An Assessment of the Public Expenditure and Financial Accountability - Nakuru County Kenya Institute for Public Policy Research and Analysis Special Paper No. 26 2019 An assessment of the public expenditure and financial accountability - Nakuru 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 10 5 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 Nakuru County was prepared by a team led by the KIPPRA Executive Director Dr Rose W. Ngugi. The team members included Dr Christopher Hugh Onyango, Dr Simon Githuku, Manasseh Otieno and Paul Odhiambo. The oversight committee provided strategic guidance for the assessment comprised Dr Rose Ngugi, Dr Augustus Muluvi, Dr Christopher Onyango, Dr Simon Githuku, Benson Kiriga, Dr Douglas Kivoi (from KIPPRA), Christine A. Owuor, Tim Williamson (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 and Dr Douglas Kivoi (KIPPRA), 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 Nakuru County government and SIDA. Also acknowledged are comments from other KIPPRA staff 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 Nakuru. The KENYA INSTITUTE for PUBLIC POLICY RESEARCH and ANALYSIS 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 Background The rationale of this assessment is to give a better understanding of how the public finance management (PFM) systems work, how the processes and the institutions are organised and to what extent they provide an entry point for PFM reform efforts at the level of Nakuru County. This PEFA assessment will become a benchmark for the upgrade of the PFM system in the counties of Kenya which are still in early stage of development. The assessment period covers three financial years namely, 2013/14, 2014/15 and 2015/16 and focused on various indicators and dimensions as defined in the PEFA assessment tools. The field work of the assessment took place in April 2017 this is the time of assessment, of the cut-off date, for those indicators where more up-to- date assessment period is required. Main Findings of the Assessment Fiscal discipline Even though disbursements were made in a timely manner for the three financial years, the aggregate expenditure outturn was 90% and 92%. The revenue outturn (PI-3) shows that the change in revenue between the original approved budget and end-of-year outturn was significant. This was due to over optimistic revenue forecasts that led to large expenditure planning and allocations. Further, variance in expenditure composition by economic classification was large for the last three financial years. Management of assets and liabilities is ineffective because risks are not identified and monitored. Projects are selected by the County Assembly based on proposals made during public participation. The debt service function is relatively well managed. The County prepares Debt Management Strategy annually to cover a single financial year but the associated fiscal risks are not adequately analysed. The County has only inherited domestic debt (matured pending bills) which is recorded but not regularly reconciled. With regard to public asset management (PI-12), there is a weakness in terms of non-financial assets especially land which is not recorded. 5 An assessment of the public expenditure and financial accountability - Nakuru County The budget is prepared in accordance with National Treasury guidelines which require budget proposals to be presented using administrative, economic and the programme based approach. However, no information about revenue outside financial reports is produced. The County Treasury uses IFMIS to facilitate transaction processes and reporting. IFMIS users have passwords and the system maintains a log of users together with their functions. Any changes to reports must be approved by departmental heads to enhance financial data integrity. Budget documents such as the CFSP, CBROPs, annual development plans (ADPs) and budgets are prepared in timely manner. Quarterly budget reports are also availed for the public, but not in good time and they do not cover all public resources and expenditure. Financial reports for budgetary units are prepared annually and budget implementation reports are prepared each quarter. Coverage and classification of data allows direct comparison to the original budget for the main administrative headings. They include information on revenue, expenditures, and cash balances. Financial reporting, however, for extra budgetary units and public corporations is still not produced. The County of Nakuru is yet to develop systems to monitor the newly established public corporations, as well as to develop procedures and selection criteria for public investment. Currently, there are no standard procedures and rules for project selection, implementation and monitoring, Contingent liabilities (related to car loan and mortgage scheme) are well managed and most of them are presented in financial reports. The County has not developed standard operating procedures for disposal of assets because the counties were prohibited from disposing public assets until full transition is effected. Debt management capacity of the County Government is relatively good. There is a debt management unit and strategy covering only one year. The County of Nakuru operated a well-managed automated payroll control system i.e. the integrated payroll and personnel data (IPPD) which integrates personnel database and payroll. Changes to the personnel records and payroll are updated at least monthly, in time for the following month’s payments. Staff hiring and promotion is controlled by a list of approved staff positions and usually subject to payroll audit carried out only once during the period of assessment. Only the County Public Service Board and the County Assembly Service Board are allowed to change personnel records and payroll for County Executive and County Assembly through written approval of the County Secretary and the Clerk respectively. 6 Executive summary Strategic resource allocation Policy-based fiscal strategy and the budgeting are not prepared with due regard to County Government’s fiscal policies, strategic plans, macroeconomic and fiscal projections. Nevertheless, good fiscal forecast practices exist coupled with clear budget preparation process and legislative scrutiny. The County Executive does not prepare its own macroeconomic forecasts and does not carry out any sensitivity analysis with assumptions however fiscal forecasts and budget for the medium expenditure framework (MTEF) period of three years are prepared. The County does not carry out any fiscal impact analysis (PI-15). Nonetheless, the County prepares a County Budget and Review Outlook Paper (CBROP) annually providing a review of fiscal performance, as well as a County Fiscal Strategy Paper (CFSP) elaborating on fiscal goals and targets for the medium term. Expenditure budgets are developed for the medium term within budget expenditure ceilings (PI-16) though they are not submitted together with the budget circular. The County’s revenue administration which is an essential component of the PFM system is weak (PI-19). There are inadequate channels for informing taxpayers about their rights and obligations as well as clearly understanding procedures for seeking redress. Revenue accounting is managed well (PI-20) with procedures for recording and reporting revenue collections, consolidating revenues collected and reconciliation of revenue accounts is in place. No evidence was made available to show if the County provides (PI-21) reliable cash commitments forecasts and requirements and reliable information on the availability of funds to budgetary units for service delivery. Efficient service delivery The indicators measuring whether the budget and fiscal risks oversights are comprehensive and information is accessible to the public show that transparency of public finances is not comprehensive, consistent and accessible to the public. The Budget documentation (PI-5) prepared by the County does not contain most elements that should be provided in the budget documents e.g. current financial year budget presented in the same format as the budget proposal, macroeconomic assumptions etc. Revenue and expenditures of extra budgetary units are also not reported in the annual financial statements (AFS) (PI-6). Information on service delivery performance is not collected and recorded (PI-8). There are no independent evaluations on efficiency and effectiveness of service delivery. Public access to fiscal information is limited because of delay or non- publication of information such as enacted budget, budget execution reports, and macroeconomic forecasts among others. 7 An assessment of the public expenditure and financial accountability - Nakuru County The budget preparation process (PI-17) is satisfactory but does not allow for efficient public participation. The civil societies are not informed in good time about the respective budget debates in the County Assembly. The County of Nakuru does not provide taxpayers with clear access to information on the main revenue obligation areas, rights, redress processes and procedures. The transparency of the public procurement arrangements is far from being satisfactory (PI-24). Information on the County procurement plans and the contracts awarded are not made public. There is regular feedback to management about the performance of the internal control systems (PI-26), through an internal audit function but slightly inadequate. The Internal Audit function does not use risk based approach and does not keep record of data on the percentage of audited budget entities in terms of total planned expenditure and revenue. The external audit and scrutiny by the legislature as currently undertaken do not hold the county accountable for its fiscal and expenditure policies and their implementation. The public finances are independently reviewed but external follow-up on the implementation of recommendations for improvement by the executive has not been efficient. Independence of the Office of the Auditor General is guaranteed by the Constitution and the Public Audit Act, 2015. The Audit Reports are issued with delay, are scrutinized late and effectiveness of the hearings could not be determined. Thus, the external audit is not effective to enable adjustments and corrections in the PFM system. The scrutiny by the legislature does not result in actions to be taken up by the executive, nor is their work transparent to the public. The assessment identified the following as on-going key reforms that are aimed at enhancing governance, administration and decision making for better service delivery at the County level: (i) Land Valuation Rolls aimed at proper revenue estimation; (ii) Bill on annual borrowing limit facilitating future borrowing; (iii) development of procurement and disposal manual; (iv) appointment of Internal Audit Committee members; (v) preparation of financial statements. There are, however, other key reforms which are still outstanding and are related to deployment of the Treasury Single Account at county government level; strengthening the strategic planning and budget formulation, implementing comprehensive cash management reforms by strengthening commitment control and reporting. There are two major reforms which are relevant to all counties in Kenya and they are related to the integration of IPPD with IFMIS module at national level; and the design of a framework for all county governments to move to accrual-basis IPSAS The following table gives an overview of the scores for each of the PEFA indicators. 8 Executive summary Scoring Dimension RatingsPFM Performance Indicator Overall Method i ii iii iv rating Subnational PEFA indicator HGL-1 HLG-1: Transfers from a M1 A D D* D+ higher level of government Pillar I. Budget reliability PI-1 Aggregate expenditure outturn M1 B B PI-2 Expenditure composition outturn M1 D* D A D+ PI-3 Revenue outturn M1 D D D Pillar II. Transparency of public finances PI-4 Budget classification M1 C C PI-5 Budget documentation M1 D D Central government PI-6 operations outside financial M2 D* D* D* D reports PI-7 Transfers to subnational governments M2 N/A PI-8 Performance information for service delivery M2 D D D D D PI-9 Public access to fiscal information M1 D D Pillar III. Management of assets and liabilities PI-10 Fiscal risk reporting. M2 N/A N/A D D PI-11 Public investment management M2 D D D D D PI-12 Public asset management M2 C D D D+ PI-13 Debt management M2 D N/A D D Pillar IV. Policy-based fiscal strategy and budgeting PI-14 Macroeconomic and fiscal forecasting M2 C C D D+ PI-15 Fiscal strategy M2 D B C C PI-16 Medium-term Perspective in expenditure Budgeting M2 A D D D D+ PI-17 Budget preparation process M2 A D A B PI-18 Legislative scrutiny of budgets M2 A A C C C+ Pillar V. Predictability and control in budget execution PI-19 Revenue administration M2 D D D D D PI-20 Accounting for revenue M1 A A C C+ PI-21 Predictability of in-year resource allocation M2 C C D A C+ PI-22 Expenditure arrears M1 D C D+ 9 An assessment of the public expenditure and financial accountability - Nakuru County PI-23 Payroll controls M1 D A B B D PI-24 Procurement management M2 B D D A C+ PI-25 Internal controls on non-salary expenditure M2 A B D* B PI-26 Internal audit M1 D D D D D Pillar VI. Accounting and reporting PI-27 Financial data integrity M2 B D D B C+ PI-28 In-year budget reports M1 C B C C PI-29 Annual financial reports M1 C B D D Pillar VII. External scrutiny and audit PI-30 External audit M1 C D D A D+ PI-31 Legislative scrutiny of audit reports M1 D* D* D* D* D 10 ABBREVIATIONS AND ACRONYMS CRA Commission on Revenue Allocation CoG Council of Governors CBIRR County Governments Budget Implementation Report CIDPs County Integrated Development Plans CBROP County Budget and Review Outlook Paper CFSP County Fiscal Strategy Paper IFMIS Integrated Financial Management Information System IPPD Integrated Payroll Personnel Data ITRC Intergovernmental Technical Relations Committee ITRC Intergovernmental Technical Relations Committee IDA International Development Association IDRC International Development Research Centre IPSAS International Public-Sector Accounting Standards KADP Kenya Accountable Devolution Program 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 11 An assessment of the public expenditure and financial accountability - Nakuru County SIDA Swedish International Development Assistance SRC Salaries and Remuneration Commission SCOA Standard Chart of Accounts SOP Standard Operating Procedure TSA Treasury Single Account 12 TABLE OF CONTENTS Executive Summary .................................................................................................5 Abbreviations and 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. 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 2.5 Other Important Features of PFM and its Operating Environment ...... 31 3. Assessment of PFM Performance ..................................................................33 3.1 Pillar I. Budget Reliability .......................................................................35 3.2 Pillar II. Transparency of Public Finances .............................................. 41 3.3 Pillar III. Management of Assets and Liabilities ....................................50 3.4 Pillar IV. Policy-Based Fiscal Strategy and Budgeting ........................... 57 3.5 Pillar V. Predictability and Control in Budget Execution .......................68 3.6 Pillar VI. Accounting and Reporting .......................................................86 3.7 Pillar VII. External Scrutiny and Audit ...................................................92 4. Conclusions of the Analysis of PFM Systems ................................................98 4.1 Integrated Assessment of PFM Performance .........................................98 4.2 Effectiveness of the Internal Control Framework ................................ 104 4.3 PFM Strengths and Weaknesses ...........................................................108 13 An assessment of the public expenditure and financial accountability - Nakuru County 5. Government PFM Reform Process ...............................................................110 5.1 Approach to PFM Reforms .....................................................................110 5.2 Recent and On-Going Reform Actions ..................................................110 5.3 Institutional Considerations ..................................................................112 Annex 1: Performance indicator summary ..........................................................113 Annex 2: Summary of observations on the internal control framework .............121 Annex 3: Sources of information by indicator .................................................... 125 Annex 4: Sub-national government profile......................................................... 133 Annex 5: Calculation sheet templates for Pi-1, Pi-2 and Pi-3 ............................. 138 14 LIST OF TABLES Table 2.1: Basic economic data and indicators for the Nakuru County .............. 21 Table 2.2: Overview of selected fiscal indicators ..................................................23 Table 2.3: Aggregate fiscal performance data for the last 3 financial years (in % of total revenue) ...........................................................................24 Table 2.4: Budget allocations by sector (as a % of total expenditures) ................24 Table 2.5: Structure of the public sector (Ksh millions) - 2015/16 .....................29 Table 2.6: Financial structure of county government-budget estimates (Ksh millions) - 2015/16 ................................................................29 Table 2.7: Financial structure of county government-actual expenditure (Ksh millions) - 2015/16 ............................................................30 Table 3.1: Aggregate expenditure outturn (in Ksh and in %) ...............................36 Table 3.2: Expenditure composition outturn by function (Ksh millions & %) .... 37 Table 3.3: Expenditure composition outturn by economic type (Ksh millions and %) .......................................................................................... ........................................................................................................................38 Table 3.4: Aggregate revenue outturn (%) ............................................................40 Table 3.5: Nakuru sources of revenue for the last 3 financial years (Ksh millions and %) ...................................................................................... 41 Table 3.6: Categories of non-financial assets - 2013 ............................................53 Table 3.7: Structure of the outstanding inherited debt as of 30th September 2016 .....................................................................................55 Table 3.8: Nakuru County Budget Calendar for 2016/17 .....................................63 Table 3.9: Type of procurement methods, 2015/16 ..............................................79 Table 3.10: Internal audits carried out over the last completed financial year ....85 Table 3.11: Submission of audit reports to the legislature ....................................94 15 1. INTRODUCTION The 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 the 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 the 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 reform age and can be implemented simultaneously after areas that require improvements are identified. The sub-national assessments, which covered six out of forty-seven counties, have been jointly financed by the World Bank and IDRC through KIPPRA. 1.1 Rationale and Purpose 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. public financial management reform (PFMR) Strategy, National Capacity Building Framework, World Bank’s Kenya Accountable Devolution Program (KADP) and Kenya Devolution Support Programme (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. The assessment will also be useful in identifying priorities for PFM reforms in the future to ensure a sustainable, effective and transparent allocation and use of public resources. The PEFA assessment will become a benchmark for the upgrade of the PFM system in Kenya’s counties which are still in early stage of development. Currently, the fiscal discipline and the efficient allocation of resources according to the priorities of the County of Nakuru are viewed as the important prerequisites to deployment of well-functioning public finance system. Effective PFM institutions and systems in the County governments are important for successful implementation of devolution. PEFA assessments are founded 17 An assessment of the public expenditure and financial accountability - Nakuru County on the principles of openness, accountability and public participation in public finance are 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 have been done almost concurrently, this is important because both levels of government share the same PFM system. This implies that evidence-based reform agenda can be implemented simultaneously after areas that require improvements are identified. This first sub-national PEFA assessment has been undertaken in six Counties in Kenya and Nakuru was one of the selected county. Nakuru County expressed interest in undergoing a PEFA assessment and a commitment to design and implement a reform agenda based on the results of the assessment. An important point to note regarding results of the assessment is that they will not be used for comparing with other counties but to indicate the state of PFM system in the County of Nakuru. 1.2 Objectives of the PEFA Assessments The specific objectives of the PEFA assessment in Nakuru County include the following: a) Assess the state of financial management capacities in County Government; b) Identify gaps in terms of capacity, systems, policies and processes in PFM; c) Provide basis for informing entry points for PFM reform engagements in the County that will be used to leverage on existing capacity building efforts; and d) Facilitate and develop a 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 This subnational PEFA assessment covers the County of Nakuru and is part of the assessment covering one-eighth of the counties in Kenya which totals to six counties. The main criterion used to select the six counties was voluntary expression of interest in being assessed. Kajiado, Baringo, Makueni, West Pokot, Nakuru and Kakamega expressed their interest in undergoing a PEFA assessment and a commitment to design and implement a reform agenda based on the 18 Introduction assessment. An important point to note regarding these selected counties is that the assessment will cover each county and will not provide a comparison between them. Further, the counties that have been selected do not represent a group of counties from which each group will be compared against the other. This PEFA assessment has been financed by the World Bank. The assessment covers the budgetary institutions of the respective County Governments. There is no lower- tier sub-national government. Time of the assessment Time period covered in the assessment was three financial years after the introduction of devolved system of government in Kenya. That is, 2013/14, 2014/15 and 2015/16 depending on the indicators and dimensions of the assessment. The field work assessment took place in April 2017 this is the time of assessment for those dimensions that state time period as ‘at the time of the assessment’. The assessment applied the PEFA 2016 methodology and specifically the supplementary version meant for sub-national entities. Sub-national PEFA uses the same indicators as the National one but with some modifications. The main modification is the introduction of “HLG” indicators for assessing transfers and earmarked grants to the Counties by the National Government. Sources of information 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 are contained in the Annex 3. 19 An assessment of the public expenditure and financial accountability - Nakuru County 2. BACKGROUND INFORMATION 2.1 Economic Context Overview of Kenyan economy Kenya has a unitary, but devolved system of government consisting of the National and 47 County governments. This is as provided in the Constitution. All the counties do not have detailed economic data such as GDP growth, inflation rates etc. However, the Kenya National Bureau of Statistics has developed county specific statistical abstracts. The National Treasury and the World Bank are set to undertake compilation of county specific Gross Domestic Products (GDPs). The leading sectors in growth during 2017 included tourism, building & construction, transport and ICT. On the other hand, 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. Inflation rate in 2017 was 8.0 per cent, a rise from 6.3 per cent recorded in 2016. The inflationary pressure was mainly attributed to significant increases in oil and high food prices. Economic growth is expected to be accelerated during the year 2018 due to improved political stability and favourable macroeconomic environment. In addition, the on-going investments in infrastructure, improved business confidence and strong private consumption are likely to support a strong growth. Besides, the favourable climatic conditions are likely to boost agriculture production and electricity and water sectors, hence support manufacturing growth. On the other hand, rising oil prices and depressed growth of credit to the private sector which started in 2016 is likely to undermine the growth prospects. However, the adverse effects are likely to be offset by the strong favourable factors and result into better growth in 2018. Overview of Nakuru County economy Nakuru is a densely populated with agriculture and tourism as the main economic activities. Table 2.1 provides the basic economic data and indicators for Nakuru County. 20 Background information Table 2.1: Basic economic data and indicators for the Nakuru County Indicator Area (km2) 7496.5 No. of Constituencies 11 Population 1,603, 325 Population density per km2 213.9 Main economic activities Agriculture, dairy & tourism ECDE Centers: 1,465 Public 771 Private 694 No. of primary schools: 1,007 Public 468 Private 359 No. of secondary schools: 395 Public 294 Private 101 No. of health facilities 278 Doctor to population ratio 31,251 Data source: Commission on Revenue Allocation (CRA), CIDP and Nakuru County statistical abstract, 2015 Apart from agriculture, other income generating activities in the economy of Nakuru include hired labour, mainly in small towns, selling of charcoal and fire-wood, petty trading, selling of vegetables and food. The County’s weather is conducive for large-scale farming, horticulture and dairy farming. The produce is consumed locally and sold to consumers in neighbouring towns and cities. Most of the residents of the County are into self-employment. The population is currently 1,603,325 and is projected to increase to 1,925,296 which implies that the County will have to invest in more social and physical infrastructure to match the needs of the growing population The main challenges for growth and development of Nakuru County are defined in the priorities and objectives as outlined in their first CIDP, issued 2014. They are related to increase food production by 40% by 2017; upgrade existing roads; enhance security surveillance; increase the accessibility to clean/piped water by 40% by 2017; improvement of tourist sites; reduce by 50% the average distance to health facility by 2017 and awareness raising on prevention against malaria and other diseases; reduce incidence of new HIV infections by 80% by 2017; increase the literacy level to 85% by 2017 from the current 79.7%; increase income generating activities and employment opportunities and ensure environmental sustainability. 21 An assessment of the public expenditure and financial accountability - Nakuru County Projects and programmes identified in the Medium-Term Expenditure Framework (MTEF) generally fall within the development areas of the CIDP and they are as follows: (i) agriculture and rural development; (ii) energy, (iii) infrastructure and ICT; (iv) health; (v) education; (vi) environmental protection, (vii) water and sanitation; (viii) governance, justice, law and order; (ix) public administration and international relations and social protection, (x) culture and recreation. Economic performance data has been included as much as it is available for this County. There is no county specific statistical economic data in Kenya such as GDP, CPI, inflation, growth, that is why the table of ‘Selected Economic Indicators’ is not presented in this section. However, the World Bank and the National Treasury of Kenya will soon be embarking on developing County gross domestic products (GDPs) data. 2.2 Fiscal and Budgetary Trends According to Article 203 (2) of the Constitution of Kenya 2010, a minimum of 15% of total revenue collected by the National Government should be disbursed to county governments every financial year. Counties are also supposed to collect their own revenue in order to fund their operations. Table 2.2 gives an overview of selected fiscal indicators which are currently available. The County Allocation and Revenue Act provides the amounts which are disbursed to County every year on the basis of the population rate. Nakuru County is among those receiving the largest share because of their relatively high population density. Population parameter in the revenue sharing formula by the Commission on Revenue Allocation (CRA) has a weight of 45 %. The available data shows that just like other counties, the County of Nakuru is faced with the challenge of budget absorption which is relatively high at 74.3%. As required by the Public Financial Management (PFM) Act, development percentage is stipulated to be at least 30% and in this respect the County performs poorly with only 21% of their expenditure spent on development. The process of developing a conditional grant framework is underway to overcome challenges related to budgeting, accounting and reporting. The PFM Act, 2012, Article 132 defined the rules for the submission and consideration of the revenue raising measures in the County Assembly. Each financial year, the County Executive (Ministry of Finance) shall pronounce the revenue raising measures. This is formalised by submitting a County Finance Bill to the County Assembly, setting out the revenue raising measures together with a policy statement expounding on those measures. The approved Bill becomes the 22 Background information County Appropriation Act once enacted by the county assembly and signed by the Governor. The revenue collection strategies of Nakuru County include: (i) automation of all receipts and cash management; (ii) mapping out all County revenue sources; (iii) online submission of building plans, to ensure timely approval of building plan and enhanced revenue collection; (iv) automation of parking fee collection to enhance revenue collection and administration efficiency. In addition, the County endeavours to increase to ratio of development expenditure through prudent fiscal management as envisaged in PFM law. The County also plans to develop Private Public Partnerships (PPPs) policies as well as investment policy framework to prepare platforms for private sector involvement in the County growth and development. Table 2.2: Overview of selected fiscal indicators Budget performance Exchequer issues (Ksh millions) (Transfers from the National 10,286.70 Government) Expenditure to exchequer issues (%) Recurrent expenditure 105.3 Development expenditure 87.9 Expenditure to budget allocation (absorption rate (%) Recurrent expenditure 94.8 Development expenditure 41.4 Overall absorption rate 74.3 Revenue Annual target (Ksh millions) 2,944.13 Actual revenue (Ksh millions) 2,295.34 Revenue performance (%) 78.0 Conditional grants Annual allocation (Ksh millions) 856.10 Actual receipts (Ksh millions) 727.29 % of actual receipts 85.0 Expenditure by economic classification Personal emoluments (%) 46.2 Operations and maintenance (%) 32.3 Development expenditure (%) 21.5 Data source: Office of the Controller of Budget County Governments Budget Implementation Review Report (CBIRR), September 2016 Table 2.3 presents an overview of selected fiscal indicators for the last three financial years. 