscal years (in Ksh millions and in %), 2015/16 Economic Head Budget Actual Ex. rate (%) 2013/14 4,721 4,366 92.5% 2014/15 5,557 5,216 93.9% 2015/16 6,989 6,368 91.1% Source: Annual Financial Statements In summary, actual transfers represented less than 95 per cent but more than 90% per cent of the original budget estimate in all of the last three years. Dimension rating =B. HLG-1.2: Earmarked grants outturn 30. We assume earmarked revenues to be grants from the national government, as earmarked grants can only be part of this item. Grants from international organizations are considered in PI-3. Table 3.3 represents the amounts of equitable share and conditional grants from the government. 32 Assessment of PFM performance Table 3.3: Source of revenue for the last 3 fiscal years (in million Ksh and in %) 2013/14 2014/15 2015/16 Economic head Budget Actual Ex. Budget Actual Ex. Budget Actual Ex. Rate Rate Rate Equitable share 4,366 4,366 100.0% 5,194 5,194 100.0% 5,970 5,970 100.0% Conditional grants from 0 0 - 144 0 0.0% 362 187 51.7% government Total revenue 4,721 4,366 92.5% 5,557 5,216 93.9% 6,989 6,368 91.1% Note: Ex. Rate= expenditure rate According to the PEFA supplementary guidance, “This dimension should be assessed on the same basis as PI-2. All transfers that are not earmarked should be counted in aggregate as one component of earmarking. Discrepancies in all other transfers should be considered sector by sector, corresponding to the 10-part Classification of the Functions of Government (COFOG) of the United Nations, or any similar classification to the extent it is applicable.” However, the breakdown of the conditional grants originating from the national government was not available. Dimension rating = D*. HLG-1.3: Timeliness of transfers from higher-level government 31. According to PFM law, equitable share estimates must be included in the Budget Policy Statement, which must be presented and adopted by Parliament in February or March. In summary, transfers should be released quarterly across the year through IFMIS, but actual dates were not provided. Dimension rating =D*. 3.2 Pillar I: Budget Reliability A budget is reliable if it is implemented in accordance with the approved estimates before the beginning of the financial year. To determine the extent to which this is the case, three indicators, namely aggregate expenditure outturn, expenditure composition outturn, and revenue outturn were examined for the financial years 2013/14, 2014/15 and 2015/16. PI-1: Aggregate expenditure outturn Summary of scores and performance table 33 An assessment of the public expenditure and financial accountability - Makueni County PI-1 Aggregate D Brief justification for score expenditure outturn (M1) 1.1 Aggregate expenditure D Aggregate expenditure outturn was below outturn 85% of the approved aggregate budgeted expenditure in the last three years 32. Table 3.4 presents the budgeted and actual total expenditure for the years 2013/14 to 2015/16. It shows that the absorption rate of the approved budget was low at 66.6 per cent during 2013/14, 78.6 per c cent in 2014/15 and 78.6 per cent in 2015/16. The low absorption in 2013/14 was because it was the first year of implementation of the devolved system of government in Kenya. In 2013/14, the budget was approved in November 2013, giving the county only 7 months to implement the budget, which caused the low absorption rate of 67 per cent. This affected procurement and implementation of projects. 33. In 2014/15, the County Assembly adjusted the budget submitted by the County Executive. The adjusted budget was approved by the assembly and an appropriation Act enacted. The County Executive did not assent to the Act because the CEC finance was not consulted in the adjusted process which is a requirement of the law. The budget that was agreed on was passed in March 2015, giving only 3 months for budget implementation. The county was undergoing a process of being dissolved, causing minimal spending restricted to recurrent only through vote on account. 34. The implementation of the budget faced litigation in 2013/14. The key officers in the implementation team have been reinstated and the county has established an implementation taskforce to address the low absorption rate accumulated over the three years. Table 3.4: Aggregate expenditure outturn (%) Fiscal Year Budget Actual Total expenditure deviation (%) 2013/14 5,071.2 3,379.9 66.6% 2014/15 5,627.5 4,421.7 78.6% 2015/16 7,026.9 5,520.4 78.6% Source: CBROPs 34 Assessment of PFM performance In summary, aggregate expenditure outturn was below 85 per cent of the approved aggregate budgeted expenditure in the last three years. Dimension rating = D. PI-2: Expenditure composition outturn Summary of scores and performance table PI-2 Expenditure D+ Brief justification for score composition outturn (M1) 2.1 Expenditure D Variance in expenditure composition by composition outturn by administrative/functional classification was function more than 15 per cent in the last three years 2.2 Expenditure D Variance in expenditure composition by composition outturn by economic classification was more than 15 per economic type cent in the last three years 2.3 Expenditure for A The actual expenditure charged to Contingency reserve contingency was on average less than 3% of the original budget PI-2.1: Expenditure composition outturn by function 35. Table 3.5 shows expenditure composition outturn for 2013/14 to 2015/16. Having observed low absorption for the last three subsequent years, this scenario is also reflected in the expenditure composition outturn by economic type. Actual expenditures were lower than budgeted figures across all the years. There was a bigger variance during 2013/14 financial year compared to the two subsequent years, with an average variance of 43.6 per cent. The expenditure composition outturn deviation by function was 29.2 per cent in the 2014/15 and 36.8 per cent in 2015/16. 36. The Department of County Public Service Board, Department of Devolution and Public Service, County Assembly and Health spent the largest shares of their budgets. The departments of Gender, Youth and Social services; Trade, Tourism and Cooperatives; Water, Irrigation and Environment, County Attorney’s Office, and ICT had the largest variations between the budgeted and actual expenditure. Explanations about the deviations of expenditure from budgets were not available. Even though there was a budgetary allocation for donor-funded projects, there were no actual expenditures. 35 An assessment of the public expenditure and financial accountability - Makueni County Table 3.5: Expenditure composition outturn by administrative/ function classification (Ksh millions and %) Functional head 2013/14 2014/15 2015/16 Budget Actual Budget Actual Budget Actual County Attorney’s Office 23.4 8.3 47.9 30.6 43.6 76.4 Department of ICT 118.9 46.9 57.4 81.3 0 5 County Public Service Board 27.8 27.8 43 42.8 51 52.7 Department of Lands, 222 99.9 113 129.1 105.6 82 Physical Planning and Mining Office of the Governor 108.5 99.7 140.2 151.7 174.6 201.1 Department of Trade, 212 65.6 161.9 170.9 215.7 118.5 Tourism and Cooperatives Department of Gender, 233.1 64 182.9 116.2 219.4 135.1 Youth and Social Services County Secretary 181.9 79.9 64.1 217.2 109.6 194 Department of Finance and 222.8 214.4 47 287.4 635.6 503.3 Socio-Economic Planning Department of Education 280.8 165.7 436.7 330.7 498.5 300.1 and ICT Department of Transport 370.3 204.6 351.1 361.1 610.9 287.2 and Infrastructure Department of Agriculture, 345.3 221.2 434.6 252.2 423.3 321.8 Livestock and Fisheries Development Department of Water, 366.7 120.5 502.8 314.3 820 525.6 Irrigation and Environment Department of Health 1385.3 1373.7 1664.7 1333.7 2128.8 1780.3 County Assembly 577.5 566 913.8 517.1 664.7 237.2 Donor-funded projects 354.9 0 0 670.8 Department of Devolution 11.4 49.7 279.7 0 and Public Service Contingency 40 21.8 55.1 35.7 45.9 28.9 Total 5,071.2 3,379.9 5,627.5 4,421.7 7,026.9 5,520.4 Composition variance (%) 43.60% 29.20% 36.80% Source: Annual original budget and programme implementation report for Makueni County Variance in expenditure composition by administrative/functional classification was more than 15 per cent in the last three years. Dimension rating =D. 36 Assessment of PFM performance PI-2.2: Expenditure composition outturn by economic type 37. The County Treasury and the Chief Officers administer expenditures according to administrative, economic, and programming classifications. The extent of variance between actual and budgeted expenditure by composition of expenditure by economic type is presented in Table 3.6. Actual expenditure deviated from the original budget appropriation by 31%, 140% and 27.4% during the FYs 2013/14, 2014/15 and 2015/16 respectively. The result is heavily influenced by fluctuations in consumption of fixed capital and compensation of employees, the two largest items in the budget. Table 3.6: Expenditure composition outturn by economic type (Ksh millions and %) 2013/14 2014/15 2015/16 Economic head Budget Actual Budget Actual Budget Actual Compensation of 1,426 1,477 2,228 2,024 2,287 2,266 employees Use of goods and 1,679 1,069 1,528 1,071 1,855 1,744 services Consumption of 1,966 834 1,871 1,327 2,886 1,510 fixed capital Total expenditure 5,071 3,380 5,628 4,422 7,027 5,520 Composition 31.0% 140.0% 27.4% variance (%) Source: AFSs The analysis shows a particularly low execution rate of consumption of capital and thus a significant amount of unutilized budget. One of the reasons for the deviation was the late approval of the budget. For instance, the 2014/15 budget was approved on 4th March 2015, leaving the county with a short period of time to implement the development programmes (see PI-18.3). The report of the OAG for 2013/14 showed that there was no budgetary provision for the construction of County Government of Makueni office block, Governor and Deputy Governor’s residencies, which makes deviation even more important. The under-spending of budgeted recurrent expenditure indicates that the county’s budget was not realistic for all the financial years under review. However, the execution rate of compensation of employees was the highest of all categories and even exceeded 100 per cent in 2013/14. In summary, variance in expenditure composition by economic classification was more than 15 per cent in the last three years. 37 An assessment of the public expenditure and financial accountability - Makueni County Dimension rating = D. PI-2.3: Expenditure for contingency reserve 38. The assessment revealed that there was no officially approved contingency fund in the county. A legal framework is required to create a contingency reserve fund even though an emergency reserve fund is already in existence. However, an emergency fund is created to cater for unforeseen circumstances. Information on contingent liabilities can be found under the emergency fund. 39. Table 3.7 summarizes the use of emergency funds for the year ended 30th June 2016 as reported to County Assembly as emergency funds report. Items of the energy fund are identified in the Standard Chart of Accounts. However, the external audit on financial statements for 2013/14 discloses that the county government made payments of Ksh 13.78 million for the supply of emergency materials and construction of various projects under emergency expenditure category. The County Assembly approval was not made available for audit review to confirm that the expenditure and the projects qualified to be categorized under emergency projects. Table 3.7: List of contingency items for 2015/16 (Ksh millions) Details Date Amount Dormitory construction Utithi secondary school- 21/09/2015 0.17 education Supply of diesel for grader at Mbitini-transport 21/09/2015 1.49 Supply of diesel for grader at Mbitini-transport 21/09/2015 0.05 Supply of diesel for grader at Mbitini-transport 21/09/2015 0.34 Supply of diesel for grader at Mbitini-transport 21/09/2015 0.33 Payment of supervisors and operators 23/09/2015 0.33 Kwolingu river opening 06/11/2015 0.35 Shipment and handling costs of medical equipment- 19/11/2015 10.79 health Supply of fuel 09/12/2015 0.17 Emergency response 11/12/2015 0.03 Supply of emergency materials 22/12/2015 1.10 Operators facilitation for emergency 15/01/2015 0.13 Supply of emergency materials 24/02/2016 0.99 38 Assessment of PFM performance Supply of certified seeds 06/03/2016 4.99 Supply of beddings at barazani girls 31/03/2016 0.53 Payment for clearance of medical equipment 15/04/2016 6.98 Supply of mattress 23/06/2016 0.17 Total contingencies 28.93 Total expenditure 5520.4 Total contingencies in % of expenditure 0.52% Source: AFS and CBROP 40. The county government entered into a contract for the construction of a primary school under emergency expenditure category and made payments totalling Ksh 16 million. However, no documents were made available for audit review to confirm that the expenditure and the project qualified to be categorized under emergency projects. Table 3.8 shows that actual expenditure charged to contingency was on average 0.5 per cent, which would increase to about 1 per cent when unrecorded uses of emergency items are included. Table 3.8: Updated contingency items for 2015/16 (Ksh millions) Details Amount Registered contingencies 28.93 Unregistered contingencies 58.79 Total contingencies 42.71 Total expenditure 5,520.4 Total contingencies in % of expenditure 1.06% Source: Authors calculations In summary, the actual expenditure charged to contingency was on average less than 3 per cent of the original budget. Dimension rating = A. PI-3: Revenue outturn 41. The main sources of revenue for county governments in Kenya are equitable share, conditional grants and own source revenues. These revenues are described as follows: • Equitable share: This constitutes the revenue raised by the National Government and equitably allocated to all County Governments in accordance 39 An assessment of the public expenditure and financial accountability - Makueni County with Article 203 of the Constitution of Kenya 2010. The allocation should be at least 15 per cent of national revenue based on the most recent audited accounts of revenue received, as approved by the National Assembly. • Conditional grants: This is provided for under Article 202 of the Constitution of Kenya and constitutes additional allocations from the National Governments share of revenue, either conditionally or unconditionally. Conditional allocations are tied to implementation of specific national policies with specific objectives by the National Government. • Own source revenue: Article 209 of the Constitution of Kenya provides that a county may impose property rates, entertainment taxes and county governments may impose charges for the services they provide, but the taxation and other revenue-raising powers of a county shall not be exercised in a way that prejudices national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour. Summary of scores and performance table PI-3 Revenue outturn D Brief justification for score (M2) 3.1 Aggregate revenue D Actual local revenue and transfers from outturn international organizations were far below 92% of budgeted revenue in the last three years 3.2 Revenue D* Variance in revenue composition cannot composition outturn be calculated because a breakdown of local revenue is not available for estimates and actual revenue PI-3.1: Aggregate revenue outturn 42. Budgeted and actual revenue streams by source are presented in Table 3.9. The equitable shares that represent the highest revenue source for the county (accounting for more than 90% of total revenues) are not considered in this indicator but as transfers to be covered by HLG-1. Therefore, calculation to score the indicator is made only on the grants originating from international organizations and own source of revenue. The table below shows total budgeted and actual revenue for the last three years. Actual revenue to budgeted revenue was only 26.8 per cent in 2013/14, 39.2 per cent in 2014/15 and 35.1 per cent in 2015/16. 40 Assessment of PFM performance Table 3.9: Aggregate revenue outturn (%) 2013/14 2014/15 2015/16 Budget 704.91 1 057.23 695.15 Actual 189.19 414.77 244.30 % share 26.84% 39.23% 35.14% Source: AFS 43. Aggregate revenue outturn execution rate has been lower than expected because both grants from international organizations and own source revenues were significantly below their expected level (see PI3.2). In summary, actual local revenue and transfers from international organizations were far below 92 per cent of budgeted revenue in the last three years. Dimension rating = D. PI-3.2: Revenue composition outturn The composition outturn indicator was computed using the value of revenue in the original approved budget, by comparable classification and the end-of year outturn for the same categories for each of the last three completed fiscal years. 44. According to the calculation sheet provided by the PEFA Secretariat, different categories of revenue should be used for the assessment, such as: taxes on income, taxes on property, taxes on goods and services, grants from international organizations, sales of goods, fines, etc. However, the breakdown of budget local revenues was not disclosed in budget documentation and only the breakdown of actual local revenues is available in annual financial statements. Consequently, only grants from international organizations and own source revenue could be considered for scoring the indicator. 45. The overall performance of the revenue outturn for Makueni County government is summarized in Table 3.10. According to the CBROP 2015, the shortfall in own source revenue for 2014/15 was due to delay in passing of the Finance Bill for the year 2014/15. In addition, no grants from international organizations budgeted in 2013/14 was transferred to the county because it was the first year of implementation, but actual grants were also much below expectations in 2014/15 and 2015/16. 41 An assessment of the public expenditure and financial accountability - Makueni County Table 3.10: Revenue composition outturn for the last 3 fiscal years (Ksh millions) Economic head 2013/14 2014/15 2015/16 Budget Actual Budget Actual Budget Actual Grants from intern. 354.9 0 657.2 199.4 295.1 24.1 organizations Own source revenue 350.0 189.1 400.0 215.1 400.0 220.1 Total 704.9 189.1 1,057.2 414.8 695.1 244.3 Source: AFS 46. The variance in revenue composition cannot be calculated because a breakdown of local revenue is not available for estimates and actual revenue. In summary, variance in revenue composition cannot be calculated according to the PEFA methodology. Dimension rating =D*. On-going reforms 47. The county has put in place measures to enhance revenue mobilization by reducing leakages, enhancing efficiency and identifying new revenue sources. 3.3 Pillar II: Transparency of Public Finances There are five performance indicators under this pillar: budget classification, budget documentation, central government operations outside financial reports, transfers to sub-national governments, performance information for service delivery and public access to fiscal information. These indicators measure whether the budget and fiscal risks oversights are comprehensive and whether fiscal and budget information is accessible to the public. PI-4. Budget classification Summary of scores and performance table 42 Assessment of PFM performance PI-4 Budget classification C Brief justification for score (M1) 4.1 Budget classification C Budget formulation, execution, and reporting are based on administrative and economic classification using GFS standards (at least level 2 of the GFS standard) or a classification that can produce consistent documentation comparable with those standards PI-4.1: Budget classification 48. The county budget classification is done in accordance to the National Government legal framework, which originates from the PFM Act 2012. The PFM act requires budget classification to be presented according to administrative, economic, programme-based budget (PBB) format. The classification is based on Standard Chart of Accounts (SCOA) derived from GFS standards. The PBB presents the budget by programmes according to administrative and economic classifications. Budget execution and reporting are presented according to administrative, economic, and programming classification. The administrative units to which programmes are classified and further reported in the accounts and budgets are set in the County Government Act 2012 and the Constitution of Kenya. 49. The functional classification is related to the administrative classification; as key persons are responsible for different sectors. This classification differs from the National Government classification, since some functions are not devolved, e.g. primary and higher education, security, among others. 50. The administrative classification consists of two different levels: • the first level is composed only of: - The County Government Executive (County Treasury); - The County Assembly (Finance Budget and Appropriation Committee). • The second level is composed of the key management personnel (accounting officers)) who has direct fiduciary responsibility, as follows: - Office of the Governor - Finance and Economic Planning - Roads, Public Works and Transport - Health and Sanitation 43 An assessment of the public expenditure and financial accountability - Makueni County - Education and ICT - Agriculture and Irrigation - Livestock Development, Veterinary Services and Fisheries - Trade, Industry, Cooperative Development and Energy - Lands, Physical Planning and Urban Development and Housing - Water, Environment and Natural Resources - Tourism, Culture, Gender and Social Development - Makueni County Public Service Board 51. The first level of programming classification is presented below: • P 1: General Administration Planning and Support Services • P 2: County Executive Affairs • P 3: Public Service Board Services • P 4: Field Administration Services • P 5: Special Initiatives 52. Budgets have been consistently applying the administrative, economic, functional classification criteria. The budget is initially built in Excel before being uploaded as vote heads into the budget planning system through IFMS. In summary, the County Government of Makueni budget is formulated, executed and reported on administrative, economic and functional classification using GFS/COFOG standard. However, economic classification is compatible with GFS standards only at level 2 of the GFS standard budget classification and the functional/programming classification is not compliant with COFOG at the detailed level. Dimension rating =C. PI-5: Budget documentation Summary of scores and performance table PI-5 Budget D Brief justification for score documentation (M1) 5.1 Budget D 4 elements (2+2) fulfil the criteria, with only documentation two satisfying the basic criteria 44 Assessment of PFM performance 5.1: Budget documentation provided to the County Assembly 53. According to Section 130 of PFM Act 2012, the previous year’s budget outturn should be presented in the same format as the budget proposal, but this criterion is not satisfied in practice. However, the revised budget final supplementary estimates of current year are presented in the CSFP in the same format as the budget proposal. Finally, aggregation of both revenue and expenditure are presented in the CFSP and CBROP according to the main heads of the budget classification (programming/administrative and economic). However, data for the current and previous year with a detailed breakdown of revenue and expenditure estimates are not included. 54. Although Section 130 of PFM Act 2012 provides deficit financing through borrowing, county governments were restrained from borrowing in the absence of a clear borrowing framework. The county operates on a balanced budget principle and therefore anticipates no deficit or surplus in 2016/17. 55. Macroeconomic assumptions, including at least estimates of GDP growth, inflation, interest rates, and the exchange rate are considered only at the national level in the CFSP. Consequently, the criteria have been considered as non-applicable. The CBROP does not provide an explanation of budget implications of new policy initiatives and major new public investments. 56. A summary of fiscal risks has not been undertaken. Therefore, contingent liabilities such as guarantees, and contingent obligations have not been identified. The county does not have a summary of debt stock nor a debt management strategy. The medium-term fiscal forecasts are done in the current budget and the CFSP. There were no indications of quantification of tax expenditures. The table 3.11 presents the compliance of elements contained in the budget documentation with basic elements of the PEFA methodology. Table 3.11: Compliance of elements contained in the budget documentation with basic elements of the PEFA methodology Elements Criteria Basic elements 1 Forecast of the fiscal deficit or surplus or accrual operating Yes result 45 An assessment of the public expenditure and financial accountability - Makueni County 2 Previous year’s budget outturn, presented in the same No format as the budget proposal 3 Current fiscal year’s budget presented in the same format Yes as the budget proposal. This can be either the revised budget or the estimated outturn 4 Aggregated budget data for both revenue and expenditure No according to the main heads of the classifications used, including data for the current and previous year with a detailed breakdown of revenue and expenditure estimates (Budget classification is covered in PI-4) Additional elements 5 Deficit financing, describing its anticipated composition. N/A 6 Macroeconomic assumptions, including at least estimates N/A of GDP growth, inflation, interest rates, and the exchange rate 7 Debt stock, including details at least for the beginning of N/A the current fiscal year presented in accordance with GFS or other comparable standard 8 Financial assets, including details at least for the beginning N of the current fiscal year presented in accordance with GFS or other comparable standard 9 Summary information of fiscal risks, including contingent N liabilities such as guarantees, and contingent obligations embedded in structure financing instruments such as public-private partnership (PPP) contracts, etc 10 Explanation of budget implications of new policy initiatives No and major new public investments, with estimates of the budgetary impact of all major revenue policy changes and/ or major changes to expenditure programmes 11 Documentation on the medium-term fiscal forecasts Yes 12 Quantification of tax expenditures No In summary, current fiscal year’s budget fulfils the criteria while forecast of fiscal deficit is considered to be fulfilled as far as the basic elements are concerned. For the additional elements, deficit financing is considered to be fulfilled and documentation on the medium-term fiscal forecasts is provided. Dimension rating =C. 46 Assessment of PFM performance PI-6: County government operations outside financial reports Summary of scores and performance table PI-6 County government D Brief justification for score operations outside financial reports (M2) 6.1 Expenditure outside D* Expenditure outside government financial financial reports reports is likely less than 5% of total BCG expenditure, but no evidence was provided 6.2 Revenue outside D* Revenue outside the government financial financial reports report is likely less than 5% of the total BCG revenue, but no evidence was provided 6.3 Financial reports of D Detailed financial reports of the extra budgetary extra-budgetary units units are audited by the Auditor General within 9 months after the end of the year PI-6.1: Expenditure outside financial reports 57. Budgetary units outside annual financial statements are considered to be the Makueni Sand Harvesting Authority, whose funding comes from the County Government, and the Early Childhood Development (ECD) centres. However, even though Makueni Sand Harvesting Authority raises money through licenses and fees, it has not prepared Annual Financial Statements. The ECD centres do not prepare/submit any financial statements either. In summary, it was reported that expenditure outside government financial report is likely to be less than 5 per cent of the total county budget, but no evidence was provided. Dimension rating =D*. PI-6.2: Revenue outside financial reports 58. It was reported that only ECD centres got revenues from the county government, which were not recorded in the government financial reports, even though this accounted for less than 5 per cent of the total county budget. Because ECD centres do not provide annual financial statements, additional revenues such as registration fees, school fees, donor grants, direct payments, nutrition support, etc are unknown. Dimension rating =D*. 47 An assessment of the public expenditure and financial accountability - Makueni County PI-6.3: Financial reports of extra-budgetary units 59. No financial reports of the extra-budgetary units audited by the Auditor General were provided. Dimension rating =D*. On-going reforms 60. The County government is in the process of bringing all the extra-budgetary units into the budget. This is demonstrated by the inclusion of the Sand Cess company in the budget under the section ‘other revenues’. PI-7: Transfers to sub-county governments PI-7.1: System for allocating transfers 61. This component has not been assessed because there were no transfers to sub-county units/entities. Dimension rating = N/A. PI-7.2: Timeliness of information on transfers 62. This component has not been assessed because there were no transfers to sub-county units/entities. Dimension rating = N/A. Summary of scores and performance table PI-7 Transfers to sub-national N/A Brief justification for score governments (M2) 7.1 System for allocating transfers N/A There were no transfers to sub- county units/entities 7.2 Timeliness of information on N/A There were no transfers to sub- transfers county units/entities PI-8: Performance information for service delivery Summary of scores and performance table 48 Assessment of PFM performance PI-8 Performance information D Brief justification for score for service delivery (M2) 8.1 Performance plans for D A framework of performance indicators service delivery relating to the outputs or outcomes of the majority of ministries is not in place and no performance plan is published 8.2 Performance achieved for D No information related to performance service delivery achieved for service delivery is published annually 8.3 Resources received by D Information on actual resource service delivery units disbursements service delivery units is available but it is not disaggregated by source of funds and is not disclosed in reports 8.4 Performance evaluation D No independent evaluation of efficiency for service delivery and effectiveness of service delivery has been performed PI-8.1: Performance plans for service delivery 63. Makueni County has prepared Programme-Based Budget (PBB) since 2014/15, which includes information on outputs and outcomes of the budget. The PBBs are discussed in public forums at sub-county level. However, information on policy or programme objectives, key performance indicators, outputs and outcomes for most ministries, disaggregated by programme or function, is not published. A framework of performance indicators relating to the outputs or outcomes of most ministries is not prepared/published either. A framework of performance indicators relating to the outputs or outcomes of most ministries is not in place and no performance plan is published. Dimension rating =D. PI-8.2: Performance achieved for service delivery 64. The County Treasury reviews annually the status of budget implementation, which is contained in the CBROP. A section of the CBROP discusses the outputs/key achievements on implementation of the budget. However, no precise information on the activities performed for most ministries is published annually. 