Report On Consideration Of The Audited Accounts For The Water Sector Trust Fund For The Fys 2018/2019 And 2022/2023

REPUBLIC OF KENYA THE NATIONAL ASSEMBLY THIRTEENTH PARLIAMENTFOURTH SESSION

SPECIALFUNDACCOUNTSCOMMITTEE

REPORT ON THE CONSIDERATION OF THE AUDITED ACCOUNTS FOR THE WATER SECTOR TRUST FUND FOR THE FINANCIALYEARS2018/2019TO2022/2023

DIRECTORATEOFAUDITAPPROPRIATIONS &GENERALPURPOSECOMMITTEES, NATIONALASSEMBLY PARLIAMENT BUILDINGS NAIROBI

JULY 2025

REPUBLIC OF KENYA THE NATIONAL ASSEMBLY THIRTEENTH PARLIAMENTFOURTH SESSION

SPECIAL FUND ACCOUNTS COMMMITTEE

REPORT ON THE CONSIDERATION OF THE AUDITED ACCOUNTS FOR THE WATER SECTOR TRUST FUND FOR THE FINANCIAL YEARS 2018/2019 TO 2022/2023

DIRECTORATE OF AUDITAPPROPRIATIONS & GENERAL PURPOSE COMMITTEES, NATIONAL ASSEMBLY PARLIAMENT BUILDINGS NAIROBI

| Tableof Contents 1.0PREFACE. | |--------------------------------------------------------------------------------------------------------------------| | 1.1Establishment and Mandate of Special FundsAccounts Committee | | 1.2CommitteeMembership. | | 1.3 Committee Secretariat.. EXAMINATIONOFREPORTOFTHEAUDITORGENERALONTHEFINANCIAL | | STATEMENTSFORWATERSECTORTRUSTFUNDFOR2018/22019TO2021/2022 FINANCIALYEARS | | 2.1.Examination of the Auditor General reports forWater Sector Trust Fund for the financialYear2018/19..... | | 2.2.Examination of the Auditor General reports forWater Sector Trust Fund for the financialYear2019/2020.. | | financial Year 2020/2021.. .15 2.4. Examination of the Auditor General reports for Water Sector Trust Fund for the | | FinancialYear2021/2022. .25 2.5.Examination of the Auditor General reports for Water Sector Trust Fund for the |

List of Aioreviations and Acronyms

| | 1)AWWDA | Athi water Works Development Agency | |-----------|------------|----------------------------------------------| | 2) | CLSG | Conditional Liquidity Support Programme | | 3) | CoK | Constitution of Kenya, 2010 | | 4) | BMGF | Bill&Melinda GatesFoundation | | 5) | EU | European Union | | 6) | FY | Financial Year | | 7) | GGEP | Green Growth andEmploymentProgramme | | 8) | GoK | Government of Kenya | | | 9)J61 | Joint sixProgramme | | 10)IFAD | 10)IFAD | International FundforAgriculturalDevelopment | | 11) KfW | 11) KfW | GermanyDevelopmentBank | | 12)KRA | 12)KRA | Kenya Revenue Authority | | 13)MDAs | 13)MDAs | Ministries,Departments and Agencies | | 14)PFM | 14)PFM | Public Finance Management | | 15)0AG | 15)0AG | Office of the Auditor-General | | 16)PSASB | 16)PSASB | PublicSectorAccountingStandards Board | | 17) QAMs | 17) QAMs | QualityAssuaranceMonitors | | 18)WRUA | 18)WRUA | Water Resources Users Association | | 19)WASREB | 19)WASREB | WaterServiceRegulatoryBoard | | 20)WLP | 20)WLP | Water and livelihoodsProgramme | | 21) UPC | 21) UPC | Urban Project Concept |

CHAIRPERSON'SFOREWORD

Hon. Speaker,on behalf of the Special Funds Accounts Committee and under Standing Order 199,it is mypleasant duty and honour topresent to theHouse thereport of theCommittee on considerationof thereportsof theAuditor-General onthe auditedfinancial statementsforthe WaterSectorTrustFundfor thefinancialyears2018/2019to2022/2023.

Oversight over national revenue and expenditure is amongst the roles of the National Assembly as stipulated under Article 95 (4) (c) of the Constitution of Kenya,2010.Further, Article 226 of the CoKprovides that anAct of Parliament shallprovidefor the designation of anAccounting Officer in every public entity at the national level who is accountable to the National Assembly for its financial management. In addition, Article 229(8) mandates this House to debate and take appropriateactiononauditreportsfromtheAuditor-General.

In fulfilment of these constitutional provisions,the National Assembly established various Committeestoexaminereportsof theAuditor-General toascertainwhetherpublicfunds are utilized in a lawful, authorized, effective,efficient, economical, and transparent manner. The Special Funds Accounts Committee was established in the Fifth Session of the Eleventh Parliament following the review of the National Assembly's Standing Orders, is one of the Committees.

The Committee received oral and written submissions from Mr. Willis Ombai, the Chief Executive Officer,Water Sector TrustFundregardingthe auditedfinancial statementsfor the FinancialYears 2018/2019 to2022/2023.The submissions formed thebasisof the Committee's observations, findings, and recommendations. These are also contained in the Minutes and Hansard Reports of Committee proceedings.

Hon.Speaker,Iwish to express appreciation to theHonourableMembers of the Committee,the Officeof theSpeaker,the Clerkof theNationalAssembly,theParliamentaryLiaisonOffices of theAuditor-General andtheNationalTreasuryand theCommitteeSecretariatforfacilitatingthe Committee in the production of this report.

HON.FATUMAZAINABMOHAMMED,M.P. CHAIRPERSON,SPECIALFUNDSACCOUNTSCOMMITTEE

CHAPTERONE

1.0PREFACE

1.1 Establishment and Mandate of Special Funds Accounts Committee

1. TheSpecialFundsAccounts Committee is one of thesixWatchdog Committees of the NationalAssembly established under Standing Order 205.It is mandated toexamine the reports of the Auditor-General on the following: 2. i Funds establishedby statute orbysubsidiarylegislation,exceptFundsunderStanding Order205B(DecentralizedFundsAccountsCommittee) 3. ii) TheEqualizationFund; 4. ii) TheEqualizationFundAdvisoryBoard; 5. iv) ThePoliticalPartiesFund;and 6. V OtherfundsasmaybecommunicatedbytheHonourableSpeaker

1.2 Committee Membership

2. The Committee comprises the following members:

| S/ N | Name | Constituency | Party | |--------|--------------------------------------------------|------------------|-------------| | 1 | Hon. Fatuma Zainab Mohammed, MP (Chairperson) | Migori (CWR) | Independent | | 2 | Hon.Dawood Abdul Rahim,HSC,MP (Vice Chairperson) | North Imenti | Independent | | 3 | Hon. Mary Emaase Otucho , MP | Teso South (CWR) | UDA | | 4 | Hon. Charles Ngusya Nguna | Mwingi West | Wiper | | 5 | Hon. Dr. Christine Ombaka Oduor, MP | Siaya (CWR) | ODM | | 6 | Hon. Erastus Kivasu Nzioka, MP | Mbooni | Wiper | | 7 | Hon. Eve Akinyi Obara, MP | Kabondo Kasipul | ODM | | 8 | Hon. Joseph Majimbo Kalasinga, MP | Kabuchai | FORD-K | | 9 | Hon. Tom Mboya Odege, MP | Nyatike | ODM | | 10 | Hon. Catherine Nakhabi Omanyo, MP | Busia (CWR) | ODM |

| 11 | Hon. Cecilia Asinyen Ngitit, MP | Turkana (CWR) | UDA | |------|-----------------------------------|-----------------|-------| | 12 | Hon. Erick Kahugu Wamumbi, MP | Mathira | UDA | | 13 | Hon. Joseph Kimutai Cherorot, MP | Kipkelion East | UDA | | 14 | Hon.Onchoke Charles Mamwacha, MP | Bonchari | UPA | | 15 | Hon. Paul Kibichi Biego, MP | Chesumei | UDA |

1.3 Committee Secretariat

3. The Secretariat facilitating the Committee comprises the following staff:

| S/ N | NAME | DESIGNATION | |--------|---------------------|--------------------------------| | 1 | Mr.Erick Nyambati | SeniorClerkAssistant | | 2. | Ms. Comfort Achieng | Clerk Assistant III | | 3 | Mr. Nimrod Mate | Clerk Assistant III | | 4 | Mr. Robert Ngetich | Fiscal Analyst II | | 5 | Ms. Judith Kanyoko | Legal Counsel II | | 6 | Ms.Bevaline Mosoti | Research Officer III | | 7. | Mr.DerrickKathurima | Media Relations Officer III | | 9 | Ms. Felistus Muiya | PublicCommunications OfficerII | | 10 | Mr.Peter Mutethia | Hansard Audio Officer III | | 11 | Mr.Joshua Lenambet | Serjeant At Arms |

CHAPTERTWO

EXAMINATIONOFTHEAUDITEDFINANCIALSTATEMENTSFORWATER

• 1.Mr.Willis Ombai, the Chief Executive Officer,Water Sector Trust Fund appeared before the Committee on Tuesday 20th, August 2024 to adduce evidence on the audited financial statementsforWaterSector Trust Fundfor theFinancialYears 2018/2019to2022/2023. During the meeting, the Accounting Officer was accompanied by:

• 1.Mr.Edwin Korir

General Manager Internal Audit

• 2.Mr. Kega Muthoni

General ManagerProgrammes

• 3.Mr. Wynant Mulira

Principal Internal Auditor

• 4.Mr.MathewKaranja

Principal Accountant

2.1Examination of theAuditorGeneral reports forWaterSectorTrustFund for the financialYear2018/19

1.Unsupported expenditure

2. The statement of financial performance reflects project expenses of Kshs. 571,050,171 which as disclosed under Note 10 to the financial statements includes Kshs 5,424,187 (2018:Kshs 16,848,188) relating to expenditures that have outstanding audit queries arising from audit of project implementing organisations. Although Management has indicated that the issue is being dealt with legally and administratively, the outcome of the process has not been disclosed.

Submissions by theAccounting Officer

• 3.The Accounting Officer submitted that

Below isthedetailed scheduledof the amountwhichthe auditorhadcategorised as unsupported expenditure and status of resolution.

TableI-UnsupportedexpenditureFY2018-2019

| FY | Prog. | Implementing Partner | Amount | Status as at August 2024 | Remarks | |------|-----------|----------------------------------------------|----------|----------------------------|-----------------------------------| | 2019 | GGEP | KashaWaterResources Users Association (WRUA) | 99,290 | Follow up ongoing | Demandletter submitted to the IP. | | 2019 | EU- SHARE | Mudhewaterproject | 75,000 | Follow up ongoing | Demandletter submitted to the IP | | 2019 | EU- | Quachacha WaterPan | 75,000 | Follow up | Demand letter |

SPECIALFUNDSACCOUNTSCOMMITTEE-WATERSECTORTRUSTFUND

| FY | Prog. | Implementing Partner | Amount | Status as at August 2024 | Remarks | |------|-----------|--------------------------------------------------------------------------------|-----------|------------------------------|---------------------------------------------------------------| | | SHARE | | | ongoing | submitted to the IP | | 2019 | EU- SHARE | Isakhia Water and Sanitation Project | 97,312 | Follow up ongoing | Demand letter submitted to the IP | | 2019 | IFAD | North MathioyaWRUA | 29,100 | Sufficient document provided | Recommended for closure | | 2019 | IFAD | Upper Maragua WRUA | 20,000 | Follow up ongoing | Demand letter submitted to the IP | | 2019 | J6P | Sirimon CLTS -2019 | 10,643 | Follow up ongoing | Demand letter submitted to the IP | | 2019 | J6P | Lelmokwo water project- 2019 | 1,315,083 | Follow up ongoing | Technical audit will be carried out and the matter be closed. | | 2019 | J6P | Tharaka Nithi County Water Bill | 2,728,600 | Refund was made by the WSP | Recommended for closure | | 2019 | J6P | Murugi Mugimango CLTS | 125,000 | Sufficient document provided | Recommended for closure | | 2019 | J6P | DoldolLuisikutWater Project | 19,000 | Sufficient document provided | Recommended for closure | | 2019 | UPC | Naromoru Water and Sanitation WaterProject | 28,000 | Sufficient document provided | Recommended for closure | | 2019 | UPC | Homabay Household Sanitation Project | 90,600 | Sufficient document provided | Recommended for closure | | 2019 | UPC | NaromoruWater and Sanitation Water Project | 40,000 | Sufficient document provided | Recommended for closure | | 2019 | UPC | Piloting of new PSF technology. Innovation. Garissa Water and Sewerage Company | 533,300 | Sufficient document provided | Recommended for closure | | 2019 | UPC | Muranga WSP | 14,655 | Follow up ongoing | Relates to VAT | | 2019 | UPC | Kirinyaga WSP | 167,904 | Follow up | Relates toVAT |

| FY | Prog. | Implementing Partner | Amount | Statusasat August 2024 | Remarks | |------|---------|------------------------|-----------|--------------------------|-----------| | | | | | ongoing | | | | | | 5,469,487 | | |

• 4.Heinformed the committeethat Following the release of the audit report a total of Kshs.3,593,600 (66%) had been accounted for through provision of supporting documents, refunds and technical audits of the projects funded. He noted that for the amount which had not been resolved, negotiations was ongoing with the implementing partners and Development Partners. A request had been made to DPs to consider waiver on questioned costs relating toVAT and demand letters have been made toIPs.He also noted that to mitigate therecurrence,thefollowingare themeasureswhichWaterFund hadput in place to ensure that thefunds released toImplementingPartners (IPs) are properly utilized:
• i)Follow up of documents and closure of questioned costs by theBoard of Trustees; upon release of the audit report, management has been following up documents to support expenditure and have the Board close the questioned costs.
• ii) Engagement strategy document that will enhance engagement of the Fund with variouscounties.
• ii) Risk Management Policy and Framework; The Fund has implemented robust risk management policy and Framework which will enhance risk management in the project implementation cycle. Flagging of projects with issues is undertaken on a regularbasis and appropriate mitigating measuresundertaken.
• iv) Governance Assessment of water service providers; Regular Governance assessment ofvariousImplementingPartnersis undertaken and areas ofimprovement agreed forimplementation withvariousImplementingPartners (IPs.)
• ProjectImplementationManual:thepurpose of theProjectImplementationManual (PIM) is to provide detailed guidance forImplementing Partners (IPs) of the approved procurement stage to project closure while considering critical obligations and responsibilities of differentprojectstakeholdersaspartoffinancialcontract management.
• vi)Enhanced Monitoring andEvaluation;Resources have been availed to enhanced monitoring and evaluation of funded projects.
• vii) Recruitment of Quality Assurance Monitors; these consultants are based in various counties andtheyassist theImplementingPartners in allaspects of project implementation.
• viii) Training ofImplementing Partners;regular training of implementing partners will enable the partners-to implement projects efficiently.
• ix) Systems Integrated Project (SIP); currently under implementation and will integrate all programmes and enhanced visibility and decision making.
• x Technical Audits (External and Internal Audits);where documents arenot available, technical auditors will be able to assess the value of implemented projects.
• xi) Reporting to Ethics and Anti-Corruption Commission. In situations of suspected cases of corruption, the matters are normally reported to the EACC for further investigation.
• xii) Document Management System; The Fund is currently implementing document management systemwhere all documents willbescanned and stored electronically to avoid situation whereImplementingPartners will report issues of missing supporting documents at the Implementation level.

ObservationsbytheCommittee

• 5.TheCommitteeobserved that
• i) Kshs.3,593,600 (66%) had been accounted for through provision of supporting documents, refunds while Kshs.1,875,887 had not been supported
• i) The matter is unresolved.

RecommendationsoftheCommittee

• 6.The Committeerecommended that
• i. Within six months upon adoption of this report, the Accounting Officer must amount of Kshs.1,875,887 which had not been supported to the Office of the Auditor General for auditverification.
• ii. The Accounting Officer should ensure that all applicable accounting and financial controls, systems, standards, laws, and procedures are followed in the preparation of the financial statements in compliance with Public Finance Management Act,2012 and in accordance with the standards prescribed by the PublicSectorAccountingStandardsBoard asperRegulation101(4)of the Public Finance Management (National Government) Regulations, 2015.

2)Delayed Funding and Project Implementation

7. The statement of comparison of budget and actual amounts reflects a final budgeted total revenue of Kshs 2,062,287,856 against actual received revenue of Kshs. 1,125,492,774 resulting in a revenue deficit of Kshs 936,795,082 or 45% of the budgeted revenue.The deficit was caused mainly by delay in remitting budgeted funds by both the Development Partners and GovernmentofKenya. 8. Further the Statement of Comparison of Budget and Actual amounts reflect actual project expenditure of Kshs. 571,050,171 against the budgeted expenditure of Kshs 1,680,717,504 resulting in an under-expenditure of Kshs 1,109,667,333 or 66% of the budgeted expenditure. The delayed funding and implementation of the Fund's projects behind schedule may lead to cost overruns and non-provision of services to the intended beneficiaries.

