Pic -ssaa Fourth Report On The Consideration Of The Auditor General's Report Onthe Financial Statements Of Selected State Corpor

, 9 p l? k taw 0rBNfrsLrc-of KENYA t1 I ,i (, ) .I'H E NA'tIONAI, ASSI]M BI,Y I'I I I R'I'E EN'I']I I'A RLI AM I.]N]' - I'I I I RD SESSION _ 2024 PT] BI,I C] I N vI'S'IM IiNl'S COI\I M I'TTI'I, ON SOCIAL SERVI(]ES, ADN,I I N ISl'RATION AN D A(i RIC I] I,'I'T] RE, ON -I'H I' CONSIDERA'I'ION OIT T}IE AUDITOR GENEITAI,'S REPOR'I'S ON 'I I I Il F-l N i\ N C I A l, S'l'A'l' I.lM Il N 1'S O f' S E L U,CTED Sl'Al' !l CORPORA'I'IONS I)I RI.]C]'ORA'I'E OI.' AUDIl', A PPRO PRIA'I'IoNS & G EN ERAI,-PIJ RPOSE COMNII'T1'EES CI,ERK'S CHAMBERS PARI,I AM I'NI' BUI I,DINCS NAIROBI i li oci2t2rt ()c'toBltR,202.t

I Tablc of C'ontents 'I'able of Contents 4 (]HAPTER ONE I.O PREFACE,. I . I Establishment and Mandatc of thc Comrnittcs I .2 Commitlee Mcmbership 1 I .4 Conrmittcc Procecdinqs I .5 Gcneral Conrnrittee Obscrvations and Recommendations . 2.0 EXAMINATION OF THE REPORT OF THE AUDITOR GENERAI, ON THE AUDTTED ACCOUNTS OF THE NATIONAL SOCIAL SECURITY FUND (NSSF) l'oR'I'HE FtNANCIAt, YIiAR 2019/2020.................... ....................7 3.0 EXAMINATION OF THE REPORT OF THE AUDI.IOR-GENERAL ON THE 4 AT]DITED ACCOT]NTS OF TIIE COMMUNICATION AUTHORI'I'Y OF KENYA FOR'I'HE FINANCIAL YEARS 20t7rc18 AND 2018/2019 4l 4.0 EXAMINATION OF 'I'I{E REPORT OF THE AT'DITOR.GENERA T, ON THE ACCOUNTS OF THE (]HII,D WELFARE SOCIETY OF KENYA FOR THE FIN EAR 2014/201 95 5.0 EXAMINATION O}' 'I'HE REPORT OF TI{E AUDITOR-GENERAL ON THE ACCOUNTS OF S CCO SOCIETIES RECUI-ATORY AUTHORI'TY FOR THE FINANCIAL YEARs 20t7t20la - 2019t2020 t0t

a 6.0 EXAMINATION OF 'I'HE REPORT OF T-HE AUDITOR-GENERAI, ON THE ACCOUN'I'S OF KENYA TNSTITUTE FOR PUBLIC POLICY RESEARCH AND ANALYSIS FOR THE FINANCIAL YEARS 2O14I2OI5 201712018........ ...............................r08

a List of Abbreviations/Acronyms PIC-SSAA - Pubhc Invcstments Commtttee on Socral Scrvrccs Admrnrstratlon and Agnculture Ag. - Acting AC - Attomey General CEO - Chief Executivc C)fficcr CS - Cabinct Secretary DCI - Drrcctorate of Cnmrnal Invcstrgatrons DG - Dlrector General EACC - Ethrcs and Antr-Corruptron Commissron FY - Frnancral Year GoK - Government of Kenya IAS - lntcmatronal Accountmg Standards ICT - Informatron, Communrcattons & Technology NSSF Natronal Socral Secunty Fund CAK Communicatlon Aulhonty of Kenya SASRA - Sacco Socretres Regulatory Authonty KIPPRA - Kenya lnstrtute for Public Pohcy Rescarch and Analysis CWSK - Chrld Welfarc Socrety of Kcnya lll

CHAIRPERSON'S FOREWORD Tbe Public Investments Committee on Social Services, Administration and Agriculnrre is one ol' the six Watchdog Committees in the thirteenth Parliament that cxamines reports of the Auditor- General laid before the National Assembly to ensure elficiency and eflectiveness in the use of public rcsources. Thc Committee is established pursuant to National Assembly Standing Order 206 B. The Public Investrnent on Social Serviccs, Administration and Agriculture, with regard to the agriculture, public adminiso-ation, health, and social protection sectors; examines the reports and accounts ofpublic investments, cxamine the reports of the Auditor-General on public investments; and in the context of the autonomy and efliciency of the public investments, examine whether the affairs ofthe public investments, are being managcd in accordance with sound financial or busincss principles and prudent Commercial practices. This ensures implementation ol Article 22918) ofrhe Constitution on rsports laid before the Housc by lhc Auditor- General. In examining thc accounts of the Auditor General, the Committec invited accounting olficers in each of the State Corporations under review adduce evidence beforc il. There are more than four hundred (400) State Corporations undenaking dillerent mandates in their respoctive sectors. Due to lhis large numbcr, the previous Public Invcstments Committees had been unable to conclude examination ofthe accounts ofthc Auditor General ofthese State Corporations. Considering the rvorkload and the backlog, the National Assembly rcsolved to amend the standing orders by splitting the Public lnvesl.ment Committee into thrce Committees, Public lnvestments Committee on Social Services, Administration and Agriculture (PIC-SSAA) being one of them. The Committce (PIC-SSAA) with a view to clear the backlog in examining the reports of the Auditor Ceneral, embarked on the proccss o[ inviting the accounting officers for the State Corporations under its nlandate to adduce cvidence before it. This report contains observations, Iindings and rccommendations arising from examination of reports of the Auditor-General for five (5) slate corporations for diffcrent financial years. The report is structured as lollows: i) gencral observations to each of the cross-cutting queries; ii) recommendations to each of the cross-cutting qucries; iii) audit queries identified by thc Auditor General in his audit rcports ofeach state corporalion iv) managcnlent responscs to each ol'the querios, tv

v) Comnrittcc obscrvations/ findings on each qucry; and vi) Committee recommendations to each query raised ln this report, thc Committee makes policy recommendations and at thc same time reoommends specific actions against specific officers. Il furthcr recomnrends further investigations of certain mattcrs hy competent invcstigative agencies such as the EACC and the DCI. Thc Committee appreciatcs the Offices of the Speaker and the Clerk of the National Assembly for the support accorded to it to firlfil its Constitutional mandate. The Committee further cxtends its appreciation to the Office of the Auditor- General for the scrviccs they olTered to the Commiltee during the entirc period. I also extend my appreciation to my fellow Members of the Committee whose contributions and dedication to duty has cnabled the Committee to examine the audit queries and produce this report. On behalf of the Public lnvestments Commitlee on Social Services, Administration and Agricutturc and pursuant lo National Asse'mbly Standing Order 199(6), it is my pleasant duty and honour to present the 3"d Report of the Public lnvestrnents Committcc on Social Services Adnrinistration and Agriculture on thc examination of the Reports ofthe Auditor General on the Financial Statements of five (5) State Corporations. K/" [;-, I ,s HO EMMANUELWANCWE CBS, MP BLIC INVESTMEN ADMINISTRATION ND AGRICULTURE TTEE N SOCI vt E I

EXECUTTVE SUMMARY The 4rh Report of the Public lnvestments Committee on Social Services, Administration and Agriculture contains the Committee examination of five (5) State Corporations. ln its examination and scrutiny of the audited financial statements of the various State Corporations, the Committee primary approach was to elicit background information as to why particular course of financial and/or managcment actions were or were not ta-ken. This was done with the relevant laws in mind including, the Constitution, the Public Finance Management Act, 2012 and the atlendant Regulations, the Public Audit Act, 2015, the State Corporations Act, and the Public Procurement & Asset Disposal Act, 2015. The preface of the report contains preliminaries on the establishment of the Committee, its Membership and Secretariat, mandate and the guiding principles governing the Committee while undertaking its mandate. Part two of the report contains the Committee general observations / findings on cross cutting issucs, and its rccommendations. Part three of the report contains reports of the specific State Corporations, Cornmittec Observations, findings and finally, Committee recommendations on the State Corporations vl

CHAPTER ONE I.O PREFACE 1.1 Establishmcnt and Mandate of thc Committee I The Public [nvcstnrcnts Commlttce ls cstablished under thc Natronal Assembly Standrng Ordcr (S O ) 2068 and rs rcsponsrble for the examlnation of the workrng ofpubhc lnvestnents bascd on therr audited reports and accounts. 11 ls mandalcd lo r) examrnc thc reports and accounts ofpubhc investments; rr) examine the reports. rfany, of the Audrtor General on pubhc investments, and rir) Examrnc, ln thc contcxt of thc autonomy and cffrcrency ofpublrc rnvestmcnts, whether thc affarrs of the publrc lnvcstments are being managed rn accordance wrth sound financtal or buslness prrncrplcs and prudcnt commercral practlces. 2. The Committee, rn consrdenng the audlted accounts of State Corporatrons, was gurdcd by the Constrtution ofKcnya and the followrng statutes and regulatlons ln carrylng out lts mandate. r) The Pubhc Frnance Manag,ement Act, 2012, ir) The Pubhc Audrt Act, 2015, ill) Thc Statc Corporatrons Act, 1986; lv) Thc Pubhc Procuremcnt and Assets Dtsposal Act,20l5, v) The Nahonal Assembly Standrng Ordersi and vr) Thc Natronal Assembly (Powcrs and Privrlegcs) Act, 2017

Committee Membership 3. The Committee membership comprises - S/No Member's Name Constituency Party I Hon. Emmanuel Wangwe, MP CBS- Chairperson Navakholo ODM 2 Hon. Caleb Amisi Luyai, MP- Vice Chairperson Saboti ODM 3 Hon. Ferdinand Kevin Wanyonyi, MP Kwanza FORD-K Hon. Martin Peters Owino, MP Ndhiwa ODM 5 Hon. Mary Wamaua Njoroge, MP Maragua UDA 6 Hon. Nixon Nicholas Ngikor Ngikolong, MP Turkana East Jubilee 7 Hon. (Dr.) Peter Francis Masara, MP Suna West ODM 8 Hon. Abdi Jehow Fatuma,MP Wajir ODM 9 Hon. Bemard Kibor Kiur, MP Nandi Hills TJDA l0 Hon Elijah Njore Njoroge Kururia, MP Gatundu North Independent ll. Hon. Geoffrey Wandeto Mwangi, MP Tetu UDA 1? Hon- Bishop Emeritus (Dr.) Jackson Kipkemoi Kosgei, MP Nominated UDA 13. Hon. Joshua Kivinda Kimilu, MP Kaiti WDM l4 Hon. Michael Wambugu Wainaina, MP Othaya UDA t5 Hon. Paul Nabuin Ekwom, MP Turkana North ODM 2

1.3 Committee Secrctrriat 4 The Ibllowing mcmbcrs of the Secretanat facrlitated thc Committec: Mr Aden Abdullaht Principal Clerk Assistant l-Hcad of Secrctariat Ms Chnstrne Maritta Ms. Mercy Krnyua Clerk Assistant III Legal Counscl II Mr Enock Manwa Clcrk Assistant III Ms Esther Kanuki Hansard Officer III Mr. Moses Esamar Audio Officcr Mr. Stanlcy Langat Senior Sergeent-At-Arms Mr Thomas Ogwcl Fiscel Analyst I Mr. Weslcy Abugah Rcscarch Officcr III Ms. Maryan Gabow Communicrtion Of{icer III Mr Yakub Ahmcd Media Relations Officer ll 3

1.4 Committce Proccedings 5. In its inquiry into whcther the affairs ofpublic invcstnrents are managcd in accordance with sound business principles and prudent commcrcial practiccs, the Commince rcceived both oral and writlen evidence from Chief Exccutive Officers ofvarious Slate Corporations. 6. To produce this report, the Committee held seventeen (17) sittings in which it cxamined the evidcnce adduced by the accounting o fficers ofthe live (5) State Corporations. 7. Thc rccommendations arc found under various sections of the report on each of the State Corporations examined. 8. The recommendations on the issues raised by the Auditor General for the various Statc Corporations are found under appropriate sections of the report lbr each of the State Corporations covered. 9. Thesc observations and recommendations, if considered and implementcd, will enhance accountability, effecliveness, transparency, eflicicncy, prudent management, commercial viability and value for money in State Corporatiolrs and the public investments scctor as a wholc. 2,0 Genersl Committcc Obseryations and Rccommendations 2.1 Lack of Posscssion and ownership documents on land and buildings. 10. The Committee observed and notcd with concem that Child welfare Sociely olKenya and thc National Social Security Fund do not have Title documents for land. Further, although Kenya lnstitute for Public Policy, Research and Analysis has a title deed for its land, it faces limitations due to fencing done by the department of veterinary services thus obstructing access. Therelore due to lack access and hcnce inability by the institute to take full posscssion ofthe land, it has not been possible to undertake developments in the said land. I l. ln addition, Child Wetfare Society of Kenya had some of its land parccls illegally grabbed by private devclopers and others havc cases of ownership disputes in court. Committee Recommendations 12. The Committce recommended that Within three (3) upon adoption of this report, the Accounting Officcrs should liaisc with the Cabinct Secretarics for the respectivc State Corporations, , Ministry of Land, Public Works Housing and Llrban Dcvelopmcnt aml the National Land Commission and fast-track thc process ofacquiring title decds, rcsolvc disputes between state corporations and ensurc legal actions arc taken against private individuals who have illegally acquired public land. 4

ll Withrn two (2) months upon adoptlon of drts report, the Cabrnct Secretary for Land, Housrng and Urban Dcvelopment and the Charrman, Na(lonal Land Commtssion should put caveats on all the parcels of State Corporatrons land that are in prtvate hands and report back to thc Natronal Assembly lll Withrn six (6) montls upon adoptron of thls report, the Accounttng Ollicers rhrough the Natronal Land Commrssron should pnontlze and cxpedrte resolvtng owncrshtp issues surrounding parcels of land belongrng to hts,/her State Corporations and report its status back to thc Natronal Assembly. lv Thc Natronal Assembly should enact a law prescrtbtng that all pubhc land ownershlp documenls should centrally be hcld under the custody of the Natronal Treasury for safekecprng Delay in eveiling documents to the Auditor-Cencral I 3. Thc Commrttcc obscrvcd that sonre accountrng officers drd not avarl complete and rcconcrled financral and accountrng records/documentation tn hmc for audtt rcvtcw and vcnficatton dunng thc audrt exercrse leadrng to unnecessary qucrtcs Thts ls conhary to the provislons of Arlrcle 226 of the Constrtutron and Scctlon 68(2) of lhe PFM Act 2012 whrch requires that thc financral and accountrng records are prescnted wrthrn thrce (3) months after the close ofthe financral year. Scctron 62 ofthe public Audrt Act of20l5 obhgates accounttng officers lo provrde requrred documenls for audrt fatlure to whrch they bc sancttoncd. Committee Recommendations l4 Thc Commrttcc recommendcd that - r Accountlng olTiccrs should always comply wrth the provisrons of Section 68(2) ofthe Public Finance Management Act of 2012 by submitung all the requucd tnformatton for audlt withln thc shpulated trmchnes tr.Thc Accounting Officer wlro farls to provrde rcqulred rnformatron for audrt pursuant to Section 62(l) of the Pubhc Audrt Act, CAP 4l28 should bc prosccuted for the offence pursuant to Section 62(2) of thc Public Audit Act CAP4l28 Poor Governance and wcak internal controls Dclay in rppointments of Board of Dircctors l5 Thc Commrttce obscrvcd that somc Statc Corporahons wcre operating wlthout properly constrtuted Board of Drrcctors for too long The anomaly was attrlbuted to delays by thc apporntrng authonty to fitl up vacanctcs once they ansc. For examplc, Sacco Soctetlcs Regulatory Authorrty drd not have a subslantlve Charrman from 6'h Fcbruary, 2017 to 20'h Scptember, 201li Furthcr, othcr rnstltutrons hke the Communlcatlons Authonty of Kenya, National Socral Sccurrty I'und had senror ofllccrs in aclrng capacltres lbr longer periods of 5

time than the prescribcd six months as pcr section 34 of the Public Service Commission Act CAP 185 citing lack of properly constituled Board of Directors to approve the recruitments. 16. The absence of substantive holdcn of those charged with govemance posed various operational challenges in the strategic managcment ol'lhe organization and thus poor govemancc. Committce Recommendrtions 17. The Commince recommendcd that - ll Within threc months upon adoption of this report, the Inspector-general. Inspectoratc ol' State Corporations with the help of thc National Assenrbty should initiate the process ol' amending thc Statc Corporations Act to make it clcar that no entity should be allowed lo make any financial commitmcnt withoul a properly constituted Board of Directors. Thc Committee reprimands thc appointing authoritics for the delays in constituting or failing to fill thc existing vacancics in the Boards of various State Corporations promptly. Matters pending in Court 18. The Cornmittcc observed that a nurnbcr oflitigatious conceming ownership ofland of Statc Corporations anti other legal matlers have been pending belbrc the courts of law for inordinately long despite resolutions of the House through prcvious PIC reports calling for the expeditious conclusion of the cases. Committee Recommendations 19. The Committee recommended that Within threc months upon adoption of this report, the inspector-General, inspectoratc of State Corporations should carry out a review of all entities with pending Court cases, prepale a comprehensive status rcport and subntit it lo the National Assembly with a copy to the Attomey General who will initiate the process of lhst-tracking the conclusion ol'thc cases within reasonable time. ll Thc Accounting Officers should strive to embrace Altemative Dispute resolution Mcchanisms in the resolution of disputes before going to court. Delayed Accountability of lmprest. 20. The Comm ittee noted that somc State Corporations were in brcach of Section 7l of the Public Finance Managemcnt Act CAP 4l2A and thc attendant rcgulations that require surrender of imprests within scven days upon conclusion of thc assignment fbr which the said imprest was issued. 6

Committee recommendrtions 2l The Commruce recommcnded that The Accounting Oflicers should ensurc that lmprest advanccd to officcrs ts surrendered wlthln the stlpulated period of scvcn (7) days aftcr rcturn to thc work station tn accordance wrth sectlon 93 of thc Public Financc Management (Natronal Covemmcnt) Regulattons, 2015. ll Wrthrn srx rnonths of thc adoptlon of thrs report, thc Accountmg Olficers who will have farled to take nccessary stcps to cnsure that all outstanding rmprests wtthtn thetr lunsdrctrons are rscovercd from thc due datc should be surcharged the full amount due. The Accountrng Officcr should submlt a stalus report wrth cvtdence of recovery to the Audrtor-Ccneral for audit and rcporting Under funding/ low Budgetrry disbursements r) The Commrttee notcd wlth conccm, lnslanccs whcrc statc corporatrons that rehed on exchequer appropnatrons werc undcr-fundcd or had low budgctary disbursemcnts desptte Gerr budgets berng rnrtrally approved. Conscquently, thrs rcsullcd rn effects on the planned actrvltles that rmpacted negatlvely on the scrvlce delrvery to thc public/bcneficranes due to llmltatron rn the financral capabrlrtrcs of the sard rnstitutions- Committee recommendrtions 22. The Commrttee recommends that the Cabinet Secretary Nattonal Treasury endcavors to allocate and drsburse adequatc funds as approprratcd to the stalc corporatlons funded by thc Natlonal Govemment. The Cabinet Secretary National Treasury should ensure at all tlmcs that thc budgets are rcahstrc. achrevable and always adhere to annual work plans, procurement plans and revenue collectron capabilitrcs of the respectrvc corporatlons tn comphance wrth Rcgulatron 44(2) of thc PFM (Natronal Govemment) Regulatrons,20l5 2.0 EXAMINATION OF THE REPORT OF THE AUDITOR GENERAL ON THE AUDITED ACCOUNTS OF THE NATIONAL SOCIAL SECURITY FUND (NSSF) FOR THE FINANCIAL YEAR 2OI9I2O2O. Mr. David Mwengengi, the Ag. Managing Trustee was accompanied by Mr, Moses Chcscto (Ag. P & L), Ms. Mariettr Mutinda (Ag. Financc Menager), Ms. Rosemary Oluoch (Ag. MSCM), Ms. Joan Nyab€ri (Ag. SEEH (R&A)), Mr. Evans Ombui (Ag. MRC), Mr. Obcd Mbuvi (Ag. MPM) Dr. Christopher Khisa (Manager Corporate Communications), Mr. Peter Muiruri (Manager, Property D€velopment) appcared bcforc thc Committec to rdducc cvidcnce on the Audited accounts ofthe National Social Sccurity Fund (NSSFIfor the Financial Y ear 201912020. 7

1.0 Cash and Cash Equivalents 23. The Committee heard lhat, examination of the I'-und's bank reconciliation statements as at 30'h June, 2020 revealed several outstanding balances for receipts in banl stalcments not in cashbooks, payments in cashbooks not in bank statements and payments in bank statements not in cash books. as follows: 24. Management did not explain why thc old outstanding balances had not been invcsligated and clearcd from the rcspective bank accounts and cashbooks as applicable. 25. [n view of the unreconciled balanccs, the accuracy and completeness ofthe cash and banl balance totaling Kshs.65,797,015 reflected in the statement of net assets available for benefits as at 30rh June, 2020 could not be confirmed. Management Response 26. The Management informcd thc Committee that, the Fund's bank reconciliation statements indicated outstanding receipts in bank not in cashbooks amounting to Kshs 79,998,275, with some relating to periods bcfore July 2014. The cashbooks have since been updated as per the Appcndix provided on postings to the cashbooks which is available for verification. 27. The Fund investigated the outstanding rcceipts in cashbook not in bank statement amounting Kshs 127,877,988 and established lhat they were mis postings between cashbooks. The correct entries have since been posted to corrcct the cashbooks and clear the items from the bank reconciliation rcports as per Appendix attached and the JVs passed in the affected cashbooks. 28.Out of Kshs 134, 335,976 payments in bank not in cashbook is an amount of kshs 100,000,000 which was an error in the balances in the legacy standalone systems where a transfer ol' funds betwcen accounts was posted in a wrong cashbook. Thc wrong balances were migrated but discovcred when reconciling migrated balances to SAP system. The Nature Balances of Outstanding Arnount (Kshs) Additional Audit Observation I Receipts in Bank Statements not Cashbooks ln 79,998,275 Some roceipts included in the balance have been outstanding sincc July, 2014. 2 Receipts in Cashbooks not in Bank Statements Kshs.127,877,988 127 ,877,988 Some receipts included in the balance have been outstanding since July, 2014. 3 Paymens in Bank Statement not Cashbooks tn 134,335,976 Somc payments included in the balance have been outstanding since 2012. 8

correct ad1ustmenls were passcd ln thc cashbook. Thc Balance ofKshs 34, 335,976 relate to crroneous debrts in the bank statement by the bank whrch havc stncc been corrected. Thc lournal voucher adlushng thc balances and thc list of wrong deblls which werc reversed by the bank as attached All the documents arc avatlablc for venficatton by the audrtor 29 In 2012, the Fund deployed a SAP ERP as rts accountrng system that saw it movc from CRIS (cash Rccerptrng lnformatron System) that was more of manual system Balances from the old cashbooks were uploaded to ERP of which cut-off date was October 2012 Thrs meant that, any trarsactron before this datc was factorcd ln thc balances 30. Thc Fund funds both benefits and expendtture accounts through transfers froru tncomc collectron accounts Thesc transfent are rn multiplesof mrllrons for control purposcs and ease of rdentrfication All payments to merchants / Vendors are pard from expcndlturc account and from Bcnefils account rn casc of Clarms by mcnrbers (Bcnefits) and not from tncomc account, 3 I . In 2012, an amount of Kes t 00 mrllron was postcd rn SAP Cashbook by Debitrng expcnditurc account and credrtrng Income account. Thts tn csscnce mcant that expendlturc account was funded wrth Kshs. t00 mrlhon of wluch tt was crroncous postlng as thcre was no actual Funds that wsre transfcred to expendlturc accounl for that parttcular date (July, 201l). Thrs transaction overstated the crpcnditure cashbook balancc whtle understatlng lncomc cashbook As a result, fre abovc transactlon was trcated as c]roneous and rcverscd by dcbrtrng rncomc accounl and credrtrng the cxpcnditure account by 100 mrllron as pcr thc extract of bank statement provrded to the Commrttee. Furthcr, submissions by the Auditor General 32 The Audrtor-General submrtted the detarls on the composltron of the amount of Kshs. 134,335,976 on paymcnts in thc bank statcmcnt not in cashbook The quened anlount was rnrtrally Kshs 184,335,976 to which thc accounting omccr explatned an amount of Kshs 50 milhon leavrng the balancc ofKshs. 134,335,976 outstandrng in the final Audrtor-General's rcport lor the financral ycar ended 30'h Junc,2020. Committce observetions The Committce obscrved that . Thc Conrmltlec noted with conccm the unsatlsfactory cxplanahon glven by the accountlnB officcr for the Kshs 100 mrlhon paymenls in the bank slalement not in cashbook out of the Kshs- 134,335,976 quened rn the audrt report Furthcr, the Conrmr(tec obscrved that thc amount olKshs. 134,335,976on payments ln the bank shtement not rn cashbook arose marnly lrom two bank accounts, the KCB Main I3xpendrturc Accounl A/C No. I107 lt0 165 wrth a ligurc ol Kshs.100,079,830 and thc contnbutron Account A/C No. 0l 003002837701 at N BK wrth a figurc of Kshs. 84, l4 I ,2 t 5 1'he accountrng officer was able to grvc explanatton on a figure of Kshs 50 mrlhon lt I

translbrred from NBK revenue account to NBK staff mortgage account lcaving the balancc of Kshs. 134,335,976 outstanding as an audi( issue in the Auditor-General's repon. lt is unlikely thereforc that a payment made by thc bank and not reflected in the cash book could bc as a result of NSSF' intemal sysletn's crror. 1'he explanation by the accounting olficer that in 2012, an amount of Kshs. 100 million was an erroneous posting in SAP Cashbook by dcbiting expenditurc account and crcditing lncome account which in cssence mcant that expenditure account was funded with Kshs.l00 million thus misleading and misreprescnlation of facts to tle Conrnrittee. The question was about a payment made by the bank that thc NSSF had not posted in their cashbook and not about erroneous postings discovered in the cashbook by lhe Fund. Arising fiom thc above observations the Committee had requested [he Auditor-Cencral to do a forensic audit on the Kshs. 100 million that appeared suspicious based on the accounting officer's subnrissions and was waiting for the florensic Audit report. The accounting officer had taken a long timc to clear outstanding rcconciling itcms. Thc then Accounting officer(s) for the duration that dte reconciling itenrs have been outstanding have becn in breach ofRegulation 90 (3) ofthe PFM (National Govemment) Regulations 2015, that states that the accounting Ol'ficers shall ensure any discrepancies noted during bank reconciliation exercisc, are invcstigated immediately and appropriate action taken including updating the relevant cash books. Committee rccommendations The Committec recommends that - Within thc currcnt audit cyclc and by 3l "r Deccmber, 2024 as stipulated in Artictc 229 (4) of the Constihrtion of Kenya 201 0, the Auditor-General should submit the forcnsic Audit rcporl as rcquestcd by the Public Invcstncnt Committee on social services, Administration and Agriculture through the Clerk of thc National Assembly. The Comnrittec reprimands the thcn accounting officer(s) and any other officer(s) responsible lor preparing hank reconciliation for breach of Regulation 90 (3) of the PFM (National Covornmcnt) Regulation, 201 5. lIl. IV II 2.0 !-ixcd Deposits Hcld to Maturity 33. The Conrmittee heard that, the statcment of assets available lor benefits rcflects fixed deposits held to maturity totaling Kshs.8,852,705,000 as at 30'h June,2020.'[he balance includes deposiLs totaling 223,155,587 hcld in two banks, namely; Chasc Bank and Imperial Bank, as analyzed below: ame of Bank and Dcposit Amount Deposit Status rnperial Bank Kshs hasc Bank o tal Kshs Kshs. t0

I lolding 259.500,000 70,000.000 329,500,000 Rccerved 018/2019 017t2018 26,65t,232 52.970,671 79,661,903 26,682,507 26,682,507 Balance 106,I 26,259 t7,029,328 223,155,587 34. However, rn the ycar undcr revrew, thc banks wcrc undcr statutory managsment by the Cenlral Bank ofKcnya Asa result. thc ratro of rccoverable deposits ln the balance totahng Kshs.223,l 55,587 hcld rn thc two banks as at 30'h Junc, 2020 could not be confirmcd. ln vrew of thc unccrtarnly, thc aggregatc fixed dcposrts balance totaltng Kshs.8,852,705,000 as at 30'h June, 2020 may not bc fatrly statcd. Management rcsponsc 35 The management rnformed thc Commlttee that, thc Fund placed Kshs 329,500,000 tn fixed deposits berng Kshs 259,500,000 rn hnpenal Bank and Kshs. 70,000,000 rn Chase Bank 36 These two banks at the trme of investment werc rcgulated by Central Bank of Kenya (CBK) and Caprtal Markcts Authonty (CMA). a fact that was relted upon by thc Fund's lrund Managers. However, thesc two banks were placcd undcr statutory management by CBK, cxposing thc Fund's rnvestmcnt ofKshs. 129,500,000 to rtsk ofrecovery The Fund has rnade cffort lcr recover the rnvestmcnt and so far, Kshs. 108. I 74,427,28 has been rccovcred t e., Kshs. 54,985,345.78 from lmpenal Bank and Kshs. 53,189,081 40 from Chase Bank as lbllows: 37, Thc Fund Managcrs conductcd due drlrgcncc bclirrc makrng the lnvcstments, adherrng to the requlremcnts and gurdehnes stated ln the Investmcnt Pohcy Stalement. Further, the F'und rcvicwcd thc Invcstmcnt Pollcy to ltmrt placenrcnt ofdcposrts to Tier I and Trcr ll Banks Bank Impcrral Bank Chase Bank Total Amount lnvested 259,500,000 00 70,000,000.00 329,500.000 00 Amount recovered Recerved 201 8/2019 26.691 ,237.15 52,970,67t.t0 79,661,903 25 201712018 26,682,507 95 26,682,507.95 201912020 1,454,460.14 218,4t0.40 t,672,870 54 202012021 t57,t45 54 157,145.54 Total amount recovercd 54,985,345 78 53,189,08 t .50 t08,174,427.28 Balance outstanding 204,5t4,654.22 16,8 t 0,91 8.50 ))1 1)\ \11 1) ll