49 An assessment of the public expenditure and financial accountability - Makueni County In summary, no information related to performance achieved for service delivery is published annually. Dimension rating =D. PI-8.3: Resources received by service delivery units 65. Information on actual resource disbursements to service delivery units is available, but it is not disaggregated by sources of funds given that all resources to counties (equitable share, own source revenue and grants) are lumped together. The information on actual disbursements to ministries and actual spending is published in the County Governments Budget Implementation Review Report by the Office of the Controller of Budget, but the source of funds is not mentioned in the reports. These reports do not detail resources received by service delivery units. In summary, information on actual resource disbursements service delivery units is available but it is not disaggregated by source of funds and is not disclosed in reports. Dimension rating =D. PI-8.4: Performance evaluation for service delivery 66. The County Government of Makueni prepares service delivery reports for all ministries and implementation of budget reports indicates achieved outputs. However, there have been no independent evaluations of the efficiency and effectiveness of service delivery within the county. In summary, no independent evaluation of efficiency and effectiveness of service delivery has been performed. Dimension rating =D. On-going reforms 67. The County Government of Makueni has institutionalized performance management through the establishment of the Office of the Performance Management Coordinator in the Office of the County Secretary as follows: • Strengthening the Chief Officers’ Forum to ensure cascading of performance contracts through performance appraisals to all staff in the County; • Establishment of negotiation mechanisms through appointment of ad hoc 50 Assessment of PFM performance committees to facilitate the negotiation before signing of performance contracts and work as an evaluation committee at the end of the financial year to oversee the evaluation process and the ranking; and • Strengthening the capacity of the Performance Contracting Secretariat to ensure efficient monitoring of the implementation of performance contracts in the county; consolidation of incomplete projects in the performance contracts of the following financial year; consideration of County Vision 2025 flagship projects in performance contracts; analysis of implementation by Directorates to ensure monitoring and quarterly reports and feedback are presented to assess achievement; and the development of performance management systems. PI-9: Public access to fiscal information Summary of scores and performance table PI-9 Public access to fiscal D Brief justification for score information (M1) 9.1 Public access to fiscal D The government makes available to information the public only one basic element in accordance with the specified time frame. PI-9.1: Public access to fiscal information 68. Public access to fiscal information at the sub-national level refers to access of the general public within the area and jurisdiction of the sub-national government. Article 35 of the Constitution and the PFM Act 2012 emphasizes the importance of public access to information: The County Executive Committee member for finance shall take all reasonably practicable steps to ensure that the approved budget estimates are prepared and published in a form that is clear and easily understood by, and readily accessible to, members of the public. 69. In assessing this indicator, five basic elements and four additional elements have been considered. Of the basic elements, a complete set of executive budget proposal documents (as presented in PI-5) is not available to the public within one week of the executive’s submission of the documents to the legislature. Further, the enacted budget is not immediately published in the County Assembly website after it has been passed. However, the 51 An assessment of the public expenditure and financial accountability - Makueni County public can get copies of the enacted budget from the County Government offices and ward offices. The County Executive puts in its website various documents such as ADP, CFSP, CIDP, and CBROPs (not for all years) but the in-progress reports of budget implementation are not published. The CFSP and the CBROP are published on the internet with delays. 70. During the preparation and approval process of the annual budget, the public participates through various forums (barazas and radio). The County Assembly has a library where the documents may be accessed by the public. The information is only availed in English, but a translator is engaged during the public participation forum. Local radio discussions are also made in the local dialect where the public are allowed to call in and contribute on the fiscal documents before and after being tabled in the County Assembly. The public participation initiative is cascaded downward to the lowest ward levels where Ward Administrators help explain the budget and other public initiatives to the people. Whereas the County does not publish audited financial reports, the same are available in the website of the OAG, and on the website of the County Government, although not within twelve months after the end of the year. The compliance to the basic elements is reported as follows: Elements Compliance Basic elements Annual executive budget proposal documentation: A complete No set of executive budget proposal documents (as presented by the country in PI-5) is available to the public within one week of the executive’s submission of them to the legislature Enacted budget: The annual budget law approved by the No legislature is publicized within two weeks of passage of the law In-year budget execution reports: The reports are routinely No made available to the public within one month of their issuance, as assessed in PI-27 Annual budget execution report: The report is made available No to the public within six months of the fiscal year’s end Audited annual financial report, incorporating or accompanied No by the external auditor’s report: The reports are made available to the public, but not within twelve months of the fiscal year’s end. Additional elements 52 Assessment of PFM performance Pre-budget Statement: The broad parameters for the executive No budget proposal regarding expenditure, planned revenue, and debt are made available to the public at least four months before the start of the fiscal year Other external audit reports: All non-confidential reports on No county government consolidated operations are made available to the public within six months of submission Summary of the budget proposal: A simple, clear summary of No the executive budget proposal or the enacted budget accessible to the non-budget experts, often referred to as a “citizens’ budget”, and where appropriate translated into the most commonly spoken local language, is publicly available within two weeks of the executive budget proposal’s submission to the legislature and within one month of the budget’s approval. Macroeconomic forecasts: The forecasts, as assessed in PI-14.1, No are available within one week of their endorsement. In summary, the government makes available to the public only one basic element in accordance with the specified time frame. Dimension rating = D. 3.4 Pillar III: Management of Assets and Liabilities Summary of scores and performance table PI-10 Fiscal risk C+ Brief justification for score reporting (M2) 10.1 Monitoring of C Only two public corporations operate in the public corporations county. Audited AFS are presented to the county government within nine months of the end of the fiscal year 10.2 Monitoring N/A Not applicable because the county operations of sub-national are centralized at county level governments 10.3 Contingent D The county does not provide any information liabilities and other about any contingent liabilities in its financial fiscal risks statement and does not mention the debt left by the defunct authorities 53 An assessment of the public expenditure and financial accountability - Makueni County PI-10.1: Monitoring of public corporations 71. Public corporations are those established under the laws, control, and ownership of the sub-national government. The dimension applies only if the sub-national entity has direct ownership of the public corporation. The Public Finance Management Act 2012 Section 164 (4) requires every public entity to have completed and submitted its Annual Financial Statements (AFS) as on 30th September every year. Wote Water and Sewerage Company Ltd and Kibwezi-Makindu Water and Sanitation Company Ltd need to be considered as public enterprises according to the PEFA methodology. They submit their financial reports to the Auditor General for audit, which are then presented to the county government within nine months of the end of the fiscal year. Dimension rating = C. PI-10.2: Monitoring of sub-county governments 72. There are supposed to be further devolved units below the county government level as per the Urban Areas and Cities Act 2011, but the Act has not been operationalized. Therefore, the dimension is not applicable since there are no devolved units below the county government level. In summary, the dimension is not applicable because county operations are centralized at county level. Dimension rating =N/A. PI-10.3: Contingent liabilities and other fiscal risks 73. The county does not provide information for any contingent liabilities and other fiscal risks from its own programmes and projects in its annual reports (CBOP and CFSP) and financial statements. Also, the government does not provide any guarantees for types of loans such as mortgage loans, student loans, agriculture loans, and small business loans, etc. The government does not manage any private pension fund insurance either, and there was no PPPs or court cases during the period under review. In summary, the county does not provide any information about any contingent liabilities in its financial statement and does not mention the debt left by the defunct authorities. Dimension rating = D. 54 Assessment of PFM performance PI-11: Public investment management Summary of scores and performance table PI-11 Public investment C Brief justification for score management (M2) 11.1 Economic analysis of D There is no evidence showing that economic investment proposals analyses are conducted to assess major investment projects 11.2 Investment project A All major investment projects are selection prioritized based on the established public participation framework on the basis of clear criteria. The county has documented its public participation framework 11.3 Investment project C Projections of the total capital cost of major costing investment projects, together with the capital costs for the forthcoming budget year, are included in the budget documents. However, recurrent costs are not included 11.4 Investment project D Project monitoring is done by both monitoring the technical department and other stakeholders including the public. The monitoring and evaluation reports do not disclose detailed information on the follow up of major investment projects PI-11.1: Economic analysis of investment proposals 74. The County undertook feasibility studies before implementation of the following projects: • Kalamba fruit processing plant (Ndunda or Mary–CO Agriculture); • Kambu abattoir (Esther–CO Trade) • Thwake bridge (Kingola–CO Transport) • ENE Microfinance bank (Esther–CO Trade) • The universal health care (the business case and the guidelines) – Director Kiuluku • The business case and guidelines for Tetheka fund–CO Gender 55 An assessment of the public expenditure and financial accountability - Makueni County • Emali Bus Park 75. The County Budget and Economic Forum assists the County in reviewing the economic analyses of the projects. All projections are included in the budget documents. However, no evidence of economic analysis or rigorous analytical techniques to appraise their viability was provided. There is no evidence showing that economic analyses are conducted to assess major investment projects. Dimension rating = D. PI-11.2: Investment project selection 76. Selection of the projects to be implemented during the financial year in Makueni County is through the established public participation model. The participation involves identification and prioritization of projects from the 3,455 villages up to the Ward level. Project selection entails a consultative approach that is done according to the County Government Act. 77. The criterion for selecting projects is guided by treasury circulars. The circulars give guidance on the way community will identify and prioritize projects on the basis of either earlier funded projects, completion of existing projects, strategic objectives of the government, among others. The county has documented its public participation framework, which is available on the County Executive website. A public participation matrix is provided and available on the website of the County Executive. After each project is funded in the budget, each department is required to prepare a Cabinet paper for the projects. The Cabinet paper details the project background, justification of the project, project bill of quantities, risks inherent in project implementation, and stakeholders to be involved. After approval of the Cabinet paper by the Cabinet, the department starts the process of procurement and implementation. Public participation framework is clearly empowering the public by placing selection process and final decision making authority in the hands of the 55 representatives of their development committees. In summary, all major investment projects are prioritized based on the established public participation framework and clear selection criteria. Dimension rating = A. 56 Assessment of PFM performance PI-11.3: Investment project costing 78. The county prepares programme-based budgets (PBB) with reference to key county/national government policy documents, particularly the Makueni County Integrated Development Plan (2013-2017), the Second Medium Term Plan (2013-2017) of the Vision 2030, and the draft Makueni County Strategic Plan (2013-2018). All these documents were provided and published. The total cost of projects is consolidated in the programme-based budget documents but expenditure is categorized into three broad categories: compensation to employees, recurrent and development expenditures. The costs of each programme presents both the recurrent and development costs. The recurrent costs include Project Management Committee (PMC) costs, and monitoring and evaluation (M&E). A policy has been developed to give guidelines on the payments of the recurrent costs. In summary, the county does programme-based budgeting. Costs of each programme/sub-programe include development and recurrent costs. There is a distinction of projections between capital and recurrent costs of approved investment projects in the budget documents. Evidence is included in the budget documents. Dimension rating = C. PI-11.4: Investment project monitoring 79. Project monitoring is done jointly by the technical departments, community members and host departments. The visits are periodical depending on the status and nature of each project. Information regarding the project is prepared by each department and is contained in the budget. 80. The status of the project is published online at https://www.makueni.go.ke/ projects/public/projects.php. The status mentions only whether the project is new, has been completed or is still ongoing. In addition, the follow-up shows a lot of inconsistencies, such as: amount of expenditure being the same as the amount of budget while the project is still ongoing, “complete” mentioned instead of the amount of the budget, no expenditure shown while the project is “ongoing”, etc. This “online” follow-up does not appear to be very reliable and no official report is produced. 81. Independent monitoring and evaluation is also done by the Office of the Auditor General (OAG). For instance, according to the report by the OAG for 2014/15, the County Government entered into a contract for the extension of Kiboko Twaandu Water project at a contract sum of Ksh 5.2 million. Although 57 An assessment of the public expenditure and financial accountability - Makueni County the contractor had been paid 93 per cent of the total cost of the project at the time of audit inspection, the project was half-way complete. Further, the outstanding works were not done due to way leave complications. The same report points out that the County Government entered into a contract for the supply and installation of a geographical information system phase one at a cost of Ksh 5.6 million. The project was to be done in two phases, but no funds had been put aside for phase two, which meant that value for money spent in phase one may not be realized without implementation of phase two. 82. For the construction of Kalamba fruit processing plant, the County Government paid Ksh 31 million to contractors for various preliminary works and services, including a payment of Ksh 6.3 million for consultancy services. However, the management did not avail the relevant procurement documents for audit review. For the construction of county technical training institutes, early childhood development (ECD) centres and rural electrification projects in various wards in the county at a total cost of Ksh 58 million, the County Government did not give full contracts to the contractors but instead split the contracts into two portions; the first portion was for the supply of the required materials and the second part was for supply of labour. The result was poor workmanship of the projects and some delivery of materials could not be verified. Further, market survey for the building materials was not carried out. In addition, it was impossible to check how the labour costs were determined. In summary, the total cost and physical progress of investment projects are monitored by the technical departments of the implementing unit and a follow-up is available online. However, this information is not reliable and no monitoring and evaluation reports have been issued by the County Executive. Dimension rating = D. 58 Assessment of PFM performance PI-12: Public asset management Summary of scores and performance table PI-12 D Brief justification for score Public asset management (M2) 12.1 Financial D The government maintains a record of its holdings asset monitoring in all categories of financial assets, which are cash in hands and participation in one public enterprise but no record provided to show the assets which were handed over to the County Government, especially those relating to the defunct local authorities 12.2 Non- D The government maintains a register of its holdings financial asset of fixed assets, but information on their usage and monitoring age is not published, while it is sometimes collected. Records are updated upon acquisition of new assets. 12.3 D Rules for transfer or disposal of financial assets do Transparency of exist but no transfer of assets has been registered yet asset disposal PI-12.1: Financial asset monitoring 83. Makueni County maintains records for financial assets such as cash in hand and in bank. Records for county corporations such as the Sand Harvesting Authority are contained in the Annual Financial Statements. Since these are the only financial assets counties are mandated to hold, records for the other forms of financial assets are non-existent. 84. According to a special audit report of the OAG on the operation of Makueni County Government and former councils for the period 1 January to 30 June 2013, “there was no record provided to show the assets which were handed over to the County Government. During the period ended 30 June 2013, the County Government of Makueni did not validate or consolidate its fixed assets especially those relating to the three defunct local authorities. The fixed asset balance for the period ending 30 June 2012 totalled Ksh 30,472,084”. In summary, financial assets are cash in hand and participation in one public enterprise, which are reported in annual financial statements. These asset holdings are published as AFS in the annex of the report of OAG, which is available online but they are incomplete. 59 An assessment of the public expenditure and financial accountability - Makueni County Dimension rating = D. PI-12.2: Non-financial asset monitoring 85. The County Government maintains a register of fixed assets at historical costs. Records of these assets are maintained by every department. A summary of categories of non-financial assets for the 2014/15 and 2015/16 is reported in Table 3-12. Table 3.12: Categories of non-financial assets, 2014/15 and 2015/16 (Ksh millions) Asset class 2014/15 2015/16 Land 29.6 - Buildings and structures 239.1 336.6 Transport equipment 288.4 99.3 Office equipment, furniture and fittings 13.0 164.4 ICT equipment, software and other ICT assets 23.8 10.9 Other machinery and equipment 34.8 52.1 Household furniture and institutional equipment - 0.3 Biological assets 12.6 5.1 Total 641.3 668.7 Source: County Executive 86. Fixed assets are reported yearly in Annex 3 to the financial statements, but with some inconsistencies. For instance, the report of the OAG finds an unexplained difference of Ksh 430 million and points out that assets were not included in the fixed assets summary in the previous years. In addition, the fixed assets inherited from the defunct local authorities have not been incorporated. Accord to the OAG special audit report, “there was no record provided to show the assets which were handed over to the County Government. During the period ended 30 June 2013, the County Government of Makueni did not validate or consolidate its fixed assets especially those relating to the three defunct local authorities. The fixed assets balances for the period ending 30 June 2012 totalled Ksh 30,472,084”. 87. As far as purchase of assets is concerned, the management did not produce procurement documents for audit verification. For instance, the sizes and ownership of three parcels of land could not be verified as no official documents were produced by the county government. The documents for all 60 Assessment of PFM performance the parcels of land that had been purchased by the county government had not been processed. In summary, there is a register for non-financial assets and the records are updated upon acquisition of new assets, but the accuracy and completeness of the fixed assets register could not be confirmed by the OAG. The information about their usage and age is not published. Dimension rating = D. PI-12.3: Transparency of asset disposal 88. The County Government of Makueni has adopted the disposal procedure as per the disposal of public assets and stores provided under part 14 sections 163,164, 165 and 166 of the Public Procurement and Assets Disposal Act 2015. This provision has been incorporated in the County Government of Makueni Financial Regulation and Procedures Manual, section 10.13 on disposal procedure. However, no transfer of assets has been registered yet in the accounting documents. In summary, rules for transfer or disposal of financial assets do exist but no transfer of assets has been registered yet. Dimension rating = D. PI-13: Debt management Summary of scores and performance table PI-13 Debt management D Brief justification for score (M2) 13.1 Recording and D The county has not incurred any new debt, reporting of debt and but inherited debt from the previous sub- guarantees national entities. These debt records are not updated and published annually 13.2 Approval of debt N/A Authorization to borrow, issue new debt, and and guarantees issue loan guarantees on behalf of the county government to entities specifically is not included in the legislation yet 13.3 Debt management D A debt strategy is under development with strategy IBEC, but has not been implemented yet 61 An assessment of the public expenditure and financial accountability - Makueni County PI-13.1: Recording and reporting of debt and guarantees 89. Counties are allowed to borrow domestically or externally by Article 212 of the Constitution and under Section 140 of the PFM Act 2012. Borrowing framework is anchored in County PFM Regulations 2015 (176-196). However, Section 140 (d) of the PFM Act 2012 requires county governments to develop a debt management strategy, which is not the case yet (see PI- 13.3). Consequently, the county has not incurred any new debt but has inherited debt from the previous sub-national entities. These debt records are not updated and published. In summary, the county has not incurred any new debt, but inherited debt from the previous sub-national entities. These debt records are not updated and published annually. Dimension rating = D. PI-13.2: Approval of debt and guarantees According to Article 212 of the Constitution on public finance management and devolution, county governments are allowed to borrow only if guaranteed by the National Government and approved by the County Assembly. According to Article 213 of Constitution, guarantees by National Government must adhere to the following: • Parliament to enact a law and prescribe how National Government may guarantee loans. • Within two months after the end of a fiscal year, National Government to publish a report on all guarantees issued during past year. • Authorization to borrow, issue new debt, and issue loan guarantees on behalf of the County Government to entities specifically is not yet included in the legislation. Therefore, documented policies and procedures do not provide guidance yet for undertaking borrowing and other debt-related transactions and issuing loan guarantees to one or several entities. In summary, counties are allowed to borrow and the borrowing framework is anchored in County PFM Regulation, but there is currently an administrative moratorium on county borrowing. Dimension rating =N/A. 62 Assessment of PFM performance PI-13.3: Debt management strategy 90. The Public Finance Management Act 2012 requires County Treasury to submit the County Government Debt Management Strategy to the County Assembly. Section 123 stipulates that: “On or before 28th February in each year, the County Treasury shall submit to the County Assembly a statement setting out the debt management strategy of the County Government over the medium term with regard to its actual liability and potential liability in respect of loans and its plans for dealing with those liabilities. The Makueni County 2016 County fiscal strategy paper simply mentions that: The County debt shall be maintained at a sustainable level as approved by County Assembly and that … The County will uphold the fiscal responsibility principals outlined in the Public Finance Management Act 2012 which are - among others - limiting the county debt financing and any borrowing would be for development expenditure only. However, the county is yet to develop a debt management strategy or establish a debt management unit. In summary, a debt strategy is under development with IBEC, but has not been implemented yet. Dimension rating = D. On-going reforms 91. The process of identifying and costing the inherited debt is currently ongoing and it being managed by the IGTRC. A county debt framework is being developed by National Treasury in consultation with Intergovernmental Budget and Economic Council (IBEC). 3.5 Pillar IV: Policy-based Fiscal Strategy and Budgeting PI-14: Macroeconomic and fiscal forecasting Summary of scores and performance table PI-14 Macroeconomic D+ Brief justification for score and fiscal forecasting (M2) 14.1 Macroeconomic C The county does not prepare any forecasts macroeconomic forecasts, which are prepared at the national level 63 An assessment of the public expenditure and financial accountability - Makueni County 14.2 Fiscal forecasts C The county prepares revenue and expenditure forecasts for the current year and the two following years in the CBROP and revenue forecasts in the CFSP, but there is no clear presentation of the assumptions. The documents are submitted to the assembly 14.3 Macro fiscal D The county does not prepare any fiscal sensitivity analysis policy scenarios PI-14.1: Macroeconomic forecasts 92. According to Section 117 (2) of the PFM Act 2012, the County Treasury shall align its County Fiscal Strategy Paper (CFSP) with the national objectives in the budget policy statement. In addition, Section 118 (2) b) requires that the County Treasury specifies in its CBROP the updated economic and financial forecasts showing changes from the forecasts in the most recent CFSP. The CFSP should be presented to the Count Assembly by 28th February of budget year. Section 117 (6) of the PFM Act states that the County Assembly should in 14 days consider and may adopt it with or without amendments. Further, the County Treasury shall publish and publicize the CFSP after its submission in the Count Assembly (Section 117 (8) of the PFM Act). However, Makueni County documents presented to the County Assembly do not undertake any macroeconomic forecasts. They only include a brief outlook on key macroeconomic indicators in the CFSP, which covers the pervious and current years. In summary, the county does not prepare any macroeconomic forecasts, which are prepared at the national level. Dimension rating = N/A. PI-14.2: Fiscal forecasts 93. The county prepares revenue forecasts for the current year and the two subsequent years (by type – own source revenue, equitable transfer and conditional grants, but not by revenue streams) which are presented in the CFSP (Table 3.13). The CFSP was submitted to the County Assembly and approved. For revenue and expenditure, only forecast for the current year and one subsequent year are provided. The CSFP 2016 presents total projected revenue in 2015/16, 2016/17/2017/18, and a breakdown of expenditure by 64 Assessment of PFM performance sectors only for the 2015/16 and 2016/17 financial years. In Annex 1 of the CSFP, sector ceilings are presented only for 2015/16 budget and 2016/17 budgets. However, the projected revenue in the CSFP and in the CBROP have different amounts. The explanations of the main deviations are provided for in the CBROP, but there is no clear information on assumptions. Table 3.13: Forecasting for total revenue and expenditure for the budget year and the two following years. 