GAZETTE NOTICE NO. 11208

in accordance with the provisions of Article 229 of the Constitution of Kenya and Section 35 of the Public Audit Act, 2015. I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit. In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion section of my report, the financial statements present fairly, in all material respects, the financial position of Kenya Revenue Authority as at June 30, 2017, and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards (Accrual Basis) and comply with the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. In addition, as required by Article 229 (6) of the constitution, except for the matters described in the Basis for Qualified Opinion and Other Matter sections of my report, based on the procedures performed, I confirm that, nothing has come to my attention to cause me to believe that public money has not been applied lawfully and in an effective way. Basis for Qualified Opinion 1.0 PROPERTY PLANT AND EQUIPMENT The statement of financial position reflect property plant and equipment values of KSh. 30,478,727,000 as confirmed in Note 8 to the financial statements. Included in this figure is KSh. 24,540,066,000 in respect of revalued land and building. The revaluation was done in June 2017 by the Authority internal professionals using the market comparison approach. A review of the revaluation of property, plant and equipment report revealed the following anomalies: • The minutes of the Board meeting approving the revaluation of the assets has not been presented for audit verification. • The effective date of the revaluation has not been indicated in the revaluation documents. • The revaluation report reflected values of Land and Building closing balance of KSh. 24,106,581,000 while the financial statement reflects values of KSh. 24,540,066,000. The difference of KSh. 433,385,000 between the two set of figures has not been explained. 2.0 WORK IN PROGRESS Note 8 to the financial statement reflects KSh. 3,723,041,000 as Work in Progress as 30th June, 2017. However, the balance of KSh. 3,723,041,000 does not include KSh.1,639,138,000 of One Stop Border Post (OSBP) works that were in progress, completed and were included in the final land and building revaluation report as indicated in the table below: Station Description Amount (KSh.) Busia OSBP Office Block 41,158,083 Malaba OSBP Office Block 90,532,134 6:24 PM THE KENYA GAZETTE 30th October, 2018 3802 3802 Station Description Amount (KSh.) Isebania OSBP Office Block 206,015,201 Taveta OSBP Office Block 25,662,776 Namanga OSBP Office Block 670,000,000 Moyale OSBP Office Block 605,778,891 Total 1,639,138,085 In addition, during the Financial Year 2016/2017, Kenya Revenue Authority spent a total sum of KSh. 777,139,000 on various projects. However, the Authority has failed to present for audit verification payment vouchers to support the expenditure of KSh. 777,139,000. Therefore, the work in progress of KSh. 3,723,041,000 cannot be confirmed correct. 3.0 CASH AND BANK BALANCES The cash and bank balances reflected in the statement of financial position of KSh. 6,524,721,000 is not in agreement with the cash and bank balances analyzed from the authority records of KSh. 6,603,424,000 as indicated below: - Amount in Financial Statements Verified Amount Variance Cash at hand 782,617 288,476 494,142 Cash at bank 1,636,379,641 1,730,651,388 (94,271,746) Fixed Deposits 1,450,225,968 1,435,151,271 15,074,696 Treasury Bills 3,437,333,750 3,437,333,750 - Total 6,524,721,000 6,603,424,000 (78,702,000) The difference of KSh. 78,702,000 has not been explained by the authority management. Further, the Authority did not disclose in its financial statements for 2015/2016 for two bank accounts held at Kenya Commercial Bank- Wajir, account no. 1135877165 and National Bank-Dollar A/C- KESRA- Nairobi account No. 0202015000900 with balances of KSh. 50,345 and USD 4,195.50 respectively. The non-disclosure of the two bank accounts has not been explained nor were their proceeds part of the closing cash and bank balances. 4.0 DEBTORS 4.1 OTHER AGENCY DEBTORS The statement of the financial position and as confirmed in Note 10 to the financial statements reflect debtors and receivables of KSh. 553,968,000 which include other agency debtors of KSh. 271,228,000. Included in total accrued income shown in the ledger is KSh. 30,324,284 relating to other income. The balance reflected in the financial statement as other agency debtors of KSh. 271,228,000 is overstated by KSh. 30,324,284 as tabulated below. Date Description Journal Voucher Number Amount (KSh.) 18/10/2016 Document Processing Fees 5259 6,032,782 Sale of Tamper proof seals 5259 2,555,948 Miscellaneous income (Customs) 5259 2,612,312 Public Overtime 5259 1,000,891 Miscellaneous Income (Domestic) 5259 2,585,992 24/01/2017 Document Processing Fees 11142 6,510,994 Sale of Tamper proof seals 2,379,379 Miscellaneous income (Customs) 562,898 Public Overtime 629,102 Miscellaneous Income (Domestic) 1,888,500 21/4/2017 Document Processing Fees 17732 2,007,004 Sale of Tamper proof seals 789,651 Miscellaneous income (Customs) 508,033 Public Overtime 260,798 Total 30,324,284 4.2 LONG OUTSTANDING STAFF DEBTORS During the year 2015/2016, the Authority had an Outstanding Staff debtor’s balance of Kshs 81,245,000 which included staff travel imp-rest amounting to KSh. 50,005,708. The closing balance of KSh. 50,005,708 was recorded in Company A KSh. 44,517,778 and Company B KSh. 5,487,930 respectively. A review of debtors in 2016/2017 financial year reveals that the long outstanding staff travel imp-rest debtors for company Amounting to KSh. 2,248,829 had been excluded from the staff debtors’ balances of Kshs 122,923,000 in the financial statements as confirmed by Note 10 to the financial statement and as listed below Unverified debtors and not in 2016/2017 Financial Year Schedule of Travel Imprest Debtors Date P/Number Name Amount 6/29/2016 20742 Francis Kamau 10,400.00 7/30/2015 103 Hadi Abdullahi 31,200.00 5/23/2016 15635 Stephen Wafula 15,750.00 12/8/2015 7918 Charles E Onduso 105,320.00 6/3/2016 18782 George Munene 24,600.00 5/20/2016 17086 Laveeen Mutira 5,000.00 6/19/2015 16127 James Murage 100,000.00 12/31/2011 70006 Pcv 303 C. Kiprotich 6,830.00 6/9/2016 17398 James Kirimi 44,800.00 6/16/2016 17784 Evaline Rotich 31,200.00 6/29/2016 19126 Kariuki Njamwitha 100,000.00 8/19/2015 2272 Mercy M Mbithi 310,752.00 6/17/2016 19047 Latifa Omar 41,234.05 30th October, 2018 THE KENYA GAZETTE Date P/Number Name Amount 9/9/2015 4190 John Kamau Kamau 317,859.75 2/9/2016 DIFF Rounding Off (61.60) 4/11/2016 14587 Simon Onyango 31,490.00 10/9/2002 CHQ.1743 Chq.1743-M. H. Masoud 31,500.00 2/5/2016 10201 Isaac Karangi 33,600.00 4/28/2016 15188 Angelina S. Mbangula 33,800.00 3/1/2016 10374 Kevin Guserwa 40,980.00 5/16/2016 15474 Kenneth Mburu 42,000.00 6/13/2016 17612 Ann Kamanda 42,000.00 6/29/2016 19097 Nicholas N Mayenze 44,800.00 9/18/2015 2787 Joseph Tonui 46,800.00 3/16/2016 12121 January Wambua 50,400.00 5/16/2016 15474 Carol B N Mitau 67,200.00 5/16/2016 15474 Essie Gikuhi 70,000.00 7/5/2015 13558 Samuel Kariuki 87,100.00 6/6/2016 17004 Wangui Mwaniki 100,800.00 5/26/2016 16185 Benson Olando 106,200.00 9/19/2011 3453 Sep$018eugene Waluvengo 275,275.60 Total 2,248,829.80 5.0 INCOME 5.1 CAPITAL GRANTS The statement of financial position and as confirmed by Note 18 to the financial statement indicates capital grant by the National Treasury and other donors of KSh. 18,249,137,000. The National Treasury and other Donors paid KSh. 1,814,647,000 directly to suppliers for goods, works and services towards projects undertaken by the Authority. The amounts have not been disclosed in the financial statement. The non-recording and non- amortization of the benefits accruing from donated assets and services may lead to understated assets and revenues in the financial statements. Further the management has failed to provide a full list of all completed donor funded projects and their total costs. Disclosures in the notes to the accounts as required by paragraphs 106 and 107 of IPSAS 23 has not been adhered to. Therefore, the grants have been understated by KSh. 1,814,647,000. 