Submissions by the Accounting Officer

• 9.The Accounting Officer submitted that—
• The management acknowledged thefinding that therewas delayin remitting budgeted funds by both the Development Partners and Government of Kenya.Follow up wasundertaken to

ensure timely receipt of funds fromboth the Government and the DevelopmentPartners.DPs supported programmes are multi-year in nature and thus outstanding disbursements were budgeted for and received in subsequent years on a rolling basis. Below is the detailed scheduled of the amount which had been budgeted for and received at theWaterFund.

TableII-Budget andamountreceived-FY2018-2019

| No | Funding source | Budgeted amount (KShs) | Amount received (KShs) | Actual expenditure (Kshs) | Deficit (KShs) | |------|---------------------------------|--------------------------|--------------------------|-----------------------------|------------------| | 1 | GoK grants | 584,900,000 | 579,856,000 | 344,222,993 | (5,044,000) | | 2 | Finance income | 2,000,000 | 52,092,307 | 0 | 50,092,307 | | | United Nations Children Fund | 0 | 1,744,009 | 1,744,009 | 1,744,009 | | | Miscellaneousincome | 54,400,000 | 25,417,314 | 0 | (28,982,686) | | 3 | Government of Germany -KfW/BMGF | 447,000,000 | 73,960,418 | 103,960,418 | (373,039,582) | | 4 | European Union-Rural | 102,867,856 | 144,177,607 | 144,177,607 | 41,309,751 | | 5 | GovernmentofDenmark | 306,300,000 | 56,967,655 | 59,890,673 | (249,332,345) | | 6 | IFAD | 101,720,000 | 64,800,390 | 64,800,390 | (36,919,610) | | 7 | World Bank | 148,900,000.00 | 40,693,881 | 40,693,881 | (108,206,119) | | 8 | Sweden/Finland-J6P | 314,200,000 | 85,783,193 | 155,783,193 | (228,416,807) | | | Total | 2,062,287,856 | 1,125,492,774 | 915,273,164 | (936,795,082) |

Observations bythe Committee

10.The Committee observed that

• i.The Fund had a budget deficit amounting to Kshs 936,795,082 and an under absorption of Kshs 1,109,667,333.
• i1. The outstanding disbursements was occasioned by the delay in remitting budgeted funds by both the Development Partners and Government of Kenya.
• ii.The matter is resolved.

3) ICT Control Deficiencies

11. Although management had implemented two systems to aid in project management and monitoring, the systems were not fully utilized and had become redundant since implementation. The Fund may therefore not have derived value from the investment made in the system. Further, incidences of shared passwords, lack of enforcement of key password parameters on the application and database as well as lack of audit logs and global auditing parameters at thedatabaselevelwerenoted. 12. In addition, continuous monitoring of super user activities and administration accounts on the application, database and operating system level was also lacking. The above weaknesses may lead to undetected unauthorized access and activities and potential abuse of the privilege

access with possible negative impact on business operations,financial loss or reputational damage.

Submissionsby theAccounting Officer

13. The Accounting Officer submitted that

1The fund was implementing two parallel project management information systems whichwereinefficient.Managementhadsinceimplementedandintegratedproject managementsystems(SIP)whichhas the capacitytoprovide project management solutions for all the WSTF funded programs in line with GOK and DP reporting and compliancerequirements.

Issue raised

Further,incidences of shared passwords,lack ofenforcement of keypassword parameters on the application and database lack of audit logs and global auditing parameters at the database level were noted.

Inaddition,continuousmonitoringof superuseractivitiesand administration accounts on the application,database and operating systemlevelwas alsolacking

Observationsbythe Committee

14.The Committeeobservedthat

• i) Managementhas sinceimplemented andintegratedprojectmanagement systems (SIP)which has the capacity to provide project management solutions for alltheWater SectorTrust Fund fundedprogramsinlinewiththe requirements
• i) The matter is resolved.

Current status

Themanagementhasimplemented an automated password compliance policy.

Thepolicyrequires thepassword to meet the requiredcomplexitystandards.

Auditlogshavebeenenabled atdatabaselevel. Information systems audit iscarried outregularlyto ensurecompliance.

Internal audit department regularly reviews the superuser activitiesinthesystem

2.2. Examination of the Auditor General reports for Water Sector Trust Fund for the financialYear2019/2020

1.Unsupported Expenditure

15. The statement of financial performance reflects project expenses of Kshs.1,280,183,177 which as disclosed under Note 12 to the financial statements, includes an amount of Kshs. 11,211,949 (2019: Kshs.5,424,187) relating to expenditures that have outstanding audit queries arising from the audit of Project implementing organizations. Although Management has indicated that the issue being dealt with legally and administratively, the outcomeoftheprocesshasnotbeendisclosed.

Submissions by the Accounting Officer

16. The Accounting Officer submitted that—Belowisthedetailedscheduledof theamountwhichtheauditorhadcategorisedas

unsupportedexpenditure andstatusofresolution.

TableIIl-UnsupportedExpenditureFY2019-2020

| FY | Prog | Implementing Partner | Amount | Statusasat August 2024 | Remarks | |------|--------|-------------------------------------------------|-----------|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------| | 2020 | GGEP | Kipsing Water Resource Users Association (WRUA) | 1,476,700 | Follow up is ongoing | Though the audit query is not closed, the project is successfully complete. Technical auditwillbeundertaken to finally close the query. | | 2020 | GGEP | Kuro Bisan Owo WRUA | 1,658,050 | Follow up is ongoing | Though the audit query is not closed, the project is successfully complete. Technical audit will be undertaken to finally close the query. | | 2020 | GGEP | Sake Community Rural Water Supply Project | 70,000 | Follow up is ongoing | Thoughtheauditquery is not closed, the project is successfully complete. Technical auditwill be undertaken to finally | | 2020 | GGEP | Dahan WRUA | 89,500 | Follow up is ongoing | close the query. Though the audit query is not closed, the project is successfully |

| FY | Prog | Implementing Partner | Amount | Status as at August 2024 | Remarks | |------|-----------|------------------------------------------|-----------|------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------| | | | | | | complete. Technical audit will be undertaken to finally close the query. | | 2020 | GGEP | DahanWRUA | 1,890,000 | Follow is ongoing | Though the audit query is not closed, the project is successfully complete. | | 2020 | GGEP | MadogoWRUA | 144,723 | Follow up is ongoing | Though the audit query is not closed, the project is successfully complete. Technical auditwill be undertaken to finally close the query. | | 2020 | EU- SHARE | Ngalabalabia | 327,181 | Sufficient document provided | Recommended for closure | | 2020 | IFAD | Kayahwe WRUA- IFAD, Muranga | 1,400 | Sufficient document provided | Recommended for closure | | 2020 | IFAD | Kayahwe WRUA- IFAD, Muranga | 19,100 | Sufficient document provided | Recommended for closure | | 2020 | IFAD | Lower Mathioya | 1,660 | Sufficient document provided | Recommended for closure | | 2020 | IFAD | Kimakia CFA- IFAD | 24,000 | Follow up ongoing | Demandlettersissued for refund by the CFA | | 2020 | IFAD | Kimakia CFA- IFAD | 102,500 | Follow up ongoing | Demandlettersissued forrefundby theCFA | | 2020 | J6P | Mwangani Community Project- Kwale - 2020 | 2,281,843 | Follow up ongoing | Technical audit will be undertakentovalue the works done. | | 2020 | J6P | Enosagami | 953,380 | Sufficient document provided | Recommended for closure | | 2020 | UPC | Bar Kowino- Nyawita Water Project | 50,000 | Sufficient document provided | Recommended for closure | | 2020 | UPC | Witemere Household Sanitation Project | 42,000 | Sufficient document provided | Recommended for closure |

| FY | Prog | Implementing Partner | Amount | Status as at August 2024 | Remarks | |------|--------|-----------------------------------------|------------|------------------------------|-------------------------| | 2020 | UPC | Naivasha Household SanitationProject | 120,000 | Sufficient document provided | Recommendedfor closure | | 2020 | UPC | Kericho Household SanitationProject | 50,000 | Sufficient document provided | Recommendedfor closure | | 2020 | UPC | Mairo Inya Household Sanitation Project | 42,000 | Sufficient document provided | Recommendedfor closure | | 2020 | UPC | Bar Kowino- NyawitaWater Project | 855,693 | Sufficient document provided | Recommended for closure | | | | | 10,199,730 | | |

17. He informed the Committee that following the release of the audit report a total of Kshs. 2,462,414 had been accounted for through provision of supporting documents, refunds and technical audits of the projects funded. He noted that for the amount which had not been resolved, negotiations are ongoing with the implementing partners and Development Partners. A request has been made to DPs to consider waiver on questioned costs relating to VAT. Further demand letters havebeenmade toIPs.He also noted that to mitigate the recurrence, the following are the measures which Water Fund had put in place to ensure that the funds released toImplementingPartners (IPs) are properly utilized:

• i) Follow up of documents and closure of questioned costs by the Board of Trustees; upon release of the audit report, management has been following up documents to support expenditure and have the Board close the questioned costs.

3. ii) County Engagement Strategy; WaterFund Board has approved a County Engagement strategy document that will enhance engagement of the Fund with variouscounties. 4. iii) Risk Management Policy and Framework; The Fund has implemented robust risk management policy and Framework which will enhance risk management in the project implementation cycle. Flagging of projects with issues is undertaken on a regular basis and appropriate mitigating measures undertaken. 5. iv) Governance Assessment of water service providers; Regular Governance improvement agreed for implementation with various Implementing Partners (IPs.) 6. Project Implementation Manual; the purpose of the Project Implementation Manual (PIM) is to provide detailed guidance for Implementing Partners (IPs) of the approved projects within the WaterFund funding cycle. The manual gives a obligations and responsibilities of different project stakeholders as part of financial contract management. 7. vi) enhanced monitoring and evaluation of funded projects. 8. vii) Recruitment of Quality Assurance Monitors; these consultants are based in various counties and they assist theImplementing Partners in all aspects of project implementation. 9. vili) Training of Implementing Partners; regular training of implementing partners will enable the partners toimplement projects efficiently. 10. ix) Systems Integrated Project (SIP); currently under implementation and will integrate all programmes and enhanced visibility and decision making.

• x) Technical Audits (External and Internal Audits); where documents are not available,technicalauditors willbe able toassess thevalue of implemented projects.

12. xi) Reporting to Ethics and Anti-Corruption Commission.In situations of suspected cases of corruption, the matters are normally reported to the EACC for further investigation. 13. xii) document management system where all documents will be scanned and stored electronicallyto avoid situationwhereImplementingPartnerswill report issues of missing supporting documents at the Implementation level.

ObservationsbytheCommittee

18.TheCommitteeobservedthat

• i) Kshs. 2,462,414 had been accounted for through provision of supporting documents and refunds while Kshs.7,737, 316 had not been supported.

2. ii) The matter is unresolved.

RecommendationsoftheCommittee 19. The Committee recommended the following-

• i.Within six months upon the adoption of this report the Accounting Officer of the pending amount of Kshs.7,737, 316whichhad not been supported to the OfficeoftheAuditorGeneral forauditverification.
• i.The Accounting Officer should ensure that all applicable accounting and financial controls, systems, standards, laws, and procedures are followed in the preparation of the financial statements in compliance with Public Finance ManagementAct,2012and in accordancewith the standardsprescribed by the Public Sector Accounting StandardsBoardas per Regulation 101(4)of the Public Finance Management (National Government) Regulations, 2015.

2)Budgetary Control and Performance

20. The statement of comparison of budget and actual amounts reflects final receipts budget and actual on comparable basis of Kshs.4,128,900,000 and Kshs. 1,867,808,184 respectively resulting to an under-funding of Kshs.2,261 ,091 ,816 or 55% of the budget. Similarly, the Kshs.4,128,900,000 resulting to an under expenditure of Kshs.2,441,175,692 or 59%. The underfunding and under-expenditure affected the planned activities which in turn may have impacted negativelyon service delivery to thepublic.

Submissionsby theAccountingOfficer

• 21.The Accounting Officer submitted the following-
• The management acknowledges the finding noting that there was delay in remitting budgeted funds by both the Development Partners and Government of Kenya. Continuous follow up is being undertaken to ensure timely receipt of funds from both the Government and the
• Development Partners.

22. DPs supported programmes are multi-year in nature and thus outstanding disbursements were budgeted for and received in subsequent years on a rolling basis. Further, Water Fund institutedmeasuresaimedatefficientandtimelyaccountabilitybyprojectsinimproving expenditure and absorption of funds.Belowis thedetailed scheduled of the amount which hadbeenbudgetedfor and received at theWaterFund

TableIV-BudgetandamountreceivedFY2019-2020

| No. | Funding source | Budgeted amount (KShs) | Amount received (Kshs) | Actual expenditure (KShs) | Variance (KShs) | |-------|---------------------------------------|--------------------------|--------------------------|-----------------------------|-------------------| | 1 | GOK | 595,000,000 | 688,742,500 | 407,541,191 | 187,458,809 | | 2 | Financeincome | 2,000,000 | 83,236,025 | 1,122,401 | 877,599 | | 3 | Kenya Water and Sanitation conference | 63,000,000 | 30,980,627 | 0 | 63,000,000 | | 4 | Government of Germany KfW/BMGF | 657,000,000 | 91,263,460 | 137,981,274 | 519,018,726 | | 5 | European Union Rural | 500,000,000 | 61,455,544 | 114,387,880 | 385,612,120 | | 6 | Government of Denmark | 1,129,000,000 | 363,980,318 | 363,442,051 | 765,557,949 | | 7 | IFAD | 236,900,000 | 79,842,213 | 79,842,213 | 157,057,787 | | 8 | World Bank | 433,000,000 | 203,589,393 | 203,589,393 | 229,410,607 | | 9 | Sweden/Finland-J6P | 513,000,000 | 264,718,104 | 379,817,905 | 133,182,095 | | | Total | 4,128,900,000 | 1,867,808,184 | 1,687,724,308 | 2,441,175,692 |

Observationsbythe Committee

23.The Committee observed that

• i. The Fund had a budget deficit amounting to Kshs.2,261 ,091 ,816 and an under absorption of Kshs.2,441,175,692
• ii. The outstanding disbursements swere occasioned by the delay in remitting budgeted funds by both the Development Partners and Government of Kenya.

111. Thematterisresolved.

1.ICT Control Deficiencies

• 24.Reviewof theInformation Communication Technology (ICT) systems implemented by Management,and controlsputin placerevealed existence of deficiencies andweaknesses in those systems.For instance,theICT Policy did not include a change management process.

As such, critical elements including change log tracking, change management work flow for emergency scenarios, risk assessment and impact criteria on requested changes, details of change approvers, user acceptance testing, fall back procedures and responsibilities for aborting and recovering from unsuccessful changes and unforeseen events were lacking.

• 25.Further, weaknesses were identified in password configuration whereby parameters documented in the policies were not being enforced in the system. Also, databases password historyconfigurationshadbeenset to5passwords againstpolicyrecommendation of no reuse of old passwords. In addition, continuous monitoring of superuser activities and administrator accounts on the applications, database and operating level were alsolacking. Although Management has subsequently amended theICT Policy and reconfigured password parameters, existence of the above identified and other weaknesses may lead to undetected unauthorized access and activities,abuse of privileged access which can negatively impact

Submissionsby theAccountingOfficer

• 26.TheAccounting Officer submitted that
• Below is the detailedscheduled of the amount whichhad beenbudgeted for and received at the Water Fund.

TableV-ICTfindingsandstatus

| | Observationbytheauditor | Currentstatus | Remarks | |----|-----------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|-----------| | 1. | Change log tracking, | Log tracking is now a standard procedure in systems and databases | Done | | 2. | Change management workflow for emergency scenarios | Change management is now an integral part of the approved ICT policy | Done | | 3. | Risk assessment and impact criteria on requested changes, | Change management is now an integral part of the approved ICT policy. All changes undergo risk assessment | Done | | 4. | Details of change approvers | Details of change approvers is part of the revised change managementprocess | Done | | 5. | User acceptance testing | Useracceptancetesting is part of the revised change management process | Done |

| | Observationby the auditor | Currentstatus | Remarks | |-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------| | 6. | Fall back procedures and responsibilities for aborting andrecoveringfrom unsuccessful changes and unforeseeneventswere lacking. | This is part of the revised change managementprocess | Done | | | Weaknesseswere identified in password configurationwhereby parameters documented in the policies werenot being enforcedinthesystem | ComplexPassword configuration is now documented and enforced | Done | | 8. | Databases password history configurationshadbeenset to 5passwords against policyrecommendation of no re-use of old passwords. | Thisconfigurationwas setto24passwords, which is the industry standard. | Done | | 9. | Continuous monitoring of superuser activitiesand administratoraccountson the applications, database and operating level were also lacking. | Continuous monitoring ofsuperuseractivities and administrator accounts on the applications, database and operating level is nowpartofthestandard operating procedures | Done | | 10. | Management has subsequently amended the ICT Policy and reconfigured passwordparameters, existence of the above identified and otherweaknessesmay leadtoundetected unauthorizedaccess and activities, abuse of privileged access which can negatively-impaet-on business operations, financial loss and | A revised and approved ICT Policy is now in effectthataddresses these and above issues. | Done |

27. The management acknowledges the finding and undertook review of ICT policy as alluded above to address control deficiencies that were identified. Subsequently a second review of

ICT policy commenced in FY2023/2024 as part of continuous improvement and to keep abreast with developments in the ICT. The review was finalised and purposed to eliminate all thegaps and deficienciesidentified as above.