38. In addrtron, the Fund, rn collaboration wrth rts Custodtans and Fund Managers, has submitted clarms to the KDIC (Kenya Deposrt Insurance Corporatron) and rs actively pursurng recovery ofthe outstandrng amounts. A rcccnt conrmunicatron lrom the KDIC, dated 21"'June,2023 assures that thcy wrll process the clarms rn accordancc with thc applrcable law However, disbursements have becn tcmporanly haltcd duc to an ongolng coun case Dlsburements wrll resume once the case has bccn dctcrmtned Committce observations The Committcc obscrved thrt The Pubhc Investment Commrttce rn rts 24rh PIC rcport had drscussed the matter and recommended that the Natronal Asscmbly, through thc Dcpartmental Commlttee on Frnancc and National Planning should devclop a rcqutrement / a regulatron demandrng that the rcgulators consult/ sharc informatron on arcas ofrnvesllnents to cnable state enlerprises rnvest from a pornt of rnformatron. ll llt IV vl Thc recoverabilrty ofthe balance of KSh 666,900,000 on Investmenls rn Corporate Bonds from lmpenal Bank and Chase Bank as quened by thc Audrtor-General rn the report for the ycar ended 30'h June, 2019 and as capturcd in the 24'h PIC report, has not been drsclosed. NSSF drd not drsclose rn thcir submissrons, the status of Kshs.204,5 14,654 22 deposrts outstandlng ftom Imperral bank after KCB acquired the assets and habrlrtres of the former bank. Srmrlarly, recovcrabrlrty of Kshs | 6,810,918.50 outstandrng from Chase Bank was not drsclosed Although the two rnvestment rnstltutrons were rcgulatcd by Caprtal Market Authonty and Central Bank ofKenya, the KDIC (Kenya Dcposrt Insurance Corporation) had taken long to compcnsate the lnvestors (NSSF) ln unclear crrcumstances and hcnce possrblc loss of tnvesknent Thc Fund failcd to dlsclose the dctarls of thc court casc that allegedly halted dlsbursements and was awaiting court's dclenninalion Thc Board approval for thc lnvcstnlcnt was not submltled to the Cornmlttee for revlew thcrefore, thc then Fund rnvcstmcnts managers drd not conduct duc drhgence before lnvestrng pubhc funds Committcc recommcndntions The Committce rcconrmcnds thet Wrthrn threc months upon adoptron o[ lhrs repon, EACC should lnvestlgate whcthcr there wcrc any NSSF officers and / or rnvcstmcnts fund managcrs or bank managers who were ncglrgcnt on thc rnvestrnent proccss and any brcach of l.hc law or regulattons on the part of lhc conccmcd NSSF officers, II'any offrccr rs found culpablc. he/she should be held 1

ll, personally hable lor thc financral loss, DPP should inrtratc a lcgal process to recovcr the amount so lost wrth intcrest from thc conccmcd officc(s) at the prevalllng CBK rates Withrn thrce months upon adophon of thts rcport, KDIC (Kcnya Deposit lnsurance Corporatron) should submrt to thc Commrtlcc a comprchcnstve status rcport on the how thc NSSF lnvcstmcnts wrth thc two collapscd lnstrtutrons has bccn rccovered and any other state corporatlons affected by the collapsc lll Withrn three months upon adoptlon of thrs rcpon, thc accounttng officer for NSSF should submrt to the Commrttee a comprchcnsive status rcporl on thc Kshs 204,514,654 22 deposits outstandrng from Imperral bankand Kshs 16,810,918.50 outstandrng from Chase Bank.. Further, wrthin thc same pcriod thc Accountrng Ofliccr for NSSF should submrt to the Commrttce a comprehcnsrve status rcport on thc Kshs. 666, 900,000 on Investments in Corporate Bonds frorn lmpcnal Bank and Chase Bank Thc rcports must be supported wlth cerlrficd documcntary cvidcncc from the partres conccrncd. Wrthrn threc months upon adoptron of Lhrs report, thc Natlonal Assembly, should tnlllate enaclment of a law or amcnd thc cxrstlnS, laws thal would compcl and hold managements of rnvestment banks/lnstltutions, deposrt takrng rnstrtutrons, oommerctal banks and simrlar lnshtutrons or thosc who occasron collapsc oIsuch lnstitutlons to bc held personally liable for the loss and hencc rccovery of losscs bc madc from thctr personal property or those held by proxy rf provcd to be procccds of fte actrvrtres assocrated wrth collapsed rnsufutrons. 3.0 Rent Debtors 39 The Committee heard that, the statcment of asscts avarlablc for bcnefits rcflects rent debtors totalrng Kshs 770,109,437 as at 30rh Junc,2020. Note 37 (ur) to the financlal statements hrghhghts contlngcnt rental incomc totahng Kshs.30,681,000 collected by various property agents fronr the Fund's tcllanls ln Narrobi at Brucc Housc, I{azina Tradc Cenlre, Vrew Park Towers and Nyayo Estatc Howevcr, the collectrons had not bccn remtued to the Fund as at 30'h June, 2020. Although rnanaBcmcnt dcrnonstratcd new tnternal controls mtended to prcvenl agenls lronr withholdrng rcccrpts collectcd lrorn thc Fuud's tcnants, thcre was no clanty on lrow thc wrthhcld rcntal rncomc totahng Kshs.30,681,000 would be recovered. 40. In addrtron, notc 37(vl) rndtcatcs that a tcnant named Kenya Collegc of Medrcrne wtth offices at both Hazrna Tradc Ccntrc and Vicw Park Towers prescnted fake bankrng sltps totahng Kshs.9,327,627 purportrng thcsc to have bccn transacled lor rent paymcnts. Rental records indicatcd thal Managcmcnt rccovcrcd Kshs.20l,550 aftcr selhng-olf thc tenant's assets. However. addrltonal mcasures, rf any, taken to rccovcr the halancc amounting to Kshs,9,126,077 were not drsclosed 4l- In the abscncc ofsulficrcnt rnlormatlon, thc amount of rccovcrablc rcnt and debtors could not bc conllrmcd. l3

Management rcsponse 42. The management infonned thc Committee that, thc amounr of Kshs.-30,681,000.00 rclatc to outstanding rent, service charge and parking fees in rcspect of Bruce House Nairobi that was collectcd by M/s Milligan & Company Ltd, who was the l.und's properry management agent but lailed to remit the amount to the Fund back in 1997. 43. The Fund filcd a suit for recovery ofKshs. 30,681,000 from Milligan & Company Ltd under HCCC No.8659 of 1997 NSSF Board of Trustces Vs Milligan & Company Ltd through Okoth & Kiplagat Advocates. Judgment for the case was cntcrcd for Kshs. 27 million out of which the judgmcnt debtor paid Kshs. I .5 million. 44. It, however, proved dillicult to recover thc balance on account of the passing on of Kassim C)wango, the Director of Milligan & Company Limitcd afier which Milligan & Cornpany Limited went out of business and is no longer in existence. Efforts to trace the assets of lhe company as well as those of the directors were unsuccessfirl. Management has since requestcd the Board of Trustees to approve write-off of ths outstanding balance owed by Mitligan & Company Ltd and its directors on account of bcing long outstanding and the unfcasible chances ol'recoverability of the debt. 45. Thc amount Kshs. 9,327,627 relate to rent owed by Kenya Collegc of Medicine lbr space occupied at Hazina and Vicw l,ark Towers. Kenya College of Medicine prescnted f'ake cash deposit slips to lhe Fund. Thc Fund sued against the dcfcndant who was a tenanr at both Hazina & View Park lowers for default of rent payments and issuing offake banking slips amounting to Kshs. 9,327,627.00 via HCCC No 706 of 2012 Board of trustee NSSF -Vs- College of Medicine & Relatcd Studies. The matler was dismissed on May,20l8. To avoid such losses ever happening in the lirture, thc Fund introduced strong conlrols whercby all rcnt is now paid directly to thc Fund's bank accounts and strict procedures of verifying any bank advice presented by tcnants before issuing receipls. Committec observations Thc Committec observed that Thc Fund management had not instituted strong intcrnal controls to safeguard the Fund Assets againsl loss. ll l|l. Thc presentation of fakc banking slips amounting to Kshs. 9,327,627 as rent by the proprictors of Kcnya College of Medicinc for spaco occupied at Hazina and View Park Towers was fraudulent and criminal on the part oftcnant. However, the managemenl or its agents failed to ckr due diligcncc whcn rcceipting the amount. The loss of Kshs. 9,327.627 is attributablc to weakncss in controls set out in Rcgulation 90 of the PFM (Natk)nal Covemmcnt )Rcgulations 2015 on prcparation of bank t4

tv reconclllatlon The loss mrght also be lrnkcd to the lssuc raised by the Audrtor-General In this report on delaycd resolutron of reconcrlmg rtcms by thc Fund finance departrnent. The loss of rental rncome totallng Kshs 30,681,000 collected by Mrlhgan & Company Lrnrrted frorn the lrund's tcnants rn Nairobi at Brucc House. Haztna Tradc Ccntre, Vtew Park Towers and Nyayo Estate mlght be attrtbutable to poorly drawn agreements whosc loop holes were cxplorted by the agcnts The Managerncnt produced bcfrrrc thc Committce a decrec issucd tn Natrobt HCCC 859 of 1997 NSSF vs Mrlligan & Company Ltddated 6rh November 1997 arrsrng from a consent ludgmcnt where Judgment was cntcred tn lavour of NSSF agatnst Mrlhgan Company Ltd for a sum of Kshs 15,000,000 and thc amounl was to be pard ln three equal monthly rnstalments of 5,000,000 cach wrth cffcct from I 5rh November 1997 and on or before the fifteenth day ofeach subscqucnt monlh. Committce recommendations Thc Committcc recommends that - Wrthrn threc months upon adoptron ol'thts report, EACC should carry out lnvestlgation lnto the two matters on Kenya College of Medrcrnc and Mrlligan & Company Ltmrtsd wlth a vlew to cstabhshrng whcthcr therc was any breach of the law or regulatlons on the part of the concemed NSSF officcrs who occasroned or atded tn occasronlng thc loss of Kshs.40,008,627. Further, estabhsh whether the amounts could be rccovercd from the estalcs of the propnctors of Kenya College of Medrcrne and Mrlltgan & Company l-rmtted. lf any officer ts found culpablc, hc/she should be held pcrsonally hable for ths loss and the DPP should rnstrtute legal proceedlngs agalnsl thc culpablc olficers 4.0 Payablcs and Accruals 46. The Commrttee heard that the statement ofnet asscts avarlable for bcnetits reflL'cts payables and accruals totahng Kshs.1,829,344,143 as at 30'h June, 2020 whtch rn turn rncludc Kshs 320,002,494 owed to vanous vcndors, as dtsclosed in Notc 32 to the financral statcmcnts. Examrnatron of the payablcs lcdger rndrcated that payables totahng Kshs.258,854,938 outstanding sincc 201 2 wcre not supportcd by tnvotce rccclpt vouchers ln thc clcctronrc (SAP) accountrng systcm. 47 No cxplanatron was provided by Managemcnt why the respcctlvc vcndors had not presented, or bcen asked to prescnt, rnvolccs to the Fund for payment Further Managcmcnt did not cxplain whcthcr thc rcspecttvc owncrs ol the payables totallng Kshs.258,854,93 8 wcrc ntxrficd of the balances and a repon madc to thc Unclatmcd Asscts Authortty as prcscnbcd rn Scctron l9 and Scctron 20 of ths Unclarnrcd Assc(s Act No 40 of 201 I , rcspectively. As a rcsult, the proprrety ofthc payables totalrng Kshs.258,8 54,938 could not bc confirmcd t5

48. In vrcw of thesc anomahes, the payables and aocruals balance totaling Kshs.I,829,344.143 as at 30 June,2020 may not be fairly stated Management response 49. The management rnformed drc Comrnittec that, the amount of Kshs 258,854,938 was the balance ofthe CR-/IR (Goods Recerpt/ lnvoice Recerpt) accountasat 30'h June,2020 GR./IR rs a cleanng account rn the Ijund's ledger which is posted when ltems (goods, assets, servrces) procured arc recerved awartmg invoictng by vendors 50. The accountrng enlnes are as follows - Whcn rtcms/servrces are recervcd/acceptcd Dr. Asset/Expense/Storcs Cr GR/IR Clearing account On receipt of the invoice from vendors Dr. GR/lR Cleanng account Cr. Vendor wrlh lhc rnvorced amount. When vendor is pard Dr. Vendor CR Bank 5l . Because the rtcms/assets/servrccs have been rccerved and acceptcd but thc vendor ls yet to rnvorcc, the balancc rn lhe GR/lR Cleanng account ts added to thc vcndor balances when reportlng. 52. At the reportrng date, thrs account containcd a few rtems whrch emanatcd from the changeover of systems from legacy systems to SAP Key to notc, the balance of Kshs. 258,854,938 rs an account balance as at the rcporttng date Not all thc rtems nrakrng up thc balance had problcms but only a few whrch have srnce been mvesttgated and ad.;usted Committec observstions The Committee obscrved that . The Commrttcc noted w(h concem thal payablcs atnountlng to Kshs.258,854,938 had been outstandtng since 2012 becausc they w€rc not supported wrth rnvorce recetpt vouchers m the clectronic (SAP) accountrng systcm. This was dcsplte (hc Fund havrng reccivcd the goods, accepted and rccordcd in thcrr financral rccords lt rs unhkely that thc supphers made the dcliverres and wcre not rntcrestcd ln rccctvlng paymcnts tn that respcct. Thc anomaly may cxposc the fund to llctltlous clatms or othcr financial cxposurcs duc to unsupportcd and delaycd payments. l6

lt lll The accounting officer rndrcatcd thal not all the ltcms nraktng up thc balance had problems but only a few whrch have sincc bcen investrgatcd and adJusted. There was no explanatton as to why thc respectrvc vendors had not presented, or bccn asked to present thelr lnvolces to the Fund for payment until and after being questroncd by the audltors. Although the management submrtled that thcy conducted rnvesltgatlons m to thc payables, the accounting oflicer farled to submll to thc commlt(cc the rePort on the findrngs of the rnvestigation they had conducted. rv. The managemcnt drd not explaln whether thc rcspectlvc payecs of the payables totahng Kshs 258,854,938 wcre notrfied of the balanccs and a rcport made to the Unclarmed Ftnanctal Asscts Authonty as prescrrbed rn Sectron l9 and Sectlon 20 ofthc Unclarmed Financlal Assets Act, CAP 494. Committee rccommendations Thc Committee rccommcnds thrt Wrthrn three months upon adoptron of thrs report, EACC should carry out inveshgation rnto the payables totaling Kshs 258,854,938 that were not supported with tnvoice recetpt vouchers in the electronic (SAP) accountlng systcm. Thc rnvestiEatlon should bc conductcd wlth a vlew to estabhsh whether they werc genulnc supplies to the cnhty and whether the clarms are vahd. Ifany officcr rs found culpablc for any malpracttce, he/she should bc held personally liable for thc loss of pubhc funds, and should be surcharged the amount m qucstion at lhe prevarling CBK rales. Wrthrn threc months upon adoptron of thts rcport, the Accountrng Ofhcer for NSSF should submrt to thc Publrc Investmcnt Commltlee on Soctal Servtces, Adminrstratron and Agriculrure through thc Clerk of the Natronal Asscmbly, a comprehenstvc status rcport on the lnvcstlgatron conducted as per therr subm tsston to the Commrttce durrng dellberatlons dctarbng the ad.;ustmcnts made and cvtdencc ofeventual settlement ofthedues The rcport rnust be supported wrth certificd documentary cvidence from the partres concemcd ll Othcr Metter 1.0 Budgetary Control and Pcrformancc l-l Revcnue 53 l'he Comnltlec heard that, the statemcnt ofcompanson and aclual amounts rndlcateslhal the Fund's rcvcnue budgct for the year under rcvlew anlounted to Kshs 27,9t10.566,000 and actual revenue Kshs 20,524,649,681 resultrng to a shortfall of Kshs.7,455,916,319 or 2'7Vo of the revenue budgct as rndicated rn the Appcndrr to thc audit rcport t7

54. Management attributed the revenue shortfall to reduced economic activities in the third and fourlh quarters of the financial year duc to cft'ects of Covid-19 pandemic. Thc significant revenue shortfall totaling 10 Kshs.7,455,916,319 implied that funding lor programmes and activities planned for the year may have bccn constrained. Manageme[t response 55. The managcment inlonned the Conlmittee that, the Fund's rcvenue perfomance is as analyzcd below: - 56. The Fund's budget amounted to Kshs.39.5 billion, Kshs. 19.02-billion-member contribution and Kshs. 20.34 billion investment inconre, The Fund realized Kshs. 20.42 billion frorn investmenl income which is 100% performancc. During thc COVID-19 pandemic, the Fund implemented a robust diversification sfatcgy. To mitigate the impact of the volatile stock markct, investments were strategically alkrcatcd towards fixed income sccurities. The exceptional performance of these sscuritics ellbctively counterbalanced lhe downtum expcrienced in the stock market. 57. As a long-ternr invcstor, the Fund follows a value/impact investing approach. This means that it remains unaflccted by short{ernr market fluctualions as it tbcuses on the broader, Iong-temr position of ils investments. Thc Fund recognizes that shorl-term market oscillations are temporary, and does not wavcr in its commitment to invcstmenls with strong underlying market flndamentals. Thcsc fundamentals remain solid and resilient despitc the temporary variations expcrienced in the short tenn. 58. 'l'he Fund was ablc to collect 7'lo/o ol-the member contribution budget despitc the many job losscs and salary rcductions which instantly reduced contritrutions rcsulting to variance ol' 23 7o undcr performance. Revenuc Budget Aclual Variance % Ordinary revcnuc: Contribution 19,069,065,000 t4,732,57 t,428 (4,336,493,s72) (23) Dividend inconre 2,900,000,000 2,685,340.3 85 (2 r 4,659,61 s) (7) Interesl incomc 14,883,000,000 16.007.272.579 1,t24,272,579 8 Rent income I ,2 18,225,000 l ,22 I,339.395 3,114,3S5 0 TPS interest income 657,500,000 473,625,548 ( r 83,874,4s2 ) (28) Realized gain on investments 670,000.000 (50.669.2 r 2) (720,669,212) ( r08) Other income 60,000,000 83,337,900 23,337,900 39v. Total ordinary revenue 39,457.790.000 3 5. I 52,81 8.021 (4,304,971,977) I lo/o Valuation of Investments tlnrealized gain on investrnents (6,918,724,000) ( 10,194,619,584) (3,275,895,584) (47) Total revenue 32,539.066.000 24,958,I 98,438 (7,580,867,562) (23) I8

It. llt tv 59. Desprte thc drfficultrcs occastoncd by the pandemic, overall, the Fund was ablc to achteve 77oh of ls revcnue target, which is a farr perlormancc Committec observations The Committee observed that The shortfatl of Kshs 7,455,916,319 or 27oh of thc rcvenue budget affected the planned actrvrtres and rmpactcd ncgatlvcly on the scrvtce dclivery to the public/trcncftctartcs. The managemcnt submtsston that dunng thc COVID-19 pandemic, thc Fund tmplementcd a robust diversificatron strategy rs not supported by any evtdence. Dcsprtc the divcrsificatton, thc Fund pcrlormcd dtsnrally on both realtzed and unrealtzed Satns on lnvcstments. Furthcr, the Commrttee observed that, lf thts posltton holds that as a long-tenrl investor, the Fund follows a value/lmpact investrng approach whtch means that lt rcnlalns unaffccted by short-tcnn markct fluctuatrons as lt focuses on thc broadcr, lonS-term posltlon of lts lnveslnrents, then thc procccds from rnvcstments would not have bcen negattvely affected as observed rn the audrt query Also ansrng lronr the foregoing, the Cornmittee observcd that thc l"unds' lnvestments wcre not hcdgcd agarnst markel volatiLty cffccts such as thc Covrd-19 pandemtc whtch was only a shon-tenn phenomcnon dunng the pertod under revrew The rnvestmcnt managcr and othcr financtal advtsors dtd not do duc drlrgencc whrle lnvestlng publrc funds Committec Recommeudrtion The Comnrittee recommcnds that - The Accountlng Officer should ensure at all timcs that the budgets are realtsttc, achtevable and always adherc to annual work plans, procurcmcnt plans and rcvenue colleotton schedules tn compliance wrth Regulatron 44(2) of the PFM (National Govemment) Regulatrons, 2015 1.2 Expenditure 60 The Commince hcard that, the statement ofcompartson of budgct and actual amounts furlher rndrcales thal thc F'und had budgeted to spcnd Kshs.7,222,469,000 rn the ycar under revtew but spent Kshs 5.942,306,669 resultrng to an under-cxpcndtture of Kshs.l,280,l62'33 I as tabulated rn thc followrng table: l9

Itenr Budget Actual Over/[Jnder Kshs. (-) Over/Under (-) Kshs Kshs. o/o stafrcosts 4.663,r 92,000 3,820,005,857 -843,186,143 l8 2 Gencral Administrativ c Costs I ,812,777,000 I ,570,733,41 3 -242,043,587 l3 3 Investmcnt Management Expenses 746,500,000 534,883.7 r 6 -2t t ,616,284 28 'I otal 7,222.469,000 5,925,627,986 -t,296,846,014 l8 6l- Management explained that under-expenditure totaling Kshs.843,l 86,143 incurred on stafl costs resulted from delay in recruitment of senior nanagement and in implementation of a Colltxtive Bargaining Agrcenent signed with staff, and delay in effecting inflation adjustments on cmployee enroluments. 62. The variance in investment management expenses amounting to Kshs.2 I I ,61 6,284 or 28o/o was explained as having been occasioned by low activity in the money and capital markets. 63. The under-expenditure totaling Kshs.1,296,846,014 implied that the Fund may have scaled- down on implcmentation of the programmes and activities planned for the year. Therefore, somc of the |und's goals and objectivcs set for thc year nray not have been achieved. Managcmcnt rcsponsc 64. The managcment informed the Committee that, thcre was dclay in conctudrng negotiations for CBA with union staff which has subssquenlly becn concluded and implemenred 2O2Ol2O2l financial ycar. Thc rccruitment of senior slaff remains pending because of Sovernmcnt circulars freezing recruitmcnt and conclusion ofa job evaluation exercise which has been concluded now. Thesc two are the causc for the low absorption of staff cost as planned. Thc Fund continues to optimize its available human resource to meet its strategic goals. 65. Suppressed economy and market affected the investmcnt activities of the Fund forcing the Fund to adopt a cautious approach rcsulting to the under absorption of inveslment managcment expenses. 20

Budget line Budget Actual Variance Explanation Management investment cxpense 746,500,000 534,883.7t6 2r I,616,284 28% Positivc variance is attributed to reduccd performance activity in market since thc corit is based on performance of thc respective service providers in thc market. C-'omp€nsation employees of 4 ,663, 1 92.000 1,820,005,857 843,I86.143 t8v. There was an ovcEll decrease on staff cxpense mainly duc to delay in recruitmcnt of scnior managoment as well as delaycd implemcntalion of CBA and inflation adjustment on employee emoluments. Tnrstec' Emolumcnts 45,500,000 39,505,364 5.994,636 110/" under absorption of budgct is duc to rcduced activity occasioned by Covid- 19 which rcduced mcetings in thc second halfofthe year. Travclling Costs 179.951,000 t44.475.247 35,475,753 200/. Positive variancc was occa-sioncd by rcduccd compliance activities in 3rd and 4th quancr of thc ycar due lo Covid-19, otherwise if all planncd activilies were undertakcn it would have heen l00Yo absorption. Transport Cosls 82.500,000 36.397.546 46,102,454 560/o Rent Expcnsc 3 10,442,000 288,515,246 2t,926,7 54 7V" the slight under absorplior was occasioncd by delayed signing of leasc agreements which had bccn planncd to take efFect in the ycar. Printing. Stationery and Photocopying 47,610.000 28,246,829 t9,363,t71 4lyo Positive variancc was occasioned by reduccd compliance activities in 3rd and 4th quarter of the year due to Covid-19, otherwisc if all planned activities were undertakcn it would have been l00oZ absorption. Postagc. Tclcphone atrd lntemet Expcnses 109,677,000 78,191,575 31,285,425 290/0 Elcctricity, Sccurity Conservancy Waler, and 91,603,000 74,532;193 11,070,207 t90/" Training Expenscs 12s.500,000 67.910.4E5 57.589,5t5 46% Repairs Maintenance and 196,470,000 152,843,671 43,626,129 Hospitality Matcrial ard serviccs 3.510.000 2;71',7,t39 812.861 230/. Consultancy and Professional Expcnse 50,000,000 32,627.e80 17.372.020 350/. l-cgal Expcnsc 50,000,000 t02,089, r90 -52.089, t90 -t04vr over absorption of the legal expenses is attributed to delayed in finalization oflegal claims in previous ycani which were finalized and paid in the ycar Audit Fccs 8.000.000 8,000.000 0 oyo 'fhis cost has bcen maintained as nrovision payable to Auditor General ss lJevelopmelrl Policy 50.000,000 t35,060 49.864,940 t00% Positivc variancc was occasioncd by reduccd activities gcar€d to unlocking thc NSSF Acl in thc ycardue to Covid- 19. othcrwisc if all planned activities 2t

werc undenaken it would have very high absorption Gencral Insurance 54,000,000 20,866,893 13. t33,107 6tvo under absorption is attdbutable to delayed in dclivery of Motor vchicles and othcr lcl' rclatsd assct in thc ycar as well as reduced insurance fecs due lo disposal of some assets during the year. AGM Expcnscs 20,000,000 2,884,538 17, 5,462 860/. Positive variancc was occasioned by govemment guidclincs on social disance which mesnt no physical mcetings in the ycar due to Covid-I9, otherwise ifall planncd activities wcre undertaken it would have very high absorption ISO Expenses 35.000,000 24,805,720 10,194.280 290/0 Positive vada.cc was occasioned by reduced activities gearcd to recertilication and implementation of ncw standard in thc year due to Covid- 19, otherwise if all planned activitics were undcrtaken it would have vsry high absorption and AdYertising Publicity 15,000.000 35,225,1l3 -225.1t3 -to/o Marketing expcnse 60,000,000 30,648,104 29.351.896 490/0 Corporate Social Rcsponsibility 22,500,000 21.833.S27 666.073 30/o Positive variance was occasioncd by rcduced marketing and social investmcnt activities gearcd to improving thc organization image and markcting in thc year due to Covid-19, otherwise ifall planned activities wcre undenakcn it would have very high absorption Finance Expense 10,000,000 2-s,888,569 -15,888,569 -l59Yo over absorytion of finance charges is attributed to high bank charges which we are negolialing with the bank to reduce the cosl Other Administrative Expense 84,645,000 106.217.525 -2t.5'12,525 -25% over absorption of othcr administrative corts is atrributed to activitics not affected by Covid-1g like software licenses. Deprcciation amorti zalion & 140.849,000 245,974,90t

• 105,125,901

over absorption of is attributed to completion of opcrational asset undcr constructions projects which wcre transfered to complele assets and depreciation look efFect Provision 16.683.683 it was not envisaged that the provision ofdoubtful dcbts will incrcase. Tolal '1,222,4(t9,000 5,942,306.671 t.280.162,329 180/" 22

Committee observations Thc Committee observcd that Thc undcr-expcnd rture on somc budget ttems affccled thc planned actlvittes and rmpactcd ncgatrvely on the servicc dchvery to the public/benefictanes r) r) n) The Cornmittec was conccmcd that whlle explatning the underperformance on various budget rtcms, the NSSF management cited COVID-19 pandcntrc cffects. lf thts was the causc, then the explanatron ofover-expendrture of Kshs.21,572,525 on other Admtntstrattve Expcnse that was attnbuled to acttvlties not aflccted by Covid- l9 hke software ltcenses was rnvalid Thrs rs bccause rn the samc submrssion. the NSSF management attnbuted under- absorptron on Gcneral lnsurance to delayed delivery of Motor vehtcles and othcr ICT relatcd asset rn thc year, thus no commensuratc increase rn software ltcenses was expected lll) Srmrlarly, the Commlttee observed that, desplle nlaJonty of budget rterns betng under- absorbed, finance cxpensc was over absorbed by Kshs 15,8118,569( 159%) which was attnbu(cd to hlgh bank chargcs Thrs could have anscn out of tncreascd bank actlvlttcs/ transactrons yet the Fund rcported rcduced activttics rn the pertod and thus susptctous Committcc Rccommendation The Committee recomnrends that Thc Commrttcc reprimands the Accounting Officer for farltng [o cnsure that at all tlmes thc budgets arc realtstic, achtcvablc and always adherc to annual work plans, procurement plans and rcvenue collectlon schedules tn compltancc with Regulatron 44(2) of the PFM (Natronal Govemmcnt) Regulatrons, 201 5 n) Wrthrn three nronths upon adoptton of ths rcport, thc Accounttng OIficer for NSSF should submit to the Audttor-Gcneral a tabulatton of thc bank chargcs sumrning up to the Kshs 15,888,569 and the corrcspondrng bank statcments for audit rcvtew. Thc Audttor- Gcncral shall withrn the subsequent audrt cyclc submrt a comprchenslvc report on thelr findrngs to the Commlttce 2,0 Prior Ycar Issucs 66. Thc Commltlee hcard that, thc aud( rcport lor thc ycar endcd 30'h June, 201 9 raised several unsatlsfactory issucs rn regard to balances reflccted rn the linancral statemcnls, lawlulncss and cffectiveness rn usc of rcsourccs and cffectlvcncss of rntemal controls, nsk management and govcmance. 23

67. The report of Management on progress made in resolving the issues indicates that activities intended to resolve somc of the issues were ongoing as at 30th June, 2020. However, the rqrort does not provide disclosures on scveral issues raised in the audit report. 68. The actual status ofall thc issues shall be detcrmined after they are discussed by the National Assembly. Management responsc 69. The managcment informed lhe Comnrittee that, thc updated report of management on progress made in resolving audit issues is available for audit verification. Committee observations The Committce observcd that i) Thc Commitlec observed that the accounting officer did not adequately respond to this audit query. ii) The Accounting olficer was in breach of thc Section 8l(3) of the PFM Act CAP, 4l2A which states that the accounting officer shall prepare the financial statements in a form that complies with thc relevant accounting standards prescribed and published by thc Accounting Standards Board from timc to linlc iii) In addition thc Accounting Officcr contravencd Section 3 I ( I ) (a) of the Public Audit Act, CAP 4l28 that states that, within thrcc months after Parliament or the County Assembly has debated and considered thc final report of the Auditor General and made recommendations, a State Organ or a public entity that had been audited shall, as a preliminary step, submit a report on how it has addrcsscd the recommendations and lindings ol' the previous year's audit. Conrmittee Recommendation Thc Committee recommends tha( Thc Committce reprimands the thcn and the currcnt Accounting Officers for breach of Section 8l(3)ofthePFMAct,CAP4l2AandScction3l(l)(a)ofthePublicAudirActCAP4l2B. Rcport on Lawfulness and Effectivcness in Usc of Public Resourccs 1.0 Non-Pcrforming lnvestment Propcrty 70. The Committce heard that, fixcd assets rccords indicated that among the propertics owned by thc Fund as at 30'h Junc,2020 was Hazina Plaza-Polana Mombasa which, as indicated at Note 29 lo thc financial statements, hatl a nct book value of Kshs.530,000,000. The records 24

indicated that the propcrty was purchascd rn C)ctober, 1994 at Kshs.450,000,000 on a sale- and lease basis but had srnce becn rcvalued lt was first leased to M/s Azanra Hotels Lrmrted for use as a hotcl which, however, closed rn Aprrl, 2001 whrle rndebted to the Fund for rent arrears totahng Kshs.239,500,000. 71. A privatc investlgator was cngaged to lrace asscts held by M/s Azanra Hotels Llmltcd or lts Drrectors with a vrcw to suc for thcrr drsposal. Case HCC No 59A of 2004 was thereafter filcd at Mombasa to rsJovcr thc arrears Howcver, rn the year under revtew, management dtd not provrde an update on the matter and as a result, rt was not posstblc to confirm whether the arrcars were recovcrcd 72. The records rndlcatcd that rn Apnl 2010, thc Board of Trustees approvcd lcase of the properl.y to Tcchno Hokfings Lrmrtcd for a penod of l0 ycars but the tenant defaulted on rent totahng Kshs.23,490,800. The Fund sucd lor recovcry of the amount and sought authorrty of the Court to cancel the tenancy but sub-tenants at thc property demandcd compensatton for cxpendrturcs totalrng Kshs 123,000,000 they clarmcd to havc spent on refurbishments and rcnovatrons of thc properry. 73. Thc Court on l8'h Marclr, 2019 allowed thc Fund tocvtct the lcssee and thc sub-lcnants who thercaftcr reportcdly removed firmrture and decor items thcy claimed to own. As a result, the propcrty was rcportedly lcft rn a rundown condltion. It ls not certaln whether management has taken lcgal actron agarnst the cvictccs 74. ln vrew of the forcgorng, rhe Fund may not have obtarned value for money liom rts rnvcstmclt ln the property that cost Kshs.450.000,000 rn 1994. Further, thc recurrenl rent arrears rmply that the Fund may not have managed th(] investment tn a prudent way ManrBcmcnt response 75 The managemcnt rnformed the Commrtlcc that, the Board of Trustees approved the re[urbrshment of thc propeny on a phased basrs to take advantage of rent. Thc refurblshment rs scheduled [o commcncc n 2023/2074 financtal year. The board mlnules approvlng refurbrshmcnt of thc propcny for audrt verrficatron were attached 76 The case NSSF vs Tcchno Holdrngs Limrted for the default ofrent totahng Kes 23,490,800 rs strll rn court Thc correspondcnccs and othcr documents on the matler as requestcd lor audrt vcnficatron was attachcd. Committce Obscrvations r) The mattcr had becn drscussed rn the pro,rous PIC 22d and 23'd reg)rts and the Commlttee observed that, Thc F'uDd drtl not rnvolvc the State Departmcnl of Pubhc Works whcn contrscttng M/s Tcchno Hol<lrngs Ltd to rcnovalc thc burldrng. The scope of renovatlons was not a 25

documented and agreed anywhere thus opening a loopholc for (hc tenanl to arm-twist the Fund on thc cost of renovations. b The drafting of the lcase agreement with Mis Techno Holdings Ltd was poorly clone thus exposing the Fund to loss ol moncy i.e., lwo and half ycar rent free. The lease thal was provided by thc management had missing pages. NSSF won the court case relating to thc ownership of Hazina 'Iowers c Further, the Committee obscrvcd thati ii) The property was purchased by the Board ofTrustecs in 1992 at Kshs.450,000,000 and had a net book value of Kshs.530,000,000 as at 30'h June 2020, iii) The building was advertised for sale on 3'd September, 2009 at Kshs.300 million rescrved pnce but the bids received were below thc reserve pricc. lt was not clear why lhe rcservc price was placed too low yct land on which the hotel is situated had apprecialed in value over time. The basis upon which thc reserye price was determined was not provided to the Committce for review and thc devaluation of the propcrty was skewed to favour a certain bidder. iv) Thc valuation rqrorl from the ministry of lands, public works, housing and urban developnrent as ai the time ofadvertiscnent was not pmvided for audit. Committee Recommcndation Thc Commiftec recommends that Within threc nronths upon adoption of this rcport, EACC should investigate whether there were any economic crimes perpeiuated by the Fund officcrs in the procurement by inflating the purchase price and purported disposal process of the building by devaluing the properry. Thc investigation should also cover how the leases were negotiatcd and why payment of rcnt was dcferred for a period of two and halfyears. lfany ol'ficer is fuund culpable for the loss in lease/rental fee, he/shc should be held personally liable for th€ loss, DPP should initiate a legal process to recover the amount so lost with interest from the concemed officer at the prevailing CBK rates. 2.0 Status of Hazina Trade Centre Construction Project 77. Thc Committce heard that, rccords providcd for audit indicated ftat construction works on Ilazina Trade Centre in Nairobi Ccntral Busincss District continued in the year under rcvicw. T'hc project entailed thc elcvation of the existing building into a 36-floor towcr and wa-s awarded to M/S China Jiangxi. The projcct was later scaled-down to l5 (fiftcen) floors at a reduccd contract sum of Kshs.4,09 5,862,434. Thcrcforc, its scopc was reduccd by 2l lloors 26

oqulvalent to 58% of thc ortgrnal contact where€s tbe cost was reduccd by Kshs.2,6l 9,355.7 54 or 39o/o 78 Thc prolcct has had a numbcr of completron date exlenslons wlth the mosl reccnt set for Decembcr, 2020 whrch however, Iapsed beforc the works were completcd. As at the hme of audrt, cleven ( I I ) certrficates valued at Kshs 3,704,883,770 rn aggregate, or 83olo of contract sum, had becn pard. However, physrcal rnspcctlon of the pro1ect indlcated that thg works were only crghty perccnt (80%o) complctc. Thcrcfore, there was risk ofthe proJect exceedlng r1s budgcted cost amountrng to Kshs 4,095,862,434. 79. Funhcr revicw ol'thc proJcct's records indrcated that thc conlractor filed compensatton clarms valued at Kshs.87l ,697,124 citing rdlc trme arrsmg fronl work stoppages. Expendrturc rccords rndicatcd that payments totahng Kshs 653,772,843 wcre made tn respect of the clatm Howevcr, no plaustblc cxplanatrons wcre provtdcd by Managernent for the stoppagcs whlch rcsulted rn rneffective use ofpubhc resources. Managemcnt responsc 80. The managcmcnt rnformed the Conrmruec that, thc Hazina Trade Center is Multr-storey commercial devclopment with parkrng's in four bascments, shops tn ground and two lnczzanlnc floors and twln officc towers comprlsmg of l5 floors, The plot rs located wrthrn thc Crty Ccntre bctween Monrovra and Moklar Daddah Strcets on land measunng I l2l acres. Contract was awardcd to M/s Chrna Jlangxt Intemational for a Contract Sum of Kshs. 6,7 r 5,2 I 8,I 88.00 8l. The prolect delayed duc to lltlgatlon by thcn tcnant Nakulnatt Holdrngs Lrmrted This long delay lcd to the Board of Trustees makmg a decrslon to rcstructure the pro.lect and reduce the scope to l5 floors The State Departmcnt of Pubhc Works (SDPW) was engagcd to supervisc lhe proJect and estimate lhe cost of complctlng thc burldrng wrthin thc revised scope. The SDPW prescnted an cslrmate of KES 4,095,862,434.00 for the revrsed scope 82. Thc contractor presented a clatm for cost ofexlcnded preltmmaries due to thc lost tlme The SDPW was drrected by the Pubhc lnvcstmcnts Committcc of thc Natronal Assembly to evaluate the clarm and prcscnt a report whtch they drd. In thelr report, the SDPW determlncd that KES 871,697,124.00 was conlractually payablc to covcr the costs tncurred by the contractor dunng thc delays. Thrs was prescnted to thc PIC whrch adoptcd tlre report by SDPW and drrectcd that the Fund pays the amount as determtned by SDPW. The Fund has sincc pard the clarm rn full 83 Thc prolcct was complcted on 24th Scptcnrber, 2021 and a Ccrtlficate of Practrcal Completron wasdully issucd Thc Delects Lrabrhty pcrrod was concluded and all thc defcc(s rdentrficd wcre attcndcd to culnrutatrng ln a Ccrtlficatc olMakrng Good Dcfects betng rssued on 6th June, 2022. 27