5.2 COMMISSION INCOME The statement of financial performance and as confirmed in Note 4a to the financial statements reflect commission income of KSh. 1,785,534,000. Excluded in this is income on commission earned on collection of standards levy, concession fees, insurance deduction commission and merchant superintendent shipping levy (MSSL) on behalf of Kenya Bureau of Standards, Kenya Airports Authority, various insurance companies and Kenya Maritime Authority respectively. The total commission earned from the four organizations but omitted from the statement of financial performance is KSh. 11,718,748, KSh. 2,546,202, KSh. 5,062,051 and KSh. 26,552,285, respectively. Management has not explained the reasons for this omission. 5.3 DEFERRED GRANT INCOME AMORTIZATION The statement of financial performance reflect deferred grant income amortization of KSh. 82,085,000 whereas the amount computed during our audit verification for the year is KSh. 48,133,417 resulting to a misstatement of the grant income by KSh. 33,951,271 as shown below: Acquisition year Cost Year Depreciation Accum. Dep Balance Motor Boat 2009/10 10,013,000 2015/16 1,251,625 8,761,375 1,251,625 10,013,000 2016/17 1,251,625 10,013,000 0 X-Ray Scanner 2009/10 141,221,856 2015/16 17,652,732 123,569,124 17,652,732 141,221,856 2016/17 17,652,732 141,221,856 0 WB-Power backup 2011/12 135,146,034 2016/17 16,893,254 101,359,526 33,786,509 WB Projects 2011/12 76,791,446 2016/17 9,598,931 49,194,520 27,596,926 WB Projects 2012/13 21,895,000 2016/17 2,736,875 13,684,375 8,210,625 Total 48,133,417 5.4 UNRECOGNIZED DEFERRED GRANT INCOME In addition, the Authority received assets as donations during the year and the previous years which were not disclosed during the year under review. Some of these assets not disclosed but identified are: - three (3) scanners donated by China Government in 2015/2016, five motor vehicles (5) donated by JICA and an ERP system from JICA. The deferred income associated with the use of these assets has not been recognized in the financial statement under review. Therefore deferred income recorded in the statement of financial performance of Kshs 82,085,000 cannot be confirmed. 6.0 VARIANCES BETWEEN THE FINANCIAL STATEMENTS, LEDGER AND TRIAL BALANCE FIGURES Comparison of the financial statements figures in the 2016/2017 Financial Year against the ledger and trial balance figures of the agency for the same year revealed differences in some specific items as indicated below. Item Description Financial Statement Balance (KSh.) Ledger Balance (KSh.) Trial Balance (KSh.) Designated Fund 62,248,174 202,705,923 62,248,174.30 Consultancy 135,930,478 389,477,271 135,930,478.19 Work in Progress-SAP 3,723,041,247 5,480,542,971 3,723,041,247.03 Travelling and Accommodation 982,586,232 1,167,431,333 982,586,232.47 Printing and Stationery 37,834,904 36,323,403 37,834,904.28 6:24 PM THE KENYA GAZETTE 30th October, 2018 3804 3804 Item Description Financial Statement Balance (KSh.) Ledger Balance (KSh.) Trial Balance (KSh.) Computer Expenses 580,145,509 282,082,690 580,145,509.94 Training Expenses 300,766,336 284,299,636 300,766,367.05 Miscellaneous Income 76,120,000 56,170,328 61,377,718 Staff cost 14,070,197,000 14,070,196,570.03 13,342,182,053 These variances have not been explained or reconciled. Therefore the figures in respect to the respective items reflected in the financial statements cannot be confirmed. 7.0 DUPLICATE INVOICES Included in the trade creditors and accounts payable of KSh. 1,603,725,000 as indicated in Note 15 is local creditors of KSh. 937,810,367 which includes duplicate invoices of KSh. 50,927,000. Therefore the local creditors balances as 30th June, 2017 is overstated by KSh. 50,927,000. The duplication of invoices which lead to overstating the accounts payable balance by KSh. 50,927,000 has not been explained and therefore the total creditor and payable balances of KSh. 1,880,766,000 reflected in the statement of financial position cannot be ascertained. 7.0 ACCRUED EXPENSE Avic International and Kenya Revenue Authority signed a two year scanners maintenance contract on 18/2/2016 at a contract sum of USD 1,458,607.50 annually. The maintenance cost per year is KSh. 151,275,000 but the amount accrued as expenses for the financial year under consideration is KSh. 177,574,000 as indicated in Note 7(a). The scanner maintenance expenses therefore were overstated by KSh. 26,299,000. Further, the accrued scanner maintenance expenses was not reported as a liability in the financial statements at the end of the financial year 2016/2017. Therefore the deficit/surplus for the year is understated by KSh. 26,299,000. 8.0 INSURANCE EXPENSES During the year under review, included in insurance expenses of KSh. 69,178,000 as shown in Note 5(b) is a total of KSh. 8,240,000 insurance premiums paid to Miran Insurance Brokers Limited and APA Group Life Insurance Company for the Financial Year 2015/2016 but charged to 2016/2017 financial year. Further, insurance compensation received of KSh. 1,7954,887 was erroneously included as premiums paid during the financial year. Therefore the insurance expenses of KSh. 69,178, 000 cannot be confirmed correct. 9.0 UNSUPPORTED PAYMENTS 9.1 LAKE NAIVASHA SIMBA LODGE During the financial year 2015/2016 the Authority incurred training expenses of KSh. 300,766,000 as reflected in Note 5.b to the financial statement. Included in the training expenses of KSh. 300,766,000 is an expenditure of KSh. 6,941,000 toward provision of conference facilities for top management meeting held on 13 April 2016 at Lake Naivasha Simba Lodge. The payment was made on 29 July 2017, vide voucher no. 356/16/17 and invoice No. 2016060104. The list of participants was not signed by all participants and therefore we could not verify the propriety of this expenditure. Further this expenditure was incurred on April 2016 and therefore relates to 2015/16 Financial Year. 9.2 UNVOUCHED EXPENDITURE Included in computer expenses of KSh. 580,146,000 as indicated in Note 5 b to the financial statement is an expenditure of KSh. 127,781,000 whose payment vouchers were not availed for review and audit. Therefore the authenticity of computer expenses of KSh. 580,146,000 would not be confirmed correct. 10.0 MOTOR BOAT EXPENSES In the statement of financial performance and as confirmed by Note 7 to the financial statements reflects maintenance expenses of KSh. 395,009,000 in respect of motor boat. The motor boat expenses include KSh. 15,246,000 in respect of motor boat maintenance expenses. The motor boat maintenance expenses of KSh. 15,246,000 would not be confirmed to be expenses for 2016/2017 since only KSh. 5,866,959 was verified. The difference of KSh. 9,378,860 is an expenditure for the period 2015/2016 and therefore the expenditure for 2016/2017 is overstated KSh. 9,378,860. 11.0 MEDICAL ADVANCES WRITE OFF The Board in its 253 meeting held on 31 January 2017, approved the write off of medical advances/balances of KSh. 3,262,700 made up of KSh. 931,045 relating to former employees who are now deceased and KSh. 2,331,654 relating to former employees who exited the organization before receipt of invoices and recovery of bills were done. The write-off was irregular since there was no approval from the Cabinet Secretary in charge of The National Treasury to write off the debt as required by the Public Finance Management Act, 2012. 12.0 LEAVE PROVISION During the Financial Year 2015/2016 audit, the Authority was advised not to accumulate leave day beyond what is allowed by the human resource policy. However, it was observed that the recommendation has not been implemented and the Authority continues to provide for the unjustified leave days whose value is currently KSh. 185,454,748 at the end of the year as indicated in Note 16 to the financial statement. The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAIs). I am independent of Kenya Revenue Authority in accordance with ISSAI 30 on Code of Ethics. I have fulfilled other ethical responsibilities in accordance with the ISSAI and in accordance with other ethical requirements applicable to performing audits of financial statements in Kenya. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified opinion. Key Audit Matters Key audit matters are those matters that, in my professional judgment, are of most significance in the audit of the financial statements. Except for the matters described in the Basis for Qualified Opinion and Other Matter sections, I have determined that there are no key audit matters to communicate in my report. Other Matter 1.0 TOP MANAGEMENT PAYROLL SYSTEM In 2015/2016, the Authority contracted Delloitte and Touche to offer Payroll services through their Business Services Department Company, Livingstone Registrars Limited. This payroll service was to process salaries and remuneration for thirty two (32) top management staff. Livingstone Registrars limited role was to receive funds from the Authority make arrangements to transfer the net pay to the employees’ bank accounts and make payments on behalf of the Authority for statutory and non-statutory payments. 30th October, 2018 THE KENYA GAZETTE The contract sum for the services was an annual charge of KSh. 7,500 and a Routine Charges of KSh. 405,000. The contract was later changed to annual charge of KSh. 7,500 and a routine charge of KSh. 513,000 annually. In addition, every new employee was to be registered at cost of KSh. 1,500. The contract was irregular on the basis of the following: • The services were single sourced. • No notice inviting expression of interest had been provided by the Authority to confirm that due process was followed. • No clear terms of reference had been provided by the Authority on which the consultant was to operate. • The need assessment was not clearly identified so as the services sourced from Livingstone Registrars limited would address the gaps identified. The Authority currently has in place Memory Payroll system which maintains a General Payroll for 3,200 employees. The system is able to generate all payroll reports including pay-slips, SFI files for Bank payments, Payroll control summaries, statutory and other deduction reports, P9 reports etc. Therefore, the Memory Payroll system is sufficiently serving the authority with no fail reports made and thus no gaps were noticed to be filled by another payroll system. In 2016/2017 Financial Year, the Authority continued to use the Services of Livingston registrar even after procuring a new SAP system. So far KSh. 53,117,129 has been paid to date to Deloitte & Touche since the company was contracted in 2006. The payment of KSh. 53,117,129 has not been justified. 2.0 FAILURE OF COMMISSIONER-GENERAL TO PROCEED ON TERMINAL LEAVE The Commissioner-General’s new contract of service was renewed by the Board of Directors for a further three (3) year term beginning 4 March 2015 and was expected to end on 4 March 2018. The Board did not recommend the Commissioner General to proceed on terminal leave beginning 4 September 2017 pending his retirement in accordance with Government Circular Ref: OP/CAB.9/9A(c) dated 23 November 2010. A requirement which has not been acted upon to date. 3.0 APPOINTMENT OF COMMISSIONER OF INTELLIGENCE AND STRATEGIC OPERATIONS On 17th November, 2016, the Authority advertised the position of the Commissioner Investigations and Enforcement in the local dailies and the Authority’s website with a closing date of 2 December 2016. Forty-nine (49) applications were received in response to the advertisement for the position. Five candidates were shortlisted for interview by the Staff Committee of the Board. The staff Committee carried out oral interviews on 7 March 2017 and recommended three candidates for interview by the Board of Directors. The Board Minute No. 2761.5 indicates how the Board scored the candidates as indicated below: Rank Candidate Prior Position Candidate Name Marks Position 1 Chief Manager David S.K.Yego 77 Position 2 Deputy Commissioner James G. Mburu 75.3 Position 3 Miriam Gaituri 53.3 The Board resolved to appoint David S. K. Yego as the Commissioner Investigations and Enforcement with effect from 22nd March, 2017. The Board further appointed one of the candidates of the position of Commissioner Investigations and enforcement to head a new role as commissioner and his deployment was to be deliberated by the Board on 28 March 2017. According to Minute No. 2773, the Commissioner General made an elaborate presentation outlining the Risks facing the Authority and emphasized the need for the Authority to have a proactive stance towards intelligence management. The Board in their Minute No. 2773:5.0 recommended that the existing Ethics and Intelligence position be restructured and its mandate expanded. The position be re-titled as Intelligence and Strategic Operations. The Board in their minute No. 2773:5.0 appointed a Commissioner, Intelligence and Strategic Operations. The appointment of the Commissioner, Intelligence and Strategic Operation is in contravention of the authority established regulations as follows: • The Position of Commissioner-Intelligence and Strategic Operation was not in the Authority’s establishment and the appointment preceded creation and reorganization of the Ethics and Intelligence department mandate. • The position was not advertised both internally and externally and therefore disadvantaged other would be applicants for the position. The commissioner Intelligence and Strategic Operation has continued to enjoy the role of the Commissioner and has been paid KSh. 880,000 over and above his substantive position remuneration as Deputy Commissioner. The procedure for recruitment followed and the extra salary already paid on promotion is irregular. 4.0 APPOINTMENT OF A HUMAN RESOURCE EXPERT The Authority contracted Working Smart Limited for purposes of carrying out online Aptitude Test Services for Graduate trainees’ recruitment and establishment of a Psychometric Center for the period 2008-2014 An audit of this contract has further revealed the following issues with the above consultant— • The Authority engaged Working Smart Limited a company whose registration and existence could not be established at the time of Audit. • The Authority stopped engaging Working Smart Ltd as an entity and chose to engage one of the directors of Working Smart Ltd on the following assignment: (a) To set up a psychometric assessment centre (PAC) and implement a mentoring programme. (b) The director was contracted as a technical manager as per the letter Ref No: KRA/Conf /5/1003/31 dated 01/09/2008 for 6 months at a rate of KSh. 225,000 per month a position which did not exist in the Authority establishment then. (c) On 8 August 2008, technical manager operating as human resource consultant was contracted to perform: A Psychometric Test to 159 clerical staff and 51 office assistants, test analysis and present a report at a cost of KSh. 250,000 after out competing other human resource recruiting firms, one of which quoted KSh. 482,560 for the service and another whose quote was not disclosed. (d) On 10 March 2009, the technical manager initial contract of 1 September 2008 was extended for three (3) Months vide letter Ref No: KRA/Conf/5/1003/31 at KSh. 225,000 per month. As per letter dated 25 January 2010 Ref No: KRA/Conf/5/1003/31, a proposal was made to pay the technical manager for four months from 4 August 2009 to 4 November 2009 for a task without specific deliverables at the rate of KSh. 225,000 per month. 6:24 PM THE KENYA GAZETTE 30th October, 2018 3806 3806 (e) In a letter Ref: KRA/5/1003/90 dated 25 Jan 2010, the technical manager was reappointed for another 4 Months for the same contract at the rate of KSh. 225,000 still without specific deliverables. (f) The contract was extended by a letter Ref: KRA/5/1003/90 dated 09/06/2010 for another four months at the rate of KSh. 225, 000 still without specific deliverables. (g) The Authority engaged the technical manager to carry out a Psychometric Test for Senior Deputy Commissioners for KSh. 272, 000. (h) On 27 January 2015, the Authority engaged the technical manager now as a Human Resource Expert to support the human resource division in delivering key assignments at KSh. 25,000 per day for six (6) months with effects from 1 February 2015. (i) On 01 February 2015 vide letter Ref: KRA/5/1003/35, the Human Resource Expert was engaged to undertake a Psychometric testing at KSh. 15,000 per person the cost which would include administration of the Tests, report preparation and feedback. Based on the above analysis, the Human Resource Expert was and is still engaged as an individual and not as Working Smart Ltd and all payments advise are issued to the expert. Under the circumstances, the following conclusions are made – • That the consultancy services were single sourced. • No