23 An assessment of the public expenditure and financial accountability - Nakuru County Table 2.3: Aggregate fiscal performance data for the last 3 financial years (in % of total revenue) Economic head 2013/14 2014/15 2015/16 Total county revenue 100.0 100.0 100.0 (i) Equitable shares 81 77 72 (ii) Conditional Grants - 1 7 (iii) Own Source Revenue 19 22 20 Total expenditure 78 89 100 Compensation of employees 48 46 44 Use of goods and services 14 25 20 Consumption of fixed capital 8 17 27 Interest 0 0 0 Subsidies 0 0 0 Other grants and transfers 5 1 8 Social benefits 0 0 0 Other expenses 2 0 1 Budget surplus 22 11 0 Source: AFSs Table 2.3 shows that, aggregate fiscal discipline has been respected for the last three years, as the budget presented a surplus in two consecutive financial years. The County also inherited a debt from the previous government but it did not generate any debt since its creation. The share of own source revenue is gradually increasing with a shortfall in the last financial year. The share of salaries is also getting lower with time but it is still above the required maximum, whereas the development expenditure is steadily increasing but below the required minimum of 30%. Allocation of resources Table 2.4 shows the budget allocation by function for the three financial years assessed in this report. The trend of allocating higher budgets for the functions of strategic importance, which the County identified in the CIDP and the MTEF, is not clearly noticeable. Table 2.4: Budget allocations by sector (as a % of total expenditures) Functional heads 2013/14 2014/15 2015/16 Treasury 15 9 10 Agriculture 2 7 6 Health 9 33 34 Environment 5 5 6 24 Background information Education 12 8 8 Land and Housing 3 2 3 Transport 18 10 10 Public Service Management 12 6 8 Trade and Tourism 7 3 3 ICT and E-Government 2 1 1 Office of the Governor and Deputy Governor 6 2 2 County Public Service Board 0 1 1 County Assembly 11 12 9 Total 100 100 100 Source: AFSs 2.3 Legal and Regulatory Arrangements for PFM The Constitution introduced significant changes to the political system of governance of Kenya. There are presently two levels of governments, national and county governments. The legal and regulatory framework providing support for PFM in the County of Nakuru is derived from the Constitution, various Acts and Regulations outlined as follows: a) Chapter 11 and 12 of the Constitution on devolved governments and principles of public Finance respectively. Institutional arrangement 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. b) The PFM Act, 2012: Part IV of this Act details responsibilities with respect to PFM of public funds in the Counties. This Act covers all PFM aspects including but not limited to budget making process and public participation; 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 25 An assessment of the public expenditure and financial accountability - Nakuru County 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. c) The PFM Regulations (2015) for County governments. Some highlights include strengthening inter-government fiscal relations; restricting wages to 35% of realised revenue; development budget should be 30% of total budget. d) The Public Procurement and Disposal Act (2015): The Act provides for procedures for efficient public procurement; procedures for assets disposal by public entities. Regulations are under development. e) Public Audit Act (2015): provides for the organisation, the functions and the powers of the Office of the Auditor-General (OAG) 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 a financial 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 approve 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 provision of a financial audit opinion. Sections 47-48 provide for the auditing of 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 Nakuru, specifically Chapter(s) 11 and 12 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 (Chapter11, Articles 174- 200). Part 2 of the Fourth schedule enlists fourteen (14) roles and functions of the county governments. They are, namely: 26 Background information 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; 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 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 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. 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). 27 An assessment of the public expenditure and financial accountability - Nakuru County The legal framework under the 2012 PFMA and its Regulations also apply to County Government. The Policy on Devolved System of Government (2015) has identified institutional, intergovernmental and resource related challenges to be overcome in order to improve implementation and service delivery. 2.4 Institutional Arrangements for PFM County Governments According to the County Government Act, 2012, a county is comprised of the County Executive headed by a Governor and a County Assembly comprising of 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. 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 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. 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 the Emergency Funds and any other by County Executive must be approved by the County Assembly. 28 Background information 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 Nakuru County is presented in Tables 2.5 and 2.6. Table 2.5: Structure of the public sector (Ksh millions) - 2015/16 Government sub- Social Public corporation sub-sector sector Security Funds Budgetary Extra Non-financial Financial Unit budgetary public public Units corporations corporations County government 13,004 n/a n/a n/a n/a County Assembly 793 - - - - Source: AFS 2015/16 There are extra-budgetary units which are semi-autonomous. They do not prepare financial reports and they are not covered by the main budget of the County. Therefore, financial information about them was not provided. Examples of such units (discussed further in PI-6.1) include the following: i) Early Childhood Development Education (ECDE) units. ii) Technical Training Institutes (TTIs) and Farmers Training Centre. Table 2.6: Financial structure of county government-budget estimates (Ksh millions) - 2015/16 2015/16 County Government Budgetary Extra Social Total unit budgetary security aggregated units funds Revenue 11,243 n/a n/a 11,243 Expenditure 11,265 n/a n/a 11,265 Transfers to County Assembly 872 n/a n/a 872 Liabilities n/a n/a n/a n/a Financial Assets 2,084 n/a n/a 2,084 Non-financial assets 3,061 n/a n/a 3,061 Source: AFS 2015/16 29 An assessment of the public expenditure and financial accountability - Nakuru County Table 2.7: Financial structure of county government-actual expenditure (Ksh millions) - 2015/16 2015/16 County government Budgetary Extra Social Total unit budgetary security aggregated units funds Revenue 11,243 n/a n/a 11,243 Expenditure 11,265 n/a n/a 11,265 Transfers to County Assembly 872 n/a n/a 872 Liabilities n/a n/a n/a n/a Financial Assets 2,084 n/a n/a 2,084 Non-financial assets 3,061 n/a n/a 3,061 Source: AFS 2015/16 Key Features of internal control Internal control is performed through IFMIS and reengineering of IFMIS was a major improvement for the reinforcing of the control. Access to IFMIS is now complete at the county levels, but the IFMIS office is still configuring aspects of IFMIS to meet specific needs for MDAs and the counties. Presently, IFMIS is not comprehensively being used at the county level. According to OAG, manual processes are still being used for preparing and approving local purchase orders and contracts. Also, payments vouchers are being prepared manually and then uploaded into IFMIS, instead of being prepared within IFMIS on the basis of invoices and receipts of goods and services. The Integration of systems within IFMIS have not yet been completed for the following modules: (i) procurement – the module “Procurement to Pay” available at the national level is not used by the county; (ii) revenue – the County has its own IT-based tax administration system to collect some of the revenues which is not integrated with IFMIS; (iii) payroll – the county government uses the Integrated Personnel Payment Database (IPPD) management system to for human resource management which is not integrated with IFMIS, the payroll is prepared in IPPD and then manually extracted. County specific PFM documentation The County Fiscal Strategy Paper (CFSP): One of the key stages in the county budget cycle is the preparation of CFSP. This is an annual paper that shows the various fiscal strategies a County Government intends to employ to meet its overall objective of public service. The CFSP shows the allocation of resources in all sectors and departments. It specifies the broad strategic priority and policy 30 Background information goals that will guide the County Government in preparing the annual budget. Section 117 of the Public Finance Management Act 2012 (PFMA 2012) outlines the procedures and responsibilities of the county government with respect of the county budget process. Section 117 (2) of PFM Act 2012 provides that the County Treasury shall align its 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 which shows changes from the forecasts in the most recent CFSP. The CFSP should be presented to the CA by 28th February of budget year. Section 117 (6) of the PFM Act states that the CA should in 14 days consider and may adopt it with or without amendments. Further, the County Treasury shall publish and publicise the CFSP after its submission in the CA (Section 117 (8) of the PFM Act). The County Budget Review and Outlook Paper (CBROP): provides an analysis of the performance in a particular financial year’s budget. Counties should prepare CBROP in accordance with Section 118 of the PFM Act, 2012. The CBROP should link policy, planning and budgeting. CBROP analyses previous financial years fiscal performance with focus on impact for the next financial year as detailed in the CFSP. The County Integrated Development Plan (CIDP), 2013-2017, covers key challenges for considerations in all the sectors are the priorities as put forth in respective Annual Development Plan (ADP). The purpose of the CIDP is to provide comprehensive baseline information on infrastructural and socio- economic characteristics of the county. It would further be used in allocation of scarce resources to priority projects and programmes, as determined by the county. ADP is prepared in line with the requirements of Section 126 of PFM Act, 2012 and in accordance with Article 220 (2) of the Constitution. It contains strategic priority development programmes and projects to be implemented in a particular financial year. 2.5 Other Important Features of PFM and its Operating Environment According to Transparency International, bribery remains a challenge in Kenya, affecting most specifically security, administration of justice, land services. The Devolution process is expected to reduce the level of corruption in this domain. Public participation in Kenya is considered a crucial point in the Kenyan Constitution and it is reflected in the legal framework of both national and subnational level. Strengthening public participation is a key focus of Kenya’s Devolution. Public is provided with the opportunity to take part in decision making 31 An assessment of the public expenditure and financial accountability - Nakuru County processes in government. Public participation in Kenya is especially important in the following processes: (i) budgeting – consultation is supposed to be held with civil societies on strategic development spending in the county; (ii) legislative – public should have access to legislative scrutiny of the budget and the audit report at the County Assembly; (iii) tendering – public should have access to all information concerning public procurement process. The Kenyan Constitution is supplemented by other Acts demanding inclusive and participatory engagement of citizens in matters of planning and budgeting processes, such as: i) County Public Participation Bill – in most counties the Bill is still at process of approval, ii) PFM Act, section 10, 35, 125, 175 provide for public participation at budget process, in the preparation of the strategic plan and the annual budget estimates. iii) County Government Act, section 87-90 – making public participation in county planning processes compulsory, which includes timely access to information and reasonable access to planning and policy making process, rights to petition. iv) Urban Areas and Cities Act, 2011 - guidelines for public participation. v) Public Procurement and Disposal Act 2015 Section 68(3), 125(5), 138, and 179 - emphasising on transparency of the procurement process including requirements for procuring entities to publicly avail procurement records, to publish notices of intention to enter into contract on websites and public notice boards. In the County of Nakuru the civil societies are organised in forums with the objective to participate in the formulation of the budget. To this purpose, working meetings are organised by the County. However, the representatives of the civil societies who the assessment team met still see this opportunity only as formality required by the Constitution. The information provided to the public is not comprehensive and easy to follow so that the civil societies cannot take effectively part in the discussion. Citizen budgets are not prepared and the hearings at the County Assembly have been described as not accessible. 32 3. ASSESSMENT OF PFM PERFORMANCE Sub-national PEFA Indicator HLG-1: Transfers from a Higher Level of Government This indicator assesses the extent to which transfers to the sub-national government from a higher-level government are consistent with original approved high-level budgets, and are provided according to acceptable time frames. HLG-1.1. Outturn of transfers from higher-level government The transfers constitute the majority revenue fund of the counties in Kenya. They are allocated by the National Treasury on the basis of the county population applying a specific formula. Each County Government transfer allocation is provided to the respective County Revenue Fund, in accordance with a payment schedule approved by the Senate and published in the gazette by the Cabinet Secretary in terms of section 17 of the Public Finance Management Act. The County Governments’ allocations are included in the budget estimates of the National Government and are submitted to Parliament for approval. The County Treasury reports on the actual transfers received by the County Government from the National Government. The table below shows the actual transfers (e equitable shares) from the National Government that constitute the highest revenue source of the County, accounting usually for more than 95% of total revenues. This indicates the heavy reliance on National Government resources in so far as the County Government operations are concerned. Actual transfers for the last 3 financial year (in million Ksh and in %) 2013/14 2014/15 2015/16 Source of revenue Budget Actual % Budget Actual % Budget Actual % Conditional grants 1,546 0 0% 1363 116 9% 856 831 97% Equitable share 5937 7,527 127% 6,290 7,423 107% 8,116 8,116 100% Total county revenue 7,483 7,527 101% 7,653 7,539 99% 8,972 8,947 100% Source: AFSs 33 An assessment of the public expenditure and financial accountability - Nakuru County In 2013/14, the outturn of transfers of Nakuru County was 101%, in 2014/15 – 99% and in 2015/16– 100%. In summary, actual transfers represented more than 95% of the original budget estimate in all three years of assessment. The score is A. HLG-1.2. Earmarked grants outturn In addition to the transfers from the National Government, there are conditional allocations from National Government revenue to each county government to be utilised for specific purposes, including development expenditure, which are outlined in The County Allocation of Revenue Act. The County Treasury reports on the actual conditional grants received by the County Government from the National Government. Actual earmarked grants for the last 3 financial years (in million Ksh and in %) 2013/14 2014/15 2015/16 Source of revenue Budget Actual % Budget Actual % Budget Actual % Conditional grants 0 0 0% 88 116 131% 23 128 562% Source: CBROP and AFSs The earmarked grants appear as proceeds from domestic and foreign grants in the budget documentation of the County. They are provided for specific development spending purpose. The first financial year 2013/14 after the Devolution, there were no grants released to the County. In the next two financial years, grants were provided for development mainly in the health and education sector. In the second year 2014/15 the outturn between budgeted estimate and actual received grants was 131% in the third year – five times higher than the budgeted. Though data exists it appears to be rather unreliable for it cannot be traced across budget documentation. The data is the AFS for actual grant transfers could not be found in any other budget performance documentation. Therefore, it can be concluded that the available data is not comprehensive to make a reliable calculation for this component. The score is D. HLG-1.3. Timeliness of transfers from higher-level government According to PFM Act, equitable share estimates must be included in the Budget Policy Statement, which must be presented and adopted by Parliament in February or March. Then, transfers have been released quarterly across the year through IFMIS. 34 Assessment of PFM performance The transfers which constitute the key element of the County revenue are disbursed from the National Treasury evenly across the year in two of the three years of assessment. As indicated in PI-1, there was deviation in 2013/14 due to delay in disbursement of equitable share from the National Government which were provided only in June 2014. The Transfers were made on time for 2014/15 and 2015/16 but the actual dates of transfers were not provided. In summary, transfers should be released quarterly across the year through IFMIS, but the actual dates were not provided. The score for the component is D*. Summary of scores and performance table HLG-1: Transfers D+ +Brief justification for score from a higher level of government (M1) HLG-1.1 Outturn of transfers A The transfers have been at least 95 per cent of from higher-level government the original budget estimate in two of the last three years. HLG-1.2 Earmarked grants D No comprehensive data that could be traced to outturn all budget documentation was obtained in order to allow reliable calculation. HLG-1.3 Timeliness of D* The actual transfers are supposed to be transfers from higher-level distributed quarterly across the year through government IFMIS but the dates of actual transfers for 2014/15 and 2015/16 were not provided. The disbursement of equitable share from the National Government for 2013/14 were provided only in June 2014. 3.1 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: (i) aggregate expenditure outturn, (ii) expenditure composition outturn and (iii) revenue outturn were examined for the financial years 2013/14, 2014/15 and 2015/16. PI-1. Aggregate expenditure outturn This indicator measures the extent to which aggregate budget expenditure outturn reflects the amount originally approved, as defined in government budget documentation and fiscal reports. Table 3.1 presents the budgeted and actual total expenditure for the years 2013 to 2015 (see details attached in Annex 3A). It shows 35 An assessment of the public expenditure and financial accountability - Nakuru County that the absorption rate of the approved budget was low at 82% during 2013/14 but increased slightly in two subsequent years. The deviation in 2013/14 was due to delay in disbursement of equitable share from the National Government which were provided only in June 2014 thus affecting the implementation of the programmes and projects. However, disbursements were made on time for 2014/15 and 2015/16. The score is B. Table 3.1: Aggregate expenditure outturn (in Ksh and in %) Financial year Budget Actual Total expenditure deviations (%) 2013/14 8,903,425,749 7,264,395,392 82 2014/15 9,553,928,197 8,600,306,712 90 2015/16 11,883,404,098 10,989,186,080 92 Source: CBROPs Summary of scores and performance table PI-1 Aggregate B Brief justification for score expenditure outturn (M1) 1.1 Aggregate expenditure B The aggregate expenditure outturn was at least outturn 90% in two of the assessed fiscal years PI-2. Expenditure composition outturn This indicator measures the extent to which reallocations between the main budget categories during execution have contributed to variance in expenditure composition. PI-2.1. Expenditure composition outturn by function The budget is prepared according to economic, programme and administrative classification but the budget execution follow-up is based on economic and administrative classification (see PI-4). Table 3.2 reports information available for 2015/16 which was the basis of scoring. The County has not maintained this information for the two previous financial years. There was no baseline information for 2013/14 due to long procurement processes and delays in transfers (exchequer releases) from the National Government. Variance in expenditure composition by program, administrative or functional classification was more than 15% in all three years. The score is D* 36 Assessment of PFM performance Table 3.2: Expenditure composition outturn by function (Ksh millions and %) Functional head 2013/14 2014/15 2015/16 Budget Actual Budget Actual Budget Actual County Treasury 1,079 752 1,120 170 Agriculture, Livestock and 129 565 668 38 Fisheries Health 632 2,804 3,728 415 Environment, Water and 364 421 662 157 Natural Resources Education, Sports, Youth and 843 730 885 200 Social Services. Lands, Physical Planning and 211 204 289 83 Housing Roads Public Works and 1,275 903 1,106 262 Transport Public Service Management 842 518 900 167 Trade, Industrialization and 475 286 285 69 Tourism ICT and E-Government 162 68 89 23 Office of the Governor and 418 210 219 6 Deputy Governor County Public Service Board 0 70 80 35 County Assembly 834 1,067 956 154 Total 7,264 10,321 12,330 1,778 Composition variance (%) 16% Source: CBROPs and AFS PI-2.2. Expenditure composition outturn by economic type The County administers expenditures according to administrative, economic, and programming classifications. The budgeted economic items include: (i) compensation of employees; (ii) use of goods and services; and (iii) consumption of fixed capital and (iv) interest, (v) subsidies, (vi) grants, (vii) social benefits and (viii) other expenses. The extent of variance between actual and budgeted expenditures by composition of expenditures is presented in Table 3.3. Actual expenditure deviated from the original budget appropriation by 96%, 30.3% and 37 An assessment of the public expenditure and financial accountability - Nakuru County 23.5% during the financial years 2013/14, 2014/15 and 2015/16, respectively. The result is heavily influenced by fluctuations in consumption of fixed capital and compensation of employees, being the two largest items in the budget. The score is D. Table 3.3: Expenditure composition outturn by economic type (Ksh millions & %) 2013/14 2014/15 2015/16 Economic head Budget Actual Budget Actual Budget Actual Compensation of employees 2,055 4,501 4,369 4,430 4,919 4,918 Use of goods and services 2,950 1,331 2,216 2,412 3,382 2,266 Consumption of fixed capital 3,497 769 2,968 1,642 3,582 3,105 Interest 401 0 0 0 0 0 Subsidies 0 0 0 0 0 504 Grants 0 664 0 116 0 148 Social benefits 0 0 0 0 0 48 Other expenses 0 0 0 0 0 0 Total expenditure 8,903 7,264 9,554 8,600 11,883 10,989 Composition variance (%) 96 30 24 PI-2.3 Expenditure from contingency reserve Article 208 of the 2010 Constitution provides for the establishment of a Contingency Fund at the national level. The regulations are specified in Sections 19-24 of the PFM Act (2012). In Kenya, the budgeting and accounting treatment of contingency items relate to exceptional events that cannot be foreseen, such as earthquake, famine, civil war, etc. This treatment holds true for both national and sub-national levels. The County of Nakuru set up an emergency account in the year 2016. The guiding law was enacted only on 24th March 2016. The budget for emergency/contingency fund is under the responsibility of the Office of the Governor. The money budgeted for emergency fund during the three budget periods was never used given that the Controller of Budget did not approve its utilisation as the law establishing it was not available at the time. Therefore, the actual expenditure charged to a contingency vote was on average 0% for all the three years. The score is A. 38 Assessment of PFM performance Summary of scores and performance table PI-2 Expenditure D+ Brief justification for score composition outturn (M1) 2.1 Expenditure D* The County did not prepare expenditure by composition outturn by department for the year 2013/14 and 2014/15. Data function was only available for year, 2015-2016. 2.2 Expenditure D Variance in expenditure composition by economic composition outturn by classification was 96%, 30% and 24% for 2013/14, economic type 2014/15 and 2015/16 respectively. This is more than 15 % in all three years. 2.3 Expenditure from A The County has not charged any expenditure to contingency reserve contingency vote during the assessment period. PI-3. Revenue outturn This indicator measures the change in revenue between the original approved budget and end-of-year outturn. The main sources of revenue for the 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 with Article 203 of the Constitution of Kenya 2010. The allocation should be at least 15% of national revenue based on the most recent audited accounts of revenue received, as approved by the National Assembly and guided by the County Allocation of Revenue Act (last issue No. 10 in 2015 for 2015/16) and Division of Revenue Act (last issue No. 7, 2015). • 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 the 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 and 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. 39 An assessment of the public expenditure and financial accountability - Nakuru County This performance indicator is focused only on the own source revenue being the only revenues collected by the County of Nakuru and retained by them. The equitable shares and the conditional grants are covered in HLG-1 and HLG-2, respectively. PI-3.1 Aggregate revenue outturn The budgeted and actual revenue streams of the own source revenue which is the only revenue collected by the County are presented in Table 3.4. Table 3.4: Aggregate revenue outturn (%) 2013/14 2014/15 2015/16 Source of revenue Budget Actual % Budget Actual % Budget Actual % Own source revenue 3,077 1,800 59 2,556 2,106 82 2,911 2,295 79 Source: AFSs The own source revenue consists of various property rates and services charges imposed by the County. The actual own source revenue appears under ‘other receipts’ in the AFS of the County. The budgeted revenue was optimistic in all three years. The overall revenue performance over the three years 2013/14, 2014/15 and 2015/16 was 59%, 82% and 79%, respectively. The revenue performance for the three financial years was lower than budgeted. This could be attributed to various factors including unrealistic estimates, reduced compliance rates and pilferages due to weak revenue collection systems. The score on dimension 3.1 aggregate revenue outturn is D because the aggregate revenue outturn deviated from the originally approved budget far below the methodology criteria for a higher score. PI-3.2. Revenue composition outturn The usual process of revenue forecasting with preparation of a macroeconomic forecast with such parameters as GDP, inflation, exchange rate, important commodity prices, consumer spending, etc. is not existent at county level. There is no practice to make forecast of the main sources of revenues because the better part is just a transfer. The composition outturn indicator is to be 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 year. According to the calculation sheet provided by the PEFA Secretariat different categories of revenue should be used for the assessment, such as: taxes on 40 Assessment of PFM performance income, taxes on property, taxes on goods and services, grants from international organizations, sales of goods, fines, etc. The overall performance of the revenue composition outturn for the County is shown Table 3.5. According to the results, the variance was rather high in all three years with percentage 62, 71 and 38 in 2013/14, 2014/15 and 2015/15, respectively. Own source revenue appears as ‘Other receipts’ in the financial statements. The score is D. Table 3.5: Nakuru sources of revenue for the last 3 financial years (Ksh millions & %) 2013/14 2014/15 2015/16 Composition variance (%) 62% 71% 38% Source: CPROBs and AFS Summary of scores and performance table PI-3 Revenue outturn (M2) D Brief justification for score 3.1 Aggregate revenue outturn D Actual revenue of budgeted revenue was 59% in the first year, 82% in the second year and 79% in the third year. The actual revenue was below 92% in all three years. 3.2 Revenue composition outturn D Variance in revenue composition is less than the required for C score. It was more than 15% in all three years. 3.2 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 the fiscal and budget information is accessible to the public. PI-4. Budget classification This indicator assesses the extent to which the government budget and accounts classification is consistent with international standards. There is one dimension for this indicator. 41 An assessment of the public expenditure and financial accountability - Nakuru County PI-4.1. Budget classification The County budget classification is done in accordance with the National Government legal framework, which is originating from the PFM Act, 2012. This act requires the budget classification to be presented according to the administrative, economic, program based budget (PBB) format. The classification is based on Standard Chart of Accounts (SCOA) derived from GFS standards. The PBB presents the budget by programs according to administrative and economic classifications1. Budget execution and reporting are presented according to the administrative, economic, and programming classification. The National Treasury issues guidelines and the codes to be used for budgeting on IFMIS by all county governments in Kenya. The county budget is formulated, executed and reported on administrative, economic and functional classification using GFS/COFOG standard (level 2). Public Sector Accounting Standards Board (PSASB) has been established and prescribes to the international public sector accounting standards (IPSAS) compliant standards and formats to be progressively introduced from 2013/14. The score is C. The county departments prepare their budgets on excel sheets and forwards them to the County Treasury Budget Office who uploads them into IFMIS. This reflects the challenges that county faces in preparing the budget directly on the IFMIS Hyperion module. Further, the county has not been using GFS Standards for revenue instead revenues are collected off IFMIS using LAIFOMS & ZIZI systems even though in the Finance bill the revenues are coded in the IFMIS format. Summary of scores and performance table PI-4 Budget classification C Brief justification for score (M1) 4.1 Budget classification C Budget formulation based on administrative, programming and economic classification applies GFS Codes issued by National Treasury. They are based on every level of administrative, economic and function and are prepared using GFS/ COFOG standard, Level 2. PI-5. Budget documentation This indicator assesses the comprehensiveness of information provided in the annual budget documentation, as measured against a specified list of basic and 1 SCOA can be checked in the book print out on the sub-head item-source-programme geographical 42 Assessment of PFM performance additional elements. In assessing this indicator, consideration was made to basic and additional elements of budget documents. 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. This implies that the first basic criterion was therefore not applicable. The County operates on a balanced budget principle and therefore anticipates a nil deficit/ surplus. There was evidence that forecast of fiscal deficit or surplus or accrual operating results, macroeconomic assumptions are captured in the CBROP. The second criteria require that previous year’s budget outturn is presented in the same format as the budget proposal. However, only the previous year’s budget estimates are presented in the same format in the CBROP. The County satisfies the third criteria i.e., revised budget final supplementary estimates of current year are presented in the same format as the budget proposal in the CSFP. Finally, aggregation of both revenue and expenditure are presented in the CFSP and CBROP, but not according to the main heads of the budget classification (programming/administrative and economic). NB Basic elements Criteria 1 Forecast of the fiscal deficit or surplus or accrual operating result. No 2 Previous year’s budget outturn, presented in the same format as the No budget proposal. 3 Current fiscal year’s budget presented in the same format as the Yes budget proposal. This can be either the revised budget or the estimated outturn. 4 Aggregated budget data for both revenue and expenditure according No 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.) With regards to additional elements, the county did not accumulate any new debt because the borrowing framework was not in place. Consequently, the first criteria is not applicable. However, there is an inherited debt from the previous defunct local government. The macro-framework used in the CBROP forecast analysis is a replica of the national level. The County has a summary of the debt stock in the Medium-term Debt Management Strategy Paper, 2016 although it does not provide analysis on the various debt scenarios. Fiscal risks have not been analysed and therefore the contingent liabilities such as guarantees and contingent obligations have not been fully identified. Although the county prepares two outer years’ fiscal forecasts, it is not clear whether they undertake budgetary implication analysis of new policy initiatives and major public investments. The County Finance Act, 2016 provides revenue raising measures relating to county taxes, licences, fees and charges. In addition, Part VI of the Act gives power to the Executive Committee Member in charge of finance to issue tax relief, waivers and 43 An assessment of the public expenditure and financial accountability - Nakuru County other incentives. The County in June 2016 provided waivers for accrued interest due from land rates; however, an analysis on interests due to incentivized land owners has not been done to determine the actual effect of the waiver and other tax expenditures incurred have not been documented. The score is D. The county is in the process of updating Land Valuation Rolls and this will help in identifying clearly the potential size of revenue from land rates. NB Additional elements Criteria 5 Deficit financing, describing its anticipated composition. NA 6 Macroeconomic assumptions, including at least estimates of GDP NA growth, inflation, interest rates, and the exchange rate. 7 Debt stock, including details at least for the beginning of the current NA fiscal year presented in accordance with GFS or other comparable standard. 