84. As at cnd March 2023, the olfice tower has been 5l% takcn with frrrther commitments for most of the rcmaining space in various stages of engagement. Further submissions by the Contractor-China Jiangxi 85. Thc contractor provided thc Comnrittce with the following additional information; The contracl.ual agreement between China Jiangxi lnternational and thc National Social Security Fund for the construction of the Hazina Trade Centre located in the Nairobi CBD. Thc letter from the Nal.ional Social Security Fund that instructcd them lo scale down lhe floors lrom 36 floors to l5 floors at a reduced contract sum of Kshs 4.095,ti62.434.00. ll. lll lv. The total amount of nroney received from thc National Social security Fund wilh rcspect to Hazina Trade ccntrc. The oontractor statcd that Hazina Trade centre was cornpleted and handed over on 241h Scptcmber, 2021 . Thc building is currently undcr NSSF occupation and Management. The contractor explained the circumstances surrounding compensation claims valued at KES 871,697,124 wherc he cited idle time arising from work stoppages and the subsequent rerceipt of Kshs. 653,772,843. Thc construction of the new tower cntailed strengthening of existing columns inside Nakumatt Ltds'leased spaces. The claim arose from the inability to obtain working space to carry out column strengthcning from Nakumatt Ltd who was the anchor tenanl at Hazina Trade Centre resulting to stoppagc ofthe works as the construction of tower had to await colunln strengthening to be carried out before works on the tower could proceed any furthcr. The delays in obtaining working spaces inside Nakumatt resulted to loss of time as wc awaited to bc grantcd acccss to carry out column strengthening. Thc Ministry of public works evaluated the claim and recommended KES 871 ,697,I 24 as compensation. On 4th Augusl 2020 NSSF confinled thc evaluated financial claim and commenced to honour it. Committee Inspection visit to Hazina Trade Centre 86. The Cornmittee visited thc Hazina Trade centrc on 3Oth August, 2024 ona fact finding and fanril iarization mission. 87. The nranagemcnt inl'onned the Conrmittce that; Thc Hazina Trade Centcr project was delaycd for various reasons key being litigation by the solc tenant, Nakumatt Holdings which prcvcntcd thc contractor from accessing porlions 28

of the sr(e to carry out column strcngthenrng. Thrs long dclay led to the Board of Trustces makrng a dccisron to restructure the project and reduce thc scope to l5 floors The Statc Deparment of Public Works (SDPW) was engaged to supervrse the proJcct and cstlmatc thc cost of completrng the building wrthrn the revtsed scopc Thc SDPW presented an cstrmate of Kshs. 4,095,E62,434.00 for the revtsed scope down from Kshs. 6,715,21E,188 Thrs was formahzed rn Variation Ordcr No. I whrch sct thc revlscd scope and cost ll The contractor prcsentcd a clarm for cost of exlended prelrmtnartes due to the losl hme. Thc SDPW was drrected by thc Pubhc Investments Commtltee of the Nattonal Assembly to evaluate the clarm and prcscnt a reporl whtch they drd In their report. thc SDPW determrncd that Kshs. 871,697,124.00 was contractually payable to covcr the costs rncurred by (he contractor during the delays (extended preltmtnarrcs) up to that polnt ln lrme, r c. l5'h March 2018, Thc Fund sought thc oprnron of the State [-aw OITice on the legalrty of the claim and thc AG rcsponded that accordrng to thc contract, the contractor had thc rrght to clalm 0rc anrounts claimed under compensation cvcnt chuscs. Veriation Order No. 2 was preparcd and executed formalizrng the amount that was agreed betwcen the Fund and thc Contractor and approved by the SDPW and Prqect Consultants This anrount was pard rn four cqual rnstallments ofKshs. 271,924'2E1.05. l ln 2020, the proJecl cncountcrcd further delays duc to Covrdl9 Lockdown whrch led to drsruptrons to the global supply charns and working cnvtronment. The drsruphon ln manufactunng and shrpprng led to stgnrficant delays tn procurcmcnt of rmported materials. The shortened workdays and reduccd manning levcls due to Soclal Drstanctng further dclayed executron of the works. tv The pro.lcct was completed on 24'l' Septembcr, 2021 and a Certificate of Prccticll Completion was dully rssucd The Defects Llablhty penod was concluded and all thc defects rdentified werc attcndcd to culmrnatlng tn a Certilicatc of Making Good Defccts bcrng issued on 6rh June, 2022 A Final Account was prepared and approved by the State Departmcnt of Pubhc Works and the Final Ccrtificatc No. 25 was pard to thc contractor a( the conclusion of lhc contract As at end Septembcr 2023, thc officc towcr has bcen 67% let with further commttments for most of thc rcmalnrng spacc tn various stages of completron Committec Observations The Committce obscrved that (r) Thc issuc has becn drscussctl rn lhc prcvious PIC l9'h, 22 ,23'd and 24'h reports wtth a rccommcndation for thc Audttor-Gencral conducts a forenslc audlt and then subsequently EACC and DCI takes up thc matler for further tnvestlSation whose rcports had not ycl been submlttcd to the NationaI Asscmbly. 29

(ii) The projcct was conrplcted at a total cost ol' approximately Kshs.8 billion. The amount comprised ofKshs. 2.6 billion for the original 8 floors building that was to bc extended to 36 floors and thc new contract price ofKshs. 5.4 billion for the extension of l5 tnore floors. (iii)The initial cxtension works of 36 floors was cstimated to cost thc Fund Kshs. 6,71 5,21 8,I 88 which was later scalcd down to l5 floors. The State Department lbr Puhlic Works estimated the scaled down works to cost Kshs- 4,095,862,434.00. This was formalized in Variation Ordcr No. I which set the rcvised scopc and cost.The varied scope of works lor 15 floors and thc rcviscd cost of Kshs. 4,095,862,434.00 were not cofilmensurate- (iv)The membcrs during, thc prqcct visit noted that thc basc olthe building columns were not slrengthened except for clamping/jacketing the columns which served little or no purpose with strength ofthe pillars base and thus a nugatory cost. The Conrmittee also noted that without strcngthening the base the building could not havs held 36 more floors. The Furrd management might and thc involved structural enginecrs did not do due diligence and the tcchnical advice ofTcred was misleading. (v) The Fund had not involvcd thc state department for Public works during the design phase to offer technical expertisc. Thcrc thc managemcnt failed to place responsibilities fcrr monitoring and implemcntation of the projects to entities with the techrrical capacities to implement in order to avoid umecessary temrinations and variations of project cost. (vi)The building also attractod extra Kshs. 1.4 billion to catcr for penaltics for delay or idle timc occasioned during the push and pull between NSSF and management of defunct Nakumatt supermarkel. (vii) The building was not lully occupied despite its completion (viii) tJazina Tradc Centrc was one ofthe l'und's Mcga projects worth substanlive amounts of taxpayers' moncy which ought to havc becn initiated upon the managenlent carrying out a feasibility study and drawing an implcmentation plan to executc the project. (ix)The NSSF did not scek tcchnical advice from the Statc Departrnent of Public Works when commencing and during implementation ol the projectl public works only came in as project managcrs in June 2017. Had NSSF sought the scrvices of State Department of Public Works at the onset of the pro.jcct, NSSF would not have faccd thc delays and the unnecessary cosls through court cascs. (x) The varied scope ol'works at a contract pricc ofKshs. 4,095,862,434.00 includcd provision sums of Kshs. 902,550,000.Thc provisions included an amount of Kshs. 250,000,000 for fluctuations antl a sinilar amount for contingencics. Tlrc balance of Kshs.402,550,000 being othcr provisions. Thcrc was no explanation as to how thcse amounts wcre expended and how thc lluctuations and contingcncics were quantified as works donc and paid for. 30

(xr)The contractor took over/possesslon of the srte before ascertarnrn8 that thc necessary prehmrnary arrangements had been madc to cnable smooth lmplcmcntatlon ol'thc project rncludrng nouficatlon of the tenant on thc bulldrng-Nakumatt Holdrngs of thc cxpected drshrrbance, rnconvcnicnces and rnterferences wrth thclr normal opcratrons - Thrs would havc enabled flow of tle pro1cct from commencenent to commrssronlng wlthoul rcsulttng dclay and rdle trme that the contractor lalcr chargcd wrth pcnaltrcs crtrng rdlc labour and equrpment's. Committee Recommendations Thc Committee recommcnds that - Wrthrn thc currcnt audrt cycle and by 3 l" Decembcr,2024 as strpulated rn Arttclc 229 (4) of the Constrtutron ofKenya 2010, rhe Auditor-General should carry out a forensrc audlt on the whole prqect from the rnltlal conlract for thc erght floors to thc ncw contract for l5 floors wrth a vrew to establtshrng the total cost of thc project and the value for moncy and submrt a rcport to tlrc Commlttce. The report should rncludc reasons or .;usttficatlons for rcductlon tn scope and whether the related cost reductions are commcnsurate. Wrthrn the subsequent three months upon submrssron of lhe forensrc audit rcport and dcpcndrng on thc outcomc of the audrt, the EACC should conduct an tnvestigahon on the then management, the then Board of NSSF and thc Contractor-Chrna Jiangxt Intemattonal wlth a vrew lo estabhsh whcther there was fraud relatrng to thc contract ofworks on thc completlon of Hazrna Tradc Centre. Further, thc EACC should lnvcstrBate the basrs upon whrch the contractor made clarms for dclayed works yet they were party to tt stnce they look possession ofthc srtc without hrst ascertarnlng whcther therc wcrc any obstacles, legal or olherwtsc that could hrnder therr executron ofthe contract. lfany percon ls found culpablc, he/shc should bc held pcrsonally hable for the loss, DPP should inrnate a lcgal process to recover thc amount so lost wrth lnterest from the concemcd omcer at the prcvarltng CBK rates lt 3.0 Incffcctive Managcmcnt of Debtors and Investments 88 The Commrttce heard that. exanrrnatron of debtor and mvestments rccords tndtcatcd that the Fund had, over the ycars, rncurrcd losscs on recervables (debtors) and invcstments For lnstance, note 23 to thc financral stalemcnts reflects recervables and prepaymcnts totalmg Kshs 3,793,927,167 whrch include long outstandrng debts totahng Kshs.28,720,772, that had, as at 30 Junc, 2020, remarncd unpard lbr morc than ten ( l0) years. In addttron, provrstons madc for bad and doubtful dcbts amounted to Kshs 105,102,269. 89 Srmrlarly, lhc statcmcnl of nct asscts avarlable fbr trcncfils reflects corporatc bonds totahng Kshs. 1,399,604,882 whrch Notc 20 to thc financral statements rndrcatcs rs net of doubtful bonds provrsrons totahng Kshs 666,900,000 made rn rcspcct of FXD Chase Bank 2015 bonds at Kshs 534,700,000 and lmpenal Bank 5.25-ycar FXD bonds at Kshs 132,200,000, 3t

90. l'he loss provisions totaling 772,002,269 and thc losses incurred on thc leascd-out propcrty citcd in this report suggest that the Fund's debt management and investment policies may not bc propcrly cstablished to attain lhir retums on contributors' funds. Management rcsponse 91. The Committee was informed that, out of the quericd amount of Kshs 105,102,269. Kshs. 28,720,772 relate to long outstanding dcbts which have proved difficult ro collect. Management has recommcnded write-off lronr the Fund's books. I'he balance of Kshs. 76,381,497 relatc to unpaid chequc issued by cmployers to NSSF. The Fund has a robust mechanism of recovering thcss amounts including prnsccuting cmployers who issue bad cheques. I{owever, lbllowing a recent courl ruling which reversed an earlicr law which criminalizcd issuance of bad cheques, the Fund has stoppcd usc ol'chcques as a mode of payment for member contribution, rent and any othcr paymcnts to NSSF starting lsr, July 2023. Meanwhile, the Fund will continue pursuing payment ofall outstanding debts together with penalties rcsulting from bounced chcques. 92. The Fund continues ltl experience an overall exposure of Kshs.666.9 million in Imperial and Chase banks. lmperial and Clusc Bank issucd corporate bonds valued at Kshs. 2.0 billion and Kshs. 4.822 billion, rcspcctively. ln thc same circumstances as dctailed above, the Fund invested in thc issued corporate bonds and was holding Kshs. I 32.2 million and 534.7 million ofthe total bonds issued by thc two banks respcctively. At the tilnc, the Fund's total corporate bonds holdings was Kshs. 8.996 billion and thus lhe exposurc in the two banks accourred for 770 of the total holdings. F'ronr thc dcal ofpurchasc ofChase Bank by SBM, bondholders are part ol- thc 257o who remained out of the deal. 93. On l6th April, 2021 CBK sent out a circular authorizing KDIC to liquidate the remaining 257o of asscts in Chase Bank Limited. KDIC are yct to release information on the liquidation and a schedule on the next steps. This givcs the Fund sonre hopc to recover the outstanding amount investcd in Chase bank corporate bonds from the liquidation procceds. KDIC and CBK are yet to issue any pronounccment on thc IBL Corporate Bond. Committee Obscrvations The Committee observed that Thc Committce obscrvcd with concern that public cntitics including NSSF have conrinued to lose funds through poor inveslncnt dccisions, exaggerated costs/priccs and non-recovery of dcbts owing to thern while a[ thc satnc tinrc they rcadily pay their creditors' claims with penaltics on delaycd payments and interest. ii. l'he Fund continues 10 expcriencc an ovcrall cxposure ofKshs. 666.9 million in Imperial and Chasc banks despitc thc two inslitutions being later acquircd by Kcnya Commcr.cial bank antl SBM bant rcspcctively. In thc lattcr chase bank case, thc ntanagcmcnt indicates that 32

bondholders arc part of the 25"/o who remarncd out of the deal. It rs not clear how the banks were acqurred and such ranking crcditors were not tnvolved rn the acqulsltron deal and NSSF has not ob.;ected to any cither throuBh a court casc or other regulators At the samc tlmc lt ls not clear why KDIC and CBK are yct to issue any pronouncement on thc investmcnts and release rnformatron on the hquidatron ru The Accounttng officer failed to explain how and whcn thc Imperial and Chase Bank issued corporate bonds wcrc valued at Kshs 2.0 brlhon and Kshs. 4.822 brlhon rcspecttvcly and how much would bc rccoverable. rv. The Fund has con(rnucd to rncur losscs on the leascd-out propcrty as crted rn thc audlt rcporl suggcstrng that thc Fund's dcbt uranagetnenl and Investment poltcles are not properly cstablrshcd to attaln fair returns on contflbulors' lunds or lhcre are indivrdual bencfictartcs to thcse schcmcs The Accountrng Officer farlcd to explatn why thc Fund opted to lnvcst in such nsky venlures ralhcr than the morc sccure and guaranteed return Invcstments ltkc lrcasury brlls and bonds There was already a pronouncement and Treasury Ctrcular No. I 0 of 1992 which drrected that Statc Corporatrons rnvest surplus funds rn Treasury brlls and bonds. Despr(e havrng Icgal rcprcsentatron, through thc Attonlcy Gencral's office or the legal counsel cmploycd by NSSF, the Fund has continued to krse ftrnds on lcased propertlcs through farlure by the lcssecs to honour thc agreemcnts, Commiff ee Recommendations Thc Committec rccommcnds that Wrlhrn three months upon adoptron of thrs rcport, EACC should rnvesttgales the conduct of the then NSSF Managrng Trustees, on the role they played occaslonrng the loss on inveslrnenls, contravenlng Treasury Circular No. l0 of 1992 whrch drrected that State Corporatlons lnvest surplus funds in Treasury brlls and bonds, why the acqulsttron of thc rmpenal banks and chase banks appcared skcwcd by avordtng rcsponsrbrlrly to compcnsatc thc bondholders. EACC should submit a report k) the Public lnvestment Commrtlec on Socral Servrces, Admtnrstration and Agnculrurc through rhc Clerk of the National Asscmbly lf any officer is found culpable, he/she should bc held pcrsonally lrable for the loss, DPP should initrate a lcgal process to recovcr thc amount so lost wrth rntercst lrom thc conccrncd officcr (s) at the prevarling CBK rates. Report on Effectivcness of lrtertrrl Controls, Risk Manegement and Governance 1,0 Weakncsscs in Human Resource Manrgcmcnt l.l Scnior Managers in Acting Appointmcnts 94. The Cornmlttec hcard that, as srmt larly rcportcd rn tho prevlous ycar, the Scnlor managcmcnt tcam ln the ycar under review tncluded scventcen ( l7) scnior membcrs of staff apporntcd on 33

acting capacity for long periods, some for as many six (6) years. Delay in advertising the respective posts or confirming thc acting managers may have constrained their capacity to provide elfective leadership of the Fund. Management response 95. The management informcd the Committec that, the Fund continued to have officsrs on Acting Capacity even after lapse of six (6) months hecause: 96. The Board at somc point was not l'ully constituted. This was the period between 2014 and 2016. ln July 2014, the thcn Cabinet Secretary (CS) for Labour, Kazungu Kambi cjecrcd COTIJ's F'rancis Atwoli and FKE's Jacqueline Mugo from the Board claiming that they had alrcady served their tenns. Consequently, the Board could not get quorum to conduct mcetings. It was not until September 2016 thal the two were reinstated thrcugh a court process. 97. Early 2015, Aden Moharned's Chainrranship of the Board tenure expired and in Fcbruary 2015 fte CS hbour, Kazungu Kanrbi appointed Charity Kisotu as the new Chairperson ol t}c Board. Soon aftcr in thc same month of February, the Employment and Labour Rclations Court revoked hcr appointmcnt and the Fund was in limbo again until 2016 when Kariithi Murimi took over tle Chaimranship of the Board. ln less than six months, Mr. Murimi resigned as the Chair of the Board and passed on shortly aftcr his resignation. Subsequently, Hon. Ndambuki took over until 2018 and was succeeded by Dr- Karangi who sewed as the Chair of the Board until December, 2022 when lhe current Chair, Mr. Anthony Munyiri asccndcd to this position. Thc Organizational Review process slarted in December 201 8. Committee Observations Thc Committee obscrved that In the period that the audit query highlights for scnior members ofstaffbeing appointed on acting capacity for long pcriods, some for as many as six (6) years yet there was no vacuum in the board and fterefor the management response is misplaced, The Accounting Officer was in breach of section 34 (3) of thc Public Service Commission Act, CAP 185 which requires that, an olliccr may be appointed in an acling capacity for a period not exceeding six monfts. 1l 14

Committce reconrmendations Thc Committcc reconrmends thal i) Thc Committcc rcprinrands {hc then Accountirrg Officcrs and thc thcn PS for not adhering t<r the provisions of scction 34 (3) of thc Public Sen'icc Commission Act, CAP 185. ii) Within thrcc months upon adoption of this rcport, the Inspcctor Cencral Statc Corporations to surcharge and rccovcr lrom thc thcn Accounting Officcr (s) nxrnies paid as acting allowanccs beyond thc stipulated period of six ntonths- 1.2 lmpcoding Rctircmcnl of a Largc Proportion of Staff 98. I'hc C'onrnrittcc hcard thal, revicw ofcnrployec rccottis indicated that out ofthc Fund's onc thousancl, l26l) staff,4lolo wcre about to retirc alier scrving their respective terms. As a result. the liund's prospects lor rtraintaining a stablc, cxpericnccd workforce that wotrld cnahlc it to attain its goals and objcctivcs ntay be at risk. Managcmcnt rcsponse 99.The uranagenrcnt informed thc Contmittce that, the Boanl ol Truslccs itt 2018 nrade a rcsolution ltrr thc Fund to carry out organizational revicw leading to llcw organizational stnlcture and a new grading structurc which has becn approved by tlrc Statc Corporations Advisory Comnrittcc and Puhlic Scrvice Comtnission and is in process of implemcntation The adverls Iirr thc vacant positions and nrorc to bc adveniscd it 20231?024 financial year arc as follows: Externa I lntemal NO. JOB ADVERTISEMENT DATE OF ADVERTISEMENT I Senior Positions 26th January, 2015 2 lnformation Technology Manager 2l st November, 2017 3 General Managers (Various) 23rd December, 2021 4 Various Positions 29th December, 2021 6 Regional Managers lOth February, 2023 8 Managing Trustee 27th February, 2023 NO JOB ADVERTISEMENT DATE OF ADVERTISEMENT I Branch Manager - [,odwar I st March, 2017 2 Branch Manager -5 positions 5th February, 2021 35

3 Branch Manager - 8 positions I st July, 2021 4. Regional Managen l2th February, 2021 5 Regional Managcr-2 positions 8th November, 2022 Comnrittec Observations The Committcc observed lhat The Funds has poor succession planning strategics resulting to 4lyo ol the its staff nearing retirement. This may lead to unstable, incxperienced workforce that would not enablc it to anain its goals and objectives. Committee Recommendations The Comnrittee recommends that - i) The Committee reprimands the then Accounting Officers lor not adhering to section l4 H of the Public Service Commission, Human Resource Policy and Procedure on proper succcssion management. ii) Within three months upon adoption of this report, the Accounting officer should submit approved Human resource instruments and thc strategies in place to seal the staffing deficits in line with the Fund budgct and SRC approvals. 2.0 Inadequate Documentation of Expenditure l00.The Committee heard that, examination of paymenl records indicated that there was no standard format lor printed payment vouchers. Although postings and approvals wcre done online in thc I'-und's accounting soflware, physical vouchers flled includcd rnemos for intemal as well as staffpayrnents and invoices and dclivcry notes for supplies, all of which wcre stamped severally to denote various approvals. Fu(her, the vouchers were not serially numbcred. l0l.As a result, audit trails on accounls chargcd werc hard t<l follow and therc{brc control on recording ofexpenditure was not properly established. Managemcnt responsc 102. 1'hc managcment informcd the Conmittee that, thc lrultd's strategy is to implement a paperless system to incrcasc cfficiency and wcll as a cost rcduction measure. The benefit payment pnrccss is now complctcly automatcd. The ncxt phase is 1o digitize all payment processcs as wcll as intcgrate with banks lor seamless and paperless collection of revenue and reconciliation. Thc SSPAS and SAP systcm that thc Fund has lmplcmentcd have internally gcnerated numbers which dcfine whcthcr an cntry is an accounting document, controlling or Funds managcmsnt. Thess dncumcnt numbers constitute thc serialization because they are uniquc for cvcry transaction and providc all the necessary audit trarl. 36

Committee observations The Committcc observcd that r) Thc observahon made by the audrtor-Gencral polnts to a wcak lntcmal control that could be explorted by thosc ln authorrty to perpetuate fraud rr) The l"und's stralegy to go papcrlcss rn order to incrcase efTictency as wcll as a cosl rcductron measure rs a posrtrve move ln ensunng that pubhc funds are uttltzed tn an effective, efficrent and economtcal way. Howevcr, propcr secunty featurcs and regular back up rs paramount sincc the collapse of the system wrll affect bustness contlnulty otherwise rt is a risky venturc rur) The Accountrng Officer rndrcated that the ncxt phase ts to digrrrze all payment proccsses as wcll as lntegrate wrlh banks for seamless and paperless collection o[ revenue and rcconcihatron If thc systems were procured in 2012 yct in 2020 thcy wcre strll not performrng thc purported or aspired functronalttres, then the systcln has fallcd and thc NSSF may not have Botten value for money lv) Thc nature of scrvrccs offcrcd by thc NSSF wcrc sensittve and thcrr financral documents should have been handled wrth cautron and c e v) The Commrltee observed that the paymcnt vouchers provrded by thc NSSF wcrc not scnahzed for propcr accountabrlrty and audit trarland thus thc responses provrded dtd not fully address the quenes rarsed Committce recommendations The Committee recommends that Wrthrn tlrree months upon adoptron of thrs report, the Accounltng Offrcer should submlt a rcport on secunty measures and rntemal controls that arc put ln place to saleguard thc ICT cqulpment, the SSPAS and SAP systcm already rn place to warrant data, tnfomratton and rcsources rncludrng public funds secunty to thc Pubhc Invcstment Commtttcc on Social Servrces, Adminrslratron and Agnculture lhrough the Clcrk of the Natronal Assembly. rr. Wrthrn three months upon adoptron of thrs rcport, the Auditor-Gencral should undenake an ICT systems audit on thc SSPAS and SAP systcm with a vtew to assessrng lts functlonahty. controls in place and sccunty ofthe pubhc funds If thc NSSF wcrc to go papcrless and onboard all its accountrng opcra(rons ln to thc systems. The report to be submllted to thc Publlc lnvcstmcnt Commrttcc on Socral Scrvrccs, AdmrnrstratloD and Agnculturc through the Clerk ol'thc Natronal Assembly. 17

3.0 Dclay in Accounting for Members Contributions xxx The Comrnittee heard that, cxamination of records on contributions madc by mcmbcrs indicated that contributions in transit not posted to individual r:rcrlbers' accounts a-s at 30'h Junc. 2020 amounted to Kshs.439,000,000 dcnoting an increase of Kshs.149,000,000 or 5l% Iiom Kshs.290,000,000 reportsd as at 30th June, 2019. No plausible explanation was provided by Managemcnt for thc large increasc in the balance and the reasons for delay il posting the contributions to thc credit ol'the respective rnembers' accounts. The delay suggcs(ed lhal inlcmal control on accounting for contributions was weak and therefore, the risk of misstatement of'lhe balances may have bcen high. Management rcsponse I03. The managemcnt inlomred thc Commitlce that, the amount of Kshs. 439 million was the balance of contributions remitted to NSSF by employers that was still dorniciled in employer ledger accounts as at 30'h Junc, 2020. Posting ol enrployee/member accounts could nol bc donc at the point of payment because of missing NSSF numbcrs even though other dctails are providcd by employcrs to enable the Fund post memberaccounts at a later datc- Updating of member accounts is a continuous operational activity on subrnission of proper data. Out ofthe Khs 439 rnillion. Kshs 157 niillion has been updated to mernbers' accounts. The Fund con(inues to encourages its membcrs to actively bc chccking their slatemcnts for correctncss and updating via online platforms Committce observations Thc Committec observcd that Thc NSSF boasts of implemcnting SSPAS and SAP system as a statcgy to go paperless and that benefit payment process is now completely automated. The accounting officer has also indicated that other dstails arc providcd by enrployers to enablc the Fund post membcr accounts at a later date but the delay is due to mrssing NSSF numbers. lf the contributions list has the uniquc personal data like the ID Numbcr and thc personal Numbcr, thcn the delay is a nrere laxity on the part olthe responsiblc NSSF stafl'. ii. The delay in identifying the beneficiarics may lead to rctirces missing out on their retircment benefits dcspite them contributing for dccadcs. iii. The un-accounted for Mcmbcrs Contributions continue to eam investment incomes that cannot be attributed to any bcncficiary nor retraccd to tho time of contribulion. lt will hard for thc NSSF to identily thc beneficiary and match them to their respcctivc benefits and the related canring from it. Thc incomes might bc utilizcd by thc I'und to run its day to day operations at the expcnsc of thc bcncficiaries. :18