notice inviting expression of interest had been provided by the Authority. • The Authority had been requested to provide the necessary supporting documents to the contract but to no avail with regard to both Financial and Procurement engagement. • The Contract between Kenya Revenue Authority and the Human Resource Expert is irregular and has resulted to a payment of Kshs 6,735,570 in the Financial Year 2016/2017 alone. Responsibility of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (IPSAS) Accrual Basis and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Authority’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the management either intends to liquidate the Authority or to cease operations, or have no realistic alternative but to do so. Management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of section 7 of the Public Audit Act, 2015. Those charged with governance are responsible for overseeing the Authority’s financial reporting process. Auditor-General’s Responsibilities for the Audit of the Financial Statements The audit objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion in accordance with the provisions of section 7 of the Public Audit Act, 2015 and submit the audit report in compliance with Article 229 (7) of the Constitution of Kenya. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will always detect a material misstatement and weakness when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit conducted in accordance with ISSAIs, I exercise professional judgement and maintain professional skepticism throughout the audit. I also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, and for the purpose of giving an assurance on the effectiveness of the Authority’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. • Conclude on the appropriateness of the management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Authority’s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in the auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my audit report. However, future events or conditions may cause the Authority to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information and business activities of the Authority to express an opinion on the financial statements. • Perform such other procedures as I consider necessary in the circumstances. I communicate with the management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that are identified during the audit. I also provide management with a statement that I have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on my independence, and where applicable, related safeguards. Dated the 2nd July, 2018. EDWARD R. O. OUKO, Auditor-General. 30th October, 2018 THE KENYA GAZETTE STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30TH JUNE, 2017 2016/2017 2015/2016 Note KSh’000 KSh’000 REVENUE Revenue from non- exchange transactions Deferred grant income amortisation 24 82,085 136,611 Revenue from exchange transactions Agency Income 3 15,458,009 15,358,009 Commissions Income 4(a) 1,785,534 1,199,599 Interest Income 544,428 834,982 Sale of Number Plates - - Other Income 4(b) 440,512 314,901 TOTAL REVENUE 18,310,568 17,844,102 EXPENDITURE Administrative Expenses 5 18,061,734 15,727,699 Operating Expenses 6 1,070,839 980,537 Maintenance Expenses 7 395,009 430,052 TOTAL EXPENDITURE 19,527,582 17,138,288 Other gains/(losses) Gain / (Loss) on sale of assets 3,561 (36,270) (DEFICIT) / SURPLUS FOR THE YEAR (1,213,453) 669,544 The notes set out hereto form an integral part of the financial statements KENYA REVENUE AUTHORITY STATEMENT OF FINANCIAL POSITION AS AT 30TH JUNE, 2017 2016/2017 2015/2016 Note KSh ‘000 KSh ‘000 Assets Current Assets Cash and Bank Balances 13 6,524,721 10,052,218 Stocks 14 120,898 - Debtors and Receivables 10 553,968 506,549 7,199,587 10,558,767 Non-Current Assets Property, Plant and Equipment 8 30,478,727 15,631,210 Intangible Assets 9 12,437 7,850 Amount due from Treasury 11 3,444,499 2,131,332 Security Deposits 12 2,371,751 2,333,596 36,307,414 20,103,988 Total Assets 43,507,001 30,662,755 Liabilities Current Liabilities Creditors and Payables 15 1,880,766 2,729,301 Leave Pay and Gratuity Provision 16 1,139,136 1,121,430 Deferred Income Amortisation 24 82,085 3,019,902 3,932,816 Non Current Liabilities Contribution to Government Pension Fund 17 24,290 25,616 Designated Fund 19 62,248 204,949 Deferred Grants Income 24 132,457 - 218,995 230,565 Total Liabilities 3,238,897 4,163,381 Net Assets 40,268,104 26,499,374 Capital grants by the Treasury 18 18,249,137 17,595,182 Accumulated Fund 3,591,159 4,804,598 Revaluation Reserve 18,427,808 4,099,593 40,268,104 26,499,373 Total Net Assets and Liabilities 43,507,001 30,662,755 The financial statements set out herein were signed on behalf of the Board of Directors by; J. K. NJIRAINI, Commissioner-General. EDWARD SAMBILI (Dr.), Chairman. The notes set out hereto form an integral part of the financial statements 6:24 PM THE KENYA GAZETTE 30th October, 2018 3808 3808 KENYA REVENUE AUTHORITY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED 30TH JUNE, 2017 Capital Grants by Treasury Accumulated Fund Revaluation Reserve Total Fund Note KSh’000 KSh’000 KSh’000 KSh’000 1st July, 2015 13,360,235 4,135,067 4,196,138 21,691,441 Contribution for the year 4,234,947 4,234,947 Charge for the year (96,546) (96,546) Surplus for the year 669,544 669,544 At 30th June, 2016 17,595,183 4,804,611 4,099,592 26,499,386 1 July 2013 as previously reported Prior year adjustment 1 July 2016 17,595,182 4,804,611 4,099,592 26,499,385 Asset Revaluation 8 14,328,216 14,328,216 Contribution for the year 18 653,955 653,955 Surplus for the year (1,213,453) (1,213,453) At 30th June, 2017 18,249,137 3,591,158 18,427,808 40,268,103 The notes set out hereto form an integral part of the financial statements KENYA REVENUE AUTHORITY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30TH JUNE, 2017 2016/2017 2015/2016 KSh’000 KSh’000 CASH FLOWS FROM OPERATING ACTIVITIES Note (Deficit) / Surplus for the year (1,213,453) 669,544 Non- cash movements Depreciation 8 532,232 1,072,230 Amortisation of Intangible Assets 9 8,181 63,679 Increase in Amortisation of Deferred Income 23 (82,085) (136,611) (Gain)/Loss on disposal of Assets (3,561) 36,270 Increase in Security Deposits 12 (38,155) (75,630) Increase in Stocks 14 (51,011) Increase in Debtors and receivables (1,360,586) (41,415) Decrease in Creditors and payables (832,066) (206,004) Net cash flows from operating activities (3,040,504) 1,382,063 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property, Plant and Equipment 8 (1,123,910) (4,229,434) Purchase of Intangible Assets (12,768) (11,776) Proceeds From Sale of Property, Plant and Equipment 5,972 500 Net Cash Flows From Investing Activities (1,130,706) (4,240,710) CASH FLOWS FROM FINANCING ACTIVITIES Increase In Contribution By The Treasury and Donors 17 653,955 4,234,947 Decrease in designated Funds 18 (10,242) (25,516) Net cash flows from financing activities 643,713 4,209,431 Net (Decrease)/Increase in Cash and Cash equivalents (3,527,497) 1,350,784 Cash and cash equivalents at 1st July 10,052,218 8,701,434 Cash and Cash Equivalents At 30th June 13 6,524,721 10,052,218 The notes set out hereto form an integral part of the financial statements STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS Original Budget KSh ‘000 Adjustments Additions KSh’000 Final Budget 2016/2017 KSh’000 Actual Comparable Basis 2016/2017 KSh ‘000 Performance Difference 2016/2017 KSh ‘000 INCOME Agency fees 15,458,009 15,458,009 (0) Road Maintenance levy 1,385,670 1,348,915 (36,755) Sale of Tamper- Proof seals 13,084 9,260 (3,824) Petroleum Development levy 41,006 44,256 3,250 NTSA Agency Commission 23,797 12,701 (11,096) Document Processing Fees 37,267 22,436 (14,831) Interest income 517,658 544,428 26,770 Transit Toll 14,312 14,742 430 Rent receivable 22,264 30,961 8,697 Public Overtime 4,881 3,004 (1,877) 30th October, 2018 THE KENYA GAZETTE Institutional houses - rent 119,439 137,938 18,499 Aviation Revenue 88,554 97,081 8,527 Sugar Levy 2,300 11,983 9,683 Air Passenger Service charge 132,086 266,208 134,122 KESRA Income 209,746 160,793 (48,953) Miscellaneous Income 55,379 69,328 13,949 Deferred Income Amortisation - 82,085 82,085 Roll Over Funding 2015/2016 3,007,394 - (3,007,394) Total Operational Income - - 21,132,846 