ObservationsbytheCommittee

28.TheCommitteeobservedthat-

• i. Management undertook review of ICT policy and have since addressed the controldeficienciesthatwereidentified.

2. ii.The matter is resolved.

2.3.Examination of the Auditor General reports for Water Sector Trust Fund for the financialYear2020/2021

1.Budgetary ControlandPerformance

29. The statement of comparison of budget and actual amounts reflects final receipts budget and actual on comparable basis of Kshs.6,607,541,700and Kshs.4,311,813,541 respectively resulting to an under-funding of Kshs.2,295,728,159 or 35% of the budget. Similarly, the Fund spent Kshs. 4,537,321,233against an approved Budget of Kshs. 6,607,541,700 resulting to an under-expenditure of Kshs.2,070,220,467. The underfunding and underperformance affected the planned activities and may have impacted negatively on service delivery to the public.

Submissionsby theAccountingOfficer

• 30.TheAccountingOfficer submitted that—

The Management acknowledge the finding noting that there was delay in remitting budgetedfundsbyboththeDevelopmentPartnersandGovernmentof Kenya. Continuous follow up is being undertaken to ensure timely receipt of funds. WaterFund has instituted measures in capacity building and support to projects aimed at efficient and timely accountability of funds disbursed which improve project expenditure and absorptionoffunds.

TABLEVI-Budget and amount received forFY2020-2021

| No | Fundingsource | Budgeted amount | Amount received | Actual expenditure | Variance | |------|--------------------------------|-------------------|-------------------|----------------------|----------------| | No | Fundingsource | (KShs) | (Kshs) | (KShs) | (KShs) | | 1 | GOK recurrent and development | 594,300,000 | 643,555,000 | 438,950,500 | 155,349,500 | | 2 | Otherincomes | 5,000,000 | 66,281,136 | | 5,000,000 | | 3 | GoK priority projects | 48,500,000 | | 468,002,164 | (419,502,164 | | 4 | Government of Germany KfW/BMGF | 798,813,000 | 152,372,250 | 155,763,414 | 643,049,586 | | 5 | European Union -Rural | 801,786,000 | 316,271,248 | 341,271,248 | 460,514,752 | | 6 | Government of Denmark | 390,810,000 | 735,996,373 | 735,996,373 | (345,186,373 | | | IFAD | 139,560,000 | 73,033,846 | 73,033,846 | 66,526,154 | | 8 | WorldBank | 3,728,772,70 0 | 2,045,484,105 | 2,045,484,105 | 1,683,288,59 5 | | 9 | Sweden/Finland -J6P | | 278,819,583 | 278,819,583 | (278,819,583 | | 10 | Saudi Fund | 100,000,000 | | | 100,000,000 | | | Total | 6,607,541,70 | 4,311,813,541 | 4,537,321,233 | 2,070,220,46 |

Observations by the Committee

31.The Committee observed that

• i. The Fund had a budget deficit amounting to Kshs.2, 2,295,728,159 and an under absorption of Kshs.2,070,220,467.
• ii. The outstanding disbursements were occasioned by the delay in remitting budgeted funds by both the Development Partners and Government of Kenya.
• iii. The matter is resolved.

2.Delay in Project Implementation

32. Water Sector Trust Fund entered into a financing support and implementation agreement with Athi Water Works Development Agency (AWWDA) for Gatundu priority project on 28 April, 2020. AWWDA contracted a drilling company for LOT 3 and 4 of works relating to ground water exploitation project, drilling and equipping of Gatundu boreholes for Kshs.54,632,385 and Kshs.61238,383 respectively. 33. The drilling company was paid an initial sum of Kshs 7,388 808, however the company did not complete the works.Following abandonment of the construction works in March,2021 without prior consultation or approval by the Project Manager, the Agency held meetings with the contractor for resumption of works without success and subsequently,theAgency issued a notification to terminate the contract on 30 November, 2021.In the circumstances, the abandoned project affected the planned objectives of the Fund and may have impacted negativelyonservicedeliverytothepublic.

Submissionsby theAccounting Officer

• 34.TheAccountingOfficersubmitted that— was to be implementing and accounting agency. WSTF has since received accounting

Theprojectwas jointlyfundedbyWater Fund andAthi WaterWorksDevelopment Agency(AWWDA).Water Fundwas tocontributeKshs.25oMandAWWDAwas to contributeKshs. 425M to support the programme activities. Under the contract AWWDA documentsfor the disbursement made under this project.AWWDA should provide the current status and for WaterFund all the funds (Kshs. 250,000,000) transferred to AWWDA was fully accounted.

SubmissionsbyAthiWaterAccountingOfficer

35.TheAccountingOfficerSubmitted that Athi Water Works Development Agency (AWWDA), entered into a contract for construction works for GatunduWater andSanitationProject:Gatundu GroundWater Exploitation Project;ContractNo.AWWDA/GOK/GWSP/W-29/LOT 3/2020andfurther,a Contractfor construction works for Gatundu Water and SanitationProject:Drilling and Equipping of

0

GatunduBoreholes:Contract No.AWWDA/GOK/GWSP/W-29/LOT 4/2020 with M/s Drill RiteAfricaLimited in July2020.

• 36.Both contracts were funded by the Government of Kenya through the Ministry of Water, Sanitation and Irrigation. The construction works for the two projects commenced simultaneously on 28th July, 2020 with an original completion date of 28th July, 2021 and the Defect Liability Period supposed to end on 28thMay, 2022. However, by December 2023, the contract term for both project works had lapsed but the project works remained incomplete.

37. The contractor requested for review of rates via a letter dated 25 February,2021 which was declined pursuant to Special Condition of Contract (SCC) clause 50 which states that a contract is not subject to price adjustment. The contractor abandoned the site after the decline of price variation and the Agency issued a notice on intention to terminate the contract on 30 November,2021anddemandedtocashtheperformanceguarantee. 38. AWWDA subsequently made a demand to the bank seeking to recall the performance bonds of Kshs. 6,123,839 on account EKI/SM/20-GI6689 and Kshs. 5,463,239 on account EKI/SM/20-GI6690as deposited bythe Plaintiff on account of performance guarantee. Following A WWDA's intention to terminate the above-mentioned contracts and the demands to the bank to recall the performance bonds as above-referenced, AWWDA was served with an Application Milimani Civil Suit No.E971 of 2021 Drill Rite Africa Limited-VS-Athi Water Works Development Agency and Bank of Africa Kenya Limited under a certificate of Urgencydated17thDecember,2021. 39. The Plaintiffs (Drill Rite Itd), sought for Orders inter alia, that the Court restrains by the 2 nd Defendant (Bank of Africa) from releasing Kshs. 6,123,839 on account EKI/SM/20-GI6689 and Kshs. 5,463,239 on account EKI/SM/20-G16690 as deposited by the Plaintiff on account of performance guarantee and further that the issues in dispute on variation of prices be referred to adjudication by an Arbitrator to be appointed by the Kenya Chapter of the Chartered Institute of Arbitrators as per the Contract.The plaintiffs also soughtfor orders on payment for works completed as at 22nd September 2021. The court directed that the case be settledthrougharbitration.

• 40.AWWDA andM/s Drill Rite Limited entered into a FinalSettlement Agreement on the11 th day-of January, 2024-for the-purposes-of amicably settling\_all matters\_in\_dispute leading to the filing of the above-mentioned suit and the copy of settlement agreement has been annexed in the Management responses. For the Construction works for Gatundu Water and Sanitation Project: Gatundu Ground Water Exploitation Project; Contract No. AWWDA/GOK/GWSP/W-29/LOT3/2020,itwasagreedintheFinalSettlementAgreement that upon withdrawal of the suit against AWWDA and Bank of Africa, AWWDA to settle
• the final payment of kshs.4,561,261.43 (Inclusive of VAT) to the contractor for works done and certified.

41. For Gatundu Water and Sanitation Project: Drilling and Equipping of Gatundu Boreholes project; Contract No. AWWDA/GOK/GWSP/W-29/LOT 4/2020 it was agreed in the Final Settlement Agreement Upon withdrawal of the suit against AWWDA and Bank of Africa, AWWDA to settle the final payment of Kshs.5,932,866.99(Inclusive of VAT) to the contractor for works done and certified. Subsequently, as per the terms of the final settlement agreement between the parties,the plaintiffs (Drill Rite Limited)filed a notice of withdrawal dated 24th January, 2024 seeking to withdraw the suit in its entirety. The Court marked the matter as withdrawn with no orders as to costs vide Order dated 5thMarch, 2024 and copy of the orderis annexedin theManagementResponses

ObservationsbytheCommittee

42.The Committeeobservedthat

• i. Management entered into a financing support and implementation agreement with Athi Water Works Development Agency (AWWDA) for Gatundu priority project for lot 3 and 4

2. The construction works for the two projects commenced simultaneously on 28th July,2020 however,by December 2023,the contract term for both project workshad lapsed but theprojectworksremainedincomplete. 3. ii.The contractor's request for a rate review was declined pursuant to SCC clause 50,leading to site abandonment,issuance of termination notice,recall of performance bonds by AWwDA, a legal suit and arbitration request by Drill Rite Africa Limited,and eventual amicable resolution through a Final Settlement Agreement signed on 11th January 2024. 4. iv.As part of the settlement,AWWDA agreed to make final payments totalling Kshs.10,494,128.42 for certified works, leading to the withdrawal of the suit by theplaintiff on 24th January 2024 and the court marking the case as formally withdrawnon5thMarch2024. 5. v.The matter is resolved.

3. Information, Communication and Technology (ICT) Governance(a)ICT Policy Deficiencies

43. Review of the current IT Policy in place revealed that the Fund does not have clearly defined controls, processes and procedures with regards to network administration, backup management and user creation in the application systems. Inadequate user access creation systems within the organization. Lack of policy guidelines on network administration and backup management may lead to inadequate backup and network procedures being implemented in theIT systems. 44. In the circumstances, the adequacy of ICT backup and controls in the network procedures implemented in the IT systems, could not be confirmed. The management acknowledges the

finding and undertook review of ICT policy to address control deficiencies that were of continuous improvement and to keep abreast with developments in the ICT. The review was finalised and purposed to eliminate all the gaps and deficiencies identified as above.

ObservationsbytheCommittee

• 1.The Committee observed that
• i. Management undertook review of ICT policy and have since addressed the controldeficiencies thatwereidentified.
• ii.The matter is resolved.

(b)Password Deficiencies in theArenRegisterApplication

45. The Aren Register application does not have a password configuration in place that would allow the administrators of the system to implement password policy as per industry standards or the organization's IT policy. Failure to implement a password policy may allow attackers to gain unauthorized access to the system therefore exposing the Fund to possible loss or manipulation of its data.In the circumstances the controls in place to prevent unauthorized access to the system could not be confirmed.

Submissionsby theAccountingOfficer

• 46.The Accounting Officer submitted that-—

The management acknowledges the deficiencies in the Aren system's password security implementation. Management engaged the Aren system vendor for refinement of the passwordmoduletocaterforpasswordcomplexityrequirements.

ObservationsbytheCommittee

• 47.The Committee observed that thefollowing;
• i. The Fund's Aren Register application did not have a password configuration in place that would allow the administrators of the system toimplement password policy as per the organization's IT policy.
• i. The matter is unresolved

RecommendationsoftheCommittee

• 48.The Committeerecommended that

That within three Months upon the adoption of this report the Accounting Officer to ensure that the Fund has an Aren Register application that has a password configuration in place to allow the administrators of the system to implement password policy asper the organization's IT policy.

4.Questioned Project Expenses

49. The statement of financial performance reflects project expenses of Kshs.4,098,370,763 as disclosed inNote12 to thefinancial statements.Included in theproject expenses is an amount of Kshs.18,087,102 in respect of questioned costs which had procurement queries

arising from the audit of project implementing organizations. Although Management has indicated that the issue is being dealt with legally and administratively, these costs reflect weak controls in management of funds disbursed and spent by various water and sanitation and water resources projects in various counties. In the circumstances, the effectiveness of controls in the management of funding to water projects could not be confirmed.

Submissions by the Accounting Officer

50. The Accounting Officer submitted the following

Management acknowledges that in course of financing projects, an amount Kshs.18,087,102 which translate to approximately 0.4% of total expenditure was questioned. The management contacted the different implementing partners with the findings and is in the process of consolidating the supporting documentation for review. r measures institutedin caseswheremisappropriationis noted.

TableVII-OuestionedProjectExpensesforFY2020-2021

| FY | Prog | ImplementingPartner (IP) | Amount | Status as at August 2024 | Remarks | |------|--------|-------------------------------------------|----------|------------------------------------------|------------------------------------------------| | 2021 | GGEP | LorugumWRUA | 262,005 | Follow up ongoing | Demandletters issued and follow upbeingmade | | 2021 | GGEP | Namoruakwan | 93,900 | Followup ongoing | Demand letters issued and follow up being made | | 2021 | GGEP | Kangirisae | 19,300 | Follow up ongoing | Demand letters issued and follow up being made | | 2021 | GGEP | Libahalow | 114,298 | Sufficient supporting documents provided | Recommended for closure | | 2021 | GGEP | Garissa WSP | 75,144 | Sufficient supporting documents provided | Recommended for closure | | 2021 | IFAD | KayahweWater ResourcesManagement Project | 22,400 | Follow up ongoing | Demand letters issued and follow up being made | | 2021 | IFAD | Kayahwe Water ResourcesManagement Project | 173,000 | Follow up ongoing | Demand letters issued and follow up being made | | 2021 | IFAD | Kimakia CFA Project | 23,000 | Follow up ongoing | Demand letters issued and follow |

| FY | Prog | Implementing Partner (IP) | Amount | Status as at August 2024 | Remarks | |------|--------|-------------------------------------------------------|-----------|------------------------------------------|------------------------------------------------| | | | | | | up being made | | 2021 | IFAD | GuraWaterResources Management Project | 39,000 | Sufficient supporting documents provided | Recommended for closure | | 2021 | IFAD | Chehe Community ForestAssociation Project | 158,500 | Follow up ongoing | Demand letters issued and follow up being made | | 2021 | IFAD | Chehe Community Forest Association Project | 472,500 | Follow up ongoing | Demand letters issued and follow up being made | | 2021 | IFAD | Ruguti Water Resource Users Association | 30,000 | Follow up ongoing | Demandletters issued and follow up being made | | 2021 | IFAD | Luguso WRUA | 200,000 | Follow up ongoing | Demand letters issued and follow up being made | | 2021 | IFAD | Kiera Hills CFA | 308,400 | Follow up ongoing | Demand letters issued and follow up being made | | 2021 | IFAD | WRA-Tana | 333,940 | Follow up ongoing | Demandletters issued and follow up being made | | 2021 | J6P | SirimonWRUA | 20,000 | Follow up ongoing | Demand letters issued and follow up being made | | 2021 | UPC | MaucheRaia Household Sanitation Project- Bomet WSP | 95,000 | Sufficient supporting documents provided | Recommended for closure | | 2021 | UPC | Yatta Household Sanitation Project- Yatta WSP | 4,052 | Sufficient supporting documents provided | Recommended for closure | | 2021 | UPC | Mwatate Household SanitationProject- Tavevo WSP | 2,161,025 | Follow up ongoing | TheWater Company is following up to getNEMA | | 2021 | UPC | Mwatate Household SanitationProject- Tavevo WSP | 2,161,025 | Follow up ongoing | licenceto continue with the construction | | 2021 | UPC | Ijara Household SanitationProjectin Ijara-Garissa WSP | 262,600 | Sufficient supporting documents | Recommended for closure |

| FY | Prog | ImplementingPartner (IP) | Amount | Status as at August 2024 | Remarks | |------|--------|--------------------------------------------------------------|-----------|----------------------------|------------------------------------------------| | 2021 | UPC | KathukuMilimani Kyuso Town Water Project-Kiambere Mwingi WSP | 395,230 | Follow up ongoing | Demand letters issued and follow up is ongoing | | | | | 5,263,294 | | |

51. He noted that following the release of IPs had been accounted for through provision of supporting documents, refunds and technical audits of the projects funded. For the amount which had not been resolved, negotiations are ongoing with the implementing partners and DevelopmentPartners.Further demand letters havebeen made toIPs.