8 Financial assets, including details at least for the beginning of No the current fiscal year presented in accordance with GFS or other comparable standard. 9 Summary information of fiscal risks, including contingent liabilities No such as guarantees, and contingent obligations embedded in structure financing instruments such as public-private partnership (PPP) contracts, and so on. 10 Explanation of budget implications of new policy initiatives and major No new public investments, with estimates of the budgetary impact of all major revenue policy changes and/or major changes to expenditure programs. 11 Documentation on the medium-term fiscal forecasts. Yes 12 Quantification of tax expenditures. No Summary of scores and performance table PI-5 Budget D Brief justification for score documentation (M1) 5.1 Budget documentation D The County fulfils 2 elements: one basic and one additional elements. The supporting evidence includes the budgets, CBROP and CFSP. PI-6. County government operations outside financial reports This indicator measures the extent to which government revenue and expenditure are reported outside County government financial reports. Entities with individual budgets not fully covered by the main budget are considered extra budgetary in accordance with the IMF’s GFS Manual 2014. 44 Assessment of PFM performance PI-6.1. Expenditure outside financial reports There are few entities with individual budgets that are not covered by the main budget. These extra-budgetary units are semi-autonomous and do not prepare financial report for scrutiny by the County Executive. Examples include the following: Early Childhood Development Education (ECDE) units - ECDEs are attached to various primary schools and they receive development funding from the county. In addition there are payments made by the pupils but the county is not able to quantify the amounts collected. Technical Training Institutes (TTIs) and Farmers Training Centre. These institutions again receive development funding but the fees collected from the users are not reported back to the county. The management boards of the TTI decide where the monies are spent without the input from the County. In summary, there is no evidence that extra budgetary units prepare financial statements, therefore, the score is D*. PI-6.2. Revenue outside financial reports There was no evidence that extra-budgetary units prepare financial reports. The score is D*. PI-6.3. Financial reports of extra budgetary units No financial reports of extra budgetary units were provided. The score is D*. Summary of scores and performance table PI-6 County government D Brief justification for score operations outside financial reports (M2) 6.1 Expenditure outside financial D* The extra budgetary units do not prepare reports financial reports 6.2 Revenue outside financial D* The extra budgetary units do not prepare reports financial reports 6.3 Financial reports of extra D* The extra budgetary units do not prepare budgetary units financial reports 45 An assessment of the public expenditure and financial accountability - Nakuru County PI-7. Transfers to sub county governments This indicator assesses the transparency and timeliness of transfers from county government to sub-county governments with direct financial relationships to it. It considers the basis for transfers from County government and whether sub- county governments receive information on their allocations in time to facilitate budget planning. Hence, the system for allocating transfers as well as timeliness of information on transfers are not applicable since there is no lower tier government after the county government. Summary of scores and performance table PI-7 Transfers to sub county N/A Brief justification for score governments (M2) 7.1 System for allocating transfers N/A There is no sub government under the County level. 7.2 Timeliness of information on N/A There is no sub government under the transfers County level. PI-8. Performance information for service delivery This indicator examines the service delivery performance information in the executive’s budget proposal or its supporting documentation in year-end reports. It determines whether performance audits or evaluations are carried out. It also assesses the extent to which information on resources received by service delivery units is collected and recorded. PI-8.1. Performance plans for service delivery The Department of Monitoring and Evaluation in the Ministry of Devolution and Planning has developed County Guidelines for the Development of County Integrated Monitoring and Evaluation System. However, this function is not involved in collecting information and monitoring the achievements for the service delivery. The County prepares the budget by involving members through public participatory forums. The Annual Development Plan for the 2016/17 outlines in details planned projects and programmes and this information is also included in the PBB. The PBB captures the implemented projects and programs including 46 Assessment of PFM performance their achievements and challenges. Although the information about the ADP is usually uploaded on the County website, it is not regularly updated and therefore does not comply with the set guidelines. 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 the majority of ministries is not prepared/published either. The score is D. PI-8.2. Performance achieved for service delivery There are no specific reports elaborating on consistency of performance planned outputs and achieved outcomes as well as explanations to any deviations. During preparation of the budget, the County Departments (all nine ministries, the Office of the Governor, the County Treasury, the County Assembly and the Country Service Board) are required to prepare Sector Reports. The reports outline the achievement made by the respective departments on the implementation of the previous year’s budget. The reports also form the basis of allocation of funds or justification of additional funding during the budget preparation process. However, this information is neither published nor publicized. The ADP also contains strategic priorities, measurable indicators and the targets for each project in all departments. Generally the monitoring and evaluation function at the County level is weak. The closest tool of economic assessment and performance of the budget is the CBROP. The score is D. PI-8.3. Resources received by service delivery units Due to lack of capacity particularly in Monitoring and Evaluation function, information to corroborate resources received by at least two large departments was not provided. The score is D. PI-8.4. Performance evaluation for service delivery The County has not undertaken an independent evaluation of performance of service delivery units to determine the appropriateness, efficiency and effectiveness of those services in the last three financial years. In addition, despite the few documents prepared by the County showing priority programmes, the function to collect and monitor performance data is very weak. The score is D. 47 An assessment of the public expenditure and financial accountability - Nakuru County Summary of scores and performance table PI-8 Performance information D Brief justification for score for service delivery (M2) 8.1 Performance plans for service D Performance plans are not prepared and delivery performance is not measured. 8.2 Performance achieved for D Sector Reports/Budget Reviews are service delivery prepared by the respective County departments. However, up-to-date information on service delivery is not published. There are no KPIs, output and outcome in order to monitor performance. 8.3 Resources received by service D Survey not conducted in any of the last three delivery units fiscal years on resources received by the service delivery unit for at least one large ministry 8.4 Performance evaluation for D Evaluation of the efficiency or effectiveness service delivery of the service delivery units have not been carried out for the last three fiscal years. PI-9. Public access to fiscal information This indicator assesses the comprehensiveness of fiscal information available to the public based on specified elements of information to which public access is considered critical. Article 35 of the Constitution and PFM Act, 2012 emphasises the importance of public access to information. For instance, Article 131 (6) of the PFM Act, 2012 states that “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”. Elements Compliance Basic elements 1. Annual executive budget proposal documentation. No A complete 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. 2. Enacted budget. The annual budget law approved by the No legislature is publicized within two weeks of passage of the law. 3. In-year budget execution reports. The reports are Yes routinely made available to the public within one month of their issuance, as assessed in PI-27. 4. Annual budget execution report. The report is made No available to the public within six months of the fiscal year’s end. 48 Assessment of PFM performance 5. Audited annual financial report, incorporating or Yes accompanied by the external auditor’s report. The reports are made available to the public within twelve months of the fiscal year’s end. Additional elements 6. Pre-budget Statement. The broad parameters for the Yes executive 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. 7. Other external audit reports. All non-confidential reports No on county government consolidated operations are made available to the public within six months of submission. 8. Summary of the budget proposal. A clear, simple No summary of 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. 9. Macroeconomic forecasts. The forecasts, as assessed in PI- NA 14.1, are available within one week of their endorsement. The County budget preparation process is participatory involving the public in the preparation of the ADPs and CFSPs. However, budget documents are not published within the stipulated time frame. The in-year and annual budget execution reports (CBIRR) are normally published as guided by the PFM Act, 2012 and are available on CoB website but the County does not publish them on its website. With regards to additional elements, the County adheres to the set guidelines of budget preparation process. The other three components; other external audit reports; summary of budget proposal and macro forecasts are not available to the public within the stipulated timelines. No abridged copies of the budget are prepared or translated to local dialect. As indicated earlier, the county depends on macroeconomic forecasts at the national level. 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 County fulfils only three elements: two information basic and one additional 49 An assessment of the public expenditure and financial accountability - Nakuru County 3.3 Pillar III. Management of Assets and Liabilities PI-10. Fiscal risk reporting This indicator measures the extent to which fiscal risks to County government are reported. Fiscal risks can arise from adverse macroeconomic situations, financial positions of sub county governments or public corporations, and contingent liabilities from the County government’s own programs and activities, including extra budgetary units. They can also arise from other implicit and external risks such as market failure and natural disasters. PI-10.1. Monitoring of public corporations Public corporations for the purpose of this indicator are defined in accordance with GFS 2014. The County has not established public corporations and, therefore, has no direct ownership with any. This dimension is considered not applicable. PI-10.2. Monitoring of sub county governments 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. Currently, there are no subnational entities lower than the county that operate independently and therefore all financial statements are prepared at the county level. This dimension is considered not applicable. PI-10.3. Contingent liabilities and other fiscal risks The County has established Housing Mortgage and Car Loan Scheme administered by the County Assembly which qualify as continent liabilities. However, they are not contained separately as a budget item and the County does not quantify their related fiscal risks. The score is D. Summary of scores and performance table PI-10 Fiscal risk D Brief justification for score reporting (M2) 10.1 Monitoring of public N/A This is not applicable because the County is yet to corporations institute any public corporations. 50 Assessment of PFM performance 10.2 Monitoring of sub N/A No further devolved units exist in this and all county governments other counties. 10.3 Contingent liabilities D The County does not have contingent liabilities and other fiscal risks as a separate item within the budget because no loans have been taken by the current devolved government. The fiscal risks are mentioned in the CFSP but they are not quantified. PI-11. Public investment management This indicator assesses the economic appraisal, selection, costing, and monitoring of public investment projects by the government, with emphasis on the largest and most significant projects. PI-11.1. Economic analysis of investment proposals There is no policy or law guiding public investment in the County. The only legislation on investment is Section 15 (2a) of the PFM Act, 2012 which requires that at least 30% of budget be allocated for development expenditure. Investment initiatives and projects undertaken by various departments in the County are not based on any analytical appraisal methods. The practice is that the County Assembly decides on the projects to be implemented after public participation and prioritization. There is no formal record of investment projects. The following are examples of some investment projects as covered in the First County Integrated Development Plan for the period 2013-2017. These are: (i) Fertilizer cost reduction Investment; (ii) Fish farming enterprise and productivity project.; (iii) Housing technology centres; (iv) Rural Electrification Programme; (v) Itare dam water project. In summary, technical analytical methods are not employed by the ministries to assess investment proposals. The score is D. PI-11.2. Investment project selection Public participation plays a key role in identification and prioritization of investment projects. After public consultations, project proposals are submitted to the County Budget Office for harmonization. Final selection of projects is based on discretion rather than formal criteria for investment project selection. Investment projects are prioritized by a central entity though without a standard criterion for project selection. However, the County Assembly in most cases has 51 An assessment of the public expenditure and financial accountability - Nakuru County a final say on projects that will sail through. Their decisions are not based on any economic analysis. There are no records of major investment projects therefore it cannot be ascertained which and how many are prioritized. The score is D. PI-11.3. Investment project costing Project costs are not included in the budget process for recurrent spending but rather in capital spending. The County does not prepare medium-term projections on investment or undertake any other comprehensive financial analysis of the investment projects. As such, there is no information about the projected budget plans over the life-time of the investment project. The score is D. PI-11.4. Investment project monitoring Project monitoring and evaluation function is usually carried out by the Directorate of Economic Planning under the County Treasury. The Department of Roads and Public Works normally oversee the implementation of major investment projects. Due to lack of formal procedure and weak institutional capacity, the County does not undertake monitoring and evaluation across the life-cycle of specific projects. Therefore, value for money of the investment projects as well as their work in progress and eventual impact on the society cannot be determined. The score is D. Summary of scores and performance table PI-11 Public D Brief justification for score investment management (M2) 11.1 Economic D Economic analysis of investment projects fall within analysis of investment the mandate of the various ministries. None of them proposals employ technical analytical methods to assess investment proposals. There is no economic analysis of investment projects. 11.2 Investment D The decisions on selection of investment projects are not project selection based on any economic analysis but rather on discretion of County Assembly after public consultations. 11.3 Investment D Investment costing is based on ceilings set by the County project costing Treasury and Budget and Appropriation Committee. Each ward is allocated a development ceiling (block figure) which they allocate to projects based on public participation. There is no technical methodology for project costing. 52 Assessment of PFM performance 11.4 Investment D Monitoring and evaluation of projects is supposed to project monitoring be performed by the Directorate of Economic Planning under the Ministry of Finance. However, there are no standard procedures and guidelines for project monitoring developed and applied. PI-12. Public asset management This indicator assesses the management and monitoring of government assets and the transparency of asset disposal. PI-12.1. Financial asset monitoring The only financial assets held by the County are cash and cash equivalents as evidenced in bank reconciliation statements. The County is yet to invest in major forms of financial assets such as securities, bonds, loans, receivables etc. As such, there was no established system to manage, monitor, and report on financial assets. The score is C. PI-12.2. Non-financial asset monitoring The County keeps an asset register but does not undertake age and value analysis. The challenge in age analysis is attributed to the fact that most of the assets were inherited from the National Government or the Defunct Local Authority. The register on non-financial assets is not published. Table 3.6 provides categories of non-financial assets held by the County. The score is D. Table 3.6: Categories of non-financial assets - 2013 Categories Subcategories Where captured Comments Fixed assets Buildings and Audit Report on The age and value of structures Assets and Liabilities assets not captured in the document Machinery and Audit Report on The age and value of equipment Assets and Liabilities assets not captured in the document Other fixed assets Audit Report on The age and value of Assets and Liabilities assets not captured in the document Inventories — N/A N/A Valuables — — — 53 An assessment of the public expenditure and financial accountability - Nakuru County Non Land Audit Report on The age and value of produced Assets and Liabilities assets not captured in the assets document Mineral and energy N/A N/A resources Other naturally N/A N/A occurring assets Intangible non N/A N/A produced assets Source: Audit Report on Assets and Liabilities as at 30th June 2013 PI-12.3. Transparency of asset disposal Public Procurement and Asset Disposals Act, 2015 establishes procedures and rules for the transfer or disposal of financial and non-financial assets. There are no supplementary procedures established by the sub-national County Government. Asset disposal is the responsibility of the Asset Disposal Committee in the County Treasury. The assets to be disposed are identified by the Asset Disposal Committee and approval for disposal sought from the County Assembly. However, the County has not disposed of any asset and this fact is not showing in budget documentation. The score is D. Summary of scores and performance table Public asset management D+ Brief justification for score (M2) 12.1 Financial asset C The only financial assets held by the County are monitoring cash in hand and at bank. Bank reconciliation statements provide information on the above. 12.2 Nonfinancial asset D Assets are listed but information on age and monitoring value is not provided. It is difficult to assign age because most of the assets were acquired way before devolution and establishment of the County Government. 12.3 Transparency of asset D the County has not disposed of any asset and disposal this is not showing in budget documentation PI-13. Debt management This indicator assesses the management of domestic and foreign debt and guarantees. It seeks to identify whether satisfactory management practices, records, and controls are in place to ensure efficient and effective arrangements. 54 Assessment of PFM performance PI-13.1. Recording and reporting of debt and guarantees 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 Regulation, 2015 (176-196). In addition, Section 140 (d) of PFM Act, 2012 requires county governments to develop a debt management strategy. Borrowing framework exists, however there is currently an administrative moratorium on county borrowing The debt management in the County is guided by Section 123 of the PFM Act, 2012. As at 30th June, 2013 the total debt inherited from the former defunct local authorities was approximately Ksh 1.2 billion consisting of statutory funds, (pension contribution owed to both County Pension Fund and Local Authority Pension Fund), salary arrears, banks loans and legal fees. Table 3.7 presents stock of outstanding debt as at 30th September 2016. Table 3.7: Structure of the outstanding inherited debt as of 30th September 2016 Description Debt outstanding (Ksh) Statutory Debt 295,415,852 Salary Arrears 44,355,311 Payroll Deductions 10,823,164 Suppliers and Contractors 49,686,678 Bank Loan 112,136,916 Legal fee 304,057,453 Total 816,475,374 Source: Medium-term Debt Strategy, 2016 The legal fee element of the debt relates to court judgment in favour of dismissed local government staff who were later reinstated by a court decision. The total stock of debt as at 30th September 2016 amounts to Ksh 1.9 billion. It consists of: i) inherited debt amounting to Ksh 816 million; ii) Pending bills arising from all ministries on a commitment basis amounting to Ksh 1.09 billion. The shortfall of funds to settle the debt necessitates reprioritization of debt repayment in 2017/18 financial year. Given the limited fiscal space, all departments will be required to reprioritize their programmes and align their expenditure to cash flow forecasts and availability of funds in order to reduce the huge recurrent pending bills. The County has a Medium-term Debt Management Strategy (2015) which outlines how pending bills will be cleared. The debt is recorded, managed and reported on an annual basis by the Debt Management Unit within the County Treasury. The score is D. 55 An assessment of the public expenditure and financial accountability - Nakuru County Due to the nature and the origin of the debt, any debt value reconciliations with the credit institution would have been done by the National Government. It has been recognised that there are delays by the National Treasury to release fund for debt servicing in time, thus the outstanding debt and payment of creditors leads to accumulation of debt for a long period. 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 National Government • 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 the past year. The County has not taken any loans because the borrowing moratorium. There is an agreement by Council of Governors through Intergovernmental Budget and Economic Council (IBEC) restricting borrowing of loans by counties. The restriction was yet to be lifted as at the time of the assessment. External borrowing must be approved and guaranteed by National Treasury. The counties are not allowed to borrow, therefore this dimension is not applicable. PI-13.3. Debt management strategy Section 123 PFM Act, 2012 requires counties to develop debt management strategies to guide in collating debt related information including (i) the total stock of debt as at the date of the statement; (ii) the sources of loans; (iii) the principal risks associated with those loans; (iv) the assumptions underlying the debt management strategy; and (v) an analysis of the sustainability of the amount of debt, both actual and potential. The strategy should be submitted to the County Assembly and published and publicised. A copy of the same should be submitted to the Commission on Revenue Allocation and the Intergovernmental Budget and Economic Council (IBEC). 56 Assessment of PFM performance The County developed its first medium-term Debt Management Strategy (DMS) in 2015. At the time of the assessment, the County was implementing its third strategy and the documents are published in the County’s website. The County continues to build capacity of the Debt Management Unit to effectively handle matters relating to borrowing and servicing of debt. The DMS contains information on the total stock of debt, sources of loans and the principal risks associated with those loans and an analysis of sustainability of the amount of debt. The strategies employed to deal with the debt are debt servicing, debt restructuring, prioritization of programmes and recruitment of more lawyers in the County government. The DMS does not cover evolution of risk indicators such as interest rates and refinancing. This information is published in the County website. The score is D. Summary of scores and performance table PI-13 Debt management D Brief justification for score (M2) 13.1 Recording and reporting of D The County declined to take up some of the debt and guarantees debt inherited from local authorities due to lack of clarity on their origin. Bank loans and salary arrears were taken over from the defunct local authority alongside other pending bills. These records are updated annually but it is not clear if there are annual reconciliations. 13.2 Approval of debt and N/A There is moratorium on borrowing Majority guarantees of the debt emanates from expenditure arrears. 13.3 Debt management strategy D The County has Debt Management Strategy papers. The Strategy should cover the medium term but the current one is prepared to cover a single financial year. It does not indicate interest rates, refinancing, and foreign currency risks. 3.4 Pillar IV. Policy-Based Fiscal Strategy and Budgeting PI-14. Macroeconomic and fiscal forecasting This indicator measures the ability of a country to develop robust macroeconomic and fiscal forecasts, which are crucial to developing a sustainable fiscal strategy and ensuring greater predictability of budget allocations. It also assesses the government’s capacity to estimate the fiscal impact of potential changes in economic circumstances. 57 An assessment of the public expenditure and financial accountability - Nakuru County PI-14.1. Macroeconomic forecasts At the moment, the County adopts the macroeconomic indicators from the National Government which they use in forecasting. This is allowed by PEFA Secretariat SNG guidelines. The County provides a situational analysis of the economic outlook which is prepared in accordance with the PFM Act, 2012. The County Government uses the national government forecasts of key macro indicators in the CBROP for the budget year and the two following years. This justifies score C. PI-14.2. Fiscal forecasts The County prepares forecasts of revenue (by type), expenditure and budget balance for the MTEF period of three years and provides an explanation of differences in forecasts. The information is contained in the CFSP, CBROP and the budget estimates. The fiscal forecasts are provided as part of budget documentation submitted to the County Assembly. However, the County does not carry out sensitivity analysis with underlying assumptions. The score is C. PI-14.3. Macro fiscal sensitivity analysis The County lacks technical capacity and resources to carry out any macro fiscal sensitivity analysis. The score is D. Summary of scores and performance table PI-14 Macroeconomic D+ Brief justification for score and fiscal forecasting (M2) 14.1 Macroeconomic C The County Treasury adopts the macroeconomic forecasts indicators from the National Government which guide the preparation of CBROP, CFSP and budget estimates 14.2 Fiscal forecasts C The County prepares forecasts of revenue (by type), expenditure and budget balance for the MTEF period of three years and provides an explanation of differences in forecasts. The information is contained in the CFSP, CBROP but the budget estimates are not accompanied by underlying assumptions. 14.3 Macro fiscal D The County does not carry out any sensitivity analysis sensitivity analysis in relation to own source revenue. 58 Assessment of PFM Performance PI-15. Fiscal strategy This indicator provides an analysis of the capacity to develop and implement a clear fiscal strategy. It also measures the ability to develop and assess the fiscal impact of revenue and expenditure policy proposals that support the achievement of the government’s fiscal goals. PI-15.1. Fiscal impact of policy proposals The County has an approved CIDP that guided the overall development agenda. On a yearly basis, the County prepares an ADP, CBROP, CFSP and budget estimates as required by the PFM Act, 2012. There are deviations on expenditure and revenue forecasts provided in the ADP and the CBROP. In addressing these deviations, Section 132 (c, e) of the PFM Act, 2012 stipulates the requirements for submission and consideration of the revenue raising measures. Each year, the County Executive is expected to pronounce the revenue raising measures and submit a County Finance Bill for approval by the County Assembly setting out the revenue raising measures together with a policy statement expounding on the same. Although it is required that fiscal impact analysis is undertaken by the County Treasury such analysis is not undertaken. The score is D. PI-15.2. Fiscal strategy adoption The County prepares a CFSP annually which contains clear fiscal goals and targets for the medium term (budget year and two following years). The CFSPs for 2014/15 and 2015/16 are available online at www.nakuru.go.ke after adoption by the County Assembly. The CFSP outlines the broad strategic and economic issues and framework together with county government spending plans as a basis of 2015/16 budget and medium term. The strategies identified in the last completed year fiscal reports are related to enhancement and promotion of social and economic environment such as (i) creating an enabling environment for business and private sector participation in County economic growth and development; (ii) development of County physical and social infrastructure; (iii) promotion of health services through investing in quality and affordable health services, etc. The programmes targeting the implementation of the strategies are specified. The revenue collection strategies are outlined with anticipated rate growth for the next fiscal year. The same goes for the total expenditures with average growth of 7.8%. There is a general recurrent expenditure growth of 5% each year in the projections. The fiscal 59 An assessment of the public expenditure and financial accountability - Nakuru County policy generally adhere to medium-term debt targets as provided in the medium term debt management strategy that aims at ensuring public debt sustainability. The score is B PI-15.3. Reporting on fiscal outcomes 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 The County prepares a CBROP annually which contains a review of the past year’s performance (by comparing the budget estimates and actual performance without explanation of deviations. The Report is submitted to the County Assembly together with the budget for approval. The CBROPs for 2014/15 and 2015/16 are available online at www.nakuru.go.ke. The score is C. Summary of scores and performance table PI-15 Fiscal strategy (M2) C Brief justification for score 15.1 Fiscal impact of policy D The County Government does not carry out any proposals fiscal impact analysis. 15.2 Fiscal strategy adoption B The County prepares a fiscal strategy paper annually which contains clear fiscal goals and targets for the medium term (budget year and two following years). 15.3 Reporting on fiscal C The County prepares a County Budget Review outcomes and Outlook paper annually that provides a review of fiscal performance but no explanation of deviations. It is usually submitted together with the budget to the County Assembly for approval. PI-16. Medium-term perspective in expenditure budgeting This indicator examines the extent to which expenditure budgets are developed for the medium term within explicit medium-term budget expenditure ceilings. It also examines the extent to which annual budgets are derived from medium-term estimates and the degree of alignment between medium-term budget estimates and strategic plans. 