18,314,128 (2,818,718) STAFF COSTS Basic pay 9,060,703 9,011,526 49,177 Housing allowance 1,785,703 1,846,685 (60,982) Pension contribution 936,902 875,920 60,982 Nssf contribution 61,987 90,677 (28,690) Perfomance Bonus / Honoraria - 21,403 (21,403) Leave allowance 162,113 139,869 22,244 Other allowances 1,141,937 1,356,103 (214,166) Other Allowances 4,088,642 4,330,656 (242,014) Total Staff Salaries and Allowances - - 13,149,345 13,342,182 (192,837) OPERATIONAL Expenses Staff Welfare Expenses 115,819 54,083 61,736 Medical Expenses 734,492 728,015 6,477 Training Expenses 364,355 300,766 63,589 Uniform and Laundry Expenses 98,840 33,567 65,273 Travel and Accomodation 862,125 982,586 (120,461) Transfer Allowance 101,250 78,018 23,232 Utilities Expenses 393,348 354,637 38,711 Building Repairs and maintenance 131,991 200,255 (68,264) Motor Running Expenses 278,032 156,102 121,930 Motor boat running Expenses 18,019 15,246 2,773 Scanner Expenses 260,000 179,508 80,492 Rents and Rates 413,323 327,569 85,754 Computer Expenses 759,040 580,146 178,894 Security Expenses 430,409 437,371 (6,962) Insurance Expenses 78,018 69,178 8,840 Advertisements and Public Relations Expenses 327,040 275,224 51,816 Taxpayers Education 216,476 161,158 55,318 Consultancy 440,097 135,930 304,167 Secretarial Expenses 68,068 30,983 37,085 Directors Expenses 63,630 28,690 34,940 Bank Charges 101,767 75,357 26,410 Corp' strategy and review conf' exp 187,494 180,128 7,366 Office Running Expenses 290,156 273,303 16,853 Printing and Stationery Expenses 55,843 37,835 18,008 Consumable Stores Expenses 21,989 16,472 5,517 Materials and Supplies Expenses 4,190 - 4,190 Enforcement Expenses 223,220 14 223,206 Laboratory Expenses 28,100 10,865 17,235 Depreciation Expenses - 540,413 (540,413) TOTAL Operational Expenses - - 7,067,131 6,263,418 803,713 TOTAL Recurrent Expenses - - 20,216,476 19,605,600 610,876 SURPLUS FOR THE PERIOD - - 916,370 (1,291,472) (3,429,594) Notes: 1. Included in other staff allowances is a provision of KSh. 248 million for outstanding leave days. 2. Travel and accomodation expenses include KSh. 49.9 million commitments which were debtors in the FY 2015/2016. Other travel and accomodation expenses were funded under ongoing programmes and projects. 3. Building repairs and maintenance expenses include KSh. 82.9 million commitments from Financial Year 2015/2016. The commitments were funded in FY 2015/2016 4. Security expenses include KSh. 15.5 million commitments from Financial Year 2015/2016. The commitments were funded in FY 2015/2016 5. Depreciation is not a funded expense. NOTES TO THE FINANCIAL STATEMENTS 1. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION The Authority’s financial statements have been prepared in accordance to and comply with the International Public Sector Accounting Standards (IPSAS). The financial statements are presented in Kenya shillings, which is the functional and reporting currency of the Authority and all values are rounded to the nearest thousand (KSh. ‘000). The accounting policies have been consistently applied in all the years presented. The financial statements have been prepared on the accrual basis and historical cost, unless stated otherwise. The cash flow statement has been prepared using the indirect method. 6:24 PM THE KENYA GAZETTE 30th October, 2018 3810 3810 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Revenue Recognition (i) Agency Income In accordance with the Kenya Revenue Authority Act CAP 469, income to the Authority is “such amounts not exceeding 2% as may be determined by the Minister each financial year” of the total estimated revenue to be collected by the Authority on behalf of the Exchequer. In addition, the Authority is entitled to a Bonus of 3% of the surplus revenue collected above the estimates and also earns income from other activities. Agency Income is recognised. (ii) Revenue from exchange transactions Finance Revenue Finance revenue comprises interest receivable on fixed and security deposits. The revenue is recognised as it accrues in using the effective yield method. Interest income is derived from short term placements held in approved commercial banks. Rental income Rental income is recognised on a straight line basis over the lease term. Commission revenue Commission income comprises agency fees charged on collections made on behalf of other regulatory bodies. Other operating income Other income is recognised when significant risks and rewards of ownership are transferred to the recipient and the amounts of revenue can be reliably measured. (b) Development funding and capital grants by the Treasury Grants by the Treasury in form of assets or funding for acquisition of major assets or development projects are recognized as a financing reserve when received. No repayment of the financing is expected by the Authority. (c) Property, Plant and Equipment All categories of property, plant and equipment are stated at cost or valuation less accumulated depreciation and annual impairment losses. Depreciation is calculated to write off the cost or valuation of each asset to its residual value where applicable, over the expected useful life of the asset in equal instalments. A full year’s depreciation is charged in the year of purchase but no charge is made in the year of disposal. The estimated useful life is as follows: Plant and Machinery 8 years Equipment/Furniture/Fittings 8 years Boats 8 years Motor Vehicles 5 years (with a 10% residual value) Computers 3 years Computer Software 3 Years Buildings 40 years Leasehold land Over the remaining lease period Gains or losses on property, plant and equipment are determined by reference to their carrying value and are taken into account in determining the surplus / (deficit) for the year. (d) Intangible Assets Intangible assets consist of various computer software systems purchased for use by the Authority. The Authority recognises Intangible Assets acquired separately at cost less accumulated amortisation. Amortisation is charged on a straight-line basis over their useful lives as estimated by management from time to time. (e) Cash and Cash Eequivalents For purposes of the cash flow statement, cash and cash equivalents comprise cash in hand and short-term deposits held with banks. (f) Translation of Foreign Currencies Transactions in foreign currencies during the year are converted into Kenya Shillings at rates ruling at the transaction dates. Assets and liabilities at the balance sheet date, which are expressed in foreign currencies, are translated into Kenya Shillings at the rate ruling on that date. The resulting foreign exchange gains and losses are recognized on a net basis, differences are dealt with in the income and expenditure statement in the financial year in which they arise. (g) Employee Benefits Costs (i) Retirement benefit obligations The Authority operates an hybrid pension scheme with a defined contribution plan for the permanent and pensionable employees. Payments to the scheme by the Authority are recognised as an expense when employees have rendered service entitling them to the contributions. The scheme is funded by contributions from both the entity and the employees. The entity and all employees also contribute to the National Social Security Fund, which is a defined contribution scheme. ii) Other Entitlements Employees’ entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for outstanding leave at the reporting date. (h) Inventories All consumable stocks held for use in operations are classified as current assets and expensed on consumption. 