Observationsbythe Committee

52.TheCommitteeobservedthat-

• i) An amount of Kshs. 985,324 had been accounted for through provision of supporting documents and refunds while Kshs. 4,277,970 had not been supported
• i) The matter is unresolved.

RecommendationsoftheCommittee 53.The Committeerecommended that-

• i. Within six months upon the adoption of this report the Accounting Officer provides a progress report and supporting documentation on the recovery of the pending amount of Kshs. 4,277,970 which had not been supported to the OfficeoftheAuditorGeneralforauditverification.
• ii. The Accounting Officer should ensure that all applicable accounting and financial controls, systems, standards, laws, and procedures are followed in the preparation of the financial statements in compliance with Public Finance Management Act, 2012 and in accordance with the standards prescribed by the Public Sector Accounting Standards Board as per Regulation 101(4) of the Public Finance Management (National Government) Regulations, 2015.

5. Long Outstanding Receivables from Non-Exchange Transactions

54. The statement of financial position reflects receivables from non-exchange transactions of Kshs.1,150,454,800 as disclosed in Note 16 to the financial statements.However, this balance includes an amount of Kshs.29,765,280 in respect to project receivables which have been outstanding for more than three hundred and sixty- five (365) days. 2. 55.However, the Funds' policy is to make full provision for outstanding debts more than three hundred and sixty- five (365) days old, and although Management gave evidence of measures madeas afollowup torecover the debtsfrom thewater companies,'adequate

circumstances, the recoverability of the receivables from non-exchange transactions balance of Kshs.29,765,280 could not be confirmed.

SubmissionsbytheAccountingOfficer

56. The Accounting Officer submitted that—

The management acknowledge the finding that some projects receivables approximately 2.5% of total receivables are long outstanding. The management assisted by the Board has initiated recovery strategies from the affected WSPs with support from respective County Governments.It's also expected that there will be change of strategy pertaining gto disbursements to projects and specific strategies to WSPs in the list of provisions/questioned costs. The Board of Trustees and management have engaged governors of the Counties of Garissa, Taita Taveta, Samburu, Vihiga, Nakuru, Kakamega and Kajiado with the aim of resolving thelong outstandingreceivables.

57. In these engagements, we have had the counties of Taita Taveta, Kajiado and Garissa committing torefund the amounts in questionbythe end ofthefinancial year 2023/24.Water Fund has further, engaged the services of Quality Assurance Monitors (QAMs), who are assigned specific counties with WSTF projects. The QAMs have been tasked with ensuring that the implementing partners in their areas of jurisdiction provide satisfactory reports in a timelymanner.WSTF has alsointroduced a platform on which all reports and otherrelevant documents are uploaded at the end of every month. The program teams review the reported documents and reportsbased on the quality and timeliness.

The tablebelow shows the current status oflong outstandingreceivables.

TableVIll-Longoutstandingreceivables

| No. | Receivable | Receivable (KShs) | Accounted (KShs) | Outstanding (KShs) | |-------|--------------------------------------------------|---------------------|--------------------|----------------------| | 1 | KimangaoWater andSanitation Project | 1,075,603 | 1,075,603 | | | 2 | McheleloPrimarySchool | 26,525 | 26,525 | | | 3 | Kone Community | 6,142,945 | | 6,142,945 | | 4 | MandaMaweniWatsanProject | 383,034 | | 383,034 | | 5 | NairobiWRUA | 3,628,450 | | 3,628,450 | | 6 | KochodinWRUA | 5,536,954 | | 5,536,954 | | 7 | Mrima SanitationProject | 4,788 | | 4,788 | | 8 | Mwangani SanitationProject | 5,121 | | 5,121 | | 9 | Ongata Rongai Sanitation (Safisan Pilot) Project | 302,689 | 302,689 | |

| No. | Receivable | Receivable (KShs) | Accounted (KShs) | Outstanding (KShs) | |-------|----------------------------------------------|---------------------|--------------------|----------------------| | 10 | Baba DogoWater Extension | 698,677 | 698,677 | | | 11 | Mathare SustainabilityWater Project | 3,493,298 | 2,290,027 | 1,064,271 | | 12 | MachakosHouseholdSanitation project | 118,546 | 118,546 | | | 13 | Nolturesh Nzaui Household Sanitation project | 5,467,479 | | 5,467,479 | | 14 | Kimende Pipeline Call 7 | 43,200 | 43,200 | | | 15 | Garissa Primary Playground PSF | 77,774 | 74,893 | 2,881 | | 16 | Kibwezi Household Sanitation project | 2,760,197 | 2,760,197 | | | | Total | 29,765,280 | 4,401,653 | 22,235,923 |

ObservationsbytheCommittee

58.TheCommitteeobservedthat-

• i. An amount of Kshs. 22,235,923 in respect to project receivables had been outstanding
• ii. The matter is unresolved.

Recommendationsofthe Committee

59.TheCommitteerecommended that-

That within six months upon the adoption of this report the Accounting Officer provides a progress report and supporting documentation on the recovery of Kshs. 22,235,923 in respect to project receivables to the Office of the Auditor General for auditverification.

2.4. Examination of the Auditor General reports for Water Sector Trust Fund for the FinancialYear2021/2022

1.Budgetary Control and Performance

60. The statement of comparison of budget and actual amounts reflects final receipts budget and actual on comparable basis of Kshs.6,627,309,000 and Kshs.5,193,614,542respectively resulting to an under-funding of Kshs.1,433,694,458 or 22% of the budget. Similarly, the Fund spent Kshs.5,382,295,802 against an approved budget of Kshs.6,627,309,000 resulting to an under-expenditure of Kshs.1,245,013,198. The under-funding and underperformanceaffectedtheplanned activities of theFundandmayhaveimpacted negatively onservicedeliverytothepublic.

SubmissionsbytheAccountingOfficer

61. The Accounting Officer submitted that—-

Management acknowledges the finding noting that there was delay in remitting budgeted funds by both the Development Partners and Government of Kenya. Continuous follow up is being undertaken to ensure timely receipt of funds. Water Fund has instituted measures in capacity building and support to projects aimed at efficient and timely accountability of funds disbursed which improve project expenditure and absorption of funds.

| No | Funding source | Budgeted amount | Amount received | Actual expenditure | Budget Variance | Expenditur e Variance | |------|--------------------------------|-------------------|-------------------|----------------------|-------------------|-------------------------| | No | Funding source | (KShs) | (Kshs) | (KShs) | (KShs) | (KShs) | | 1 | GOK | 513,800,000 | 399,000,000 | 495,282,484 | 114,800,000 | 18,517,516 | | 2 | Finance income | 2,000,000 | 5,508,202 | | -3,508,202 | 2,000,000 | | 3 | Otherincome | | 20,865,404 | 31,763,384 | -20,865,404 | 31,763,384 | | 4 | Government ofGermany- KfW/BMGF | 625,313,000 | 70,833,740 | 70,833,740 | 554,479,260 | 554,479,260 | | 5 | European Union -Rural | 587,556,000 | 277,688,940 | 364,048,940 | 309,867,060 | 223,507,060 | | 6 | Government of Denmark | 463,640,000 | 343,734,619 | 343,734,620 | 119,905,381 | 119,905,380 | | 7 | IFAD | 170,920,000 | 40,710,195 | 40,710,195 | 130,209,805 | 130,209,805 | | 8 | WorldBank | 3,796,080,0 | 4,025,467,8 | 4,026,116,8 | | | | 8 | WorldBank | 00 | 61 | 58 | 229,387,861 | 230,036,858 | | 9 | Sweden/Finla nd - J6P | 268,000,000 | 9,805,581 | 9,805,581 | 258,194,419 | 258,194,419 | | 10 | Saudi Fund for Development | 200,000,000 | | | 200,000,000 | 200,000,000 |

| Total | 6,627,309,0 00 | 5,193,614,5 42 | 5,382,295,8 02 | 1,433,694,4 58 | 1,245,013,1 98 | |---------|------------------|------------------|------------------|------------------|------------------|

Observationsby the Committee

62.The Committeeobserved that

• i. The Fund had a budget deficit amounting to Kshs.1,433,694,458 and an under absorption of Kshs.1,245,013,198.
• ii. The outstanding disbursementswere occasioned by the delay in remitting budgeted funds by both the Development Partners and Government of Kenya.
• ii. The matter is resolved.

2.Failure to Remit Withholding Tax onInterest Income

63. The statement of financial position reflects trade and other payables of Kshs. 150,356,547 as disclosed under Note 22 to the financial statements which includes withholding tax payable of Kshs.6,970,665. However, the balance includes Kshs.915,581 relating to withholding taxes on interest income earned from project accounts that was not remitted to KRA.Failure to remit withholding taxes on interest income deducted by the payee at 15% and remit to KRA by 2Oth of the following months contravenes the Income Tax Act and could result in penalties and interest being levied by KRA. In the circumstances, Management was in breach of the law.

Submissionsby theAccountingOfficer

• 64.TheAccounting Officer submitted that—

The management acknowledges the finding. The management has since paid to KRA the withholding taxes pertaining to interest's income earned by project bank accounts.

Observationsbythe Committee

65.The Committee observed that

• i) Management has since paid to KRA the withholding taxes pertaining to interest's income earned by project bank accounts.
• i) The matter is resolved.

3. Abandoned Project

66. As previously reported, the Fund entered into a financing support and implementation agreement with Athi Water Works Development Agency (AVWWDA) for Gatundu priority project on 28 April, 2020. The Agency contracted a drilling company for LOT 3 and 4 of works relating to ground water exploitation project, drilling and equipping of Gatundu boreholes for Kshs.54,632,385 and Kshs.61,238,383 respectively. 67. The drilling company was paid an initial sum of Kshs.7,388,808. However, the company did not complete the works.Following abandonment of the construction works in March,2021 without prior consultation or approval by the Project Manager, the Agency held meetings with the contractor for resumption of works without success and subsequently, the Agency issued a notification to terminate the contract on 30 November, 2021. In the circumstances,

the abandoned project affected the planned objectives of the Fund and may have impacted negativelyonservicedeliverytothepublic.

SubmissionsbytheAccountingOfficer

• 68.The Accounting Officer submitted that--

The project was jointly funded by Water Fund and Athi Water Works Development Agency(AWWDA).WaterFundwas to contributeKshs.25OM and AWWDAwas to contributeKshs.425M to support theprogramme activities.Under the contract AWWDA was to be implementing and accounting agency. WSTF has since received accounting documentsfor thedisbursementmadeunder thisproject.AWWDA shouldprovide the current status andfor WaterFund all the funds (Kshs.250,000,000)transferred to AWWDAwasfullyaccountedaspertheGeneral Ledger

Submissions byAthi Water Accounting Officer

• 69.The Accounting Officer Submitted that—

Athi Water Works Development Agency (A WWDA), entered into a contract for construction worksforGatunduWaterandSanitationProject:GatunduGroundWaterExploitation Project; Contract No.AWWDA/GOK/GWSP/W-29/LOT 3/2020 and further,a Contract for constructionworksfor GatunduWater andSanitationProject:Drilling andEquippingof GatunduBoreholes:ContractNo.AWWDA/GOK/GWSP/W-29/LOT 4/2020withM/s Drill Rite Africa Limited in July 2020.

• 70.BothcontractswerefundedbytheGovernmentof KenyathroughtheMinistryofWater, Sanitation andIrrigation.The construction works for thetwoprojects commenced simultaneously on 28th July, 2020 with an original completion date of 28th July, 2021 and the Defect Liability Period supposed to end on 28thMay, 2022. However, by December 2023, the contract term for both project works had lapsed but the project works remained incomplete.
• 71.The contractorrequestedfor reviewof ratesvia aletter dated25February,2021whichwas declined pursuant to Special Condition of Contract (SCC) clause 50 which states that a contractisnotsubjecttopriceadjustment.Thecontractor abandoned thesite afterthedecline of pricevariation and theAgencyissued a notice on intention to terminate thecontract on 30 November,2021 and demanded to cash the performance guarantee.

72. AWWDA subsequently made a demand to the bank seeking to recall the performance bonds of Kshs.6,123,839 on account EK1/SM/20-GI6689 and Kshs. 5,463,239 on account EKI/SM/20-GI6690 as deposited bythePlaintiff on account of performanceguarantee. FollowingAWWDA's intention to terminate the above-mentioned contracts and the demands to the bank to recall the performance bonds as above-referenced,AWwDA was served with an Application Milimani Civil Suit No.E971 of 2021 Drill Rite Africa Limited-VS-Athi Water Works Development Agency and Bank of Africa Kenya Limited under a certificate of Urgency dated 17thDecember,2021. 73. The Plaintiffs (Drill Rite Itd), sought for Orders inter alia, that the Court restrains by the 2 nd Defendant (Bank of Africa) from releasing Kshs. 6,123,839 on account EKI/SM/20-GI6689 and Kshs.5,463,239 on account EKI/SM/20-GI6690 as deposited by the Plaintiff on account of performanceguaranteeand further that theissues indispute onvariation of prices be referredtoadjudicationbyanArbitrator tobe appointedbytheKenyaChapter of the Chartered Institute of Arbitrators as per the Contract.The plaintiffs also sought for orders on payment for works completed as at 22nd September 2021. The court directed that the case be settledthrougharbitration.

• 74.AWWDA andM/s Drill RiteLimited entered intoaFinal SettlementAgreement on the11 th day of January, 2024 for the purposes of amicably settling all matters in dispute leading to the filing of the above-mentioned suit and the copy of settlement agreement has been annexed in the Management responses. For the Construction works for Gatundu Water and AWWDA/GOK/GWSP/W-29/LOT3/2020,it was agreed in theFinalSettlementAgreement that upon withdrawal of the suit against AWWDA and Bank of Africa, AWWDA to settle the final payment of kshs. 4,561,261.43 (Inclusive of VAT) to the contractor for works done and certified.

75. For Gatundu Water and Sanitation Project: Drilling and Equipping of Gatundu Boreholes project; Contract No. AWWDA/GOK/GWSP/W-29/LOT 4/2020 it was agreed in the Final SettlementAgreementUponwithdrawalof thesuitagainstAWWDA andBankofAfrica, AWWDA to settle the final payment of Kshs. 5,932,866.99 (Inclusive of VAT) to the contractor for works done and certified. Subsequently, as per the terms of the final settlement agreement between the parties, the plaintiffs (Drill Rite Limited)filed a notice of withdrawal dated 24th January, 2024 seeking to withdraw the suit in its entirety. The Court marked the matter as withdrawn with no orders as to costs vide Order dated 5th March, 2024 and copy of the orderis annexedintheManagementResponses

ObservationsbytheCommittee

76.TheCommitteeobservedthat-

• i. Management entered into a financing support and implementation agreement with Athi Water Works Development Agency (AWWDA) for Gatundu priority project for lot 3 and 4

11. The construction works for the two projects commenced simultaneously on 28th July, 2020 however,by December 2023, the contract term for both project works had lapsed but the project works remained incomplete.

• ili. The contractor's requestfor a ratereviewwas declinedpursuant toSCC clause 50, leading to site abandonment, issuance of termination notice, recall of performance bonds by AWWDA, a legal suit and arbitration request by Drill Rite Africa Limited, and eventual amicable resolution through a Final Settlement Agreement signed on 11th January 2024.

• iv.As part of the settlement, AWwDA agreed to make final payments totalling Kshs.10,494,128.42 for certified works,leading to the withdrawal of the suit by theplaintiffon24thJanuary2024and thecourtmarkingthecaseasformally withdrawn on 5th March 2024.
• v.The matter is resolved.

4.Anomalies inProjectsImplementation

77. The statement of financial performance Includes project expenses of Kshs.4,887,013,318 as disclosed under Note 12 to the financial statements out of whichKshs.46,621,785relates to costs that had anomalies in the procurement, payment of VAT from donor funds and noncompliance with development partners guidelines among other factors. The costs relate to project costs arising from the project expenditure incurred by implementing partners as detailed below:

| Donor | Costs Kshs. | |---------------|---------------| | CLSG | 30,104,506 | | DanidaCovid19 | 1,040,899 | | EUCPIRA | 4,362,791 | | GGEP | 1,918,766 | | GOK | 5,100,000 | | IFAD | 444,109 | | KFW/BMGF | 3,650,714 | | Total | 46,621,785 |

SubmissionsbytheAccountingOfficer

78.TheAccountingOfficer submitted that

Thetablebelowshowsthecurrentstatus.