Committee Recommendations The Committee rccommends that l04.Within three months upon adoption of this rcport, EACC should investigatc how the un- accounted for menrtrcrs contributions are trcatcd and invested. Also cstablish where the invesunent incomes arising fronr the contributions arc banked and whether NSSF has an approved bank account where such funds arc translcrred awaiting assignment to the respectivc confibutors and are only drawn liom the accoun( after identification of the bencficiary. EACC shall submit the report to the Committee. If any oflicer is tbund culpable for any loss, illegality or irregularity, DPP should initiate a legal process to rccovcr the amounl so lost with interest from the conccmed officer at the prevailing CBK ratcs. 4.0 lncffective Accounting Software systems l05.The Committee heard that, ln the year 2012, thc Fund procured two software systems identified as SAP Enterprise Resource Managemcnt Programme (SAP ERP) and Social Security and Pension Administration System (SSI'AS). The systems were intended to enablc thc Fund optimize iLs functional processes and improve operational cflectiveness. l06.Thc SSPAS was expected 1o provide an integrated platlonn that supports thc lfund's core functions namely registmtion, collections and bcnefit payment. The SAP system was to lhcilitatc the Fund's finance and accounting f'unctions by providing transparency and accountability in executing processcs. 107. Revicw of thc functionality of thc 1wo syslcms rcvealed the following inadequacies Ilecords on the Fund's Tenant Purchasc Scherne (TPS) are slill updatcd upon sublnission of physical payment records by tenants at the Head Office since the Schcme is not integrated with thc Irund's banking system to autornatically update records upon payment. No satisfactory explanalion was provided why thc Finance Departmcnl would not improvc customer experiencc by inlegrating thc software systcms with mobilc-phone paymcnt techlologies. Financial statements are still prepared rranually because the SAP systcm does no( indeperrdcntly gcneratc double cntry accounting balances. Becausc ofthe high numbcr of transactions, thc risk of crrors and misstatements is high. ln addition, SAP system cxpenditure schedules do not includc payce names. As a result, thc schedules do not providc a proper audit trail as they are not matched to paymcnt vouchcrs or other relevant recortls. Thc SAP Loan Modulc is not configurcd to provide analytical rcpr:tls on unpaid chequcs. ll 39

l0li.ln view of these shortcomings, valuc for money may not have bccn obtained on the investments made in the two systems. Managemcnt response 109. The rnanagcmcnt informed the Comrnittce, that the Fund has inregratcd with banks for TPS payments using MPESA, through USSD 1303# which is alrcady opcrational. This systenr was demonstrated and tested by auditors during audit verification. I 10. SAP ERP system generates a trial balance and other reports which are used for financial reporting by the Fund. However, the Fund is currently scarching for a system that can handle the Iast mile reponing processcs which conform to thc templates issucd by the Public Sector Accounting Standards Board. I I I . Thc system is able to give a unique idcntification No. whcncver a reversal of a dishonored cheque is posted. Committee observations Thc Committce observed thet The issue of the lneffective Accounting Softwarc syslems had continucd to attract an audit query from the Auditor-General in the reports for the financial years ending 30rh June, 2018, 30th June, 2019 and now in this year 201912020 on its ineffectiveness and lack of securiry leatures. Further, the systems have continued to attract more costs for improvement of functionality, for cxamplc in thc audit rcport of 2019/2020, the Auditor-General reported that KSh.167,945,837and KSh.29,914,248 were incurred on Sociat Secunry and Pensions Administration System (SSPAS) Reimplementation and the SAP Additional modules respectivcly. The nrodules were mcant for production of financial statements by the Fund. Howevcr, the system could still not g,cncrale financial statements as expected ofan end-to-end system. II ltI- VI Thc NSSF nugatory. did not get value for moncy lrom the two systems and the expenditure was Thc system continues to a0racl liccnse fees yel its functionality is quesiionable. Propcr feasibility study was nol done belore the SSPAS and SAP systcms wers procured. Tlrcrc was profcssional negligcnce in procuring a systenr that was not able to do the job that was intended to. The competency ol'thc Fund's IT dcpartrncnt in coming Lrp with the requircd spccifical.ions is in doubt and as a result, thc Fund is losing money lbr no scrvices rendered. 40

I- Comnrittcc Rccommcndations The Committcc rccommends that -l-hc Comrnittce reprimands the then accounting officer and any other officcr who was involvcd in thc procurement process for the non-funclional systcms. Within three months upon adoption of this rqrort, EACC to invcstigatc thc procurement process of the two systems SSPAS and SAP with a vicw to establishing whcthcr thcrc werc any economic crimcs pcrpctuated by the Fund officers in tllc procurement proccss. Fu(hcr EACC should provide a comprehensivc repon on the subsequenl cost^s inlbnl of annual licensc fccs and cosis of improvcmcnt to thc systenrs, dcliciencies in the systems Iunctionality and ofTiccrs who may bcen involvcd in initiating thc procurcment of the wcak systcnr. Thc leports should bc submitled to thc Public lnvcstmcnt Comnittc'e on Social Scrviccs, Administration and Agriculture through the Clerk of thc National Assembly. If any officcr is found culpablc, hc/shc should be hcld personally liablc for the loss, DPP should initiatc a legal process to recover the amount so lost with intcrcst lrom thc conccmcd olficcr at thc prevailing CBK ratcs. 3.0 EXAMINATION OF 'I'HE REPORT OF THE AUDI'I'OR.CENERAL ON 'tHE AUDITED ACCOUNTS OF T'HE COMMUNICATION AUTHORITY OF KENYA FOR THE F'INANCIAL YEAR 2OI7I2OI8. Mr. David Mugonyi the Director Gcneral, Communication Authority of Kcnya (CAK) was accompanicd by Mr. Donrinic Ooko (Ag. Dir. Finance) and Ms. Lydia Chelangat (Lcgal Officer) ,appcared before thc Committec to adduce evidence on the Audited accounts of thc Communication Authority of Kenya (CAK)for thc Financial ycar 2017 t2tl8 AN D 20 I 8i2019 FINANCIAL YEAR 20I7120I8 1.0 Cash and cash Equivalents I I2. The Committee lrcard that the statcmcnt of financial position as at 30tl' June 2018 shows a balance olKshs. 12,903,177,000 as Cash and Cash equivalents conprising Currents accounts ol'Kshs. t48,115.000, Short tenn dcposits of Kshs. 12,055.042,000 and Treasury bills ol' Kshs. 700,000,000. Thc current accounts balancc of Kshs. 148,115,000 as reflected on note l6 to thc linancial statenrcnts has bcen cxplained to include a lettcr ofcrcdit balance olKshs. 46,385,767 hcld at Kcnya Commcrcial Bank. Howcver, no documentation was providcd for auclit vcrification in supporl ol'thc existencc of tlris lcttcr of credit as at 30Ih Jrrne, 2018. Furthcr. Bank rcconciliations ofcurrcnts account rcveal the lirllowing. 4l

l.l Kenya Commercial Bank Account ll3. The initial bank reconciliation statement for the rnonth ofJune,20l8 reflecrs a figurc ol Kshs. 122,747,815.97 as the balancc pcr cash book while the amount in thc amcnded bank rcconciliation statcment rcflects the balance for cash book as Kshs. 82,262,074 resulting in a movemcnt ofKshs. 40,485,742 arising from transactions purpo(cdly efl'ected in Juty, 2018 but includcd in the accounting records ofJune, 2018 which is an inappropriatc trcatment. Documents to support the Kshs 40,485,742 were not madc available for audit verification. Managenrent response I I4. The rnanagcment informed the Committee that the audit observation regarding Ihe dilfcrence hetween thc KCB bank balancc and cashbook balance is acknowledged. 'I'he transactions causing the differcncc wcre recorded in thc next financial year 2018/19 in the initial bank rcconciliation submitted ftrr audit. I I 5. Thc total balance in the cashbooks as of 30'h Junc, 201 8 was Kshs. 148,134,796. This balancc comprises of the following; I 16. Regarding the documcntation ofthe leltcr ofcrcdit, it was inrcnded for acquiring spare parts for the radio spectrunr management system contract CCK1I-L1171t03212014. Thc authority has submitted the Ictter of crcdit. Committee Observetion The Committcc obscrved that Thc authority contravencd thc provisions of Regulation 90 (3) of thc PFM (National Governrncnt) Regulations, 2015 which rcquires that a monthly bank rcconciliation b be undcrtaken and any discrcpancics nored should be investigatcd promptly and appropriate action takcn including updating relevant cash books. ii. Thc authority lailcd to provide supporting documcntation of thc difference between thc initial bank rcconciliation and the amcntled hank reconciliation of Kshs. 40,485,742. This was in breach of section 62 of the Public Audit, Act CAP 4l2B for lailing to provide supporring docuncntation. Account Named Balancc KCB Current account l?8,647 ,84t.39 Citibank Kshs I 5,023,I 95.92 Citibank USD 3,953,3 89.25 Cooperative Bank Kshs 5 I 0,371 .62 Total 148,t34,796.00 41

iii.The submission by the rnanagerncnt fiat the transactions causing the difference werc recorded in thc next linancial year 2018/19 in the initial bank reconciliation submitted for audit is unsatisfactory sinsc errors in the {inancial stalements can not be correctcd by adjusting subsequcnt financial ycar bark reconciliations. Bank reconciliations are subsidiary records Lhat supports balance in the financial statements but not source documents. Committec Recommcndations The Committec reconrmends that Within three months upon adoption of this report, the Accounting Officer of the authorify should provide supporting docunrcntation of the differcncc bctween the initial bank reconciliation and the amended bank reconciliation ol'Kshs. 40,485,742 to thc Auditor- Gencral lor audit and rcporting in the subscqucnt audit cycle. ii. The Committce reprirnands the thcn Accounting Officer for brcach of Regulation 90 of thc PFM (National Govemmcnt) Regulations, 2015 and seclion 62 of the Public Audit, Act CAP 4128 for failing to providc supporling documcntalion of the difference between the initial bank reconciliation and thc amcndcd bank rcconciliation ofKshs. 40,485,742. iii.The Accounting Officer should at all timcs ensure that thc provisions of Regulation 90 of thc PFM (National Govemnent) Regulations, 2015 are strictly adhered to in otdcr to curb any incidence of unexplaincd bank reconciliation variances. 1.2 Citibank N.A Bank account I I 7. The Comrrittee heard that thc Bank Reconciliation statemenl for the month of' June, 201 8 ro[Iects a figure of Kshs. 41,825,299.96 as the balancc pcr cash book while the amount in the Financial statement is Kshs. 15,023,000 resulting in a diffcrence ol'Kshs. 26,892,299.96. Even though the management has cxplained the ditfcrence as unpresented payment, no supporting docunrents werc provided lor audit verification to support thc payment. llS.Undcr this circumstance, it has not bcen possible to confirm the accuracy, validity and existcnce ofthe Citibank account balance ofKshs. 143,135,000 as at 30rh Junc,20l8. Managcmcnt response I 19.Thc managcment informed the Committee that, thc dilfcrence between thc Citibank cashbook and the financial statemcnts is attributed to .ln unpresented payment of Kshs. 26,802,104.04. This paytnent was actually made al tlrc closc ofthe financial ycat 2Ol712018 but paid out on 3'd July, 2017. I'hc updated Citibank cashbook and reconciliation fbr the ur,rrth nf Jrr", 2018 was submitlcd an<l the PAYE Vouchcr Chq No. 2088 paid on 3'd July, 2018 and bank statcmcnt was attached. 43

) Committec observations Thc Committee obscrved that Thc authority conuavened the provisions of PFM (National Governmcnt) Regulations 90 (3) which requires that a rnonlhly bank rcconciliatiou to bc undertaken and any discrepancies notcd should be investigated promptly and appropriate action takerr including updating relevant cash books. The authority failed to provide supportirlg docunrcntation of the difference between the cash book and lhc anrount in the Financial statemcnt of Kshs.26,892,299.96. This was in brcach of section 62 of the Public Audit, Act CAP 4l2B lor failing to provide suppo(ing documentation. II tl Committee Recommendations The Committee recommends thet The Accounting Olficer should at all times ensurc thal the provisions of Rcgulation 90 of the PFM (National Government) Regulations, 2015 are strictly adhercd to in ordcr lo curb any incidencc of unexplaincd bank reconciliation variances. Within tbrec months upon adoption of this report, tho Accounting Officer of the authority should providc supporting documcntation ol thc dilference between the initial bank reconciliation and thc amcndcd bank reconciliation of Kshs.26,892,299.96 to the Auditor- Ceneral lor audit and reporting in the subsequent audit cycle. lll The Committec rcprimands the lhen Accounting Olficer for breach of Regulation 90 of the PFM (National Govcmmenl) Regulations, 2015 and section 62 of the Public Audit, Act CAP 4128 for failing to provide suppo(ing documcntation of the differencc between thc initial bank reconciliation and thc amendcd bank reconciliation of Kshs.26,892,299.96. 2.0 Property, Plant and Equipment 120. The Committec heard that, the statement of financial position as at 3O'h June , 2018 indicates a balance ofKshs. 2,980,782.000 as Properly, Plant, and Equipment. Note 20 to the finalcial statemenl.s rellects an adjustment of Kshs. 208,208,000. However, the movement of an adjustmcnt of Kshs. 202,091,084 undcr capital work in progress where only Kshs. 45,973,342 was traceablc to intangible asscls while the balance of Kshs 156,118,462 could not be supported by actual asset transfers lo the other asset catcgorics on thc assels movemcnt schedule. l2l.ln addition, adjustments of Kshs. 2,638.140 and Kshs. 3,417,716 undcr frcchold land and buildings and civil works respcctively had no supporling documents produced for audit vcrification. 44

! I 122. Further, freehold land includes additions totaling Kshs.41,788,000 for which procurement and ownership documcnts werc nol providcd for audit rcview. 123. Consequcntly, the accuracy ol' the propcrty, plant aad equipmcnt balance of Kshs.2,980,782,000 as at 30'h June, 201 8 could not be ascertained. Management response l24.The management informcd the Committce that, in the tiscal year 201712018, Works-in- Progress classified under Property, Planl & Equipmcnt were completed, totaling Kshs. 202,091.804. These completed works were subsequcntly capitalized to the respcctive Asset Categories. A summary of thc assets and adjustments is provided belowi 125. Ms. Widcscopc Construction conuacl, which is the documentation for the Kitale Station Boundary Wall amounting to Kshs. 41,788,000. The transaction was eroneously postcd to Lrnd instcad of Civil works. The titlc deed of Kitalc is provided. Asset category Description 'I'otal Land Kitale Station Boundary Wall 4 r ,788,300 Repairs Buildinss Kitale Station Boundary Wall 26,485 Commercial Buildinss CA HQ Refurbishrnent 't I1,919,277 WIP Buildines CA HQ Refurbishment 2.384,399 ICT Resulatory Systerns Numbering Managcment System 33.t84,842 General 0ffice Software RFID File Manaqement System r2,788,500 W.LP (PPE) Completcd & Capitalized/ Expensed 202,091,804 Land Traliz Entemrises 2,639.t40 Commercial Buildines AUA Industria 3,477,1t4 PPE Adiustments 6,I 16,254 Total PPE capitalized and adjustments 208,208,058 45

l26.The Ledger corrections amounting tcl Kshs. 6,116,254 in the fixcd assets register were effected to correct overstatements to the assets and supplier ledger accounls due to erron@us double posting oF retention invoices that thc suppliers submitted for payment after completion of the defects liability period. The corrections were reversals of accounting entries that never resulted in double payment. l27.ln the case of land - Kshs. 2,639,140, the adjustment was effectcd to correcl erroneous double posting of retention invoices. l28.Thc conclusion of the contract, the supplier raised additional invoice dated 30/06/2018 Invoice No. 031214-04 of Kshs. 2,639,140.15 for the payment of retention that was erroneously posted agair, hcnce ovcrstating the Asset and ledger balance by Kshs 2,639,140 as ar FY20l5/16. 129- ln FY 2017i 18, correction in the gencral ledger was effected to correct the overstatement of assels and supplier balances as listcd below; 130. Thc Buildings of Kshs. 3,477,116, the correction was for double posting of retention invoices to AUA Industria Limitcd as indicated below; Date lnvoice Amount 30/6^8 543 t 3,477,116.00 I 3 I . At the conclusion of thc contract, thc supplier raiscd additional invoice for the retention that was crroneously posted again, hence overstating the Asset and ledger balancc by Kshs. 3,471,116 as at FY20l6/l7.ln FY 2017/18 correction in the gencral ledgcr of the overstatement of assets and supplier balances was effected. Daie Invoice Amount 09/03n6 o2to3n5-0 742,972.4s 09to3n6 100415-4 735,954.80 09/03/16 TPVl5i05 7 t4,798.90 09/03/L6 TPll24/06 445,4t4.00 Total 2,639.140.00 46

Committee observations The Committcc ohserved that The authority did not avail supporting documcntation for audit on the adjustments of Kshs.2,638,140 and Kshs. 3,417,716 undcr ficchold land and buildings and civil works. i. Thc authority failed to submit to the Auditor-General the ownership documents for its frcehold land additions totaling to Kshs. 41,788,000. ii. l'hat authority has a weak intemal audil systcnr thal was not able to idcntify errors or erroneous double posling in the books ofaccount which lead to misrepresentation ofthe financial position ofthc authorily. iii. A review ofthe notc 20 to the financial statcments revealed thata transfer of Kshs. 202,092,000 from thc work in progress was done. Howcver the corresponding movemenl to the respective class of completcd asset could not be traced and thcrefore the financial stat!'ments were misstatcd and not reflecting a Lrue and fair view. Committce recommendations The Commiltce recommcnds that Thc then Accounting Officer failcd to providc the required information for audit pursuant to Section 62(l) of the Public Audit Acl, 2015 and the DPP should prosecute the responsiblc officer in accordance with section 62(2) ofthe Public Audit Act CAP 4128. Within three (3) nronths upon adoption of this rcport, the Accounting Officer, Communication Authority should submit detailed response to the Auditor-General on how thc corrections in the gencral ledger was cffccted to align the overslatcment of asscts and the docunrentary evidence to proof' the adjustments of Kshs. 2,638,140 and Kshs. 3,417,716 under freehold land and buildings and civil works respectivcly. The Auditor- General Should review the evidence and rcport the status in the subscqucnt autlit cycle. lt 3.0 Employee Costs-Salaries and Wages l32.Thc Committec heard that tlat, thc statcmcnt of financial performancc and note 9 to the financial statcnrcnts reflect an amount of Kshs.l,140,209.000 in respect of employee costs. Howeveq monthly analysis of enrployec costs gives a total sum of Kshs. I,142,962,219 resulting in an unexplained and unrcconcilcd variance of Kshs.7,751,219. 133.In addition, bonus paynrcnts anrountinB kr Kshs. 9,589,055 madc to staffor various reasons for which thc basis ofpaymenls and thc authority for payments listcd below werc not madc available lbr audit review; 4'7

Name of Bonus Month Amount (Kshs) Lump Sum Payments Jrily 2Ol7 6,274,140 Long Service Award June 2018 l,040,375 Long Service Award March 201 8 2,274,540 Total 9,589,055 134. Consequently, the accuracy of employee costs of Kshs. 1,140,209,000 for the year ended 30'h June, 2018 could not be confirmed. Management response 135. The management informed the Committee that, the cause of the variance in the payroll was due to long service awards paid in payroll but charged to staffwelfare vote. Payro I I An alys is erp I an atio ns 136. The lump sum payments were paid according to HCA poticy clause 4.7.2 that Ernployees who have reached the maximum of their salary scales, with positive appraisal ratings, may Amount in (K.hs.) Remsrks Total |,t4?,962,219 Paymll schedule provided Amount as per firuncial statements r,r40,209,000 Employee costs in the financial statements Variancc ?,753,2t9 Thc variance of Kshs. 2,753,219.90 was paid through payroll but charged to staff welfare budget vote 48

be awarded a lump sum perfbtmancc related bonus, equivalent to one or more annual incremenls, but not exceeding (3) increments per year. Committec observations Thc Committee observcd that - The authority did not avail lor audit thc approval and the reasons for the paymcnt of bonuses to stalTarnounting to Kshs. 9,589,055.'l'hc authority was in breach of section 62 ( 1)(c) ofPublic Audit Acl,20l5 which rcquires thal a person shall not without justification fail to providc information within rcasonablc time that is required under the Act. The CAK Hunran Resource and Capital Policy manual clause 4.7.2 refcrrsd to in the management submission on meril incremcnts states that cmployees who have reached the maximum ol'thcir salary scalcs with positivc appraisal ratings may be awarded a lumpsum performance bonuscs equivalent to one or more annual increment but not more tian three per year was invalid in the circumslanccs. The OlTiccrs in question were paid a lumpsum equivalcnt to annual increntent multiplied by twelve instead ofat most three. This resulted in to an overpayment of the bonus by Kshs. 4,705,605 ll Commiftce recomnrendations Thc Committee recommcnds that - Within three months upon adoption of this report, the lnspcctor General Stale Corporations should recovcr the ovcrpayment of Kshs. 4,705,605 from the board members and accounting olficer who authorized the payment and the paying ollicers who paid the amount irregularly in accordance with the law. The Committee reprimands the Accounting Officer and recommends that the accounling ofircer should at all times ensure thal the provisions of section 62 ( I ) (c) are strictly adhered to by providing infonnation to Auditor-General within reasonable time required undcr the Act. 4,0 Unsupported Gcneral Expenditure l37.The Committee heard that, the statemen( of financial performance as at 30'h June, 2018 shows a figurc of Kshs.2,63 I ,195,000 as gcncral expenses included in the gcneral expenses are expcnditures amounting to Kshs.157,164,356 which were not supported by any docunrcntary cvidcncc. The cxpenditurc lincs arc as dctailed below: 49

Amount Training 23,744,23s Enforcement 6r 5,960 Computer Soffware Maintenance 57,543,215 Corporate affairs 1E,3 r4,2E5 Consumer affairs 54,1 17,773 Medical 2,828,88E Total 157,164,3 56 l38.Under the circumstances, the accuracy and propriety of the general expenses of Kshs 2,63 I,195,000 as at 30 June 2018 could not be ascertained. Management rcsponse l39.The management informed the Committee that" the copies of the payments voucher and documentary evidence is provided below; Category Payee Amount Annex Medical Expenscs MP.Shah 620,642.00 8A MP.Shah 760,237.00 8A Christian Medical College and Hospital 834,400.00 EA Nairobi Hospital 612,810.00 EA 50

Category Payee Amoutrt Annex Total 2,828,089.00 Computer Soft Ware Acccss Kenya Croup Limited 1,783,619.18 8B Access Kenya Group Limited I,783,619.18 8B Access Kenya Group Limited I,7E3,619.18 8B Access Kenya Group Limited I,783,619.18 8B Access Kenya Group Limited 7,t34,476.82 8B Techsource Point Limited 9,429,706.80 8B Liquid Telecommunications Kenya Limited 6,41 8,860.00 8B Liquid Telecommunications Kenya Limited 6,4 r 8,860.00 8B Liquid Telecommunications Kenya Limited 6,41 8,860.00 8B Access Kenya Croup Limited 7,936,8,14.00 8B Adcc Intemalional East Africa Limitcd 4,940,000.00 EB 5l

Category Payee Amount Annex Oracle Engineering Limited I,771.988.84 8B Total 57,543,073.r8 Training Allican Advanced Telecommunications Instilute Level 5,000,000.00 8C African Advanced Telecommunications Institute Level r ,861 ,898.93 8C Phowad Solutions Limited 3,780,000.00 8C May House Consulting Group 2,520,000.00 8C Dual Dimension Cousulting Limited 2,340,000.00 EC Dual Dimension Consulting Limitcd 2,880,000,00 8C May House Consulting Group 2,750,000.00 8C lnstitute Of Certified Public Accountants Of Kenya 2,600,000.00 8C Totel 23,73 t,898.93 52

Category Payee Amoutrt Annex Consumer Affairs Swirl Event Solutions Limited 18,999,757.40 8D Swirl Event Solutions Limited 18,300,274.65 8D Transcend Media Group 8,302,331 .75 8D African Advanced Telecommunications Institute Level 7,000,000.00 8D Ashdown Limited 687,500.00 8D Brillium Enterprises 46s,000.00 ED Awam General Entelpriscs 290.000.00 8D Total 54,044,863.80 Corporate Affsirs Kyaka Hotel 308,600.00 8E lntemational Telecommunications Union 5,170,000.00 8E Unicore Limited 12,834,124.80 8E Total 18,312,724.80 8E 53

Committee Observations Thc Committee observcd that The authority did not avail documentary cvidcncc to support thc expcnditures amounting to Kshs. 157,164,356. Thc expenditurcs lackcd paynrent voucheru raising concems about thc transparency and accountability of the expenses incurred under general expenses. The authority was in breach ofsection 62 (l)(c) of Public Audit Act, 2015 which requires that a pcrson shall not with out justification fail to provide infbrmation withrn reasonable time that is requircd under the Act. II Committee recommendrtions The Committee recommends that Within three months upon adoption of this report, the Accounting Officcr, Communication Authority of Kenya should submit to the Auditor-General the paymcnt vouchers to support the payment of Kshs. 157,164,356 under general cxpenses. The Auditor-Ceneral Should review the evidence and report the slatus in the subscquent audit cyclc. 4.0 Paynrent received in advance 140, The Committee heard that, the statement of financial position as at 30'h June, 201 8 rellects a figure of Kshs.26,479,000 as payments received in advance comprising Kshs.20,501,000 (annual frequency license fces) and Kshs5,987,000 (annual operating fees). However, the Ibllowing anomalies were noted undcr paymcnts in advance. l4l . A samplc of I 7 paymeuts received in advance comprising Kshs. I 2,347,261 werc compared to invoices and total amount of invoices for the l7 usen was found to bc Kshs.26,743,677 resulting to an uncxplained and unsupported variance of Kshs. 14,396,415 which was not explained or supportcd. If thc error lcvel were to be extrapolated to the population ofKshs. 26,479,000 then, thc expectcd resultant variance would be Kshs. 30,873,460. Cons€quently, it was not possible to confirm the accuracy of the paymenls reccivcd in advance of Kshs. 26,479,000. a) Tho brcakdown ofannual operating fee license amount Kshs. 5,978,000 contained negative cntrics totalling Kshs. 802,975 for which no valid explanation or reconciliation was provided for audit scrutiny. b) Thc breakdown of Kshs.20,501,000 reflected as annual lrcquency liccnse fees had an uncxplained opcning balancc ol'Kshs. 14,375,000. No breakdown was provided for this balancc and hence could not match to thc billing and utilization during the ycar. 54

c) Invoiccs raised in the month ofJune 2018 arnounting to Kshs. 1,286,373 in respect of annual frequency license and Kshs. -1,009,976 in respect ol' artnual operating license included in the paymenls in advancc werc rrot provided for audit verification. Managemcnt response l42.The management inlbrmed the Committcc that the payments received in advance rclers to fees paid to the authority before its duc in the oext financial year, hence recognized as liability in thc current financial ysar and allocated to invoices in the next FY 2018/19. 143. tn June every year, the Authority cmbarks on gencrating invoices forlhe subsequent financial year and dispatching invoices early so lhat licenses can reccive invoices early enough ard makc payments as soon as possible and espccially from I st July of the commencing linancial year. ln this regard, somc of thc liccnsees normally make payments immediately they receive the invoices in the month ofJunc hence resulting in Advancc income. 144. ln some lnstances, invoices/letters issued to new clients say in the fburth quarter of thc ycar, shall have amounts payable for the financial year duly prorated in the offer letler, and the amounls for next one full year is also disclosed to the applicant in the lettcr. l45.ln a number of inslances, the applicant atlds up the two amounts and pays the full sum. Thc amount relating to the subscquent year is the recognized as advance income. This therefore explains why amounts rc.cognizcd in advance account may bc different from the invoiccd amounts since only incomc related to the financial year is recognized lbr the year due and the resl ofthe amounls hecomes advanced income (pre-payments). Committee Ohservations Thc Committec obscrved that The Committce could not confimr thc accuracy of the advance paymenls where aftcr a sample analysis rcvealcd significant variances bctween the payments received in advancc and the corresponding invoiccs, rvhich indicated polenlial elrors or inconsistencies in the hilling and accounting processes. ll Thc Cornmittee noted that the negativc cntries found in thc brcakdown ofannual operaling tbc license amount, lack valid explanations or reconciliations, which further cast doubt on the rcliability of the financial data. 'l'hc invoices raised in the month ofJunc 2018 in respccl of atrnual lrequcncy licensc amounting to Kshs. 1,286,373 and annual operating licensc amounting lo Kshs. 3,009,976 included in the paynrcnts in advance werc not providcd for audit verification. 55

Committee recommendations The Committee recommends that The Committee reprimands the thcn Accounting officer for contravcning the provisions of Section 68(2) of the Public Financc Management Act of 2012 lor failing to submitall the required information for audit within the stipulated timelines. n Within three months upon adoption of this report, lhc Accounting Officer, Communication Authority of Keya shoulti submit to thc Auditor-General a reconciliation of payments received in advance comprising of Kshs.20.50I,000 (annual frequency license fees) and Kshs5,987,000 (annual operating fees) and the corrcsponding invoices and breakdown to corrcct the anomalies. I'hc Auditor-Gcneral Should review the evidence and report the status in the subsequent audit cycle. 6.0 Revcnuc from Non-Exchange Transactions l46.The Committee heard that the stalcmcnt of financial performance as at 30rh rellects a figure of Kshs.7.620,184,000 as revenue from non-exchangc Examination ofschedules provided reveal the following; June,20l8 transactions. 6.1 Annual frequency license Fees-Advance income 147. The annual frequency liccnsc fecs of Kshs.6,223, I 52,000 is an amount of Kshs.7,220,500 described as advance incomc 2016/201 7 (Ref ADVNC l6117 Kshs. 5,776,047 and Kshs. 1.444,593 dated l"rJuly, 2017). llowcvcr, no documcntation was provided to show that the amount of Kshs. 7,220,500 was included under liabilities as payment in advance in the financial year20l6/2017. Without the confirmation, it is not possible to confirm the accuracy of Annual frequency incomc of Kshs. 6,223,152,000. Management response l48.The managcmcn( infomted the Comntittec rhat, pl.ior to July 2017, invoices relating to the FN ?01'7118 had been issued and clients made payments, which formed part of the advancc income in theFN 2016/17 . As at linancial year 201 7/l tl, this advance inconre was reversed so that this income is accounrcd for during the year that il related of20l7/18. 56

Committec Observations The Committec observed that An amount of Kshs.7,220,500 described as advance income in 201612017 was not included undcr liabilities lcading to the undcrstatcment of the liabilitics thus raising concems about the accuracy and completeness o{'th{,' linancial reponing. Committee recommendations The Committee recommcnds that The Cornmittec reprimands the then Accounting officer and the then officers in the accounting departments involved in preparation and rcvicw of financial statements for failing to adhere to the requirements of lnternational Public Sector Accounting Slandards as prescribcd in the PFM Act, Cap 4l2A and Regulation 221 of the PFM (National Govemmcnt) regulations,20 I 5- Within threc montlrs upon adoption of this report, thc Accounting Officsr, Communicatton Authority of Keya should submit to the Auditor-General all in(brmation relating to Kshs.7,220,500 described as advance incomc in 201 6/201 7 which was not included under liabilities that rcsulted to understatement of the liabilities. The Auditor-General Should review the evidence and rcport the slatus in the subsequent audit cycle. ll. 6.2 Annual operating licensc Fees-lnvoice to Kenya Towers l49.The Commitlec heard that, the annual operating license fees of Kshs I,392,101,000 is an amount of Kshsl 7, I 56, I 88 (Ref N I 7l 706 dated 3.7.20 I 7) bcing a duplicate of Invoice Ref Nl7l706 dated 1.7.2017. No credit note issued to reverse one of the invoices to Kenya Towers. Consequently, the annual operating license fees ofKshs l,392,l03,000 is ovcrstated and thcrcfore the accuracy and completeness could not be ascertained. Management responsc l50.The management informed the Committee that, invoicc no. Nl7l706 of Kshs.lT'156'188 was issued to Kenya Towea Limited. Il was captured twicc on I st July 2017 and on 3rd July 201 7. An cntry to revcrse this double capture was provided. 57

Committee obscrvetions Thc Committce obscrvcd that The authority erroneously issued Kshsl7,l56,l88 (Ref Nl7t706 dated 3.7.2017) which was duplicatc oflnvoice RclNl7l706 dated 1.7.2017. the attendant supporting documents to explain how the crror was corrected as vcrified by thc Committee werc inadequate. The issue ofdoublc invoicing and whethcr thc invoiccs were honoured by Kenya 'fowers were not addressed in the rcsponse. Thc facl that the Authority issued duplicatcd invoiccs no. N 171706 ofKshs.l7,l56,l88 on I st July 201 7 and on Jrd July 2017 is a pointer to weak intemal controls in the authority's fi nancial managemcnt systems. ll ll- Committee recommelldations Thc Committec recommends that - Within thee months upon the adoption of this repon, the EACC should investigate the circumstanccs surrounding the issuancc of duplicate invoices amounting to Kshsl7,l56,l88 (Rcf Nl7l706 dated 3.7.2017) which was duplicate of Invoice Ref Nl7l706 dated 1.7.2017. Should any person be lirund culpable, the Director of Public Prosecutions lo takc the necessary legal action. Within threc months upon adoption of this rcport, thc Accounting OITicer, Communication Authority of Kenya should submit to thc Auditor-Gcnsral an evidence of the credit note which reverscd one of the duplicatc invoices (Ref N l7 I 706 dated j.7 .2017 or I .7 .20171. The Auditor-General Should rcview the evidcnce and report the status in the subsequent audit cycle. 7.0 Receivablcs from Exchange Transactions l5 I . The Cornmittcc hcard that, the statement of financial position as at 30rh Junc, 201 8 reflects a figure of Kshs.561,321,000 as receivablcs from exchange lransactions. Although thc breakdown of tlc balancc as at year end was provided, the comparative figure as at the end ofthc previous year or the opening balances were not provided and hence it was not possible to work out thc rcpayments and new issues during thc year as well as identification of thc non-perfomring advance which includes an amount ol'Kshs. 421,088,580 referred as CCK propcrty loan. 152. In addition. thc balance o[ other receivablcs as discloscd on notc l8 to the financial statcmcnts of Kshs. 543,834,000 include car insurance o{'Kshs . 339,744 medical rocoveries ofKshs. t|77,760 salary advances olKshs. 361,793. fire and morrgage ofKshs. 6,355 AA subscriptions ol'Kshs. 102,079 and othcr debtors of Kshs. 92,402 all of which had no supportints breakdown provided for audit vcrification. 58