30th October, 2018 THE KENYA GAZETTE (i) Receivables Receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Objective evidence of impairment of the receivables is when there is significant financial difficulty of the counter party or when there is a default or delinquency in payment according to agreed terms. When a receivable is considered uncollectible it is written off. Subsequent recoveries of amounts previously written off are credited in the Statement of Financial Performance. Changes in the carrying amount of the allowance account are recognized in the Statement of Financial Performance. (j) Payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer), otherwise they are presented as non-current liabilities. Trade payables are recognized initially at the transaction price and subsequently measured at amortized cost using the effective interest method. (k) Provisions Provisions for liabilities are recognised when there is a present obligation (legal or constructive) resulting from a past event, and it is probable that an outflow of economic resources will be required to settle the obligation and a reliable estimate can be made of the monetary value of the obligation. (l) Budget information The annual budget is prepared on Activity basis, that is, activities are identified and costs and expenditure associated to the same. (m) Nature and Purpose of Reserves The Authority creates and maintains reserves in terms of specific requirements. The Authority has created Capital Grants from the National Treasury reserves to represent the National Treasury’s input by directly funding capital development for the Authority. The Revaluation reserves represent the surplus arising from the revaluation of the Authority’s Property, Plant and Equipment. (n) Related Parties The Authority regards a related party as a person or an entity with the ability to exert control individually or jointly, or to exercise significant influence over the Entity, or vice versa. (o) Critical Accounting Estimates and Judgements in applying the Authority’ Accounting Policies In the process of applying the entity’s accounting policies, management has made estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. These are dealt with below: Critical accounting judgments in applying the Authority’s policies Impairment losses At each reporting date, the entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the entity estimates the recoverable amount of the cash generating unit to which the asset belongs. Plant and equipment Property and equipment is depreciated over its useful life taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed at the reporting date and may vary depending on a number of factors. In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. Contingent liabilities The directors evaluate the status of any exposures on a regular basis to assess the probability of the entity incurring related liabilities. However, provisions are only made in the financial statements where, based on the directors’ evaluation, a present obligation has been established. REVENUE FROM NON EXCHANGE TRANSACTIONS 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Amortisation of grants deferred Income 82,085 136,611 82,085 136,611 Deferred incomes are the inflows of economic benefits or services received/receivable from assets donated to the Authority 3. REVENUE FROM EXCHANGE TRANSACTIONS 2016/2017 2015/2016 KSh ‘000 KSh ‘000 Agency Income 15,458,009 15,358,009 15,458,009 15,358,009 The Agency Income is provided for in accordance with the provisions of the Kenya Revenue Authority Act CAP 469 Section 16. 4. REVENUE FROM EXCHANGE TRANSACTIONS (a) Commissions Income 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 6:24 PM THE KENYA GAZETTE 30th October, 2018 3812 3812 Road Maintainance Levy Commission 1,348,915 903,556 Aviation Revenue Commission 97,081 82,439 Air Passenger Service Charge Commission 266,208 131,403 Sugar Development Levy Commission 11,983 30,865 Insurance Deductions Commission 4,390 4,071 National Transport and Safety Authority Commission 12,701 7,930 PDL and IDF Income 44,256 39,334 1,785,534 1,199,599 (b) Other Incomes 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Sale of Tamperproof Seals 9,260 13,085 Public Overtime 3,004 5,239 Document Processing Fees 22,436 48,960 Staff Housing Rental Income 137,938 78,325 Property Rental Income 30,961 28,180 KESRA Incomes 160,793 70,923 Miscellaneous Income ** 76,120 70,190 440,512 314,901 ** Miscellaneous income consists of income from sale of tender documents, revenue stamps, staff identity cards, PSV Badges, training school activities, road transit toll collections and gains on foreign exchange. 5. ADMINISTRATIVE COSTS (a) Staff and Employee Costs 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Salaries and Allowances 13,093,242 11,048,533 Medical Expenses 728,015 547,553 Provision for Staff Leave 126,146 (85,446) Provision for Staff Contract Gratuity 122,794 126,442 14,070,197 1,637,082 (b) Other Administrative Costs 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Travelling and Accomodation 982,586 971,833 Utilities 354,637 357,642 Staff Welfare 54,083 43,746 Printing and Stationery 37,835 34,801 Consultancy 135,930 42,592 Computer Expenses 580,146 436,418 Training 300,766 253,014 Office Running Expenses 273,303 218,613 Insurances 69,178 75,309 Board Expenses 28,690 25,688 Entertainment 180,128 85,751 Consumable Stores 16,472 24,988 Security Expenses 437,371 384,315 Depreciation Charge 532,232 1,072,230 Amortisation of Intangible Assets 8,181 63,679 3,991,538 4,090,617 TOTAL ADMINISTRATIVE COSTS 18,061,734 15,727,699 (c) Board Expenses 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Monthly Directors’ fees 11,562 10,258 Sitting Allowances and Honararia 15,618 13,227 Accomodation and Travel Expenses 1,511 2,203 28,690 25,688 6. OPERATING EXPENSES 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Rent and Rates 327,569 276,845 Taxpayer Education 161,158 110,131 Motor Running Expenses 156,102 134,612 Advertising and Public Relations 275,224 314,705 Secretarial Expenses 30,983 36,267 Uniforms and laundry 33,567 956 Materials and Supplies - 2,059 Bank Charges 75,357 101,364 Containers and Sealing Expenses 14 - Laboratory Expenses 10,865 3,597 1,070,839 980,537 30th October, 2018 THE KENYA GAZETTE 7. MAINTENANCE EXPENSES 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Building Repair and Maintenance 200,255 225,733 Scanner Maintenance 179,508 195,806 Motor Boat Expenses 15,246 8,512 395,009 430,052 7 (a) Scanner expenses 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Annual Maintenance Contract 177,574 159,444 Routine Maintenance Expenses 1,934 36,362 179,508 195,806 8. PROPERTY, PLANT AND EQUIPMENT (i) Land Building Plant and Machinery Motor Vehicle Office Equipment’s and Furniture Computers Motor Boats Wip Total KSh.’000' KSh.’000' KSh.’000' KSh.’000' KSh.’000' KSh.’000' KSh.’000' VALUATION 1 July 2016 10,455,850 3,445,474 876,306 1,284,564 2,291,226 604,467 4,701,176 23,659,065 Additions - - 28,248 164,230 154,293 - 777,139 1,123,909 Revaluation 12,328,942 - - (939,858) (1,931,309) - - 9,457,775 Transfer of WIP 1,755,274 - - - - - (1,755,274) Disposal - - (24,116) - - - - (24,116) 30th June, 2017 24,540,066 3,445,474 880,438 508,936 514,210 604,467 3,723,041 34,216,633 DEPRECIATION 1 July 2016 1,547,834 2,341,689 555,164 888,265 2,142,589 552,313 - 8,027,853 Charge for the Yr 172,797 73,317 101,714 159,219 25,184 - 532,232 Dep. On Reval - - - - - - - - Transfer of WIP - - - - - - - - Revaluation (1,547,834) - - (979,320) (2,273,320) - - (4,800,473) Disposal - - (21,704) - - - - (21,704) 30th June, 2017 - 2,514,486 606,776 10,659 28,488 577,498 - 3,737,907 NET BOOK VALUES: 30th June, 2017 24,540,066 930,989 273,662 498,277 485,722 26,970 3,723,041 30,478,726 1 July 2015 10,497,150 2,204,375 602,322 1,135,070 2,164,527 604,467 2,269,337 19,477,248 Additions - 1,241,099 280,304 149,494 126,698.57 - 2,431,839 4,229,435 Disposal (41,300) - (6,320) - - - - (47,620) Transfer of WIP - - - - - - - - 30th June, 2016 10,455,850 3,445,474 876,306 1,284,564 2,291,226 604,467 4,701,176 23,659,063 DEPRECIATION 1 July 2015 1,205,496 1,993,796 487,182 789,233 1,915,455 478,766 - 6,869,929 Charge for the Yr 154,409 347,893 170,215 99,032 227,134 73,547 - 1,072,230 Dep. On Reval 96,545 - - - - - - 96,545 Disposal (5,163) - (5,688) - - - - (10,851) 30th June, 2016 1,451,288 2,341,689 651,709 888,265 2,142,589 552,313 - 8,027,853 NET BOOK VALUES: 30th June, 2016 9,004,562 1,103,786 224,597 396,299 148,637 52,154 4,701,176 15,631,210 (ii) Land and Buildings The Authority received several leasehold properties (land and buildings) from the government at inception in 1995. The Authority was not required to pay for the property hence did not incur any cost on the same. To recognize the property in its books, the Authority did a professional valuation of the land and building in 1996 and the values were adopted in the Authority‘s statement of financial position. This was done by recognizing land and buildings assets in the statement of Financial Position. The Authority is yet to