2015/16 2016/17 2017/18 Total revenue 7 026.9 9 533.6 10 458.6 Total expenditure 7 026.9 9 533.6 10 458.6 Of which recurrent 4 141.4 4 555.6 5 011.1 expenditure Of which development 2 885.5 4 978.0 5 447.5 expenditure Source: BROP 2015 94. Detailed estimates of expenditure for the budget year and the two following years are also available in the annex of the Programme Based Budgets (see PI-16). In summary, the county government prepares forecasts of revenue, expenditure for the budget year and the two following fiscal years in the CROP. The budget balance is zero for all these years. Dimension rating = C. PI-14.3: Macro fiscal sensitivity analysis 95. The county does not prepare any fiscal policy scenarios based on plausible unexpected changes in macroeconomic conditions or other external risk factors that have a potential impact on revenue, expenditure, and debt. In summary, the county does not perform sensitivity analysis in relation to own source revenue. Dimension rating = D. 65 An assessment of the public expenditure and financial accountability - Makueni County PI-15: Fiscal strategy Summary of scores and performance table PI-15 Fiscal strategy C Brief justification for score (M2) 15.1 Fiscal impact of D The county only assesses proposed changes policy proposals in revenue policies in the finance bill but no fiscal impact analysis is carried out 15.2 Fiscal strategy B The government has adopted and submitted adoption to the legislature a current fiscal strategy that includes quantitative or qualitative fiscal objectives for at least the budget year and the following two fiscal years 15.3 Reporting on fiscal C The government has submitted to the outcomes legislature along with the annual budget a report that describes progress made against its fiscal strategy but the reasons for any deviation from the objectives are not clearly exposed PI-15.1: Fiscal impact of policy proposals 96. The county only assesses proposed changes in revenue policies in the finance bill but no fiscal impact analysis is carried out. Dimension rating = D. PI-15.2: Fiscal strategy adoption 97. The County Treasury prepares County Fiscal Strategy Paper (CFSP) which sets out priority programmes to be implemented in the Medium-Term Expenditure Framework (MTEF) in accordance with Section 117 of PFM Act 2012. The CFSP outlines the broad strategic priorities and policy goals that will guide the county government in preparing its budget for the coming financial year and over the medium term. The document also includes the financial outlook with respect to county government revenues, expenditure and borrowing for the coming financial year and over the medium term. Some of the ongoing reforms include: establishing a resource mobilization unit; operationalization of the revenue automation system; and mapping all available revenue streams. The 2016 Makueni County Fiscal Strategy 66 Assessment of PFM performance Paper sets out the administration priority programmes to be implemented in 2016/17-2018/19 medium term expenditure framework (MTEF). In summary, the government has adopted and submitted to the legislature a current fiscal strategy that includes quantitative or qualitative fiscal objectives for at least the budget year and the following two fiscal years. Dimension rating = C. PI-15.3: Reporting on fiscal outcomes 98. According to the Public Financial Management Act 2012 (section 118), county governments should prepare the County Budget Review and Outlook Paper (CBROP), which presents the recent economic developments and actual fiscal performance and provides an overview of how objectives relate to the actual performance. The CBROP should also include reasons for any deviation from the financial objectives in the County Fiscal Strategy Paper together with proposals to address the deviation and the time it would take to address the deviations. 99. Makueni County Executive prepares a County Budget Review and Outlook paper that reviews the previous year’s performance in the County Fiscal Strategic Paper, but reasons for the deviations from the objectives are not clearly exposed in the CBROP. In summary, the government has submitted to the legislature, along with the annual budget, a report that describes progress made against its fiscal strategy, but the reasons for any deviation from the objectives are not clearly exposed. Dimension rating = C. PI-16: Medium-term perspective in expenditure budgeting Summary of scores and performance table PI-16 Medium- D+ Brief justification for score term perspective in expenditure budgeting (M2) 16.1 Medium-term A The annual budget presents estimates of expenditure estimates expenditure for the budget year and the two following fiscal years allocated by administrative, economic, and programme (or functional) classification 67 An assessment of the public expenditure and financial accountability - Makueni County 16.2 Medium-term D Aggregate expenditure ceilings for the expenditure ceilings budget year and the two following fiscal years are not approved by the government before the first budget circular is issued 16.3 Alignment of D The strategic plans have not been aligned to strategic plans and the medium-term budgets medium-term budgets 16.4 Consistency of D The budget documents provide a general budgets with previous explanation of changes to expenditure year’s estimates estimates between the second year of the last medium-term budget and the first year of the current medium-term budget at the aggregate level, but this does not permit to quantify the changes to expenditure estimates PI-16.1: Medium-term expenditure estimates 100. For Makueni County, the estimates of expenditure for the budget year and the two following years by administrative and programme classification are provided for in the detailed budgets in the annex of the programme-based budgets that are submitted to the County Assembly. Dimension rating = A. PI-16.2: Medium-term expenditure ceilings 101. According to PFM Act 2012, the budget circular should be issued by 30th October. Budget ceilings are derived from the national Budget Policy Statement which are usually availed in February every year. The ceilings are included in the CFSP, which is supposed to be ready by 28th February. Evidence from the county indicates that aggregate and ministry-level expenditure ceilings for the budget year and the two following fiscal years were not approved before the first budget circular was issued. Dimension rating = D. PI-16.3: Alignment of strategic plans and medium-term budgets 102. The only strategic plan that has been prepared is the County strategic plan 68 Assessment of PFM performance at the count level (Makueni County Vision 2025). The county is currently in the process of preparing the ministerial strategic plans. Strategic plans have not been aligned to the medium-term budgets yet. Dimension rating = D. PI-16.4: Consistency of budgets with previous year’s estimates 103. Estimates for the second and third year in the current medium-term budget were different from estimates in the previous medium-term budgets. However, the CBROP provides a vague explanation of some of the deviations. For instance, the CBROP 2015 simply states that “the realignments in the departmental ceilings set in the 2015 CFSP and the 2015/16 budget were occasioned by increased allocations to programmes that will facilitate the county’s socio-economic transformation and the budget ceilings set by the CRA on the County Assembly and Executive”. In summary, the budget documents provide a general explanation of changes to expenditure estimates between the second year of the last medium-term budget and the first year of the current medium-term budget at the aggregate level, but this does not permit to quantify the changes to expenditure estimates. Dimension rating = D. PI-17: Budget preparation process Summary of scores and performance table PI-17 Budget preparation B Brief justification for score process (M2) 17.1 Budget calendar B A clear annual budget calendar exists, is generally adhered to, and allows budgetary units at least four weeks from receipt of the budget circular to meaningfully complete their detailed estimates on time 17.2 Guidance on budget C A comprehensive budget circular is issued preparation to the budgetary units. The circular does not contain ceilings but they are reflected in the CFSP. Ceilings for the budget year are approved by government before sending the budget to the County Assembly 69 An assessment of the public expenditure and financial accountability - Makueni County 17.3 Budget submission B The executive has submitted the annual to the legislature budget proposal to the legislature at least two months before the start of the fiscal year and one month before the start of the year in the third year PI-17.1: Budget calendar 104. The county has a budget calendar which is in line with the PFM Act 2012. It is included as an appendix in the budget circular and is generally adhered to. The 2015/16 MTEF budget calendar presented in the Table 3.14 shows issue of circular for finalization of 2015/16 MTEF estimates and the submission of budget estimates to County Executive for approval. This allows budgetary units at least four weeks from receipt of the budget circular to meaningfully complete their detailed estimates on time. Table 3.14: Budget calendar 2015/16 Activity Responsibility Timeframe/ Deadline Develop and issue circular on budget C.E.C Finance and 2nd September, preparation and MTEF guidelines Planning 2014 Develop the County Annual Development C.E.C Finance and 15th September, Plan Planning 2014 Undertake departments Public Expenditure All departments/ 30th September, Reviews Finance and Planning to 2014 coordinate Development of County Budget Review and County Treasury By 27th Outlook Paper (BROP) September, 2014 Presentation of County Budget Review and County Treasury By 27th Outlook Paper (BROP) to County Executive September, Committee for approval 2014 Presentation of County Budget Review C.E.C Finance &and By 30th and Outlook Paper to County Budget and Planning in consultation September, Economic Forum (CBEC) with the Governor 2014 Submission of County Budget Review County Treasury By 30th and Outlook Paper (BROP) to the County September, Assembly 2014 Circulation of approved BROP to County County Treasury By 30th October, Executive and Accounting Officers 2014 70 Assessment of PFM performance Capacity building for MTEF and programme- C.E.C Finance September – based budget (PBB) and Planning in October, 2014 collaboration with National Treasury Departmental sections to submit their Departmental sections By 30th inputs to relevant departments County in the sub-sections October, 2014 Headquarters Start of sector consultations All departments – By 1st Finance and Planning November, to coordinate in 2014 consultation with the Governor’s office Submission of final sector reports All C.E.Cs for their By end of respective departments January 2015 Development of County Fiscal Strategy Paper County Treasury By end of (CFSP) January 2015 Submission of County Fiscal Strategy Paper County Treasury By mid - (CFSP) to C.E.C for approval February 2015 Presentation of County Fiscal Strategy Paper C.E.C Finance and By 25th to County Budget and Economic Forum Planning in consultation February, 2015 (CBEC) with the Governor Submission of County Fiscal Strategy Paper County Treasury By 25th (CFSP) to County Assembly February 2015 Issue of circular for finalization of 2015/16 – County Treasury By mid - March 2017/18 MTEF estimates and PBB 2015 Circulate approved County Fiscal Strategy County Treasury By mid - March Paper (CFSP) to County Executive and 2015 Accounting officers Finalization of departmental itemized and All departments By end - March programme-based budget (PBB) 2015 Review and finalization of departmental County Treasury By mid - April itemized and programme-based budgets 2015 Submission of budget estimates to County County Treasury By mid - April Executive for approval 2015 Publish departmental itemized and County Treasury By 20th April programme-based budgets 2015 Presentation of budget to County Assembly C.E.C Finance and By 30th April Planning 2015 Approval of the Budget and Appropriation By 30th June Bill by the County Assembly 2015 Publication of Budget Estimates County Treasury By 21st July 2015 Submission and Approval of the Finance Bill C.E.C Finance and By 30th Planning and County September 2015 Assembly Source: County Executive 71 An assessment of the public expenditure and financial accountability - Makueni County 105. Table 3.15 shows compliance to the budget calendar for 2015/16 and 2016/17. This calendar is generally adhered to. It was nevertheless observed that there were few cases where the timelines were not met. Budget 2015/16 was submitted on 3rd May to the County Assembly instead of 30th April. The CBROP 2015 also states that the budget was passed on 4th March 2015 and thus time was not sufficient to implement the development agenda for the budget elaboration. Table 3.15: Deadlines of the budget calendar and compliance for FY 201516 and 2016/17 Activity Deadline 2015/16 2016/17 Develop and issue By 30th August 27th August 2015 30th Aug. 2016 circular on budget preparation and MTEF guidelines Develop the By 15th September 1st September 2015 1st Sept. 2016 County Annual Development Plan Submission of By 22nd October 21st October 2015 21st Oct. 2016 County Budget Review and Outlook paper to County Assembly Submission of By 28th February 2nd March 2015 22nd Feb. 2016 County Fiscal Strategy Paper (CFSP) to County Assembly Presentation of By 30th April 30th April 2015 3rd May 2016 Budget to County Assembly Approval of By 30th June 30th June 2015 30th June 2016 the Budget and Appropriation Bill by County Assembly Source: County Secretary In summary, a clear annual budget calendar exists, is generally adhered to, and allows budgetary units at least four weeks from receipt of the budget circular to meaningfully complete their detailed estimates on time. Dimension rating = B. 72 Assessment of PFM performance PI-17.2: Guidance on budget preparation 106. In the county, the budget circular is issued to budgetary units without expenditure ceilings. An annex of the circular presents a standard format for presentation of programme-based budgets that must be completed by the budget users. Expenditure ceilings are derived from the national BPS and provided for in the CFSP. Ceilings are presented by sector, programme and administrative classification, but only for the current and the following years. The submission of CFSP to the County Assembly was done on the 25th of February 2015 and the circular for finalization for 2015/16 – 2017/18 MTEF estimates and PBB was issued by mid-March 2015. Therefore, the ceilings were approved by the County Executive only before sending the budget to the County Assembly. In summary, the budget circular is issued without ceilings. Ceilings are firstly presented in the CFSP by sector, programme and administrative classification, but only for the current budget exercise and the following year. Ceilings for the budget year and the two following years are provided for in the PBB, which is sent to the County Assembly. The budget estimates are approved by the County Executive after they have been completed in every detail by budgetary units. Dimension rating =C. PI-17.3: Budget submission to the legislature 107. The County Executive submitted its annual budget proposal to the County Assembly on 30th April in 2013/14 and 2014/15 and submitted it on 3rd May in 2015/16. Dimension rating = B. PI-18: Legislative scrutiny of budgets Summary of scores and performance table PI-18 Legislative scrutiny C+ Brief justification for score of budgets (M1) 18.1 Scope of budget A The legislature’s review covers fiscal policies, scrutiny medium-term fiscal forecasts, and medium- term priorities, and details of expenditure and revenue 73 An assessment of the public expenditure and financial accountability - Makueni County 18.2 Legislative A The legislature’s procedures to review procedures for budget budget proposals are approved by the scrutiny legislature in advance of budget hearings and are adhered to. The procedures include arrangements for public consultation. They also include internal organizational arrangements, such as specialized review committees, technical support, and negotiation procedures 18.3 Timing of budget C The legislature has approved the annual approval budget before the start of the year in two of the last three fiscal years, with a delay of up to nine months in one of the three fiscal years 18.4 Rules for budget B Clear rules exist for in-year budget adjustments by the adjustments by the executive and are executive adhered to in most instances. Extensive administrative reallocations may be permitted, and an increase of total amount of the budget up to 10% PI-18.1: Scope of budget scrutiny 108. The County Assembly’s review covers fiscal policies, medium-term fiscal forecasts, and medium-term priorities and details of expenditure and revenue. These are included in the key budget documents that are submitted to the County Assembly, including finance bills, CFSP and the detailed budget estimates. Standing Order number 206 guides legislative scrutiny of the CFSP while Standing Order number 207 guides budget approval. The relevant budget documents are debated in the County Assembly as motions. In summary, the County Assembly review covers fiscal policies, medium-term fiscal forecasts, and medium-term priorities and details of expenditure and revenue. Dimension rating = A. PI-18.2: Legislative procedures for budget scrutiny 109. Article 35 of the Constitution, section 87 of the County Government Act 2012 and the PFM Act 2012 section 125 (2) provide that the public should be involved in the budget-making process through public participation. The 74 Assessment of PFM performance county government is required to seek the views and opinion of the public in the preparation of all budget documents. Standing Order number 187 provides for the establishment, mandate, composition and reconstitution of the County Budget and Appropriation Committee. The committee is reconstituted after every three years. The Public Accounts Committees hold public hearings/consultations on the budget. For the budget preparation, the county initiated public participation forums from Ward to the Village level. In these forums, the public highlight specific challenges they face and propose interventions to be initiated by the county government. For 2015/16, the challenges in the Water and Environment, Agriculture Livestock and Fisheries, Transport and Infrastructure and Health Services sectors were ranked as the most pressing. In summary, the County Assembly’s procedures to review budget proposals are approved by the legislature in advance of budget hearings and are adhered to. The procedures include arrangements for public consultation. They also include internal organizational arrangements, such as specialized review committees, technical support, and negotiation procedures. Dimension rating = A. PI-18.3: Timing of budget approval 110. According to the PFM Act 133, the Finance bill should be approved not more than 90 days after passing of the Appropriations Bill. According to the Public Finance Management Act 2012 - 129 (2) the County Executive should submit to the County Assembly the budget estimates, supporting documents, and any other Bills required to implement the budget, except the Finance Bill, by 30th April in that year. 111. The County Assembly of Makueni approved the annual budget before the start of the year in two (2015/16 and 2016/17) of the last three fiscal years, with a delay of more than 9 months in the third year (2014/15). The 2014/15 budget was approved only on 4th March 2015 (third quarter) of the year, leaving the county with less than two months to implement the development programmes. The Governor did not assent to the Appropriations Bill until March 2015, contrary to provisions of the Public Finance Management Act 2012 by directing his Finance Executive not to prepare and submit to the County Assembly the Makueni County Appropriations Bill 2014. The delay was mainly due to disagreements between the County Executive and the County Assembly. In summary, the County Assembly has approved the annual budget before the start 75 An assessment of the public expenditure and financial accountability - Makueni County of the year in two of the last three fiscal years, with a delay of up to nine months in one of the three fiscal years. Dimension rating = C. PI-18.4: Rules for budget adjustments by the executive 112. Clear rules exist for in-year budget adjustments by the executive as provided for in the PFM Act (Section 135) and PFM regulations. Budget adjustments are mainly done through preparation of supplementary budgets and reallocation across activities. These rules are adhered to in all instances. The supplementary budget is published as a supplementary Appropriation Act under the County government gazette supplement. In summary, clear rules exist for in-year budget adjustments by the executive and are adhered to in most instances. Extensive administrative reallocations may be permitted and an increase of total amount of the budget up to 10%. Dimension rating = B. 3.6 Pillar V: Predictability and Control in Budget Execution Indicators of this pillar measure whether the budget is implemented within a system of effective standards, processes, and internal controls, ensuring that resources are obtained and used as intended. There are eight indicators under this pillar: revenue administration, accounting for revenue, predictability of in-year resource allocation, expenditure arrears, payroll controls, procurement, internal control on non-salary expenditure and internal audit. PI-19: Revenue administration Summary of scores and performance table PI-19 Revenue D Brief justification for score administration (M2) 19.1 Rights and D Entities collecting the majority of revenues do obligations for revenue provide payers with access to major information measures on the main revenue obligation areas, but the county does not have a documented redress mechanism but handles revenue complaints case by case 76 Assessment of PFM performance 19.2 Revenue risk D Entities collecting the majority of revenues do management not use structured and systematic approaches for assessing and prioritizing compliance risks for revenue streams 19.3 Revenue audit D There is no audit of revenue from any of the and investigation sources 19.4 Revenue arrears D The stock of revenue arrears at the end of the monitoring last completed fiscal year is above 40% of the total revenue collection for the year and the revenue arrears older than 12 months are more than 75% of total revenue arrears PI-19.1: Rights and obligations for revenue measures 113. Revenue administration is governed by the County Finance Act 2017 that provides for the revenue-raising measures, and the County Revenue Administration Act which provides for the general administration of revenue laws. 114. The County Revenue Directorate is the only agency that is responsible for revenue collection through the “County receiver of revenue”, which is designated pursuant to Section 157 of the Public Finance Management Act 2012 and the “County Revenue Collector”, which is a county public officer authorized to collect revenue pursuant to Section 158 of the Public Finance Management Act 2012. The breakdown of local sources of revenue is presented in the table below: Sources of revenue for 2014/15 (in Ksh) Source Total 2014/2015 Barter market fee 26,371,345 Conservancy fee 4,298,807 Parking 22,737,626 Plot rent fee 8,065,108 Permits 66,279,779 Penalty fee 1,698,194 Stock market fee 8,516,490 Plan approval fee 6,353,370 Cess 14,608,953 77 An assessment of the public expenditure and financial accountability - Makueni County Kiosk renewal fee 2,969,900 Other plot dues 4,034,175 Others 23,760,087 Stock movement fee 1,929,580 Liquor licensing 22,184,620 Sale of Ttenders 1,540,920 Total 215,349,954 Source: BROP 2015 115. Advertisements are put on print media for payers regarding their rights and obligations. The county also runs a radio centre where all announcements are made in the local language. The county does not have a documented redress mechanism but handles revenue complaints case by case. The county has enacted the Finance Bill which provides for the various taxes, fees and charges for services, and for other revenue-raising measures. In summary, entities collecting most revenues do provide payers with access to major information on the main revenue obligation areas, but the county does not have a documented redress mechanism but handles revenue complaints case by case. Dimension rating = D. PI-19.2: Revenue risk management 116. Makueni County does not have a revenue risk management framework but instead uses the PFM Act 2012 which provides for the legal framework for collection and management of revenues for county governments. It works towards adhering to its requirements to reduce the risks that may occur during the daily operations of the county. A revenue directorate exists and has various cadres of staff, including the director, clerks, supervisors, sub- county revenue officers all with different roles and responsibilities. Other measures being undertaken by the county to reduce risks include: • Segregation of duties among the various staff in the revenue unit, e.g. permits are signed by a supervisor who ascertains that all permits issued meet the required conditions before signing; • Introduction of penalty after 31st March every year to ensure prompt payment and minimize default rate; • The county has enhanced the capacity of internal audit unit to be able to assess level of risk exposure and advice appropriately; 78 Assessment of PFM performance • To ensure compliance, the county has bought vehicles and motor cycles to assist in officers’ movement, which will allow collection from all areas including the most remote ones of the county; • The county is finalizing the enactment of revenue administration bill that aims to strengthen compliance; and • The county is implementing an automated revenue management system that will go a long way in minimizing revenue leakages and associated risks. In summary, entities collecting most revenues do not use structured and systematic approaches for assessing and prioritizing compliance risks for revenue streams. Dimension rating = D. PI-19.3: Revenue audit and investigation 117. Revenue audit is governed by PFM Regulation No. 153, 2015 but a revenue audit department is not operational yet. Only one fraud investigation report, originating from the revenue department dated 30th June 2015 was provided. No audit of revenue from any of the sources has been provided. 118. Audit and investigation is performed mainly by the OAG. The external audit report on the Makueni executive for 2015/16 pointed out an unbanked revenue of Ksh 309,050 because three officers whose names are reported did not transfer this amount of collected revenue on the Central Bank of Kenya. In summary, there is no audit of revenue from any of the sources. Dimension rating = D. PI-19.4: Revenue arrears monitoring 119. According to the Public Finance Management Act 2012, Article 82. (1), at the end of each financial year, a receiver of revenue for the National Government shall prepare an account in respect of the revenue received and collected by the receiver during that financial year. An account prepared under subsection (1) shall include (a) a statement of receipts and disbursements in such form as the National Treasury may direct, and (b) a statement of arrears of revenue. 120. According to data provided by the Revenue administration, the stock of arrears at the end of 2015/16 amounted to Ksh 148,868,671, with 7 per cent of arrears less than 12 months and 93 per cent older than 12 months against 79 An assessment of the public expenditure and financial accountability - Makueni County the total revenue collection of Ksh 220,171,649. Arrears appear to represent 68 per cent of the actual revenue collection and most of these arrears are more than one year of age. 121. The county is instituting requisite procedures for undertaking revenue audits and investigations. A legal framework on revenue administration is at the County Assembly for debate. A draft valuation and rating Bill is to be presented to the public for input. In summary, the stock of revenue arrears at the end of the last completed fiscal year is above 40 per cent of the total revenue collection for the year and the revenue arrears older than 12 months are more than 75 per cent of total revenue arrears. Dimension rating = D. PI-20: Accounting for revenue Summary of scores and performance table PI-20 Accounting for C+ Brief justification for score revenue (M1) 20.1 Information on A The Directorate of Revenue obtains data at revenue collections least weekly from all entities, collecting all revenues. This information is broken down by revenue type and is consolidated into a report 20.2 Transfer of B The entities collecting most county revenue revenue collections transfers the collection to the County Revenue Fund on a weekly basis 20.3 Revenue C Entities collecting most government revenue accounts undertake complete reconciliation of reconciliation collections and transfers to the Treasury and other designated agencies at least annually within 2 months of the end of the year PI-20.1: Information on revenue collections 122. The county’s directorate of revenue obtains data at least weekly from all accounting officers and other requisite staff collecting all revenues. These revenues are consolidated into a report and in AFS, which is broken down by revenue types. Dimension rating = A. 80 Assessment of PFM performance PI-20.2: Transfer of revenue collections 123. Article 207 of the Constitution and the PFM Act 2012 provides for the establishment of a County Revenue Fund (CFR). All monies raised or received by or on behalf of the county should be paid into the CRF, except those excluded by an Act of Parliament. Taxpayers pay their revenue obligations either through an internet platform (for instance VAT) directly to the CRF or to revenue collectors. 124. Once revenue has been collected, revenue collectors deposit the revenue collections on a weekly basis to the county collection accounts, which is then transferred to the CRF. When revenue is collected by cash, the deposit is to be made to the Treasury account within one week. The collection from all areas including the most remote ones of the county, sometimes by motor cycles, does not hamper the transfer of revenue collection due to the small size of the county. 