TableIX-AnomaliesinProjectsImplementationforFY2021-2022

| FY | Prog | Implementing Partner | Amount | Status as at August 2024 | Remarks | |------|--------|--------------------------------------------------|----------|------------------------------------------|-------------------------------------| | 2022 | GGEP | LokicharWatsan Project- Lokichar WSP | 996,062 | Follow up ongoing | Technical audits will be undertaken | | 2022 | GGEP | Kangirisae water and sanitationextension project | 240,000 | Sufficient supporting documents provided | Recommended for closure | | 2022 | GGEP | Lorugum WRUA | 24,717 | Unresolved | Demand letters submitted to IP | | 2022 | GGEP | LibahlowWater and | 243,000 | Unresolved | Demand letters |

| FY | Prog | Implementing Partner | Amount | Status as at August 2024 | Remarks | |------|--------|-------------------------------------------------------------|-----------|------------------------------------------|------------------------------------| | | | Sanitation Project- Garissa WSP | | | submitted to IP | | 2022 | GGEP | Libahlow Water and Sanitation Project- Garissa WSP | 101,525 | Sufficient supporting documents provided | Recommended for closure | | 2022 | GGEP | SHEBTA-AAD WATER AND SANITATION PROJECT-Garissa WSP | 404,475 | Sufficient supporting documents provided | Recommended for closure | | 2022 | GGEP | SHEBTA-AAD WATER AND SANITATION PROJECT-Garissa WSP | 3,476,372 | Refunds received | Refunded funds as per ANNEX IIII (b) | | 2022 | GGEP | Awarsitu Pipeline Extensionwater project-IsioloWSP | 10,512 | Follow up ongoing | Demand letters submitted to IP | | 2022 | GGEP | WSTF- GGEP Fixed assets | 389,567 | Sufficient supporting documents provided | Recommended for closure | | 2022 | IFAD | Tungu Water Resources Management Project | 371,609 | Unresolved | Demand letters submitted to IP | | 2022 | IFAD | Lower Maragua Water Resources Management Project | 15,000 | Unresolved | Demand letters submitted to IP | | 2022 | IFAD | RwamuthambiWater Resources Management Project | 5,500 | Sufficient supporting documents provided | Recommended for closure | | 2022 | IFAD | Upper Gura Water Resources Management Project | 51,000 | Follow up ongoing | Demand letters submitted to IP | | 2022 | J6P | Water Bill Public participation- Laikipia County Government | 309,500 | Sufficient supporting documents provided | Recommended for closure | | 2022 | UPC | Mumias Household Sanitation Project- Kakamega WSP | 256,500 | Sufficient supporting documents provided | Recommended for closure |

#

| FY | Prog | Implementing Partner | Amount | Status as at August 2024 | Remarks | |------|------------|-----------------------------------------------------------------------------------------------------|------------|------------------------------------------|-------------------------------| | 2022 | UPC | BusiaPortVictoria Household Sanitation Project-Busia WSP | 50,000 | Follow up ongoing | Demand letters submitted toIP | | 2022 | UPC | Mbale Household Sanitation Project- AmatsiWSP | 483,206 | Sufficient supporting documents provided | Recommended for closure | | 2022 | WLP | Support toWater and Sanitation Projects in Turkana West, Kenya - AMREF | 1,360,463 | Sufficient supporting documents provided | Recommended for closure | | 2022 | WLP | Enhancing Livelihoods through supply and sanitationimprovement andaddendumtothe ELIWAS grant - AAHI | 7,397,740 | Sufficient supporting documents provided | Recommended for closure | | 2022 | EDE- CIPRA | Samburu Water and Sewerage company | 4,308,942 | Sufficient supporting documents provided | Recommended for closure | | 2022 | EDE- CIPRA | Olkejuado Water and Sanitation Company | 37,250 | Follow up ongoing | Demand letter submitted to IP | | 2022 | EDE- CIPRA | KirandichWater and Sanitation Company | 16,599 | Follow up ongoing | Demand letter submitted toIP | | 2022 | CLSG | NakuruWaterand Service Sanitation Company | 241,500 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | MalindiWater and Sanitation Company | 4,555,149 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | GarissaWater and Sewerage Company Limited | 10,348,702 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | GarissaWater and Sewerage Company Limited | 1,120,700 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | Tavevo Water and Sanitation Company | 1,000,000 | Sufficient supporting | Recommended for closure |

| FY | Prog | Implementing Partner | Amount | Status as at August 2024 | Remarks | |------|--------|-----------------------------------------|------------|------------------------------------------|---------------------------------------------------------------------------------------| | | | | | documents provided | | | 2022 | CLSG | Nairobi City Water and Sewerage Company | 166,811 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | Nairobi City Water and Sewerage Company | 18,692 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | AmatsiWaterServices Company | 187,293 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | AmatsiWaterServices Company | 3,025,533 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | AmatsiWaterServices Company | 1,550,886 | Sufficient supporting documents provided | Recommended for closure | | 2022 | CLSG | AmatsiWaterServices Company | 12,644,762 | Follow up ongoing | Water Fund has engaged the Governor andwe expect to be resolved in the next 3 months. | | | | | 50,646,855 | | |

79. Following the release of the audit report, a total of Kshs. 45,129,056 has been accounted for. In the course of follow ups, Water Fund arranged for physical meetings with various stakeholders including the county governments in an effort to have the findings addressed. Demand letters have been made to partners who have been responding to the WSTF's requests though at a slow pace. Water Fund has further, engaged the services of Quality Assurance Monitors (QAMs), who are assigned specific counties with WSTF projects. The QAMs have been tasked with ensuring that all audit queries in the projects that they are monitoringareadequatelyaddressed.

ObservationsbytheCommittee

80.TheCommitteeobserved that-

• i) 45,129,056 had been accounted for through provision of supporting documents and refunds while Kshs.5,517,799 had not been supported

ii Thematterisunresolved.

RecommendationsoftheCommittee

• 81.The Committee recommended that
• i. Within six months upon the adoption of this report the Accounting Officer mustprovide areportand supportingdocumentation on therecoveryof the pending amountof Kshs.Kshs.5,517,799 whichhad not been supported to the OfficeoftheAuditorGeneral forauditverification.

11. The Accounting Officer should ensure that all applicable accounting and financial controls, systems, standards, laws, and procedures are followed in the preparationof thefinancialstatementsincompliancewithPublicFinance Management Act, 2012 and in accordance with the standards prescribed by the Public Sector Accounting Standards Board as per Regulation 101(4) of the Public Finance Management (National Government) Regulations, 2015.

5.Information, Communication and Technology (ICT) Governance

(a)ICT Policy Deficiencies

82. As previously reported, review of the IT Policy in place revealed that the Fund does not have clearly defined controls, processes and procedures with regards to network administration, backup management and user creation in the application systems. Inadequate user access creation guidelines mayresult toinconsistentprocesses ofuser access creation across the various systemswithin the organization.Lack ofpolicyguidelines on network administration and backup management may lead to inadequate backup and network procedures being implemented in the IT systems.In the circumstances,the adequacy of ICT backup and controls in the network procedures implemented in the IT systems,could not be confirmed.

Submissionsby the Accounting Officer

• 83.TheAccountingOfficersubmittedthat-

Themanagement acknowledged thefinding and undertookreviewof ICTpolicyto address controldeficiencies that were identified.Subsequentlya secondreviewof ICT policy commencedinFY2023/2024aspartofcontinuousimprovementandtokeepabreastwith developments in the ICT. The review was finalised and purposed to eliminate all the gaps and deficienciesidentified as above.

ObservationsbytheCommittee

• 84.TheCommitteeobservedthat
• i.Management undertook review of ICT policy and have since addressed the controldeficienciesthatwereidentified.
• ii.The matter is resolved.

(c)PasswordDeficienciesintheArenRegisterApplication

• 85.As previously reported, the Aren Register application does not have a password configurationinplacethatwouldallowtheadministratorsof the systemtoimplement password policy as per industry standards or the organization's IT policy. Failure to implement a password policy may allow attackers to gain unauthorized access to the system therefore exposing the Fund to possible loss or manipulation of its data. In the circumstances, the controls in place to prevent unauthorized access to the system could not be confirmed.

Submissions by the Accounting Officer

• 86.The Accounting Officer submitted that——

The management acknowledged the deficiencies in the Aren system's password security implementation.Management engaged the Aren system vendor for refinement of the password moduletocaterforpasswordcomplexityrequirements.

ObservationsbytheCommittee

87.The Committeeobserved that

• i) Management had since engaged the Aren system vendor for refinement of the password module to cater for password complexity requirements and resolved thematter.

2. ii) The matter is resolved.

6. Long Outstanding Receivables

• 88.The statementoffinancial positionreflects receivablesfromnon-exchange transactions balanceofKshs.596,033,165asdisclosedunderNote16tothefinancialstatementswhich includes Kshs.26,172,547 (28,091,171 2020-21) that has been long outstanding with movement of only Kshs.l during the year under review. Further, adequate control measures and safeguards to the signed agreements to repay the debts were not provided for audit. In the circumstances,the adequate control measures and recoverability of thereceivablesfrom non-exchange transactions balance of Kshs.26, 172,547 could not be confirmed.

Submissionsby-theAccounting Officer

• 89.TheAccounting Officer submitted that—
• The Management assisted by the Board has initiated recovery strategies from the affected WSPs with support from respective County Governments. It's also expected that there will be change of strategy pertaining to disbursements to projects and specific strategies to WSPs in the list of provisions/questioned costs. The Board of Trustees and management have engaged governors of the Counties of Garissa, Taita Taveta, Samburu, Vihiga, Nakuru, Kakamega and Kajiado with the aim of resolving the long outstanding receivables. In these engagements, we have had the counties of Taita Taveta, Kajiado and Garissa committing to refund the amounts in question by the end of the financial year 2023/24.

90. Water Fund has further, engaged the services of Quality Assurance Monitors (QAMs), who are assigned specific counties with WSTF projects. The QAMs have been tasked with ensuring that the implementing partners in their areas of jurisdiction provide satisfactory reportsin a timelymanner.WSTFhasalsointroduced aplatform onwhich all reports and other relevant documents are uploaded at the end of everymonth.Theprogram teams review thereported documents and reportsbased on thequality and timeliness.

TableX-ReceivablesforFY2021-2022

| KFW/BMGF | Baba Dogo water | 698,676.90 | 698,677 | | |-------------------|---------------------------------------------------------|-------------------------|--------------|----------------------| | KFW/BMGF | extension Bulla Arabia and Bulla Garal call 7 | 2,302,552.00 | 0 | 2,302,552.00 | | KFW/BMGF | BusiaportVictoria Houshold sanitation | 933,514.00 | 933,514.00 | 0 | | KFW/BMGF | Garissa primary playground PSF | 77,773.75 | 74,893 | 2,881 | | KFW/BMGF | Kibwezi household SAN | 25,048.75 | 25,048.75 | 0 | | KFW/BMGF | Kimende pipeline call 7 | 43,200.00 | 43,200.00 | 0 | | KFW/BMGF | Kirinyaga household sanitationproject | 140,605.00 | | 140,605.00 | | KFW/BMGF | Mathare sustainability waterproject | 3,493,298.45 | 0 2,290,027 | 1,064,271 | | KFW/BMGF | Mbalehousehold sanitation project Amatsi | 1,837,102.00 | | | | | Mitunguu town household sanitation project | | 0 | 1,837,102.00 | | KFW/BMGF | | 836,042.00 | 0 | 836,042.00 | | KFW/BMGF KFW/BMGF | sanitation project Nolturesh Nzaui household sanitation | 130,924.00 5,467,478.78 | 0 0 | 130,924.00 5,467,479 | | KFW/BMGF | project Ongata Rongai sanitation(safisanpilot) project | 302,689.00 | 302,689.00 | 0 | | KFW/BMGF | Ukunda household sanitationproject | 1,053,108.00 | 1,013,242.50 | 39,865.50 | | CPC-SIDA | Kimangao water and sanitation project | 1,075,603.00 | 1,075,603 | 0 | | MTAP SCHOOL WASH | Mchelelo primary school | 26,525.00 | 26,525 | 0 | | | Kone community | | | 6,142,945 | | EUSHARE | | 6,142,945.00 | 0 | | | EUSHARE | Manda Maweni WATSANproject | 383,034.00 | 0 | 383,034 | | GGEP | KochodinWRUA | 5,536,954.00 | 0 | 5,536,954 |

| J6P | Mrima sanitation project | 4,788.00 | 0 | 4,788 | |----------|-----------------------------------------------------|--------------|--------------|--------------| | J6P | Mwangani Sanitation project | 5,121.00 | 0 | 5,121 | | IFAD | NairobiWRUA | 3,628,450.00 | 0 | 3,628,450 | | IFAD | Irangi CFA | 1,963,000.00 | 0 | 1,963,000.00 | | KFW/BMGF | Bar Kowino Nyawita water project | 1,844,969.45 | 1,042,187.35 | 802,782.10 | | KFW/BMGF | Homabay town household sanitation project | 506,143.80 | 506,143.80 | 0 | | KFW/BMGF | ljara household sanitation-KFW | 1,963,805.00 | 1,491,910.10 | 471,894.90 | | KFW/BMGF | Kiambiu water extension, | 6,882,498.28 | 6,882,498.28 | | | KFW/BMGF | Mitunguu town householdsanitation project | 1,229,192.47 | 393,150.47 | 836,042.00 | | KFW/BMGF | Rumuruti town householdsanitation Nyahururu | 1,134.00 | 1,134.00 | 0 | | KFW/BMGF | Sabasaba Maragua household sanitation Muranga south | 13,097.00 | 13,097.00 | 0 | | EU SHARE | Quachacha | 1,025,487.00 | 0 | 1,025,487.00 | | GGEP | HarajabWATSAN | 144,253.00 | | 144,253.00 | | GGEP | Libahlow WATSAN | 101,525.00 | 81,405.00 | 20,120.00 | | GGEP | Shebta CAAD WATSAN | 3,476,372.00 | 3,476,372.00 | 0 | | J6P | Mrima CLTS project | 3,141.00 | 0 | 3,141.00 | | J6P | Bungoma primary san. Project | 32,475.00 | 0 | 32,475.00 | | J6P | Kwale WASCO | 2,067.00 | 0 | 2,067.00 | | J6P | MbuguniWRUA | 1,598.00 | 0 | 1,598.00 | | J6P | Mwangani CLTS | | 0 | 7,135.50 |

| | project | 7,135.50 | | | |----------|----------------------------|--------------|--------------|--------------| | IFAD | Kimakia CFA | 1,647,638.00 | 0 | 1,647,638.00 | | GGEP | Other receivables | 23,545.00 | 23,545.00 | 0 | | COVID 19 | Project receivables - NWSC | 1,347,045.44 | 1,037,999.91 | 309,045.53 | | | GRANDTOTAL | 52,848,499 | 11,073,992 | 34,752,009 |

ObservationsbytheCommittee

91.The Committeeobserved that

• i.An amount of Kshs.34,752,009 in respect to project receivables had been outstanding
• i.The matter is unresolved.

RecommendationsoftheCommittee

92.The Committeerecommended that-

That within six months upon the adoption of this report the Accounting Officer provides a progress report oand supporting documentation the recovery of Kshs. 34,752,009 in respect to project receivables to the Office of the Auditor General for audit verification.

2.5. Examination of the Auditor General reports for Water Sector Trust Fund for the financialYear2022/23

Emphasis of Matterby theAuditor General

1. Budgetary Control and Performance

93. The statement of comparison of budget and actual amounts reflects final receipts budget and actual on comparable basis of Kshs.2,584,000,000 and Kshs.1,761,117,516 respectively resulting to an under-funding of Kshs.822,882,484 or 32% of the budget. Similarly, the Fund spent Kshs.1,901,559,672 against an approved budget of Kshs.2,584,000,000, resulting to an under-expenditure of Kshs.682,440,308 or 26% of the budget. The under-funding and underperformance affected the planned activities of the Fund and may have impacted negatively on service delivery to the public.

Submissions by the Accounting Officer

94. The Accounting Officer submitted that

The management took note of the finding on the performance which was attributed to funds budgeted for not being received or expended in books of accounts for income recognition from various Development Partners namely; KfW Phase-IV, Bill & Melinda Gates (BMGF), EU Climate-Proofed Infrastructure Programme and Danida SWASAP. As an action, they budgetedfor thefundsnotreceived inthe subsequentfinancialyear where a significant amount of DevelopmentPartnerfunds had been realised and are currentlybeingimplemented by various programmes for which funding had been received.

The Water Fund budget summary for FY 2022/2023 is as presented in table 1 below.