153. Further, other receivables anrount ofKshs. 543,833,807 includes an amount ofout of which Kshs.4,194,364 in respect of imprest issued to olficers who hold morc than one irnprest. l54.Undcr the circumstances, thc accuracy and validity of receivables from exchange transaclions balance of Kshs. 561 ,32 I,000 as at 30 June 201 8 could not be confirmed. Management respons€ l55.The imprests wcre surrendered in the subsequent periods. The summary of outstanding inrprests is indicated below in table below; 156. The employee loans are maintaincd and recovcred in payroll. There are no defaults. Ernployee Advance/loar schedule indicating the opcning balance, new issues and rcpayments has been provided. Summary oloulstanding irnprcst I 57.'fhe cornparative figure as al the end of the previous year indicating the opening balances as wcll as repayments and new issues during the financial year. l58.CCK property loan Kshs. 421,008,580 are rurrning loans and all staff loans are pcrforming since recoveries arc under payroll check ofl'plans. 159. Other reccivablcs as disclosed on Note (18) in the financial statements ofKshs. 543,834,000 which include car insurance of Kshs. 339,744, rnedical recoverics Kshs. 877,760, salary advanccs of Kshs. 361,793 and firc morlgage of Kshs. 6,355, AA subscriptions of Kshs. 102,079 and othcr dcbtors of Kshs. 92,402. Thc advanccs are performing since recoveries are under payroll check offplans. Summary Staff Dcbtors as at 30th June 2018 Particulars Amount Standins/offi ce imprest t27,882.31 Slaff/accountable imprest 4,440,704.69 Travel ilnprest 6,665,583.51 TraininA imprest |,0t7,244.19 Board imprest I,288.824.30 Total 13.s40,239.00 59

l60.Other reccivables amount ofKshs. 543,833,807 indicaled that it includes an amount ofKshs. 4,194,364 in respect of imprest issues to olTicers who hold nrore than one inrprest. In certain circumstances, an officer holds both subsistcncc alkrwance nnd accountable imprest. Commiftee observations The Committcc observed that - The authority failed to provide supporting brcakdown Ibr audit verification receivables of Kshs. 339.7t14 under insurance, medical recoveries of Kshs. 877,760, salary advances of Kshs.361,793, firc and mortgagc ol" Kshs.6,355. Appropriation in Aid subscriptions of Kshs.l02,079 and other debtors of Kshs.92.402. ll The then Accounting Officer failed to enlbrce the provision of the Rcgulation 93(5) of the PFM (National Covemmenl) Regulations, 2015 that prcscribes that impresr surrender be madc within 7 days. The evidencc submittcd to thc Committec on how imprest amounting to Kshs. 4,194,364 did not indicate how Lhc imprcst was recovered in the payroll. The response was also inadcquate to addrcss the audit qucry imprest issued to olTiccns who hold more than one imprcst contmry to Regulation 93 of the PFM (National Govemment) Regulations, 2015. Committee Rccommendatiotr The Committee recommends that - Within three months upon adoption of this report, thc Accounting Ofllcer to provide evidence ol the alleged rccovcry of imprest of Kshs. 4,1 94,164 in accordancc with Regulation 93(6) of pFM (National Govcrnrncnt) Regulations, 2015. Thc evidcnce of recovery should be submitted ro the National Asscnrbly and the Auditor General for vcrification and reporting in the subsequent audit cycle. 8.0 Trade and Other Payables I6l.TheCommittcchcard that, the statement o[financial position as at 30,h June,20l8 reflects a figure of Kshs.897,145,000 as Trade and odter payables from exchange tmnsactions in respect of which the following issues were notcd: a) Includcd in this amount is trade payables figurc ofKshs. 691,358,000 ofwhich an amount of Kshs. I 9,229,547 as reflectcd as Asset Dcposir Compcnsation for which rhc supporting docunrents were provided lor audit rcview cloes not demonstrate how the amounts is payablc yet it is an insurance clainr and the corresponding asset that was being cleared has not hccn elintinated/disposed on thc asset's rnovclncnt schctlule ofthe financial statelnents. 60

b) lncluded in the trade payable amount of Kshs. 691,358,000 is an amount of Kshs. 14,830,327 payables to Commissioner of Income Tax and an amount of Kshs. 17,426,704 payables to Commissioner of VAT which were not supported with relevant documents in form of retums of assessment to or liom Kenya Revenue Authority. c) Suppliers' statement duly reconciled lo the creditor balance as per accounting records were not provided for audit verification especially for suppliers with balances above Kshs. 10,000,000 which totalled to Kshs. 482,761,016. d) The trade and other payables balancc of Kshs. 897,145,000 includes unpaid employee remittances of Kshs. 43,938,594 for which detailed breakdown had unexplained debit balances totalling Kshs. 12,960,750 as shown below: 162. Conscquently, thc accuracy and validity of the trade and other payables balance ofKshs 691 ,358,000 as at 301h Junc, 2018 could not be ascertained. Name Amount KCB pension-seconded staff I I,304 HELB 537 COTU Colleee 20.850 SACCO shares 6.383.480 NSSF 2,620,500 Communication Workers Union 72.6t2 CCK pension scheme 3,71 I,805 Old Mutual 42,860 ICEA 9,055 SACCO Instant l-oan 82,634 Communication Special savings 5,il3 Total 12.960,750 6l

Management response l63.The management informed the Committce that, thc amount of Kshs. 19,229,547 refers t<r compensation by T<lynta Kcnya for thc damage of the antennae of Monitoring vchicle. Thc amount was recorded as a dcposit sincc it shall be applied to the costs charged by the equipmcnt manufaclurer upon rcpair of the antcnnae. 164. Thc Authority is required undcr VAT act ssction (19) and Income Tax Act section 35 ro deduct and remit taxes to the Kenya revenuc Authority. For those purposes, the Authority deducts the said taxcs as retluired and renrits the same to KRA. The Authority files retums and payment as per thc guidelincs provided for by KRA and fte trx laws. 165. The employee's remittances and the balance that gives the balance of43,938,594 as well as tlre opening balanccs of'Kshs. 71,451 ,392 wcre sertled in subscquent periods. Committec observations The Committee observed that An amounl of Kshs. 19,229,547 reflccted as Asset Deposit Compensation within the trade payables, lacked supporting docunrentation. Additionally the authority failed to dcmonstrale how it categorized insurance claim as a payable and the evidence indicating the elimination or disposal of the corresponding asset relatcd Io this compensation on the assel movement schedule. An amount of Kshs. 14,t130,327 payables to Commissioner of Income l'ax and an amount of Kshs. I 7,426,704 payablcs to Conrmissioner of VAT wcrc not supported with relevant documents in form oI returns ofassessmen( to or from Kenya Revenue Authority. ll. lv The authority breachcd Section l9 (4) of thc employment Act, 2007 which states that an entployer who deducts an ?lntount lrorn an cmployee's remuneration in accordalce with subseclion ( I Xa),(0,(g) and (h) shall pay lhe amount so dcducled in accordance with thc tinre period and olher requirements specified in the law. Thc unexplaincd debit balanccs totalling Kshs. 12,960,750 included in the unpaid cmployee remittances of Kshs. 43,93t|,594 implied that somc instilutions were overpaid by the authority when remitling statutory deductions. This points to a weakness in the authority's fi nancial reoords. Committee recommendations The Committec rccommends - Within thrcc months upon adoption of this report, the Accounting O{'ficer, Communication Authority of Kcnya should submit to thc Committoe thc cvidence of recovery of the claim 62

I ll. Kshs.19,229,547 and how it was cvcntually paid to thc company that rcpaired the damaged antennac of Monitoring vehiclc. Thc Comnrittee reprimands the then Accounting Officer for violating Section l9 (4) of thc cmploymenl Act, 2007 which requires that an cmployer who deducts an amount from an ernployce's remuneration in accordance with subsection (lXa),(f),(g) and (h) shall pay the amount so deducted in accordance with the time period and othcr requirements specilied in the law. Within three months upon adoption ol'this report, the Accounting Officcr, Communication Authority of Kenya should submit to the Committce the cvidence and justification on how thc Authority overpaid other entities thc amount totaling Kshs. 12,560,750. 'l'he Committce on Implcn'renhtion should fast-track the pmcess of implementing thc Committee rccommendations and report to the National Assembly on the status. 9.0 Rcmuneration of Directors l66.The Committee heard that, the statemenl of financial performance as at 30rh June,2018 rcflccts a figurc of Kshs.53,995,000 in respect ol'rcmuneration to directors. Thc amount includcs broadband allowance totaling Kshs.3,362,333 paid lo Directors on a monthly basis whose basis was not provided for audit vcrifications and in addition the payment was not in linc with Statc Corporalions Act and Mwongozo guidelines. 167. In conseclucnce, thc accountability and propricty ofthe expenditure of Kshs. 3,362,333 could not bc confirmed. Managemcnt rcsponse 168. The management infonned the Committcc that, the Board approved the provision of working tools lbr both stafl and Board to cnable them to effectively perform thcr duties. Committee observatiotrs Thc Committee ot served that The broadband allowance totalling to Kshs.3,362,333 paid to the Board of Directors although supportcd with I{CA Circutar no. I 'B' of 20 l4 dated I 3th Fcbruary, 2014 there was no evidencc ofapproval lbr such by the Salaries and Rcmuneration Commission nor Slate Corporations Acl and Mwongozo guidelines. The allowancc is thcrefore irregular and rscoverable. 63

I Committee recommendations The Committec recommcnds thot Within three months upon adoptiorr of this rcport, the lnspector General lnspcctorate of state corporations should surcharge (with intcrcst at thc prevailing CBK rates) the then accounting officer and the then Board of Directors for the irrcgular expcnditure ofKshs.3,362,333 and provide docunrentary evidencc on the recovery/surcharge. 10.0 Unauthorised Employee Costs l6t).Thc Committee hcard thal, the statemcnt of llnancial performance as al 30th June, 2018 reflc'cts a figure of Kshs. I , 140,209,000 as enrployec costs. Included in this amount is a figurc of travel and other allowanccs of' Kshs.l I 7,3 10,000 and Housing bencfits and other allowances ofKshs. 123,979,000 which was spent and there was no budgctary allocalion as no budget approvals by thc full Board meeting were produced for audit vcrification. l70.The slatemen(s of financial pcrformancc and notc 9 of the financial slatements reflects contribution lo pensions and mcdical actual expcnditurc of Kshs. 89,807,000 although the budgetary allocalion was of Kshs. 64,100,000 rcsulting in over expenditure of Kshs. 25,707,000 for which no budgetary re-allocation and approvals by the lull Board were made availablc lor audit review. l7l.ln view of the foregoing, the accuracy, legality and propriety of the expenditure could not be confirmed- Management response l72.The amount was within the approved budget and thc itcmized budget and board extract was provided. Committee observations Thc Committee observed that The expenditurc of Kshs.l I 7,310,000 on travel and othcr allowarces and Kshs.123,979,000 on Housing bcnefits and other allowances was incurred contrary to Section l2 ol'thc Statc Corporations Act which providcs that no corporation shall without the prior approval in writing of the Minister and thc Treasury incur any expenditure for which provision has not been madc in annual cstimalcs. Thc rcsponsc provided hy thc accounting officer and ths attcndant appendix werc unsatisfactory since the budgct is given as block ligures and not ilemized as quericd by the Auditor-Gcneral thus its inclusion and approval could not bc confirmcd. ll 64

I Committee Rccommendations l'he Comnrittee reconrmends lhat The Committee reprimands the then Accounting Officcr and rccommends that the accounting offioer must all limes adhcre to the provisions of scction l2 of the State Corporations Act Corporations Act, Cap 446 which requires the Accounting Officer to soek prior approval in writing of the Minister arrd the National Trcasury in incurring any expenditure lor which provision has not been made in annual estimates. I1,0 Other Income l73.The Committee heard that, ths statement of financial performance as aI 30'h June. 2018 reflects a figurc of Kshs.4,093,000 in respcct ol'othcr incontc out of which Kshs. 4,093,000 relate to stafT rsnl. However, no documentalion was providcd to support the rentals income from thc staff such as the rental agreements and evcn the detailed breakdown of who paid what amounts. 174. Under thc circumstances, it was not possible to conlirm thc accuracy and propriety ofother incomes ofKshs. 4.161,000 as at 30'h June2018. Management rcsponsc l75.The management infonncd the Committee thal, the authority has staff quarters which house staff. Staff rnernbers who arc housed in the Authority's rcsidential houses pay a monthly renl as required. The authority schedule of the rent income received together with the sample house allocation letters has been provided. Committce obscrvations The Committee observcd that The Accounting Oflicer did not submit thc signed staff tenancy leasc agreements, the details and thc amounts paid by the tenants occupying the aulhority's houscs. The managcment failed to adequately address the audit query raised. The breakdown of who paid what anrounts as per the respective employce payslips were not provided. Commitlee rccommcndations 'l'he Committee recommends that Within threc months upon adoption of this rcport thc Accounting O[Ticer should submit thc signed tenancy lease agrecmcnts and the details ofall thc lcnants lesiding at thc authority's houscs to the Auditor- Gcncral and the National Asscmbly. Thc Auditor-Ccncral should audit and rcport in the subsequent audit cycle. 65

12.0 Budget 176. Thc Committec hcard that, the figures of approved budget presentcd lor audir compared to lhe amounts reflected in the statcment of comparison of budgct and actual amounts had varianccs in some account balances as highlightcd below: Mattagement response l77.The management informed the Committce that, the actual expcnses o{'Kshs.3.77l billion shillings excceded the approved budget of Kshs.3.6l8 billion shillings. This was because the budgct amount did not include an allowance for bad debs, which are debts that are unlikely to bc collected. The bad debts provision lor that year was Kshs.702.8 million shillings. When this amount is deducted from thc actual cxpenses (Kshs. 3.771 billion Kshs.702.8 million). the resulting figure of 3.069 billion shillings is within the approved budger Kshs. 3.618 billion. Committce observations Committee observed that 'fhe Authority relied on unrealistic prolections of revenue and expcnditure and this has resultcd its actual cxpenscs to excccd thc approved budgetary allocation. The asserl.ion by the authority that thc budget arnount did not include an allowarce for bad dcbts is inaccurate. This is because the provision for bad dcbts is not a budget itcnr. . Account Balancc Amount of Budget as reflected in the Statement of Comparison of Budget and Actual (Kshs.) Amount reflected in the Approvcd Budget (Kshs.) Variance (Kshs) Employee costs/personal emoluments I,t55,238,000 388,01, r 4000 r4,900,000 General expenses/operating and administrative expenses 2,,463,449,000 2,471,649,000 8,400,000) Overall dilferencc 6,500,000 66

Committee Rccommendation Thc Committee recommcnds that - The Accounting Officer should ensurc al all tirnes that the budgets are realistic and achievablc anti always adherc to annual work plans, procurcmcnt plans and revenue collection schedules. ii. 'fhc Commitlec cites the then Accounting Officcr for incompetcncy 13.0 Prior Yesr lssues 178. The lbllowing prior year issues were brought forward by thc Auditor-General as issues raised in the previous years but were yet to be addressed by the management ofCAK as at the time of the audit and reporting. The Committec upheld the management submissions, Committee observations and recommcndation made thereon in the 23'd PIC report having deliberated on the same prior ycar issues and the Accounting Ofliccr having affirmcd on record to stand with the responses submitted then, the Commitlec observations and recommendation made thereon. l3,l I rregular Procurcment Methods 13.2 Event Mauagcment Services 179. The Committcc heard that, as disclosed in Note l2 to the financial statemcnts the general cxpenses figure. Thc Iigure of Kshs 1,969,1 I 1.000 includes an amount of Kshs 95,408,000 in respect of consumcr affairs. The ligure ol Kshs 95,408,000 also includes Kshs I 3,302,560 being cost of event management services during thc Authority's IC'I forum hcld on I I November 2016 whosc service provider was identificd through rcqucst for quotations method of procuremcnt yet the tendcr amount excceded the allowable threshold of Kshs 2 million. This is contrary to the Public Procurement and Assct DisposalAcl,2015. In addition, no signed fonnal contract between the Authority and the service provider was availed for audil review. 180. Further, the figurc of Kshs. 95,408,000 includes an amount of Kshs.20,130,998 paid to anoiher fimr in respect of event managcment services to Kikao Kikuu in Busia without a signcd contract agrecment contrary to scction 44(l)(D of the Public Procurement and n sset Disposal Act 201 5 which rcquires an accounting ofliccr to approve and sign all contracts of the procuring cntity. 6'l

l8l. ln thc circumstances, it has not been possible to confirm the propriety of expcnditure totaling Kshs.33,433.557 for the ycar ended l0 June 2017. Management response 182.1'he managcnrent informcd the Committec that the Comrnunications Authority of Konya through its procuremcnt plan of 20161217 planned to carry out ICT Consumer education forunrs in Bungoma, Makucni, Nyeri, Busia and Baringo Counlies. For each olthe forunrs, thc Authority required the scrvices of an evont manager. Event management and rclated services had been rescrved lor Youth, Womcn, and persons with disabilities "rescrvations" as PPADA means exclusive prefercnce to procure goods, works and services set aside to a defined target group within a specified threshold or region. 183. ln November 2016, the Authority commenced its ICT Consumcr education forum in Bungoma County. At that time, the Authority had not prequalified/registcred firms to participate in Access to Covemment Procurement opporlunities. Thereforc, the Authority invited bids from l0 firms that had been rcgistcred by The National Treasury as disadvantaged groups in thc category of youtlr women and persons with disabilities as pcr the provision ofPublic Procuremcnt and Assets Disposal Act Scction 157 ( l7) " The Nationul Trcasu4t sfi1[l lpcrationalize u prelerence antl rcscrvulions secreluriul lo be responsihle./or the impl?mcnlulion of thc prefercnces and rescrwttiuts under this Act which shull be responsible.for (u) Rcg,istrution, prcqualifiuttiotr und c.ertification of the pcrsons, categories tl persons or groups a.s provided.lbr in wrder I'urt XIl." I 84. The tcnder for evcnt managcment was therefore tendered using The National Treasury list of Iirms rcgistcred under disadvantaged group of Youth, Women and Persons with Disabilities and awarded to M/s Sum Decorators. The Authority issued purchase orderl637 to M/s Sum Decorators ofKshs. 13.302,560 after receiving their acceptance letter. l85.The purchase order in this instancc was a formal contract bidding partics as it met thc threshold of thc Section 44(l)(l) and Section I35 (l) PPADA ACT20l5. l86.Thc Authority required the services ofan evcnt managcntcnt for its County ICT Consumcr forums in Elusia and launch of its CSR activities in Bungoma County. An advertisement was placcd in the Daily Nation on 25th Novembcr 201 6 with a ck:sing datc of the tcnder being on 2 I st Decembcr 2016. I 87. Thc bids wcre evaluated and M/s Unicorc was awardcd one of the ( 7) seven blocks that wcrc hcing tendcrcd to providc evsnl managcmcnt and tclalcd services. The awardcd bkrcks had Busia and Bungoma Countics as somc of thc rcgions to be covcred by the linn and as such thc finn was engagcd to providc cvcnt managcmcnt and related during the ICT consumer education forum in Busia and launch of the CSR activitics in Bungoma Counties. 68

l88.Upon acceptance ofthe offcr, which had terms and conditions o[engagement, the Authority issued two purchase ordcrs to M/s Unicore which wcre signcd by the Dircctor General as per PPADA Sectionl35 ( l) which states "Thc existence ofa contract shall be confirmed through the signature of a contracl document incorporating all agrecments bctwecn the partics and such contmcl shall be signed by thc accounting officer or an officer authorizcd in writing by the accounting officer of thc procuring entity and the succcssful tendcrcr." l89.These wcre (onc) time jobs, with specific delivcrables and single tranche payment upon certification of delivery hencc the Authority issued a purchase orders which specified the tenns and conditions of contract binding on both parties. Committec Observation Thc Comnrittee observcd that The Communications Authority of Kcnya had timc to advcrtise for this tcnder but failcd to do it thcreby stifl ing competition. Committee Recommcndation Thc Committee recommends that The then Dircctor General of thc Conrmunications Authority ol'Kcnya should bc rcprimanded for breaking the procurement law 13.3 Design, Printing, Supply and Delivcry of Branded ltems I 90. Thc Committee hcard thal, the gcneral expenses figure of Kshs. 1,969,I I I,000 includes an amount of Kshs.95,408,000 in rcspe€l of consumcr affairs under note l2 to the financial statemcnts. The amount of Kshs.95,408,000 also includes Kshs, I 1,977,070 lor the design, printing, supply and delivery ofbranded give away including umbrellas and spiral notebooks by three firms identificd through requcst for quotations instead ofopen tendering method fbr a sontract of such magnitude. I 9l . Howcver, availablc inlormation rcvealed that on 2l Junc 201 7, all the three firms which werc awarded the tendcr wcrc notified further changes al'fecting their contracts from one oflf supply to a framework contrac/agrccncnt. The changc to thc framework contract was done conlrary to sectionl l4(l) of thc Public Procurcmcnt and Asset Disposal Act 2015, which provides that a framcwork contract can only bc cnlered into tluough opcn tender and whcn thc required quantity of gotxls, works or non-consultancy scrvices cannot bc detcnnincd at thc lime of entcring into thc agrccmcnt. 69

I92. Conscqucntly, the n uthority is in breach of the law and thc propricty ofexpenditure totaling Kshs. I1,977,070 lbr the year ended 30June 2017 could not be conllrmcd. Management response 193. Management informcd the Committee that during the llnancial year 2015/2016, thc Authority planncd to implcment a servicc clclivery irnprovcmcnt campaign to revarnp scrvice dclivcry within the Authority. This involved rebranding of Authority's scrvice chartcr and undertaking both intcmal and external launch. One of the activities involvcd was printing and supply ofbranded giveaway which included umbrellas and spiral notcbooks. l94.Through ollcD tcnder, thc Authority registered firms owncd hy youth, womcn and person witlt disabilitics in readiness to participate under Acccss to Govemment Procurement opportunitics (ACPO) as and when requircd. 195.'Ihc tcnder for supply of branded givcaways had bcen reserved for tcrrdcr by the disadvantaged groups as shown in thc procurcnrent plan for 2015/2016. ln this regard, the Authority invited bids lor design and supply of brandcd giveaways from the list ofthe ten ( l0) registcred suppliers in the category ofdesign and printing ofcorporate materials. I 96. This complied with thc Public Procurement and Assets Disposal Act 7 I ( I ) which provides that the head of procurement function shall nraintain and continuously updatc lists of registered suppliers, contractom and consultants in various specific categories of goods, works or serviccs arccording to its procurement nceds. The lists shall be applicd on thc alternative procurement mcthods as spccificd and appropriate. l97.The alternative meftod ofprocurement used was rcstricted whereby exclusive preference to procurc branded givc aways was sel for conrpetitivc tendering by youth women and persons with disabilities. Thc valuc was within thrcshold lbr Category A as per Thrcshold Matrix ol Public Procuremcnt and asset disposal Regulation 2006. 198. Thc changc fiom onc-tinre supply to lranrework agreenrcnt was inf'onncd by thc fact that the Authority could not determine the requircd cluantitics ofthe giveaways at the time ofentering into the of agrecment lor supply of giveaway that wcrc nceded lor various corporate and consumcr forums. llowever, the recommendation to enter into framcwork agrecment was not irnplcmcnted. Thc Authority only issucd the orders for the one-timc delivery. 199. The indicated cxpenditure of Kshs. I I ,977,070 for tender for design, printing and supply of branded iten:s was not correcl. This is because the quantity was changed in consultation with tlre user departnrcnl because thore was an error in the quantities of the umbrellas and spiral notebooks (10,000 instcad ol 1,000).-lhis was in conpliance with Section 162(2) Public Procuren:cnt and Asscts Disposal Act 2015 which discouragcs overstocking of items. 70

Committee observations The Committee obscrvcd that Thc tendering process should have been open rather than request for quotation in a tender involving such magnitudes of money. ll The explanation offered was not satisfactory Committee Rccommendation The Committee reconrm€nds that The then Dircctor Gcneral of the Cornmunications Authority of Kenya should be reprirnanded lor breaking the procurement law. 13.4 Unclear Excessive Procurcmcnt of Brochures 200. The Committec heard that, as discloscd in notc l2lo the statement's Iinancial statements, the general expcnses figurc ofKshs. 1,969,1 I 1,000 includcs an amount of Kshs.95,408,000. Thc amount of Kshs.95,408,000 also includes Kshs. 13,862,670 in respect o['a contract for supply of various brochurcs awarded to a firnr on 4 November 2015 at a contract sum of Kshs.7,675,538 for a penod of one year, with a performance bond of 5%o equivalcnt to Kshs.3 83,776.88. Howcver, availablo information indicate that on 5 April 2016 and l3 October, 2016 the Authority wrote to the above supplier to quote and supply additional brochures worth Kshs. 9,292,500 and Kshs.5,683,485 through direct payment. 201 . Thc supplicr was subsequcntly paid for the additional brochures vide Payment Voucher. No.s YBlcl20}6ll2ll4958 dated ltl August 2016 and VBlcl2106ll2ll327l dated 23 Deccmber 2016 respcctively. This was contrary to section 106(2Xb) of the Public Procurement and Asset Disposal Act 2015 which rcquires that the rcquest shall bc givcn to as many pcrsons as necessary to ensurc cllective competition and shall be given to at lcast threc persons, unless that is not possiblc. 202. A physical visit to thc store one ycar later in Dcccmbcr 2017, revealed that a total oF 139,250 child online brochures worth Kshs. 12,323,625 were still Iying in store unutilized. 203. In the circumstances, it has not been possiblc to confirm thc propriety ofexpenditure tdalling Kshs. 13,862,670 for the year ended 30 June 2017 arrd that the Aulhority was in brcach of the Law. 7l

Management response 204. Management informed tlc Committee that the Authorily planncd to procure printing and packaging scrvices of its corporalc and consumer education materials with a budget cstimate of Kshs 47,339,379 as reflected in its 201 5/2016 procuremcnt plan. 205.On 24th July 2015, the Authority advertiscd for printing and packaging of its corporate and consumer education brochures, fliers and posters with a closing date of l2th August 2015. The tender was reserved for Youth, Womcn and Pcrsons with disabilitics. The Corporate and consumer education brochures, fiiers and posters werc to be pnnted as and when required during the contract period of one ( I ) year as indicated in the lendcr document (invitation to tcndcr). 206. The tender attmcted 62 firms and upon evaluation, the firm that oltcred the most competitive price for each category, M/s iBrand Ltd was awarded printing of the material at a total cosl of Ksh 7,675,537.50. The contracl Clause 4 A (Ceiling) sraled rhar (i) For the services rendered pursuant (o Clause I ( a) ol'this contract, the client shall pay the supplier a total sum of Kshs 7,675,537.50 inclusivc of taxes (ii) For the ssrviccs rcndercd pursuant to clause I (b) of this contract, the clienr shall pay the supplicr a sum bascd on the unit rates contained in the annex upon printing, packaging and delivery oflhe same as and when ordered. The award (br design and printing of brochures was therefore through an open tender and nol dircct procurement method. 207.On 5th April 2016 and l3rh Ocrober 2016, thc aurhority requesrcd M/s iBrand Limired to supply additional brochures worth Kshs.9,292,500 and Kshs.5,683,485. This was in line with the contract entcred to by thc two partics. Clause I (b) of the contract which stated that..The supplier shall also print and packagc any other corporate and consumer education brochures, fliers and poslers of specifications similar to those specified in thc Annex as and when requ ired. " 208.The Child onlinc bnrchures werc printed to be used for thc child on-linc campaign that had bcen schedulcd. However, the consumcr outreach cvents werc postponed by (one) year due to thc clc'ctioncering period. 209.The brochures arc distributed through the lollowing distribution channels. The Authority increased distribution to (2) new regional offices in Kisumu and Nyeri, Kenya National I-ibraries, E-rcsourcc centres and County Govemment offices. 72

l ll. lv. Committee observations Thc Committcc observcd that i. This was a term conlracl Clausc 4 A of thc contract was couched in such terms as to allow whoevcr that has been awardcd the contract can do furthcr printing and be paid at unit cosl. This clause was cxploited by the CAK to allow supply ofadditional blochures and thcrefore there was no brcach. Howcver, this open-ended contract may be subject to abusc. The auditors were not given all docurlcntation during audit hence reason of raising thc query. Distribution of child online broncures was suspended during the elcctioneering period hence thc reason why stocks were still in the store Committee Recommendation The Committec recomnrends that - The CAK shoultt avoid entcring into open-cnded contracts. Thc National Assembly should amend the procuremcnt law to restrict open cnded contracts to spccific figure Supply of Computers to Schools and E-Resource Centers Thc Commitlcc heard that, includcd in the general expenses figure of Kshs. I ,969,1 I I,000 under note l2 is an amount of Kshs,95,886,000 in rcspcct of univcrsal scrvice obligation. The amount ol' Kshs.95,886,000 also includes Kshs.58,577,271 paid to a firm lor supply of computcrs to schools and E-resources centrcs out of which Kshs.55,035,471 was for tl'tc supply and installation of computcrs, Kshs.2,934,800 for amual computcr hardware maintcnancc and Kshs.607,000 for annual rencwal fees for anti-virus for a period of two (2) years and three (3) months. t3.5 210. 2l I . Howevcr, cxanrination ofavailable rccords revcaled that the supplier attached a manufacturcr authorization lcttcr which had a disclaimcr on the warranty of thc products in place of thc Standard Manul'acturer's Authorization form/lcttcr spccified in the tender documents whcrc thc Quality of llre Product is guaranlecd by the manufacturer. 212, Although thc management explaincd that thcy intended to award the tcndcr to more llran onc biddcr as a way ol'cxtcnding thc opporrunitics to womcn, youth and persons with disabilitics in order to mininrize the risk of any possiblc setback to the cntirc projcct in thc evcnt that a 73

single bidder experienced challenges lhat may affbct the delivery ofgoods and scrviccs, the maximum numbcr of lots that wcrc to be awarded to any one bidder were three (3) out of the total five (5) lots. llowcver, this was not the case as the as the above supplier was awardcd all the fivc(S) lots. 213. Consequently, the Authority is in hrcach ofthe law and thc propriety ofcxpenditure ofKshs 58.57?.27 | for the year ended 30 June 2017 could not be confirmed. Management rcsponse 2l4.Management informed thc Contmiltee that in its tendcring process, the Authority uscs thc standard tcnder developed by Public Procurement Regulatory Authority. All thc standard tender documents have standard forms which all bidders must conrplete and submit as part of bidder's compliant to tcndering process. 2l5.One of the forms is Manufacturem Authorization Form (Standard for atlachcd for ease of rcference). The Manufacturcs Authorization Form was onc ofthe forms that bidders had to subnrit during the tcndering process as a documcntary evidence of thcir eligibility to tcnder and thal goods arc from the eligiblc source. Ths tender docum€nt gave a sample format of the Manufacturer's Authorization letter but it was not niandalory that it had to nralch the sanrple word by word since manufacturers nright have different formats of their Authorization letter. Thc purposc of'thc sample was to highlight on the basic requirements that wcre to be contained in thc tcmplatc. 2 I 6. 'I'hc 30-3rd TC defcrred thc papcr for re-o,aluation citing reasons fbr value ftrr money il the tender was awarded to onc firm thc Authority was to save Kshs. 2.1million. The re-evaluation was done and presented to thc TC in its 304th sitting for adjudication. The TC awarded the tsnder to M/S Modem Intcgratcd Busincss Solutions of P.O Box 78610-00507 Nairobi for the contmct to supply, install and maintain computers and so{'tware at a total tcnder sum of Kshs 58,577,271.68, being Kshs 55,035,471.68 for supply and installation of compulers, Kshs 2,934,800 for annual computer hardware maintenance and Kshs 607,000 being amount for annual rencwal fces for anti-virus. 2I7.Notification letkrs to all participants was donc vide lcttcrs dated 2[lth January 2016. The notification letters to thc unsuccessf'ul participants also detailed reasons for non- rcsponsiveness of thc bids. Thc Authority rcceived a complaint through the Public Procuremenl Regulatory Authority vidc letter dated 7th March 2016 requesting flor assorted documents relating to the tender. 2l8.The Authority liled a responsc to the Public Procuremcnt Regulatory Authority vide letter datcd l6th March 2016. J'he documcnts werc latcr rctumcd back to the Authority and rle Public Procuremcnt Regulatory Authority nsver stopped the tendcr inrplcmcntation proccss. 219. Thc computers wcrc dclivered and installed as per the contract spccilications 74