125. Beginning 1st July 2017, the County Government of Makueni transited to an automated revenue collection system. Besides mobile banking and VISA card-enabled modes of payment, a customer portal is also being developed to facilitate internet banking revenue payment. In summary, the entities collecting most county revenue transfer the collection to the county revenue fund on a weekly basis. Dimension rating = B. PI-20.3: Revenue accounts reconciliation 126. The County Executive undertakes an annual reconciliation of assessment, collections and transfers within 2 months of the end of the year. The unit uses the business and property register to assess the potential of the revenue. The registers are reconciled annually. Based on the actual amounts collected, the focus is revised. The information on arrears is difficult to monitor due to user fees and inherited debts. In summary, entities collecting most government revenue undertake complete reconciliation of collections and transfers to the Treasury and other designated agencies at least annually within 2 months of the end of the year. Dimension rating = C. 81 An assessment of the public expenditure and financial accountability - Makueni County PI-21: Predictability of in-year resource allocation Summary of scores and performance table PI-21 Predictability C+ Brief justification for score of in-year resource allocation (M2) 21.1 Consolidation of D Balances from the different bank accounts are cash balances not swept into a central consolidated account 21.2 Cash forecasting C Cash flow projections are prepared annually for and monitoring the fiscal year 21.3 Information on B Budgetary units are provided reliable commitment ceilings information on commitment ceilings at least quarterly in advance 21.4 Significance B Significant in-year adjustments to budget of in-year budget allocations take place no more than twice in a adjustments year and are done in a relative transparent way but reallocations may have already occurred with staff recruiting PI-21.1: Consolidation of cash balances 127. The County has a total of 19 bank accounts in various commercial banks and the Central Bank. Six of them are in the Central Bank and the remaining 13 are in commercial banks. The consolidation of cash balances is done on a monthly basis. Dimension rating = D. PI-21.2: Cash forecasting and monitoring 128. Management of cash at the County Government is governed by Section 120 of the PFM Act 2012, which requires county governments to prepare and submit annual cash flow plan under the direction of the County Treasury. Each year, the county prepares a cash flow projection. In addition, requisitions to the Controller of Budget are done based on the projected cash at hand and outflow projections. However, cash flow projections are not updated on the basis of actual cash inflows and outflows. In summary, cash flow projections are prepared annually for the fiscal year. Dimension rating = C. 82 Assessment of PFM performance PI-21.3: Information on commitment ceilings 129. Financial management in the county is done in accordance with the provisions of the Public Finance Management Act 2012. The Public Procurement and Disposal Act 2005 and all other applicable regulatory statutes. Theoretically, expenditure management should be performed through the Integrated Financial Management Information System (IFMIS) across the county, but practically total budget allocations are divided by four for each quarter. Therefore, budgetary units are provided reliable information on commitment ceilings at least quarterly in advance. Expenditure is also committed once local purchase orders have been issued to suppliers, which may lead to an increase of expenditure arrears (see PI-22). Imprests are processed on a need basis. In summary, budgetary units are provided with reliable information on commitment ceilings at least quarterly in advance. Dimension rating = B. PI-21.4: Significance of in-year budget adjustments 130. In-year budget adjustments are governed by Section 135 of the PFM Act 2012, which provides that county governments submit a supplementary as a form of a request and the County Supplementary Appropriation Bill which approves the request. The supplementary budget is done once in a year by all the units and presented to the County Assembly for approval. The county enhances transparency of the in-year adjustments by tabling in the County Assembly. Requests are made through the county supplementary budgets and approval is granted through the supplementary appropriation Acts. 131. In-year adjustments are gathered in the county supplementary budget submitted to the assembly for approbation. For instance, Makueni County Assembly passed a Supplementary Appropriation Bill on 8th August 2015 which sought to allow the County Government to spend a supplementary budget of Ksh 2.4 billion. The amount was a balance of funds that the county was allocated in 2014/2015 financial year budget and was not utilized. Out of the total, Ksh 2.1 billion was to be allocated for development while approximately Ksh 336 million was to be used for recurrent expenditure. The total amount of supplementary budget for 2015/16 was Ksh 6.88 billion. Out of the total, Ksh 4.3 billion was to be allocated for development while Ksh 2.57 billion was to be used for recurrent expenditure. In summary, significant in-year adjustments to budget allocations take place no 83 An assessment of the public expenditure and financial accountability - Makueni County more than twice in a year and are done in a relative transparent way but reallocations may have already occurred with staff recruiting. Dimension rating = B. PI-22: Expenditure arrears Summary of scores and performance table PI-22 Expenditure D Brief justification for score arrears (M1) 22.1 Stock of expenditure D The stock of expenditure arrears was no more arrears than 10% of total expenditure in only one fiscal year 22.2 Expenditure arrears D* Data on stock, age composition of monitoring expenditure arrears is generated only at the end of the financial year when the county administration is preparing financial statements. However, the stock of arrears are not included in notes in the AFS, and data on stocks of arrears could be collected only for 2015/16 PI-22.1: Stock of expenditure arrears 132. According to data provided by the administration, the county had stock of expenditure arrears of 13.4 per cent, 10.26 per cent and 8.2 per cent of expenditure for 2013/14, 2014/15 and 2015/16, respectively. For instance, the amount of expenditure arrears was Ksh 453.8 million at the end of financial year 2015/16 from all the thirteen offices and sectors. The existence of expenditure arrears results from the pending bills due to challenges in project implementation by the implementing departments. Payments are only completed once completion certificate has been issued for different stages. Review of records from the County Assembly revealed pending bills totalling Ksh 99.6 million, which comprised Ksh 88.7 million and Ksh 10.8 for supply of goods and services and staff payables, respectively. However, the report of the OAG for 2014/15 points out that an amount of Ksh 99.5 million had been omitted, while no supporting documents were availed for audit review on how the debts were incurred. In summary, the stock of 84 Assessment of PFM performance expenditure arrears was less than 10 per cent of the total expenditure in only one fiscal year. In summary, the stock of expenditure arrears was no more than 10% of the total expenditure in only one fiscal year. Dimension rating = D. PI-22.2: Expenditure arrears monitoring 133. The county monitors and reports all the arrears annually during the preparation of annual financial reports. However, recording of the arrears is done as they arise, but the compilation and consolidation of the expenditure arrears ise done during preparation of financial statements. In summary, data on stock, age composition of expenditure arrears is generated only at the end of the financial year when the county administration is preparing financial statements. However, the stock of arrears not included in notes in the AFS and data on stocks of arrears could be collected only for 2015/16. Dimension rating = D*. PI-23: Payroll control Summary of scores and performance table PI-23 Payroll D+ Brief justification for score controls (M1) 23.1 Integration D Reconciliation of the payroll with personnel records of payroll and takes place at least every six months (each quarter) personnel through payroll audit. However, there is no approved records staff list and the Ccounty uses existing staff (staff in-post) as a basis for the annual budget, and staff hiring and promotion is not checked against the approved budget prior to authorization 23.2 A Required changes to personnel records and payroll Management of are updated in time for the following month’s payroll changes payments. Few retroactive adjustments are made 85 An assessment of the public expenditure and financial accountability - Makueni County 23.3 Internal D Authority and basis for changes to personnel records control of payroll and the payroll are clear and adequate to ensure integrity of the payroll data for about 80% of the payroll through IPPD, but integrity of the payroll data of greatest importance is not respected in manual payroll 23.4 Payroll audit B A payroll audit covering all County government entities has been conducted every year. PI-23.1: Integration of payroll and personnel records 134. The county government uses the Integrated Personnel Payment Database (IPPD) management system to generate monthly payroll and staff payslip. The system is used for human resource management, including appointments/recruitment, personnel records management, career development and pension. In addition, it administers the records of benefits enjoyed by the officers such as loans, medical benefit, claims and personal advances, and allowances. The payslip data base is uploaded to Government Human Resource Information system (GHRIS), which is an online platform that enables staff to access their information. Currently, there is no approved staff list and the county uses existing staff (staff in-post) as a basis for the annual budget. Staff hiring and promotion is not always checked against the approved budget prior to authorization. In addition, it is not clear how the County Public Service Board advertised for vacancies in the various departments in the county. The organizational structure and staffing levels could also not be ascertained. In addition, the OAG report also showed that the county employed 349 new officers to various positions without an authorized staff establishment (see PI-23.3). In summary, reconciliation of the payroll with personnel records takes place only each quarter through payroll audit (PI-23.4), but staff hiring and promotion is not always checked against the approved budget prior to authorization. Dimension rating = D. PI-23.2: Management of payroll changes 135. Any amendments required to the personnel database are processed in a timely manner through an official document called Authorized Data Sheet (ADS), and these changes always lead to a clear audit trail. Any changes are completed in time to allow adjustments in the following month’s pay. 86 Assessment of PFM performance During 2015/16, payroll retroactive adjustments in IPPD were an average of 2.97 per cent of gross pay (Table 3.16). Table 3.16: Payroll adjustments in 2015/16 (Ksh million and %) Month Arrears Gross pay % adjustments Jul-15 11.57 150.87 7.67 Aug-15 8.21 154.07 5.33 Sept-15 4.10 132.78 3.09 Oct-15 1.53 132.19 1.16 Nov-15 4.91 138.12 3.55 Dec-15 0.56 150.27 0.37 Janv-16 1.64 134.69 1.22 Feb-16 3.28 138.48 2.37 Mars-16 3.64 138.74 2.62 Apr-16 2.00 138.03 1.45 May-16 7.66 144.64 5.30 Jun-16 2.21 145.74 1.52 Average 4.28 141.55 2.97 Source: County Secretary 136. About 20 per cent of payment are still done manually with the support of Excel software. Payroll adjustments in 2015/16 did not provide for the retroactive adjustment concerning these payments, but the payroll audit report of August 2015 shows a very small amount of unconfirmed payment at the time of the audit, even for manual payment supported by Excel. Payroll Paid Unconfirmed Unconfirmed In % of Total Ippd 62,530,548 719,066 1.14% Excel 17,610,192 13,620 0.08% Total 80,140,740 732,686 0.91% Source: Payroll audit report, August 2015 In summary, required changes to the personnel records and payroll are updated at least monthly. Retroactive adjustments show corrections in less than 3 per cent of salary payments. Dimension rating = A. 87 An assessment of the public expenditure and financial accountability - Makueni County PI-23.3: Internal control of payroll 137. According to the law, the only authorized mode of payment is through the IPPD. The county uses the IPPD and manual payroll systems as mentioned above. As per the IPPD payroll, the Head of Human Resource Management allocates duties in a manner which promotes high level of efficiency, effectiveness and accountability. Different access rights ensure that no one person can initiate and complete any payroll amendment without involving another party. Every change of records in the IPPD system must be supported by duly filled and signed ADS. The ADS will be placed in the personal file of the affected employee and signed in sequential order of the following actions: • Form modified by: Signed after carefully confirming the employee’s details against the personal file, clearly indicating the purpose of the ADS and the folio numbers of the document supporting each detail on the ADS. • Changes authorized by: Signed after authenticating the stated supporting documents, and the circumstances and procedures necessitating the intended change of record. • Data accepted by: Signed after registering the ADS with an accountable control number, and visually verifying compliance of the ADS with the strict system requirements regarding data entry. This task requires a person who is conversant with the data entry controls in the IPPD system. • Data keyed by: Signed after entering the authorized changes in the database as indicated on the ADS. • Data input verified by: Signed after verifying the accuracy of the data entered by visually comparing with the instructions on the ADS used, including highlighting any errors and initiating the process of making the necessary corrections. Each of the five (5) signatures on the ADS must clearly indicate the signer’s personal number, full names, section of deployment, job designation and the date on which the specific action is completed. 138. With regard to the manual payroll, OAG report on AFS for 2014/15 showed that 1,185 employees were paid through the manual payroll every month. A copy of the manual payroll provided for audit review did not show details of the officers’ job group, basic salary and deductions but only the net pay of Ksh 224.5 million during that year. In addition, the report also showed that the county employed 349 new officers to various positions during the period under review without an authorized staff establishment. Further, a scrutiny of a sample of personal files did not provide adequate information as letters 88 Assessment of PFM performance of offer were missing while some appointment letters were not signed, casting doubt on adherence to the recruitment procedures and Employment Act 2007. In summary, authority and basis for changes to personnel records and the payroll are clear and adequate to ensure integrity of the payroll data for about 80 per cent of the payroll through IPPD, but integrity of the payroll data of greatest importance is not respected in manual payroll, as reported by the OAG report. Dimension rating = D. PI-23.4: Payroll audit 139. Each quarter, the payroll section prints the entire county’s payroll and each sectional head is required to confirm the people working under him/her and attaches each staff to a work station. This audit payroll covers both IPPD and the manual payroll, as shown in the reports. 140. This helps to identify ghost workers who cannot be traced to any work station and are therefore removed from the payroll. The entire payroll section has been covered by the end of the year. Payroll audit is also performed by external audit. The OAG report on AFS for 2014/15 pointed to the irregular promotion of one civil servant. The officer was upgraded after only 3 months in the service while no authority to move the officer six scales higher within 3 months of appointment was provided. Further, the officer received salary arrears despite the promotion. In summary, a payroll audit covering all county government entities has been conducted every year. Dimension rating = B. PI-24: Procurement Summary of scores and performance table PI-24 Procurement (M2) C Brief justification for score 24.1 Procurement D No databases are maintained to provide monitoring information for contracts, value of procurement and who has been awarded contracts 24.2 Procurement D Open tendering was used for less than 40% of methods the total procurement 89 An assessment of the public expenditure and financial accountability - Makueni County 24.3 Public access C Three of the key procurement information to procurement elements are complete and reliable for information government units representing the majority of procurement operations, and are made available to the public 24.4 Procurement A The procurement complaint system meets all complaints management criteria PI-24.1: Procurement monitoring 141. The County Government has a procurement Directorate in charge of the entire supply chain. Procurement is initiated from respective departments through requisitions and then the supply chain section undertakes the supplier sourcing. However, there was no clear integrated mechanism to ensure monitoring of the procurement process. Information about procurement is found in respective project files. Accuracy and completeness of procurement information could not be verified as there was no procurement database to show how each contract was initiated, method used, tender award process and the status. In summary, no databases are maintained to provide information for contracts, value of procurement and who has been awarded contracts. Dimension rating = D. PI-24.2: Procurement methods 142. Open tendering is considered a competitive method of procurement. The Public Procurement and Disposal Act 2015 requires that procurement exceeding Ksh 6 million shall be done through open tender method. The county relied mostly on direct procurement and Request for Quotation, which accounted for more than 60 per cent of total procurement. Further, several breaches of the law were pointed out in the report of the Auditor General related to 2014/15, as follows: • The County Government procured computers, printers and digital cameras from various suppliers but the purchases were not supported by quotations. In addition, the orders were split into several smaller quantities to avoid open tender method of procurement. • The County Government purchased a prime mover at a cost of Ksh 11.5 90 Assessment of PFM performance million, but the proof of the print media did not indicate the name of the newspaper, date and the closing date of the tender. • The County Government procured services from various contractors and service providers on different dates totalling Ksh 146 million, but the tender/ quotation documents in respect of the various contracts and services were not provided. • The County Government entered into a contract for the construction of Yikisemei Primary School under emergency expenditure category and made payments totalling Ksh 16 million. However, no documents were made available for audit review to confirm that the expenditure and the project qualified to be categorized under emergency projects. Besides, the contracting process was not subjected to competitive bidding, but instead management resorted to the use of Imprest to carry out the works. • The County Government procured general office supplies items worth Ksh 2.3 million without subjecting the process to competitive bidding. • Financial statements reflect training expenses amounting to Ksh 20 million, including Ksh 13.7 million in training of entrepreneurs, motor bike riders and other trainings, but no procurement documents were made available for audit review. In summary, open tendering was used for less than 40 per cent of the total procurement. Dimension rating = D. PI-24.3: Public access to procurement information 143. The public can access the legal and regulatory framework (Public Procurement and Assets Disposal Act 2015) for procurement freely from the Public Procurement and Regulatory Authority (PPRA) website. Data on resolution of procurement complaints is available online as published by the Public Procurement and Administrative Review Board (PPARB). The tendering opportunities are available on the county website. However, information on the county procurement plans, annual procurement statistics and details of contracts awarded, and data on resolution of procurement complaints are not posted on the website. Key procurement information to be made available to the Compliance public: (Y/N) Legal and regulatory framework for procurement Yes 91 An assessment of the public expenditure and financial accountability - Makueni County Government procurement plans No Bidding opportunities Yes Contract awards (purpose, contractor and value) No Data on resolution of procurement complaints Yes Annual procurement statistics No Source: County Secretary In summary, three of the key procurement information elements are complete and reliable for government units representing most procurement operations and are made available to the public. Dimension rating = C. PI-24.4: Procurement complaints management 144. The Public Procurement Oversight Authority (PPOA), the Public Procurement Advisory Board (PPAB) and Public Procurement Administrative Review Board (PPARB) were created through the Public Procurement and Disposal Act 2005. 145. The Public Procurement Administrative Review Board (PPARB) was established to promote and uphold fairness in the public procurement system through judicious and impartial adjudication of matters arising from disputed procurement proceedings. Any procurement complaints are addressed through the Public Procurement and Administrative Review Board which is an independent board under the Public Procurement Oversight Authority, which is a neutral body not involved in the procurement process. Any party who is interested in a public procurement process may lodge a review of the tendering process through this Board. 146. Clear guidelines on the process followed by any conflict are published and available online on the web site, www.ppoa.go.ke. The decisions of the Board are binding to all parties involved. However, the Board has prescribed some fees to be paid by parties filing complaints, presented in Table 3.17. 92 Assessment of PFM performance Table 3.17: Fees for review by the Public Procurement Administrative Review Board according to amount of tender (Ksh) Fees for review according to the Fees (Ksh) type of tender 1. Tenders of ascertainable value Does not exceed Ksh 2,000,000 1% subject to a minimum of Ksh 20,000 Exceeds Ksh 2,000,000 The fees for Ksh 2,000,000 plus an additional fee of 0.25% on the amount above Ksh 2,000,000 Exceeds Ksh 50,000,000 The fees for Ksh 50,000,000 plus an additional fee of 0.025% on the amount above Ksh 50,000,000 subject to a maximum fee of Ksh 200,000 2. Prequalification and other “unqualified tenders” Any other tenders Subject to a minimum of Ksh 20,000 and a maximum of Ksh 40,000 Upon request of an adjournment to a Ksh 10,000 party by the Board Filing preliminary objection Ksh 5,000 Fee to accompany the review of the Ksh 40,000 Director General’s order (s.106(3)) Filing fees on each request for a review Ksh 40,000 on debarment order (s.117 (3)) Source: County Executive 147. The review of the compliance with the PEFA criteria related to complaints reviewing by an independent body is reported in Table 3.18. Table 3.18: Procurement complaints management Complaints are reviewed by a body which: C o m p l i a n c e (Y/N) (1) is not involved in any capacity in procurement transactions Yes or in the process leading to contract award decisions (2) does not charge fees that prohibit access by concerned parties Yes 93 An assessment of the public expenditure and financial accountability - Makueni County (3) follows processes for submission and resolution of complaints Yes that are clearly defined and publicly available (4) exercises the authority to suspend the procurement process Yes (5) issues decisions within the time frame specified in the rules/ Yes regulations, and (6) issues decisions that are binding on every party (without Yes precluding subsequent access to an external higher authority) 148. The procurement complaint system meets all criteria, except charging fees that may prohibit access by concerned parties. In summary, the procurement complaint system meets all criteria. Dimension rating = A. PI-25: Internal controls on non-salary expenditure Summary of scores and performance table PI-25 Internal B Brief justification for score controls on non-salary expenditure (M2) 25.1 Segregation of A Appropriate segregation of duties is duties prescribed throughout the expenditure process. Responsibilities are clearly laid down 25.2 Effectiveness of C Comprehensive expenditure commitment expenditure commitment controls are in place and effectively limit controls commitments only to approved budget allocations 25.3 Compliance with B Most payments (83%) are compliant with payment rules and regular payment procedures. The majority procedures of exceptions are properly authorized and justified PI-25.1: Segregation of duties 149. The legislation about segregation of duties are, respectively: (i) the Constitution; (ii) the PFM Act, 2012; (iii) Circulars from National Treasury; and (iv) Public Procurement and Asset Disposal Act 2015. The County Government uses the Integrated Financial Management Information System 94 Assessment of PFM performance (IFMIS) which has various modules and different levels of access rights to ensure adequate segregation of duties in the expenditure process. Each stage is assigned a specific officer with specific log-in credentials. No one officer can initiate a transaction and process it to completion without the approval of the other users. Table 3.19 gives a breakdown of different IFMIS users and their role in budget execution. Table 3.19: Different stages of control of budget execution Stage User Roles 1 Invoicer Initiates the payment 2 Validator Confirms the accuracy of the expenditure 3 AIE holder approval Approves the expenditure 4 Approver 1 Checks correctness of the expenditure 5 Approver 2 Makes the final approval Source: County Secretary 150. The system respects the main incompatible responsibilities to be segregated: (a) authorization; (b) recording; (c) custody of assets; and (d) reconciliation or audit. As far as segregation of assets is concerned, disposal of public assets and stores is provided under the Makueni Financial Regulation and Procedures Manual section 10.13 on disposal procedures, derived from the Public Procurement and Assets Disposal Act 2015 (see PI-12.3). Records of these assets are maintained by the accounting section of every department and are reported in AFS. In summary, appropriate segregation of duties is prescribed throughout the expenditure process. Responsibilities are clearly laid down. Dimension rating = A. PI-25.2: Effectiveness of expenditure commitment controls 151. The county maintains vote books to ensure that there is no over commitment. No expenditure commitments can be made above the approved budget. Cash flow projections are done for every month at the beginning of the year, but they are not updated monthly. Consequently, expenditure commitment controls are in place and effectively limit commitments approved budget allocations for most types of expenditure, but not to projected cash availability. 95 An assessment of the public expenditure and financial accountability - Makueni County In summary, comprehensive expenditure commitment controls are in place and effectively limit commitments only to approved budget allocations. Dimension rating = C. PI-25.3: Compliance with payment rules and procedures 152. Generally, the county complies with payment procedures. All requisitions must be done through a specific form that is sent to financial control. A list of requisitions has been provided. However, the OAG report for 2014/15 points out some cases where payments have been made without proper documentation. This audit report revealed that there were irregular expenditures of approximately 17 per cent of the total expenditure. In summary, most payments (83%) are compliant with regular payment procedures. The majority of exceptions are properly authorized and justified. Dimension rating = B. PI-26: Internal audit Summary of scores and performance table PI-26 Internal audit (M1) D+ Brief justification for score 26.1 Coverage of internal B Most of departments were audited (84.61% of audit the budget) plus Mbooni Hospital in 2015/16 26.2 Nature of audits B Internal audits are focused on evaluation of and standards applied the adequacy and effectiveness of internal controls as evidenced by the available annual audit plan. But no evidence of a quality assurance process followed to show adherence to professional standards has been provided 26.3 Implementation D No annual audit plan has been set up for the of internal audits and last completed fiscal year 2015/16 reporting 26.4 Response to D The management had not responded to the internal audits audit reports for the previous fiscal year 96 Assessment of PFM performance PI-26.1: Coverage of internal audit 153. The legal framework defining the background for internal audit consists of Section 155 of the PFM Act 2012 and PFM Regulation No. 153 of 2015 for the county governments and the PFM Regulation No. 154 which specifies that internal auditors shall comply with the International Professional Practices Framework (IPPF) as issued by the Institute of Internal Auditors and shall conduct audits in accordance with policies and guidelines issued by the Public Sector Accounting Standards Board. In Makueni County, the internal audit unit was established only in 2015/16 and became functional in January 2017. Thus, no report was provided for the previous three fiscal years. Before its establishment, there was only one officer in charge of internal audit. The internal audit unit conducted audits only in 2015/16. According to data provided, most of departments were audited (84.61% of the budget) plus Mbooni Hospital and Makueni Hospital. The County Assembly has also established an internal audit unit, but no data was provided. In summary, internal audit is operational for central government entities representing total budgeted expenditures and for central government entities collecting budgeted government revenue. Dimension rating =B. PI-26.2: Nature of audits and standards applied 154. The internal audit function in Makueni County Government became operational in 2016/17. Internal audits focused on evaluation of the adequacy and effectiveness of internal controls as evidenced by the available annual audit plan. On 23rd February 2017, an Audit Committee was inaugurated to support the management in risk control and governance and also provide associated assurance. However, there was no evidence of a quality assurance process followed to show adherence to professional standards. In summary, internal audits are focused on evaluation of the adequacy and effectiveness of internal controls as evidenced by the available annual audit plan. But no evidence of a quality assurance process followed to show adherence to professional standards has been provided. Dimension rating = B. 97 An assessment of the public expenditure and financial accountability - Makueni County PI-26.3: Implementation of internal audits and reporting 155. There was no annual audit plan for the last completed fiscal year (2015/16). The audit plan provided was for 2016/17. However, a list of completed internal audits for that fiscal year together with the respective reports was provided. Dimension rating = D. PI-26.4: Response to internal audits 156. The first internal reports that the audit team released were for 2015/16 and are still awaiting responses from the management (accounting officers). Dimension rating = D. 3.7 Pillar VI: Accounting and Reporting Indicators under this pillar measure whether accurate and reliable records are maintained, and information is produced and disseminated at appropriate times to meet decision-making, management, and reporting needs. There are three indicators under this pillar: financial data integrity, in-year budget reports and annual financial reports. PI-27: Financial data integrity Summary of scores and performance table PI-27 Financial data C Brief justification for score integrity (M2) 27.1 Bank account B Bank reconciliations are prepared at least reconciliation monthly for all accounts of the budgetary administration 27.2 Suspense accounts D Suspense accounts are not cleared less than two months after the end of the year, but they are monitored and a listing is provided 27.3 Advance accounts D Imprest accounts are reconciled annually but the amounts are not cleared less than two months after the end of the year, as shown in AFS, and imprest accounts are not used in compliance with the law 98 Assessment of PFM performance 27.4 Financial data B Access and changes to records is restricted Integrity and recorded, and results in an audit trail. However, no operational body, unit or team is presently in charge of verifying financial data integrity PI-27.1: Bank account reconciliation 157. The PFM Regulation No. 90 (1) of 2015 requires bank reconciliations to all active accounts to be prepared every month and submitted to the County Treasury with a copy to the OAG not later than 10th of the subsequent month. The county prepares monthly bank reconciliations for all the key bank accounts. Every 5th day of the following month, the reconciliations are done as per the County Financial and Procedure Manual. 