60 Assessment of PFM Performance PI-16.1. Medium-term expenditure estimates The guidelines for the preparation of the medium-term expenditure estimates are provided in the budget circular. The County prepares annual budget estimates for the budget year and the two following years allocated by administrative, economic, and functional classification. A programme-based budget is also submitted to the County Assembly for approval. The score is A. PI-16.2. Medium-term expenditure ceilings The preliminary medium term expenditure ceilings are provided for in the CBROP which is submitted in September every year. This is after the issuance of the budget calendar which is issued by 30th of August. The approved medium-term budget ceilings are provided for in the CFSP, and are submitted to the County Assembly by 28th February. The score is D. PI-16.3. Alignment of strategic plans and medium-term budgets The County had not prepared any sectoral strategic plans but was in the process of preparing the overall County Strategic Plan. The score is D. PI-16.4. Consistency of budgets with previous year’s estimates The deviations in the medium-term budgets at the department and county levels are not explained. For instance, the budget estimates for the second year in the 2015/16 – 2017/18 MTEF period (which is 2016/17) are different from the estimates of the first year of the 2016/17 – 2018/19 MTEF period. The score is D. Summary of scores and performance table PI-16 Medium-term perspective D+ Brief justification for score in expenditure budgeting (M2) 16.1 Medium-term expenditure A The County prepares annual budget estimates estimates for the budget year and the two following years allocated by administrative, economic, and functional classification. 16.2 Medium-term expenditure D The preliminary medium term ceilings expenditure ceilings are provided for in the CBROP which is submitted after the issuance of the budget calendar. 61 An assessment of the public expenditure and financial accountability - Nakuru County 16.3 Alignment of strategic plans and D The County Government has not medium-term budgets prepared any Sectoral Strategic Plans but is in the process of preparing the overall County Strategic Plan. 16.4 Consistency of budgets with D There is no consistency between the last previous year’s estimates medium-term budget and the current medium-term budget both at the ministry level and the aggregate level and no explanations are given for the deviations. PI-17. Budget preparation process This indicator measures the effectiveness of participation by relevant stakeholders in the budget preparation process, including political leadership, and whether that participation is orderly and timely. PI-17.1 Budget calendar According to Section 25 of the PFM Act, 2012, the National Treasury is required to submit the Budget Policy Statement to Parliament, by the 15th February in each year. This Budget Policy Statement sets out the broad strategic priorities and policy goals that will guide the National Government and county governments in preparing their budgets both for the following financial year and over the medium term. Further, the PFM Act, 2012 requires that the Budget Policy Statement include the amount of indicative transfers of funds from the National Government to the County Governments. The Budget Policy Statement must be published not later than fifteen days after submission of the Statement to Parliament. The County has a budget calendar which is in line with the PFM Act (2012). It is included in the CBROP and is generally adhered to. The 2015/16 CBROP budget calendar presented in the Table 3.8 show the steps of budget formulation by all parties involved with the respective deadlines. All line ministries are supposed submit to the Sector Working Group their budget proposals by 10th December. Thus their have more than six weeks to complete their detailed estimates. Table 3.9 shows the required deadline and actual submission of key budget documents for all three financial years of assessment. No information was provide when exactly the budget estimates were submitted by all line ministries to the Treasury, therefore materiality and actual submission for 2016/17 cannot be ascertained. Information was provided only on the final submission of the County budget to the County Assembly. The County budget was submitted on time by 30th April 2016. The budget calendar shows that the budgetary units are allowed more 62 Assessment of PFM Performance than least six weeks from receipt of the budget circular on 30th August 2015 to meaningfully complete their detailed estimates by 10th December 2015. Even though we do not have information on adherence, i.e. the actual submission dates of budget estimates of all budget users, it is assumed that they all submitted their estimates to the Treasury in good time which did not affect the final submission of the County Budget to the County Assembly in good time, i.e. on 30th April 2016. This justifies score A. Table 3.8: Nakuru County Budget Calendar for 2016/17 Activity Responsibility Deadline 1 Performance Review and strategic Treasury July-Aug 2015 planning 2 Develop and issue County budget Treasury 30th Aug 2015 guidelines 3 Launch of sector Working Groups Treasury 30th Aug 2015 4 Annual Development Plan submitted to Treasury 1st Sept 2015 County Assembly 5 Determination of Fiscal Framework. Micro Working Group 20th Sept 2015 Draft CBROP Micro Working Group 20th Sept 2015 Submission and approval by cabinet Micro Working Group 30th Sept 2015 Tabling of CBROP TO County Assembly Micro Working Group 7th Oct 2015 Circulate the Approved CBROP to Micro Working Group 14th Oct 2015 Accounting Officers 6 Preparation of County Budget Proposals Line Ministries - Draft Sector Report Sector Working Group 15th Nov 2015 Submission of Sector Report to County Sector Working Group 10th Dec 2015 Treasury Review of the proposal Treasury 15th Dec 2015 7 Public participation Treasury January 2016 8 Submit Supplementary Budget to Treasury 30th Jan 2016 County Assembly 9 Submission of CFSP to County Treasury 16th Feb 2016 Assembly for approval. 10 Submission of Debt management Treasury 28th Feb 2016 strategy to County Assembly for approval. 11 Issue final guidelines on preparation of Treasury 15th March 2016/17 County Budget. 2017 12 Submission of Budget proposals to Line Ministries 30th March. Treasury 2016 63 An assessment of the public expenditure and financial accountability - Nakuru County 13 Consolidation of the Draft Budget Treasury 10th April 2016 Estimates 14 Submission of Draft Budget Estimates Treasury 30th April for county government to County 2016 Assembly 15 Review of Draft Budget Estimates by County Assembly 15th May 2016 Departmental 16 Report on the budget and appropriation County Assembly 30th May 2016 committee Draft Budget Estimates from County Assembly 17 Annual cash flow Treasury 15th June 2016 18 Submission of Appropriation Bill to Treasury 15th June 2016 County Assembly 19 Resolution of County Assembly on Treasury 25th June 2016 estimates and approval Source: CBROP 2015 Actual submission of budget documentation of Nakuru County Document Year Timelines Actual Date Of Submission Budget circulars 2014 26th September 2013 2014 16th December 2013 2014 18th March 2014 2014 Supp. Budget – 3rd November 2014 2015 11th August 2014 2015 20th March 2015 2016 28th August 2015 2016 18th March 2016 County budget review and 2013 30th September outlook paper 2014 30th September 2015 30th September 2016 30th September County fiscal strategy paper 2013 28th February 28th February 2014 28th February 28th February 2015 28th February 28th February 2016 28th February 25th February 2017 11th November 24th November 64 Assessment of PFM Performance Debt management strategy 2014 28th February 2015 28th February 2016 28th February 25th February 2017 28th February 24th November County budget 2013/14 30th April 30th April 2014/15 30th April 30th April 2015/16 30th April 30th April 2016/17 30th April 29th April 2017/18 30th April 27th February PI-17.2 Guidance on budget preparation The County Government submits a comprehensive budget circular which includes the following: i) the budget calendar; ii) strategies that inform the budget; iii) instructions for expenditure reviews; iv) criteria for project identification; v) preparation and submission of sector reports; vi) requirements of PFM regulations and standing orders; vii) the format of all strategy documents; viii) linkages of planning documents. Budget circulars are issued by County Executive Committee member of Finance. The approved medium term budget ceilings are per ministry and are provided for in the CFSP, which is usually submitted to the County Assembly by 28th February of each year. The budget ceilings are issued after the budget circulars. The score is D. PI-17.3 Budget submission to the legislature The County Executive submitted the annual budget proposals to the County Assembly on 30th April in 2014 for the 2014/15 budget; on 30th April 2015 for the 2015/16 budget and 29th April 2016 for the 2016/17 budget. Therefore, the set timelines were consistently adhered to. The score is A. 65 An assessment of the public expenditure and financial accountability - Nakuru County Summary of scores and performance table PI-17 Budget preparation B Brief justification for score process (M2) 17.1 Budget calendar A The County has developed a clear annual budget calendar that is usually presented as an annex to the budget circular and the CBROP. It shows, for 2016/17, that the budgetary units had more than six weeks to complete their detailed estimates, so that the County Budget was submitted to the CA on time. 17.2 Guidance on budget D The County Government submits a preparation comprehensive budget circular which includes guidelines on budget preparation but does not include ministry ceilings. 17.3 Budget submission to A The annual budget proposals have been the legislature submitted to the legislature by 30th April deadline for the last three years, which is two months before the start of the fiscal year. PI-18. Legislative scrutiny of budgets This indicator assesses the nature and extent of legislative scrutiny of the annual budget. It considers the extent to which the legislature scrutinises, debates, and approves the annual budget, including the extent to which the legislature’s procedures for scrutiny are well established and adhered to. The indicator also assesses the existence of rules for in-year amendments to the budget without ex- ante approval by the legislature. PI-18.1. Scope of budget scrutiny The legal framework for budget scrutiny of the County budget by the County Assemblies is set in the PFM Act 125 (1). The scope of the budget scrutiny covers review of fiscal policies, medium-term fiscal forecasts, and medium-term priorities as well as expenditure and revenue estimates. These elements are included in the documents (ADP, CFSP, CBROP and detailed budget estimates) that are submitted to the County Assembly for consideration and approval. The submitted documents are debated, commented and voted. The score is A. 66 Assessment of PFM performance PI-18.2. Legislative procedures for budget scrutiny Section 130 of PFM Act, 2012 and Standing Order No. 210 provides for the formation of Budget and Appropriations Committee (BAC). The Order also provides for discussion of budget estimates by sectoral committees within 21 days after being tabled in the County Assembly. The BAC discusses and reviews estimates (with technical support from fiscal analysts) and makes recommendations by taking into consideration recommendations from sectoral committees, views of the executive committee member of finance and the general public (public consultations). Generally, the procedures for budget scrutiny are adhered to as evidenced by records from the County Assembly sessions and decisions. The score is A. PI-18.3. Timing of budget approval The timing allocated to the legislature for budget review, including timing allowed for revision by the executive is two months i.e. between 30th April when the County Executive submits the budget to the County Assembly and 30th June when the County Assembly is expected to approve the budget. The legislature approved annual budgets by 30th June in one of the previous three financial years The dates for budget approval were: 30th June 2014/15; 2nd July 2015/16; 4th August in 2016/17. The delay in the third year was occasioned by disagreements on allocations at ward levels as evidenced by the County Assembly Hansards. The score is C. PI-18.4. Rules for budget adjustments by the executive The rules for budget adjustments are defined in Sections 135 of the PFM Act, 2012 and County Assembly Standing Order No. 218. Section 154 of the PFM Act, 2012 states that an accounting officer may reallocate funds but the total reallocation shall not exceed 10 per cent of the total approved expenditure vote for that particular programme. Thus, the rules are allowing extensive administrative reallocations and expansion of total expenditure up to 10 per cent. Materiality is provided by the supervision of the Controller of Budget. Standing Order Paper No. 218 provides for the procedure of passing the Supplementary Budget. However, the Budget Committee follows the PFM Act, 2012 and the standing order regulations when making adjustments to the budget. The PFM Regulations No. 37(1), 2015 provides that the County Assembly can approve any changes in the budget estimates but shall not exceed 1 per cent of the vote ceiling. The County Department of Finance and Economic Planning also issues guidelines on capital project reallocation. The score is C. 67 An assessment of the public expenditure and financial accountability - Nakuru County Summary of scores and performance table PI-18 Legislative C+ Brief justification for score scrutiny of budgets (M1) 18.1 Scope of budget A The legislature’s review covers all budget scrutiny documents (ADP, CFSP, CBROP and budget estimates) which include budgetary priorities and medium-term revenue and expenditure estimates and forecasts. These documents are discussed and voted at the County Assembly. 18.2 Legislative procedures A The legislature’s procedures to review budget for budget scrutiny proposals are contained in Standing order 210 which gives guidance on formation of budget committees and process of budget scrutiny (which includes public participation). 18.3 Timing of budget C The legislature has approved the annual budget approval within one month of the start of the year over the last three fiscal years and delayed by two months in the third year. 18.4 Rules for budget C Clear rules exist as per PFM Act 2012 and they adjustments by the executive allow administrative reallocation and expansion of expenditures 3.5 Pillar V. Predictability and Control in Budget Execution Indicators of this pillar assess 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 This indicator relates to the entities that administer county government revenues, which may include tax and customs administration and social security contribution. It also covers agencies administering revenues from other significant sources such as natural resources extraction. These may include public enterprises that operate as regulators and holding companies for government interests. In such cases the assessment will require information to be collected from entities outside the government sector. The indicator assesses the procedures used to collect and monitor county government revenues. 68 Assessment of PFM performance PI-19.1. Rights and obligations for revenue measures The County Finance Act, 2016 provides for revenue raising measures relating to County taxes, licences, fees and charges while the County Revenue Administration Act, 2016 provides for the general administration of raising revenue, laws and related purposes. Information about the rights and obligations of taxpayers are contained in the County Finance Act, 2016 and are disseminated through circulars, public brazes, radio announcement, churches, and websites. In addition, the taxpayers are involved in its preparation through public participation forums. The Revenue Department of the County is responsible for the administration and management of the sub-national revenue. The County does not have a formalised redress handling mechanism but common interest groups do present written memoranda on charges and fees which are submitted to the Chief Officer of Finance and Economic Planning Ministry. The information on tax obligations such as (i) registration; (ii) timely filing of declarations; (iii) payment of liabilities on time; and (iv) complete and accurate reporting of information in declarations provided to tax payers is not customized to meet stakeholder needs. The revenue of the County is collected mostly at the cash points of the County administration. The table below shows the various own source revenue streams for 2015/16 as accounted in the audited Annual Financial Statements. The score is D. Revenue Stream Amount in Ksh 1 Rents 47,475,050 2 Other Property Income 404,399,026 3 Receipts from Administrative Fees and Charges 75,537,677 4 Fines Penalties and Forfeitures 897,581 5 Business permits 430,281,392 6 Cess 45,563,418 7 Plot rents 17,479,814 8 Various fees 18,449,891 9 Market/trade centre fee 67,139,546 10 Vehicle parking fees 292,414,437 11 Social premises use charges 1,345,440 12 Other education revenues 946,875 13 Public health services 599,598,919 14 Public health facilities operations 7,217,614 15 Environment & conservancy 168,780,867 16 Slaughter houses administration 17,935,295 Total 2,295,462,842 Source: ASF 2015/16 69 An assessment of the public expenditure and financial accountability - Nakuru County PI-19.2. Revenue risk management There is no risk management system for revenue collection. The County uses a computerized system (ZIZI) for collection of market and parking fees. The system generates a Z-report daily whose totals equal the total collection for the day for each revenue collector. The other measures that have been put in place to minimize revenue leakage include the establishment of a special team dubbed the “Revenue enhancement, target setting and inspection team” whose main role is to facilitate enhanced revenue collection from the sub-counties through enforcing compliance with the existing rates/charges. If an incident of non-compliance is noted, then appropriate measures are taken including but not limited to levying of penalties and pressing charges on the payers of revenue. The score is D. PI-19.3. Revenue audit and investigation The Revenue Department conducts revenue audit and fraud investigation. At the time of the assessment one case was on-going in which a payer had submitted a fake banking slip. The case had since been forwarded for prosecution and a report on the same case prepared. However, the County lacks a documented compliance improvement plan through which fraud investigations are managed and reported. The Internal Audit Department also conducts audit of the revenue in every sub-county through the conventional audit process of planning, field work and interviews with the auditee and discussion with management. The score is D. PI-19.4. Revenue arrears monitoring The available information on revenue arrears only relate to land rates and housing rents. The figures are reported without disaggregation by age. The total land rate arrears amounted to Ksh 3.05 billion while the house rent arrears amounted to Ksh 144.3 million. These arrears date from the time the County Governments came to existence and also include inherited arrears from the Defunct Local Authorities. Therefore, extracting the stock of revenue arrears for the last completed fiscal year to compute the percentage of the total revenue was not possible. The score is D*. 70 Assessment of PFM performance Summary of scores and performance table PI-19 Revenue D Brief justification for score administration (M2) 19.1 Rights and D Comprehensive and up-to-date information on the obligations for revenue rights and obligations of the payers are contained in the measures finance Act. This information is however not available in the official website. Instances of advertisements through multiple channels including newspaper, and public forums have been noticed. The civil society indicated lack of a clear channel of redress process and procedure. 19.2 Revenue risk D There is no documented risk management approach for management assessing and prioritizing compliance risk. The County does not maintain a register of identified compliance risk for each payer segment. 19.3 Revenue audit and D The County undertakes revenue audits and fraud investigation investigations. However this is not reported on according to a documented compliance improvement plan due to non-existence of such a document and practice. 19.4 Revenue arrears D* Information on the stock of revenue arrears for the last monitoring completed fiscal year was not available for computation of percentages of the total revenue collected. The revenue arrears were reported cumulatively from the time the County Government came in place and were not disaggregated by age. PI-20. Accounting for revenue This indicator assesses procedures for recording and reporting revenue collections, consolidating revenues collected, and reconciling tax revenue accounts. It covers both tax and non-tax revenues collected by the County government. PI-20.1. Information on revenue collections The sources of revenue for the County include: property tax, ground rent, business permits, market and parking fees, building approvals, royalties, agriculture 71 An assessment of the public expenditure and financial accountability - Nakuru County produce fees, water and sewerage, health fees, fire brigade fees. The revenue collectors submit information to the Revenue Officer on a daily basis to compile and submit a monthly report to the Head of Revenue. The revenue report is then submitted to the County Assembly each quarter. All the information is broken down by revenue types as all revenue types are covered. The score is A. PI-20.2. Transfer of revenue collections In accordance with Article 207 of the Constitution, a County Revenue Fund is established under Section 109 of the PFM Act, 2012. All monies raised or received by or on behalf of the County Government is paid into the County Revenue Fund. . The revenue collectors deposit money collected on daily basis in the collection accounts maintained at commercial banks. This is swept to the County Revenue Fund account held at the Central Bank of Kenya every fortnight. The revenue collectors present the daily banking slips to the County Revenue Office for recording. The score is A. PI-20.3. Revenue accounts reconciliation Most of the charges and fees are paid through the commercial banks and the banking slips are presented to the Revenue Office for records. The automation of parking and market/charges fees enables daily totalling of the amounts collected. The reconciliation is done on monthly basis when the bank statement is generated and is reconciled with the receipts. This was evidenced by a sample of Revenue Account Reconciliation issued in February 2017 by the Central Bank of Kenya and a Monthly Revenue Banking for all sub-counties per a period of July 2016-Feb 2017. The score is C. Summary of scores and performance table PI-20 Accounting C+ Brief justification for score for revenue (M1) 20.1 Information on A The revenue department obtains revenue data daily revenue collections (parking and markets) from the revenue collectors. This information is broken down by revenue type. The entire revenue collection report is consolidated into monthly and quarterly reports. 20.2 Transfer of A The revenue collected is banked daily by the revenue revenue collections collectors to the revenue collection account held at commercial banks. The funds are then swept every two weeks to the County Revenue Fund account held at the Central Bank of Kenya 72 Assessment of PFM Performance 20.3 Revenue C Revenue accounts reconciliations are done monthly accounts immediately after the bank statements are received. The reconciliation reconciliation entails assessment, collections, arrears and transfers. However reconciliation of arrears has never been done to date. PI-21. Predictability of in-year resource allocation This indicator assesses the extent to which the central department of finance is able to forecast cash commitments and requirements and to provide reliable information on the availability of funds to budgetary units for service delivery. It contains four dimensions and uses the M2 (AV) method for aggregating dimension scores. PI-21.1. Consolidation of cash balances The County maintains forty two (42) bank accounts five of which are maintained at the Central Bank of Kenya including: (i) recurrent account; (ii)development account, (iii) Revenue Fund account, (iv) Deposit Funds account, and the (v) Road Maintenance Levy (RML) Fund accounts. The other thirty seven (37) are maintained in local commercial banks and are mainly used for revenue collection. The evidence is contained in the Note 22 A of 2015/16 Financial Statements showing the materiality for all bank accounts (in CBK and in commercial banks) for 2014/15 and 2015/16, the cash position being Ksh 2,083,605,866 and 2,105,118,787, respectively. Cash and cash equivalents are consolidated every month and reports prepared on monthly and quarterly basis. In addition, the County consolidates bank and cash balances on annual basis for external use. The score is C. PI-21.2. Cash forecasting and monitoring Section 120 of the PFM Act, 2012 provides for the management of cash at the County level. A County Treasury shall manage its cash within a framework established by the County Assembly. Every County Government entity is required to prepare and submit an Annual Cash Flow Plan under the direction of the County Treasury with a copy to the Controller of Budget. The County prepares a budget based on equitable share of revenue and the projected revenue from own sources. The National Treasury prepares monthly disbursement schedules for 12 months. Based on the approved budget, the County prepares an annual cash flow projection. The inflows and outflows are monitored 73 An assessment of the public expenditure and financial accountability - Nakuru County based on the requisitions to the Office of the Controller of Budget on monthly basis. The score is C. PI-21.3. Information on commitment ceilings Section 117 of the PFM Act, 2012 requires the County Treasury to prepare a CFSP by 28th February of each year. Information on commitment ceilings is contained in the CFSP which is submitted to the County Assembly for consideration and adoption with or without amendment. The ceilings are also reflected in the budget which by law is supposed to be approved before the end of June and implemented through the County Appropriation Act. The approved CFSP paper sets the ceiling and levels of commitments for the next financial year. The commitment ceilings (in the approved CFSP) are made available to the budgetary units one month before the deadline to submit their budget expenditure commitments. The cash flow projections and procurement plans are aligned to the budget appropriations. There is not enough information to show that all budgetary units are given reliable information on actual resources available for their budgetary commitments. The score is D. PI-21.4. Significance of in-year budget adjustments Section 135 of the PFM Act, 2012 provides that County Government shall submit a Supplementary Budget if the amount appropriated for any purpose under the County Appropriation Act is insufficient or need has arisen for expenditure purposes for which no amount had been appropriated by the Act. The submitted Supplementary Budget is meant to request approval by the County Assembly of expected reallocations. Reallocations do not occur before the CA approves the Supplementary Budget During the fiscal year 2015-16, the County undertook one in-year budget adjustment. The Budget Department issued a written circular to all the departments to submit their revised estimates. The in-year adjustments were then approved by the County Assembly through the County Supplementary Appropriation Act, 2016. Generally all in-year adjustments are gathered in the County Supplementary Budget submitted to the Assembly for approbation. The Supplementary Budget is a request for approval of anticipated reallocations. Usually the Supplementary Budgets are approved. The size of the budget adjustments in the last fiscal year 2015/16 for both recurrent and development expenditure is Ksh 2,101,592,845. The score is A. 74 Assessment of PFM Performance Summary of scores and performance table PI-21 Predictability of in-year C+ Brief justification for score resource allocation (M2) 21.1 Consolidation of cash C Based on the evidence provided, the County balances consolidates all the bank and cash balances on monthly basis in internal reports and annually for external use. 21.2 Cash forecasting and C County prepares an annual cash flow monitoring projection based on the approved budget. 21.3 Information on commitment D Commitment ceilings are made available ceilings to the budgetary units one month before the deadline for them to submit their budget expenditure commitments. There is not enough information to show that all budgetary units are given reliable information on actual resources available for their budgetary commitments. 21.4 Significance of in-year budget A The County undertakes in-year budget adjustments adjustment once every year through a circular issued by the Budget Department to all departments. During the 2015/16 financial year the County Government made only one Supplementary Budget which was done in a transparent way having been subjected to approval by the County Assembly through the County Supplementary Appropriation Act. PI-22. Expenditure arrears This indicator measures the extent to which there is a stock of arrears, and the extent to which a systemic problem in this regard is being addressed and brought under control. PI-22.1. Stock of expenditure arrears Expenditure arrears in the context of the county governments are referred to as pending bills2. The stock of expenditure arrears to the total expenditure was 18.01%, 28.57% and 27.63% for 2013/14, 2014/15 and 2015/16, respectively. The accumulation of pending bills is mainly attributed to setting of unrealistic revenue targets and delays in exchequer releases. The County also inherited liabilities from the Defunct Local Authorities which are still being serviced. The score is D. 2 Pending bills consist of unpaid liabilities at the end of the financial year arising from contracted goods or services during the year or in past years. When the pending bills are finally settled, such payments are included in the statement of receipts and payments in the year in which the payments are made. 75 An assessment of the public expenditure and financial accountability - Nakuru County PI-22.2. Expenditure arrears monitoring The respective departments declare at the end of every month all their pending bills to the County Treasury which is responsible for arrears monitoring. This information is monitored in the following month whether the payments have been made or not. A stock of expenditure arrears is then compiled by expenditure composition on a monthly, quarterly and annual basis in IFMIS. The unsettled bills are carried over to the following year. The generation of data on the stock and composition of expenditure arrears is performed at the end of each financial year during the preparation of the Annual Financial Statements. The AFS for fiscal year 2015/16 provide recent information on expenditure arrears stock and composition but not age profile. The score is C. 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 were more than arrears 10% of the total expenditure for all the three completed fiscal years. They stood at 18.01% in 2013/14, 28.57% in 2014/15 and 27.63% in 2015/16. 22.2 Expenditure arrears C The County prepares stock of expenditure arrears monitoring by expenditure composition annually at the time of preparation of annual financial report. However, the monitoring is done monthly. All unsettled bills are carried over to the following reporting period. PI-23. Payroll controls This indicator is concerned with the payroll for public servants only: how it is managed, how changes are handled, and how consistency with personnel records management is achieved. Wages for casual labour and discretionary allowances that do not form part of the payroll system are included in the assessment of non- salary internal controls, PI-25. PI-23.1. Integration of payroll and personnel records The County Government of Nakuru 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/ 76 Assessment of PFM performance 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 staffs to access their pay information. The County does not have an approved staff establishment but uses existing staff and projected hires as a basis for the annual budget. In addition, staff hiring is done on need basis. It is not clear if there is reconciliation of the payroll system (IPPD) with the personnel records (GHRIS) and how often both systems are reconciled. No documentation was provided on the procedures applied of the process for dealing with changes to personnel records and reconciliation of payroll and personnel records. The score is D. PI-23.2. Management of payroll changes Amendments to personnel database and payroll changes are regularly done and reports captured in the Authorised Data Sheet (ADS). This is however applicable for employees who are on IPPD. A number of ADS have been reviewed against IPPD payroll to confirm payroll changes. It has been established that adjustments are done on time to allow adjustments in the subsequent month’s pay. Officers who interact with payroll have personal passwords to access the system to ensure a clear audit trail. The IPPD and the manual payroll have been reviewed and it was established that 97.5% of employees are on IPPD. This meant that 2.5% changes in personnel database may not lead to a clear audit trail. The retroactive adjustments were negligible at 0.02%. The score is A. PI-23.3. Internal control of payroll The Head of Human Resource Management allocates IPPD access rights to ensure efficiency, effectiveness and accountability. The access control policy addresses the purpose, scope, roles, and responsibilities of IPPD system users in execution of the official duties. Every change of records in the IPPD system must be supported by duly filled and signed ADS. In summary, authority to change records and payroll for employees in the IPPD is restricted, results in an audit trail, and is adequate to ensure full integrity of data. However, the procedures are not documented in a manual but the roles and responsibilities are contained in the job description. The score is B. 77 An assessment of the public expenditure and financial accountability - Nakuru County PI-23.4. Payroll audit The payroll section undertakes partial periodic payroll audits to ensure only bonafide employees are in the payroll. There was also regular communications between the payroll section and departments on a number of issues namely: transfers, retirements, resignations, deaths, promotions, interdictions and reinstatements and discharge from duty. Departmental heads are supposed to furnish the payroll with lists of employees working in their respective departments. This enabled the payroll section to compare the departmental lists with the one furnished to them by the board. This ensured that payroll was up to date. Payroll audit covering all County Government entities has been conducted once in the last three completed fiscal years. As a result ghost workers, data gaps and control weaknesses have been identified. The score is B. Summary of scores and performance table PI-23 Payroll D Brief justification for score controls (M1) 23.1 Integration D County government uses the Integrated Payroll and of payroll and Personnel Data (IPPD) management system similar personnel records to the system used by the National Government. IPPD integrates personnel database and payroll. However, the IPPD system is not integrated to the IFMIS which has the budget module. Most importantly, there was no evidence of procedures applied for reconciliation of payroll and personnel records. 