Table1:WaterFundBudgetSummary.forFY2022/2023

| No. | Funding source | Budgeted amount (KShs) | Amount received (Kshs) | Actual expenditure (KShs) | Variance (KShs) | |-------|---------------------|--------------------------|--------------------------|-----------------------------|-------------------| | 1 | GOK | 369,500,000 | 369,500,000 | 369,500,000 | 0 | | 2 | Finance income | 2,000,000 | | 11,346,431 | -9,346,431 | | 3 | DANIDA SWASAP | 430,300,000 | 300,000,000 | 104,292,347 | 326,007,653 | | 4 | IFAD | 174,400,000 | 116,756,740 | 182,144,967 | -7,744,967 | | 5 | EU Climate proofing | 503,400,000 | 500,000,000 | 298,535,979 | 204,864,021 | | 6 | KfW III | 70,000,000 | | 31,595,914 | 38,404,086 | | 7 | KfW Phase IV | 591,000,000 | 38,194,163 | 344,981,212 | 246,018,788 | | 8 | BMGF | 110,000,000 | 7,717,971 | 20,742,406 | 89,257,594 | | 9 | GGEP | 104,400,000 | | 3,755,125 | 100,644,875 | | 10 | DANIDA-WLP | 17,300,000 | | 127,981 | 17,172,019 |

| 11 | Government of Finland&Sweden (J6P) | 9,700,000 | | 2,276,455 | 7,423,545 | |------|--------------------------------------|---------------|---------------|---------------|-------------| | 12 | World Bank CLSG | 175,100,000 | 141,959,261 | 389,799,858 | 214,699,858 | | 13 | DANIDA-Covid19 Response Programme | 26,900,000 | | 2,018,841 | 24,881,159 | | | Total | 2,584,000,000 | 1,474,128,135 | 1,761,117,516 | 822,882,484 |

95. Consequently, the management took note of the audit finding under expenditure due to unrealised revenues. The Fund was keen to implement projects from the funds realised in the subsequent period. The Bank Statements for KfW, BMGF, EDE-CPIRA and SWASAP Programmcs havc bcen annexed in the Management Responses

Observationsby the Committee

96.The Committee observed that

• i.The Fund had a budget deficit amounting to Kshs.822,882,484 and an under absorption of Kshs.682,440,308.
• ii. The outstanding disbursements were occasioned by the delay in remitting budgeted fundsbyboth theDevelopmentPartners and Government ofKenya.
• ii.The matter is resolved.

OtherMatters

UnresolvedPriorYearsMatters

1.Failure toRemitWithholdingTax onInterestIncome

• 97.Thestatementoffinancial Kshs.171,542,037 as disclosed under Note 22 to the financial statements which includes withholding tax payables totaling to Kshs.193,523 relating to withholding taxes on interest income earned from project accounts that was not remitted to KRA. Failure to remit withholding taxes on interest income deducted by the payee at 15% and remit to KRA by 20th of the following months contravenes the Income Tax Act and could result in penalties and interest being levied by KRA. In the circumstances, Management was in breach of the law.

Submissions by the Accounting Officer

98. The Accounting Officer submitted thatThe management took note of the finding and had since ensured that all withholding taxes have been remitted toKRA.Remittance of Withholding Taxes on InterestIncome toKRA

hasbeen annexedin theManagementResponses

ObservationsbytheCommittee

• 99.TheCommitteeobserved that
• i.The Fund had since ensured that all withholding taxes have been remitted to KRA.
• ii. The matter is resolved.

2.Abandoned Project

• 100.As previously reported, the Fund entered into a financing support and implementation agreement with Athi Water Works Development Agency (AWWDA) for Gatundu priority project on 28 April, 2020. The Agency contracted a drilling company for LOT 3 and 4 of works relating to ground water exploitation project, drilling and equipping of Gatundu boreholes forKshs.54,632,385 and Kshs.61,238,383 respectively.

101. The drilling company was paid an initial sum of Kshs.7,388,808. However, the company did notcomplete the works.Following abandonment of the constructionworksinMarch, 2021 without prior consultation or approval by the Project Manager, the Agency held meetings with the contractor for resumption of works without success and subsequently, the Agency issued a notification to terminate the contract on 30 November, 2021. However, no evidence has been provided to confirm whether the project has been completed. In the circumstances, the abandoned project affected the planned objectives of the Fund and may have impacted negatively on service delivery to the public. Further, the value for money paid hasnotbeenrealised.

Submissionsby theAccounting Officer

• 102.The Accounting Officer Submitted that—

The management takes note of the finding. The project was jointly funded by Water Fund and Athi Water Works Development Agency (AWWDA) with Water Fund handling Lots 1&2 with AWWDA handling Lots 3&4 respectively. Water Fund was to contribute Kshs. 250M and AWWDA was to contribute Kshs. 425M to support the programme activities. Under the contract AWWDA was to be implementing and accounting agency. WSTF has sincereceivedaccounting documentsfor thedisbursementmadeunder Lots1&2for this project. All the funds (Kshs. 250,000,000) transferred to A WWDA was fully accounted as per General Ledger. Athi Water Works Development Agency (AWWDA) is currently undertaking an out-of-court settlement with the contractor and agreeing on modalities for completing the pending works. The matter has been referred to and is being handled by AWWDA who are to present the current status and follow up to closure. TheWater Fund and AWWDA Project Implementation Contract andGatundu Water Project Accounting Documentation

Submissions by Athi Water Accounting Officer

• 103.The Accounting Officer Submitted that

works forGatunduWaterandSanitationProject:GatunduGroundWater Exploitation Project; ContractNo.AWWDA/GOK/GWSP/W-29/LOT 3/2020 and further,a Contract for construction works for Gatundu Water and Sanitation Project: Drilling and Equipping of GatunduBoreholes:Contract No.AWWDA/GOK/GWSP/W-29/LOT 4/2020withM/sDrill RiteAfricaLimited inJuly2020.

• 104.Both contracts were funded by the Government of Kenya through the Ministry of Water, Sanitation and Irrigation. The construction works for the two projects commenced simultaneously on 28th July, 2020 with an original completion date of 28th July, 2021 and the Defect Liability Period supposed to end on 28thMay, 2022. However, by December 2023, the contract term for both project works had lapsed but the project works remained incomplete.

105. The contractor requested for review of rates via a letter dated 25 February,2021 which was declined pursuant to Special Condition of Contract (SCC) clause 50 which states that a contract is not subject to price adjustment. The contractor abandoned the site after the decline of price variation and the Agency issued a notice on intention to terminate the contract on 30 November,2021 and demanded tocash theperformanceguarantee.

• 106.AWWDA subsequently made a demand to the bank seeking to recall the performance bonds of Kshs. 6,123,839 on account EKI/SM/20-GI6689 and Kshs. 5,463,239 on account EKI/SM/20-GI6690asdepositedbythePlaintiff onaccount ofperformanceguarantee. Following A WWDA's intention to terminate the above-mentioned contracts and the demands to the bank to recall the performance bonds as above-referenced, AWWDA was served with an Application Milimani Civil Suit No.E971of 2021 Drill Rite Africa Limited-VS-Athi Water Works Development Agency and Bank of Africa Kenya Limited under a certificate of Urgencydated17hDecember,2021.

107. The Plaintiffs (Drill Rite Itd), sought for Orders inter alia, that the Court restrains by the 2 nd Defendant (Bank of Africa) from releasing Kshs. 6,123,839 on account EKI/SM/20GI6689 and Kshs.5,463,239 on account EKI/SM/20-GI6690 as deposited by the Plaintiff on account of performance guarantee and further that the issues in dispute on variation of prices be referred to adjudication by an Arbitrator to be appointed by the Kenya Chapter of the Chartered Institute of Arbitrators as per the Contract. The plaintiffs also sought for orders on payment for works completed as at 22nd September 2021. The court directed that the case be settledthrougharbitration.

• 108.AWWDA and M/s Drill Rite Limited entered into a Final Settlement Agreement on the 11 th day of January, 2024 for the purposes of amicably settling all matters in dispute leading to the filing of the above-mentioned suit and the copy of settlement agreement has been annexed in the Management responses. For the Construction works for Gatundu Water and

Sanitation Project: Gatundu Ground Water Exploitation Project; Contract No. AWWDA/GOK/GWSP/W-29/LOT3/2020,itwas agreedintheFinalSettlementAgreement that upon withdrawal of the suit against AWWDA and Bank of Africa, AWWDA to settle the final payment of kshs.4,561,261.43 (Inclusive of VAT) to the contractor for works done andcertified.

109. For Gatundu Water and Sanitation Project: Drilling and Equipping of Gatundu Boreholes project; Contract No. AWWDA/GOK/GWSP/W-29/LOT 4/2020 it was agreed in the Final SettlementAgreementUponwithdrawalof the suit againstAWWDAandBankofAfrica, AWWDA tosettle the final payment of Kshs.5,932,866.99(Inclusive of VAT) to the contractor for works done and certified. Subsequently, as per the terms of the final settlement agreement between the parties, the plaintiffs (Drill Rite Limited) filed a notice of withdrawal dated 24th January, 2024 seeking to withdraw the suit in its entirety. The Court marked the matter as withdrawn with no orders as to costsvide Order dated 5thMarch,2024 and copy of theorderisannexedintheManagementResponses

ObservationsbytheCommittee

• 110..TheCommitteeobservedthat-
• i. Management entered into a financing support and implementation agreement with Athi Water Works Development Agency (AWWDA) for Gatundu priority project forlot3and 4
• ii. The construction works for the two projects commenced simultaneously on 28th July, 2020 however,by December 2023,the contract term for both project works had lapsed but the project works remained incomplete.
• ii. The contractor's request for a rate review was declined pursuant to SCC clause 50, leading to site abandonment, issuance of termination notice, recall of performance bonds by AWWDA, a legal suit and arbitration request by Drill Rite Africa Limited, andeventualamicableresolution through aFinalSettlementAgreementsigned on 11thJanuary 2024.
• iv.As part of the settlement, AWWDA agreed to make final payments totalling Kshs. 10,494,128.42 for certified works,leading to the withdrawal of the suit by the plaintiff on24th January2024 and the court marking the case as formallywithdrawn on 5th March 2024.
• v.The matter is resolved.

3.AnomaliesinProjectsImplementation

• 111.The statement of financial performance Includes project expenses of Kshs.1,385,104,642 as disclosed under Note 12 to the financial statements out of whichKshs.20,021,454 relates to costs arising from project expenditure incurred by implementing partners comprising of CLSG Kshs.16,635,514, EU-CPIRA Kshs.1,188,511 and KFW/BMGF Kshs.2,197,429. The costs had anomalies in the procurement procedures such as the identification of contractors, payment of VAT from donor funds and non-compliance with development partners' guidelines among other factors. In the circumstances, the regularity and value for money on the project expenses of Kshs.20,021,454 could not be confirmed.

SubmissionsbytheAccountingOfficer

• 112.The Accounting Officer submitted the following ;

The management took note of the finding and in its submission noted that since the release of the report,therehad beensubstantialeffortsthatweremade to address thequestionedcosts raised during the audit of the implementing partners. The Water Fund arranged for physical meetings with various stakeholders including the county governments in an effort to have the findings addressed. Demand letters had been issued to implementing partners who had been slow in responding to the WSTF's requests to have the matters resolved.

Water Fund had further, engaged the services of Quality Assurance Monitors (QAMs), who are assigned specific counties with WSTF projects. The QAMs have been tasked with ensuring thatallauditqueriesintheprojectsthat theyaremonitoring areadequately addressed.Thedetailedscheduleof the amount whichthe auditor hadcategorised as unsupportedexpenditure andstatus ofresolutionwasassummarized in table2belowand the Demand Letters to Implementing Partners and QAMs Terms of Reference have been annexedintheManagementResponses The Management Letter to Water Fund by the Appointed External Auditors (PWC) indicating resolution of the issues had been attached in the Management reponseses.

Table2:AnomaliesinProjectsImplementationforFY2022-2023

| FYDonor | Project Implementing partner | Name/|ProjectIssues | Amount- KES | Remarks totheStatus SpecialFunds|March 2025 Committee of NA | as | at | |-----------|----------------------------------------------------------------------------------|----------------------------------------------------------------|---------------|--------------------------------------------------------------------|------------------------------------------------|------| | | 2023|BMGFKilifi-Mariakani Household Sanitation Project- Kilifi MariakaniWSP | Inadequately supported expenditure | 263,915 | Recommended for closure byrefunded theCommittee | Funds 24.04.2024 | on | | 2023BMGF | Ijara Sanitation Project|supported inIjara-Garissalexpenditure Water | Household|Inadequately | 143,820 | Recommended forclosure by received. thecommittee | Documents Recommend forclosureby the Committee | | | 2023KfW | Kapsoit -SosiotInadequately Water KerichoWater | project-|supported expenditure | 16,000 | Demand letters/Resolved submitted toIP | recommendfor closure by the Committee | and | | 2023KfW | Water KerichoWater | Kapsoit-SosiotInadequately project-|supported expenditure | 9,000 | Demandletters|Resolved submitted to IP | recommendfor closureby the Committee | and | | 2023KfW | Kapkwen Project- Water | WaterInadequately Bomet supported expenditure | 44,000 | Recommended forclosure thecommittee | Documents byreceived. Recommend for closureby | |

| | | | | | the Committee | |----------------|----------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|---------|-------------------------------------------------|------------------------------------------------------------------| | 2023KfW | Kanjeru supply project -|expenditure Kikuyu Water | water|Unsupported | 96,697 | Demandletters|Resolved submitted to IP | and recommendfor closure by the Committee | | 2023|KfW | Kanjeru supply project - KikuyuWater | waterInadequately supported expenditure | 45,307 | Recommended forclosure byreceived. thecommittee | Documents Recommend forclosureby the Committee | | 2023|BMGF | [Murang'a household sanitation projectlamounts -Muranga South|project closure WSP | south|Bank charges due|2,160 to un-refunded after | | Demandletters|Resolved submitted toIP | 1and recommendfor closurebythe Committee | | 2023|BMGF | Murang'a household sanitation project -Muranga South WSP | south|Unsupported expenditure | 10,500 | Demandletters|Resolved submitted to IP | and recommendfor closure by the Committee | | 2023|KfW | Ol-Jabet And Site Project|supported KFW NyahururuWater | Town|Inadequately IV-|expenditure | 103,700 | Demandletters|Resolved submitted toIP | and recommendfor closure by the Committee | | 2023BMGF | Mitunguu Household SanitationProject -ImethaWSP | Town Double payment|8,309 of expenditure | | Demand submitted toIP | letters|Resolved and recommend for closure by the Committee | | 2023|BMGF | Mitunguu Household SanitationProject ImethaWSP | Town|Unsupported expenditure | 20,810 | Demandletters|Resolved submitted toIP | and recommendfor closure by the Committee | | 2023|BMGF | MbaleHousehold|Expenditure Sanitation Project- Amatsilproject Water | incurred after implementation period | 100,000 | Recommended forclosure by the committee | Resolved and recommendfor closureby the Committee | | 2023KfW | Lower Gaaki Supply Tetu Aberdares WSP | AguthiInconsistencies in|12,070 Water|support Project-documentation | | Recommended forclosure thecommittee | Resolved and by|recommend for closure by the Committee | | 2023|BMGF | Ongata Sanitation (Safisan Pilot) | Rongail Unsupported expenditure | 302,734 | Demandletters|Resolved submitted toIP | and recommendfor closure by the |

| | Project- Oloolaiser Water and Sewerage Company | | | | Committee | |----------------------|-----------------------------------------------------------------------------|--------------------------------------------------|-----------|------------------------------------------------|------------------------------------------------------------------| | 2023BMGF | MitunguuTown|VAT Household Sanitation Project -ImethaWSP | | 66,471 | Recommended for closure byby thecommittee | Waiver granted Donor. Recommend for closure by the Committee | | 2023BMGF | Mwatate Household Sanitation Project- Tavevo Water and Sewerage Company Ltd | VAT | 26,820 | Recommended forclosure thecommittee | Waivergranted by/by Donor. Recommend for closure by theCommittee | | 2023BMGF | Ijara HouseholdVAT SanitationProject in Ijara- Garissa Water | | 925,116 | Recommended forclosure by|by thecommittee | Waivergranted Donor. Recommend forclosureby the Committee | | 2023|World Bank | Kakamega water|Expenditure Company | incurredout the project period | 75,000 | Demand letters|Resolved submitted toIP | and recommendfor closure by the Committee | | 2023|World Bank | TavevoWater | Double reporting|14,758,808 ofexpenditure | | Demandletters|Resolved submitted toIP | and recommendfor closure by the Committee | | 2023/World Bank | Nyahururu Water Ineligible | expenditure | 1,527,828 | Demandletters|Resolved submitted to IP | and recommendfor closure by the Committee | | 2023|World Bank | | Nyahururu Water Idle project assets|113,317 | | Demandletters|Resolved submitted to IP | and recommendfor closureby the Committee | | 2023World Bank | Nyahururu Water | | 64,000 | Demandletters/Resolved submitted toIP | and recommendfor closurebythe Committee | | 2023EDE | Garma-Mugur CIPRA water project- Samburu Water and Sewerage | Unsupported supply|Expenditure | 778,000 | Recommended for closure by thecommittee | Resolved and recommendfor closure by the Committee |

| | Company | | | | | |--------------------------|------------------------------------------------------------------------------------------|-------------------------------------------------|-----------------------------------------------------|-----------------------------------------------------------------------|-----------------------------------------| | 2023EDE CIPRA|water | Garma-Mugur supply project-Samburu Water and Sewerage Company | Incomplete works|100,000 | | RecommendedResolvedand for closure by|recommend for thecommittee | closurebythe Committee | | 2023EDE CIPRA | Muruny- Chepareria water|expenditure project- Kapenguria Water and Sewerage Company | Unsupported | 82,711 | Recommended forclosureby|recommendfor the committee | Resolved and closurebythe Committee | | 2023EDE CIPRA | Muruny- Chepareria project- Kapenguria Water and Sewerage Company | Inadequately a water|supported expenditure | 209,000 (Less 149,000 accounted) 60,000 Outstanding | Demand letters|Resolved submitted toIP | and recommendfor closurebythe Committee | | 2023EDE CIPRA | AlArabalWaterInadequately A/Project- Kirandich Waterlexpenditure and Sanitation Company | supported | 18,800 | RecommendedResolvedand forclosurebyrecommend for thecommittee | closurebythe Committee | | | Total | | 19,924,893 | | |

Observationsbythe Committee

113.TheCommitteeobserved thefollowing

• i) 2,842,727 had been accounted for through provision of supporting documents, refunds while Kshs.17,082,166 had not been supported.