Committec Observations The Conrmittcc observed that i. The tender was awanled despite existencc ofa disclaimcr. ii. On the supplier bcing awarded all the five (5) lots conrary to invitation 1o tender, the response given was satisfaclory. Committec recommendation The Committec recommends that The query was adequatcly addressed and thereforc rcsolved 13.6 Unaccountcd for Expenditure (3) lots specified in the 220.Thc Conrmittce heard thal, includcd in the general cxpenscs figure of Kshs.l.969.l I1.000 under note l2 is an amount of Kshs. 54,786,000 in rcspcct of corporate social responsibility. The anount of Kshs 54, 786,000 also includes Kshs. 23,000,000 being sponsorship of thc National Youth Talent Academy. Thc sponsorship was on fr:rtherance of thc 28 Junc 2012 agrecment between the Authority and UNICEF Kenya to sponsor thc National Youth Talent Academy boys'football team established by the govemmcnt through the Ministry olSports, Crrlture and Ars at a cost ofKshs. 17,763,250 per year for tl, ce years, with a commencenrent date of 28 June 2012. Thc agreemcnt was later rcnewed on 9 May 2016 for a total sum of Kshs. 69,000,000 for a period of three ycars with effcct from June 2016 to 2019 at Kshs. 23,000,000 per amuru. However, the Kcnya Academy of Sports has not submitted any retums and financial repons ofthe football club (Talanta) or accounted for the grants or thc donations as pcr the agreement betwcen the trvo parties. 221 . Furthcr, according to the agreement, thc utilization of thc funding was to be subjected to an annual extemal audit by the AuditorGcneral. The Authority was also nrandated to call at any timc for any of thc financial accounting and other project records maintained by Kenya Academy of Sports in pursuant to the agreement and subjcct the records to an audit process of its choice. However, no cvidence to show that the financial records ofKenya Academy of Sports were subjected to any audit was availed for audit rcvicw. 222.In addition, it was noted on l3 Dccembcr, 2016 the acting Directclr Corporate Serviccs ltrr Kcnya Acadcmy of Sports wrote to Diroctor General Comnrunication Authority of Kenya through lettcr Rcf. No: KAS/A,Il3(21) requesting lor a change in remittance ofthc sccond 75

instalment of Kshs.23,000,000 for thc football club (Talanta), from thc old account No. 0260500659 at Equity Bank as per the agreement to a new account at Jarnii Bora Bank accounl No. 1001823633002. The request was honorcd on 20'h January, 2017 without authority from the parent Ministry and the National Treasury. 223. Further, the Comnrunications Authority of Kenya did not notify Kenya Acaderny of Sports and the Ministry of Spors, Culturc and Arts of the transfer of the funds. 224. Conscquently, it has not been possible to confirm the propriety of the expenditure totaling Kshs 23.000,00 transferred lo Jarnil Bora Bank for thc year ended 30 June 201 7. Management response 225. The managenrent informed the Committce that lhe FC Talanta was initiated as a programmc between cooperation of UNICEF, Kenya Secondary Schools Heads Association (KESSHA), and the Ministry of Sports, Culture and lhe Arts (Under thc auspices thc National Youth 'Ialent Acaderny latcr transformed to Kenya Academy of Sports). LfNICEF managed the programme and was responsible for thc submission of the reports to the Authority as thc sponsor. The initial contract was between UNICEF and the Authority in the period Year 2012- 2013. 226.I'hc Kenya Academy ofSports, incorporatcd in ycar 2014, took over the management of thc FC 'Ialanta progranrme. Suhsequently, lhe Authority signed the renewal of the sponsomhip with the Kenya Academy of Sports in Ycar 201 6. 227. FC Talanta was initially audited as a programmc under UNICEF and later by Mwcncha Ccrtified Public Accountants upon talcover of thc management of thc programme by Kenya Academy of Sports. Thc Audit is currently undertaken by the Olfice of the Auditor General 228. The FC Talanta Board grantcd approval ofengagement ofanother banking institution, Jarnii Bora, in accordancc with its mandate. Thc Managcment of FC Talanta availed to the Authority, Minutcs of the Board reflecting thc approval of engagement ol'Jamii Bora. Additionally, both parties roviscd the Cooperation Agreement to recognisc the change of bank account details, as per thc Anicle Ill clause () ofthc Agrcement. 229.The Cabinet Sccrctary in the Ministry of Sports, Culture and the Arrs was informed of the renewal of the Kshs 69,000.000 sponsorship and also invited to the occasion of the official announcement of thc sponsorship renewal. Comnrittee Observations The Committee observcd that -l'hc accounts wcrc auditcd by a privatc firm appointed by UNICEF;

ll Auclitcd accounts by a private auditor not appointcd by the Auditor Ceneral cannot be owned by the Auditor Gcneral; and iii. It was illegal undcr the PFM Act to open an accourlt without a writlcn permission from the National Treasury. Committee Recommendations The Committee recommends that The Auditor General should re audit the accounts for lhe purposes ofownership pursuant to Section 23 of the Pubtic Audit Act 2015. 13,7 Director's expenses 13.8 Irregular Paymsnts to Dircctors 230.The Committee heard that, included in the directors' expenses figure of Kshs, 47,211,000 under note l0 is an amount of Kshs. I ,656,000 in respect of board well'are. The amount of Kshs. 1,656,000 also includcd Kshs. 1,200,000 being Christmas Shopping vouchers worth Kshs 100,000 to each Board dircctor. The Universal Scn,ice Advisory Council members were also given Christnras shopping vouchers worth Kshs,900,000 which is included in note l2 under Universal Advisory Council of Kshs.47,26l,000. The payment ol'Christmas shopping totalling Kshs.2,100,000 was made without parent Ministry and National Treasury approval. This was done contrary to provisions of circular rcf OPlCAB9l2l12AILII/43 dated 24 November 2004: Guidelines on terms and conditions of service annexe [V paragraph (i) at page 42 that providcs that any other benefits that are not provided in annexe IV do not applv. 23 I . Consequently, the rnanagement was in breach of the Law and the propriety of expenditure totating Kshs.2,100,000 lor the year ended 30 June 201 7 could not be confirmcd and was not a proper charge to public resources. Management response 232. Management informed the Committee that section I9 (2) (a) KICA Act 2012 gives the Board amandatc to provide lor thc payment of the salarics, allowanccs and olhcr chargcs in respect of the staffof the Authority and the membcrs of tho Board. 77

Conrmittec Observations Thc Committce obscrved that As much as the law allows the Board to preparc financial statements to remuucrate themselves, howevor thc SRC is mandated to under the Constitution of Kenya and thc SRC act to dctcrmine/ set such renrunerations Committee Recommendations The Committec recommends that The Current Director General should surcharge thosc who were paid irrcgular allowanccs identified by the OAC. 13.9 lrrcgular Disposal of MacBook laptops and IPADS to Directors 233.The Commitlee hcard that, cxamination ofavailable records revealed that Authority assets including MacBook laptops and iPads hcld by the former directnrs were un-procedurally disposed olTto the individual directors. The nine (9) MacBook laplops with nst book valuc ofKshs 466,551, nine (9) iPads with net book value ofKshs. 160,515, ten (10) iPads with net book valuc of Kshs.200 and lourtecn (14) laptops with net book value of Kshs.280 all totalling Kshs.627,553 were ofl'set with the directors'fces due to the former directors. Offsetting ofsaid assets was done contrary to Section 164(3) of the Public Prosurement and Asset Disposal Act 2015 which statcs lhat therc shall be a technical report where appropriate by a relevant experl ol'ths subject iterns for disposal that takes into account the real market price and in so doing the technical cxpert shall sel up a rcserve price which shall be thc minimum acceptable price bclow rcal markel value of the boarded itcms. 2-34. Conscquently, the Authority was in breach of the law and the propriety of Kshs.627,546 for the ycar endcd 30 June 2017 could not bc confirmed. Managenent response 235.Thc managemcnt informed the Commitlec that thc Board members challengcd their oustcr and the matter is pending in court hence it was not possible to recover thc laptops and IPADS for disposal. As a caution, managcment pr-ovisioned the amount equivalent to the writlcn down valuc awaiting the court detcrmination. The assets would be revcrted to the Financial Statcments fbr the year ended 30'h Junc, 201 9. 78

Commitlcc observations The Commitlec observcd that i. The matter was still in Court ii. The explanation offcred was satislactory and query resolved 14.0 Disputed Contract Payments 236.The Committee heard that, as previously repofled, on 29 November 2002, the Authority awarded the tender for thc suppty and installation of dcmountablc oflice partitions to a firm at a contract sum of Kshs.45,195,200. Thc Authority also awardcd thc tender for the supply and installation ofcarpcls and vcrtical window blinds on a suh-ctxttmct agrecment with the first finr at a tendcr sum of Kshs. 12,619.846, resulting to a tolal contract sum of Kshs.57.865,046. AlthouBh llre project was supposed to be complctcd on l4 July 2003, it was conrplcted onc yc{r latcr on 23 June 2004. Thc payments to thc contractor werc based on work done as per the proJect quantity survcyo/s, the Architect's valualions and the Architect's certificates. After the final payment of Kshs. I,286,319.45 in Septerlber 2005, the contrdctor raised a disputc claiming Kshs. 1,277,961.90 being intercsl. on delayed settlcment oFinlcrim ccrti{icatc No.6. Thc management has cxplaincd that the dclay had been occasioned by a disputc over the nraterial used by the contractor, which the project managcr noted difforcd from those specified in thc Bills of Quantities. 237. Furthcr, r:n 5 Deccmber 2006. thc contractor wrotc to the Authority (Commission) claiming Kshs.5l ,3 78,100.40 in rcspcct of purported losscs and expcnsss incurrcd on the project due to dclay of45 days. Thc Authority disputcd thc claim and the contractor subsequently lodgcd an arbitration claim belore an arbitralor. 238. Consequently, thc Arbitrator nrled that thc Authority was to pay Kshs.47, 284, 879.45 for the claims and costs of arbitration ol'Kshs. 2.783,370 all totalling Kshs-50, 068,249.45. failure to which thc amount shall attract simplc intercst at a rate of l8% pcr annum until paynrent is mailc in full. On 5 March 2015, the Board approved thc relcase of Kshs.5l. 860, 882.75 held in thc Escrow account and undertook to pay othcr outstanding sums of money amounting to Kshs. 18, 103,040 all totalling Kshs. 69,963,922.75. A rcvicw of the matter in February 2018 rcvcalcd an unchangcd position. 239. ln the circumstances, it has not becn possible to confinn that Kshs. 69,963,922.7 5 is a proper charge to public resourccs. Managemcnt responsc 240. The Dircctor General. CAK inlbnnod tlrc Comrnittee that thc paymcnt was donc pursuant to an arbitration award datcd 3 I st January 2014 in the Matter of tho Arbitration Act, 1995 and in thc Mattar ol' an Arbitration bctwccn M/s Swam Singh (Kcnya) Lirnitcd and M/s 79

Communications Commission ofKcnya pursuant to the agrecmenl and conditions ofcontract tor building works between the CCK and thc Clainrant darcd l3rh March, 2003. 241 .The Communications Autlrority of Kcnya as thc successor of the Communications Comrnission of Kenya sought to set aside the Aftitral Award through High Court Miscellaneous CivilCause No. 73 of 2014 which application was dismisscd on 4th December 2014. 242.This meant that the Arbitral Award had a lbrce in law just as a court judgment woulcl. Non- paymsnt would amount to contempt of courl and therefore the Communications Authority of Kenya was obliged to comply with and settle lhe Arbitral Award. As such, the Kshs. 69,963,922.7 5 paid to settle duly issued arbitral award was therefore a proper charge to public funds. 243. The Authority requested thc Ethics and Anti-Comrption Commission to investigate the entire contract to establish whether thcre was any impropricty. The Ethics and Anti-Corruption Commission (EACC) commenced the investigations into the matter on l6'h September, 2015. Committee Observations Thc Committee observed that This is a matter that had been taken to Court and rulcd in favour ofthe contractor. The arbitration was carricd oul by a Mr. Samucl Gituku. Thc Authority was nol clcar on h<rw thc arbitrator was chosen. The Authority paid the arbitration fees ofKshs. 2,783,370. ll As at the time of compiling this report, the EACC was srill investigating the marrer. iv. Thc Committee was convinced that public money was lost Committee recommendations The Committec recommends that 'fhc EACC should expeditiously conclude investigating the matter and have it concludcd within three months of adoption of' this report. FINANCIAL YEAR 20 I8/2OI 9 1,0 Uncxplaincd Restatcd Conrparative Balance 244. Thc Committee heard that thc financial statcnrcnts prcscntcd for audit includes rcstatcd comparatives balances for 2018/2019 l'inancial ycar as derailed below; 80

Pflrticulers Audited Financial Statemcnts 2018. (Kshs) Rcstated Financial Statements 2018 Variancc (Kshs.) Statemcnt of Financial Performancc Liccnse Fees 7.620,184,000 7,635.830.000

• 15,646,000

Finance Income l.298,3s7,000 I,297,101,000 I,056,000 C)ther Incorne 70,000 596,000 -526,000 Employce Costs I .140,209.000 I,118,t01,000 22,108,000 Remuncration of Directors 53.995,000 s r ,454,000 2,541,000 Depreciation and Amortization 376,498,000 459,636,000 -83.138,000 Repairs and Maintenance 204.815,000 271,357 ,OOO -66,522,000 Ccncral Expenscs I,928,358,000 2,096,823,000

• 168,465,000

Gain on sale Of Assets 783,000 774,000 9,000 Gain/lnss on foreign Exchange Transactions 3,413,000

• r ,782.000

5,195,000 Bad Debts Rccovered 86,639,000 -86,639,000 Statement of Financial Position Cash and cash equivalents I 2,903,1 77,000 r 2,896,166,000 7,0 r I ,000 Reccivables from non-exchange transaclions 863,537,000 969,640,000

• 106,103,000

Reccivables from exchange transactions 574,798,000 574,792,000 6.000 Prooerlv. plant and equipmenl 2,980,782,000 3.040.148.000 -59,366,000 Intangible Assets 834,408,000 677,196,000 I 57,2 12,000 Provisional Dividend 4.068.l5 1,000 3.890,870.000 177,281,000 Tradc and Other Payables 897,145,000 1,054,018,000

• 156,873,000

Paymcnts rcceived in advance 26,479,000 52,895,000 -26.4 16,000 Accumulated surplus 12.422,963,000 12,41 8,194.000 4,769,000 245. The reasons for the restatcments and dctails of the adjustmcnts were not provided for audit rcview. Furthcq the diffcrcnccs were not rcconciled or explained. 246. Under the circumstanced, the accuracy and validity of the balances reflected in the financial statements for the year ended 30'h June. 2019 could not be confirmed. Msnagement response 24'7 .The managemcnl informcd thc Commiflee that, the restatement of financial statements for FY 2018 was neccssitated by thc Go-Livc of the Oracle Enterprisc Resource Planning (ERP) in Decembcr 201 8. 'Ihe previous systcm, SUN Systems, only containcd two (2) modules [br Ledger Accounting and Basic fixcd Assets Rcgister, additionally, there was no htcgralion to Spcclrum Managemcnt Systcm (SMMS) and Payroll and it requircd cxtensive data clean-up. 8l

248.Thc adoption ofa new chart ofaccounts categorized financial accounts in a structured way to facilitate financial management and reporting, enabling better financial decision-making and inrproving fi nancial rcporting. 249. This was in line widr the strategic direction of thc Authority to automate its processes arrd there wcre several dependencies to successfully deliver the projecr including review of IT policics, acquisition of backup tools, Data warehousing, devclopment of roles ntatrix c.t.c. The automation projoct oommenced in 201 7 finally going livc in Decenrber 201 ll. 250. Data validaliorr was one of the key milestones of thc automation in order to ensure integrity of migratcd data and to provide comparative figurcs for the Iinancial year 2017-2018, noting that no data validation had been donc for legacy data from the formcr KPTC in 1999. The vesting ordcr undcr Legal Notice No. 158 dated November l5'h, 1999 contained only a list of physical asscts, conl.ractual Iiabilities and employces. 25l.Thc restatement was effcctcd in compliance with IPSAS 3 paragraph 50 on retrcspective restatcmcnts that states that "When it is impracticablc 10 determine the cumulative effect, at the beginning of thc current period, ofan error on all pnor periods, thc entity shall restate the comparativc information to correct thc crror prospectivcly frorn the earliest date practicablc in FY 2018/19) 252.The rcstatemcnt also enabled the Authority to have more insights into data e.g breakdown revenue liom four (4) broad categories to over 60 revcnue streams. Committcc Observation The Committce obscrvcd thot Thc authority did not providc for audit review the rcasons for the restatemeng and details oI the adjustnrents made to the financial stalenrents leading to questions about the basis and accuracy of these adjustments. The Authority did not avail completc and reconciled financial and accounting nxords/documentation in time for audit review and verification during the audit excrcise cont!'ary to thc provisions of Articlc 226 of thc Constirution and Section 68(2) of the PFM Act 2012 which requires thal thc financial and accounting records are presented within three (3) months alier the close of the financial year. ll. 82

Committcc Rcconrmendations Thc Committee recommended that ll Accounting officers should comply with thc provisions of Seclion 68(2) of the Public Finance Management Act, CAP 4l2A by submitting all the requircd informalion for audit within the stipulated tirnclincs. 'l'hc Committee reprimands thc then Accounting Officer lor breach of Regulation 90 of the PFM (National Govemment) Regulations, 2015 and section 62 of the Public Audit, Act CAP 4l2B for failing to provide complete and reconciled financial and accounting rccords/documentation in time. 2.0 Receivablcs from Non -Exchanges Transrctions 253.The Conrmittee hearcl that as discloscd in Note l9 to tlre ftnancial statcments, tho statement of financial position rel'lects a balance of Kshs I ,l I 2,216,000 under rcceivables from non- exchanges transactions as al 3Orh Junc, 2019. Thc following obscrvations werc made: - 2.I Third Party Conlirmation 254. During the year under rcview, a sample of 100 licensees were circularized but only four responded. Howcver, threc respondcnts confirmed balanccs which differed with tlrose in the Authority's records detai lcd bclow : 255,No reconciliations or cxplanations have been provided lor ths above variances. Conscquently, it was not be possible to conlinn the accumcy and fair statement of the repr:rtetl receivables lralances fronr cxchange transactions ol'Kshs. t,l12,216,000 as at 30rh June,20[9. Managcmcnt response 256.The managcment informed (hc Conrnrittcc that, Kcnya Porls Authority is a Iicensec with various services including Fixcd Station Motrilc Scrvices, Portable Station Mobile Services Debtor Balrnce of dcbtor as per Debtor listing (Kshs) Balance as per debtor confirmation (Kshs) Variance (Kshs) Keuya Ports Authority 1,878,132 NIL I,878,132 Telkom Kenya Ltd 732,039,294 775,602,175 43,562,881 Smart Lrd Application lntemational 2,71 I,683 NIL 2,7 t1,683 Total 736.629.109 775,602,t75 8l

and Trunkcd Radio Network Services irr respect of the frequcncy utilization fees for the assigncd lrequenc ics/l iccnscs. 257. Tetkom Kenya Limited (TKL) had fiequency assignments for: Mobile Wireless Access Systcms - Exclusive Assignnent Bandwidth, Fixed Wireless Access Systems and Fixcd Links. The Operating Liccnses held included: Application Service Provider, Conlent Service Providcr, Submarinc Cablc Landing Right and Network Facilities Provider - Tier I licenses.The amount declared by TKL amounting to Kshs. 775,602,175 includes 43,995,000 for USF. 258. Smart Applications Intcmational Ltd holds a Content Service Provider Liccnse. The licensee reponed Nil balancc due to disputed hilling and a credit note was subsequcntly issued. Committec observations The Committee obscrved that - Out ofa samplc of 100 licensees that were circularized only four responded and out of the Ibur (4) thrce respondcnts confirmcd balances which differed with those in thc Authority's records and no cxplanalions were provided lor the variances. This implies the authority's financial records and the resultant financial statcments preparcd from thc said records may significantly be misstated and thus mislcading to thc users. Committee Recommendations Thc Committee rccommends that The Committee reprimands the then Accounting Ollicer for providing inaccurate information and therefore recommcnds tlrat thc cabinel Secrctary apply sanctions to the Authority for providing inaccurate information to the users ol'financial statements rcgarding its receivables or related hnancial matters in accordancc with section 204 (l) (c) ol'PFM Act, CAP 412A. 2,2 Unsupported and Long Outstanding Dcbts 259.The Committee hcard that receivables from non-exchange transactions balance of Kshs I,112,216,000 is net of accumulated provision lbr bad and doubtt'ul debts of Kshs. I,176,170,000. Howcvcr, included in thc lattcr balance is an amount Kshs. 318,413,690 relating to old dcbts which have been outstanding lor over 20 years. The balance further includcs an unsupported anrount of Kshs. 102,374,7 53 which has becn outstanding from one ofthe security agencics. Although dcbts has becn provided for, no documents were provided to indicatc how thc Authority has been fullowing up on thc recovcry of thc dcbls. 260. In view of thc tirrcgoing, thc accuracy and validity of thc provision for bad and doubtful debls amounting to Kshs. I ,I 76,I 70,000 as at 30th June, 20 l9 could nor be confirmed. 84

Management responsc 261. The management infomred the Comrnittee that, ths old debts are moslly owed by Oovcrnment institutions, amounting to Kshs. 301,366,271, and private institutions amounting Kshs. 17,047,419.00. Bringing thc overall total dcbt to Kshs.318,413,690. 262.The debts lack sufficient documentation as thcy were vested to the Authority from the dcfunct Kenya Posls and Teleconurunicalions Conrpany in 1999 without data cleanup and vcrification- 263.The 23d Public Investmenr Commiuee report darcd July 2"d,2020 recommended that thc Authority should continue pursuing thc long outstanding debts and this has realiscd Kshs. 29,925,649. ?64. The 23'd Public Investmcnr Contmirtec reporr datcd July 2nd, 2020 further rccommended that CA should request The National Treasury to writc olf the debts that are not recoverable. 265.The Authority submitted rcquest lo Thc National Trcasury to write-off debts amounting to Kshs. 86,638,973. On I I'h October, 2023, CA held a mceting with the Acting Director/Accounting Scrvices with regards to the matlcr. However, the matter is still pending. 266.The Authority has established a Debt Management Policy whosc objectives include: cstablishing a functional debt recovery procedurc and slrategy for oustanding debts. Thc recovery of debts is supported by thc Public Finance Management Act, 2012 Section 69 (l) on lhe amounts that can be written off by the Accounting C)fTicer and procedures for writc off. 267.The debt re,covery measures include nraking follow up through withholding of new application services, t)?e approvals, dcmand letters, emails, telephone calls, physical mcetings, conducting field visits, accepting payment plans, and enforcement that includes license revocations. 268. The National Intelligence Servicc (NIS) owes the Authority Kshs. 102,969,953.30. The Authority has made follow up to NIS to demand payment for the outstanding frequency fees, which arose from frcquency assigmrents. 269. Howevcr, The Ministry of ICT & Youth Afl'airs, in a lettel datcd 27'h September, 2017 confirmed that The National Treasury had notified MOICTYA that the security agencies did not havc budgctary allocations to catcr lirr the frequency utilizalion. 270. Thc 23"1 Public lnvestmcnt Comrnittcc report datod July 2"d, 2020; the Committce rccommended that the Covemrncnt should excmpt sccurity agencics lrom paying lor frcqucncies. 85

271 . Further, on 6'h December, 2023. NIS stated that they are excmpted from paying fees as per thc National lnformation and Communicatiorrs Tcchnology Policy of 2006 and lurthcr ICT policy guidelines of 2020. Comnrittee obscrvations Thc Committee observed that - The matter was discussed by thc Public Investrncnr Commi .ee (PIC) of the National Asscmbly which, in its 23rd Report recommended that the DirectorGeneral of CAK should continue pursuing the long outstanding dcbts with a view to rccovering them and rcquest the Cabinet Secretary for the National Treasury 1o write offonly those debls that cannot bc recovered. ll The debts outstanding for ovcr 20 years lack sufficient documentation as they were inherited fiom the defunct Kenya Posts and Telecommunications Company in 1999. However no evidence was adduced to show fie aclions lake by the authority to establish their recoverability. llt, Debts amounling to Kshs. 301,366,271were owed by Govemment institutions including securily agencies. Conrmittee recommcndations The Committce recommends that Within three months of adoption of this report, the Accounting Offrcer should provide a comprehensive report on Lhc reasonable steps that have been taken to recover the debls and the losses before initiating lhe write offprocess on account ofbeing irrecoverable. 11 Within threc months of adnption of this report, the National Assenrbly to initiate amendmenls to Kenya Inlbrmation and Communication CAP 4l lA to exempt the sccurily agencies from paying flrequcncies fces. Within thrce months upon adoption of this report, Communication Authorily of Kenya to organize a roundtable meeting with the Cabinct Secrclary National Treasury, Cabinct Secretary Information Communication and the Digital Economy and the National Asscmbly to deliberate on the mattcrs rcgarding the long outstanding debts to security agencies. llt 3.0 'trade and Other Payables - Third Party Con{irmation 272.'lhc Commitlee hcard that, thc statement of hnancial position rcflects a balance of Kshs. I ,137,874,000 under trade and othcr payables which, as discloscd in Note 24 to thc financial 86

statcments, includes trade payablcs of Kshs. 268,414,000. The trade payables includc an amount of Kshs. 4,178,830 owed (o a construction company as at 30rh June,2019. Howevcr' confirmation from the construction company revealcd that thc Authority owed nothing as at 30'l' June 2019. 273. Undcr the circunrstanccs, the accuracy, validity and property oflhe tradc and other payables balancc ofKsh. 1,137,874,000 as at 30 June,2Ol9 could not bc confirmed. Managenrent response 274.The Authority reconciled thc Widcscope Construction Limited account and noted that it had ariscn lrom capture ofthe rctcntion amount. This amount had already been captured when the initial invoice was submitted. Committee Obscrvation The Committee observed that Communication Authority of Kcnya brcached section 6.1 of its Finance Policies Manual which requires thc authority to prepare and revicw monthly supplier stalcmcnt reconciliations. Thcrc discrepancy on the tradc and other payablc hetwcen Communication Authority of Kcnya rccords and the Widcscope Construction Limited records had resulted in the ovcrstaterncnt the payables and thc corresponding cxpenditure by Kshs.4,178,830 thus did not show true and fair view to the users offinancial statements hence misleading. 'I'his improper recording ol double counting of transactions may bc scheme to defraud thc authority through fi ctitious transactions. Conrmittee Recommendation$ The Committee rccommends that The Comnrittsc reprimands the thcn Accounting Officer for contravcning soction 62 (lXc) of Public Audit Act, CAP 4128. 4.0 Revcnuc and Non - Exchange Transactions 275.Thc Committec heard that, thc statemcnt of finarrcial perfomrances reflocts an amount of Kshs. 8,525,314,000 being revenue from non-exchange lransactions which, as disclosed in Notc 6 to thc financial statcmcnts. oomprised o{'Kshs.7,111,816,000, Kshs. 1,410'445.000, Kshs. 2,995,000 and Kshs. 58,000 in rcspoct to annual lrcqucncy licensc fees, annual opcrating liccnse fces, application l'ccs and approval and registration fees, rcspcctivcly. Ilowcvcr, it was obscrved that forty (40) annual operating licenses f<rr various operators invoiccd at a total of Kshs. 106,018,499 were not based on the most reccnt financial statcments of the liccnsec. 87

276. Conscquently, the accuracy and conpleteness of thc reported revenue from non-exchange transactions of Kshs.8525314000 lor tlre year ended 30th June, 2024 could not be confimted. Managcment response 277.Thc management informed thc Committec that, prior to the Financial Year 202012021, billing was bascd on submitted audited financial slatements but beginning FY 2020/21, billing oflicensees is based on immcdiate past audited financial statements from the liccnsees before the commencement of the Financial Ycar. The deadline for this submission is sel as l5th July of every year for thcir annual retums which also incorporates thc audited financial statemenLs 278. l{owever, some licensees lail to subrnit thcir financials within the deadline. In the past years, the Authorily billed bascd on thc mosl recently available financials and issuancc ofadjusting Debit/Credit notes upon submission of the financial statements. Additionally, the Authority has implcmented a system for tracking the non-submission of audited financial statements liom licensees. 279. As an improvement action thc Authority has proposed modification ofthe licence condi(ions to include penalties for latc submission and revocation for non-submission o['retums. The proposed amendments to KICA has been forwarded to the Ministry of Infrlrmation Communications and Digital Economy. Committee observations The Committce observed that; Forty (40) annual operating licenses for various operators invoiced at a total of Kshs. 106,018,499 were nol bascd on the most recent financial statemcnts of thc licensee. Thercfore, the authority went against its own policy ofusing most rcccnt auditcd financial statements as the basis ofcharging license fecs which was unlhir to both the Iiccnsces and thc authoriry. Thc authority's asscrtion that it has proposed modilication of the licence conditions to inolude penalties for late submission and revocation for non-submission ofreturns was nol supportcd by documentary cvidencc. ll_ Committee Rccommendations Thc Committce recommends that Thc Committec reprimands the thcn accounting Olficer for brcach of law by using an arbitrary basis of lcvying revenue fmm the licensecs. 88

ii. Within threc months upon adoption of this report, the Accounting OfTicer Communicatton Authority of Kenya should come up with an approved billing policy ftrr liccnses in line with the governing laws and submit to the National Assembly and thc Auditor-Gcncral for review. 5.0 General Expenses 280.The Committce hcard that, as disclosed in Note l4 to thc financial statemcnts, the statcmcnt of financial per{brmances rcflccts an expcnditure of Kshs. 1,962,978,000 in respect ol gcncral cxpenses. The following unsatisfactory issue wcre obscrved: 5.1. Unsupported Consultancy Scrviccs 281 .1'hc expcnditure of Kshs. I ,962,978,000 under gencral expenses includes an amounl of Kshs. 229,073,000 in respect of consultancy fees. Examination of this account indicated that amount of Kshs.14,750,000 and Kshs.3,360,409 werc paid lor digital lbrensic and national addrcssing system and c-commerce trainings, respcctivcly. However, documents supporting the procuremcnt nrethod used in thc sclection of thc service providers were not providcd for audit verilication. Consequcntly, the accuracy and propriety of the cxpenditure of Kshs. 18,I 10,409 on consultancy lbr thc ycar ended 30th June, 2019 could not be confirmcd. Managemeut responsc 282. Thc management informcd thc Committec that, thc African Advanced Levcl Telecommunications lnstitute (AFRALTI) is an lnter-Govemmcntal body cstablished in 1993 to spcarhcad ICT dcveloprnent cffr:rls rnainly in linglish-speaking Africa. Al-RALTI under its establishing agrcemcnt cnjoys such privileges and immunities as arc neccssary lbr it to lulfil its purposcs and carry out its functions. 283. The Govemmcnt of Kcnya is a nrembcr and the host ol'thc AFRALTI, which is a designated UN centre of excellencc in ICT training for Anglophonc Africa. The Authority is the designate<l Government represcntative to AFRALTI, and as such meets the annual mcmbership fee and other obligalions as spclt ottt in thc lntergovcmme ntal Agrecment as wcll as the host country agrcement. 284. As part of its obligations as a membcr and the host ol AITRALTI, thc Authonty is rcquired to promote thc uptakc of spccialiscd ICT capacity building programmes offered at thc Institutc in order to ensure thc institution is self-sustaining. 285.In this regard, thc AFRALTI Covcming Council has rcgularly requested membcr counlries to support the Instilu(e by scnding their staflf to attcnd AFRALTI organised courses (See resolutions Nos 38 olthc 50th Mecting of thc AFRALTI Goveming Council held in August 2015 in Victoria Falls, Zimbabwc: Resolution no 50 of the 5lst Mecting ol'thc AFRALTI Council held in Livingstonc, Zanrbia, in March 2015t Rssolution No l3 of thc 53rd Mecting of the AFRALTI Govcming Council hcld in Fcbruary 2017 in Uganda. 89