23.2 Management of A Amendments to personnel database GHRIS and the payroll changes payroll system are regularly done and are captured in the Authorised Data Sheet (ADS). The retroactive adjustments were negligible at 0.02%. 23.3 Internal control B Authority to change records and payroll for employees of payroll in the IPPD is restricted, results in an audit trail, and is adequate to ensure full integrity of data. IPPD users are assigned IPPD password to access the system. We also reviewed ADS which showed several persons are required to complete an action/amend a record. 2.5% staff is paid through manual system hence change records and payroll is not restricted. 23.4 Payroll audit B A payroll audit covering all County Government entities has been conducted once in the last three completed fiscal years. 78 Assessment of PFM performance PI-24. Procurement This indicator examines key aspects of procurement management. It focuses on transparency of arrangements, emphasis on open and competitive procedures, monitoring of procurement results, and access to appeal and redress arrangements. PI-24.1. Procurement monitoring The procurement process is regulated by the Public Procurement and Asset Disposal Act, 2015. Section 68 requires there is an accounting officer of the procuring entity to keep records for each procurement. The Procurement Directorate is in charge of supply chain management. The Directorate uses the IFMIS to monitor the procurement process. Information on awarded contracts can be accessed through the IFMIS and the respective paper project files. Evidence of procurement monitoring records was provided for nine ministries. There are ten ministries in the County Government of Nakuru. The reports from the procurement records maintained by the ministries provide complete data and cover the following details: (i) tender number and description; (ii) procurement method applied; (iii) date of tender opening, evaluation and outcome; (iv) contact date, description of contract and contractor details; (v) contact value. The score is B. PI-24.2. Procurement methods The Public Procurement and Asset Disposal Act, 2015 provides for different procurement methods. During the financial year 2015/16, the County applied open tendering and request for quotations both of which are competitive processes at 38.70 % and 61.3%, respectively (Table 3.9). The score is D. Table 3.9: Type of procurement methods, 2015/16 Procurement method Value Percentage Open tender 545,271,439 39 Request for Quotation 863,640,627 61 Total 1,408,912,066 100 Source: County Executive PI-24.3. Public access to procurement information 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 79 An assessment of the public expenditure and financial accountability - Nakuru County 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 are not posted on the website. The table below summarises the compliance with key procurement information that should be made available to the public. At least three elements exist but it is not clear if they cover the majority of procurement operations. The score is D. Public access to procurement information Key procurement information to be made available to the Compliance public: (Y/N) 1. legal and regulatory framework for procurement Yes 2. government procurement plans No 3. bidding opportunities Yes 4. contract awards (purpose, contractor and value) No 5. data on resolution of procurement complaints Yes 6. annual procurement statistics No PI-24.4. Procurement complaints management Procurement complaints are addressed by the PPARB under the PPRA. This is an external higher authority which is not involved in the procurement process - ref to component (1). Section 27 of PPADA establishes an independent Public Administrative Review Board to ensure the proper and effective performance of the functions of the PPRA. There are clear guidelines on the process followed in case of complaints. The decisions of the PPARB are binding to all parties involved – ref. to (6). The Procurement Regulations state that “a decision by the Review Board is binding on all parties concerned subject to judicial review where the parties so appeal”. There is a fee payable by the party filing complaints – ref to (2). The schedule of fees can be extracted from the Public Procurement and Disposal Regulations, 2013. However, it was observed that the complaints filed with the Board are getting more and more each year which may imply that the fee is not so material to prohibit access. The PPARB follows processes for submission and resolution of complaints that are clearly defined and publicly available. The process for submission and resolution of complaints is clearly provided for in the PPADA (Section 27) which is publicly available. The PPARB exercises the authority to suspend the procurement process – ref to (4). The PPADA provides grounds for debarment of a person from participating in procurement or asset disposal proceedings. 80 Assessment of PFM performance The decisions are issued within the timeframe specified in rules – ref to (5): the PPADA requires the PPARB to make a decision within thirty days of the date of submission of an application for review. The PPARB report for 2015/16 states that all cases filed were heard and determined within an average of 22.5 days. Compliance of complaints reviewed by an independent body in accordance with the PEFA criteria is summarized in table below. The procurement directorate is in the process of developing procurement and disposal manual and employees in the directorate are undergoing training to enhance their work performance. The score is A. Procurement complaints management Complaints are reviewed by a body which: Compliance (Yes/No) 1. is not involved in any capacity in procurement transactions or in Yes the process leading to contract award decisions 2. does not charge fees that prohibit access by concerned parties Yes 3. follows processes for submission and resolution of complaints that Yes are clearly defined and publicly available 4. exercises the authority to suspend the procurement process Yes 5. issues decisions within the timeframe 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) Summary of scores and performance table PI-24 Procurement C+ Brief justification for score (M2) 24.1 Procurement B Procurement data on what was been procured, value of monitoring procurement and who has been awarded contracts is available. The data was accurate and complete for most procurement methods for goods, services and works. 24.2 Procurement D The County applied non-competitive procurement methods methods at 61.3% as opposed to competitive procurement methods at 38.7%. 24.3 Public access D It was not ascertained if the majority of the to procurement procurement operations are made available to public. information Information on the County procurement plans, annual procurement statistics and details of contracts awarded are not made public. 24.4 Procurement A The procurement complaint system meets all criteria complaints management 81 An assessment of the public expenditure and financial accountability - Nakuru County PI-25. Internal controls on non-salary expenditure This indicator measures the effectiveness of general internal controls for non- salary expenditures. Specific expenditure controls on public service salaries are considered in PI-23. PI-25.1. Segregation of duties The legislations about segregation of duties are respectively: (i) the Constitution of Kenya of 2010, (ii) the Public Finance Management Act; 2012, (iii) Circulars from National Treasury and (iv) Public Procurement and Asset Disposal Act, 2015. The different responsibilities about internal controls are (i) Planning, (ii) Budgeting, (iii) Procurement, (iv) Accounting, (v) Monitoring and Evaluation and (vi) Internal Audit. The County government uses 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 to 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. The County has a mechanism to ensure segregation of duties as established in the PFM Act, They are electronically set up in IFMIS due to the various authorization and roles given to different individuals. The County uses IFMIS payment system similar to that of the National Government, in which separation if duties is clearly introduced. County Treasury is using National Treasury guidelines for Counties on liabilities and assets. In the payment process, the user department raises a requisition. The requisition is approved by the Chief Officer of the department. The approved requisition is sent to procurement director whose responsibility is to initiate a competitive procurement process. The procurement process is executed through different procurement committees in tender opening, tender evaluation and award. A supplier is identified and delivers as required. The supplier invoices the county government through the user department. The department prepares a Payment Voucher which has various sections for approval. The AIE Authority to Incur Expenditure (this a document of the County provides authority for specific expenditure) holder (The chief officer of the user department) approves the payment. The details of the payment are captured in IFMIS by an Invoicer (a person with unique rights to do invoicing in IFMIS). After invoicing, an accountant from the user department validates the payment in IFMIS. The Chief Officer of the user department approves the payment in IFMIS and thereafter the payment is approved by the Chief Officer of Finance. 82 Assessment of PFM performance The approved payments are uploaded to another online platform for Internet Banking. In internet banking, the payment is approved by first approver in Internet banking and the payment is finally effected by the second approver. The payment process is structured with different officers performing different functions with specific rights and access to the IFMIS. The main responsibilities are segregated to that staff performs functions which are not in conflict. The score is A. PI-25.2. Effectiveness of expenditure commitment controls The County uses IFMIS in which control commitment has been implemented that ensures that only expenses committed and budgeted for are paid. This limits payments of expenditure not budgeted for and amount of cash projected will be available for only expenses in the budget. The person signing cheques confirms whether there is availability of cash or not. The County prepares annual procurement plan which is aligned to the approved budget. Each line department also prepares monthly cash flow projections. The monthly expenditure is governed by issue of Authority to Incur Expenditure (AIE) which is a document issued from the County Treasury to all budget users. The AIEs give the respective Chief Officers (the AIE holders) authority to spend and it gives specific breakdown of expenditure to be incurred which is in line with the approved budget and based on the monthly cash flow projections. Expenditure is generally not committed unless it is clearly provided for in the AIE document. However, there were cases of incurred expenditure which are accumulated in arrears. The score is B. PI-25.3. Compliance with payment rules and procedures In general, the prescribed procedures, regulations and rules establishing the segregation of duties and payment procedures were complied with. However, OAG audit report for 2015/16 identified some areas of non-compliance but available data was not adequate to compute the level of compliance. Further, the Auditor General indicated that there were cases where officers were issued with additional imprest in the Ministry of Health before accounting for previous ones. It was also noted that some imprest was issued without an itinerary/budget and approval by the AIE holder. The National Treasury through MS Oracle (a consultant firm for IFMIS) deployed their staff to the County Government to train the County staff on the functionalities of the software system. However, it was noted that the Oracle staff did not only train the County personnel but also transacted through the system using other officers credentials. 83 An assessment of the public expenditure and financial accountability - Nakuru County Data was not provided to justify the level of compliance to the regular procedure of payment rules, therefore this dimension is scored D. Summary of scores and performance table PI-25 Internal B Brief justification for score controls on non-salary expenditure (M2) 25.1 Segregation of duties A Segregation of duties is prescribed throughout the expenditure process. The existing segregation of duties provide for different level of authorization or approval, recording of invoice and reconciliation and audit but 25.2 Effectiveness of B The County uses IFMIS. Expenditure commitment expenditure commitment controls exist limiting commitments to approved controls budget allocations for most types of expenditure. 25.3 Compliance with D* No data was provided to verify how much of the payment rules and payments made are compliant with regular payment procedures procedures. PI-26. Internal audit This indicator assesses the standards and procedures applied in internal audit. PI-26.1. Coverage of internal audit The legal framework defining the background for internal audit consists of Section 155 of the PFM Act, 2012 and PFM Regulation No. 153, 2015 for the County Governments. In addition, the PFM Regulation No. 154 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. The County has an internal audit function performed by the Directorate of Internal Audit, established in 2014. The first Annual Audit Plan was prepared for the financial year 2016/17 whose details are contained in Table 3.10. However, there is no systematic approach to audit, as such the expenditure volumes of the audited entities are not quantified and it was not possible to quantify the percentage of actual internal audit coverage against the planned audits. The score is D. The County Assembly has also established an internal audit function which administratively reports to the County Assembly Clerk and functionally reports to the County Assembly Service Board. 84 Assessment of PFM performance Table 3.10: Internal audits carried out over the last completed financial year No. Type of audit Audit topic 1 Compliance audit Pending bills audit 2 Financial audit Internal controls in cash management – imprest 3 Special audit Revenue automation 4 Special audit Building plans approval 5 Financial audit Revenue collection – slaughter house 6 Special audit Personnel promotions health services 7 Financial audit Cash book management 8 Financial audit Expenditure management 9 Special audit Project implementation in the county 10 Financial audit Audit report on revenue derived from trade licenses and markets charges. 11 System audit IT environment in Nakuru East sub county PI-26.2. Nature of audits and standards applied The Internal Audit Services Department should be guided by IPPF of the Institute of Internal Audit as stipulated under PFM Regulation No. 154, 2015. The Internal Audit Services Department conducted a number of internal audits evaluating the adequacy of internal controls and compliance with governing regulations. This notwithstanding, there was no evidence of IPPF standards followed in the audit exercise and no properly documented audit working paper files were provided. In addition, the proportion of internal control audits versus compliance audits carried out over the last three years is not clear. The County Assembly internal audit function conducted a compliance audit featuring human resource management, car and mortgage and motor vehicle management. However, there was no evidence of a systematic audit approach. The score is D. PI-26.3. Implementation of internal audits and reporting The first audit plan was for 2016/17 and therefore it was not possible to measure the performance achievements at the time of the assessment. The score is D. PI-26.4. Response to internal audits There was no documented evidence to show that the management responded to internal audit findings. The County Government is in the process of appointing 85 An assessment of the public expenditure and financial accountability - Nakuru County Internal Audit Committee members. The County Assembly has also started the process of recruiting Internal Audit Committee members as provided for in the PFM Regulations No. 167, 2015. The score is D. Summary of scores and performance table PI-26 Internal D Brief justification for score audit (M1) 26.1 Coverage of D The internal audit mandate of the County Assembly internal audit internal audit is not governed by any legislation. All other County Government units are subject to internal audit by the main Internal Audi function as per the PFM Act. There is no data to estimate the percentage of audited budget entities in terms of total planned expenditure and revenue. 26.2 Nature of D There was no systematic approach to audit as there audits and standards were no properly documented audit working papers. applied Internal audit did not have a quality assurance process in place and there was no evidence of adherence to any professional audit standards 26.3 Implementation D There was no Annual Audit Plan for the completed of internal audits and fiscal year. Therefore, it was not possible to measure the reporting performance of the internal audit function. This was the case for both County Executive and County Assembly. 26.4 Response to D There was no evidence to show that the management internal audits responded to internal audit findings. 3.6 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 This indicator assesses the extent to which treasury bank accounts, suspense accounts, and advance accounts are regularly reconciled and how the processes in place support the integrity of financial data. 86 Assessment of PFM performance PI-27.1. Bank account reconciliation PFM Act, Section 90 (1), 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. Any discrepancy noted during reconciliation should be investigated immediately. The County Treasury prepares monthly bank reconciliations for all the key active bank accounts. These include the key accounts held in the CBK as well as the 37 others in commercial banks. These are bank accounts of budgetary and extra- budgetary units. Reconciliations of cash positions of the County accounts were carried out within the set timelines and in accordance with the County Financial and Procedure Manual. The score is B. PI-27.2. Suspense accounts According to PFM Regulation No. 107(2b), 2015 of the PFM Act, 2012, the accounting officer must ensure that monthly reconciliations are performed to confirm the balance of each account. The County maintains a deposit account as the only active suspense account. 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% of the contract is paid to them. The reconciliation for this account is done at the end of the year when the Annual Financial Statements are prepared. The deposit account is less than one year old hence the reconciliation is yet to be performed. The other type of suspense account is the system generated suspense. This is brought by incomplete accounting process in IFMIS. This suspense account is supposed to be cleared on an ongoing basis. However, they are not cleared at the year end but they are only monitored. This is associated with inadequate technical support by IFMIS directory in the County. The score is D. PI-27.3. Advance accounts 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 has imprest account as the only advance account. The reconciliation of staff imprest account is performed and monitored on an on-going basis. Imprest reconciliations are prepared monthly 87 An assessment of the public expenditure and financial accountability - Nakuru County and accounted for at the end of the financial year and presented as a note to the financial statements. The challenge observed during the assessment was that the imprest had not been fully recovered as at the end of the financial year. The score is D. PI-27.4. Financial data integrity processes 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. The IFMIS has various modules ranging from budgeting, payments and reporting and it is used for recording and processing budget data. All users are assigned passwords and 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. The IFMIS department in the National Treasury is responsible for introduction of new users in the system with the approval of the accounting officer. The score is B. Summary of scores and performance table PI-27 Financial C Brief justification for score data integrity (M2) 27.1 Bank account B Bank reconciliations are prepared monthly by the 7th of reconciliation the following month for all key active bank accounts. 27.2 Suspense D Deposit account for procurement purposes are cleared at accounts year end, however suspense accounts generated by the inadequate support of IFMIS are not cleared at the year- end but they are monitored 27.3 Advance D Imprest accounts are reconciled annually but the accounts amounts are not cleared as the system of recovery through payroll is yet to be effected. 27.4 Financial data B All users are assigned passwords and the Chief Officer integrity processes of 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. The IFMIS department in the National Treasury is responsible for introduction of new users in the system with the approval of the accounting officer. However, there is no operational unit to verify financial data integrity. 88 Assessment of PFM performance PI-28. In-year budget reports This indicator assesses the comprehensiveness, accuracy and timeliness of information on budget execution. In-year budget reports must be consistent with budget coverage and classifications to allow monitoring of budget performance and, if necessary, timely use of corrective measures. PI-28.1. Coverage and comparability of reports The PFM Act, 2012 requires budget execution monthly financial statement and non-financial budgetary reports to be submitted to the County Treasury. The CBROP is prepared in accordance with Section 118 of the PFM Act, 2012. According to this Act, the County should prepare quarterly implementation reports to give an over view of budget execution. They give comparisons between budget estimates and actual expenditures among departments and County Assembly The County prepares quarterly budget monitoring reports which show budgeted expenditure against actual expenditure. The quarterly report is prepared using the template issued by the Public Accounting Standards Board and allows comparison of the original budget with the expenditure at the main administrative headings. The report has all items of budget estimates presented in accounting terms. The IFMIS system can also generate a report that shows expenditure against the budget and the variance but there is preference for the quarterly report. The score is C PI-28.2. Timing of in-year budget reports PFM Act 166, 2012 requires Counties to prepare quarterly reports and deliver copies to the National Treasury, COB and CRA while County Treasury Circular requires preparation of reports of performance of the entire budget during the implementation phase. Budget execution reports are prepared quarterly and submitted within one month from the end of each quarter. Copies of quarterly in- year budget reports have been obtained for only for the fourth quarter of 2015/16 with evidence of delay of 5 days. In summary, quarterly budget execution reports are prepared within one month from the end of a quarter. The score is B. 89 An assessment of the public expenditure and financial accountability - Nakuru County PI-28.3. Accuracy of in-year budget reports The in-year quarterly reports mainly capture actual payments while commitments are contained in a separate report; the IFMIS generated reports though not utilised has a column for commitments. While IFMIS allows for commitments to be monitored, it does not generate a report for commitment purposes and this is important for monitoring budget implementation and utilization of funds released. However, no analysis of the budget execution is provided for at least a half-yearly basis. The score is C The National Treasury through the auditing firm PricewaterhouseCoopers (PWC) is providing technical assistance to the counties in the preparation of financial statements. Summary of scores and performance table PI-28 In-year C Brief justification for score budget reports (M1) 28.1 Coverage and C The County prepares quarterly budget reports. The comparability of reports show budgeted expenditure against actual reports expenditure and compare the original budget with expenditure at the main administrative headings. 28.2 Timing of in-year B In-year budget execution reports are prepared on budget reports quarterly basis and are issued within a month after the end of the quarter. The submission of Q4 in 2015/16 was 5 days late 28.3 Accuracy of in- C In-year quarterly reports are prepared mainly on actual year budget reports payments. Commitments are prepared on a separate report monthly. Expenditure is captured at the payment stage, but there is no budget execution analysis on a half-yearly basis. PI-29. Annual financial reports This indicator assesses the extent to which annual financial statements are complete, timely, and consistent with generally accepted accounting principles and standards. This is crucial for accountability and transparency in the PFM system. PI-29.1. Completeness of annual financial reports The Annual Financial Statements are prepared based on a template issued by the Public Sector Accounting Standards Board. The accounts are presented in 90 Assessment of PFM performance a format which allows easy comparison of actual to the approved budget. They have all disclosures including revenue, expenditure assets and liabilities. They are also accompanied by a balanced cash flow. The financial reports are compiled after the clearance of any suspense accounts and after advance and bank account reconciliation. It was ascertained that they include full information on revenue, expenditure, assets and liabilities; this information is incorporated into financial reports by way of notes as is done in a cash-based system. However, the AFS do not contain guarantees and obligations. The score is C. The external audit found some own source revenue unreconciled in the financial statements (e.g. daily street parking fee). PI-29.2. Submission of reports for external audit Section 68, of the PFM Act, 2012 requires that all entities prepare Annual Financial Statements for each financial year within three months after the end of the financial year and submit them to the OCoB and the OAG for audit. The consolidated set should be submitted within 4 months after the end of financial year, i.e. by end of October. The consolidated Annual Financial Statements for 2015/16 were submitted to the Auditor General within the stipulated deadline. This information was verified with the stamps of actual submission of financial reports to the OAG. The score is B. PI-29.3. Accounting standards The Public-Sector Accounting Standards Board (PSASB) adopted International Public Sector Accounting Standards (IPSAS) and International Financial Reporting Standards (IFRS) for use by public sector entities in July 2014. Retrospective application for the year ended June 2014 was encouraged by PSASB. The use of IFRS and IPSAS was, therefore, formally adopted and applied for the first year in the year ending 30th June 2014. Financial Year 2015/16 is the third year of implementation of the standards as prescribed by the PSASB in 2014. The county governments and their respective entities apply IPSAS Cash based standard. The County prepares AFS as per the IPSAS Cash based standards according to the requirements of the Public-Sector Accounting Standards Board. The Cash-basis IPSAS enhances comprehensive and transparent financial reporting of the cash receipts, cash payments, and cash balances of the County Government. Application of IPSAS Cash based standards imply comparability of the government’s financial statements. 91 An assessment of the public expenditure and financial accountability - Nakuru County The OAG states in the Annual Audit Report ‘the financial statements are prepared in accordance with and comply with International Public Sector Accounting Standards (IPSAS) with particular emphasis on Cash Basis Financial Reporting under the Cash Basis of Accounting and applicable government legislations and regulations. The financial statements comply with and conform to the form of presentation prescribed by the Public Sector Accounting Standards Board of Kenya.’ The standards used in the preparation of the statements are not disclosed and do not appear as notes in the AFS. The score is D. As regards reforms, Public Accounting Standards Board in Kenya is designing a framework for all County Governments to move to accrual-basis IPSAS. Summary of scores and performance table PI-29 Annual financial D Brief justification for score reports (M1) 29.1 Completeness of C The Annual Financial Statements (AFS) are annual financial reports prepared based on a template issued by the Public Sector Accounting Standards Board. They disclose on revenue, expenditure and a balanced cash flow. There are no guarantees and long-term obligations. 29.2 Submission of reports B The consolidated Annual Financial Statements were for external audit submitted to the Auditor General on 30/10/2016 which is within four months as per the PFM Act. 29.3 Accounting standards D The County prepares AFS as per the IPSAS Cash based standards according to the requirements of the Public-Sector Accounting Standards Board. The standards used in the preparation of the statements are not disclosed and do not appear as notes in the AFS. 3.7 Pillar VII. External Scrutiny and Audit There two indicators under this pillar, namely, external audit and legislative scrutiny of audit reports. These indicators assess the arrangements for scrutiny of public finances and follow-up on the implementation of recommendations by the executive. 92 Assessment of PFM performance PI-30 External audit This indicator examines the characteristics of external audit. PI 30.1 Audit coverage and standards 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. In the case of Nakuru County, the OAG audits revenue, expenditure and financial assets. The audit reports highlight relevant material issues, systemic and control risks. In- depth audits should be carried out on the basis of 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 OAG annually audits all County government entities that are linked to IFMIS – these are all central government budgetary users. All County budget entities have been audited the last three completed financial years with the exception of the extra-budgetary units discussed in PI-6.1 which do not appear in the AFS. 