158. The OAG report for 2014/15 nevertheless noted that out of the 12 bank accounts held by the county, bank confirmation certificates for nine accounts and bank reconciliation statements for seven accounts were not availed for audit review. The report also indicated that in four of the five bank reconciliation statements that were availed, cash book balances were not in agreement with the financial statements. The audit report also revealed that cash balances of Ksh 27.4 million and Ksh 11.5 million for development and recurrent expenditure for County Assembly accounts did not appear in the consolidated AFS of the County Government. Further, the County Assembly did not prepare and maintain cash books or prepare bank reconciliation statements for the two bank accounts. However, in 2015/16 the OAG report does not mention any of the previously mentioned issues and all bank accounts balances detained by the County Executive are reported in an Annex for AFS. In addition, balances of bank accounts detained by the County Assembly are also reported in an Annex for AFS and the report does not mention any delay in presenting the information. In summary, the 2015/16 bank reconciliation for all active budgetary central government bank accounts took place at least on a monthly basis. Bank reconciliation statements and bank certificates for all accounts were availed for audit review. Dimension rating = B. 99 An assessment of the public expenditure and financial accountability - Makueni County PI-27.2: Suspense accounts 159. According to PFM Regulation No. 107(2b) of 2015 of the PFM Act 2012, the accounting officer must ensure that monthly reconciliations are performed to confirm the balance of each account. Deposit account is the main suspense account held by the county. This account holds funds on behalf of the contractors awaiting the end of defect liability period. Once the contractor completes their obligation, the retained 10 per cent of the contract is paid to them. Every 5th day of the month, the reconciliations are done as per the County Financial and Procedure Manual. The deposits are only paid when the defect liability period ends, normally the period is six months and it runs across the financial year. 160. The other type of suspense is system generated suspense. This is brought by incomplete accounting process in IFMIS. This suspense is supposed to be cleared on an ongoing basis. However, the OAG audit report for 2014/15 found a certain amount of uncleared suspense accounts, such as unsupported foreign travel. In 2014/15, the county paid Ksh 5.5 million to facilitate various officers on trips outside the country, but the officers had not tabled back to office reports of the various training, workshops/seminars and conferences attended. In summary, suspense accounts are not cleared less than two months after the end of the year, but they are monitored and a listing is provided. Dimension rating = D. PI-27.3: Advance accounts /Imprest account 161. The PFM Regulation No. 93(1&5) 2015 classifies Imprests into temporary (safari Imprests) which should be accounted for within seven days after returning to duty station and standing Imprests. The county government issues a circular on end year procedures stating that all advances should be cleared before the fiscal year ends. The reconciliation of staff Imprest account is prepared/monitored on an ongoing basis. At the end of the year, a full reconciliation is done and amounts outstanding on the Imprest account are supported by the list of Imprest holders. The challenge is that the Imprests are not recovered from the holders as at the end of the year. According to the County Finance Manual, Imprest surrender is supposed to be done within 7 days after the office comes back from travel. The financial statements have a list of uncleared Imprests at the end of the year as shown in Table 3.20. 100 Assessment of PFM performance Table 3.20: County Imprests and clearance accounts (Ksh millions) Description 2015/16 2014/15 Government Imprests 7.09 4.53 Clearance accounts - - Total 7.09 4.53 Source: AFSs 162. The report of the OAG on AFS 2014/15 nevertheless pointed out a certain number of breaches in the law, as follows: • Payments totalling Ksh 16 million for the construction of a primary school under emergency expenditure category (see PI 2.3) resorted to the use of Imprest to carry out the works. • The County Government issued cash Imprests amounting to Ksh 12 million to various officers to undertake the procurement of goods and services contrary to Treasury Circular No. 14/2013 dated 19 November 2013, which states that Imprest/cash should not be used to procure goods or services without involving the head of procurement. • The County Assembly made cash payments totalling Ksh 2.3 million through Imprests to various Members of the County Assembly (MCAS) for various public participation programmes across the county. However, these programmes were not supported by budget lines and the Imprest was used to procure goods and services through direct procurement method. 163. The AFS also reflected accounts receivables balance of Ksh 4.5 million. Management has responded that Imprests surrender vouchers amounting to Ksh 1.5 million were taken by the Ethics and Anti-Corruption Commission (EACC), but no evidence was provided. In addition, the Imprest register did not indicate the personal numbers of the Imprest holders and the Imprest surrender voucher numbers. It was also noted by the OAG that additional Imprests were issued to officers with other uncleared or unsurrendered Imprests. In summary, Imprest accounts are reconciled annually, but the amounts are not cleared less than two months after the end of the year, as shown in AFS and Imprest accounts are not used in compliance with the law. Dimension rating = D. 101 An assessment of the public expenditure and financial accountability - Makueni County PI-27.4: Financial data integrity processes 164. The PFM Regulation No. 109 (1) and 110, 2015 requires the establishment of an IFMIS, with appropriate access controls put in place in the system to minimize breach of information confidentiality and data integrity. 165. IFMIS is used for recording and processing budget data in the county. This system has various modules ranging from budgeting, payments and reporting modules. Any changes and introduction of users in the system has to be authorized by the Accounting Officers/Chief Officer Finance. The IFMIS department in the National Treasury is responsible for introduction of new users in the system with the approval of the accounting officer. All users are assigned passwords. The Chief Officer Finance authorizes assignment of responsibilities in the various rights to the system. The IFMIS has an audit trail and any record change is electronically recorded in the system. In summary, access and changes to records is restricted and recorded, and results in an audit trail. However, no operational body, unit or team is presently in charge of verifying financial data integrity. Dimension rating = B. PI-28. In-year budget reports Summary of scores and performance table PI-28 In-year budget B Brief justification for score reports (M1) 28.1 Coverage and B Budget reports are prepared monthly comparability of reports and quarterly reports. The reports show budgeted expenditure against actual expenditures and any revision with partial aggregation 28.2 Timing of in-year B Quarterly budget execution reports are budget reports prepared within one month from the end of that quarter 102 Assessment of PFM performance 28.3 Accuracy of in-year B Quarterly, half-year and yearly reports budget reports are prepared mainly on actual payments. Commitments are also prepared monthly on a separate report. There were no major concerns on data accuracy, and the report of the OAG for 2015/16 did provide a qualified opinion on the accounts PI-28.1: Coverage and comparability of reports 166. Makueni County prepares monthly and quarterly budget reports. The reports show budgeted expenditure against actual expenditure and any revision in the same line items. Coverage and classification of data allows direct comparison to the original budget with a certain level of aggregation. Economic classification is the same as in the budget; there is no economic classification provided. Only the three main items of this classification (e.g. compensation of employees, use of goods and services and consumption of fixed capital) is provided in the reports. No transfers exist to de-concentrated units. In summary, budget reports are prepared monthly and quarterly reports. The reports show budgeted expenditure against actual expenditures and any revision with partial aggregation. Dimension rating = B. PI-28.2: Timing of in-year budget reports 167. Budget execution reports are prepared quarterly and the reports disclose monthly data. They are produced within one month from the end of that period. Precisely, fourth-quarter report for the period ended 30th June 2016 was completed on 20th July 2016. In summary, quarterly budget execution reports are prepared within one month from the end of that quarter. Dimension rating = B. PI-28.3: Accuracy of in-year budget reports 168. In year quarterly and monthly reports by the county are prepared mainly on actual payments. Commitments are prepared on a separate report also 103 An assessment of the public expenditure and financial accountability - Makueni County monthly. However, there are concerns on data accuracy, as the OAG audit report for 2014/15 does not give a positive opinion on the accounts. 169. Management letter by the OAG identifies some areas of concern. For example, the recurrent expenditure for 2015/16 presented a total amount of Ksh 3.527 billion and development expenditure a total of Ksh 1.335 billion. These figures differed with the IFMIS vote book, which presented accumulated expenditure figures of Ksh 4.117 billion and Ksh 1.402 for both recurrent and development expenditures, respectively. Some concerns were also noted about revenue collection and preparation of cash book. 170. The situation improved for 2015/16, as the OAG was able to provide a qualified opinion, not seeing major discrepancies between IFMIS reports and AFS and stating that the financial statements presented fairly the financial position of the County Executive. In summary, quarterly, half-year and yearly reports are prepared mainly on actual payments. Commitments are also prepared monthly on a separate report. There were no major concerns on data accuracy, and the report of the OAG for the 2015/16 did provide a qualified opinion on the accounts. Dimension rating = B. PI-29: Annual financial reports Summary of scores and performance table PI-29 Annual financial D+ Brief justification for score reports (M1) 29.1 Completeness of B Financial reports for budgetary county annual financial reports government are prepared annually and are comparable with the approved budget. They contain information on revenue, expenditure, financial assets, financial liabilities, guarantees. There is no long-term obligation yet 29.2 Submission of D The County Executive should provide reports for external audit accounts for audits within 3 months after year end and a consolidated set within 4 months after year end. However, AFS for 2015/16 were considered complete for external audit only on 21 April 2017 104 Assessment of PFM performance 29.3 Accounting C The county prepares financial statements standards as per the cash basis IPSAS and that is clearly disclosed in the financial statements. Variations between international and national standards are not disclosed in notes PI-29.1: Completeness of annual financial reports 171. The AFS are prepared based on a template issued by the Public Sector Accounting Standards Board. They all have disclosures including revenue, expenditure assets and liabilities. AFS are also accompanied by a balanced cash flow. Actual revenue and expenditure can be compared with the budget. In summary, financial reports for budgetary county government are prepared annually and are comparable with the approved budget. They contain information on revenue, expenditure, financial assets, financial liabilities, and guarantees. There is no long-term obligation yet. Dimension rating = B. PI-29.2: Submission of reports for external audit 172. According to the PFM Act 2012, the County Executive should provide accounts for audits within three months after year end and a consolidated set within four months after year end. For Makueni County, consolidated financial statements for 2015/16 were submitted to the OAG on 28th October 2016 which is within four months after the end of the year. In summary, the County Executive should provide accounts for audits within 3 months after year end and a consolidated set within 4 months after year end. However, AFS for 2015/16 were considered complete for external audit only on 21st April 2017. Dimension rating = D. PI-29.3: Accounting standards 173. The county prepares financial statements as per the IPSAS Cash basis that is clearly disclosed in the AFS. The county tries to comply with the requirement by the Public Sector Accounting Standards Board. The OAG has not identified any important issue about compliance with standards. 105 An assessment of the public expenditure and financial accountability - Makueni County 174. As far as compliance with IPSAS cash is concerned, AFS are compliant; in general, the statement of financial position (IPSAS 1), the statement of financial performance (IPSAS 1), the cash flow statement (IPSAS 2), the statement of changes in net assets/equity (IPSAS 1), the notes to the financial statements, or annex (IPSAS 1). According to the OAG report for 2015/16, the AFS comply with the IPSAS cash basis and with the County Government Act 2012 and the Public Finance Management Act 2012. However, many governments say they are introducing IPSAS because it is good practice. The majority of international standards have been incorporated into the national standards, but not a single country in the world has actually adopted all the standards. Variations between international and national standards are disclosed and any gaps clearly explained in the OAG reports. In summary, the county prepares financial statements as per the cash basis IPSAS and that is clearly disclosed in the financial statements. Variations between international and national standards are not disclosed in notes. Dimension rating = C. 3.8 Pillar VII: External Scrutiny and Audit These indicators assess the arrangements for scrutiny of public finances and follow- up on implementation of recommendations by the executive. PI-30: External audit Summary of scores and performance table PI-30 External audit B+ Brief justification for score (M1) 30.1 Audit coverage and B Office of the Auditor general has been standards employing ISSAIs on all external audits of National and County Governments. Material weaknesses are highlighted in the management letters issued. Public establishments, which are not connected to IFMIS are generally not audited 106 Assessment of PFM performance 30.2 Submission of audit B Audit reports were submitted to the reports to the legislature legislature more than 3 months but less than 6 months from receipt of the financial reports, all of the last three completed fiscal years 30.3 External audit A A formal response was made by the executive follow-up or the audited entity on audits for which follow-up was expected during the last three completed fiscal years. The audit report for 2015/16 in the appendix provides the progress on the issues raised during the previous year. 30.4 Supreme Audit A External audits of the County are executed Institution (SAI) by Office of the auditor general which is an independence independent constitutional body with its own systems and procedures hence independent of the County. PI-30.1: Audit coverage and standards 175. The OAG, headed by the Auditor General, has the primary oversight role of ensuring accountability in the use of public resources. The OAG may audit the accounts of any entity that is funded from public funds (including SAGAs, as discussed under PI-10). The Constitution and Public Audit Act 2015 specify that OAG must, within 6 months of the end of the financial year, audit and report on the accounts of all county government entities, covering revenue, expenditure, assets, and liabilities, using International Standards on Supreme Audit Institutions (ISSAIs) or consistent national auditing standards. The audit reports should highlight relevant material issues, systemic and control risks. In depth audits should be carried out based on risk analysis methods. More emphasis is given to performance audits (value for money) forensic audits and procurement/asset disposal than under the previous law (sections 34-38 of the Public Audit Act, 2015). The Office of the Auditor General employs quality assurance system to assess whether its audits adhere to the adopted audit standards. These assessments are performed by independent peer reviewers or through the professional organization of the African Organization of English-speaking Supreme Audit Institutions (AFROSAI-E) which assisted in the development of a Quality Assurance Manual, whereas the Quality Control Manual was developed by the OAG. The AFROSAI-E made its first peer review in 2003, then in 2009, 2012, 2014 and 2016. Independent quality assurance reports are prepared by the reviewers. Since 2011, 107 An assessment of the public expenditure and financial accountability - Makueni County the OAG has been employing ISSAIs on all external audits of National and County Governments. Material weaknesses are highlighted in the management letters issued. Outstanding: Audited accounts for 3 years and Management letters. The audit report of the OAG of 2013/14 did not highlight any relevant material issues, and no opinion was given. The OAG expressed a non-qualified opinion in its audit report of 2014/15 and the audit report of 2015/16 provided a positive opinion on the accounts. Public establishments, which are not connected to IFMIS are generally not audited. In summary, the Office of the Auditor General has been using ISSAIs on all external audits of National and County Governments. Material weaknesses are highlighted in the management letters issued. Public establishments, which are not connected to IFMIS are generally not audited. Dimension rating = B. PI-30.2: Submission of audit reports to the legislature 176. According to the PFM Act 2012, it is not the responsibility of the County Executive to forward audit reports to the County Assembly. This task is done directly by the Office of the Auditor General. Table 3.21 provides details of dates when audit reports were submitted to the County Assembly. Table 3.21: Submission of audit reports to the legislature Date annual financial Date annual AFS Date audited annual statement completed received by SAI financial statement by CE submitted to legislature 2013/14 30th September 2014 N/A 28 August 2015 2014/15 30th September 2015 N/A 6 September 2016 2015/16 30th September 2016 21 April 2017 15 August 2017 Source: OAG 177. Based on the information that could be exploited, and in order not to hamper the scoring of the previous indicator, it was considered that audit reports were submitted to the County Assembly less than 6 months after the receipt of the AFS, as the OAG generally complies with the regulations. In summary, audit reports were submitted to the legislature more than 3 months but less than 6 months from receipt of the financial reports for the last three completed fiscal years. Dimension rating = B. 108 Assessment of PFM performance PI-30.3: External audit follow-up 178. A summary of external audit findings implementation was provided, and a follow up report for 2014/15. Some follow up issues from the previous years were included in the reports. The OAG does not give an opinion because of the weakness of internal audit. The audit report of 2015/16 presents in the Appendix the progress on issues raised during the previous year. In summary, a formal response was made by the executive or the audited entity on audits through which follow-up was expected during the last three completed fiscal years. The audit report of 2015/16 presents in the Appendix progress on issues raised during the previous year. Dimension rating = A. PI-30.4: Supreme Audit Institution (SAI) independence 179. The OAG is established as an independent office under Articles 229, 248 and 253 of the Constitution. In accordance with the Constitution, the Auditor- General is nominated and appointed by the President with the approval of the National Assembly. The statutory duties and responsibilities of the position are provided in Article 229 of the Constitution and in the Public Audit Act 2015. The OAG operates independently from the executive with respect to procedures for the appointment and removal of the head of the OAG, the planning of audit engagements, arrangements for publicising reports, and the approval and execution of the OAG’s budget. This independence assures unrestricted and timely access to records, documentation and information. The Public Audit Act 2015 confirms OAG’s independence from the executive branch of the National Government. Thus, OAG independence is assured by the Constitution and law. Since the Public Audit Act 2015 came into force in January 2016, the follow-up process has become more formalized. The Public Sector Accounting Standards Board (established in sections 192-195 of the PFM Act 2012) and elaborated on under Financial Regulation 111 of 2015. The Board is located in the National Treasury, and prepared a template in 2015/16 for preparing annual financial statements. Section 27 of the template (available on National Treasury’s website) provides for monitoring the actions taken by an MDA in response to the recommendations of audit reports. A matrix contains the following in column form: list of issues raised by OAG in its Management Letter to the respective MDA; Management comments; name of MDA staff person in charge of resolving the issue; status of resolving the issue; and expected date for resolving the issue. The template 109 An assessment of the public expenditure and financial accountability - Makueni County came into effect in 2016/17. The audit process is still ongoing; therefore it is not possible to assess how well this new process has worked. In summary, external audits of the county are executed by Office of the Auditor General which is an independent constitutional body with its own systems and procedures, hence independent of the county. Dimension rating = A. PI-31: Legislative scrutiny of audit reports Summary of scores and performance table PI-31 Legislative scrutiny D+ Brief justification for score of audit reports (M2) 31.1 Timing of audit D Scrutiny of audit reports is generally report scrutiny completed in more than 12 months from the receipt of the report 31.2 Hearings on audit D* In-depth hearings on key findings of audit findings reports take place with responsible officers from most audited entities which received a qualified or adverse audit opinion or a disclaimer 31.3 Recommendations C The legislature issues recommendations on on audit by the actions to be implemented by the executive legislature but no evidence on the follow up on their implementation is provided in the PAC reports 31.4 Transparency of D All committee proceedings shall be legislative scrutiny of open to the public unless in exceptional audit reports circumstances. The committee reports are not published on any official website PI-31.1: Timing of audit report scrutiny 180. Until now, the County Assembly received only 2013/14 and 2014/15 reports. Table 3-22 presents, scrutiny of audit reports is completed within 12 months in most instances. 110 Assessment of PFM performance Table 3.22: Timing of audit reports Financial Date Date when Type of audit Duration year received discussed report and approved 2015/16 15th August The Assembly is Financial operations NA 2017 working on it 2014/15 24th November The Assembly is Financial operations 4 Months to 2016 working on it date 2013/14 15th September 22nd November Financial statements 13 months 2015 2016 2013/14 15th July 2015 1st December Financial operations 6 months 2015 181. Signed attendance sheets were received and analysed as follows: • 06/08/2015 - First assembly third session showing full chamber and in attendance officials from OAG. It also included officials from Public Procurement and Oversight Authority. • Public Accounts Committee meeting on 10/07/2014, 09/07/2014, 08/07/2014. Some of the officials in attendance were: CECM health, County Secretary, Chief Officer Finance, etc. 182. PAC meeting attendance sheets for a report writing on financial statements with members of the Auditor General covered the 16-month period ended 30th June 2014. This was held from 7th to 9th October 2016. In summary, scrutiny of audit reports on annual financial reports has been completed by the legislature in more than twelve months from receipt of the reports. Dimension rating =D. PI-31.2: Hearings on audit findings 183. The 2013/14 report of the OAG exposed a disclaimer opinion while the 2014/15 report had adverse opinion and the 2015/16 report a qualified opinion. The deliberations for year 2014/15 are ongoing at the Assembly. There was evidence that interrogations for the year ended 30th June 2014 were held for responsible officials of the county to discuss audit findings and opinion. Various county officials including head of finance, head of Trade and directors were interrogated by the Public Accounts Committee on 25th August 2016. Other Interrogation exercises were held from 22nd to 24th July 111 An assessment of the public expenditure and financial accountability - Makueni County 2016, respectively. External audit reports for 2015/16 are yet to be released by the Auditor General. 184. The OAG’s report on the County Executive budget for 2015/16 presents in an annex all the progress/remarks on the issues raised in its report for 2014/15. Appendix 6 of the report from the Public Accounts Committee on consideration of the Auditor General on the financial statements of Makueni County Government for the 16 months period ended 30th June of 2014 presents the interrogation of key management personnel regarding the report of the Auditor General. The PAC 2013/14 audit report recommendation summary presents the list of implanting offices: The County Secretary, ECM Finance and Planning, Committees on Implementation, ECM Education, Ethics and Anti-Corruption Commission, Clerk of the County Assembly, County Assembly Service Board, which represent more than 75 per cent of audited entities. In summary, in-depth hearings on key findings of audit reports take place with responsible officers from most audited entities which received a qualified or adverse audit opinion or a disclaimer. Dimension rating =D*. PI-31.3: Recommendations on audit by the legislature 185. When the audit reports are received from OAG, they are committed to the Public Accounts Committee. The Committee writes to the office of the OAG requesting for the Auditor to guide them on the findings. The Auditor also guides on any further information to interrogate the concerned officers. The National Assembly then writes to the County Secretary requesting him to provide information and setting the date for interrogation. This letter also indicates the officers who are expected to be interrogated and the deadlines of submitting the information required for the Committee. Some time is allowed to scrutinize the information provided by the County Executive. The Committee and the OAG prepares chairman’s brief to guide the interrogation process. The interrogation is held and a report including observations, findings and recommendations are prepared and tabled in the floor of the House for debate. Once adopted, the report is forwarded to the Governor for implementation and the Auditor General. The implementation of the recommendations is monitored by the Implementation Committee or the Public Accounts Committee. 186. Public Account Committee (PAC) reports do not present a follow up on their implementation, contrary to the reports of the Auditor General. 