286. Pursuant to the cstablishing Agreement of AI—RAt-TI and Section 4(2)(0 ol' the Public Procurcment and Asscts Disposal Act, 2015, IPPAD], procurement activitics rclating to AFRALTI do not lhll within thc remit of thc PPAD due to the multilateral nature of the a8rcemcnt between the Govemnrent of the Rcpublic of Kenya and other countries. Commitlee obscrvations Thc Committec observcd that - An anrount of Kshs.14,750,000 and Kshs.3,360,409 werc paid for digital forensic and national addressing system and e-commerce trainings, rcspcctively. However, documents supporting the procurement mclhod used in the selection of the scrvice providers were not provided for audit verification. Committec recomnrendations Thc Committec recommends that - Thc Accounting Officcr should at all times provide supporting relevant documentation for audit pursuant to section 62 of the Public Audir Acr. 5.2. Corporate Affairs 287 .The Comnritlee heard that, thc expenditure of Kshs. 1,962,980,000 under general cxpcnses includcs Kshs. 44,-334,000 in respect o[ corporate affairs out of which an amount Kshs. 40,720,914 was paid as support for activities or sponsorship prograrruncs that wcre not in the work plan lor the Corporale Aflaim Dcpartmcnt. Howevcr, the selection criteria of the corpomle affairs projects were not provided for audit review. Further, the amount of KslN. 4Q,720,916 was miss-postcd [o corporate aflhirs as there is a separate corporate social rcsponsibilitics account under thc general expcnscs. 288. In vicw ol'thc. foregoing, the accuracy and propricl.y of the corporatc affairs expenditurc of Kshs. 44.334.000 for the year cnded 30'h June, 201 9 could not be conlirmed. Management rcsponse 289. The management infomred thc Committee rhat, out of thc Kshs.40,720,91 6 in quesrion, Kshs.40 million was in respect to a partncrship with the Kcnya Broadcasting Corporation (KBC) to acquire cxclusivc broadcasting rights for the 201 9 African Cup of Nations (AFCON) held liom 2 I *t June ro I 9rh July. 2019 in Cairo, Egypt. In rcrum, the Authoriry was to harncss thc largc viewership of thc tournamcnt to create awarencss on its mandatc across various platlornrs including KBC Charrnel I, Radio Taifa and l2 othcr stations countrywide through targcted radio ard telcvision conrmcrcials. 90

290.1n particular, the bcncfits accnring lronr thc partnership included a total of 100 minutes of advcrtising during the tounranlent on KBC ]'V Channcl l, branding ol'thc sct during the official opening and closing ocrcmonics, 30 rninutes oI advc sing air timc on Radio Taifa and l2 other stations- 'fhc partnership was, lhcreforc, purposcly nlcanl to acccss prilnc airtimc on KBC TV Channcl I and l3 FM radio platforms during the live broadcast ofthe tounnmenl as indicatcd in thc appnrval rcqucst to thc Dircctor General. 291.'l'hc Governnlent of Kenya is a mcmber and thc hosl ol the Aliican 'l'elccomnrunication LJnion (ATU), whrch is a specializcd agcncy of tlte African Union, in thc fisld of telecommunications. ATU provides a lonrm fbr stakcholdcrs involvcd in ICT to fomrulatc cffcctive policics and stratcgics aimcd at improving acccss to information infiastructure and serviccs- 292. In addition, the Union represents thc intcrests ol'its mcmbcrs at global dccision-making confercnccs and promotcs initiatives. The ATU Day which is nrarked on 7rh Dccember is an annual cvcnt thal commcmoratcs thc fhunding of the ATU and is also obscrvcd to crcalc awarencss ofthc translbnlation brought by ICTs. Evcry year, thc A1-U lcvcragcs the day to encouragc rncmher statcs t() undertake programmcs to enhancc thc uptakc of ICTs across thc contincnt. In rccognition of thc irnportance of'thc day and as part ol its mernbcr obligations to ATU, the Authority on 7'h Deccmber 201 7, ran a supplcmentin Thc Standutd ncwspaper to showcase the milcshncs achicved in lhe ICT scctor, particularly in ICT innovations, uncler tlre thcmc, 'Da'eloltmcnl ol tha Digital E<'onont.yund lmlncl of Serviccs und Applications ott Socio-llconontit Davclopntenl in A.[r'it'u.'ln this regard, the Authorily made a paynent of Kshs. 720,916. 293.1n light ofthc forcgoing, thc hudget lbr thc partncrship was drawn from the advenising votc under the corporatc aflairs butlgct. Thc expenditurc was, thcrefore, correclly charged under the corporatc affairs budgct. Thus, the associated entry was not a mis-posting. The activity was anticipated belirrchand and thc associatcd budgeis provided for under thc advcrtising volc. KBC is thc national broadcaslcr and a fully owncd Government enterptisc Committee observations The Comnrittec obscrved that An amount Kshs. 40,720,914 paid as support lor sponsorship and partnership programmes with the Kenya Broadcasting Corporation (KBC) to acquire cxclusivc broadcasting rights for lhe 2019 African Cup of Nations (AFCON) hcld liom 2l*t June to lgth July 2019 in Cairo, Egypt was not in thc work plan ol'the authority. Therc was no sclcction critcria o[ thc corporatc a{Tairs projccts, which could lcad to misallocation ol public l'unds. lI. 9l

The cxplanation that the Kshs. 40.720,916 was miss-posted to corporate affairs account was mislcading sincc this was an irrcgular reallocation of public funds contrary to section 43 (2) ol'the PFM Act, CAP 4l2A that prohibits state corporations to reallocate funcls bctwcen programmes. Furthcr, the expenditure contravenes section 12 of the State Corporations Act, CAP 446 by spcnding without budget for the itenr. Conrmittce rccom mendrtions The Committec recommends that The Comnrittee reprimands the then Accounting Olficer for brcach ofsecrion 43 (2) of the PFM Acl, CAP 4l2A that prohibits state corporations to reallocate funds betwcen programmes and sectinn l2 ofthc State Corporations Act, CAP 446 by spending without budget for the item. Thc Accounting OIficer must always cnsure that he/she carries out a cost benefit analysis between thc cxpectcd cosVoutlay and the actual revenue to he gcnerated by the authority t tojustifo the decision to adopt a strategy or incur expenditure. ll ll 6.0 Unresolvcd Prior Year Matters 294. Thc Committce hEard that, various prior year issues as dctailcd under progress on follow up ofauditor's recommendations section of Lhc financial statements remained unresolved as at 30th Junc, 2019. Management did not prnvide rcasons for ttre delay in in resolving the prior ycar audit issues. Managemcnt response 295. Thc managemcnt failcd to submit response lbr the unresolved p or year matters Committee observations The Committee observcd that The Cornmittce observcd that tho accounting officer did not respond to this audit query Furthcr, the Accounting olficcr was in brcach of the Seclion 8l(3) of the PFM Act CAP, 4l2A which states that *rc accounting olficcr shall prepare the financial statenrcnts in a form that complies with tlre rclevanl accounting standards prescribed and published by the Accounting Standards Board flronr timc to timc Inaddition,thcAccountingOfficcrcontravcnedSection3l(l)(a)ofthePublicAuditAct, CAP 4l2B that states that, wlthin three months aller Parliament or the County Assembly has debated and considcred the final report of the Auditor General and made rccommendations, a Statc Organ or a public er.rtity that had been audited shall, as a 92

preliminary step, subnrit a rcport on how it has addressed thc rccomnrendalions and findings of the prcvious year's audit. Committec Rccommendetions The Committee reconrmcnds that The Cornmittee reprinrands dre Accounting OITicer for breach of Section 8l (3) of thc PFM Act, CAP 4l2A and Section 3 I ( l) (a) olthc Public Audit ActCAP 4128. Thc Accounting olTicer must always ensure adhercnce to laws, regulations, rcgulatory frameworks and policies in placc. 7.0 Employce Costs - Acting Allowances 296. The Committcc hcard that, as discloscd in Note l0 to the Financial Statemcnts, thc statements of financial performance reflects and expcnditure of Kshs. l,l 96,080,000 under employeo costs. Examination of this account revealcd that an amount of Kshs.l 5,000,000 was paid as acting allowances for 37 ol'ficers who have becn in acting positions that fell vacant, with sorne dating far back as 2015. This is contrary to the Authority's I'luman Resource Managemcnl Policy and Labour laws which require onc to scrvc in an actinS capacity for periods not excecding 6 months. 297. Consequcntly, the validity of the acting allowance paymcnts amounting to Kshs. I 5,000,000 could not be confirmed. ManagemGnt response 298.The managenrent infomred the Committee that, the authority acknowledges that there were staff who actcd for a period beyond the six (6) months. This was partly caused by the lack ofa quorate Board lor the financial year FY 2018/19 period. Additionally, thc advcrtisement for {illing vacant positions was contcstcd resulting in prolracted litigation and a court order under ELRC No. El6l of202l dated January 25th 2022. These hctors l'urther delayed *re Authority from filling the positions. 299. The acting appointmcnts were nccessilatcd by vacant positions at highcr levels that required acting appointments for continuity and exccution of duties and due to the bng process of recruitnrent it took a while to fill thc positions. This has since been corrected by recruitments in 2OZl12022 and 202?/2023 . 93

Committce observrtions The Committec observed that The Accounting Officer brcached Scction 34 (l) of the Public Scrvice Commission Act, CAP I 85 which states that an officcr rnay be appointcd in an acting capacity for a period not exceeding six monlhs. Committec Recommendations The Committee recommends that Thc Commil.tce rcprimands the then Accounting Oflicers for not adhering to the provisions of seclion 34 (3) of thc Public Service Commission Act, CAP 185. Within tlrree months upon adoption of this report, the lnspcctor Ccneral State Corporations to surcharge and recover Kshs.l 5,000,000 (and any other subsequent amount paid) from the then Accounting O{ficer (s) paid as acting allowanccs beyond the stipulated period of six months. lt 8.0 Intcrnal AuditJimitation of expertise l00.The Commitlee heard that, tlre intemal audit reports prcsented for audit review did not cover kcy areas like broadcasting, Iietluency, broadband and IT, which represents the core business ofthe authority. Due to thc nature of thc aulhority's busincss and being a tcchnical sector the intemal auditors appcared to be limited in the requisite technical experl.ise and may thercfore nol give adequate and usoful reports to guidc in the opcration of the authority. Management response 30l.Thc nranagcmcnt failed to submit response for the mattcr on intemal audit-limitation of cxpeflise. Committec Observation The Committee observed that Thc Accounting Olllcer did not respond to this audit qucry ll Thc internal audit rcports did not cover kcy arcas of thc authority's core busincss like broadcasting, liequcncy. bmadband and IT, thus pointing Lo weaknesses in govemance and intemal contro ls. 94

Committee Rcconrmendations The Committce recommends that 'I'hc Conrmittee rcprimands thc thcn hcad oI thc internal lor failing in cxecuting thc lunctions of thc audit comrnittee outlined in Rcgulation 175 ol'thc PFM (National Covenrnrent) Rcgulalions, 2015. 3.0 EXAMINATION OF THE REPOIIT OF THE AUDITOR.GENERAL ON THE AUDITED ACCOUNTS OF'I'HE C]HII,D WEI.FARE SOCIEry OF KENYA FOR 'I'HE FINANCIAL YEAR 2OI4I2OI5 Ms. lrine Mureithi CEO /Managing Trustcc Child Welfarc Socicty of Kcnya (CWSK) u'as accompanicd by Mr. Charlcs Maina (Firrancc), Ms. l,ucy Boit (Finance)' and Mr. Ilcnry Kagondo (Finance)appcarcd bcforc the Committee to adduce evidencc on thc Auditcd accounts of thc Child Wclfare Socicty of Kenya (CWSK) for the Financial ycar 20t 4/2015. 1.0 Property, Planl, and Equipment 302.'l.hc Comrnittec hcard that thc statclncnt ollinancial position as at Jorr' Junc. 2015 rcflcctcd a propcrty, plant, and oquipmcnt halancc of Kshs. 1,528,128,787. Out of this, Kshs. 1,209,060,340 rclated to land and buildings in various parts ol'the country. lt was funhcr reportcd (hal sevcral parccls ol'land lackcd ownership documcnts, with sonre still in thc process of acquiring titlcs, whilc olhcrs wcre in court disputes tlr undcr recovcry ftrllowing illcgal grabs. As a rcsult, thc accutacy of thc propeny, plant, and cquipmcnt balance could not be confirrnetl. Managcmcnt Rcsponsc: 303.1'hc Managenrsnt infomred thc Conrmittcc that thcy acknowlcdgcd thc issuc, cxplaining that eflorts wcre ongoing to rcsolvc owncrship disputes and recover grabbed land. Thc Managcmcnt ILrther informcd thc Conlnittce that lhe process ol-acquiring thc nccessary tillc deeds was undcrway, but lcgal procccdings and disputes had delaycd the finalization. Committee Ohservations: The Committee observed that Child wclfare Society of Kcnya (CWSK) docs not posscss owncrship documcnts lbr sixtecrr ( I 6) parccls ol land locatcd acxrss thc country. 'l'he ownen;hip o{'scvcral parccls ol'land bclonging to thcSocicty havc becn grabhcd whilc others arc in are in court dispLrtcs. 95

Committec Rccommcndations The Committec recommcnds that |l Within three (3) upon adnption ol'this report, the Accounling Officcr Child Welfare Socicty ol Kenya should liaisc with the Ministry of l-ands, and thc National Land Commission lo cnsure that they securc ownership documenls ftrr all the Society land and report back to the National Assembly. Within thrce months upon adoption of this report, the Accounting Officer should expedite thc conclusion of thc courl cases and fast-track thc acquisition of title deeds and submit a status report to thc Committce. 2.0 Budgct and Budgctary Control (Revenue) -304. Thc Committcc was inlbrmcd that, Child Welfare Sociely of Kenya (CWSK) had budgeted to receive Kshs. 3,421,759,335 in revcnue fbr the Iinancial year. However, aclual receipts amounted to Kshs. 810,490,248, resulting in a shortfall of Kshs. 2,61 1,269,087, or 76%. This shortlall was mainly due to lhc significant differcnce between the budgeted and rcceived govcrnmenl granls for development and rccun'ent expendifurc. Thc tablc below shows thc budgeted and actual revcnue breakdown Manrgement responses 305. Thc managcmcnt infonncd thc Commi(tec that, thc rcvcnuc sllortlilll was due to a budgctary allocation shonlall. The managcment cxplained that thc C-hild Wclfare Society ol'Kenya (CWSK) had rcqucstcd thc cntirc budgctcd amount, but only Ksh ti10,490,248 was allocatcd. In responsc, thc'frustecs had incrcased thcir fundraising cffbrts. Source Budgct (Kshs.) Actual (Kshs.) Shortfall (Kshs.) Variance Govemment Development Crants 2,700,000,00() 400,000,000 36 t ,2 50,000 45,232,861 (2,300,000.000) (8s%) Govemment Grants - Rccurlcnt 672,6t4,135 Other Grants 45,523,000 Other lncome 3,622,000 (31 r,164,335) (46%) (290,l 39) (t%) 4,007,387 3 85,387 I lo/o Total 1,42 r,759,335 8 10,490,248 (2,611,269.087) (76%) 96

Committee observations The Committee observed thal Clrild Welfare Society of Kenya (CWSK) had reporled a shortlall in receipts of Kshs. 2,611,269.087 translating to 76% of the budgetcd revenue. The shortfall e affected thc planned activitics and impacted neSatively on service delivery to the public. Committee Recommendations Thc Committce rccommends that The Accounting Officcr must at all limes ensure that the budgets are realistic, achievablc and always adhere to annual work plans, procurcment plans and revenuc collection schedules in compliance with Regulation 44(2) of the PFM (National Govcrnment) Regulations, 2015. The National Treasury should cndeavour to always provide adequate funds lo cnable thc society achieve its mandate. 3.0 Expenditurc 306.The Committec heard that, CWSK had undcrspcnt of 46% on thc approved budget, with actual recurrent cxpenditure amounting to Kshs.362,648,756, compared to thc budgeted Kshs. 672,614,335. In somc progmm areas, such as child labor, emergency preparedness, and crisis pregnancy programs, there was no spcnding at all. Additionally, expenditures financed from grants and other income were underspent by Kshs.4,652,209, or 9.4Vo. The table below highlights the budgctcd versus actual recurrent expenditurc Programme/Activity Education Devclopmcnl Childrcn Skills Unreachcd & for Budget (Kshs.) Actual (Kshs.) 6,684,216 Underspending (Kshs.) Undcrspending Capacity Building, Rescarch, and Advocacy 40.000,000 33,3r 5,784 (83%) Child Labour, CSEC, Street Child Trafficking 18.22s,800 18,225,800 (100%) (7s%) 40,000,000 10,125,000 29,875.000 97

Programme/Activity Emergency Preparedness and Response Budget (Kshs.) 100,000,000 Actual (Kshs.) Underspending (Kshs.) 100,000,000 Underspending " (100%) Family StrengtJrening Family Tracing & 50,820,000 1,000,000 49,820,000 Fostcr Care & Guardianship Adoption 50,820,000 7,919,430 42,900,5?0 (84%) I 9, 140,000 3,072,36t I 6,067,639 (84%) Operating Expenses 24,891 ,000 I 1,000,25 I 13.890,749 (s6%\ Pcrsonnel Costs 251,500,000 269,816,464 (18,3r6,464) Crisis Pregnancy Adolescence & HIV/AIDS Programmes 6,622,963 6,672,963 ( l00o/o) Temporary Places of Safety (Children's Homes) 70,594,572 53,031 ,034 17,563,53 8 (25o/o) (46Vo) Total 672,6t4,335 362,648,756 309,965,579 (e8%) Management responses 307.The managenrent infonned the Commiftee that underspending occurred because thc exchequer had only rcleased Ksh 362,649,7 59, against a budgcted amount of Ksh 672,614,335,lcaving a balance of Ksh 309,965,578. Committee Observations The Committce obscrvcd that i. Thc managenrent responsc that thc society received disbursements ofKshs. 362,649,7 59 is rrislcading since under reccipts the society had reflected Ksh. 810,490,248 as the actual reccipts. Therefore thc under-ahsorptioD of Kshs. 309,965,578 is not salisfactorily cxplained. 308. Child Wclfarc Society ol' Kcnya (CWSK) had undcr-absorbed Kshs. 309,965,57ti of the disburscnlents, which alfcctcd the planncd activities and irnpacted negatively on service tlclivrry to the public. 98

Committce Recommendations The Committee recommends that - ll The Accounting C)lficcr must at all timcs ensurc that the budgcts arc realistic, achievablc and always adhcre to annual work plans, procurement plans and rcvenue collection schedules in compliance with Regulation a4Q) of the PFM (National Govemment) Rcgulations, 2015. The Comrnittee recomrnends that Child wellare Society ol Kenya divcrsifics its revenuc base to rcducc over feliance on Governmcnt support. lll The National Treasury should ensure adequa(c lunding for CWSK and othcr similar Public entities rclying on the exchequer and that disbursements as nrade in timc and as approved. 4.0 Dcvclopmcnt Expenditure 309. The Committee heard that CWSK had budgeted to spend Kshs. 2,700,007,737 on devclopmcnl projects. However, actual expenditure was only Kshs. 400,000,000, representing an undcr-expenditure of Kshs. 2,300,007 .737 , or 85%. The under-expcnditure was attributed to inadequate govemnrent funding. Thc table bclow shows the dcvelopnrent expenditure details: I 6l,760,000 I 8,149,941 Underspcnding (Kshs.) Undcrspending Programme/Activity Budget (Kshs.) Actual (Kshs.) 4,689,?34 50,030,766 (9lo/o) Capacity Building, Rescarch. and Advocacy 54,720,000 Child Labour, CSEC, Skeet Child Traffickirrg 50,000,000 Education Dcvclopmcnt Children Skills lJnreachcd & lor 185,500,000 15,898,532 9,044,92t (r00%) 50.000.000 I 69,60 | ,468 (91 o/o) (el%) 96,485,099 Emergcncy Prcparedncss and Response 105,510,020 143.6 r0,059 (8e%) Family Strcngthcning F'amily-Iracing & Foster Carc & Cuardianship 300,000,000 99 300,000,000 (100%)

Undcrspcnding 2,700,007,737 Managemenl responses 3l0.The managcment informcd the Committee that, CWSK had not reccived the full amount rcquestcd for developmcnt cxpcnditure. The nranagement stated that they had requested Ksh 2.700,007 ,737 but only received Ksh 400,000,000. Committec Observations Thc Comorittce obscrved that The Committee noted with concem that CWSK was underfunded by Kshs.2,300,007,737 lranslating to 85% of its dcvclopntent budget. This negatively affected its abiliry ro cxccute projccts and dcliver services to thc public. Committee Recommendations The Committee reconrmends that Thc AL:counting Officcr must at all times ensurc that thc trudgcts are rcalistic, achievablc and always adhere to annual work plans, procurement plans and rcvunue colleclion schedules in conrpliance with Regulation 44(2) of the PFM (National Govcmmcnt) Rcgulations, 201 5. Programme/Activity Budget (Kshs.) Actual (Kshs.) Underspending (Kshs.) Altemative Family Care and Adoption Programme 145,566,000 t2,476,410 133,089,590 (9lo/o) Opcrating Expenses 200,122,099 10,008,776 t70.033.323 (8s%) Awarcness Crisis Adolescence and Programrnc Pregnancy HIV/AIDS 5,049,6 tn 432,800 4,6r6.8l8 (et%) (87o/o Temporary Places of Safety (lncluding Children's Homes) 291 ,760,000 3 7,863,.576 253.896,424 Upgrading CWSK Places of Safcty r,200,000,000 271 ,435.8 t0 928,564.190 (77%\ Totel 400,000,000 2,300,007,737 (85o ) 100

4.0 EXAMINATION OF THE REPORT OF THE AUDITOR.CENERAL ON '[IIE AUDITED ACCOUNTS OF TIIE SACCO SOCIE'TIES REGULATORY AUTHORI'I'Y FOR THE FINANCIAL YEARS 20I7lI8.20I9/2020. Mr. Mr. Peter Njuguna, Chief Exccutive Olficer, Sacco Socicties Regulatory Authority was accompanied by l\{s. Roseline Rcgama Corporation Secretary, Ms. Flora Kimari, Manager Financc and David Sadaje, Dircctor, Corporatc Affairs appeared beforc thc Comntittcc to adduce evidencc ou thc Audited accounts ofthe Sacco Societies Rcgulatory Authority for thc Fiuancial year 201112018 - 201912020. FINANCIAL YEAR 20I 7/20 I8 1.0 Lack of Board Chairman 3ll.The Committcc hcard that, the chainnan's position fell vacant on 6'h Fcbruary, 2017 whcn thc lomrer Chaimran cxited. DurinB thc ycar undcr rcvicw, thc Authority operated with {ivc board nrcmhcrs without a substantive Chairrnan. contrary to Scction I of thc Mwongoztl ('ode ofGovernance and Scction 6 (l)(a) of the Slatc Corporation Acl. Managenrent response 3 I 2. Thc managcmcnt inlormcd thc Conrmittec thal, iI is true that at the closc of the Iinancial ycar Ibr 2017/2018, thc Authority did not havc a substantivc chainnan of thc board. Howcver, this position was fillcd on 20'h Scptembcr, 2018 through thc appointment of'Hon. John Munuvc. Thc othcr two positions of independent board mcmbers wr:re fillcd upon thc appointnrent oIDr Sannry Letcma and Hon. Silas Muriuki on 3l$ Dcccmber, 2018.'l'hese appointments brought the board's cotnposilion to thc rcquired scvcn (7) membcrs in accordancc with Scction I of thc Mwongozo Code ol Govcrnancc and Seclion 6(t)(a) ofthe Statc Corporation Act. Conrmittec obscrvations: Thc Comnittee observed that Thc authority opcrertcd without a substantivc Chairman contrary to Section I ol'the Mwongoztr Codc ofGovcmancc and Section 6 ( I )(a) of lhc State Corporation Act, CAP 446. Comnrittee rccommendatiotrs: 'f hc Committee recommcndcd that I'hc Conrnriltcc rcprinrands thc Cabinct Sccretary for Co<rperativcs and Micro, Srnall and Mcdiunr l:intcrpriscs (MSMEs) for thc dclays in constituting thc cxisting vacancies in thc Sacco Socictics llegLrlatory Authority's Boanl. r0l

FINANCIAL YEAR 20I 8/2OI 9 1.0 Financial Performance 3l3.The Commiltce heard that, the staternent of financial performance reflects a net deficil of Kshs 45,539,596 (2018: Kshs 51,494,563) represenling l2o/o (2018 15o/o) of revenuc. The dcficit was occasioned by lhe failure of thc Authority to achieve its budgetcd revenue ofKshs 420,692,000 by Kshs 48,849.879 as reflected in the statement of comparison of budget and actual amounts. 3 14. Managcment should therefore put in place measures with a view of generating more own nevcnue. Management response 3l5.The management informed the Committee that, it was true that thc Authority reported a deficit of Kshs.51,494,563 and Kshs. 45,539,596 for the financial years 2017/18 and 2018/2019, respectively. It is important for the Committee to nole thal a portion ol these deficits was made up of non-cash itcms, namely, provision for staff leave, provision for gratuity, provision of audit lees, depreciation, and amortization. These non-cash items represented Sor'o and 8.4o/o of the total expendirure for the financial years 2017/18 and 2018/19, r€spectivcly. An analysis of the non-cash ilems fronr the financial year20l7118 to 2021/22 and, their impact on total expenditure is illustrated in the tablc below; Analysis ofTotal expenditure and non-cash items Financial Ycar 2017fiE 20l8ll9 2019t20 2020t21 202v22 Total Expenditure (Kshs) 397,402,t68 417,38t,717 430,853,497 460,303, r 25 571,277;706 Depreciation and amortization (Kshs.) t2,264,044 25,824,841 33,312,309 69,I 80,648 ll t,701,190 Provision Gratuity for 2,008,800 2,008,800 1,431,270 2,901,290 Provision Staff leave (Kshs) for 5,3 14,843 6,723,t83 5,7 56,637 4,264,590 7,918,642 Provision Audit Fces (Kshs) lor 487,200 487 .200 487,200 487,200 500 000 Total Non cash itcms (Kshs) 20,074,887 35,044,024 40,987,41 6 73,932,43 8 t23,021,t22 r02

7o of non items to expenditure cash total 5.05% 8.4Yo 9.5o/o l6Vo 2l .syo 3 16. Furthcr, the Committce was informcd that to enhance its financial sustainability and el'fectively fulfill its supervisory and regulatory mandate, the Authority amended ths 201 I levy order. Thc levy rate charged on deposits ofrcgulatcd saccos incrcascd from 0.125% in 2018 to 0.175% in 2022. This amendment of the lcvy rate, combined with the growth of deposit liabilities of rcgulated saccos over the years, Iiom 341.91 ntillion in 2018/19 to 563.89 million in 2022120?2, has had a positive inrpact on the authority's revenue. The authority's revcnue has grown lrom Kshs. STl.U million in 20ltt/19 to Kshs.53lt rnillion in 2022/2022, which has cnabled thc authority to cover opcrational costs, including supervisory costs, lrencc improving the financial perfomance of the authority. An analysis of total revcnue antl t<ltal expcnditure is as illustratcd in thc table below. Analysis of total Rcvcnuc and Total Expenditure Financial Year 2018/19 2019t20 2020121 202u22 Total Revenue (Kshs) 371,842,12t 4',17 ,171,713 4:1 8,_3 .r 5 ,5 06 538.43 8,709 Total expenditure (Kshs) 417 ,181 .7 t7 430,853,497 460,303, r 25 57 | ,271 ,706 Surplus/ Deficit (Kshs) (4s.539,596) 46,3 18,216 (21 .967.619\ (]2,838.e97) Committee Obscrvations Thc Committee observcd thal The authority's total expenditure was higher tlun ils total rcvenue thus occasioning lhe delicit amounting to Kshs. 45,539,596. This affccted the planned activilies and impacted negatively on service delivery to the public. The poor financial pcrfomrancc, ifnot addresscd through an effective strategy may lcad to severe financial and operational diflicultics in the near luture. Committee Rccommendations The Committce rccommended that Within threc months upon adoption of this rcport, thc Accounting O(ficer should documcnt and submit a report to thl: rcspective Depannlental Committec on the cost-effeclive stmtegies devisc{ I0l

to cnlance revenue collcctions in order to ell'ectively I'ulfill its supewisory and regulatory mandate as per the amended 201 I levy order. FINANCIAL YEAR 20I912020 1.0 Implcmentation of Risk-Based Supcrvision System Project 3l7.The Committee heard that, during thc year undcr audit, the Authoriry had budgeted expenditures ol Kshs 547,432,467 and Kshs. 215,320,742 undcr recurrcnt and developmenl budgets, respectively. The development budgct included an amounl ofKshs 206,761,742 lor the implemcntation of Risk Based Supervision Systcm (RBSS) project which included an amount of Kshs. 201 ,761,742 rolled over from thc previous financial ycar. 3l8.Examination ofavailable rccords rcvealcd lhat the Authority signed a contract with three local firms for the supply, installation, configuration, customization, testing and commissioning and maintenance of a risk-bascd supervision systcm, elecl.ronic document management system and related hardware systcm al a contract surn ofKshs. 206,422,869. The commencement date for the contract was 2l't February, 2020 for a period of six (6) months with an expected completion date of 20rh August, 2020. 3 19. According to the projcct tinrelincs set out at schcdulc six of thc signed contract, the project should have been at the deployment phase (integration to ERP and optimization, dara preparal.ion and migration) four months afler thc commenccment of thc contracl. However no documentary cvidcnce has bcen providcd for verification to confirm the projeci implenrcnlation slatus and ascenain whether the project objectivcs will bc met sincc the contract period has expired. In addition, the management has not provided explanations for the levcl of budget absorption. 320. Consetluently, value for money may not have becn obtained on the projcct Management responsc 321. The maDagement infbmred the Commillee that, the Risk Based Supcrvision System (RBSS) irnplcnrentation was a process based on milestoncs as provided for in the contract. Though the conlract was signed on 2l *r February, 2020, for six rnonths, the kick-offmeeting was held on 4rh March,2020 to agree on the projcct objectives, effcctivcly making the conrpletion date Scptemtrer 2020. Howevcr, due to thc COVID-19 pandemic, the implementation of the project did not kick offas per the contract, thus pushing the commencement of the projccl to May 2020.'lhe work plan was extcndcd to 27th Novcmber,2020. and another extension was granted up to 3Oth March, 2021 at thc vcndor's rcquest. t04

Deliverables as at 30'h June, 2020 J22. There was no dclivcrablc as at 30'h June, 2020 as the vendor was still cngaged in the process during this period as lollows: Electronic Documcnt Managcmcnt Systcm (Automation of the Registry) o Mobilization of personnel, five work strcams, manned by l8 stalf had becn instituted o Thc process involvcd, obtaining filcs fiom Supewision staff at the registry, rcmoval of staples, scanning, stapling back and rctuming the files . As at J0'h Junc, a total of600 filcs had becn scanned however the cluality of thc scanned files was rejected by the Authority. Thus, the Authority's validation process invalidatcd this cxercisc and there was no tangible delivery as at 30'h June 2020. Delivery of thc Hardwaro - 'Ihc vendor was in the processes of collccting thc cquipment and clearing thcm at the por1. No delivery as at 30'h Junc 2020. iii. Thc RBSS Software- F'irst atlenrpt on prcscntation of the standard packagc was not fruitful, thus nol delivered. iv. Busincss lntelligence and Data Warchousc l'fus was not mobilized as at 30'h June, 2020 v. lntegration and Training - This was dependent on the achievement of the above, thus not done by 30'h June, 2020. 323.The Cornmittec was inlormcd that no milestone had been achieved as al 30rh June,2020, hence no payment was madc by thc cnd of financial ycar. Howcvcr, on l3th July 2020, the vendor delivered milcstone II and Milcstone tV. These milestones included delivery of hardware and installation of test envirorurcnt and thc demonstration of bidders standard RBSS and EDMS packagc, collectivcly marking 50% completion of the project's milestone. The two milestoncs were delivered at a total costof Kshs. 103,211,434.90. 324.The Comrnittee was funher informcd that despite effbrts by the Authority to ensure the projecl was fully tlelivercd as per the contract ten'ns, thc vendor failcd to fulfill the remaining part of thc project mileslones. Subsequcntly, upon expiry ol'thc conu?ct period and non- perfomrance by thc vcndor. the Authority sought guidancc lmm the oIfice of the Atlomey Ccncral (AG) ru rctcndcring of the outstanding milestones. This was granted and Authority procccded to retcndcr for thc rernaining parl of thc projcct upon cnsuring compliance with thc Public Procurcmcnt and Assct Disposal Act and Public F-inance Management Act, which delayed the re-tending to 2023. I05

u 325.'Ihe Authority is in the process of cxeculing thc rcmaining portion of the project and has successfully advcrtised lbr the outstanding project components, with thc procuremcnt process largely completed and implementation prqected lbr conclusion within the 2024 2025 financial year. Committce obscrvations Thc Committce obscrvcd that The project has not been complcted to date despitc the assertion by management that Covid-19 pandcmic contributed to the delay in the project implementation. Thc contract pnce for the risk-based supervision systems (RBSS) was Kshs.206,422,869 with a completion datc of 20'h August,2020. However, only two milestones were achieved at cost of Kshs.l03,2 I I , 435 by 30rh March, 2021 in which the contract was terminated and re-advertiscd and thus the contract completion dale and valuc formoney were not achievcd. Thc procurement process had bccn completed and implerncntation projected for conclusion rvithin the 2024-2025 financial ycar. However, the Accounting Officer did not providc the contract price for the ncw re-tcndercd dcliverablcs and pricc escalated due to inflationary cffccts. 'Ihcrc was no cvidcnce that, compcnsatory damagcs was soughl by the authority on account oI lhilure by the vendor to delivcr as pcr the terms and conditions of the contract. Besides il was nol proved that the performance security was utilized to cover the damages. lv. Committec recommcndations The Comnrittee recommended that i. Within threc months upon adoption of this report, EACC to investigate thc circumslances under which the first contractor was awarded the tendcr without the capacity to deliver, whetlrer the thcn Accounting Officer performed duc diligence before award of ihe lendcr and iI leasibility studies was conducted bcfore initiating thc procurement pnrcess. also sstablish whether there were any economic crimes perpetuated by thc officers or any other person involved in thc project implcmentalion and submit a report to thc Committec. lf any officer or pcrson is found culpable, he/she should be held personally liable for any amount lost. DPP should initiate a lcgal proccss to rccover the amount so hst with inlerest from tlrc conccmed olficc(s) at the prevailing CBK rates. ii. Thc Conrmittec rcprimands the thcn accounting ofliccr(s) and any other olficer(s) involved the procurcmcnt and implcmcntation proccss ofthc project duc to the delay and lack for valuc for money. t06