receive title documents for some 17 pieces of leasehold land received Government. These properties are at various stages of registration with the Commissioner of Lands. Another title deed is in the name of East African Common Services Authority (EACSA) and the process transfer of the title is ongoing. The Authority also bought one parcel of land in Taveta in 2010 for construction of a border station and is in the process of obtaining the title. (iii) Revaluation of Land and Buildings, Computers and Office Equipment The Authority revalued land and buildings, Computers and Office Equipment classes of assets in June 2017 and has adopted the values in the statement of Financial Position. The valuation was done through internal professional valuers who adopted the market comparison approach method of valuation. This approach seeks to determine the current value of an asset by reference to recent comparable transactions involving the sale of similar assets by ascertaining fair value from quoted prices in an active and liquid market. The revaluation surplus / deficits for individual items within these classes have been disclosed in the asset movement register above. (iv) Fully Depreciated Assets 6:24 PM THE KENYA GAZETTE 30th October, 2018 3814 3814 Included in the assets are fully depreciated assets comprising of Motor Vehicles whose original cost was KSh. 483,453,549 with a residual value of KSh. 48,345,354, Motor Boats whose cost is KSh. 390,844,885 and Plant and Machinery KSh. 2,061,785,772 whose book value is nil. The total notional depreciation charge for the assets is KSh. 757,965,667 (2015- KSh. 757,965,667). Most of these assets are in use by the Authority. (v) Capital Work In Progress 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Intergrated Tax Management System 1,493,172 1,409,296 Valuations Database system (Phase I and II) 33,939 24,365 SAP ERP System for Support Services 469,675 259,949 Renovation of JKIA Offices 10,294 8,386 Renovation of Border Stations 22,038 7,284 Datawarehouse and Business Intelligence 2,909 2,909 Disaster Recovery Management System 12,448 12,448 Video Conferencing 54,328 35,140 Simba Transformation Project 81,559 81,559 Biometric Security System (Times Towers) 122,504 122,504 Exciseable Goods Management System (EGMS) 899,787 899,787 Electronic Cargo Tracking System (Phase I) 80,084 77,612 Customs Revenue Accounting Module 4,664 4,664 One Stop Border Posts - 1,755,274 Business Continuity Management System 48,283 - e-Board System (BS) 4,789 - New Fire Detection System 22,699 - Customer Relationship Management System (CRM) 32,043 - New Data Centre (CBC) 55,348 - Corporate Business Centre Fit Out 266,581 - CBM Rehabilitation of Border Stations 5,899 - TOTAL 3,723,041 4,701,176 9. INTANGIBLE ASSETS 2016/2017 2015/2016 COST KSh. ‘000 KSh. ‘000 1 July 345,713 333,938 Accruals for the Period - - Additions 12,768 11,776 30 June 358,481 345,713 AMORTISATION 1July 337,863 274,184 for the year 8,181 63,679 30 June 346,044 337,863 NET BOOK VALUE 30 June 12,437 7,850 The intangible assets are made up of different computer software in use by the Authority. Included in the Intangible Assets are fully amortised assets whose original cost was KSh. 169,267,025, (2016- KSh. 169,267,025). 10. DEBTORS AND RECEIVABLES 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Trade Debtors Acruals for the Period Other Agency debtors 271,228 214,478 Rent Receivable 40,102 23,084 Interest Receivable 44,915 42,692 356,245 280,254 Other Debtors Staff Debtors 122,923 81,245 Prepayments 19,863 18,844 Other Debtors 54,937 126,207 197,724 226,296 Debtors Total 553,968 506,549 Other agency debtors represent outstanding commission on collection of revenues on behalf of other organisations. Staff debtors mainly comprise of outstanding travel imprests, loans for acquisition of laptops and medical advances. 11. AMOUNT DUE FROM TREASURY 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 1 July 2,131,332 2,123,899 Accrued in the year 15,458,008 15,365,441 Bonus earned - - 30th October, 2018 THE KENYA GAZETTE Amount received in the year (14,144,840) (15,358,009) 30 June 3,444,499 2,131,332 The amount represents outstanding agency commission, bonuses earned and payments made on behalf of the Treasury. An amount of KSh. 1,313 Million was received in July 2017. 12. SECURITY DEPOSITS 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Savings and Loan (K) Limited 1,579,228 1,552,005 Housing Finance 612,848 603,138 National Bank of Kenya Limited 159,676 158,452 Higher Educations Loans Board (HELB) 20,000 20,000 2,371,751 2,333,596 The deposits with Savings and Loans and Housing Finance are placed as security against staff mortgage advances, while the National bank deposits are placements against staff car loans. Deposits with HELB are placements against college fees issued to staff for further studies. 13. CASH AND BANK BALANCES 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Cash in Hand 782 467 Cash at Bank 1,636,379 275,770 Fixed Deposits 1,450,226 5,008,878 Government Treasury Bills 3,437,334 4,767,104 6,524,721 10,052,218 The fixed deposits are made up of one month deposits in the commercial banks shown below. The maturity period for the deposits is between July and August 2017. Fixed Deposit 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 National Bank of Kenya 300,000 762,675 Cooperative Bank of Kenya 603,850 1,973,204 Kenya Commercial Bank 319,137 2,211,458 KESRA - National Bank of Kenya 227,239 61,541 1,450,226 5,008,878 Treasury Bills are placements in Central Bank of Kenya with maturity period between July to September 2017. The placements are analysed as follows:- Government Treasury Bills 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 91 Day Treasury Bills 1,964,555 2,412,978 182 Day Treasury Bills 1,472,779 2,354,126 3,437,334 4,767,104 14. STOCKS 2016/2017 KSh. ‘000 Prior Period Adjustment 69,887 Additions 51,011 120,898 The Authority adopted a policy of recognising consumable stocks held for operations as current assets. The stocks relating to Financial Year 2015/2016 amounted to KSh. 69.9 million. 15. CREDITORS AND OTHER PAYABLES 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Trade Creditors and Accounts Payable 1,603,725 1,870,158 Payroll Deduction and Staff Creditors 34,192 771,191 Taxes 242,849 87,952 1,880,766 2,729,301 16. LEAVE PAY AND CONTRACT GRATUITY PROVISIONS 2016/2017 2015/2016 KSh. ' 000 KSh. ‘000 Leave Pay Provision 1 July 828,142 913,588 Addition/ (Reduction) 126,146 (85,446) Payment - - 30 June 954,288 828,142 Gratuity Provision 1 July 293,287 166,846 Addition/ (Reduction) 122,794 126,442 Payment (231,234) - 6:24 PM THE KENYA GAZETTE 30th October, 2018 3816 3816 30 June 184,848 293,287 Total Leave and Gratuity 30 June 1,139,136 1,121,430 Leave pay provision is in respect of leave days earned by staff members but not taken as at 30.06.2017. Contract gratuity provision is in respect of gratuity accrued for staff on contract terms for the period to 30.06.2017. 17. CONTRIBUTION TO GOVERNMENT PENSION FUND 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 1 July 25,616 26,435 Prior Period Adjustment Paid (1,326) (819) 30 June 24,290 25,616 This amount relates to contributions made to the Government pension during the nine-month secondment period from October 1995 to June 1996 for pensionable staff who were transferred from the Treasury to the Authority. The amount falls due for payment on retirement of an officer and is then transferred to the Treasury to facilitate payment of the pension. 18. CAPITAL / DEVELOPMENT GRANTS BY THE NATIONAL TREASURY AND DONORS (a) Capital/Development Grants by the National Treasury 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 1 July 16,370,410 13,360,236 Contribution in the Year Real Estate Project - 55,000 ERP system for Support Services 220,000 100,000 Cordinated Border Management Project 200,000 353,240 KESRA Modernisation - 66,660 New Data Centre 206,000 160,000 Customer Relationship Management System - 130,000 TaxPayer Base Expansion Consultancy - 250,000 Multi Agency Investigation - 140,000 One Stop Border Stations - 1,755,274 626,000 3,010,174 30th June 16,996,410 16,370,410 The amounts represent assets and funds provided by the Treasury. The Treasury separately funds the major reform and modernization programmes undertaken by the Authority in all departments for revenue enhancement and efficient service delivery. (b) Capital/Development Grants by Donors 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 1 July 1,224,772 - Vehicles donated by JICA 27,955 1,224,772 Systems Security Software and Biometric System - - Leasehold Land (Reinstatement) - - World bank funded projects - - Transfer From Designated funds - - 30th June 1,252,727 1,224,772 The amounts represent assets and funds provided by Donors both directly or through the National Treasury towards reform and modernization programmes undertaken by the Authority in all departments for revenue enhancement and efficient service delivery. 