2. ii) The matter is unresolved.

Recommendationsofthe Committee

114.The Committeerecommendedthat

• i.Wthin six months upon the adoption of this report the Accounting Officer must provide report and supporting documentation on the recovery of the pending amount of Kshs. 17,082,166 which had not been supported to the Office of the Auditor General for audit verification.
• The Accounting Officer shouldensure that all applicable accounting and financial controls, systems, standards, laws, and procedures are followed in the preparation of the financial statements in compliance with Public Finance

ManagementAct,2012and in accordancewiththestandardsprescribed bythe Public Sector Accounting Standards Board as per Regulation101(4)of the Public Finance Management(NationalGovernment) Regulations,2015.

4. Irregular Project Expenditure

115. The statement of receipts and payments reflects project expenses of Kshs.1,385,104,642 as disclosedin Note12 tothe financialstatements.Includedin this amount is Kshs.389,799,858 expensed under Conditional Liquidity Support Grant (CLSG) funded by WorldBankout ofwhichKshs.30,400,000was incurredbyKakamegaWater andSanitation Company (KACWASCO) for the supply, installation, configuration, customization, migration, testing, training, commissioning, and maintenance of an Enterprise Resource Planning System. 2. 116.Further, KACWASCO also incurred costs amounting to Kshs.12,954,400 charged under the fixed grant for construction of two (2) storm water drainage and rehabilitation of filter at Tindiyo water treatment plant. These costs were incurred before the approval for the fixed grant through an addendum approved on12 January2022by theFund and before signing of the CLSG grant agreement on 15 December 2021. Costs under the fixed grant are to be incurred after signing of the grant agreement. In addition, there was no evidence that Water Services RegulatoryBoard(WASREB)approved the amendment of the grant agreement and the re-allocation of thefunds fromvariable tofixed grants.In the circumstance,the regularity of these expenditures could not be confirmed.

SubmissionsbytheAccountingOfficer

• 117.TheAccounting Officer Submitted thatThe appointed auditor questioned the entire amount of Kshs. Kshs.30,400,000 due to the fact that it was above the threshold of US$ 100,000. Field verification, had been undertaken and the project is in existence and operational. The management is engaging WASREB and the World Bank towards resolution of the issue. The Correspondence with WASREB and World BankhadbeenannexedintheManagementresponses

ObservationsbytheCommittee

• 118.TheCommitteeobserved that
• i.KACWASCO incurred costs amounting to Kshs.12,954,400 charged under the fixed grant for construction of two (2) storm water drainage and rehabilitation of filter at Tindiyo water treatment plant without approval by WASREB.
• The management is engaging WASREB and the World Bank towards resolution of the issue as-per the correspondences\_submitted.
• ii.there was no evidence that WASREB approved the amendment of the grant agreementto allowthereallocationofthefundsfromvariabletofixedgrants.
• iv.The matter is unresolved.

ReccomendationoftheCommittee

119.The Committee recommended that

• i. within six months upon the adoption of this report, the Management should provide a report on regularization of the expenditure of Kshs.12,954,400 to the auditor general for audit verification; and
• ii. the Accounting Officer ensures that all applicable accounting and financial controls, systems, standards, laws, and procedures are followed in the preparation of the financial statements in compliance with Public Finance Management Act, 2012 and in accordance with the standards prescribed by the Public Sector Accounting Standards Board as per Regulation 101(4) of the Public Finance Management (NationalGovernment) Regulations, 2015.

4。 Ineligible Project Expenditure

• 120.The Statement of Financial Performance reflects project expenses amount of Ksh. 1,385,104,642 as disclosed in Note 12 to the Financial Statements.Included in the amount, is expenditure amounting toKshs.14,185,538 incurred under the CLSG grantfor the supply, installation, configuration, customization, migration, testing, training, commissioning, and maintenance of an Enterprise Resource Planning System. This was based on an addendum approved by WSTF on 10 March, 2021. The ERP system was to be used to manage the water service providers (WSPs) operational systems including procurement, inventory management, billing, and human resource management. However, there was no evidence that WASREB approved the amendment of the grant agreement and the re-allocation of the funds from variable to fixed grants. In the circumstance, the regularity of these expenditures could not be confirmed.

Submissionsby theAccounting Officer

• 121.The Accounting Officer submitted the following;
• The appointed auditor questioned the entire amount ofKshs.14,185,538due to thefact that it was above the threshold of US$ 100,000.Field verification,was undertaken and the project is in existence and operational. The management is engaging WASREB and the World Bank towards resolution of the issue.The Correspondence with WASREB and World Bank had beenannexedintheManagementresponses

Observations by the Committee

• 122.The Committeeobserved that
• i.Water Sector Trust Fund (WSTF)incurred costs amounting to Kshs. 14,185,538 charged under the fixed grant for the supply, installation, configuration, customization, migration, testing, training, commissioning, and maintenance of an Enterprise Resource Planning System.
• ii. The management is engaging WASREB and the World Bank towards resolution of the issue as per the correspondences submitted.
• ii. there was no evidence that WASREB approved the amendment of the grant agreement to allow the reallocation of the funds from variable to fixed grants.
• iv.Thematter is unresolved.

ReccomendationoftheCommittee

• 123.The Committee recommended that——
• i. within six months upon the adoption of this report, the Management should provide a report on regularization of the expenditure of Kshs.14,185,538 to the auditorgeneral for auditverification;and
• i. the Accounting Officer ensures that all applicable accounting and financial controls, systems, standards, laws, and procedures are followed in the preparation of the financial statements in compliance with Public Finance ManagementAct,2012and inaccordancewiththestandardsprescribed by the Public Sector Accounting Standards Board as per Regulation 101(4) of the Public Finance Management (NationalGovernment) Regulations, 2015.

NoncompliancewithLawsandRegulations

124. The Statement of Financial Performance reflects project expenses amount of Ksh. 1,385,104,642 as disclosed in Note 12 to the Financial Statements. During the year under review, Kapenguria Water and Sewerage Services Company Ltd engaged the services of several contractors to implement the following interventions in Kapenguria and Makutano at a cost of Ksh 42,836,800 or USD 399,910. However the amounts were above the USD 100,0o0 threshold as provided for in the CSLG operations manual as detailed below. 2. 125.Further, there was no evidence that Kapenguria Water and Sanitation Company had registered and obtained aWASREB license as at 30June 2023.In addition,therewere budgets reallocations approved by the Fund on 30 November 2021 between interventions within the fixed grant amounting to Kshs.4,800,000 as detailed below:

| Intervention | Amount (Kshs.) | Amount USD | |----------------------------------------------------------------------------------------------|------------------|--------------| | SupplyandInstallationofeight(8)centrifugalandone(l) submersiblePumpsattheKapenguria,Makutano | 20,315,000 | 189,654 | | 14500mPipelineextensionandrepairsMakutanoand KapenguriaWaterSupplies | 22,521,800 | 210,256 |

| Intervention | Original budget amount (Kshs.) | Original budget amount (USD) | Reallocated amount (Kshs.) | Reallocated amount(USD) | |-------------------------------------------------------------------|----------------------------------|--------------------------------|------------------------------|---------------------------| | Constructionof2no.Water kiosksatMakutano | 800,000 | 7,169 | | | | ComprehensiveWaterBilling softwareatKapenguriaWater Supplyoffices | 4,000,000 | 35,847 | | | | Sunflower-MatharePipeline | | | 1,775,700 | 15,913 |

| KarasWaterSupply | | | 2,643,086 | 23,686 | |--------------------|-----------|--------|-------------|----------| | OrtumWaterSupply | | | 381,214 | 3,417 | | Total | 4,800,000 | 43,016 | 4,800,000 | 43,016 |

126. However, there was no evidence that WASREB approved the amendment of the grant agreement and the reallocation of the funds from variable to fixed grants. This is contrary to Section85(2)of theWaterAct of 2016,which states that aWASREBlicense is a mandatory prerequisite to enable one to provide water services. In the circumstances, Management was inbreachofthelaw.

Submissionsby the Accounting Officer

• 127.The Accounting Officer submitted the following; The appointed auditor questioned the entire amount of Kshs.42,836,800 due to thefact that it is in existence and operational. The management is engaging WASREB and the World Bank towards resolution of the issue. The Correspondence with WASREB and World Bank had

was above the threshold of US$ 100,000.Field verification,was undertaken and the project beenannexedin theManagementresponses.

ObservationsbytheCommittee

128. The Committee observed that the following; 2. i.Kapenguria Water and Sewerage Services Company Ltd engaged the services of several contractors to implement various projects amounting to Ksh 42,836,800 or USD 399,910. However the amounts was above the USD 100,000 threshold which provided in the Conditional Support Liquidity Grant (CSLG) operational manual.

• ii. no evidence that Kapenguria Water and Sanitation Company was registered andhadobtainedaWASREBlicenseasat30June2023contrarytoSection 85(1)of theWater Actof 2016,which states thataWASREB license is a mandatoryprerequisite to enable one toprovidewater services.
• ii. there was no evidence that WASREB approved the amendment of the grant agreement to allow the reallocation of the funds from variable to fixed grants.
• iv. The matter is unresolved.

RecomendationoftheCommittee

• 129.The Committeerecommendedthat-
• i. within the six months upon the adoption of this report the Kapenguria Water and Sanitation Company;
• a)must provide a report on the regularization of the amount incurred above the threshold as provided by Conditional Support Liquidity Grant (CLSG) operational manual to the auditor general for audit verification.
• b) Must provide evidence of WASREB license by Kapenguria Water and Sanitation Company to theAuditor general for auditverification as at 30 June2023.

• c)Must provide the approval of amendments by WASREB to allow the expenditureincurredunder fixedgrants andnotvariables asstipulated in CLSGoperationalmanual to the auditorgeneral for auditverification.
• i.The Accounting Officer ensures that all applicable accounting and financial controls,systems,standards,laws,andprocedures arefollowed in thepreparation of the financial statements in compliancewithPublicFinanceManagement Act, 2012 and in accordance with the standards prescribed by the Public Sector Accounting Standards Board as per Regulation 101(4) of the Public Finance Management (National Government) Regulations,2015.

4. LackofEvidenceofCompetitiveProcurement

130. The Statement of Financial Performance reflects project expenses amount of Ksh. 1,385,104,642asdisclosedinNote12totheFinancialStatements.Areviewofprocurement documents revealed that Coast Water Development Works Agency (CWWDA) floated a tender for the purchase and delivery of various fittings and servicing of transformers at BarichoWater. 2. 131.6 However no evidence of competitive procurement was provided for audit. Lack of evidence of competitive procurement is contrary to the preconditions for funds use; Section C of the CLSG grant agreement signed between the Water Services Provider (WSP) and WSTF and the Public Procurement and Asset Disposal Act, 2015. In the circumstances, Management wasinbreach ofthelaw.

SubmissionsbytheAccountingOfficer

The procurement documents are available and were provided for Audit verification. The CWWDA CLSG I Project Procurement Documentation had been annexed in the

• 132.The Accounting Officer submitted the following; Managementresponses

ObservationsbytheCommittee

• 133.TheCommitteeobserved thefollowing
• i.The Competitive procurement documents were provided for audit verification.
• ii.The matter is resolved.

5. LackofaCostAllocationPolicyforOverhead Costs

134. The statement of financial performance reflects project expenses of Kshs.1,385,104,642 2. asdisclosedinNote12tothefinancialstatements.Includedinthis amountis anamount-of madetoreplenishafuelcardbuttherewasnoevidence that theexpenditurewasdirectly related to the project against which it was charged. For the rent expense, the Fund charged this to the EU project to the extent of the budget and there was no clear and consistent basis as to why the Fund allocated this amount to the various projects.This was against the

financing agreement, which states that, the overhead costs should be apportioned to the running projects in a verifiable and consistent manner to ensure accurate reporting to donors. In the circumstances, Management was in breach of the law.

SubmissionsbytheAccountingOfficer

135. The Accounting Officer submitted the following; and Procedures Manual Section 12.4 as Approved by the Board on 26th September, 2024. The Approved Finance Policy and Procedures Manual had been annexed in the Management

The management developed a cost allocation policy which was part of the Finance Policy responses

Observationsbythe Committee

• 136.The Committee observed the following;
• i.The Approved Finance Policy and Procedures Manual was provided for audit verification.
• ii. The matter is resolved.

6. Lack of Documented Project Close OutProcedures

137. The financing agreement between the Fund and International Fund for Agriculture Development (IFAD)for theimplementation of Upper Tana Natural ResourcesManagement Project (UTaNRMP) ended on 30June 2023. There was no evidence provided that the Fund has documented guidelines on close out procedures to be followed when closing a grant. 2. 138.There were instances where disbursements were made to partners in thelast quarter of 2023.Therewere alsoinstanceswhereWRUA's received funds inNovember 2022while their agreements with the Fund were ending on 31 December 2022.As a result, there was inadequate time for project implementation, monitoring and identification of any construction defects.The late disbursement of funds resulted inWRUA's failing to observe the financing contract conditions such as seeking a no objection prior to use of funds and ineligible expenditure arising from poor workmanship as follows:- 3. i.MiddleKathitaWaterResourceUsersAssociation 1(WRUA)fundsof Kshs.3,438,250 were disbursed on 23march 2023 and the agreement end date was 19 May 2023 thus, theWRUA did not obtain a no objection on procurement from the Fund prior to engaging the contractor.

• ii. Lower Thingithu WRUA funds of Kshs.1,536,000 were disbursed on 1 November 2022 and the agreement enddatewas30June2023itwasobservedthat,theWRUA incurred Kshs.2,063,790 for the construction of a sand dam along Ndii River.Field inspection on18 October 2023revealed that, the sand dam was nolonger operational, as the water would seep through the bottom. Due to poor workmanship. The defects werenot identified in good time duetotheproject timelineswith thegrant ending on 30 June 2023. As a result, the project did not serve the purpose of holding back water for the community's use during the dry season.

In the circumstances, the objective for the funds and value for money may not have been achieved.

Submissionsby theAccounting Officer

approved bytheBoardforimplementation and this had includedProject close outProcedures. regularizing of their No Objection through correspondences. The Draft Water Fund Investment Policy had been annexed in the Management responses

• 139.The Accounting Officer Submitted the following; The Water Fund was in the process of reviewing it's Investment Policy that would be In addition, Water Fund engaged with the Middle Kathita and Lower Thingithu WRUAs on

ObservationsbytheCommittee

• i. Management has since approved theWater Fund Investment Policy approved by the board on 6th of May, 2025.

140. The Committee observed following;

• ii. The matter is resolved.

4. Information, Communication and Technology (ICT) Governance 10.1ICT PolicyDeficiencies

• 141.As previously reported, review of the IT Policy in place revealed that the Fund does not have clearly defined controls, processes and procedures with regards to network administration, backup management and user creation in the application systems. Inadequate user access creation guidelines mayresult toinconsistent processes ofuser access creation across thevarioussystemswithin theorganization.

142. Lack of policy guidelines on network administration and backup management may lead toinadequate backup and network procedures being implemented in the IT systems.In the circumstances,the adequacy ofICT backup and controls in the networkprocedures implemented in the IT systems, could not be confirmed.

Submissionsby theAccounting Officer

143.The Accounting Officer submitted the following; The management acknowledged the finding and undertook review of it's ICT policy to address control deficiencies that were identified. Subsequently a second review of ICT policy developments in theICT.The review was finalised and all thegaps anddeficiencies identified hadbeen addressed as above.TheWater FundApproved ICTPolicyhad been annexedintheManagementresponses.