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 via the professional organisation of the African Organisation 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. The score is C. PI-30.2 Submission of audit reports to legislature According to the PFM Act, 2012, it is not the responsibility of the County Executive to forward audit reports to the County Assembly. This is done directly by the Office of the Auditor General. Table 3.11 presents dates for the submission of audit reports to the legislature (Senate and the County Assembly). In all cases the audit reports were ready for legislative scrutiny much later than the deadline defined in the law. The score is D. 93 An assessment of the public expenditure and financial accountability - Nakuru County Table 3.11: Submission of audit reports to the legislature Financial Date annual Date received at Date submitted by year financial statement County Assembly* OAG** submitted to OAG 2015/16 30th September 2016 Not yet released by OAG 30th August 2017 at time of assessment (April 2017) 2014/15 30th September 2015 24th November 2016 17th October 2016 2013/14 30th September 2014 15th September 2015 18th August 2015 Source: **OAG and *County Assembly of Nakuru PI-30.3 External audit follow-up The Public Audit Act, 2015 explicitly covers the audit process, including response and follow-up. The Public Sector Accounting Standards Board has prepared a template for this. It is too early to assess its effectiveness. The audit process is prescribed in Section 31 of Part IV of the Public Audit Act 2015 on the ‘Audit Process and Types of Audit’. The audit opinion and summary findings of the external audits of 2013/14 and 2014/15 have been received by the County and responded to but with delay. With the revised Public Audit Act, 2015 coming into force in January 2016, the follow- up process has become more formalised. However, it is too early to assess the effectiveness of this process. At the time of assessment the audit report for 2015/16 was not issued, therefore there were no follow-up activities. The information on follow-up of audit report recommendation was provided only for two financial years, therefore the score is D. PI-30.4 Supreme Audit Institution Independence 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 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 94 Assessment of PFM performance 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 formalised. 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 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 came into effect for 2016/17. The audit process is still on-going, so it is not possible to assess how well this new process has worked. The nature of the Auditor General’s functions requires guaranteed independence. This aspect has been recognized by the International Organization of Supreme Audit Institutions (INTOSAI), in the so called Mexico Declaration on SAI Independence, recognizing eight core principles. The essential requirements for proper public sector auditing have been adopted in Kenya. It is worth noting that OAG’s budget is negotiated with officials of the National Treasury. This has not resulted in pressure of making changes or withholding funds. The OAG has unrestricted and timely access to records and documentation but the fact that its budget is submitted first to the MoF may endanger its financial autonomy. Anyway, the score A for its other attributes and for consistency with the National PEFA assessment. Summary of scores and performance table PI-30: External D+ Explanation Audit (M1) 30.1 Audit coverage & C All County budget entities have been audited the last standards three completed financial years with the exception of the extra-budgetary units. 30.2 Submission of D The Audit Reports for three financial years were audit reports to the submitted to the legislature with significant delay. legislature 95 An assessment of the public expenditure and financial accountability - Nakuru County 30.3 External audit D Summary of external audit findings implementation follow-up and follow up report for the years 2013/14 and 2014/15 have been obtained. The delay in timely response to audit issues has been brought about by delays in audit completion. The audit report for 2015/16 was not completed at the time of assessment. 30.4 Supreme Audit A The external audits of the County are executed by Institution (SAI) Office of the Auditor General, which is an independent Independence constitutional body with its own systems and procedures hence independent of the County. PI-31. Legislative scrutiny of audit reports This indicator focuses on legislative scrutiny of the audited financial reports of County government, including institutional units, to the extent that either (a) they are required by law to submit audit reports to the legislature or (b) their parent or controlling unit must answer questions and take action on their behalf. PI-31.1. Timing of audit report scrutiny It was not possible to verify the appropriate timing of the Audit Report scrutiny because documentation was not fully provided. The 2014/15 Audit Report was received on 27th of October 2016 and had yet to be scrutinized by the legislature, it could not be appropriately ascertained what is the timeframe for the scrutiny of audit reports. Evidence was not provided to verify the time of audit reports scrutiny, therefore the score is D*. PI-31.2. Hearings on audit findings The County confirmed that in-depth hearings on key findings of audit reports take place regularly with responsible officers from all audited entities. Once the report is received from the OAG, it is tabled in the County Assembly and submitted to the relevant committees which summons the relevant parties. The relevant committees follow up and prepare a final report within 2-4 weeks for submission to the County Assembly. Nevertheless, the exact timing of the audit report scrutiny could not be verified because no documentary evidence was provided. The score is D*. PI-31.3. Recommendations on audit by the legislature The audit reports are submitted to the Public Accounts Committee (PAC) of the County Assembly which in turn seeks guidance from the OAG on the findings. The County Assembly then writes to the County Secretary requesting for information 96 Assessment of PFM performance and setting a date for interrogation. The interrogation is held and a report including observations, findings and recommendations is prepared and tabled in the floor of the County Assembly. Once the report is adopted, it is forwarded to the Governor for implementation and a copy to the OAG. The implementation of the recommendations is monitored by the implementation committee or the PAC. However, no evidence of recommendations made by the legislatures for actions to be taken were provided. The score is D*. PI-31.4. Transparency of legislative scrutiny of audit reports Articles 196 and 201 of the Constitution and Section 115 of the County Government Act, 2012 states that there shall be openness and accountability, including public participation in financial matters and a County Assembly shall conduct its business in an open manner, and hold its sittings and those of its committees in public and facilitate public participation and involvement in the legislative and business of the Assembly and its committees. The PAC proceedings are open to the public except under special circumstances that the County Assembly determines. Further, audit reports are discussed in the full chamber of the house. The committee reports are however not published on the County Assembly website. However, evidence for transmission of the proceedings by the mass media, radio or TV was provided. In addition to this, no evidence was provided on the number of hearings on the audit reports and whether they were conducted in public or full chamber. The score is D. Summary of scores and performance table PI-31 Legislative scrutiny D Brief justification for score of audit reports (M2) 31.1 Timing of audit report D* No records have been provided to verify the scrutiny timing of the Audit Report scrutiny. 31.2 Hearings on audit Despite the fact that the procedure on audit findings D* findings hearings at the County Assembly of Nakuru has been extensively elaborated on by the interviewed officials, no records of such hearings have been provided. 31.3 Recommendations on D* The Assembly has a process for monitoring the audit by the legislature implementation of audit recommendations. However, no record of recommendations by the legislatures for actions to be taken up by the executive has been provided. 31.4 Transparency of D The committee reports are not published on the legislative scrutiny of audit official website of the County Assembly nor are reports the easily accessible to the public. 97 An assessment of the public expenditure and financial accountability - Nakuru County 4. CONCLUSIONS OF THE ANALYSIS OF PFM SYSTEMS 4.1 Integrated Assessment of PFM Performance Pillar I: Budget reliability The aggregate budget outturn (PI-1) shows deviation of the actual aggregate expenditure from the original, approved budget for the reason that there was a delay in the disbursement of equitable share from the National Government in the first year and over budgeting. Even though disbursements were made in time in the consecutive fiscal years, the aggregate expenditure outturn was 90% and 92%. Such fiscal results may not undermine fiscal discipline but may limit the ability of the County Government to control expenditure and manage fiscal risk. It can also affect the County’s ability to effectively plan and allocate resources to strategic policy priorities. Variance in expenditure composition by economic classification was large in three financial years. Even when the County has not charged any expenditure to contingency vote during the assessment period, the overall score is low due to the huge variance in expenditure composition (PI-2). The revenue outturn (PI-3) shows that the change in revenue between the original approved budget and end-of-year outturn was significant. This was due to optimistic revenue forecasts of own source revenue and poor collection of budgeted revenue. This led to in-year budget reviews and reallocations on spending, given that borrowing was not an option. Pillar II: Transparency of public finances The transparency of public finances is still not comprehensive, consistent, and accessible to the public. The budget classification (PI-4) of government budget and accounts is consistent with international standards, but is not sufficient (Level 2) to allow transactions to be tracked throughout the budget’s formulation, execution, and reporting cycle according to administrative unit, economic category, or sub- function. The transparency of all government revenue and expenditure is low as there are no reports on the operation of the extra budgetary units. The published information on service delivery performance and budget documentation is not readily accessible. Because of low transparency the legislature and the civil society 98 Conclusions of the analysis of PFM systems are deprived of getting the information they need to hold the County Executive accountable for their budget policy decisions and for the management of public funds. The Budget documentation (PI-5) which is prepared by the County does not cover enough elements to assess the comprehensiveness of the information provided in the annual budget documentation. Budget estimates do not present previous year’s budget outturn in the same format as the budget proposal. There are revenue and expenditures (PI-6) which are not reported in the County Government financials. Extra budgetary units are in the process of being established and do not report on their performance. This contributes to lower transparency of government operations and hence a gap in the analysis of whether County Government policies and objectives are attained. Information on service delivery performance is not collected and recorded (PI-8). Operational efficiency in public service delivery is a core objective of the PFM system. The inclusion of performance information within budgetary documentation strengthens the accountability of the executive for the planned and achieved outputs and outcomes of government programs and services. The lack of performance analysis of planned economic activity as well as key performance indicators with estimated output and outcome prevents the legislature from making thorough and justified consideration of the County Executive’s budget proposal. Public access to fiscal information is limited (PI-9). Only Audit Reports are published within 12 months of the fiscal’s year end. Civil society has access to information on budget proposals only hours before opening for public discussion. Information on planned investment activities is not published. Therefore, fiscal transparency is not provided because the information on government fiscal plans and performance is not easily accessible to the general public. Pillar III: Management of assets and liabilities Management of assets and liabilities is ineffective. The risks are not identified and monitored. Projects are selected by the County Assembly based on proposals made during public participation. The only financial asset that the County owns is in the form of cash. The asset maintenance practice was inherited from the previous local government structures and asset disposal has not been effected yet even though clear rules exist. The debt service is managed properly but the associated fiscal risks are not adequately analysed. The County does not face fiscal risks associated with the operations of public corporations and any lower level subnational Government units because such do 99 An assessment of the public expenditure and financial accountability - Nakuru County not exist. The County has not instituted procedures to assess the economic impact and viability of projects and no cost-benefit analysis has been undertaken (PI-11). It can therefore not be ascertained whether projects undertaken by the County would support the County Government’s social and economic development objectives. Assessing the public asset management (PI-12) is rather difficult to do. There is no such type of management of assets in the sense that will result in support to aggregate fiscal discipline by ensuring that resources are controlled and used efficiently and effectively in the implementation of policy objectives. The assets that the County of Nakuru keeps record of is (i) cash in hand at the bank and (ii) tangible fixed assets mostly inherited from the preceding local government structure that are not subject to age analysis and depreciation, hence none have been disposed of as of the time of this PEFA assessment. In such circumstance, it is expected that there are assets that may not be used effectively and others which may not be fully utilized. Although accurate revenue forecasts are a prerequisite for preparation of credible budgets, the County does not prepare macro-fiscal forecasts due to capacity constraints and inaccurate mapping of revenue sources (PI-14). The County has only inherited domestic debt (matured pending bills) and during the period of assessment was not eligible to borrow. The management practices are generally not very satisfactory - the debt is recorded but it is not regularly reconciled, hence the control may not lead to efficient and effective arrangements of debt payment. This impacts the Country’s capacity to maintain fiscal discipline. Effective management including regular reconciliation is necessary to ensure that the cost is minimized in the long term and that the County has the capacity to meet their obligations when they are due. Pillar IV: Policy bases fiscal strategy and budgeting Policy-based fiscal strategy and the budgeting are not prepared with due regard to County Government’s fiscal policies, strategic plans, macroeconomic and fiscal projections. Nevertheless, good fiscal forecast practices exist coupled with clear budget preparation process and legislative scrutiny. Budget elaboration process is based on a comprehensive and clear budget circular. The County Government prepares forecasts of revenue and expenditure for the budget year and the two following fiscal years, but does not present the underlying assumptions for the forecasts. Ceilings are established during the CFSP preparation but are fixed only after the budget calendar has been issued. 100 Conclusions of the analysis of PFM systems The County Executive does not prepare its own macroeconomic forecasts and does not carry out any sensitivity analysis with assumptions. Fiscal forecasts and budget for the MTEF period of three years is prepared. Sensitivity analysis, which is in essence a modelling on uncertainty, looking for options in case unpredicted circumstance arises, is not prepared by the County. This had an impact on prioritizing expenditure and implementation of activities of strategic importance to the Government of Nakuru County. The County Government does not carry out any fiscal impact analysis (PI-15). Best practice is that the County prepares a CBROP annually providing a review of fiscal performance, as well as a Fiscal Strategy Paper elaborating on fiscal goals and targets for the medium term. Expenditure budgets are developed for the medium term within budget expenditure ceilings (PI-16). However, they are not submitted together with the budget circular. There is no alignment of strategic plans and medium-term budgets, to previous year’s estimates. Forward year estimates need to be linked to strategic planning in order to provide a medium-term perspective allowing for the effects on future years to be more apparent, predicted and eventually provided for in the budget planning. The budget preparation process (PI-17) is satisfactory with effective participation of relevant stakeholders. It is generally orderly and timely with clear annual budget calendar and timely submission to the legislature. A major weakness is that there are no budget ceilings thereby making information provided in advance of preparing budget proposals insufficient. The procedure for budget scrutiny is clear and allows for legislative debates as provided for in law. Public participation is not well effected because civil societies are not informed in good time about the respective budget debates in the County Assembly. The timing of the budget approval is generally good with the exception of the third year assessed. There are clear rules for in-year amendments. Pillar V: Predictability and control in budget execution Budget execution is still not well predicted and controlled though good practices exist in revenue accounting and internal control of non-salary expenditure. Effective management of policy and programme implementation requires predictability of resources, controls and compliance with laws and regulations during budget execution. The County’s revenue administration which is an essential component of the PFM system is weak (PI-19). There are inadequate channels for informing 101 An assessment of the public expenditure and financial accountability - Nakuru County tax payers about their rights and obligations as well as clearly understanding procedures for seeking redress. Although revenue collecting entities reportedly undertake audits and fraud investigations, this has not been documented as required by established procedures. Besides, it is not clear whether instances of non-compliance are revealed, reported and rectified. Information on the stock of revenue arrears are not recorded, making it impossible to control and manage the arrears. Revenue accounting is managed well (PI-20) with procedures for recording and reporting revenue collections, consolidating revenues collected and reconciliation of revenue accounts being in place. This indicates compliance with tax laws and strengthens the fiscal discipline and the administrative capacity to allocate budget resources to strategic priorities. However, reconciliation of arrears has not been done and there is no monitoring of the difference between what is due and what has been paid. No evidence has been made available to show if the County provides (PI- 21) reliable cash commitments forecasts and requirements and reliable information on the availability of funds to budgetary units for service delivery. Fiscal discipline requires that the resources are used effectively to achieve fiscal objectives. The expenditure arrears (PI-22) covering stock of arrears and monitoring show a systemic problem which is not being addressed and brought under control. This is the accumulation of huge stock of arrears which is not reconciled and keeps accumulating. Carrying forward unsettled bills over time can cause huge and increasing cost to the government undermining the fiscal discipline and affecting the service delivery. Payroll controls (PI-23) have not been demonstrated to be strong. Ghost workers, personnel data gaps and control weaknesses have been identified in the payroll audit. There is no evidence that the payroll system is reconciled with the personnel database even though both are reported to be regularly updated. The lack of retroactive adjustment and the existence of some internal control on the payroll seem to ensure certain degree of data integrity and audit trail. The transparency of the public procurement arrangements is not satisfactory (PI- 24). Information on the County procurement plans and the contracts awarded are not made public. The emphasis with the selection of procurement method is not in favour of the open and competitive procedures. The records of data exist for most procurement methods, even though the majority of the tenders are procured through non-competitive methods. The transparency is additionally aggravated by the fact that the access to appeal and redress arrangements is not free of charge for those who complain. 102 Conclusions of the Analysis of PFM Systems The effectiveness of internal controls for non-salary expenditures is adequate (PI- 25). There is segregation of duties even though there are some weaknesses. The majority of payments are compliant with regular payment procedures. Expenditure commitment controls are generally in place and mostly limit commitments to projected cash availability, nonetheless expenditures arrears do occur even with the current controls. The budget entities are not prevented from incurring unauthorized commitments through system controls, regulations and procedures. There is regular feedback to management about the performance of the internal control systems (PI-26), through an Internal Audit function. The IA practice though has been found to be still in process of development. The Internal Audit function does not use risk based approach and does not keep record of data on the percentage of audited budget entities in terms of total planned expenditure and revenue. In the public sector, the function is primarily focused on compliance audit but not on the adequacy and effectiveness of internal controls. There is need for improvement in the focus of audit, the standard audit preparation and audit process documentation. Quality assurance is not applied and the internal audit is not sufficient to ensure sound functioning of the internal control environment. Pillar VI: Accounting and reporting The financial information is timely and relevant but not fully reliable. This triggers delays in providing correct financial information which is needed to support fiscal and budget management and decision-making processes. The key treasury accounts are reconciled at different times, even though they are not all cleared by end of financial year (PI-27). The accounting processes in place support integrity of financial data through the IFMIS only where data is processed and verified against documents. The financial data is reviewed by internal audit but the audit process is not developed yet to ensure that areas vulnerable to risk are covered by annual scrutiny. This may affect the internal control system and make it break easily. The budget execution reports (PI-28) are relatively comprehensive and accurate. While the information on budget execution is prepared in good time, reporting on commitments and payments is prepared separately and is not part of the in- year budget reporting. Information on budget execution including revenue and expenditure data exists, but is not presented in the format of the budget document. This does not facilitate performance monitoring and makes comparison between budgeted and actual data less traceable. Deviations from budgets go through an adjustment process after the approval of the decision makers adjusting budget execution to better meet objectives and achieve desired outcomes. 103 An assessment of the public expenditure and financial accountability - Nakuru County The AFS (PI-29) are generally complete, timely, and consistent with generally accepted accounting principles and standards. They provide information on revenue, expenditure, assets and liabilities and are also accompanied by a balanced cash flow. They also provide a record of how resources were obtained and used and but do not allow easy comparison with plans. The timeliness of submission of reconciled year-end financial reports for external audit is a key indicator of the effectiveness of the accounting function. This area needs improvement especially concerning the quality of the financial statements submitted for external audit that are often returned because of incomplete and erroneous data. The accounting principles and national standards (consistent with international cash-basis IPSAS) used are transparent and understandable. This contributes to accountability and transparency throughout the entire PFM system. Pillar VII: External scrutiny and audit The external audit and scrutiny by the legislature as currently undertaken do not hold the County Government accountable for its fiscal and expenditure policies and their implementation. The public finances are independently reviewed but the external follow-up on the implementation of recommendations for improvement by the County Executive has not been efficient. The Audit Reports are issued with delay. They are scrutinized with delay and effective hearings are not confirmed. Thus, the external audit is not effective to enable adjustments and corrections in the PFM system. The scrutiny by the legislature does not result in actions to be taken up by the County Executive, nor is their work transparent to the public. 4.2 Effectiveness of the Internal Control Framework Control environment An internal control system is put in place is to ensure effective oversight in addressing risks and providing reasonable assurance that operations are sound. The analysis of the internal control system in the County of Nakuru has been done in view of the following four control objectives: (i) operations are executed in an orderly, ethical, economical, efficient, and effective manner; (ii) accountability obligations are fulfilled; (iii) applicable laws and regulations are complied with; and (iv) resources are safeguarded against loss, misuse and damage. Based on the available information provided by the County, the internal control practice in place is not sufficient in order to contribute to the achievement of the four control objectives. National level Internal Control framework is indicative 104 Conclusions of the analysis of PFM systems 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 (Section 3). Risk assessment 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 implies that no risk responses can be made to reduce the likelihood or downside outcomes for key operations. Potential future events that create uncertainty are not covered for. Risks which are not provided for exist in all stages of public finance management: • Pillar 2: Transparency of public finances: County is not able to capture expenditure and revenue outside financial reports (PI-6), this creates the risk of having incomplete budget environment, potential misuse of funds and poor service to the public. • Pillar 3: Management of assets and liabilities: 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 loss making investment. No practice of debt reconciliation with creditors (PI-13). • Pillar 4: Policy based fiscal strategy and budgeting: with no practice to provide for uncertain economic events and the lack of sensitivity analysis, the County generally fails to link policy formulation and programmed activities with the budget estimates; the risk of having inadequate resource allocations which are prone to amendments is not treated. • Pillar 5: Predictability and control in budget execution: the revenue administration practice does not have an integrated revenue management system in place to detect and arrest potential revenue risks and to manage arrears (PI-19). The County fails to keep proper accounting of expenditure arrears leading to a risk of accumulation (PI-22). The approved staff establishment is not linked to the Integrated Payroll and Personnel Database (IPPD), which is also not linked to IFMIS (PI-23). This creates a risk of 105 An assessment of the public expenditure and financial accountability - Nakuru County ghost workers, even though payment controls are formalised and applied. Procurement practice shows that non-competitive selection methods are mostly applied, which creates the risk of favouritism, 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 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). Control activities 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 the 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 in the area of transparency of public finances and are related to non-captured expenditure and revenue outside financial reports (PI-6). Under 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). However, there are control activities in place for budget execution with clear control of payment rules for all operations captured by IFMIS even though those outside the system are not all covered. The control is not sufficient for the record of actual staff in IPPD and HR personnel records. Some staff are paid through the manual system which is outside the records and the payroll. Weak internal control systems lead to unreliable financial records resulting into loss of organizational integrity, which may affect the execution of the budget and implementation of projects. Information and communication This internal control element deals with the methods and records used to register, maintain, and report on facts and events of the entity, as well as to maintain accountability for the related assets, liabilities, and initiatives of the County. There are inadequate channels for dissemination of budget related documents to the public despite it being a legal requirement. Internal information and communication is mainly through orders and management letters. None of the basic elements of fiscal information were made public with the exception of the external Audit Report which is issued with delay (PI-9). The County is in the 106 Conclusions of the analysis of PFM systems 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 Monitoring involves assessment of 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. The assessment established that the monitoring framework at the County is weak, with the main tool being quarterly reports and the budget execution reports. The County Budget Review and Outlook Paper (CBROP) acts as an economic assessment tool. There are no specific reports on consistency of performance of planned outputs and outcomes as well as explanations of deviations. The internal control framework is not efficient to safeguard against irregularities and errors. The areas ineffectively controlled include; (i) performance information for service delivery; (ii) public access to fiscal information; (iii) monitoring of fiscal risk; (iv) monitoring on public investment; (v) poor public asset management information. In terms of assessment of the quality of internal control systems, the County has established Internal Audit Department which is in process of preparing internal audit procedures or processes. Presently, the focus of internal audit is mainly on compliance and regulatory issues and is yet to provide full oversight of the effectiveness of the internal control system. Meanwhile, external audit system is much more advanced and focuses on financial audit with elements of internal control. Apart from their usual financial report 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. The assessment of the oversight activities of the County Assembly (see PI-31) indicates that the control practice has been ineffective. The effectiveness of the County Assembly’s role in building a sound internal control system is undermined by the lack of hearings of the external audit findings, no transparency of the external audit scrutiny and no evidence of recommendations to the County Executive. This implies that the legislative scrutiny cannot serve as reinforcing mechanisms to the effectiveness of the internal control system of the County. Lack of properly instituted internal control systems/procedures affects the financial reporting process and may ultimately lead to production of unreliable reports which negatively impacts on the accountability of management. Detailed 107 An assessment of the public expenditure and financial accountability - Nakuru County 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), and loss of revenue and embezzlement of public funds (Pillar 4). There is inadequate internal control over external factors such as unexpected economic, social and natural disaster events. 4.3 PFM Strengths and Weaknesses 1. Aggregate fiscal discipline The County Assembly reviews the annual budget which includes estimates of expenditure for the MTEF period allocated by administrative, economic and programme classification and the medium-term priorities. Large deviations in expenditure composition outturn (by function and economic classification) and revenue outturn composition and the inability of the County to capture expenditure and revenue outside financial reports undermine budget credibility. Lack of macroeconomic forecasts, fiscal impact analysis and inability to link policy formulation and programming of activities to budget estimates impairs medium- term perspective in expenditure budgeting. The County does not keep proper records of expenditure arrears with ageing analysis for effective monitoring. Revenue administration is generally weak because risk management framework is not applied on matters related to revenue collection. However, revenue is collected and banked daily in most cases and consolidated monthly. Personnel records and payroll management is satisfactory as it is automated using IPPD and any change is recorded and leaves an audit trail. The County uses IFMIS to execute the budget with a clear segregation of duties and separate levels of approval of different stages of payment. The system users have passwords and the system maintains audit trail. 