112 Assessment of PFM performance In summary, the County Assembly issues recommendations on actions to be implemented by the Executive and follows up on their implementation, but no evidence on the follow-up has been provided. Dimension rating =C. PI-31.4: Transparency of legislative scrutiny of audit reports 187. Interim standing orders of the County Assembly number 179 (1) States that all committee proceedings shall be open to the public unless in exceptional circumstances where the Speaker has determined that there are justifiable reasons for the exclusion of the public. Further, some audit reports are discussed in the full chamber of the House. For example, on 6th August 2015, first assembly third session was showing full chamber and in attendance were officials from OAG. It also included officials from Public Procurement and Oversight Authority. This meeting was to discuss audit findings. The committee reports are not published on official website, but the Makueni County Assembly Official Reports are published on the website and the County Assembly has a library where some of the reports are available to the public. In summary, all committee proceedings shall be open to the public unless in exceptional circumstances. The committee reports are not published on any official website, even though the County Assembly Official Reports are published on the website and the Assembly has a library where some of the reports are available to the public. Dimension rating = D. 113 An assessment of the public expenditure and financial accountability - Makueni County 4. CONCLUSIONS OF THE ANALYSIS OF PFM SYSTEMS 4.1 Integrated Assessment of PFM Performance Budget reliability Budget reliability is hampered by a low rate of budget execution and high level of reallocation. Variance in expenditure composition by economic functional classification was more than 15 per cent over the three-year period. Aggregate expenditure outturn was below 85 per cent of the approved aggregate budgeted expenditure in the last three years. With less than 92 per cent in the last three years, actual revenue was also far below target, but this did not lead to a budget deficit because of the low rate of budget execution. Transparency of public finances 188. Budget formulation, execution, and reporting are based on administrative and economic classification using GFS standards. Budget documentation that is transferred to the County Assembly contains: forecast of the fiscal deficit/surplus; previous and revised budget in the same format as the budget proposal in the budget estimates; and aggregated budget data for both revenue and expenditure. Expenditure outside government financial reports are also reported and they represent less than 5 per cent of total BCG expenditure. 189. Medium-term fiscal forecasts are established, but there are no survey estimates of the resources received by service delivery units. Performance indicators for measuring the outputs or outcomes of the different ministries have not been put in place, but evaluations for services delivered have been performed by independent units, albeit not being published. Consequently, no information related to performance achieved for service delivery is published annually. The audited AFS report and the external auditor’s report are made available to the public (on the OAG website). Management of assets and liabilities 190. All major investment projects are prioritized based on the established 114 Conclusions of the analysis of PFM systems public participation framework, but no economic analyses are conducted to assess major investment projects. Only one public corporation operates in the county and has not prepared its AFS. Projection total capital cost of major investment projects are included in the budget documents, and project monitoring is performed by technical departments and other stakeholders including the public, but no monitoring and evaluation reports are established. 191. The county maintains a record of its holdings in all categories of financial assets, which are essentially cash at hand and its participation in one public enterprise. Information on the performance of these assets is published in line with international accounting standards in the AFS. Rules for transfer or disposal of financial assets do exist and partial information on transfers and disposal is included in the budget documents of the county. 192. The county maintains a register of its holdings of fixed assets and updates records upon acquisition of new assets but does not report information on their usage and age. Information on contingent liabilities is not provided in AFSs. The county has not acquired any debt and has not developed a debt management strategy. Authorization to borrow, issue new debt, and issue loan guarantees on behalf of the county to entities is not included in the legislation. Records on debt inherited from the defunct local authorities are not updated. The OAG audit report for 2013/14 recommended that the county should expedite taking over of the assets and liabilities of the defunct local authorities in liaison with the Transition Authority. Policy-based fiscal strategy and budgeting 193. Budget elaboration is based on a clear annual budget calendar. The CFSP reflects ministry ceilings allocated by administrative, economic, and programme (or functional) classification, but they are not approved by the government before the first budget circular is issued. Further, the county does not prepare any fiscal policy scenarios and medium-term aggregate expenditure and ceilings. A report that describes progress made against its fiscal strategy is proposed to the legislature, but the reasons for any deviation from the objectives are not explained. Legislature’s review covers fiscal policies, medium-term fiscal forecasts, and medium-term priorities, and details of expenditure and revenue, which is based on organizational arrangements including specialized review committees, technical support, negotiation procedures and public consultation. The annual budget presents an estimate of expenditure for the 115 An assessment of the public expenditure and financial accountability - Makueni County budget year and the two following fiscal years, but they do not rely on any macroeconomic forecasts. Further, no explanation of changes to expenditure estimates between the second year of the last medium-term budget and the first year of the current medium-term budget is provided. The county only assesses proposed changes in revenue policies in the finance bill. Predictability and control in budget execution 194. The Directorate of Revenue obtains data at least weekly from all entities collecting all revenues. This information is consolidated into a report and revenue collections are transferred weekly to the Treasury. However, payers do not have sufficient access to information on their rights and obligations. Further, there are no systematic approaches for assessing and prioritizing compliance risks for revenue streams. Also, no audit of revenue from any of the sources has been undertaken. The stock of revenue arrears is above 40 per cent of the total revenue collection, while the stock of expenditure arrears varies between 8 per cent and 13 per cent of the total expenditure. 195. Appropriate segregation of duties is clearly laid down and comprehensive expenditure commitment controls are in place. Budgetary units are provided with reliable information on commitment ceilings quarterly in advance and limit commitments to projected cash availability and approved budget allocations. However, significant in-year adjustments to budget allocations are done once a year according to the law and presented to the County Assembly. 196. Changes to personnel and payroll records result in an audit trail. Reconciliation of the payroll with personnel records takes place at least every six months through a payroll audit. Required changes to the personnel records and payroll are updated in time and retroactive adjustments are rare, but there is no evidence that staff hiring is controlled by a list of approved staff positions. Payroll audits are periodically conducted at least once in the last three completed fiscal years. 197. Bank reconciliations and all cash balances are prepared and consolidated on a monthly basis. Data on stock, with age composition of expenditure arrears is generated only at the end of the financial year when financial statements are prepared. Reconciliation of revenue collections and transfers to Treasury is also done only at the end of the year. 198. Regarding public procurement, legal and regulatory frameworks, bidding opportunities and data on resolution of procurement complaints are available to the public. However, no database is maintained to provide 116 Conclusions of the analysis of PFM systems information for contracts, value of procurement or who has been awarded contracts. Open tendering was used for less than 40 per cent of the total procurement. The procurement complaint system is compliant with good practices, except for charging fees that may prohibit access by concerned parties. Internal audits are focused on evaluation of the adequacy and effectiveness of internal controls, but no quality assurance process has been put in place to show adherence to professional standards. Practically, internal audit remains focused on financial compliance, with an indication that most payments are compliant with regular payment procedures. Accounting and reporting 199. Access and changes to records during budget implementation is restricted and recorded, but no operational body, unit or team is in charge of verifying financial data integrity. There is monthly reporting on budget execution with production of quarterly budget implementation reports. These reports provide a comparison between actual expenditure and budgeted expenditure with partial aggregation on a cash basis. Commitment expenditures are presented in a separate report. On the expenditure side, payroll audits are periodically conducted at least once in the last three completed fiscal years. AFSs are generally completed and available for audit, respectively three and four months after the end of the year. They contain information on revenue, expenditure, financial assets, financial liabilities, guarantees, but not on long-term obligations. Imprest accounts are reconciled annually, but the amounts are not cleared timely as shown in AFS. External scrutiny and audit 200. External audits of the county are still performed at the national level by the OAG. No independent constitutional body has been put in place at the county level. Material weaknesses are highlighted in the management letters that are issued to the county. In-depth hearings on key findings of audit reports take place with responsible officers. The Executive provides responses to the audited entity with delays, which also cause delays in audit completion. However, scrutiny of audit reports is generally completed within 12 months in most instances. For 2013/14, which was the first year of operation, the OAG report states that the County Executive and Assembly had challenges 117 An assessment of the public expenditure and financial accountability - Makueni County as regards to adhering to the existing PFM Regulation and Procedures, the Public Procurement and Asset Disposal Act 2015 and Regulations 2016 and general human resources management policies and procedures and did not give a positive opinion on the accounts. For 2014/15, the OAG report states that the audit evidence obtained is sufficient and appropriate to provide a basis for adverse opinion on the accounts of the County Executive. The legislature issues recommendations on actions to be implemented by the Executive and follows up on their implementation. 4.2 Effectiveness of the Internal Control Framework Control environment 201. Based on the available information provided by the county, the internal control practice in place is not sufficient to contribute to the achievement of the four control objectives. National level internal control framework is indicative to a large extent for the county operation due to the fact that the sub-national functions and operations mirror in regulation and practice the establishment on the national level. The following is an overview of the internal control activities collected from the preceding sections of the report. It builds on the description of the design of internal controls and the individual assessment of specific control activities as covered by the performance indicators (Chapter 3). Risk assessment 202. The county decisions do not appear to be driven by risk assessment and management activities. Risks are not evaluated by their significance or the degree of likelihood of occurring almost at all budget processes. Having no risk profile of the county functions, no risk responses are to be made to reduce the likelihood or downside outcomes for key operations. Thus, potential future events that create uncertainty are not covered for. The following risks, which are not provided for, exist in all stages of public finance management: • Pillar 2: The county is not able to capture expenditure and revenue outside financial reports (PI-6), which creates the risk of having a non- comprehensive and incomplete budget, potential misuse of funds and poor service to the public. • Pillar 3: With no economic analysis of investment proposals (PI-11), no costing of investment and no written procedures for monitoring of the investment performance, there is huge risk of abuse and loss of funds in 118 Conclusions of the analysis of PFM systems investment. There is also no reconciliation of inherited debt with creditors (PI-13). • Pillar 4: There is a weak link between policy formulation, programmed activities and the budget estimates, which is mainly due to the inability to provide for uncertain economic events and lack of sensitivity analysis. This leads to the risk of having a non-comprehensive budget that is prone to amendments. • Pillar 5: The revenue administration unit does not have an integrated revenue management system to detect and arrest potential revenue risks and also manage arrears (PI-19). The county does not keep proper accounting records of expenditure arrears, which presents a risk of accumulation (PI- 22). Approved staff establishment is not linked to IPPD, which is also not linked to IFMIS (PI-23). This creates a potential risk of having ghost workers. Procurement practice reveals that non-competitive selection methods are mostly applied, which creates the risk of discrimination, reduced control on the quality of procured services or works, misuse of funds and hence poor public service delivery (PI-24). There is clear segregation of duties with regard to non-salary expenditure which are electronically set up in IFMIS with various authorization levels and roles assigned to different functions and operational staff. This arrangement provides for all phases of budget implementation to be executed in IFMIS (PI-25) but many operations remain executed outside IFMIS. Control activities 203. The lack of risk profile of the county and the failure to define responses to the risk lead to inadequate and insufficient control activities that can treat, share, avoid or intercept the risk. The risk-related activities for both the budget process and service delivery exist for the functions related to budget implementation, which are executed in IFMIS with clear segregation of duties. There are risks which are not covered by appropriate control activities especially in the area of transparency of public finances with regard to non-captured expenditure and revenue outside financial reports (PI-6). With regard to management of assets and liabilities, there are no controls for the selection of investment activities (PI-11) and ageing of non-financial assets (PI-12). There are controls for budget execution with clear control of payment rules for all operations captured by IFMIS except for those outside IFMIS. However, the control is not sufficient for the record of actual staff in IPPD and HR personnel records. Some staff is paid through a manual system 119 An assessment of the public expenditure and financial accountability - Makueni County that is outside the IPPD. The weak internal control systems eventually lead to unreliable financial records, which result into loss of organizational integrity. This may affect budget execution and implementation of projects and county priorities, both of development and recurrent nature. Information and communication 204. This internal control element deals with the methods and records used to register, maintain, and report on facts and events of the entity, and to maintain accountability for the related assets, liabilities, and initiatives of the county. The channels of information and communication of the county are through all budget-related documents that are produced and disseminated to other budget users and the public. Despite the legal requirement for all documents related to use of public funds to be made easily available, they do not all reach the public. The channels of internal information and communication are the orders and management letters issued by the respective function management units and the County Assembly. None of the basic elements of fiscal information to be made public and published is complied with, with the exception of the external audit report which is issued with significant delay (PI-9). The county is in the process of adopting legislation on public participation which will set the rules for interaction with the public at all stages of budget formulation and service delivery. Monitoring 205. Monitoring entails the process of assessing the quality of internal control performance over time. In the context of the county government, this aspect can be expanded to encompass the monitoring practices of the public finance management process in general. Performance monitoring at the county is weak, with the main tool of budget utilization monitoring being the quarterly reports and the budget execution reports. The County Budget Review and Outlook Paper (CBROP) is a kind of economic assessment paper. There are no specific reports elaborating on consistency of performance planned outputs and achieved outcomes and explaining any deviation. The internal control framework of the county as described having in place only isolated control activities is not efficient to ensure against irregularities and errors. It also highlights areas insufficiently addressed such as (i) performance information for service delivery; (ii) public access to fiscal information; (iii) monitoring of fiscal risk; (iv) no monitoring on public investment; (v) poor public asset management information. 120 Conclusions of the analysis of PFM systems 206. In terms of assessment of the quality of the internal control system, the county has established an Internal Audit Department even though it is still in the process of establishing its practice. The focus of the internal audit is mainly on compliance and regulatory issues and is not yet developed to provide full oversight (of all budget users) of the effectiveness of the internal control system. The practice of the external audit, which is far more advanced, is focused on financial audit with elements of internal control. Apart from their usual financial reporting mandate, the external auditors check the processes related to the accounting function, salary and payroll, procurement practice. The interaction between the external and the internal audit as far as the oversight of the internal control system is concerned has not been evidenced during the field work and the respective indicators assessment. 207. Apart from the OAG, external oversight mechanisms, which is supposed to contribute to monitoring and effectiveness of the internal control system is the review of audits by the legislature, the follow-up systems for the executive’s implementation of remedial measures, and providing public access to relevant reports and debates (PI-31). The oversight activities of the County Assembly (PI-31) have been shown to be ineffective. The County Assembly’s contribution to building a sound internal control system is weak due to lack of hearings of the external audit findings, no evidence of recommendations to the county executive and no transparency of the external audit scrutiny. Therefore, the legislative scrutiny cannot serve as reinforcing mechanisms to the effectiveness of the internal control system of the county. 208. Lack of properly instituted county-specific systems of internal control (internal procedures) affects the financial reporting process and may ultimately lead to production of unreliable reports, which in turn negatively impacts on the accountability role of management. Detailed findings concerning the main elements of the five internal control components are summarized in a table (Annex 2). Weak internal controls encourage fraud, mismanagement of assets (Pillar 3), loss of revenue and embezzlement of public funds (Pillar 4). The county keeps minimum internal control over external factors such as unexpected economic, social and natural disaster events. As far as the national legislative framework is concerned, the internal control system of the county is largely sound. However, the specific control environment with its inherent risk assessment, relevant control activities and related monitoring is not sufficiently established to contribute to the county’s main fiscal and budgetary outcomes. With existing and adequate internal control systems in place at the county, the resources will be safeguarded and directed in an optimal manner to the priority activities and projects as planned. 121 An assessment of the public expenditure and financial accountability - Makueni County 4.3 PFM Strengths and Weaknesses Aggregate fiscal discipline 209. On fiscal discipline, the county government experienced a shortfall in own generated revenue, inadequate capacity to use e-procurement and delays in approval of county bills necessary to operationalize some budget items. Budget execution reports are produced quarterly on a cash basis, with a classification that is comparable with the original budget. There is need to adjust the voted budget because inadequate time is given to implement the development agenda in the budget. This leads to unfinished and un- implemented development projects and extensive reallocations between recurrent and development expenditure. To mitigate these risks, the government has introduced performance contracting in all departments and a specific programme for implementing development projects to increase the pace at which projects are being implemented in the county. However, the internal audit department is not fully operational given that has only one officer even though a strong internal audit is necessary. This is because the county oversees numerous transactions and development projects. Strategic allocation of resources 210. Strategic allocation of resources is defined in the CFSP in order to be compliant with the strategic activities defined in the CIDP. The weakness lies in the way the proposed programmes/projects are addressing the strategic intervention’s identified in the county’s vision as reflected in the CIDP. Efficient use of resources for service delivery 211. Strategic plans are not aligned to the medium-term budgets because the county is still in the process of preparing the ministerial strategic plans. Consequently, equity in distribution of resources in all areas of the county is not ensured and projects contained in the CIDP and/or that have been prioritized by the community are not fully implemented. Consequently, efficient use of resources for service delivery is not ensured. 122 5. GOVERNMENT PFM REFORM PROCESS 5.1 Approach to PFM Reforms 212. The medium-term expenditure framework for 2017/18 – 2019/20 ensures that resources are allocated to priority programmes as envisaged in the CIDP, ADP, County Vision 2025 and other county policy documents. The broad focus is on wealth creation for socio-economic transformation. The county has anchored its development on the basis of three pillars and sector approach as outlined in the Vision 2025, which include the economic, social and political pillars. 213. As far as the economic and social pillars are concerned, the county has proposed to set up a social transformation fund targeting to fund development and poverty reduction initiatives in all marginalized areas and to analyse how the proposed programmes are addressing the strategic interventions identified in the County’s Vision 2025, the CIDP, community budget hearing proposals and ADPs. The county also intends to improve equity in distribution of resources and monitoring of sector budget performance for the previous year. The fiscal plan (2016/17) contained in the CFSP 2016 entails a deliberate effort to continue exercising prudence in public expenditure management with the principal goal of containing fiscal risks, gradually lower the fiscal deficit, and contain growth of recurrent expenditures in favour of productive capital spending. Under the 2017/18 budget, the detailed priorities to be funded are as follows: • Enhancing county legal systems by legislating on all devolved functions and developing the relevant policy to guide full implementation of devolved functions necessary for county development. Departments and the public will also be trained on the necessary legal requirements. • Strengthening public administration and service delivery. The county will undertake a survey to determine the location of the establishment of service delivery centres and the magnitude of operations as a basis for construction and operationalization. • Strengthening county M&E systems. The government will strengthen the M&E systems and undertake capacity development of the M&E unit aand 123 An assessment of the public expenditure and financial accountability - Makueni County county departments on result-based management and tracking of service delivery. • Strengthening county planning, budgeting and statistics systems. The county will enhance the development of integrated county project management system which will link planning, budgeting and outcomes. • Improving PFM systems. The county will enhance prudent financial management and sustainable utilization of public funds by strengthening sub-county treasury services, internal audit and the county audit committee. • Strengthening of county human resources and performance management system. The county will develop a scheme of service for all cadres which will guide career progression and development through the County Public Service Commission. 5.2 Recent and On-going Reform Actions 214. To address the above-mentioned weaknesses, the county instituted a number of measures which included: timely execution of budgets, recruitment of competent staff, staff capacity building, county rapid results initiatives, acquisition of equipment for roads construction, drilling of boreholes and agricultural mechanization, automation of revenue collection and internal restructuring of service delivery. The county is also in the process of bringing all the extra-budgetary units into the budget, as demonstrated by the inclusion of sand cess in the budget under the section on other revenues this percentage will reduce further in the 2017/18. All staff in the county are subject to performance contracts through performance appraisals and monitored by the Performance Management Coordinator and the Officers’ Forum. Ad-hoc committees have been established to facilitate the negotiation before signing of performance contracts and an evaluation committee is in charge of overseeing the evaluation process and ranking at the end of the financial year. The ministry is currently in the process of rolling out a Government Human Resource Information System (GHRIS) which is an online system that addresses all HR-related needs of the government. This system is expected to interface with other existing systems such as IFMIS, G-PAY and IPPD. Users of the GHRIS are government ministries, county governments, departments, agencies and employees. 215. Key officers in the implementation team have been reinstated and the county has established an implementation taskforce to address the low absorption rate accumulated over the three years. Consolidation of incomplete projects 124 Government PFM reform process in the performance contracts of the following financial year are followed by the Performance Contracting Secretariat. 216. Guidelines have been established and a unit has been put in place to operationalize the revenue automation system and improve the mapping of all available revenue streams. Guidelines have also been established for reducing payment delays. A County Debt Framework is being developed by the National Treasury in consultation with IBEC to improve debt management. An audit committee was established at the beginning of 2017 to support the management of risk control and governance and also provide associated assurance. An audit charter is under development. Finally, the county has developed an in-house financial reporting manual and is constantly being updated with best practice, but no business intelligence system has been put in place yet to improve budget and financial reporting. 5.3 Institutional Considerations 217. The Kenyan devolution process is still young and the county still needs to improve the efficiency of public expenditures, while improving domestic resource mobilization. The county heavily relies on equitable transfers and grants. However, improving expenditure efficiency would bring more gain than new aid given that the county cannot be sure of a predictable flow of aid and subsidies. In addition, budget surplus could be used to reduce the county’s inherited debt. Given that strong institutions are the ones where individual agents are accountable, county leadership and ownership of devolution process are subject to reinforcement of the processes that have been implemented at the national level. 