Observationsby the Committee

• 144.The Committee observed the following;
• i. The fund has since amended and nowhas an Approved ICT policy in place.
• ii. The matter is resolved.

10.2Password Deficiencies in the Aren Register Application

146. As previously reported, the Aren Register application does not have a password configuration in place that would allow the administrators of the system to implement password policy as per industry standards or the organization's IT policy. Failure to implement a password policy may allow attackers to gain unauthorized access to the system therefore exposing the Fund to possible loss or manipulation of its data.In the circumstances, the controls in place to prevent unauthorized access to the system could not be confirmed.

SubmissionsbytheAccountingOfficer

• 145.The Accounting Officer submitted that—

As a follow up, the Management engaged the Aren system vendor for refinement of the password module to cater for password complexity requirements. The deficiencies have Management General guidelines on password management: The continued availability, integrity, and confidentiality of the services and information provided by Water Fund ICT facilities are essential for the successful operation of Water Fund's business. The potential threat to the security of thesefacilitiesrequiresWater Fund to ensure it has appropriate password management guidelines.Recommendations from the ICT department and current industry standardswereused as a basis for bestpracticewithin thesepolicies.The Aren System Vendor Engagement had been annexed in the Management responses.

ObservationsbytheCommittee

• 146.The Committeeobserved that
• i.The deficiencies have been addressed through the Approved ICT Policy under Section 2.8.1.5 Password Management General guidelines on password management
• ii. The matter is resolved.

5. Long Outstanding Receivables

• 147.The statement of financial position reflects receivables from non-exchange transactions balance of Kshs.364,003,433 as disclosed underNote 16to the financial statements which includesKshs.172,054,967 that hasbeen long outstanding with no movement during the year under review.Though these advances wereassessed as doubtful and provided for in the financial statements,adequate control measures andsafeguards to the signed agreements to repay the debts were not provided for audit. In the circumstances,adequate control measures andrecoverabilityofthereceivablesfromnon-exchange transactionsbalance of Kshs.172,054,967 could not be confirmed.

Submissions by the Accounting Officer

148.The Accounting Officer Submitted that respective County Governments.It's also expected that there will be change of strategy pertaining to disbursements to projects and specific strategies to WSPs in the list of provisions/questioned costs.The Board of Trustees and management have engaged governors of the Counties of Garissa, Taita Taveta, Samburu, Vihiga, Nakuru, Kakamega and Kajiado with the aim of resolving the long outstanding receivables.In these engagements, the counties of Taita Taveta, Kajiado and Garissa committed to refund the amountsinquestionbytheendof thefinancialyear2023/24.

149. Water Fund has further, engaged the services of Quality Assurance Monitors (QAMs), who are assigned specific counties with WSTF projects. The QAMs have been tasked with ensuringthattheimplementingpartnersintheirareasofjurisdictionprovidesatisfactory reports in a timely manner.WSTF has also introduced a platform on which all reports and other relevant documents are uploaded at the end of every month. The program teams review the reported documents and reports based on the quality and timeliness. The receivables are assummarizedintable3below.

Table3:SummaryofReceivablesforFY2022-2023

| Donor Partner | Project Issue | Opening balance | Statusas atMarch 2025 | |----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|------------------------------------------------------------------------| | Extension- County | KFW/BMGFBabaDogoWaterTheamounthasbeenal698,677 Nairobilong outstanding receivable duetolackofmonthly reports. When the reports wereavailedtheywere deemed tobe supporting an expenditure for a call that hadbeenclosedandcould not be accepted. | | The Development Partner recommended for writeoffofthe outstandingfunds | | KFW/BMGFBullaArabiaAndThe BullaGaral Call 7- | amount questionedbyauditorsas moniesspentonVATand thusWSTFreversedthe expenditure, therefore havingit as areceivable | was2,302,552 | Technical Audit undertaken and Issue recommended forclosure | | KFW/BMGF|Bar Nyawita Project- County | KowinoThe amount has not been|802,782 Waterlaccountedfor,itrestsinthe SiayaWSP's bank account,as theyawaitforapprovalto spend itonactivitiesthat werenotintheoriginal Financing agreement. | | Technical Audit undertaken and Issuerecommended forclosure | | KFW/BMGFGarissa PlaygroundPSF | PrimaryThe amount had not beenl2,881 accountedforinthereports toWSTF,thustreatedasa longoutstandingreceivable | | Technical Audit undertaken and Issuerecommended for closure |

| Donor Partner | ProjectIssue | Opening balance | StatusasatMarch 2025 | | |------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|----------------------------------------------------|-----------| | KFW/BMGFKiambiu Extension County | WaterThe amount has been al6,882,498 Nairobillong outstanding receivable duetolackofmonthly reports. When the reports wereavailedtheywere deemedtobesupportingan expenditure for a call that had already been closed and could not be accepted. | | Technical undertaken Issue recommended forclosure | Audit and | | KFW/BMGFMathare Project- County | The eamounthasbeena3,493,298 SustainabilityWaterllong outstanding receivable Nairobilduetolackof monthly reports.When thereports wereavailed 1theywere deemed tobesupporting an expenditurefor acall that hadalreadybeenclosed and could not be accepted. | | Technical undertaken Issuerecommended forclosure | Audit and | | KFW/BMGFMbale Household Sanitation Project Amatsi- Vihiga County | | 1,844,502 | Technical undertaken Issue recommended for closure | Audit and | | KFW/BMGFMitunguu Town/The Household Sanitation Meru County | amount questionedbyauditorsas Project-monies spent on VAT and thusWSTFreversedthe expenditure, therefore havingit as areceivable | was836,042 | Technical undertaken Issuerecommended forclosure | Audit and | | KFW/BMGFNaromoru Household Sanitation Laikipia County | The amount questioned by auditors as Project-monies spent on VAT and thusWSTFreversedthe expenditure, therefore having it as a receivable | was130,924 | Technical undertaken Issue recommended for closure | Audit and | | KFW/BMGFNolturesh Household Sanitation Makueni County | NzauiThe amount had not been5,467,479 accountedforinthereports Project-to WSTF,thus treated as a long outstanding receivable. Follow-upof thematter led to revelation that the amountshadbeenspenton non project activities. | | Demand issued totheIPwith expectation refund | letter of |

| Donor | Partner | ProjectIssue | | Opening balance | StatusasatMarch 2025 | | |-----------------|----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|-------------------|-----------------------------------------------------------------------------------------------------|------------| | KFW/BMGFOyugis | Project KfW Construction Water Tanks laying of water pipelines households within Oyugis Town | WaterInadequate support IV-ProjectExpenditures ofKsh.12,530,543 and to | of | to12,530,543 | Supporting document for 12,000,000 provided and demandletterissued torefund530,543 | Ksh. was a | | KFW/BMGFMuranga | Household SanitationProject | SouthThe amount has notbeenl4,160,927 accountedfor,it rests inthe WSP'sbank account. Thisis( related issues (land issues) thathaveledtonon- utilizationofthefunds. | due to project | | The projectfunds have beenverified andiswithheldin the IPs account.Theissue is recommended closure. | bank for | | | KFW/BMGFKapenguria Household Sanitation- Pokot | Theamounthasnotbeen1,287,466 accountedfor,itrestsinthe West/WSP'sbankaccount,as theyawaitforapprovalto spend itonactivitiesthat werenotintheoriginal Financing agreement. | | | Technical undertaken Issue recommended forclosure | Audit and | | KFW/BMGFKapsoit | IV-Kericho County | SosiotQuestioned costsled Water Project -KfWreversal of expended funds | t | to7,105,184 | Technical undertaken Issue recommended for closure | Audit and | | KFW/BMGFKapkwen | Ext KfW Bomet County | PipelineQuestioned costs led tol2,684,904 IV-reversalofexpendedfunds | | | Technical undertaken Issuerecommended forclosure | Audit and | | COVID19 | Nairobi WaterLack COVID-19 | of documents | supporting309,045 | | Project Issues have been addressed therefore recommended closure | | | CLSG | Gusii Water Sanitation Co Ltddocuments CLSG | &Lack of | supporting2,585,000 | | Demandletterswere issued Management tothe Implementing Partner | by | | CLSG | KirandichWater &Lack Sanitation CoLtdldocuments CLSG | of | supporting/78,490 | | Demandletterswere issued Management to the | by |

| Donor | Partner | ProjectIssue | Opening balance | StatusasatMarch 2025 | |---------|-----------------------------------------------|---------------------------------------------------------------------------------|-------------------|-----------------------------------------------------------------------------------------------------------------| | | | | | Implementing Partner | | CLSG | Lamu Water Sanitation Co CLSG | &Lack of supporting42,725 Ltdldocuments | | Demandletterswere issued by Managementtot the Implementing Partner | | CLSG | Wajir Water SanitationCo CLSGdocuments | &Lack of supporting|10,866 | | Demandletterswere issued by Management to the Implementing Partner | | CLSG | Kakamega Water Sanitation Co. CLSG | CountylQuestioned costsled to50,095,350 Andreversal ofexpendedfunds | | Project Issues have been addressed therefore recommended for closure | | CLSG | &SanitationCoLtdreversal ofexpendedfunds CLSG | Nakuru Rural WaterQuestionedcostsled tol14,185,538 | | Project tIssues have been addressed therefore recommended for closure | | CLSG | Sanitation CLSG | Nyahururu Water &Questionedcostsledtol1,704,846 CoLtdreversal of expended funds | | ProjectIssues have been addressed therefore recommended for closure | | CLSG | Limuru Water Sanitation CLSG | &Questionedcostsledto96,860 CoLtdreversal of expended funds | | Project Issues have been addressed therefore recommended closure | | CLSG | NoltureshWater&Questioned Sanitation CLSG | 1costsledto580,150 CoLtdreversal of expended funds | | Demand letter issued to theIPwith expectation of refund | | IFAD | Gachiege WRUA | Court case | 7,653,000 | The project funds have been verified and is withheldin the IPs bank account.Theissueis recommended for closure. |

| Donor | Partner | Project Issue | Opening balance | StatusasatMarch 2025 | |---------|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|------------------------------------| | IFAD | Gatare CFA | Questioned 1 costs led to301,671 reversal of expended funds | | Project completed | | IFAD | Irangi CFA | Questionedcostsled to1,963,000 reversalofexpendedfunds | | Project completed and issue closed | | IFAD | Kabage CFA | Questionedcosts ledtol1,061 reversal of expended funds | | Project completed | | IFAD | Kabaru CFA | Questionedcostsled tol67,700 reversalofexpendedfunds | | Project completed | | IFAD | Kimakia CFA | Questioned costsled tol1,647,638 reversal of expended funds | | Project completed | | IFAD | Lower WRUA | MaraguaQuestioned 1costsledto565,484 reversal of expended funds | | Project completed | | IFAD | Lower WRUA | ThangathalQuestionedcosts led tol272,900 reversal of expended funds | | Projectcompleted | | IFAD | MEFECAPCFA | Questionedcostsledto1,986,952 reversal ofexpendedfunds | | Project completed | | IFAD | Middle WRUA- Nithi | MutongalQuestioned costs led tol817,113 Tharakalreversal of expended funds | | Project completed | | IFAD | NairobiWRUA | Structural issues on the3,628,450 Damledtodiscomfortin accepting financial documents submitted by theWRUAandthus the amountsavailed ares still long outstanding. | | Project completed | | IFAD | SabaWRUA | Questioned costsled to2,939 reversal ofexpendedfunds | | Project completed | | IFAD | Kiambu County | Thika Mid WRUA-Questioned costs led to5,282 reversal of expendedfunds | | Project completed | | IFAD | Upper GuraWRUA | Questioned costs led to322,091 reversal of expended funds | | Project completed | | IFAD | KaruaHills CFA | Questionedcostsledtol400,000 reversal of expended funds | | Project completed | | IFAD | Lower WRUA | MathioyaQuestionedcostsledtol4,480 reversal ofexpendedfunds | | Project completed | | IFAD | Lower WRUA | ThanantulQuestioned costs led tol100,000 reversal ofexpendedfunds | | Project completed | | IFAD | Lower WRUA | ThingithulQuestioned costs led tol1,536,000 reversal ofexpendedfunds | | Projectcompleted |

| Donor | Partner | ProjectIssue | Opening StatusasatMarch balance 2025 | | |-----------|------------------------------------------------|--------------------------------------------------------------------------|----------------------------------------|-----------------------| | IFAD | LowerThuciWRUAlQuestioned | costsled reversal ofexpendedfunds | to1,810,350 | Project completed | | IFAD | South WRUA- County | MathioyalQuestioned costs led to56,700 Murangareversal of expended funds | | Project completed | | IFAD | Upper WRUA | ThingithulQuestioned 1costsled reversal of expended funds | 1to25,358 | Project completed | | IFAD | Thika WRUA- County | UpperQuestioned costs led Kiambureversal of expended funds | to|49,880 | Project completed | | EDECPIRA | Garma-MugurWaterLack Project- County | of reports Samburulsupporting documents | andl6,842,619 | Projectcompleted | | EDE CPIRA | Ilimnkush WRUA-Lack Kajiado County | of reports supporting documents | and798 | Cleared | | EDECPIRA | Maktau Bus County | Park|Lack of reports PSF- Taita Tavetasupporting documents | and2,909 | Cleared | | GGEP | Kochodin Turkana County | WRUA-Courtcase | 5,536,954 | An ongoing court case | | GGEP | HarajabWATSAN | Lack of reports supporting documents | and144,253 | Money refunded | | GGEP | LibahlowWATSAN | Lack of reports supporting documents | and101,525 | Money refunded | | GGEP | ShebtaCaadWatsan | Lack of reports supportingdocuments | and3,476,372 | Money refunded | | J6P | Mrima Project- County | CLTSLack of reports Kwale|supporting documents | and3,141 | Project completed | | J6P | Mrima Sanitation/Lack Project- County | of reports Kwale|supporting documents | and4,788 | Project completed | | J6P | Mwangani Sanitation Kwale County | Lack of reports Project-supporting documents | and5,121 | Project completed | | J6P | Bungoma Primary|Lack San. Laikipia County | of reports Project-supporting documents | and32,475 | Project completed | | J6P | KwaleWasco | Lack of reports supporting documents | and2,067 | Project completed | | J6P | Mbuguni WRUA-Lack of | reports | and1,598 | Projectcompleted |

| Donor | Partner | ProjectIssue | Opening balance | Status as atMarch 2025 | | |----------|-----------------------------------------------------|------------------------------------------------------|-------------------|-----------------------------------------|-------------------| | | Kwale County | supporting documents | | | | | J6P | Mwangani Project- County | CLTS|Lack of reports Kwalelsupportingdocuments | and7,136 | Project completed | Project completed | | J6P | Laikipia WaterBill | County/Lack of reports supportingdocuments | and309,500 | Projectcompleted | Projectcompleted | | GOK | Nyandarua Sanitation GoK | Lack of reports Project-supporting documents | and2,657,760 | Projectcompleted | Projectcompleted | | GOK | Hulugho Reverse/The Osmosis Project- Garissa County | project Watervandalized | was973,690 | Project completed | Project completed | | GOK | Ministry Of WaterLack and Sanitation | of reports supporting documents | and161,090 | Project completed | Project completed | | CPC-SIDA | Kimangao and Project | WaterlLack of reports Sanitationsupporting documents | and1,075,603 | Project completed | Project completed | | MTAP | Mchelelo Primary School | yLack of reports supporting documents | and26,525 | Projectcompleted | Projectcompleted | | EUSHARE | Kone Tana River County | Community-Matterreported toEACC | 6,142,945 | Project Issues under consideration EACC | by | | EUSHARE | Manda Watsan Project- Lamu County | MaweniMatterreportedtoEACC | 383,034 | Project Issues under consideration EACC | by | | EUSHARE | Quachacha- Marsabit County | Lack of reports supporting documents | and1,025,487 | Project completed | Project completed | | | Total | | 172,054,968 | | |

Observations by the Committee

150.TheCommitteeobservedthat-

• i) Kshs. 33,172,113 had been accounted for through provision of supporting documents refunds while Kshs.138,882,855 had not been supported.

2. ii) The matter is unresolved.

RecommendationsoftheCommittee

151.TheCommitteerecommendedthat-

• i.Within six months upon the adoption of this report the Accounting Officer must provide a report and supporting documentation on the recovery of the pending amount of Kshs.Kshs.138,882,855 which had not been supported to theOfficeoftheAuditorGeneral forauditverification.

iiThe Accounting Officer ensures that all applicable accounting and financial controls, systems, standards, laws, and procedures are followed in the preparation of the financial statements in compliance with Public Finance Management Act, 2012 and in accordance with the standards prescribed by the Public Sector Accounting Standards Board as per Regulation 101(4) of the Public Finance Management (NationalGovernment) Regulations, 2015

29 0 7 26

Signature

Date:

HON.FATUMAZAINABMOHAMMED,M.P. CHAIRPERSON,SPECIALFUNDSACCOUNTSCOMMITTEE