5 vehicles were donated by JICA in the year. 19. DESIGNATED FUNDS LEGAL CLAIM FUND 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 1 July 204,949 230,465 Expenses (142,701) (25,516) 30 June 62,248 204,949 The legal claim funds are received from the Treasury for settling legal awards against the Authority in revenue related court cases. 20. RETIREMENT BENEFIT COSTS During the year ended 30th June, 2016, KSh. 1,198.0 million (2015 KSh. 1,025.4 million) was paid as contributions to the staff pensions scheme. The scheme changed from a defined benefit plan to a Hybrid scheme with a defined benefit section and a defined contribution section with effect from 1 July 2005. Under the defined benefit scheme, the employer contribution on actuarial advice was maintained at 13.2% per member while a rate of 14% was adopted for the defined contribution scheme. Employees contribute 7.5% of their salaries for both sections of the scheme. The value placed on the existing final assets per the last valuation of 30th June 2016, was KSh. 15.984 Billion (2015, KSh. 15.215 billion) while the present value of past service liabilities at that date was KSh. 14.817 billion (2015 KSh. 13.808 billion). 30th October, 2018 THE KENYA GAZETTE 21. CAPITAL COMMITMENTS 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Approved and contracted 216,642 162,911 Approved and not contracted 908,330 208,902 1,124,972 371,814 22. RECURRENT COMMITMENTS 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 30 June 839,252 1,183,207 The above represents items and activities approved and contracted but not yet delivered. 23. EMPLOYEES The number of employees at the end of the year was; 2016/2017 2015/2016 30 June 6,232 5,927 Included above are employees on Permanent and Pensionable, Contract and Temporary terms. 24. DEFERRED GRANT INCOME RECONCILIATION These relate to grants from the World Bank under the Government of Kenya for projects to facilitate efficient and effective collection of taxes. (i) Deferred grant income reconciliation 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 At 1 July as restated 82,085 218,695 Received in the year - - Amortisation 82,085 136,611 At 30 June - 82,085 (ii) Deferred grant income amortisation 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Grant income to be amortised within one year - 82,085 25. RELATED PARTIES The Government of Kenya is the principal shareholder in Kenya Revenue Authority. During the year, the following transactions were carried out with related parties as analysed as follows:- (a) Transaction (i) Government of Kenya 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Capital Grants 626,000 4,234,947 Agency Income 15,458,009 15,358,009 16,084,009 19,592,956 (ii) Key management compensation 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Salaries and other short - term employment benefits 115,920 69,600 115,920 69,600 (iii) Directors’ remuneration 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Fees and other emoluments (note 5) 28,690 25,688 28,690 25,688 (b) Balances Due (to)/from related parties 2016/2017 2015/2016 KSh. ‘000 KSh. ‘000 Amount due from Treasury (note 11) 3,444,499 2,131,332 Contribution to Government pension fund (note 16) (24,290) (25,616) 3,420,209 2,097,464 26. FINANCIAL RISK AND CAPITAL MANAGEMENT 6:24 PM THE KENYA GAZETTE 30th October, 2018 3818 3818 The Authority’s activities expose it to a variety of financial risks including credit and liquidity risks and effects of changes in foreign currency. The Authority’s overall risk management programme focuses on unpredictability of changes in the business environment and seeks to minimise the potential adverse effect of such risks on its performance by setting acceptable levels of risk. The Authority’s financial risk management objectives and policies are detailed below: (i) Credit risk The Authority has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Credit risk arises from cash and cash equivalents, and deposits with banks, as well as agency and other receivables. The carrying amount of financial assets recorded in the financial statements representing the Authority’s maximum exposure to credit risk is made up as follows: Fully Performing Past Due Impaired KSh. ‘000 KSh. ‘000 KSh. ‘000 At 30th June, 2017 Receivables 553,968 - - Bank Balances 6,524,721 - - At 30th June, 2016 Receivables 506,549 - - Bank Balances 10,052,218 - - The credit risk associated with these receivables is minimal hence no allowance for uncollectible amounts has been recognised in the financial statements. (ii) Market risk The board has put in place an internal audit function to assist it in assessing the risk faced by the Authority on an ongoing basis, evaluate and test the design and effectiveness of its internal accounting and operational controls. Market risk is the risk arising from changes in market prices, such as interest rate, equity prices and foreign exchange rates which will affect the Authority’s income or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Overall responsibility for managing market risk rests with the Audit Committee. The Authority’s Corporate Risk Department is responsible for the development of detailed risk management policies and for the day to day implementation of those policies. There has been no change to the Authority’s exposure to market risks or the manner in which it manages and measures the risk. (a) Foreign currency risk The Authority has transactional currency exposures. Such exposure arises from foreign denominated bank balances. The carrying amount of the Authority’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows: Ksh Others Total KSh. ‘000 KSh. ‘000 KSh. ‘000 At 30th June, 2017 Financial assets (Bank balances) 32,913 - 32,913 Liabilities Payables - - - Net foreign currency liability 32,913 - 32,913 (b) Interest rate risk Interest rate risk is the risk that the Authority’s financial condition may be adversely affected as a result of changes in interest rate levels. The Authority’s interest rate risk arises from fixed and security deposits. This exposes the Authority to cash flow interest rate risk. Management of interest rate risk To manage the interest rate risk, management has endeavoured to bank with institutions that offer favourable interest rates. Sensitivity analysis The Authority analyses its interest rate exposure on a dynamic basis by conducting a sensitivity analysis. The sensitivity analysis for interest rate risk assumes that all other variables, in particular foreign exchange rates, remain constant. The analysis has been performed on the same basis as the prior year. Using the end of the year figures, the sensitivity analysis indicates the impact on the statement of financial performance if current floating interest rates increase/decrease by five percentage (5% as a decrease/increase of KSh. 32,913,000 (2015: KSh. 43,277,000). (iii) Price risk The Authority does not hold investments that would be subject to price risk; hence this risk not relevant. 27. CONTINGENT LIABILITIES These include: • An amount of KSh.. 2 million included in utility deposits representing a bank guarantee to Kenya Power and Lighting for Times Tower power supply. • An amount of KSh. 1,297,759 representing a guarantee to Telkom Kenya Limited for supply of telephone facilities in the Times Tower building. 30th October, 2018 THE KENYA GAZETTE • Pending legal cases and court awards against the Authority estimated at KSh. 4,454,051,492 at the financial year end. The Treasury is expected to meet the cost of settling the awards should they materialize. 28. COMPARATIVES Where necessary, comparatives have been adjusted to conform to changes in presentation in the current year.