125 An assessment of the public expenditure and financial accountability - Makueni County Annex 1: Performance indicator summary Indicator/component Score Explanation PI-1. Aggregate expenditure D outturn (M1) PI-1.1. Aggregate expenditure D Aggregate expenditure outturn was below 85% of the outturn approved aggregate budgeted expenditure in the last three years PI-2. Expenditure composition D+ outturn (M1) PI-2.1. Expenditure composi- D Variance in expenditure composition by tion outturn by function administrative/functional classification was more than 15% in the last three years PI-2.2. Expenditure composi- D Variance in expenditure composition by economic tion outturn by economic classification was more than 15% in the last three type years PI-2.3 Expenditure from con- A The actual expenditure charged to contingency was tingency reserve on average less than 3% of the original budget PI-3. Revenue outturn (M2) D PI-3.1. Aggregate revenue D Actual local revenue and transfers from international outturn organizations were far below 92% of budgeted revenue in the last three years PI-3.2. Revenue composition D* Variance in revenue composition cannot be calculated outturn because a breakdown of local revenue is not available for estimates and actual revenue PI-4. Budget classification (M1) C PI-4.1. Budget classification C Budget formulation, execution, and reporting are based on administrative and economic classification using GFS standards (at least level 2 of the GFS standard) or a classification that can produce consistent documentation comparable with those standards PI-5. Budget documentation D (M1) PI-5.1. Budget documentation D 4 elements (2+2) fulfil the criteria, with only two satisfying the basic criteria PI-6. County government D operations outside financial reports (M2) PI-6.1. Expenditure outside D* Expenditure outside government financial reports is financial reports likely less than 5% of total BCG expenditure, but no evidence was provided PI-6.2. Revenue outside finan- D* Revenue outside the government financial report is cial reports likely less than 5% of the total BCG revenue, but no evidence was provided PI-6.3. Financial reports of D Detailed financial reports of the extra budgetary units extra budgetary units are audited by the Auditor General within 9 months after the end of the year PI-7 Transfers to sub national FALSE governments (M2) 126 Annex PI-7.1 Transparency and N/A There were no transfers to sub-county units/entities objectivity in the horizontal allocation of central govern- ment grants to LGUs PI-7.2 Timeliness of reliable N/A There were no transfers to sub-county units/entities information to LGUs on their allocations PI-8. Performance information D for service delivery (M2) PI-8.1. Performance plans for D A framework of performance indicators relating to service delivery the outputs or outcomes of the majority of ministries is not in place and no performance plan is published PI-8.2. Performance achieved D No information related to performance achieved for for service delivery service delivery is published annually PI-8.3. Resources received by D Information on actual resource disbursements service service delivery units delivery units is available but it is not disaggregated by source of funds and is not disclosed in reports 8.4 Performance evaluation for D No independent evaluation of efficiency and service delivery effectiveness of service delivery has been performed PI-9. Public access to fiscal D information (M1) PI-9.1. Public access to fiscal D The government makes available to the public only information one basic element in accordance with the specified time frame PI-10. Fiscal risk reporting D+ (M2) PI-10.1. Monitoring of public C Only two public corporations operate in the corporations county. Audited AFS are presented to the County Government within nine months of the end of the fiscal year PI-10.2. Monitoring of sub N/A Not applicable because the Ccounty operations are county governments centralized at county level PI-10.3. Contingent liabilities D The county does not provide any information about and other fiscal risks any contingent liabilities in its financial statement and does not mention the debt left by the defunct authorities PI-11. Public investment man- C agement (M2) PI-11.1. Economic analysis of D There is no evidence showing that economic analyses investment proposals are conducted to assess major investment projects PI-11.2. Investment project A All major investment projects are prioritized based selection on the established public participation framework on the basis of clear criteria. The county has documented its public participation framework PI-11.3. Investment project C Projections of the total capital cost of major costing investment projects, together with the capital costs for the forthcoming budget year, are included in the budget documents. However, recurrent costs are not included 127 An assessment of the public expenditure and financial accountability - Makueni County PI-11.4. Investment project D Project monitoring is done by both the technical monitoring department and other stakeholders including the public. The monitoring and evaluation reports not disclose detailed information on the follow up of major investment projects. PI-12 Public asset management D (M2) PI-12.1. Financial assets moni- D The government maintains a record of its holdings toring in all categories of financial assets, which are cash in hands and participation in one public enterprise but no record provided to show the assets which were handed over to the county government especially those relating to the defunct local authorities PI-12.2. Non Financial asset D The government maintains a register of its holdings monitoring of fixed assets, but information on their usage and age is not published, while it is sometimes collected. Records are updated upon acquisition of new assets PI-12.3. D Rules for transfer or disposal of financial assets do exist but no transfer of assets has been registered yet PI-13. Debt management (M2) D PI-13.1. Recording and report- D The county has not incurred any new debt, but ing of debt and guarantees inherited debt from the previous sub-national entities. These debt records are not updated and published annually PI-13.2. Approval of debt and N/A Authorization to borrow, issue new debt, and issue guarantees loan guarantees on behalf of the county government to entities specifically is not included in the legislation yet PI-13.3. Debt management D A debt strategy is under development with IBEC but strategy has not been implemented yet PI-14. Macroeconomic and fis- D+ cal forecasting (M2) PI-14.1. Macroeconomic C The county does not prepare any macroeconomic forecasts forecasts, which are prepared at the national level PI-14.2. Fiscal forecasts C The county prepares revenue and expenditure forecasts for the current year and the two following years in the CBROP and revenue forecasts in the CFSP, but there is no clear presentation of the assumptions. The documents are submitted to the Assembly PI-14.3. Macro fiscal sensitivity D The county does not prepare any fiscal policy analysis scenarios PI-15. Fiscal strategy (M2) C PI-15.1. Fiscal impact of policy D The Ccounty only assesses proposed changes in proposals revenue policies in the finance bill but no fiscal impact analysis is carried out PI-15.2. Fiscal strategy adop- B The government has adopted and submitted to the tion legislature a current fiscal strategy that includes quantitative or qualitative fiscal objectives for at least the budget year and the following two fiscal years 128 Annex PI-15.3. Reporting on fiscal C The government has submitted to the legislature outcomes along with the annual budget a report that describes progress made against its fiscal strategy but the reasons for any deviation from the objectives are not clearly exposed PI-16. Medium-term perspec- D+ tive in expenditure budgeting (M2) PI-16.1. Medium-term ex- A The annual budget presents estimates of expenditure penditure estimates for the budget year and the two following fiscal years allocated by administrative, economic, and programme (or functional) classification PI-16.2. Medium-term ex- D Aggregate expenditure ceilings for the budget year penditure ceilings and the two following fiscal years are not approved by the government before the first budget circular is issued PI-16.3. Alignment of strategic D The strategic plans have not been aligned to the plans and medium-term medium-term budgets budgets PI-16.4. Consistency of budgets D The budget documents provide a general explanation with previous year’s esti- of changes to expenditure estimates between the mates second year of the last medium-term budget and the first year of the current medium-term budget at the aggregate level, but this does not permit to quantify the changes to expenditure estimates PI-17. Budget preparation B process (M2) PI-17.1 Budget calendar B A clear annual budget calendar exists, is generally adhered to, and allows budgetary units at least four weeks from receipt of the budget circular to meaningfully complete their detailed estimates on time PI-17.2 Guidance on budget C A comprehensive budget circular is issued to the preparation budgetary units. The circular does not contain ceilings but they are reflected in the CFSP. Ceilings for the budget year are approved by government before sending the budget to the County Assembly PI-17.3 Budget submission to B The Executive has submitted the annual budget the legislature proposal to the legislature at least two months before the start of the fiscal year and one month before the start of the fiscal year in the third year PI-18. Legislative scrutiny of C+ budgets (M1) PI-18.1. Scope of budget A The legislature’s review covers fiscal policies, scrutiny medium-term fiscal forecasts, and medium-term priorities as well as details of expenditure and revenue 129 An assessment of the public expenditure and financial accountability - Makueni County PI-18.2. Legislative procedures A The legislature’s procedures to review budget for budget scrutiny proposals are approved by the legislature in advance of budget hearings and are adhered to. The procedures include arrangements for public consultation. They also include internal organizational arrangements, such as specialized review committees, technical support, and negotiation procedures PI-18.3. Timing of budget ap- C The legislature has approved the annual budget proval before the start of the year in two of the last three fiscal years, with a delay of up to nine months in one of the three fiscal years 18.4 Rules for budget adjust- B Clear rules exist for in-year budget adjustments by ments by the executive the Executive and are adhered to in most instances. Extensive administrative reallocations may be permitted as well as an increase of total amount of the budget up to 10% PI-19. Revenue administration D (M2) PI-19.1. Rights and obligations D Entities collecting most revenues do provide payers for revenue measures with access to major information on the main revenue obligation areas, but the county does not have a documented redress mechanism but handles revenue complaints case by case PI-19.2. Revenue risk manage- D Entities collecting most revenues do not use ment structured and systematic approaches for assessing and prioritizing compliance risks for revenue streams PI-19.3. Revenue audit and D There is no audit of revenue from any of the sources investigation PI-19.4. Revenue arrears D The stock of revenue arrears at the end of the last monitoring completed fiscal year is above 40 percent of the total revenue collection for the year and the revenue arrears older than 12 months are more than 75% of total revenue arrears PI-20. Accounting for revenue C+ (M1) PI-20.1. Information on rev- A The Directorate of Revenue obtains data at least enue collections weekly from all entities collecting all revenues. This information is broken down by revenue type and is consolidated into a report PI-20.2. Transfer of revenue B The entities collecting most County revenue transfers collections the collection to the County revenue fund on a weekly basis PI-20.3. Revenue accounts C Entities collecting most government revenue reconciliation undertake complete reconciliation of collections and transfers to Treasury and other designated agencies at least annually within 2 months of the end of the year PI-21. Predictability of in-year C+ resource allocation (M1) PI-21.1. Consolidation of cash D Balances from the different bank accounts are not balances swept into a central consolidated account 130 Annex PI-21.2. Cash forecasting and C Cash flow projections are prepared annually for the monitoring fiscal year PI-21.3. Information on com- B Budgetary units are provided reliable information on mitment ceilings commitment ceilings at least quarterly in advance. PI-21.4. Significance of in-year B Significant in-year adjustments to budget allocations budget adjustments take place no more than twice in a year and are done in a relative transparent way but reallocations may have already occurred with staff recruiting PI-22. Expenditure arrears D (M1) PI-22.1. Stock of expenditure D The stock of expenditure arrears was no more than arrears 10% of the total expenditure in only one fiscal year PI-22.2. Expenditure arrears D* Data on stock, age composition of expenditure monitoring arrears is generated only at the end of the financial year when the county administration is preparing the financial statements. However, the stock of arrears are not included in notes in the AFS and data on stocks of arrears could be collected only for 2015/16 PI-23. Payroll controls (M1) D+ PI-23.1. Integration of payroll D Reconciliation of the payroll with personnel records and personnel records takes place at least every six months (each quarter) through payroll audit. However, there is no approved staff list and the county uses existing staff (staff in- post) as a basis for the annual budget and staff hiring and promotion is not checked against the approved budget prior to authorization PI-23.2. Management of pay- A Required changes to the personnel records and roll changes payroll are updated in time for the following month’s payments. Few retroactive adjustments are made PI-23.3. Internal control of D Authority and basis for changes to personnel records payroll and the payroll are clear and adequate to ensure integrity of the payroll data for about 80% of the payroll through IPPD, but integrity of the payroll data of greatest importance is not respected in manual payroll PI-23.4. Payroll audit B A payroll audit covering all county government entities has been conducted every year PI-24. Procurement (M2) C PI-24.1. Procurement monitor- D No databases are maintained to provide information ing for contracts, value of procurement and who has been awarded contracts PI-24.2. Procurement methods D Open tendering was used for less than 40% of the total procurement PI-24.3. Public access to Pro- C Three of the key procurement information elements curement information are complete and reliable for government units representing the majority of procurement operations and are made available to the public PI-24.4. Procurement com- A The procurement complaint system meets all criteria plaints management PI-25. Internal controls on B non-salary expenditure (M2) 131 An assessment of the public expenditure and financial accountability - Makueni County PI-25.1. Segregation of duties A Appropriate segregation of duties is prescribed throughout the expenditure process. Responsibilities are clearly laid down PI-25.2. Effectiveness of C Comprehensive expenditure commitment controls expenditure commitment are in place and effectively limit commitments only to controls approved budget allocations PI-25.3. Compliance with pay- B Most payments (83%) are compliant with regular ment rules and procedures payment procedures. Most exceptions are properly authorized and justified PI-26. Internal audit (M1) D+ PI-26.1. Coverage of internal B Most of departments were audited (84.61% of the audit budget) plus Mbooni Hospital in 2015/16 PI-26.2. Nature of audits and B Internal audits are focused on evaluation of the standards applied adequacy and effectiveness of internal controls as evidenced by the available annual audit plan. But no evidence of a quality assurance process followed to show adherence to professional standards has been provided PI-26.3. Implementation of D No annual audit plan has been set up for the last internal audits and reporting completed fiscal year 2015/16 PI-26.4. Response to internal D The management had not responded to the audit audits reports for the previous fiscal year PI-27. Financial data integrity C+ (M2) PI-27.1 Bank account reconcili- B Bank reconciliations are prepared at least monthly ation for all accounts of the budgetary administration PI-27.2 Suspense accounts D Suspense accounts are not cleared less than two months after the end of the year, but they are monitored and a listing is provided PI-27.3 Advance accounts D Imprest accounts are reconciled annually but the amounts are not cleared less than two months after the end of the year, as shown in AFS, and imprest accounts are not used in compliance with the law PI-27.4 Financial data integrity B Access and changes to records is restricted and recorded, and results in an audit trail. However, no operational body, unit or team is presently in charge of verifying financial data integrity PI-28. In-year budget reports B (M1) PI-28.1. Coverage and compa- B Budget reports are prepared monthly and quarterly rability of reports reports. The reports show budgeted expenditure against actual expenditures and any revision with partial aggregation PI-28.2. Timing of in-year B Quarterly budget execution reports are prepared budget reports within one month from the end of that quarter PI-28.3. Accuracy of in-year B Quarterly, half-year and yearly reports are prepared budget reports mainly on actual payments. Commitments are also prepared monthly on a separate report. There were no major concerns on data accuracy, and the report of the OAG for 2015/16 did not provide a qualified opinion on the accounts 132 Annex PI-29. Annual financial reports D+ (M1) PI-29.1. Completeness of an- B Financial reports for budgetary county government nual financial reports are prepared annually and are comparable with the approved budget. They contain information on revenue, expenditure, financial assets, financial liabilities, guarantees. There is no long-term obligation yet PI-29.2. Submission of reports D The County Executive should provide accounts for external audit for audits within 3 months after year end and a consolidated set within 4 months after year end. However, AFS for 2015/16 were considered complete for external audit only on 21st April 2017 PI-29.3. Accounting standards C The county prepares financial statements as per the cash basis IPSAS and that is clearly disclosed in the financial statements. Variations between international and national standards are not disclosed in notes PI-30: External Audit (M1) B+ PI-30.1 Audit coverage & B Office of the Auditor General has been employing standards ISSAIs on all external audits of National and County Governments. Material weaknesses are highlighted in the management letters issued. Public establishments, which are not connected to IFMIS are generally not audited PI-30.2 Submission of audit B Audit reports were submitted to the legislature more reports to the legislature than 3 months but less than 6 months from receipt of the financial reports in all of the last three completed fiscal years PI-30.3 External audit follow- A A formal response was made by the Executive or up the audited entity on audits for which follow-up was expected during the last three completed fiscal years. The audit report for 2015/16 presents in Appendix the progress on the issues raised during the previous fiscal year PI-30.4 Supreme Audit Institu- A The SAI operates independently from the executive tion (SAI) Independence with respect to procedures for the appointment and removal of the Head of the SAI, the planning of audit engagements, arrangements for publicizing reports, and the approval and execution of the SAI’s budget. This independence is assured by law. The SAI has unrestricted and timely access to records, documentation and information PI-31. Legislative scrutiny of C audit reports (M2) PI-31.1. Timing of audit report D Scrutiny of audit reports is generally completed in scrutiny more than 12 months from the receipt of the report. PI-31.2. Hearings on audit D* In-depth hearings on key findings of audit reports findings take place with responsible officers from most audited entities which received a qualified or adverse audit opinion or a disclaimer 133 An assessment of the public expenditure and financial accountability - Makueni County PI-31.3. Recommendations on C The legislature issues recommendations on actions to audit by the legislature be implemented by the executive but no evidence on the follow up on their implementation is provided in the PAC reports PI-31.4. Transparency of D All committee proceedings shall be open to the public legislative scrutiny of audit unless in exceptional Circumstances. The committee reports reports are not published on any official website Annex 2: Summary of observations on the internal control framework Internal control components and Summary of observations elements 1. Control environment The regulatory framework in the county which derives from the national regulation, such as the Kenya Constitution- 2010, the Public Financial Management Act 2012 and the PFM Regulations 2015. Government circulars are issued periodically to ensure compliance with the laws An internal audit department has been set up recently with only one person, which is largely insufficient. Annual external audits are carried out by the Office of the Audit General which is an independent body but operates at the national level. Audit reports are submitted to the County Assembly when completed. There are, however, delays in completion of the external audits. The last received audit reports were for 2014/15 1.1 The personal and professional integrity Chapter Six of the Kenya Constitution sets out and ethical values of management and staff, the responsibilities of leadership of all public including a supportive attitude toward internal officers. This includes oath of office of State control constantly throughout the organization officers, conduct of State officers, and financial probity of State officers, restriction on activities of State officers, citizenship and leadership, legislation to establish the Ethics and Anti- Corruption Commission and legislation on leadership. These appear to be understood and internalized by the management and staff The mission was not aware of any reported ethical and integrity issues 1.2. Commitment to competence With only one person working in the internal audit department, the county does not have access to a pool of qualified professionals who would deliver excellence in service delivery. However, judging from the findings of the external auditor, lack of adequacy of County Assembly oversight may not have been felt through results. 134 Annex 1.3. The “tone at the top” (i.e. management’s The PFM Act, paragraph 104 states that philosophy and operating style) management must ensure proper management and control of, and accounting for the finances of the county government and its entities to promote efficient and effective use of the county’s budgetary resources There is leadership, such as management’s philosophy and operating style in the county. The tone at the top may not be adequate judging from the work of external auditors where audit findings are not acted upon. In addition, the Assembly, which is a key institution of control, has not also played its oversight role effectively 1.4. Organizational structure The county has an organization structure for the county and another for the department of finance From our discussions with management, the county structures have not been standardized. The staff expressed some concerns; for instance the revenue department is not effective because revenue officers are domiciled at the departments hence difficult for the director of revenue to monitor access and reward performance 1.5. Human resource policies and practices The Ccounty organization policies are managed by the County Public Service Board. The Board is responsible for recruitment, staff development and discipline The Public Service Commission is set up by Article 234 of the Constitution which outlines the functions and powers of the Public Service Commission. One of the key mandates of this Commission is to investigate, monitor and evaluate the organization, administration and personnel practices of the public service, including the County government 2. Risk assessment The PFM Regulation 165 sets out the role of the Accounting Officer in risk management. It requires the Accounting officer to develop: (i) risk management strategies, which include fraud prevention mechanism; (ii) a system of risk management and internal control that builds robust business operations. However, the County does not have a risk management policy and a risk register 2.1 Risk identification Several PIs are related to the extent to which risks are identified, notably: PI-13.3 Debt management strategy: A medium term debt strategy exists, but is supported by associated risk analysis, exchange rate and interest rate factors PI-19.2 Revenue risk management: This is rated D as currently not carried out 135 An assessment of the public expenditure and financial accountability - Makueni County PI-26 and PI-30: no risk analysis has been put in place yet 2.2 Risk assessment (significance and This item has not been put into consideration likelihood) because there is no risk management policy implemented at the county level 2.3 Risk evaluation Risk-based annual audit plans are approved by the entity’s Audit Committees (and copied to the Accounting Officer), and are designed to progressively secure key risks in the control environment in a timely manner This is yet to be effected in the county 2.4 Risk appetite assessment The county does not make any risk assessment yet 2.5 Responses to risk (transfer, tolerance, Not assessed (see 2.4). treatment or termination) 3. Control activities The various functions of departments are set out in the PFM Regulations. The accounting Division, in charge of recording and keeping the books, is separate from the Administrative roles, which normally handles the cashiering function. Procurement is also a separate function that works under the Procurement Committee 3.1 Authorization and approval procedures The Government Accounting Manual sets out the systems of authorization, policies, standards, and accounting procedures and reports used by the agencies to control operations and resources and enable the various units to meet their objectives These procedures or activities are implemented to achieve the control objectives of safeguarding resources, ensuring the accuracy of data and enabling adherence to laws, policies, rules and regulations There is also a Standard Chart of Accounts used by all County departments 3.2 Segregation of duties (authorizing, PI-25.1 Appropriate segregation of duties processing, recording, reviewing) exists, in accordance with SCOA, IFMIS and government circulars, which specifies clear responsibilities, but many operations are still done outside IFMIS 3.3 Controls over access to resources and PI-25.3 Most payments are compliant with rules records and procedures, but variations do occur and are pointed out in the report of the OAG PI-27.4. Access and changes to records are restricted and recorded 136 Annex 3.4 Verifications The PFM regulations and finance manual sets out the usual internal control instructions for verification - review of transactions to check the propriety and reliability of documentation, costing, or mathematical computation. It includes checking the conformity of acquired goods and services with agreed quantity and quality specifications The verification procedures are built-in in every transaction when IFMIS is used. Outside IFMIS, verification procedures are rather weak 3.5 Reconciliations PI-27.1, bank account reconciliation: while monthly bank reconciliation statements are prescribed per law, issues of non-preparation, delayed submission, and non-recording of reconciling items are substantial 3.6 Reviews of operating performance No review of operating performance has been implemented yet 3.7 Reviews of operations, processes and PI-24 procurement monitoring is activities comprehensive, but no statistics are being published annually and the OAG reports many breaches in the law 13.3 No debt strategy has been developed yet and the County does not have any debt, so no operation, processes and activities can be recorded. 