2. Strategic allocation of resources The revenue collection is automated and the collections are banked daily and swept into CRF accounts on a timely basis. However, the revenue department does not have an integrated revenue management system to detect and prevent potential revenue risks and to manage arrears. 108 Conclusions of the analysis of PFM systems Revenues and expenditures are allocated within a medium-term expenditure framework and a budget ceiling. Forecasts of revenue and expenditure are not based on County specific projections on those of the National Government. Underlying assumptions are not considered. There is no policy on public investment for selection of viable investment projects with key indicators for inclusion in the budget. The County has prepared only one supplementary budget in each of the past three years. There is Internal Audit Department which applies international internal audit standards but it is yet to strengthen its practice. The IA Department does not have a comprehensive work plan to undertake sufficient coverage and review of internal control system. In addition, it could not be established whether there are follow ups on audit recommendations and implementation of audit plans. The IA Department focuses on regularity and financial controls, but not on systemic approach. Legislative scrutiny of the OAG Audit Report has some weaknesses namely: no formalised procedures on timing; lack of procedures on documenting the hearing sessions and making recommendations to the County Executive; and no transparency of the legislative scrutiny process. 3. Efficient use of resources for service delivery The efficiency and effectiveness in use of public services is not subject to systematic review by the County Executive. The County has not developed tools and capacity to prepare programme budgets that are focused on service delivery. The objectives and targets of the CIDP are not translated into specific budget priorities. Key performance indicators are not formalised to assess and select public service oriented development projects. While a database of procured contracts exists, the County applies mostly non- competitive method in selection of contractors. Tender bids are published on the website but information on the County procurement plans, annual procurement statistics and details of contracts awarded are not published. An important drawback in procurement is that complaints are handled at national level and fees are charged for consideration of claims. There is no electronic portal for information on public procurement. The role of the County Assembly in the use of public funds by the County Government is not active. The practice of legislative hearings with observations, criticisms and recommendations on the use of public funds has not been demonstrated to be efficient in the use of public resources. 109 An assessment of the public expenditure and financial accountability - Nakuru County 5. GOVERNMENT PFM REFORM PROCESS 5.1 Approach to PFM Reforms In Kenya, the National Government through the National Treasury takes the lead in initiating and implementing PFM reforms. The government of Kenya has undertaken PFM reforms since 2006 and has been elaborated in Vision 2030. The current PFM reform strategy is elaborated in the Strategy for public Finance management reforms in Kenya 2013-2018. The overall goal of this Reform Strategy is to ensure “A public finance management system that promotes transparency, accountability, equity, fiscal discipline and efficiency in the management and use of public resources for improved service delivery and economic development”. The main areas of emphasis in the strategy include: (i) macro-economic management and resource mobilization, (ii) strategic planning and resource allocation, (iii) budget execution, accounting and reporting and review, (iv)independent audit and oversight, (v) fiscal decentralization and intergovernmental fiscal relations, (vi) legal and institutional framework and (vii) IFMIS and other PFM systems. IFMIS has been implemented at the national and the county levels in order to reinforce accountability, but still has room for improvement in terms of offering solutions to procurement-related challenges. At the county level, there is need for a better appropriation and reinforced controls. More operations are by- pass IFMIS at the county level than at the national level. The implementation of a single treasury account should ensure the national and county governments perform better monitoring the movement of funds. The PFM Act allows for the establishment of a committee to check on the use of funds and disciplinary measures that can be taken in the event of misappropriation. However, proper monitoring of public resources would be possible if IFMIS is fully used at the county level a Business Intelligence layers is implemented to facilitate data analysis and visualisation. 5.2 Recent and On-Going Reform Actions The assessment identified the following as on-going reforms that are aimed at enhancing governance, administration and decision making for better service delivery at the County level. The County is updating the Land Valuation Rolls (this is a schedule of all leasehold land owners) and will therefore be able to quantify 110 Government PFM reform process land rates payable vis-a-vis actual collections and possibly identify defaulters. Thus, the arbitrary nature of the land rates will be removed and this will also enable proper revenue estimation. A Bill on annual borrowing limit will be drafted and presented to the County Assembly for adoption. Considering the current level of debt, the 2017 MTDMS will further reinforce measures to reduce county debt as proposed in 2016 MTDMS and will also formulate additional strategies to deal will future debt. The County Government will continue to build capacity of the Debt Management Unit in term of staffing and training to ensure that it is in position to handle all matters relating to borrowing and servicing of debt. The County Treasury will continue to maintain effective linkages with the National Treasury to facilitate future borrowing and provision of technical advice. The procurement directorate is in the process of developing procurement and disposal manual. Plans are also underway to have all professionals obtain practising certificate apart from being members of their respective professional bodies. In the meantime, employees in the directorate are undergoing training to enhance their work performance. The County Government is in the process of appointing Internal Audit Committee members. The County Assembly has also started the process of recruiting Internal Audit Committee members as provided for in the Article 167 of the Public Finance Management Regulations 2015. The County is in the process of preparing the County Strategic Plan and a Virement policy for reallocation across budget lines. The payroll section has conducted training for its staff to enhance their capacity to deliver services; and finally, technical Assistance is being provided to the County in the preparation of financial statements by an audit firm Other key reforms which are still outstanding and are relevant to this PEFA assessment are: (i) the deployment of the Treasury Single Account at county government level; (ii) strengthening the strategic planning and budget formulation by providing strong integrated results framework and costing of planning documents (Medium-Term Plans, Sector and County Strategies); (iii) improvement of investment programme management by strengthening the control and enhancing appraisal, selection and monitoring procedures over projects; (iv) improve efficiency in budget execution by introducing quarterly cash planning and cash flow practices in Ministries, Departments, and Agencies and counties; (v) implementing comprehensive cash management reforms by strengthening commitment control and reporting and enhancing in-year budget monitoring and reporting both at the national and county government levels. 111 An assessment of the public expenditure and financial accountability - Nakuru County 5.3 Institutional Considerations 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. Focus, however, is to be on improving expenditure efficiency. The preceding analysis of Nakuru County PFM system indicates that to improve its performance, enhancement of own source revenues is necessary. Further, establishing predictable flow of central government grants (conditional and unconditional) is also necessary to enable preparation of realistic medium-term fiscal plans. 112 Annex 1: Performance indicator summary This annex provides a summary table of the performance indicators. The table specifies the scores with a brief explanation for the scoring for each indicator and dimension of the current 2017 PEFA assessment. COUNTY NAME: NAKURU Current assessment Pillar Indicator/Dimension Score Description of requirements met Subnational PEFA indicator D+ HLG-1.1. Outturn of transfers from A The transfers have been at least 95 per higher-level government cent of the original budget estimate in two of the last three years. HLG-1.2. Earmarked grants outturn D No comprehensive data that could be traced to all budget documentation was obtained in order to allow reliable calculation. HLG-1.3. Timeliness of transfers D* The dates of actual transfers for from higher-level government 2014/15 and 2015/16 were not provided. PI-1 Aggregate expenditure B The aggregate expenditure outturn out-turn was at least 90% in two of the assessed fiscal years PI-2 Expenditure composition outturn (i) Expenditure composition D* The County did not prepare outturn by function expenditure by department for the year 2013/14 and 2014/15. Data was only available for year, 2015-2016. (ii) Expenditure D Variance in expenditure composition composition outturn by by economic classification was more economic type than 15 % in all three years. (iii) Expenditure from A The County has not charged any contingency reserves. expenditure to contingency vote during the assessment period. PI-3 Revenue outturn D (i) Aggregate revenue D The actual revenue was below 92% in outturn all three years. (ii) Revenue composition D Variance in revenue composition was outturn more than 15% in all three years. 113 Budget Reliability HLG-1: Transfers from a higher level of government (M1) An assessment of the public expenditure and financial accountability - Nakuru County PI-4 Budget Classification C Budget formulation based on administrative, programming and economic classification applies GFS Codes issued by National Treasury. PI-5 Budget Documentation D The County fulfils 2 elements: one basic and one additional elements. PI-6 Central government D operations outside financial reports (i) Expenditure outside D* The extra budgetary units do not financial reports prepare financial reports (ii) Revenue outside D* The extra budgetary units do not financial reports prepare financial reports (iii) Financial reports of D* The extra budgetary units do not extra-budgetary units prepare financial reports PI-7 Transfers to N/A There is no sub government under the subnational County level governments (i) System for allocating transfers (ii) Timeliness of information on transfers PI-8 Performance D information for service delivery (i) Performance plans for D Performance plans are not prepared service delivery and performance is not measured. (ii) Performance achieved D There are no KPIs, output and for service delivery outcome in order to monitor performance. (iii) Resources received by D Survey not conducted in any of the last service delivery units three fiscal years on resources received by the service delivery unit for at least one large ministry (iv)Performance evaluation D Evaluation of the efficiency or for service delivery effectiveness of the service delivery units have not been carried out for the last three fiscal years. PI-9 Public access to D The County fulfils only three elements: information two basic and one additional PI-10 Fiscal risk reporting D (i) Monitoring of public N/A The County is yet to institute any corporations public corporations. (ii) Monitoring of sub- N/A No further devolved units exist in this national government (SNG) and all other counties. (iii) Contingent liabilities D The County does not have contingent and other fiscal risks liabilities as a separate item within the budget. The fiscal risks are mentioned in the CFSP but they are not quantified. 114 Management of assets Transparency of Public Finances and liabilities Annex PI-11 Public investment D management (i) Economic analysis of D There is no economic analysis of investment proposals investment projects. (ii) Investment project D The decisions on selection of selection investment projects are not based on any economic analysis but rather on discretion of County Assembly after public consultations. (iii) Investment project D There is no technical methodology for costing project costing. (iv) Investment project D There are no standard procedures monitoring and guidelines for project monitoring developed and applied. PI-12 Public asset D+ management (i) Financial asset C The only financial assets held by the monitoring County are cash in hand and at bank. (ii) Nonfinancial asset D Assets are listed but information on monitoring age and value is not provided. (iii) Transparency of asset D The County has not disposed of any disposal asset and this is not showing in budget documentation PI-13 Debt management D (i) Recording and reporting D Records on debt are updated annually of debt and guarantees but it is not clear if there are annual reconciliations. (ii) Approval of debt and N/A There is moratorium on borrowing guarantees Majority of the debt emanates from expenditure arrears. (iii) Debt management D The County has Debt Management strategy Strategy papers. The Strategy should cover the medium term but the current one is prepared to cover a single financial year. PI-14 Macroeconomic and D+ fiscal forecasting (i) Macroeconomic C The County Treasury adopts the forecasts macroeconomic indicators from the National Government which guide the preparation of CBROP, CFSP and budget estimates (ii) Fiscal forecasts C The information is contained in the CFSP, CBROP but the budget estimates are not accompanied by underlying assumptions. (iii) Macro-fiscal sensitivity D The County does not carry out any analysis sensitivity analysis in relation to own source revenue. PI-15 Fiscal strategy C 115 Policy-based fiscal strategy and Management of assets and liabilities budgeting An assessment of the public expenditure and financial accountability - Nakuru County (i) Fiscal impact of policy D The County Government does not proposals carry out any fiscal impact analysis. (ii) Fiscal strategy adoption B The County prepares a Fiscal Strategy Paper annually which contains clear fiscal goals and targets for the medium term (budget year and two following years). (iii) Reporting on fiscal C Fiscal outcomes are reported annually outcomes but no explanation of deviations is provided. PI-16 Medium term D+ perspective in expenditure budgeting (i) Medium-term A The County prepares annual budget expenditure estimates estimates for the budget year and the two following years allocated by administrative, economic, and functional classification. (ii) Medium-term D The preliminary medium term expenditure ceilings expenditure ceilings are provided for in the CBROP which is submitted after the issuance of the budget calendar. (iii) Alignment of strategic D The County Government has not plans and medium-term prepared any Sectoral Strategic Plans budgets but is in the process of preparing the overall County Strategic Plan. (iv) Consistency of D There is no consistency between the budgets with previous year last medium-term budget and the estimates current medium-term budget both at the ministry level and the aggregate level and no explanations are given for the deviations. PI-17 Budget preparation B process (i) Budget calendar A Budgetary units had more than six weeks to complete their detailed estimates. (ii) Guidance on budget D The County Government submits preparation a comprehensive budget circular which includes guidelines on budget preparation but does not include ministry ceilings. (iii) Budget submission to A The annual budget proposals have the legislature been submitted to the legislature two months before the start of the fiscal year. PI-18 Legislative scrutiny of budgets (i) Scope of budget scrutiny A The legislature’s review covers all budget documents (ADP, CFSP, CBROP and budget estimates) which include budgetary priorities and medium-term revenue and expenditure estimates and forecasts. 116 Policy-based fiscal strategy and budgeting Annex (ii) Legislative procedures A The legislature’s procedures to review for budget scrutiny budget proposals are contained in Standing order 210 which gives guidance on formation of budget committees and process of budget scrutiny (which includes public participation). (iii) Timing of budget C The legislature has approved the approval annual budget within one month of the start of the year over the last three fiscal years and delayed by two months in the third year. (iv) Rules for budget C Clear rules exist as per PFM Act adjustments by the 2012 and they allow administrative executive reallocation and expansion of expenditures PI-19 Revenue administration D (i) Rights and obligations D The information is not available in for revenue measures the official website. The civil society indicated lack of a clear channel of redress process and procedure. (ii) Revenue risk D There is no documented risk management management approach for assessing and prioritizing compliance risk. (iii) Revenue audit and D Revenue audits not reported on investigation according to a documented compliance improvement plan due to non- existence of such a document and practice. (iv) Revenue arrears D* Information on the stock of revenue monitoring arrears for the last completed fiscal year was not available. PI-20 Accounting for C+ revenues (i) Information on revenue A Information on revenue collection is collections obtained daily. The entire revenue collection report is consolidated into monthly and quarterly reports. (ii) Transfer of revenue A The revenue collected is swept every collections two weeks to the County Revenue Fund account at CBK (iii) Revenue accounts C Revenue accounts reconciliations are reconciliation done monthly, however reconciliation of arrears has never been done to date. PI-21 Predictability of in-year C+ resource allocation (i) Consolidation of cash C Based on the evidence provided, the balances County consolidates all the bank and cash balances on monthly basis in internal reports and annually for external use. (ii) Cash forecasting and C County prepares an annual cash flow monitoring projection based on the approved budget. 117 Predictability and control in budget execution Policy-based fiscal strategy and budgeting An assessment of the public expenditure and financial accountability - Nakuru County (iii) Information on D Commitment ceilings are made commitment ceilings available to the budgetary units one month before the deadline for them to submit their budget expenditure commitments. (iv) Significance of in-year A The County undertakes in-year budget budget adjustments adjustment once every year through a circular issued by the Budget Department to all departments. PI-22 Expenditure arrears D+ (i) Stock of expenditure D The stock of expenditure arrears were arrears more than 10% of the total expenditure for all the three completed fiscal years. (ii) Expenditure arrears C Monitoring is done monthly, all monitoring unsettled bills are carried over to the following reporting period. PI-23 Payroll controls D (i) Integration of payroll D There was no evidence of procedures and personnel records applied for reconciliation of payroll and personnel records. (ii) Management of payroll A The retroactive adjustments were changes negligible at 0.02%. (iii) Internal control of B Authority to change records and payroll payroll for employees in the IPPD is restricted, results in an audit trail, and is adequate to ensure full integrity of data. (iv) Payroll audit B A payroll audit covering all County Government entities has been conducted once in the last three completed fiscal years. PI-24 Procurement C+ (i) Procurement monitoring B The data was accurate and complete for most procurement methods for goods, services and works. (ii) Procurement methods D The County applied non-competitive procurement methods at 61.3% as opposed to competitive procurement methods at 38.7%. (iii) Public access to D Materiality was not ascertained for procurement information the majority of the procurement operations made available to public. (iv) Procurement A The procurement complaint system complaints management meets all criteria. PI-25 Internal controls on B nonsalary expenditure (i) Segregation of duties A The existing segregation of duties provide for different level of authorization or approval, recording of invoice and reconciliation and audit 118 Predictability and control in budget execution Annex (ii) Effectiveness of B Expenditure commitment controls expenditure commitment exist limiting commitments to controls approved budget allocations for most types of expenditure. (iii) Compliance with D* No data was provided to verify how payment rules and much of the payments made are procedures compliant with regular payment procedures. PI-26 Internal audit D effectiveness (i) Coverage of internal D There is no data to estimate the audit percentage of audited budget entities in terms of total planned expenditure and revenue. (ii) Nature of audits and D There was no systematic approach standards applied to audit as there were no properly documented audit working papers. (iii) Implementation D There was no Annual Audit Plan for of internal audits and the completed fiscal year. reporting (iv) Response to internal D There was no evidence to show that audits the management responded to internal audit findings. PI-27 Financial data integrity C (i)Bank account B Bank reconciliations are prepared reconciliation monthly by the 7th of the following month for all key active bank accounts. (ii) Suspense accounts D Deposit account for procurement purposes are cleared at year end, however suspense accounts generated by the inadequate support of IFMIS are not cleared at the year-end but they are monitored (iii) Advance accounts D Imprest accounts are reconciled annually but the amounts are not cleared. (iv) Financial data integrity B There is no operational unit to verify processes financial data integrity. PI-28 In-year budget reports C+ (i)Coverage and C The County prepares quarterly budget comparability of reports reports. The reports show budgeted expenditure against actual expenditure and compare the original budget with expenditure at the main administrative headings. (ii) Timing of in-year B In-year budget execution reports are budget reports prepared on quarterly basis and are issued within a month after the end of the quarter. (iii)Accuracy of in-year C Expenditure is captured at the budget reports payment stage., but there is no budget execution analysis on a half-yearly basis. 119 Accounting and Reporting Predictability and control in budget execution An assessment of the public expenditure and financial accountability - Nakuru County PI-29 Annual financial D reports (i)Completeness of annual C The Annual Financial Statements do financial reports not disclose on guarantees and long- term obligations. (ii) Submission of reports B The consolidated Annual Financial for external audit Statements were submitted to the Auditor General as per the PFM Act. (iii) Accounting standards D The standards used in the preparation of the statements are not disclosed and do not appear as notes in the AFS. PI-30 External audit D+ (i)Audit coverage and C All County budget entities have been standards audited the last three completed financial years with the exception of the extra-budgetary units. (ii) Submission of audit D The Audit Reports for three financial reports to the legislature years were submitted to the legislature with significant delay. (iii) External audit follow- D The delay in timely response to audit up issues has been brought about by delays in audit completion. (iv)Supreme Audit A The external audits of the County Institution (SAI) are executed by Office of the Auditor independence General, which is an independent constitutional body with its own systems and procedures. PI-31 Legislative scrutiny of D audit reports (i)Timing of audit report D* No records have been provided to scrutiny verify the timing of the Audit Report scrutiny. (ii) Hearings on audit D* No records of hearings have been findings provided. (iii) Recommendations on D* No record of recommendations by the audit by the legislature legislatures for actions to be taken up by the executive has been provided. (iv)Transparency of D The committee reports are not legislative scrutiny of audit published on the official website of the reports County Assembly nor are they easily accessible to the public. 120 External scrutiny and audit Accounting and Reporting Annex Annex 2: Summary of observations on the internal control framework Internal control Summary of observations components and elements 1. Control There is a strong regulatory framework in the County which environment governs both the National and county government. 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. There are internal audit departments set up for all the county governments and annual external audits are carried out by an Independent Office of the Audit General. The Audit reports are submitted to the county assembly when completed. There was, however, a noted delay in completion of the external audits. The last received audit reports were for the year 2015-16 and the opinion was modified. 1.1 The personal and Chapter Six of the Kenya Constitution sets out the responsibilities professional integrity of leadership of all public officers. This includes Oath of office of and ethical values State officers, Conduct of State officers, Financial probity of State of management and officers, Restriction on activities of State officers, Citizenship and staff, including a leadership, Legislation to establish the ethics and anti-corruption supportive attitude commission and Legislation on leadership. These appear to be toward internal control understood and internalised by the management and staff. constantly throughout The mission was not aware of any reported ethical and integrity the organisation issues. 1.2. Commitment to No information available from the PEFA assessment. However, competence from our general understanding of the county, the senior level staff have necessary academic qualification and experience. The county has 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 the competence may not have been felt through results. 1.3. The “tone at the The PFM Act , paragraph 104- states that management must top” (i.e. management’s ensure proper management and control of, and accounting for philosophy and the finances of the county government and its entities in order operating style) to promote efficient and effective use of the county’s budgetary resources. This responsibility rest squarely with the County leadership. The tone at the top may not be adequate judging from the work of external auditors where audit findings are not acted upon. The assembly which is a key institution of control has not also played its oversight role effectively. 121 An assessment of the public expenditure and financial accountability - Nakuru County 1.4. Organisational The County has an organisational structure. structure From our discussions with management, the County structures have not been standardised. The staff expressed some concerns for instance the Revenue Department is not effective because the revenue officers are domiciled at the departments hence difficult for the director of revenue to monitor access and reward performance. 1.5. Human resource The County organisation policies are management by the County policies and practices 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 mandate 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 role of the Accounting Officer in risk management. It requires the Accounting officer to develop: - (a) risk management strategies, which include fraud prevention mechanism; and (b) 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: 11.1 Economic analysis of investment proposals, - proposed capital investment projects are not submitted to the Public Investment Committee for economic appraisal before approval; 13.3 Debt management strategy - three-year medium term debt strategy are not updated annually with associated risk, exchange rate and interest rate factors; 21.2 Cash forecasting and monitoring - as cash flow forecasts are updated quarterly on a rolling basis, based on actual cash flows 19.2 Revenue risk management – this is rated D as currently not carried out. 2.2 Risk assessment This has not been put into consideration. One example of a risk (significance and assessment would be the work in preparing a medium-term likelihood) debt strategy, updated annually and providing clear targets with associated risks. 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 at Nakuru county. 2.4 Risk appetite No information available from the PEFA assessment. assessment 122 Annex 2.5 Responses to risk No information available from the PEFA assessment. (transfer, tolerance, treatment or termination) 3. Control activities The various functions of departments are set out in the PFM Regulations. In PI-25, internal control was examined. It was found that the Accounting Division, in charge of recording and keeping the books and 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 The Government Accounting Manual sets out the systems of approval procedures 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 in order 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 Segregation of duties is rated A in 25.1 -Appropriate segregation duties (authorizing, of duties exists, in accordance with SCOA, IFMIS and government processing, recording, circulars, which specifies clear responsibilities. reviewing) 3.3 Controls over 25.3 Compliance with payment rules and procedures which is access to resources and rated B The degree of compliance is good and is improving but records some variations do occur and are reported. 27.4 Financial data integrity processes which is rated B Access and changes to records are restricted and recorded. 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 should be built-in in every transaction. This is an internal checking procedure to avoid errors or fraud. 3.5 Reconciliations PI-27.1, bank account reconciliation, was rated “D”. While monthly bank reconciliation statements are prescribed per law, issues of non-preparation,delayed submission, and non-recording of reconciling items are substantial . Bank reconciliations are however prepared monthly. 3.6 Reviews of No information available from the PEFA assessment. operating performance 123 An assessment of the public expenditure and financial accountability - Nakuru County 3.7 Reviews of 13.3 Debt management strategy which is rated ‘A’. The county operations, processes prepares a three-year medium term debt strategy, updated and activities annually. 24.1 Procurement monitoring which is rated ‘C’ this is comprehensive, and is not published annually. 3.8 Supervision No information available from the PEFA assessment. (assigning, reviewing and approving, guidance and training) 4. Information and All County governments are required to report quarterly and communication annually to the Controller of Budget, the Office of Auditor General and the National treasury through the production of financial reports in a template provided by the PSASB. 5. Monitoring PI-26, Internal Audit, found that internal audit has been formally establishedthat audit programs are largely completed, but with delays. 5.1 Ongoing monitoring Ongoing monitoring in the County government involves checking the completeness of transaction documents and reports. Transaction documentation has to be complete in order to substantiate the transaction. Operational and financial reports are tools for monitoring performance, subsequent planning, and decision-making 5.2 Evaluations Example of the evaluations that take place are found in the following PIs: 8.4 Performance evaluation for service delivery is rated ‘C’ 11.2 Investment project selection which is rated ‘D’. Major investment projects are not evaluated before they are included in the budget 5.3 Management PI-26.4 examined response to internal audits and was rated responses “B”. Internal audit reports provide recommendations that are presented to the head of the audited unit. Management response is solicited to indicate corresponding action plan, and a formal response is received in most instances within 12 months. Due the lack of an audit committee and inadequate senior management support, there is no clear follow up of the management actions. 