2.O IT Control lssues 326. The Cornnritlee heard that, Scction I I 0( I ) of the Public Finance Management (PF-M) Rcgulations 2015, requires thc Accounting Officer lbr a national govcmment cntity (o institute appropriate acccss controls necded to minirnize breaches of infomralion confidentiality, data integrity and loss of business continuity. However, review of ICT funclion revealed management had not put in place; a) lnlormation Technology governancc controls (Strategic IT Committce and IT Steering Committee) b) ICT Continuity Back Ups werc not stored in a secure offsile storage facility. c) Copies of the IT continuity plan and Disaster recovcry plan were not kept oll-site. 327. The non-establisluncnt of an IT Stratcgic Conrmittce a( thc board level could result in gaps rcgarding lT Governance. as part of cnterprise governance not being adequate. Management response 328. The managoment informcd the Committee that, it lakes note of the recommendation to promotc efficient and cffcctive IC1' govemance through an appropriate institutional framework. The authority is in thc proccss of revamping its Disastcr Rccovery syslem, including the acquisition of additional servers to enhancc replication from primary to sccondary sites. Backups and copies of thc IT conlinuity plan and Disaster Recovery Plan will also be stored offsite. 329.l'hc Cornmiltee was further informed that the current status is that the authority has implemented the audit recommcndations on ICT controls and now has a ftrnctional offsite disaster recovery site where thc backups are securely stored. ln addition, there is an ICT policy that includes a disastcr recovery plan and a backup policy. Committec observations The Committee observed that The Committee notcd that the abscnce of a Strategic IT Ctlmnrittce and IT Stecring Committcc indicated a gap in IT govemancc. resulting in a lack ofovcrsight and strategic dircction for the cnlity's ICT functions, potcntially impacting overall cnterprisc governance. ii. Thc Committee obscrved that thc initial lack ofoffsite storage for ICT backups, along with thc abscnce of offsite copics of thc IT continuity plan and Disaster Rccovery Plan, posed a 107

significanl risk to the entity's abiliry to recovcr fiom disasters or I'l' failures, potentially jeopardizing data integrity, inlbrmation confidentiality, and busincss conrinuity. Committec Recommcndations Thc Comnrittec rcconrmended that Within three months ofthe adoption of this rcport, rhe Accounting C)fficer should providc to thc Conrmittcc a comprehcnsive report on thc lT continuity plan and Disaster Recovcry plan irrplemented to avoid IT failurcs, the rcasonablc stcps takcn to cnsurc thcrc is an oversight and stratcgic dircction for rhc Authori(y ICT lunctions. Thc Comr.nittcc on Implcmentation should fast-track the process of implcmcnting the Conmrittcc recommendations and rcport to thc National Asscmbly on the status. ll. 5.0 EXAMINATION OF THE REPORT OF THE AUDITOR-GENERAL ON THE AUDI'IED ACCOUNTS OI1 KENYA INS'TI'I'UTE FOR PUBLIC POLICY RESEARCI,I AND ANAI,YSIS FOR THE IilNA(]IAL YEARS 20I4l20I5.20I7120I8 Dr. Rosc Ngugi CEO /Managing Dircctor Kcnya lnstitute for Public Policy Research and Analysis (KIPPRA) was accompanied by Mr. Teddy Bctt (Finance), Ms. Jane Mugambi (Legal officcr ),and Mr. Pctcr Mun€ne (PSCMO)appcared bcfore the Committee to adducc cvidence on the Audited accounts of the Kcnya lnstitute for Public Policy Rcsearch and Analysis (KIPPRA) forthe liinancial year 2014/20l5 ao 2Ol7l20l8 I'INANCIAL YEAR 20I4120I5 I.0 Propcrty, Plant and Equipntent 3 30. ]'he Cornmitlcc hcard that, thc Institute on I Oth Deccnrber 201 0, was allocated land rcl'crencc number,22380/30 at Kabetc Nairobiarea containintl by mcasurement two decimal five scvcn ttought (2.570) hcctarcs whosc valuc has not bcen incorporated in this financial statements. During the year undcr rcvicw, it was notcd the currcnt valuation has not yet becn carried out on the undcvclopcd land, hcncc not possible cluantify the ovcrall impairment that should havc bccn incorporatcd in thc financial statcmcnts. Management Response 331. Managcmcnt informcd lhc Conrmittcc that, thcy did t valuation in 201 I and thc land was valucd al sixty- four million (Ksh. 64,000,000), howcvcr, the institutc did not incorporare this valuc in thc financial statcmcnts duc b thc issuss relatcd to utilization ot'the land. To datc thc main challcngc is urilization of KlPlrRA land and this has bcen comntunicated [o pS statc dcpartmcnt lor planning. 108

Committee Observation Thc Committee observcd that The accounting olTicer was in trreach of Regularion 139 of PFM (National Govcmment) Regulation, 2015 section which rcquires accounting olficers of national government to take lull responsibility and cnsure prtlper control systenls are in place to safeguard the assets, Intemational Accounting Standards (lAS l6) which require entities to disclose sufficient, relevant and representationally faithful information about property' plant and equipmcnt to cnable users of its financial statcments to understand and evaluate the cffect propcrty, plant and equipment has on the financial position, financial performance and cash flows of the entity and KIPPRA act section 2l which requircs the institute to kecp proper books and othcr rccords olaccounts ol'incomes, expenditure, assets and liabilities. ll The Committee noted with conccm that KIPPRA had the title of the land, howevcr, had no posscssion of thc same sincc Departmcnt of Vctcrinary Services had fenced and blocked KIPPRA from acccssing thc land. The Committce also noted tlut, by thc time of this audit, revaluation of thc land had becn done but the institutc failcd to disclose thc Value o[ thc land in their filrancial statemcnts. iv. From thc financial year 2016/2017 the value of the land is incorporated in the financial statements. Committee Recommendations The Committee recomnrends that ll The Accountirrg Offrcer should at all times ensure thal the provisions of Regulation 139 of' the PFM (National Govcrnnrcnt) Regulations, 2015 arc slrictly adhcred to for propcr asset managemont. Within three nronths upon adoption of this rcport, Cabinet Sccretary in chargc of National Trcasury and Economic Planning, Cabinct Secretary in charge of Agriculture and Livestock Developntcnt in conjunction with National Lands Conlmission to last track and rcsolve the issue of KIPPRA land. 2.0 Emphasis of Matter 332.'Ihc Comnittec hcard that, the accounting policy under notc XVlll (l) with relbrence to Iinancial liabilitics (taxation) which states that no provision for taxation has bcen recognizcd in the linancial statcmcnts as thc dircctors arc ofthe opinion that the lnstitute is cxcmpt lrom taxation. Howcvcr, such cxemption has not bcen fomrally gazettcd as requircd untler the KIPPITA Act. 109

Management response 333.The managenrent intbnned thc Committce that, KIPPRA's position on tax was informed by thc provision in the KIPPRA Act cxempting thc lnstitute of the taxes. KIPPRA Acl, Sec. 27 ofthe Part V Miscellaneous provides that "Subjcct to other applicable laws, the lnstitute shall be exenrplcd liom such taxes, dulies, fecs. levy, cess or other chargcs as thc minister for the time being rcsponsible for finance rnay by, notice in the Gazette, specify". Ilowever, following discussions with KRA on the subject of tax exemplion, KIPPRA is now tax compliant and files all its taxes as expectctl since KRA has not exemptcd KIPPRA from taxes ard there is no gazctte in place on cxcmption. Committee Ohservetion The Committec ohservcd thet Although KIPPRA had been generating incorne that is subject to taxation undcr Inconre Ta"x Act CAP 470, the institute failed to makc provision lbr and remil the assessed tax. Scction 2l of the KIPPRA Acl, rcquircs that in thc absence of Gazette notice fronr cabinet sccrelary in charge of finance excmpting such income from taxation, then the institute is ottligated to assess and remit the applicable taxcs. ii. Committec notcd that, currently KIPPRA is tax compliant. Committe€ Recommendations The Committec recommends that - The Accounting Officer should at all times ensure that the provisions of income tax Act CAP 470 and KIPPRA Act alc strictly adhered to. TINANCIAL YEAR 2OI5/20I6 1.0 Taxation 334.I'he Commitl.ce heard that the Kenya Institute of Public Policy and Analysis Act No. l5 oI 2006 provides that "Subject to other applicablc laws, the Institutc shall be cxempted from such taxes, duties, fees, levy, cess or other charges as the minister for the timc being responsiblc for finance may by, nolicc in the Cazette, specify". Although thc Institute had been generating income that is subjcct to taxation undcr the current legislation, no provision for tax has cver been made in the lnstitutc's financial staternents in spite 0f the absence of a notico hy thc Ministcr in the Gazette cxcmpting such inconre lrom corporation tax. In thc circumstanccs, the adequacy and accuracy of thc total liabilities totaling Kshs. 325,095,000 disclosed in thc financial siatcmcnts lor the year ended 30rl' Junc 20 l6 cannot be ascertained, il0

Managcment rcsponsc 335. Managcnrcnt irrfonncd thc ('urrn'rittec thnt Kll'l'llA's position on tax was inlbnned by the provision in thc KIPPRA Act cxempting the lnstitutc ol'thc taxes. KIPPIIA Act, Scc. 27 of the Part V Miscellancous provitlcs that " Subjcct to othcr applicable laws. thc Institute shall bc cxenrpted lionr such taxcs, duties, l'ccs, levy, ccss or other charges as the minister for thc tiurc being responsible lor financc may by. notice in the (]azette, specify". liowevcr. lollorving discussions with KRA on thc suhjcct of tax exemption, KIPPRA is now tax compliant and filcs all its taxes as cxpected since KRA has ntx exernpted KIPPRA from taxes and thcrc is no gazeltc in place on cxenrption. Altached is the Tax compliance ccrtificate to certiI the samc. Committce Obscrvation Thc Committec maintained the obscrvation and rcconrmcndations madc in its rcport for the financial year 2Ol4/2O15 as follows; Although KIPPRA had been genemting incomc that is subjcct to laxation undcr Inconte Tax Act CAP 470, thc institutc lailcd to makc provision for and rcmit the asssssed tax. Section 2l ol'the KIPPRA Act, requires that in tlrc abscncc of'Cazelte notice liom cabinct sccrc(ary in chargc of financc cxempting such inconrc lrom taxation, thcn thc institute is obligated to asscss and rcnrit the applicable taxes. Committec notcd that, currently KIPPITA is tax conrpliant. Committee Reconrmcndations The Committec recommends that 1'lre Accounting Olllccr should at all times cnsurc that thc provisions of incomc tax Act CAP 470 and KIPPRA Act are strictly adhcrcd to 2.0 Board Expenses 'I'hc Committcc hoard that; 336. Contrary to guidclines issucd by thc Public Sector Accounting Standards Board puniuant to thc provisions of Scction 194 ol' thc Putrlic Financc Managcment Act 2012, board of' dircctors' cxpcnses totaling Kshs. 10.105.000 lirr the ycar cnded l0 Junc 2016 arc discloscd in Note l0 to the financial stiltcrrents undcr gcncral expcnses instcad ol'bcing prcscntcd scparatcly in thc statcmenl of financial pcrlbrnrancc. 337.l'hc lnstitutc reportcd an increase in Board cxpcl'lscs to Kshs. 10,305.000 during thc ycar under revieu. (Ycar 2014/15 Kshs. 5.t137.000) duc to numcrous nrcctings hcltl ir: regard t<r operational rathcr than stratcgic lilnctions. f'urthcr, thc Boartl mcctings calcndar lbr thc ycar lll

under rcview, invitation notices, and the respectivc agenda have not been made available Ibr arudit examination. ln addition, thcre werc no minutes rccordcd in relation lo four mectings fbr which sitting allowances totaling to Kshs 540,000 wcrc paid. ln the circumstances, it has Irot bccn possible to confirm whcthcr the Institutc obtairrcd value-for-money from cxpcnditurcs totaling Kshs. 10,305,000 incurred on Board mectings. M{nagcment response 'I'he Committee was informed that; Managenrent acknowledges that the Board expenscs for the years wcre disclosed under the general expenses instead of being prcsentcd separately in the staternent ol financial pcrformance. In lhe subsequcnt years to date, thc Board expenses were separated liom general expenses and prcsented scparately in thc statement of financial perlomrance and note 23(iii) in notes to thc financial statements ofFY 2016/2017. As at thc timc of Audit, board meetings rr,crc not guided by an annual approved Calendar of Meetings/AImanac. Currently, all Board mectings arc guided by an annual approvcd Calendar of Mecttngs/A lmanac which guides and moderatcs Board cxpenditure and in cascs whcre we have mcetings outside the almanac, KIPPRA seeks approval from the Cabinet Secretary, National Treasury and Economic Planning. We also have a minutes' book wherc all the board minutes are recorded. ll . Committee Obscrvations The Committec observed that Thc management of KIPPRA discloscd board expcnse under general expenscs which contravcned the guidelines issucd by Public Sector Accounting Standards Board that requires each public entity to rcport board expenscs as a standalone expenditure. During the l-rnancial ycar 2015/2016 board expcnses incrcased to Kshs. 10,305,000 from Kshs. 5,837,000 for thc ycar 201412015, which rcprescnts approximately 77o/o increase. This was majorly contributed by thc board having numerous meetings in regard to opcrational related functions rathor than su?tegic related functions. ln 'I'hc board held four mcetings with accumulated sitring allowancc of Kshs. 540,000 in which minutes wcre not availed for audit. 'l'he institute currently adhcrcs to guidelines issucd by Public Sector Accounting Standards Board and has developcd boards Almanac Thc institutc did not providcd thc Board mcetings calcndar, invitation noticcs, and lhe respcctive agenda for thc ycar undcr review for audit cxamination I l2

Commitlee Rccommendntions Thc Committee recommcnds that Thc Accounting Officer must always ensure adherence to thc provisions of Section 8l (3) of the PFM Act CAP 4l2A with regard to the guidelines issucd by Public Scctor Accounting Standards Board. 3.0 Rotiroment Benefit Scheme -338. The Committee heard that, note l7 to the financial statcments states that thc Institulc opcratcd a gratuity schcmc for qualifying crnployees u,hich qualifies as a defined benefit scheme. The enrployees were cntitled to 12.5%o of their monthly basic salary lor every month of service which deductions is paid into a separatc gratuity bank account maintaincd by the Institute. As at 30'h June, 2016, cumulative balancc of thc gratuity bank account totaled Kshs. 25,868,000 which sum has bcen disclosed both as an asset and liability in the financial statenlents. Howcvcr, thc adcquacy of cash balancc to cover cxisting retircmcnt benefit obligations of the lnstirute is not supported with documents analysis. Managemcnt response 339.Thc Managcmen{ informed thc Conrmittee that. as at the time of the audit, the analysis had not been shared, however, management prescnled a schedule ofKshs. 25,868,000 being the account balance that was discloscd in the financial statcmenls to support staff gratuity provision lbr the ycar and the rcspcctive staff entitlcment. The individual balances are thc amounts to bc paid in the event a staff exits from the Institute or graluity falls due. Committee Observations The Committee observed that The Committec noted with concern that, although KIPPRA nranagement provided the schcdule of the respectivc beneficiarics of the gratuity amount of Kshs.25,352,580, the corresponding bank statements 1o confirnr the exislence and adequacy of the bank balance werc not provided. The Accounting Officer rvas in brcach o[ seclion 62 (lXc) of Public Audit Act, CAP 4l28 which requires that a person shall not without justification lail to provide information within rcasonable time that is required under the Act. Committee Rccommendations Thc Committce recommcnds that Thc Accounting Officer should always ensurc adhcrence to thc provisions of Section 62 ( I )(c) ot' Public Audit Act. CAP 4128. ll ll3

FINANCIAL YEAR 20I6120I7 1.0 Investmcnt in Treasury Bills 340.The Committce heard that thc statement ol financial perlbrmance reflccted nil balancc in respecl. of investment in trcasury bills as at 30'h June, 2017 (2016 Ksh 3 86,557,000).Howevcr, cash and cash equivalents balance was Kshs. 760,168,000 as at June 2017 (2016 Kshs. 300,965,000). The intercst income received from the cash held by the fnstitutc reduced from Ksh 40,358,000 in 2015/16 to Ksh 22,421,000 in 20l6ll'1 financial year as a result of the abovc action. ln the circumstances, the lnstitutc apparently lost an opponunity to increase its othcr income for thc pcriod undcr review. The managenrent did not givc satisfactory reasons for the decision to discontinue investment in the treasury bills. Managemcnt response 341 . The managemcnt informed the Committee that, thc institute intcnded 1o start building its own premiscs in FY 20t6/17. As a result, invcstment in trcasury bills was put on hold so that the funds could bc utilizcd in the devclopmcnt ofthc land. However, the process stallcd because of land owncrship and usagc disputes raised by the Department of Veterinary Scrvices. The managcment resumcd thc investmcnt exercisc and pu( together an investmenl Committec to oversce the process. Committee Observations Thc Committcc obscrved that - The institute put on hold the investment in l'reasury bills in the year under review and opted to u(ilizc thc funds in dcvclopment of its land which cvcntually stallcd due lo land ownership and usagc disputcs with the Dcparlment ol Veterinary Services. This was despite thc incrcasc in cash and cash equivalents balance as at 30n Junc, 2017 to Kshs. 760,168,000 rcsulting in the opportunity cost in form of interesl forcgone. Committce Recommcndations The Committee rccommcnds that - The Accounting Olficcr should at all times cornply with thc invcstments policies and guidelincs by the National Trcasury. 2,0 Project Income 342.1 hc (lommittec hcard that as discloscd in Note 4 to the financial statcments is prqcct income totaling Kshs.79,963,000 lbr thc yoar cndcd JOrh June, 2017. Somc of the prqects commcncctl bcforc and were sprcading hcyond thc financial ycar undcr revicw. Ilowevcr, the basis ol'how the revenue allocation was donc bctwecn the prior years, thc currcnt I l4

llnancial ycar, and subsequent ycars was not provided lor audit verification. ln addition' an adjustnlent of Ksh 10,493,437 processed lo increase the project's income lor the year was not lully explained. Management response 343.Thc managcment informed the Committee that, thcy have reviscd the struclure of contracts Ibr rescarch consultancies to includc the temrs of payment and the deliverables thcreof. lt adopted to record Incomes based on the percentages of oompletion as would be stipulatcd in the contracts issued for research work. Management also, strengthened its intemal control systcms by acquiring an ERP system that has a project management module that gcnerates fund accountability statelnenls and inlroduccd project tracking to monitor the inrplementation of prqccts. 344.Thc adjustment ofKsh 10,4()3,437, rclated to project incomc rcceivablc lrom Public Service Commission for research consultancy paid up in July 2017. It was disclosed in note l2 under receivables fronr exchange transactions and recognized in the project income of FY Z0l6/2017. The schcdule of receipts was as follows; Comnlittee observations Thc Committec obscrved that- l'hc managemcnt did not providc a documentary evidence in form of a schedule showing thc breakdown of revenuc allocation to thc rcspcctive prior years, the current ycar and subsequcnt hnancial years for projects spanning multiple years. This madc it difficult lo confirm the accuracy of the project income. The Accounling Officer by failing to fully explain thc adjustmenl of Kshs' 10,493,437 was in breach of section 62 (l)(c) ofPublic Audit Act,20l5 which requires that a pcrson shall not without justification fail to providc information within reasonablc time that is required under the Act. ll Committee Reconrnrendations The Committee recommends that The Accounting Officer should always ensure adherence to the provisions of Section 62 ( I )(c) of Public Audit Acl, CAP 4128. t15

FINANCIAL YEAR 20 I7120I8 1.0 Unauthorized Reallocation and Utilization of Funds 345.The Conrmittec hcard that dunng the ycar under rcview, Lhe Institute budgeted and was allocated development grants amounting to Kshs. 52,236,486 in respect of acquisition for capital projccts of its headquartcrs officcs. Howcver, the funds were reallocated, utilized and accountcd lor under recurrent operations contrary to the Public Finance Management Acl, Section 43 and PFM Rcgulations, Scction 48 and Scction 49. No documentation was availcd in support of approval of the reallocation of lunds in the budget for the financial year. The details of how the funds were reallocated was also not providcd for audil verification. ln addition, thc managemcnl used a total of Kshs.l9,lll,000 restricted capital expenditure funding brought forward fronr the previous year on recurrcnt operations but no reallocation request and approvals were availed for audit verification. 346. Undcr the circunrstanccs, the propricty ol' the lnstitute's expenditure totaling Kshs- 7l ,147 ,486 could nol be conlirmcd. Management Response 347. The management informed thc Committec that KIPPRA developmcnt grant staned as supporl from ACBF Support to KIPPRA Vote No. 1072100300- which reflected a counterpart funding. The provision in the vote included Kshs. 52,236,486 from GoK and 100 million from the African Capacity Building Foundation (ACBF). This support was to financc tlre Young Prolessionals program, with a recruitrncnt of' l0 Young Professionals per year to be trained in public policy and analysis. Thc cxpccted output being young prol'essionals lrained on public policy rescarch and analysis. The expccted irnpacl and outcome werc to cnlrance capacity of young professionals to analyze and formulate policies. 348. The ACBF Grant came to an end in June 201 7. At that point, thc Institule needcd government support to kecp thc program nrnning. During thc budgct proccss in 2017/18 KIPPRA defcnded continued counterpart lunding using a YP proposal. 'l'his was captured as a devclopmcnl grant and in othef ycars uscd tlre l'unds lo nrect the Young Professional's costs. During the ycar undcr review thc Institutq incurred Kshs. 13,179,650 on YP monthly allowanccs. 349.The hrstitutc had always used part of the funds in thc Capital and Development-ACBF Support to KIPPRA Votc No. 1072100300 ro financc capital cxpenditures. It is liorn thc dcvclopment grant that thc institutc had becn financing capital spending, including procurcrncnt ol cornputers. officc equiprtrcnt's, lunrilurc's, fittings and fixtures and intangiblc assets (soflwarc). 'l'hc tdal anrount spcnt on capital itcms during the year under review anrounted to Ksh 27,1 t17,467. ll6

350. KIPPRA organized its first Annual Regiorral conlcrcnce in fulfilling its comrnitment in its 20l3ll4-2017118 strategic plan. ln contributing lo the conlercnce managenent in 2017/18 work plan proposed to undcrtake a survcy bringing together synergies from all research dcpartments and the concept was shared with the programs Committes. l'his rcscarch work amounting Ksh I I ,869,3 l2 was llnanccd from the development grant whosc findings were disscminated during the confercnce. Committee Observations The Committcc obscrved that The Committee observcd that the institute rcallocatcd Kshs. 52,236,486 from capital expenditurc to recurrent expenditure and utilized Kshs.l9,lll,000 restricted capital cxpenditure brought forward on recurrenl operations. The two expenditure itcms were contrary to the provisions of Section 43 of the Public Finance Management Act, CAP 412A, and Regulation 48 of the PFM (National Govemmcnt) Regulations. 201 5. Committce Recommendations The Commitlee recommends that The Accounting Ol'ficer should always cnsure adhcrcnce to the provisions of Section 43 of thc Public Financc Managcment Act, CAP 412A. and Rcgulation 48 of the PFM (National Govemment) Regulations, 201 5. 2.0 Transfer from Governments 35 I . The Committee heard that thc statement ol financial performancc rcflects amount of Ksh 333,931,000 in respect of transfer from the Government and as detailed in note 3 to thc financial statcmcnts includcs a transfer from retained eamings ofKsh 5,994,000. The amount has mlt been explained or supported in any way. Managcmcnt response 352.Thc nranagcmcnt informcd thc Committee that retaincd eamings financed authorized project expenditures incurred during thc year, this was recognized as revenue in the statement of financial performancc of the rcporting period (FY 2017/18) under note 3 and the statement ol'net changes in equity to reduce the retained earnings. Committee Observation Thc Committee observcd that 'fhe Committce notcd that thc amount of Kshs.5,994,000 is unauthorizod and unapproved cxpenditure irregularly drawn from rctaincd camings (surplus fbr the previous ycar) which wcrc n7

not cxplaincd nor supported with any documcntary evidence. This is contrary to section l2 of the statc corporations Act CAP 446 Committee Recommendations The Committee recommends that Within three months upon adoption of this report, thc Accounting Officer should submit a dctailed report cxplaining how thc Kshs.5,994,000 was utilizcd lo the Auditor-General for audit review and reporting in the subsequent audit cyclc. 3.0 Project Incomc 353.The Conrmittee heard that as reported in the previous year the statement of financiat pcrformance for thc year ended 30'h Junc 2018 and note 4 to the financial sl.atements, discloses project income totaling Ksh 26,461,000(20'16/2017 Ksh 79,963,000). Although somc of the projects commcnced before and wcre sprcading beyond the financial year under review, the basis of revcnuc allocation between thc prior years, the current financial ycar and subscquent years was not providcd for audit review. 354. Under the circumstanccs, thc accuracy and completencss of the project inconre balancc of Ksh 26,461,000 for the year ended 30'h June 201 8 could not be confirmed. Management response 355. The managemenl informed tlrc Comnrittee tllat prqect income was recognized based on the terms stipulated in thc terms of thc contract for thc rcsearch work ard projects whosc completion datcs ovcrflow to the following year, the institute disclosed incomes rcceived in advance or incomes outstanding in the notes to thc financial statement. Currentty, KIPPRA is aligned with the auditor's expectations on the prcsentation. Committee observetions Thc Committee obscrved that Thc managemcnt did not providc documentary cvidencc in lorm of a schedulc showing the brcakdown of revenus allocation to the respective prior years. the current ycar and subsequent Iinancial years for projects spanning multiple years. This made it diflicult to confirnr thc accuracy of the projecl income. Committee Recommcndation 'f hc Committce recommends that - 'l'he Accounting Olficer should always cnsurc adhercncc to the provisions of Scction 62 ( I )(c) of Public Audit Act, CAP 4l 28. I l8

4.0 Employee Costs 356.The Committee heard that statement of linancial performarce and note 7 to the financial statement reflects employees costs of Ksh 189,598,000 which included acting allowance amounting to Ksh 1,294,462 paid to five (5) staff while appointed in acting capacities. Howevcr, the offrcers acted and got paid for more than six months contrary to KIPPRA Human Resource Policy and the Public Service Commission Human Resourcs Policies and Guidelines, 2016. Management r$ponse 357.The management informed the Committee that current HR Policies and procedure manual was approved in November 2017. Before then KIPPRA/QMS/HR./01 policy dated 3'd May 2013 was in operation and Sec 14.5 - had not stated the timelines for acting appointment positions. This was rectified in the new HR policy to be inconformity with the PSC HR Policy of May 2016. 358.The Institute wrote an appeal for an extension of the Acting period through letler ref. KIPPRA/HR/4/I/DPSIiIII dated l4th August 2019 and the subsequent guidance provided by the State Departsnent for Public Service & Gender, as outlined in their Letter Ref. No. MPSC/DPSM/HRIW2/4A/oI. XXXIV, dated 8'h April 2020. The Acting appointnent is approved by the Human Resource Management Advisory Committce and the KIPPRA Board. The board has since advertised the 5 acting positions as follows: The substantive Officer is seconded to the Coffee Implementation Standing Committee. Management has sought approval from the Head of Public Service to ransfer the services of the OIIicer. This will pave way for the recruitment of a substantive office holder. I Deputy Director Private Sector N/A 2 Deputy Director Trade and Foreign Policy March2O24 Recruitment Ongoing March 2024 Recruitment Ongoing 3 Deputy Director In lrastruchrre and ll9

I I 159. Further, the Board has advertised and readvertised vacant positions in a bid to curtail acting appointrnents. Committee observrtions The Committee observed that- The Committee noted that management of KIPPRA irregularly paid five (5) staff actiag allowance for more than six (6) months. This was contrary to Section 34 of the Public Service Commission Act CAP 185. lt. The Committee noted that, currently the vacant positions have been filled by substantive officers. Committee Recommendations The Committee recommends that- The Accounting Officer should always ensure adherence to the provisions of section 34 of the Public Service Commission Act, CAP 185. 5.0 Deferred Income 360. The Committee heard that the statement of financial position reflected a deferred income balance of Ksh 284J48,000 which was explained in note l9 as representing the development grants reccived over the years. The amount has decreased from Kshs. 303,599,000 in the previous year thus a reduction of Kshs. 19,l I1,000. The reduction ofKshs. l9,l I1,000 has not been fully supported as there is no documentation to show what the funds were used for aad where the amount was transferred to in the statement of financial performance in line wilh accounting policy. 361 . Under the circumstances, the defened income balance of Kshs. 284,448,000 is not fairly stated. Economic Services Departrnent 4 Deputy Director Finance February 2020 Position substantively filled 5 Depuqr Director Human Resource and Administration February2022 Position Substantively filled 120

t ! Management response 362. The managemcnt infonned the Committee that the spent amount of Kshs. 19,I I 1,000 facilitated payment of staff salaries arnounting to Kshs. 13,860,815 and general expenses Kshs. 5,249,723 for thc month ofJune 2018 due to delayed exchequer disbursements. 363.The amounts were transferred from the statement ofchanges in net assets as a movement in retaincd eamings and rcported as reduction in lhe statcment of financial position. 364. The Utiliz:tion of Ksh l9,l I I,000 is abulated below; S/No Source/I)onor Description Amounts Payroll Staff salaries June 2018 13,860,81 5.00 7 Highend Solutions Ltd Library AMLIB Service Level Agreement - Renewal oflicence 243,843.00 3 Nation Media Group Lrd KIPPRA Conference 2018 space order for advertisement 2,687,140.00 4 Ian Kariuki Muriuki KIPPRA Conference 201 8 - Music Performance & comical video 120,000.00 5 Lloyd Masika Ltd 5rh Floor Excess servicc charge 163,712.00 6 Lloyd Masika Ltd 2nd Floor Excess service charge t 63,712.00 7 Elsevier B.V Renewal of lthenticate Plagiarism Checker 576,024.75 8 Masada Hotel KER 2018 Working retreat 522,900.00 9 Tricore Agencies Printing of Policy Briefs No. I I,l 342,000.00 IO Xtranet Communications Maintenance of KIPPRA Website 430.39t.00 TOTAL COST l9,l10,537.75 121

,1" ,l ::i ) i A q Commlttee Observationo The Committee observed thrt - The Committee observed that Kshs. I 9, I I I ,000 was drawn from the deferred income to facilitate paymbnt of staff salaries. The expenditure is conEary to the provisions of Section 43 of the Public Finance Management Act, CAP 412A., and Regulation 48 of the PFM (Natiooal Govemment) Regulations,20l5. Commlttee Recommendation The Commlttee recommerds thrt - The Accounting Officer should always ensure adherence to the provisions of Section 43 of the Public Finance Managernent Ac! CAP 412A, and Regulation 48 of the PFM (National Govemment) Regu lations, 2015. i I w F\-./ ( - e TA8 c I THE. LE Q5. 8-a 122

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