3.8 Supervision (assigning, reviewing and No information available from the PEFA approving, guidance and training) assessment 4. Information and communication All county governments are required to report quarterly and annually to the Controller of Budget, the Office of Auditor General and the National Treasury through production of financial reports in a template provided by the PSASB 5. Monitoring PI-26, Internal Audit, found that internal audit has been formally established and that audit programmes are largely completed, but with delays 5.1 Ongoing monitoring Ongoing monitoring in the county government is generally weak (PI-8.4 rated C, PI-11.4 rated D, PI-12.2 rated C) 5.2 Evaluations PI-11.4. Major investment projects are not evaluated before they are included in the budget and performance achieved for service delivery are not evaluated either 5.3 Management responses PI-26.4. Due to lack of an audit committee and inadequate senior management support, there is no clear follow up of the management actions. The management had not responded to the audit reports for the previous fiscal year 137 An assessment of the public expenditure and financial accountability - Makueni County Annex 3: Sources of information Annex 3A: Calculation sheet for PFM performance indicators PI-1 and PI-2(i) Year 2013/14 (Ksh Million And %) Functional Head Budget Actual Adjusted Deviation Absolute % Budget Deviation County Attorney’s Office 23.4 8.3 15.6 -7.3 7.3 46.9 Department Of Ict 118.9 46.9 79.4 -32.5 32.5 41.0 County Public Service 27.8 27.8 18.6 9.3 9.3 49.9 Board Department Of Lands, 222.0 99.9 148.2 -48.2 48.2 32.5 Physical Planning And Mining Office Of Governor 108.5 99.7 72.4 27.3 273 37.7 Department Of Trade, 212.0 65.6 141.5 -75.9 75,9 53.6 Tourism And Cooperatives Department Of Gender, 233.1 64.0 155.6 -91.6 91.6 58.9 Youth And Social Services County Secretary 181.9 79.9 121.4 -41.5 41.5 34.2 Department Of Finance 222.8 214.4 148.7 65.7 65.7 44.2 And Socio Economic Planning Department Of Education 280.8 165.7 187.4 -21.8 21.8 11.6 And Ict Department Of Transport 370.3 204.6 247.2 -42.5 42.5 17.2 And Infrastructure Department Of 345.3 221.2 230.5 -9.3 9.3 4.0 Agriculture, Livestock Andfisheries Development Department Of 366.7 120.5 244.8 -124.3 124.3 50.8 Water, Irrigation And Environment Department Of Health 1385.3 1373.7 924.6 449.0 449.0 48.6 County Assembly 577.5 566.0 385.5 180.5 180.5 46.8 Donor-Funded Projects 354.9 - 236.9 -236.9 236.9 100.0 Department Of Devolution - - 0.0 0.0 0.0 - And Public Service Allocated Expenditure 5031.2 3358.2 3358.2 0,0 1463.6 Interests Contingency 40.0 21.8 Total Expenditure 5071.2 3379.9 Overall (Pi-1) Variance 66.6 Composition (Pi-2) 43.6 Variance Contingency Share Of 0.4 Budget 138 Annex Year 2014/15 (Ksh Million And %) Functional Head Budget Actual Adjusted Deviation Absolute % Budget Deviation County Attorney’s Office 47.9 30.6 37.7 -7.1 7.1 19 Department Of Ict 57.4 81.3 45.2 36.1 36.1 80 County Public Service 43.0 42.8 33.9 8.9 8.9 26 Board Department Of Lands, 113.0 129.1 88.9 40.2 40.2 45 Physical Planning And Mining Office Of Governor 140,2 151.7 110.3 41.4 41.4 37 Department Of Trade, 161.9 170.9 127.5 43.4 43.4 34 Tourism And Cooperatives Department Of Gender, 182.9 116.2 143.9 -27.7 27.7 19 Youth And Social Services County Secretary 264.1 217.2 207.9 9.3 9.3 4 Department Of Finance 247.0 287.4 194.4 93.1 93.1 48 And Socio Economic Planning Department Of Education 436.7 330.7 343.8 -13.1 13.1 4 And Ict Department Of Transport 351.1 361.1 276.3 84.8 84.8 31 And Infrastructure Department Of 434.6 252.2 342.1 -89.9 89.9 26 Agriculture, Livestock And Fisheries Development Department Of 502.8 314.3 395.8 -81.5 81.5 21 Water, Irrigation And Environment Department Of Health 1664.7 1333.7 1310.3 23.5 23.5 2 Department Of Devolution 11.4 49.7 8.9 40.8 40.8 457 And Public Service County Assembly 913.8 517.1 719.2 -202.1 640.5 Allocated Expenditure 5572.5 4386.1 4386.1 0.0 1281.0 Interests Contingency 55.1 35.7 Total Expenditure 5627.5 4421.7 Overall (Pi-1) Variance 78.6 Composition (Pi-2) 29.2 Variance Contingency Share Of 0.6 Budget 139 An assessment of the public expenditure and financial accountability - Makueni County Year 2015/16 (Ksh Million And %) Functional Head Budget Actual Adjusted Deviation Absolute % Budget Deviation County Attorney’s Office 43.6 76.4 34.3 42.1 42.1 123 Department Of Ict - 5.0 0.0 5.0 5.0 - County Public Service 51.0 52.7 40.1 12.6 12.6 31 Board Department Of Lands, 105.6 82.0 83.1 -1.0 1.0 1 Physical Planning And Mining Office Of Governor 174.6 201.1 137.4 63.7 63.7 46 Department Of Trade, 215.7 118.5 169.7 -51.1 51.1 30 Tourism And Cooperatives Department Of Gender, 219.4 135.1 172.6 -37.5 37.5 22 Youth And Social Services County Secretary 109.6 194.0 86.2 107.8 107.8 125 Department Of Finance 635.6 503.3 500.0 3.3 3.3 1 And Socio-Economic Planning Department Of Education 498.5 300.1 392.1 -92.0 92.0 23 And Ict Department Of Transport 610.9 287.2 480,5 -193.3 193,3 40 And Infrastructure Department Of 423.3 321.8 333.0 -11.2 11.2 3 Agriculture, Livestock And Fisheries Development Department Of 820.0 525,6 645.1 -119.4 119.4 19 Water, Irrigation And Environment Department Of Health 2 128.8 1 780.3 1674.5 105.8 105.8 6 County Assembly 664.7 237.2 522.8 -285.6 285.6 55 Donor-Funded Projects - 670.8 0.0 670.8 670.8 - Department Of Devolution 279.7 - 220.0 -220.0 220.0 100 And Public Service Allocated Expenditure 6981.0 5491.4 5491.4 0.0 2022.5 Interests Contingency 45.9 28.9 Total Expenditure 7026.9 5520.4 Overall (Pi-1) Variance 78.6 Composition (Pi-2) 36.8 Variance Contingency Share Of 0.4 Budget 140 Annex Year 2013/14 (Ksh Million and %) Economic Head Budget Actual Adjusted Deviation Absolute % Budget Deviation Compensation of 1426.4 1477.0 950.7 526.3 526.3 55.4 Employees Use of Goods and Services 1678.7 1069.1 1118.8 -49.7 49.7 4.4 Consumption of Fixed 1966.1 833.8 1310.4 -476.6 476.6 36.4 Capital Interest 0.0 0.0 0.0 0.0 0.0 - Subsidies 0.0 0.0 0.0 0.0 0.0 - Grants 0.0 0.0 0.0 0.0 0.0 - Social Benefits 0.0 0.0 0.0 0.0 0.0 - Other Expenses 0.0 0.0 0.0 0.0 0.0 - Total Expenditure 5071.2 3379.9 3379.9 0.0 1052.6 Overall Variance 150.0 Composition Variance 31.1% Year 2014/15 (Ksh Million and %) Economic Head Budget Actual Adjusted Deviation Absolute % Budget Deviation Compensation Of 0.0 2023.7 0.0 2023.7 2023.7 - Employees Use of Goods and Services 0.0 1070.8 0.0 1070.8 1070.8 - Consumption of Fixed 1871.2 1327.2 4421.7 -3094.5 3094.5 6.4 Capital Interest 0.0 0.0 0.0 0.0 0.0 - Subsidies 0.0 0.0 0.0 0.0 0.0 - Grants 0.0 0.0 0.0 0.0 0.0 - Social Benefits 0.0 0.0 0.0 0.0 0.0 - Other Expenses 0.0 0.0 0.0 0.0 0.0 - Total Expenditure 1871.2 4421.7 4421.7 0 6189.0 Overall Variance 42.3 Composition Variance 140.0% Year 2015/16 (Ksh Million and %) Economic Head Budget Actual Adjusted Deviation Absolute % Budget Deviation Compensation of 2286.5 2265.7 1796.3 469.5 469.4 48.7 Employees Use of Goods and Services 1854.9 1744.2 1457.2 287.0 287.0 41.1 Consumption of Fixed 2885.5 1510.4 2266.8 -756.4 756.4 21.5 Capital Interest 0.0 0.0 0.0 0.0 0.0 - Subsidies 0.0 0.0 0.0 0.0 0.0 - Grants 0.0 0.0 0.0 0.0 0.0 - Social Benefits 0.0 0.0 0.0 0.0 0.0 - 141 An assessment of the public expenditure and financial accountability - Makueni County Other Expenses 0.0 0.0 0.0 0.0 0.0 - Total Expenditure 7026.9 5520.4 5520.4 0.0 1512.8 Overall Variance 127.3 Composition Variance 27.4% Annex 3B: Lists of functionalities interviewed and provided information for the PFM performance report Designation Assistant Director Budget and Expenditure Treasury Payroll Manager Director of Procurement Accountant Internal auditor Asset Management Department Economist Fiscal Analyst-County Assembly Principal Revenue Officer Payroll officer Annex 3C: Sources of information used to extract evidence for scor- ing each indicator 234. Annual progress 2014 PI-1 Aggregate expenditure outturn 235. Annual progress report 05.05.2015 218. En-pi-1 pi-2 expenditure calculation 236. Participatory rural appraisal Kwa Mbila 237. Kwa mbila pra edited report 13.02.2016 final PI-2 Expenditure composition outturn 238. Participatory planning guide kwa-mbila dam 21.01.2016 219. En-pi-1 pi-2 expenditure calculation 239. Quick wins appraisal 2015-2016 240. Quick wins appraisal report 2016-17 PI-3 Revenue outturn 241. PCc revised report 22-8-2016 220. En-pi-3 2 rev outturn calculation 242. Sectoral performance and achievements 243. Trade department public expenditure review PI-4 Budget classification 244. 221. Filtered SCOAS &programme codes 222. GFS list PI-9 Public access to fiscal information 223. Budget documents PI-10 Fiscal risk reporting PI-5 Budget documentation 245. Consolidated 14-15.1 224. Annual Development Plan 2013-14, 2015-15, 2015 -2016 , 246. Final consolidated fs 15.5.15 2016-17 247. Financialedited1314 225. Final Makueni County 2015-16 budget 30th April 248. Fs2015-160 draft 1 executive 23.12.16 11am forwarded to assembly 249. Fs2015-160 draft 2 executive 226. Final FY 2016-17 programme based budget as passed by assembly PI-11 Public investment management 227. 250. 2014-15 M&E exercise July 251. Kaiti sub County final report ka PI-6 County government operations outside financial reports 252. Kibwezi east sub County m & e report v4 253. Kibwezi west PI-7 Transfers to sub National Governments 254. Kilome M&E report final copy 228. County resource allocation criterion 255. M & e report Mbooni east 229. County resource allocation original proposals 256. Makueni sub County projects - monitoring July 2014 230. Makueni CRA draft updated 19.12.2016 257. Mbooni west M&E final report edited DSEP 28th 231. 258. 2015 2nd quarter M&E report 259. Final ward projects location - status - allocation PI-8 Performance information for service delivery 260. Emergency projects evaluation report 232. 2015-16 performance con report 261. Makueni emergency report final 26.10.2016 233. Pc revised report 22-8-2016 262. Participatory rural appraisal Kwa Mbila 142 Annex 263. Kwa Mbila pra edited report 13.02.2016 final 338. Kasikeu 264. Participatory planning guide kwa-Mbila dam 21.01.2016 339. Enguli river sand dams-climate change 265. Project implementation status 340. Kawese ecde classroom 266. Project implementation status 2013-2016 341. Kiembeni borehole 267. Projects appraisal 2016 342. Kima river sand dams 268. Draft 1718 budget appraisals 12-01-2017 343. Kisuki road-fuel levy 269. Emali-mulala ward 344. Kithina borehole 270. Aforestation of kwa kamba and maatha hills 345. Kwa loki earth dam-flagship 271. Construction and equipping of rescue centre 2 346. Kwa susu borehole 272. Construction of 19 villages sand dams 347. Landu sand dam-climate change 273. Extension of water pipeline from mbilika to matiku 348. Lumu borehole 274. Heavy grading and murraming of mwanyani-maatha- 349. Mbiini dispensary kingai-kalima-kikumini road 350. Ndiling road-fuel levy 275. Heavy grading of kitandi-mwasangombe-mulala-matiku- 351. Sultan hamud open air market kiuani 352. Tractor for kasikeu subward-flagship 276. Heavy grading of kwakivoko-nduundune-kwakotoe road 353. Kathonzweni appraisal 277. Heavy grading of mulala-goatyard-kwakamba- 354. Grading of road- mbuvo kwakakulu-kwakitwest tutini road 355. Grading of road-kathonzweni 278. Muooni mega dam 356. Kikuu water project- mbuvo 279. Reforestation and soil consrervation on muuni hill 357. Kikuu water project 280. Soil testing and sampling 358. Kwa katoo gulley 281. Upgrading of mulala-kwamoki-mwanyani tutini road 359. Kwa kavisi water project 282. Ilima ward appraisal 360. Kwa kilai earth dam 283. Construction of an agricultural training centre in 361. Kwa mathembo kithuka earth dam kyamuoso 362. Kwa mbila water project 284. Kalii gulleys in kikaloni market 363. Londokwe earth dam 285. Kiusyi water project 364. Modern abattoir 286. Kwa mwilu borehole 365. Soil and water conservation kathos 287. Kyambeke borehole water 366. Soil and water conservation 288. Miketa water project 367. Woolile earth dam 289. Musalala water project 368. Yoani ecde centre 290. Muthanga mutune borehole 369. Kee ward appraisal 291. Mutomboa gulleys 370. Construction of kyamuthyoi earth dam 292. Nzukini ctti 371. Construction of nthonzweni ecde class 293. Nzukini-musalala-kyenzeni-kyambeke road 372. Drilling of kitandi borehole 294. Rehabilitation of kasyukoni-kyelia water project. 373. Kavandini-mutulani-nguluni-kasunguni-salama road. 295. Wautu borehole 374. Kee ctti docx 296. Wautu-kyangunzu-mbaloni-kithangathini-nunguni road 375. Kiianzou mega dam 297. Ivingoni.nzambani 376. Kwa kithyoma earth dam 298. Appraissaltemplate-2[1] 377. Kwa kivinda gulley 299. Construction of feeder ecde malelani 378. Kwa ntheketha-kituuti earth dam 300. Construction of iia itune ecde 379. Kweluu-earth dam 301. Construction of kwa matiku earthdam 380. Kyambai gulleys- 302. Crusher 381. Kyambai- ngiitini-kee road 303. Crusher 382. Kyandumbi borehole water project 304. Heavy grading 1 383. Support to farmers with subsidized farm inputs. 305. Heavy grading edited 384. Kiima kiu 306. Heavy grading edited 385. Itumbule dispensary-flagship 307. Katheka kai borehole 386. Ivununi borehole 308. Kimawasco 387. Kaluku earth dam 309. Kyuasini borehole 388. Kasalama borehole 310. Maiia atatu borehole 389. Kima open air market 311. Provision of certified seeds 390. Kwa ivia earth dam 312. Tree planting in schools and hospitals 391. Kwa kimonde borehole 313. Tree planting in schools and hospitals 392. Kwa kingee roads-fuel levy 314. Kako waia ward appraisal 393. Kwa mulela earth dam-climate change 315. Bible school road 394. Kwa tuva-yaitha road 316. Kitandi road 395. Makulani earth dam-climate change 317. Kwa marietta earth dam 396. Malili open air market-flagship 318. Kwa mutombi water project 397. Malili -uiini road-fuel levy 319. Kwa ndungi road 398. Silanga mbuu earth dam 320. Kwa nzwili sand dam 399. Kikumbulyu north ward appraisal 321. Malatani road 400. Construction of mukononi earth dam 322. Nzou nthei gully 401. Construction of kitulani ecde 323. Savani drift 402. Construction of kwa matha sand dam 324. Sofia road 403. Construction of kwa mutua earth dam 325. Uviluni road 404. Construction of kwa ngano sand dam 326. Waia earth dam 405. Construction of mikauni ecde 327. Kalawa ward appraisal 406. Equipping of ndetani ctti 328. Kathulumbi dispensary 407. Planting of trees in institutions and markets 329. Katukulu earth dam 408. Rehabilitation and fencing of malebwa earth dam 330. Kinyau road 409. Kikumbulyu south ward appraisal 331. Kwa muia gulley 410. Construction of a ecde class room at kibwezi township 332. Kwa philiph road primary 333. Maana eli earth dam 411. Construction of a social hall at mukamba cultural centre 334. Musingini road 412. Construction of kalungu ecde 335. Muusini eartdam 413. Construction of kawala drift 336. Syotuvali dispensary 414. Construction of matinga ecde 337. Syotuvali water project 415. Piping of kimwasco water project from mikameni to 143 An assessment of the public expenditure and financial accountability - Makueni County nthunguni 492. Rehabilitation of major gulleys 416. Planting of trees in mbunzau hill,and kilui water 493. Syathi e.dam catchment 494. Wandei mwaani thange river drift 417. Provision of drought resistant seeds in kikumbulyu 495. Mavindini ward 418. Kikumini-muvau ward appraisal 496. Athi water project (kamuithi water project) 419. Kikumini 497. Community water tanks to all public institutions- water 420. Kilungu ward appraisal tracking points 421. Ikuma road 498. Construction of kwa ndungulu drift (landi – nzeveni 422. Inyonywe water project road) 423. Itambani rd 499. Construction of kwa david mutunga and mutisya mainga 424. Ithemboni road . Earth dam 425. Kikuyuni road 500. Construction of nguthunu earth dam 426. Kisyani road 501. Equiping a maternity and construction of staff quarters 427. Kithangathini seedbeds at iiani dispensary 428. Kyanzinzi water project 502. Expansion and fencing of enzio earth dam 429. Kyetuli earthdam 503. Ngolovoi drift (kanthuni - kyase road) 430. Kyumani water project 504. Rehabilitation of athi - ivinganzia (kasayani water 431. Makutano road project) 432. Mwitikio river 505. Mbitini ward appraissal 433. Ndiani road 506. Kiisini springs 434. Nthunguni gulley 507. Kivani-kwa ngiti-kavuthu road 435. Kisau kiteta 508. Mutyambua bh 436. Construction of a dumping site at mbumbuni market 509. Ngesu river sanddams 437. Construction of gabions at kyome primary school 510. Nolturesh water project 438. Grading of mwana – kwa masaku – kavutini road 511. Reafforestation of kyemundu, kalumbi and mwambwani 439. Grading of ndiang’u – kanyenyoni – mbulutoni – forests syunguni road 512. Supply of certified seeds and fertilizers 440. Kavuvoni ecde 513. Supply of fertilizers and certified seeds 441. Kyome ecde 514. Upgrading masokani ctti 442. Maintenance and grading of mbumbuni – mbiani road 515. Upgrading of manooni play ground 443. Mukundi water project 516. Upgrading of mungyani-kithumani-kwa mutula-ngoto- 444. Ndituni water project kitulani road 445. Rehabilitation of kinze dam 517. Mbooni appraisals 446. Supply of subsidized farm inputs - kisau 518. Appraissaltemplate-2[1] 447. Supply of subsidized farm inputs - kiteta 519. Gabions at nzeveni 448. Tawa market floodlights installation 520. Ikokani water project 449. Uvaa water project 521. Ililu dam 450. Kithungo appraisals 522. Katilini dispensary 451. Appraissaltemplate-2[1] 523. Kivandini nzaini road 452. Kalala kavatini road 524. Makuu ecde 453. Kaliani dispensary 525. Mbooni agric flagship 454. Kaliavati gabions 526. Mukaatini ctti 455. Kaseki itulandoo rd 527. Mulima water project 456. Kilyungi playfield 528. Mutulanguu ecde 457. Kilyungi-utangwa road 529. Muumoni dispensary 458. Kinyongo spring 530. Sensitizaton on climate change 459. Kithungo cold storage 531. Wathi water project 460. Mwenyeani water project 532. Mtito andei ward appraisal 461. Utangwa ctti dorm 533. Agricultural activities 462. Utangwa sand dams 534. Appraissaltemplate-2[1] 463. Kithungo ward appraisals 535. Athi kamuyu drift 464. vide 536. Athi river w.p 465. Kitise kithuki 537. Construction of gabions 466. Kitise 538. Construction of ilikoni ecde 467. Makindu ward appraisal 539. Construction of kwa musenya kwa kavyu earthdam 468. Construction of kiu ecde 540. Construction of nguumo ecde 469. Gabbions 541. Heavy grading edited 470. Gnca ecde 542. Heavy grading k 471. -kiboko-twaandu 543. Improved agricultural practices 472. Kisingo borehole 544. Kwa mulandi gabions 473. Kiu catchment 545. Kwa mwelu drift 474. Kwa kasimu bh 546. Masai earthdam 475. Ngaaka dispensary 547. Nzalani ecde 476. Ngomano earth dam 548. Slaughter road drift 477. Ngomano water project 549. Title deeds 478. Nthia-mbiuni road 550. Tree planting 479. Poultry & goat keeping 551. Yindundu ecde 480. Masongaleni ward appraisal 552. Mukaa ward appraisal 481. Athi river water pumping scheme 2 553. Drilling of kwa kasila borehole 482. Athi river water pumping 554. Ianduini borehole 483. Elengole dam expansion 555. Kateseimbya -kivani road 484. Ititi rock catchment 556. Kima -kitaingo road 485. Kimawasco pipeline from kalulu to nzembete a. B 557. Kitonguni borehole 486. Kimawasco 558. Kwa kala earth dam 487. Kwa majee e.dam 559. Kwa musaa borehole 488. Kwa mbandi e. Dam 560. Kwa musuu borehole 489. Masaku ndogo bh 561. Kyandue borehole 490. Ngovani e.dam 562. Mutiluni borehole 491. Rehab machinery-kavatini-kativani 563. Mwanyani borehole 144 Annex 564. Tree nursuries in all clusters 643. Tree planting at kakima hill 565. Tree planting in schools and churches 644. Tulimani dispensary (tututha) 566. Nguu-masumba ward 645. Wanzauni ecde 567. Itiani ecde 646. Yandue dispensary 568. Kikumini playground 647. Ukia ward appraisal 569. Kikuu sand dams construction. 648. Grading and maintanance of road 570. Kwa matilu earthdam 649. Improvement of dairy farming 571. Livestock improvement 650. Itithini dispensary 572. Matutu dispensary 651. Kaumoni earth dam 573. Mbukani primary borehole 652. Kilala model health centre 574. Mithumoni dispensary 653. Kyambalasi mega earth dam 575. Tree nurseries 2 654. Mbaani water project 576. Utini ecde 655. Ndiuni water project 577. Yikivumbu market shed 656. Planting of trees 578. Nguumo ward appraisal 657. Tree planting 579. Borehole soto 658. Ukia dispensary 580. Farm ponds 659. Water weir at ikangaani spring 581. Goats and poutry 660. Hq projects appraisal 582. Ilaatu stadium 661. Project prioritization worksheet 29.11.2016 583. Ilatu dispensary 662. Public participation 584. Kalakalya borehole 663. 1617 participation 585. Kaunguni dispensary 664. Budgeting at sub ward level guide FY 2016-17 586. Kaunguni forest 665. Makueni County public participation 587. Kwa kala borehole 666. Public participation framework final 588. Makusu syumile 667. Public participation hand book 13th Feb 2017 master 589. Market shed at kibarani copy 590. Mbui nzau hill 668. Makueni County projects monitoring system 591. Nguumo playground 669. Quick wins appraisal report 2016-17 592. Sanddam at mukononi river 670. PI-12 public asset management 593. Tuaga & kwa singi bridge 671. Final asset register-Makueni County 594. Uvileni ctti 672. Agriculture assets updated 24.3.2017 595. Wakiamba ecde 673. Asset reg water 596. Nzaui ward appraissal 674. Asset register devolution 597. Construction of katulani ed 675. Asset register-education 598. Iangini ed 676. Asset tracking register - health department - march 2017 599. Katulye maternity wing 677. Cs asset register 600. Kikuu river catchment protection 678. Finance & planning 601. Kithatu-mathanguni-kalaani road 679. Lands dept asset register 24032017 602. Kwa masaa-kalumoni road 680. Trade 603. Kwa mbiti-kithumba-makutano-kalamba 681. Transport& infrastructure assets final 604. Kwa moto samp tank 682. Consolidated 14-15.1 605. Kyuasini ecde 683. Final consolidated fs 15.5.15 606. Manyenyoni drift 684. Financial edited 2013-14 607. Muuani-kalivia road 685. Fs2015-160 draft 1 executive 23.12.16 11am 608. Ngyau earth dam 686. Fs2015-160 draft 2 executive 609. Soil conservation 687. Gfs list 610. Yanthooko sanddam PI-13 Debt management 611. Thange ward appraisal 612. Exp kikunduku e.dam PI-14 Macroeconomic and fiscal forecasting 613. Kilungu bh 688. CBROP 13-14 614. Kilungu pri.nzavoni.masonga road 689. Makueni BROP 2013 615. Kinyambu s.h 690. CBROP 14-15 616. Kituneni kwa munguti bh 691. Final Makueni BROP 2014 617. Kiumoni ctti 692. CBROP 15-16 618. Kwa nzomba e.dam 693. Makueni CBROP 2015 19th October final version 619. Kyaani e.dam 694. CFSP 14-15 620. Machinery.masonga.nzavoni.kinyambu disp road 695. Final printed Makueni fiscal strategy paper 2014 621. Machinery.moki.ngomano.mutusye w.pipeline 696. CFSP 15-16 622. Masonga ctti 697. Final Makueni CountyCFSP2015 3rd march 2015 623. Musikiti- nzavoni pri road 698. CFSP 16-17 624. Muthungue disp bh 699. Final Makueni CountyCFSP2016 25th February 2016 625. Utithi.kasasule road (submitted to c.a) 626. Tulimani ward appraisal 700. CFSP 2017-18 627. Dam at ngwani river 701. Makueni County 2017 CFSP12.01.2017 submitted to 628. Iiani dispensary County assembly 629. Ikokani water project 702. 2016 CBROP 630. Itetani dispensary 631. Kalawani market public toilet PI-15 Fiscal strategy 632. Kalii earthdam 703. CBROP 13-14 633. Katunda- kyamithenge – ngunini – uvaani – kooi road 704. Makueni BROP 2013 634. Kiatineni borehole 705. CBROP 14-15 635. Kwa ndifatha borehole 706. Final Makueni BROP 2014 636. Kyamithenge ecde 707. CBROP 15-16 637. Kyanguma ecde 708. Makueni CBROP 2015 19th October final version 638. Maintainance of kalawani – kwa mutisya road 709. CFSP 2017-18 639. Mavindu dispensary 710. Makueni County 2017 CFSP12.01.2017 submitted to 640. Muketani ecde County assembly 641. Nthangathini ecde 711. CFSP submission 2015 642. Rehabilitation of gullies 145 An assessment of the public expenditure and financial accountability - Makueni County 712. CFSP submission 2016 776. County finance bill 2014 final version 713. Final Makueni CountyCFSP2015 3rd march 2015 P1-19.2 714. Final Makueni CountyCFSP2016 25th February 2016 777. Revenue administration bill (submitted to c.a) P1-19.3 715. Final printed Makueni fiscal strategy paper 2014 778. Fraud investigation report PI-16 Medium-term perspective in expenditure budgeting P1-19.4 716. Annual development plan 2013-14 779. Revenue arrears as at 30 June 2014 717. Annual development plan 2014-15 780. Revenue arrears as at 30 June 2015 718. Annual development plan 2015-16 781. Revenue arrears as at 30 June 2016 719. Annual development plan 2016-17 782. Revenue arrears less than 12 months old 720. County integrated development plan (CIDP) 2013-17 783. Revenue arrears older than 12 years 721. Edited Makueni CIDP November 2013 Makau 784. Revenue arrears older than 12 months old 722. CFSP 15-16 785. Stock of revenue arrears 2015-2016 723. Final Makueni CountyCFSP2015 3rd march 2015 786. Total revenue collection for 3 fys 724. CFSP 16-17 PI-20 Accounting for revenue 725. Final Makueni CountyCFSP2016 25th February 2016 P1-20.1 (submitted to C.A.) 787. Information on daily revenue collection 726. CFSP 2017-18 788. Monthly summary for revenue collection for 2015-2016 727. Makueni County 2017 CFSP submitted to County 789. Weekly summary for revenue collection returns June assembly 2016 728. CIDP 2013-17 790. Weekly summary for revenue collection returns 14-5-16 729. Edited Makueni CIDP November 2013 to 20-5-2016 730. Final Makueni CountyCFSP2015 3rd march 2015 P1-20.2 731. Final Makueni CountyCFSP2016 25th February 2016 791. Sweeping of own revenues at commercial banks to CRF (submitted to C.A.) (weekly). 732. County fiscal strategic Paper 2014-15 PI-21 Predictability of in-year resource allocation 733. Final printed Makueni fiscal strategy paper 2014 P1-21.1 734. County strategic plan - vision 2025 792. 2015-16 cash flow 735. Makueni County vision 2025 final document 793. Bank reconciliation February 2017 736. Departmental strategic plans 794. Bank reconciliation January 2017 737. Agri strategic plan zero draft 795. Bank reconciliation-retention 738. Finance & socio-economic planning strategic plan draft 796. CBK revenue edited 21.11.14 797. Development account 2016-2017 739. Gender & youth strategic plan 798. KCB development final 2016 17 740. Health sectoral strategic plan 799. List of County bank accounts 741. ICT strategic plan 800. Transfer of cash balances to County exchequer account 742. Office of the governor strategic plan P1-21.2 743. Strategic plan education 801. 2015-16 cash flow 744. Strategic plan roads transport infrastructure& energy P1-21.3 001 new 802. 2016-17 requisitions 745. Water strategic plan draft 803. Form a-car loan sep 2016 assembly 746. Analysis of dates 804. Form a-dev 9th sep ca 2016 747. Final printed Makueni fiscal strategy paper 2014 805. Form a-dev 22nd aug ca 2016 806. Form a-dev aug ca 2016 PI-17 Budget preparation process 807. Form a- requisition 4th august 2016 assembly 5th august 748. 1415 advert public hearings - Makueni County 808. Form a- requisition 9th sep 2016 assembly 749. 2013 budget circular 809. Form a- requisition 22nd august 2016 assembly 750. 2014 budget circular 810. 2016-17 requisition dev ce not subb 751. 2016 CBROP 811. 2016-17 requisition emergency ce not subb 752. 2015-16 budget hearings 812. Copy of FY 1617 recurrent requisition 753. Budget calendar & actual dates 813. Form a-dev aug 15th executive not subb 754. Budget circular 26th august 814. Form a-dev aug 29th reallocation 755. Budget circular 2014 815. Form a-dev aug 31st executive 756. Budget circular 2015 816. Form a-dev oct 24th 757. Budget circular 2016 817. Form a-rec 24th oct 2016 758. Budget submission 2014 818. Form a-rec july executive 5th august 2016 759. Final Makueni BROP 2014 819. Fy 1617 recurrent requisition 3 amended 760. Finalization circular 820. Fy 1617 recurrent requisition 3 761. Makueni BROP 2013 821. Fy 1617 recurrent requisition 4 762. Makueni County 1st half FY 2014-15 budget 822. Fy 1617 recurrent requisition implementation report - 1st draft 823. Reallocation requisitions-dev 763. Makueni CountyBROP 2015 19th October final version 824. Reallocation, main bgt requisitions-dev 2nd req 764. Makueni County development projects all financial years 825. Reallocation, main bgt requisitions-dev 765. Makueni County public participation 826. Copy of august requisition- ca 766. Public participation framework final 827. Form a-ce aug 22nd emergency 767. Sub ward participation tool- final 29.11.2016 828. Form a-dev 9th sep ca 2016 PI-18 Legislative scrutiny of budgets 829. Form a-dev aug 15th executive 768. County Assembly budget estimates2016 830. Form a-rec9th sep 2016 assembly 769. County Assembly resolution 2015 831. Form a-recc 5th jan 2017 770. Interim County assembly standing orders final 832. Form a-recc 9th sept executive car loan 771. Appropriation bill 2014-15 26th February 833. Form a-recc 9th sept executive 772. Final Makueni County CFSP2016 25th February 2016 834. Makueni County government FY 2016-17 budget analysis (submitted to c.a) assembly 29th 773. Final Makueni County supplementary budget FY 2015.16 835. Requirements for release of funds 2016-17 774. Makueni County final appropriation bill 2015-16 30th 836. Appropriation bill 2014-15 26th February June 837. Final Makueni CountyCFSP2016 25th February 2016 775. Makueni County appropriation bill 2013 (submitted to c.a) PI-19 Revenue administration 838. Final Makueni County government FY 2015-16 budget P1-19.1 839. Makueni County2014-15 budget as passed by assembly 146 Annex 840. Makueni County final appropriation bill 2015-16 30th PI-26 Internal audit June 902. Annual audit plan 2016-2017 841. MakueniCountyappropriationbill2013 903. Appointment as chairman audit committee P1-21.4 904. Audit committee induction program 842. Final FY 2015-16 reallocation budget 12th July 905. Audits conducted in the last 3 financial years 843. Final FY 2015-16 reallocation budget 13th July 2016 as 906. Inauguration of internal audit committee forwarded to the County assembly explanations 907. Planned audits for the next three years 844. Final FY 2015-16 reallocation budget as passed by 908. Publicfinancemanagementact2012 assembly final version 5th august 909. Reminder to management for action of audit reports 845. FY 20151-6 revised budget. PI-27 Financial data integrity PI-22 Expenditure arrears 910. Development account 2016-2017; February 2017, January 2017 P1-22.1 911. KCB development reconciliation final 2016-20 17 846. Pending bills 20152016-kenao.zip 912. Bank reconciliation-retention; Development account 847. Stock of expenditure 2016-2017; February 2017, January 2017 913. KCB development reconciliation final 2016-2017 P1-22.2 914. Retention account suspense 848. Pending bills 20152016-kenao 849. Stock of expenditure PI-28 in-year budget reports PI-23 Payroll controls 915. 2016-17 quarterly report 850. Authorised data sheet -ads for payroll changes 916. Consolidated quarterly report-16.1.2017 851. Carps- capacity assessment and rationalization 917. Emergency report: Emergency 2015-16 FY, Emergency 852. IPPD payroll management guidelines - 2013-14 FY, Emergency 2014-15 FY 853. Kiprra payroll Makueni County executive 918. Quarterly expenditure reports: 3rd quarter report April 854. Payroll audit report 1 2016 final, 2014-15 report 855. Payroll audit report 2 919. Executive fs 2015 856. Payroll audit report 3 920. First quarter report 2015 857. Proposed bench marking on HR matters 921. First quarter report 858. Retroactive adjustments 922. Fourth quarter report 2015 923. Half year report PI-24 Procurement 924. Monthly expenditure reports feb fy2016-17 859. Departmental procurement plans 925. Second quarter report Jan. 2105 860. Agriculture 926. Third quarter report Inc. & exp. April 16 861. Consolidated annual proc. Plan 927. Third quarter report 2015 862. Copy of final 2014-15 budget by departments and 928. 2015-2016 q1 budget implementation report directorates 929. M&E report 2nd quarter report final. 863. Education-procurement plan 930. Makueni CBROP 13-14 864. Gender 931. CBROP 14-15 865. Health 932. Final Makueni BROP 2014 866. Ict-procurement plan 933. CBROP 15-16 867. Lands-procurement plan 868. Trade PI-29 Annual financial reports 869. Transport-procurement plan 934. Makueni CBROP 2015 19th October final version 870. Water-procurement plan 935. Financial statements16 months fs for 2013-14-audited 871. Details of contracts awarded per department 936. 2013-14 financial statement-audited 872. Agriculture 937. 2014-15 financial statement-audited 873. County public service board 938. 2015-16 financial statement-audited 874. Department of youth doc 939. Management letter responses 2016 875. Education world bank 2013-2015 940. Management letter responses June 2015 876. Education world bank report 2015-2016 877. Finance report PI-30 External audit 878. Lands 941. External audit report Makueni County assembly-2014-15 879. Roads, transport& infrastructure world bank report 942. External audit report Makueni County assembly 2013- 14 880. Trade world bank report 943. External audit report Makueni County executive 2014-15 881. Water world bank doc 944. External audit report Makueni County executive-2013-14 882. Fees for review 945. PAC report recommendations summary 883. Hearing notice 946. Progress report -on audit 884. Notification for review 885. Public procurement and administrative review board PI-31 Legislative scrutiny of audit reports 886. Public procurement and asset disposal act 2015) 947. Adopted PAC2013-2014 audit report 887. Public procurement and disposal manual 948. Interim County assembly standing orders final 888. Publicprocurementanddisposalact2005 949. Letter no 1 to County secretary Makueni-7th April 2016 889. Request for review 950. Pac report recommendations summary 890. Requirements for review 951. Pac’s report on fs for 16 months ended 30th June 2014 952. Response from County secretary Makueni 25th April PI-25 Internal controls on non-salary expenditure 2016 891. IFMIS modules and segregation of duties 953. Special audit report jan-june 2013 892. General ledger and reporting 954. Submission and approval of audit reports. 893. Management of accounts receivables 894. Management of fixed assets 895. Procure to pay process 896. Revenue and cash management process 897. Assessing compliance of payment procedures 898. External audit report for the year ended 30 June 2015 899. Makueni County financial regulations & procedure manual 900. Monthly cash flow projections for 2015-2016 901. Public finance management act 2012 147 An assessment of the public expenditure and financial accountability - Makueni County Annex 3D: County government entities audited for the last 3 fiscal years Entity 2013/14 2014/15 2015/16 Mbooni Hospital - √ - Makueni Hospital - - √ Department of Water and Irrigation - - √ Department of Finance and Socio- - - √ Economic Planning Department of Education and ICT - - √ Department of Trade, Tourism and - - √ Cooperatives Department of Lands and Physical Planning - - √ Department of Health - - √ Department of Agriculture - - √ Department of Transport and Infrastructure - - √ Department of Youth Gender and Sports - - √ County Public Service Board - - √ Department of Devolution - - √ Office of Governor - - √ Office of County Secretary - - √ 148