124 Annex Annex 3. Sources of information by indicator The data on aggregate budgeted expenditure was obtained from the original budget. To confirm that the budget was approved the estimate was compared against the amounts in the respective Appropriation Act. The information on expenditure has been obtained from the economic classifications in the annual financial statement, more specifically the statement of receipts and payments. The shortcoming of comparing budgeted expenditure to actual expenditure by economic classification is that the classification in the approved budget does not match those reported in the financial statements because the financial statements have been prepared based on IPSAS cash. Indicator/dimension Data Sources I. Budget reliability Sub-national PEFA indicator HLG-1.1. Outturn of transfers from higher-level • Annual budget estimates government approved by the legislature; HLG-1.2. Earmarked grants outturn • Annual budget execution report or annual financial statements. HLG-1.3. Timeliness of transfers from higher- • AFS for the three financial years level government PI-1. Aggregate expenditure outturn • Annual budget estimates 1.1 Aggregate expenditure outturn approved by the legislature; • Annual budget execution report PI-2. Expenditure composition outturn • Annual budget estimates approved by the legislature; 2.1. Expenditure composition outturn by • Annual budget execution report function or annual financial statements. • AFS for the three financial years 2.2. Expenditure composition outturn by economic type 2.3. Expenditure from contingency reserves PI-3. Revenue outturn • Annual budget estimates 3.1 Aggregate revenue outturn approved by the legislature; • Annual budget execution report 3.2 Revenue composition outturn or annual financial statements. • AFS for the three financial years II. Transparency of public finances PI-4. Budget classification • Annual budget document for 4.1 Budget classification 2015/16 • GFS list • Copy of a standard chart of accounts 125 An assessment of the public expenditure and financial accountability - Nakuru County PI-5. Budget documentation • Last annual budget estimates and 5.1 Budget documentation approved budget for 2015/16. • County Fiscal Strategy Paper for 2015/16 • Annual Development Plan 2013- 14, 2015-15, 2015 -2016 , 2016-17 PI-6. Central government operations outside financial reports 6.1 Expenditure outside financial reports • Information from Treasury 6.2 Revenue outside financial reports 6.3 Financial reports of extra-budgetary units PI-7. Transfers to sub-national governments 7.1 System for allocating transfers • N/A 7.2 Timeliness of information on transfers PI-8. Performance information for • Annual financial statements; service delivery • In-year budget execution reports 8.1 Performance plans for service delivery • CFSP 8.2 Performance achieved for service delivery • MoF• County Budget Outlook Paper; 8.3 Resources received by service delivery units • Approved Estimates for three 8.4 Performance evaluation for service delivery financial years PI- 9 Public access to fiscal information • Information from MoF 9.1 Public access to fiscal information corroborated through availability at government websites, governance NGOs • Approved budget • Budget Calendar 2014/15 III. Management of assets and liabilities PI- 10 Fiscal risk reporting 10.1 Monitoring of public corporations • MoF • Annual financial statements 10.2 Monitoring of sub-national government • Budget execution reports (SNG) 10.3 Contingent liabilities and other fiscal risks PI- 11: Public investment management • Nakuru Annual Development 11.1 Economic analysis of investment proposals Plan 2014/15 and 2015/16; • Nakuru CFSP 2014/15 and 11.2 Investment project selection 2015/16 11.3 Investment project costing • County Monitoring and 11.4 Investment project monitoring Evaluation Project Report 2016• County Projects Status 2015/16 126 Annex PI-12: Public asset management 12.1 Financial asset monitoring • Consolidated financial statements 2015/16, including notes relating 12.2 Non-financial asset monitoring to the holdings of financial assets. 12.3 Transparency of asset disposal. PI-13: Debt management 13.1 Recording and reporting of debt and • Treasury guarantees • Debt Management Unit 13.2 Approval of debt and guarantees 13.3 Debt management strategy IV. Policy-based fiscal strategy and budgeting PI-14: Macroeconomic and fiscal forecasting 14.1 Macroeconomic forecasts • Annual budget documents • CBROP 2014/15 and 2015/16 14.2 Fiscal forecasts 14.3 Macro-fiscal sensitivity analysis PI-15 Fiscal strategy 15.1 Fiscal impact of policy proposals • MoF • County Fiscal Strategy Paper for 15.2 Fiscal strategy adoption 2014/15, 2015/16 and 2016/17 15.3 Reporting on fiscal outcomes PI-16 Medium-term perspective in expenditure budgeting • Annual budget estimates 16.1 Medium-term expenditure estimates • Budget circular 16.2 Medium-term expenditure ceilings • Ministry of Finance/ Planning (or 16.3 Alignment of strategic plans and medium- equivalent term budgets • MoF • Annual budget documents 16.4 Consistency of budgets with previous year’s estimates PI-17: Budget preparation process • 2016 CBROP 17.1 Budget calendar. • Budget calendar 2016/17 17.2 Guidance on budget preparation • Budget submission 2014/15, 2015/16, 2016/17 17.3 Budget submission to the legislature PI-18: Legislative scrutiny of budgets 18.1 Scope of budget scrutiny. 18.2 Legislative procedures for budget scrutiny. • SAI• MoF 18.3 Timing of budget approval. • County assembly standing orders 18.4 Rules for budget adjustments by the executive. 127 An assessment of the public expenditure and financial accountability - Nakuru County V. Predictability and control in budget execution PI-19 Revenue administration • Revenue Administration Act 19.1 Rights and obligations for revenue • Revenue collection authority measures records such as a documented report on (i) the stock of revenue 19.2 Revenue risk management arrears; 19.3 Revenue audit and investigation • Sample of daily banking slip of 19.4 Revenue arrears monitoring revenue collection;• Revenue Fraud Investigation Report; • Cumulative revenue arrears for land rates; • Cumulative revenue arrears for house rates PI-20 Accounting for Revenues • Annual Revenue Analysis 20.1 Information on revenue collections 2015/16; • Monthly Revenue Report for Feb 20.2 Transfer of revenue collections 2017; 20.3 Revenue accounts reconciliation. • Daily Collection Register; • Daily Banking Slips; • Total transfer for all banks in Feb 2017; • Weekly sweeping of revenue to Central Bank of Kenya; • A sample of revenue account reconciliation Feb 2017; • Revenue Account Balances PI-21 Predictability of in-year resource • Treasury - List of Bank Account; allocation • Revenue Report and Bank 21.1 Consolidation of cash balances. balances consolidation • Bank Balances for Feb 2017; 21.2 Cash forecasting and monitoring. • Cash flow projections 2013/14; 21.3 Information on commitment ceilings. • Cash flow 2014; 21.4 Significance of in-year budget • County Appropriation Act, 2015; adjustments. • Supplementary appropriation bill, 2016; • Supplementary Budget Guidelines PI-22 Expenditure arrears • Stock of pending bills for the 22.1 Stock of expenditure arrears. three financial years; • Total expenditure for the three 22.2 Expenditure arrears monitoring financial years PI-23 Payroll controls 23.1 Integration of payroll and personnel • Payroll analysis; records. • Payroll and personnel records; 23.2 Management of payroll changes. • Monthly payroll summary; 23.3 Internal control of payroll. • Payroll ledger – IPPD extracts 23.4 Payroll audit. 128 Annex PI-24 Procurement • Procurement plans; 24.1 Procurement monitoring. • Structure of Procurement 24.2 Procurement methods. Directorate; 24.3 Public access to procurement information. • Procurement record for nine ministries 24.4 Procurement complaints management. PI-25 Internal controls on non-salary expenditure 25.1 Segregation of duties. • IFMIS modules and segregation 25.2 Effectiveness of expenditure commitment of duties; controls. • IFMIS changing rights request 25.3 Compliance with payment rules and procedures. PI-26 Internal audit • Internal Audit Work Plan 26.1 Coverage of internal audit. 2016/17; • Internal Audit Questionnaire; 26.2 Nature of audits and standards applied • Sample Internal Audit Report – 26.3 Implementation of internal audits and Executive; reporting. • Internal Audit Report – County 26.4 Response to internal audits. Assembly;• Auditor General Management Letter VI. Accounting and reporting PI-27 Financial data integrity 27.1 Bank account reconciliation. 27.2 Suspense accounts. • Budget directorate• Accounting directorate 27.3 Advance accounts. 27.4 Financial data integrity processes PI-28 In-year budget reports 28.1 Coverage and comparability of reports. • Quarterly financial reports; 28.2 Timing of in-year budget reports. • CBROP, CFSP transmittal letters 28.3 Accuracy of in-year budget reports PI-29 Annual financial reports 29.1 Completeness of annual financial reports. • Annual Financial Reports 29.2 Submission of the reports for external 2013/14, 2014/15, 2015/16 audit. 29.3 Accounting standards. 129 An assessment of the public expenditure and financial accountability - Nakuru County VII. External scrutiny and audit PI-30 External audit 30.1 Audit coverage and standards. • SAI – OAG Audit Reports 30.2 Submission of audit reports to the 2013/14, 2014/15, 2015/16 legislature • Legislation on SAI 30.3 External audit follow up. • SAI 30.4 Supreme Audit Institution independence. PI-31 Legislative scrutiny of audit reports 31.1 Timing of audit report scrutiny 31.2 Hearings on audit findings. • SAI 31.3 Recommendations on audit by the legislature. 31.4 Transparency of legislative scrutiny of audit reports. Other documents and materials that have been used in the assessment include the following: 1. Constitution of Kenya, 2010 2. Government of Kenya Review of the Public Finance Management Reforms (PFMR Strategy) 2013-2018 report (2016) 3. World Bank and Government of Kenya In-depth Report Recommendations and Action Plan Following the Analysis of Financial Management, Procurement and Human Resource Management in Kenya County Governments (2015) 4. National Treasury 2015 Budget Review and Outlook Paper 5. County Budget Review and Outlook Papers 6. County Fiscal Strategy Papers 7. World Bank Public Expenditure Review of 2015 8. World Bank Kenya Economic Updates of 2015 and 2016 9. World Bank Country Economic Memorandum 2016 10. Government of Kenya National Capacity Building Framework Progress and Implementation Reports 11. Kenya Economic Survey 2016 12. 2016 Budget Policy Statement 130 Annex 13. Budget Summary for 2016/17 and Supporting Information 14. Division of Revenue and County Allocation of Revenue Acts 2014, 2015 and 2016 15. Revenue Books 16. Quarterly Economic and Budgetary Reviews 2015/16 17. Controller of Budget quarterly, bi-annual and annual reports 18. Auditor General Reports 19. Public Finance Management (PFM) Act, 2012 and related amendments. 20. Estimates of Revenues, Grants and Loans Book for 2016/17 21. End of assignment report to the National Treasury by PwC on the provision of technical assistance in the preparation of individual and consolidated financial statements for the County Government entities for 2014/15. (June, 2016) 22. Integrated Fiduciary Assessment Report. Program for Results for the Kenya Devolution Support Operation (KDSP). December 21, 2015 23. PEFA (2016a). Framework for assessing public financial management 24. PEFA (2016b).Supplementary guidance for sub-national PEFA assessment 25. KIPPRA Kenya Economic Report 2016 131 An assessment of the public expenditure and financial accountability - Nakuru County Annex 3A: Lists of Persons who have been Interviewed and provided information Name Function 1 Dan Odundo Principal Accountant 2 Charles Lwanga Director, Budget 3 Ashina Ashiku Wanga Budget Officer 4 Phillip Mbalwa Principal Revenue Officer 5 James Katiwa Ag. Director, Internal Audit 6 Margaret Wangari Samuel Payroll officer 7 Frankline Cheruiyot Procurement officer 8 Fredrick Omondi Internal auditor II 9 Samuel Munyeki Internal auditor – County assembly 132 Annex Annex 4: Sub-national government profile Profile of Nakuru County The sub-national government structure of Nakuru is governed and guided to a large extent by the National Government legislation. The national legal framework relevant for PFM was amended and enforced over the last 3-4 years and was meant to cover all national and sub-national structures. Due to the fact that the Devolution in Kenya was deployed only in 2013, the sub-national government structures were developed by mirroring the establishment of the higher level national government. The administrative structures of Nakuru consist of; (i) Office of the Governor; (ii) County Assembly and (iii) County Government (Executive). The County Assembly is involved in the approval of the budget of the executive by its budget committees, however it has no role in the monitoring process. The budget monitoring is performed by the Budget Controller at the County Executive administration. The main responsibilities of the County Assembly are to enact laws and oversight over the County Executive. County Assembly receives and approves plans and policies for management of the county’s financial resources. Members of the County Assembly (MCAs) are elected by voters at the Wards and some are nominated by political parties. The Governor as well the members of the Assembly are independently elected in county elections. The County Government has not yet developed specific legal framework for its own structures. The economic activity is mainly agriculture and tourism. The County of Nakuru serve a population of 1,603,325 spread over 11 constituencies on total 7496 km2 with population density of 214 per km2. The Devolution of year 2010 established a lower sub-national government level with all national level legislation being mirrored in the county environment. That is why there are no laws developed or reforms undertaken in the County of Nakuru as of the time of this assessment. The total expenditure as of end 2016 is Ksh 10,799 million, the expenditure per capita is Ksh 6,503 and the own-source revenue Ksh 515,019,231 or only 5 per cent of total revenue in financial year 2016. 133 An assessment of the public expenditure and financial accountability - Nakuru County Table A: Overview of sub-national governance structure in Nakuru County Government level or administrative tier Local Corporate body Yes Own political leadership Yes Approves own budget Yes Number of jurisdictions 1 Average population 1,603,325 Percentage of public expenditure/total revenue 100 Percentage of public revenues 0 Percentage funded by transfers 100 Main Functional Responsibilities of the Sub-national Government The Constitution of Kenya, 2010 in the Fourth Schedule assigns functions between the national and count governments. The Constitution assigns the task of service delivery in key sectors like water, health and agriculture among others to county governments, with the national government’s role in some of the sectors being that of policy formulation The structure of the Government (Executive) of the County of Nakuru is as follows: I. Ministry of Agriculture II. Ministry of Education and ICT III. Ministry of Finance IV. Ministry of Health V. Ministry of Infrastructure VI. Ministry of Lands VII. Ministry of Public Service VIII. Ministry of Trade IX. Ministry of Water and Environment X. Ministry of Youth 134 Annex These functions are entirely devolved with the sub-national government, whereas the functions of defence and overall coordination and oversight as well as external audit are with the national government. Schedule 4 of the Constitution clearly lists the distinct functions of the national and county governments. The National Government shall pass legislations and implement policies to support the Devolution process as well as provide adequate support to county government to perform their functions while the county governments will be responsible for service delivery at the county level in addition to other functions. Sub-national Budgetary Systems The National Government laws and regulations guide to a high degree the sub- national budget cycle. The Central Bank of Kenya is the banker for the national and county governments thus monitoring to ensure the institutions aren’t at risk of overdraft, and also advises the institutions on financial matters. The County of Nakuru and its entities are supposed to hold and manage their own bank accounts in the Central Bank of Kenya, however many counties in Kenya violate this rule and deposit cash in commercial banks. The PFM Act obliges all counties to hold their account at CBK except for imprest bank accounts for petty cash which can be in commercial banks. The sub-national government have its own budget, adopted by its own approval body (by the County Assembly) and this process does not require subsequent review or modification by the national government. The County possess the authority to procure its own supplies and capital infrastructure within the context of applicable procurement legislation which is the Public Procurement and Asset Disposal Act, 2015 relevant for both national and sub-national level. The Procurement Directorate of the County Executive is in charge of the entire supply chain management. They prepare annually a Project Implementation Status Report providing information on value of procurement and the awarded contracts. However, the procurement complaints are handled at national level by a Public Procurement Administrative Review Board which is an external higher authority which is not involved in the procurement process. 135 An assessment of the public expenditure and financial accountability - Nakuru County Sub-national Fiscal Systems The composition of financial resources collected and received by the County of Nakuru is similar to all sources of revenue for the county governments in Kenya and they are equitable share, conditional grants and own source revenues. The Constitution of Kenya (Article 209) provides that a county may impose: property rates; entertainment taxes and any other charges for the services they provide. The main tax revenue source of Nakuru County is from various charges related to business permits, parking and market fees, as well as cess. The collection of own source revenue, as well as the budgeting process for own revenue, has been improving in the three years of assessment. The County, however, does not show in its AFS as detailed breakdown of own source revenue as in the budget estimation documentation. The budgeted and the actually reported revenue streams are not easily comparable. The transfers constitute the majority revenue fund of the counties in Kenya. They are allocated by the National Treasury on the basis of the county population applying a specific formula. The main transfers are the equitable shares and the earmarked grants transferred from the national government to the counties which constitute nearly 100% of the County revenue of Nakuru. These transfers are distributed quarterly across the year through IFMIS. However, there are no transfers to any lower sub-national administrative structure than the County Government. Counties are allowed to borrow domestically or externally by Article 212 of the Constitution and under Section 140 of the PFM Act, 2012. Although the legislation provides for deficit financing through borrowing, the County governments were restrained from borrowing in the absence of a clear borrowing framework over the three financial years of assessment. Thus, the County of Nakuru has not accumulated debts this far but it has inherited debt from the defunct local authorities and it supposed to set up a debt management function and to prepare a debt management strategy. These, however, have not been established yet. 136 Annex Table B: Overview of sub-national government finances for 2016/17 Item Total value Value per Per cent of capita total Ksh Ksh % Wage and salary expenditure 4,917,531,516 3,067 0.0001% Nonwage recurrent administrative expenditure 2,966,179,328 1,850 0.0001% Capital expenditure 3,105,475,236 1,937 0.0001% Total expenditure 10,989,186,080 6,854 0.0001% Own revenue 2,295,462,842 1,432 0.0001% Intergovernmental fiscal transfers 8,947,076,176 5,580 0.0001% Other revenue sources 0 0 0.0000% Total revenue 11,242,539,018 7,012 0.0001% Borrowing NA NA NA Source: AFS Sub-national Institutional (Political and Administrative) Structures The County Assembly is directly elected by the citizens of the County independently from any higher level participation. The elected County Assembly is responsible for approving the budget and monitoring the finances. The County political leadership and executive are able to appoint their own officers independent from the higher level national administration and control. The only PFM function which is still exercised by a national level institution is the external audit organised by OAG. Nevertheless, the OAG has established a local decentralised hubs of audit teams which perform the audits of a particular country but report to the headquarter at national level. The chief administration officer, the chief financial officer and the internal auditors are appointed and hired by County of Nakuru. 137 An assessment of the public expenditure and financial accountability - Nakuru County 138 Annex 5. Calculation sheet templates for Pi-1, Pi-2 and Pi-3 Calculation Sheet for PFM Performance Indicators PI-1, PI-2.1 and PI-2.3 Table 1: Fiscal years for assessment Year 1 = 2013/14 Year 2 = 2014/15 Year 3 = 2015/16 Table 2: Data for year 2013/14 (Ksh & %) Functional Head Budget Actual Adjusted Deviation Absolute budget deviation % County Treasury 1,307,766,311 1,079,140,307 1,079,140,307 1,079,140,307 1,079,140,307 100 Agriculture, Livestock and Fisheries 156,644,021 129,259,238 129,259,238 129,259,238 129,259,238 100 Health 765,894,243 631,999,266 631,999,266 631,999,266 631,999,266 100 Environment, Water and Natural Resources 441,643,921 364,434,955 364,434,955 364,434,955 364,434,955 100 Education, Sports, Youth and Social Services. 1,021,724,703 843,104,995 843,104,995 843,104,995 843,104,995 100 Lands, Physical Planning and Housing 255,476,901 210,813,980 210,813,980 210,813,980 210,813,980 100 Roads Public Works and Transport 1,545,284,495 1,275,135,145 1,275,135,145 1,275,135,145 1,275,135,145 100 Public Service Management 1,020,004,816 841,685,782 841,685,782 841,685,782 841,685,782 100 Trade, Industrialization and Tourism 575,777,178 475,118,800 475,118,800 475,118,800 475,118,800 100 ICT and E-Government 196,065,844 161,789,269 161,789,269 161,789,269 161,789,269 100 Office of the Governor and Deputy Governor 506,595,485 418,031,572 418,031,572 418,031,572 418,031,572 100 Annex 139 County Public Service Board 0 0 0 0 - County Assembly 1,010,547,831 833,882,084 833,882,084 833,882,084 833,882,084 100% Allocated expenditure 8,803,425,749 7,264,395,392 7,264,395,392 7,264,395,392 7,264,395,392 - Interests - - - - - - Contingency 100,000,000 - - - - - Total expenditure 8,903,425,749 7,264,395,392 - - - - Overall (PI-1) variance 82 Composition (PI-2) variance 100 Contingency share of budget 0 Source: CBROP An assessment of the public expenditure and financial accountability - Nakuru County 140 Table 3: Data for year 2014/15 (Ksh & %) Functional Head Budget Actual Adjusted budget Deviation Absolute deviation % County Treasury 831,913,973 - 752,025,365 -752,025,365 752,025,365 100 Agriculture, Livestock and Fisheries 625,276,018 - 565,230,830 -565,230,830 565,230,830 100 Health 3,102,353,840 - 2,804,435,140 -2,804,435,140 2,804,435,140 100 Environment, Water and Natural Resources 466,356,505 - 421,572,341 -421,572,341 421,572,341 100 Education, Sports, Youth and Social Services. 807,417,882 - 729,881,631 -729,881,631 729,881,631 100 Lands, Physical Planning and Housing 226,159,477 - 204,441,407 -204,441,407 204,441,407 100 Roads Public Works and Transport 998,742,300 - 902,833,186 -902,833,186 902,833,186 100 Public Service Management 572,692,465 - 517,696,870 -517,696,870 517,696,870 100 Trade, Industrialization and Tourism 316,320,266 - 285,944,065 -285,944,065 285,944,065 100 ICT and E-Government 75,766,411 - 68,490,571 -68,490,571 68,490,571 100 Office of the Governor and Deputy Governor 232,457,766 - 210,134,872 -210,134,872 210,134,872 100 County Public Service Board 77,193,432 - 69,780,555 -69,780,555 69,780,555 100 County Assembly 1,181,277,862 - 1,067,839,878 -1,067,839,878 1,067,839,878 100 Allocated expenditure 9,513,928,197 8,600,306,712 8,600,306,712 -8,600,306,712 8,600,306,712 Interests - - - - - - Contingency 40,000,000 - - - - Total expenditure 9,553,928,197 8,600,306,712 - - - - Overall (PI-1) variance 90 Composition (PI-2) variance 100 Contingency share of budget 0 Source: CBROP Annex 141 Table 4: Data for year 2015/16 (Ksh& %) Functional Head Budget Actual Adjusted Deviation Absolute deviation % budget County Treasury 1,206,045,091 950,422,287 1,120,003,494 -169,581,206 169,581,206 15 Agriculture, Livestock and Fisheries 720,159,382 706,288,857 668,781,814 37,507,044 37,507,044 6 Health 4,014,454,753 4,143,393,167 3,728,055,759 415,337,408 415,337,408 11 Environment, Water and Natural Resources 713,072,421 504,989,998 662,200,451 -157,210,452 157,210,452 24 Education, Sports, Youth and Social 953,065,378 684,775,925 885,071,844 -200,295,919 200,295,919 23 Services. Lands, Physical Planning and Housing 311,472,306 372,016,946 289,251,267 82,765,679 82,765,679 29 Roads Public Works and Transport 1,191,424,135 1,368,351,426 1,106,425,625 261,925,801 261,925,801 24 Public Service Management 969,577,136 733,752,823 900,405,622 -166,652,799 166,652,799 19 Trade, Industrialization and Tourism 307,170,204 353,901,362 285,256,086 68,645,277 68,645,277 24 ICT and E-Government 95,514,215 111,660,465 88,700,046 22,960,419 22,960,419 26 Office of the Governor and Deputy Governor 236,360,492 213,493,566 219,498,076 -6,004,510 6,004,510 3 County Public Service Board 85,643,635 44,592,002 79,533,652 -34,941,650 34,941,650 44 County Assembly 1,029,444,948 801,547,255 956,002,347 -154,455,092 154,455,092 16 allocated expenditure 11,833,404,098 10,989,186,080 10,989,186,080 0 1,778,283,256 Interests - - - - - - Contingency 50,000,000 - - - - - Total expenditure 11,883,404,098 10,989,186,080 - - - - Overall (PI-1) variance 92 Composition (PI-2) variance 16 Contingency share of budget 0 Source: CBROP An assessment of the public expenditure and financial accountability - Nakuru County 142 Table 5: Results for PI-1 for PI-2.1 for PI-2.3 Year total exp. deviation Composition variance Contingency share 2013/14 82% 100.0% 2014/15 90% 100.0% 0.0% 2015/16 92% 16.2% Annex 143 Calculation Sheet for Expenditure by Economic Classification Variance PI-2.2 Table 1 - Fiscal years for assessment Year 1 = 2013/14 Year 2 = 2014/15 Year 3 = 2015/16 Table 2: Data for year 2013/14(Ksh & %) Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Compensation of employees 2,055,354,955 4,500,934,004 1,676,984,959 2,823,949,045 2,823,949,045 168.4 Use of goods and services 2,950,149,667 1,330,873,422 2,407,057,042 -1,076,183,620 1,076,183,620 44.7 Consumption of fixed capital 3,497,359,390 769,075,791 2,853,531,006 -2,084,455,215 2,084,455,215 73.0 Interest 400,561,737 326,822,385 -326,822,385 326,822,385 100.0 Subsidies 0 0 0 Grants 663,512,175 0 663,512,175 663,512,175 Social benefits 0 0 0 Other expenses 0 0 0 Total expenditure 8,903,425,749 7,264,395,392 7,264,395,392 0 6,974,922,440 overall variance 122.6 composition variance 96.0 Source: AFS An assessment of the public expenditure and financial accountability - Nakuru County 144 Table 3: Data for year 2014/15(Ksh & %) Economic head budget actual adjusted budget deviation absolute deviation % Compensation of employees 4,369,173,012 4,429,938,345 3,564,852,585 865,085,760 865,085,760 24.3% Use of goods and services 2,216,446,035 2,412,398,083 1,808,420,805 603,977,278 603,977,278 33.4% Consumption of fixed capital 2,968,309,150 1,642,008,330 2,421,873,548 -779,865,218 779,865,218 32.2% Interest 0 0 0 Subsidies 0 0 0 Grants 115,961,954 0 115,961,954 115,961,954 Social benefits 0 0 0 Other expenses 0 0 0 Total expenditure 9,553,928,197 8,600,306,712 7,795,146,939 805,159,773 2,364,890,210 overall variance 111.1% composition variance 30.3% Source: AFS Table 4: Data for year 2015/16(Ksh & %) Economic head Budget Actual Adjusted budget Deviation Absolute deviation % Compensation of employees 4,919,199,048 4,917,531,516 4,013,624,407 903,907,109 903,907,109 22.5 Use of goods and services 3,382,442,185 2,265,880,928 2,759,768,893 -493,887,964 493,887,964 17.9 Consumption of fixed capital 3,581,762,865 3,105,475,236 2,922,396,658 183,078,578 183,078,578 6.3 Interest 0 0 0 Subsidies 504,466,129 0 504,466,129 504,466,129 Grants 147,869,379 0 147,869,379 147,869,379 Social benefits 47,962,893 0 47,962,893 47,962,893 Other expenses 0 0 0 Total expenditure 11,883,404,098 10,989,186,080 9,695,789,958 1,293,396,123 2,281,172,052 Overall variance 108.1 Composition variance 23.5 Source: AFS Annex 145 Table 5: Results Matrix Year total expenditure deviation Composition variance 2013/14 122.6% 96.0% 2014/15 111.1% 30.3% 2015/16 108.1% 23.5% An assessment of the public expenditure and financial accountability - Nakuru County 146 Calculation Sheet for PFM Performance Indicators PI-3: Revenue composition outturn Table 1: Fiscal years for assessment Year 1 = 2013/14 Year 2 = 2014/15 Year 3 = 2015/16 Table 2: Data for year 2013/14 (Ksh & %) Economic Head Budget Actual Adjusted Budget Deviation Absolute Deviation Per cent Own source revenue Property Tax 1,120,000,000 230,169,891 655,017,384.2 -424,847,493.2 424,847,493.2 64.9% Single Business Permit 300,000,000 345,189,270 175,451,085.0 169,738,185.0 169,738,185.0 96.7% Market Fee 170,000,000 69,381,684 99,422,281.5 -30,040,597.5 30,040,597.5 30.2% Building Approval 85,000,000 35,258,693 49,711,140.8 -14,452,447.8 14,452,447.8 29.1% CESS 100,000,000 49,077,348 58,483,695.0 -9,406,347.0 9,406,347.0 16.1% Royalties 120,000,000 25,643,131 70,180,434.0 -44,537,303.0 44,537,303.0 63.5% Stock/Slaughter Fees 16,547,812 3,660,539 9,677,771.9 -6,017,232.9 6,017,232.9 62.2% House Rent 50,000,000 32,136,014 29,241,847.5 2,894,166.5 2,894,166.5 9.9% Advertising 85,000,000 69,142,288 49,711,140.8 19,431,147.2 19,431,147.2 39.1% Parking Fees 235,000,000 233,601,312 137,436,683.3 96,164,628.7 96,164,628.7 70.0% Liquor Licensing 30,000,000 6,633,000 17,545,108.5 -10,912,108.5 10,912,108.5 62.2% County Park Fees 25,000,000 0 14,620,923.8 -14,620,923.8 14,620,923.8 100.0% Water And Sewerage 5,000,000 219,280.0 2,924,184.8 -2,704,904.8 2,704,904.8 92.5% Other Local Revenue 522000000 427,340,768.0 305,284,888.0 122,055,880.0 122,055,880.0 40.0% Other Fee And Charges 213,190,461 271,937,010.0 124,681,659.0 147,255,351.0 147,255,351.0 118.1% Total revenue 3,076,738,273.00 1,799,390,228.00 1,799,390,228.0 0.0 1,115,078,716.8 overall variance 58.5% composition variance 62.0% Annex 147 Table 3: Data for year 2014/15 (Ksh & %) Economic Head Budget Actual Adjusted Budget Deviation Absolute Deviation Per cent own source revenue Property Tax 894,720,000 324,982,918 523,265,316 -198,282,398 198,282,398 37.9% Single Business Permit 254,300,000 327,139,634 148,724,036 178,415,598 178,415,598 120.0% Market Fee 132,770,000 77,759,357 77,648,802 110,555 110,555 0.1% Building Approval 66,385,000 58,127,531 38,824,401 19,303,130 19,303,130 49.7% CESS 78,100,000 42,196,617 45,675,766 -3,479,149 3,479,149 7.6% Royalties 93,720,000 115,814,409 54,810,919 61,003,490 61,003,490 111.3% Stock/Slaughter Fees 12,923,841 10,518,254 7,558,340 2,959,914 2,959,914 39.2% House Rent 39,050,000 59,373,470 22,837,883 36,535,587 36,535,587 160.0% Advertising 66,385,000 90,982,257 38,824,401 52,157,856 52,157,856 134.3% Parking Fees 203,875,000 271,556,391 119,233,633 152,322,758 152,322,758 127.8% Liquor Licensing 23,430,000 337,500 13,702,730 -13,365,230 13,365,230 97.5% County Park Fees 19,525,000 194,500 11,418,941 -11,224,441 11,224,441 98.3% Water And Sewerage 3,905,000 3,237,055 2,283,788 953,267 953,267 41.7% Other Local Revenue 500,000,000 505,779,098 292,418,475 213,360,623 213,360,623 73.0% Other Fee And Charges 166,501,750 218,200,395 97,376,376 120,824,019 120,824,019 124.1% Total revenue 2,555,590,591 2,106,199,386 1,494,603,807.1 611,595,578.9 1,064,298,015.0 overall variance 82.4% composition variance 71.2% An assessment of the public expenditure and financial accountability - Nakuru County 148 Table 4: Data for year 2015/16 (Ksh & %) Economic Head Budget Actual Adjusted Budget Deviation Absolute Deviation Per cent Own Source Revenue Property Tax 620,000,000 319,171,789 488,847,341.5 -169,675,552.5 169,675,552.5 34.7% Single Business Permit 420,000,000 384,962,894 331,154,650.7 53,808,243.3 53,808,243.3 16.2% Market Fee 105,000,000 63,614,650 82,788,662.7 -19,174,012.7 19,174,012.7 23.2% Building Approval 80,325,859 36,928,134 63,334,004.2 -26,405,870.2 26,405,870.2 41.7% CESS 125,910,000 46,262,249 99,275,433.5 -53,013,184.5 53,013,184.5 53.4% Royalties 103,092,000 163,641,687 81,284,274.4 82,357,412.6 82,357,412.6 101.3% Stock/Slaughter Fees 20,000,000 4,716,120 15,769,269.1 -11,053,149.1 11,053,149.1 70.1% House Rent 50,000,000 47,475,050 39,423,172.7 8,051,877.3 8,051,877.3 20.4% Advertising 288,000,000 100,842,351 227,077,474.8 -126,235,123.8 126,235,123.8 55.6% Parking Fees 265,000,000 282,619,325 208,942,815.3 73,676,509.7 73,676,509.7 35.3% Liquor Licensing 85,000,000 43,326,840 67,019,393.6 -23,692,553.6 23,692,553.6 35.4% County Park Fees 5,000,000 58,600 3,942,317.3 -3,883,717.3 3,883,717.3 98.5% Water And Sewerage 4,500,000 0 3,548,085.5 -3,548,085.5 3,548,085.5 100.0% Other Local Revenue 189,321,839 287,035,278 149,273,351.1 137,761,926.9 137,761,926.9 92.3% Other Fee And Charges 550,000,000 514,680,179 433,654,899.7 81,025,279.3 81,025,279.3 18.7% Total revenue 2,911,149,698 2,295,335,146 2,295,335,146.0 0.0 873,362,498.2 overall variance 78.8% composition variance 38.0%