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Statement on Foresic Audit Report for Ministry of Education and Ministry of Medical Services

Statement on Foresic Audit Report for Ministry of Education and Ministry of Medical Services

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Treasury this morning released a forensic audit report for the for Ministry of Education and Ministry of Medical Services
Treasury this morning released a forensic audit report for the for Ministry of Education and Ministry of Medical Services

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Published by: H.E. President Uhuru Kenyatta on Jun 13, 2011
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OFFICE  OF  THE  DEPUTY  PRIME  MINISTER  &  MINISTRY  OF  FINANCE                                                                                  



PRESS  STATEMENT  ON  THE  FINAL  AUDIT  REPORT  ADDRESSING  THE   GOVERNANCE  CHALLENGES  IN  THE  KENYA  EDUCATION  SECTOR  SUPPORT   PROGRAMME  (KESSP)  UNDER  THE  MINISTRY  OF  EDUCATION;  AND  THE  PENDING   BILLS  AUDIT  OF  THE  MINISTRY  OF  MEDICAL  SERVICES                                                                   Members  of  the  Press   Ladies  and  Gentlemen   The   purpose   of   this   briefing   is   to   update   Kenyans   and   indeed   our   development   partners   on   the   (i)   progress   we   have   made   since   October   2009   in   addressing   governance   challenges   in   the   education   sector,   more   specifically   the   Kenya   Education   Sector   Support   Programme   (KESSP)   under   the   Ministry   of   Education,   and,   (ii)   the   audit   for   September   2008   on   the   Pending   Bills   for   Ministry   of   Medical   Services.     I. THE  KESSP  FORENSIC  AUDIT  

  Background  of  KESSP  Audit  

As  you  will  recall  last  year  on  the  15th  of  December,  2010,  I  informed  Kenyans  on   the   progress   made   in   undertaking   further   investigations   and   verification   of   suspected   cases   of   fraud   and   misappropriation   of   funds   in   the   Kenya   Education   Sector   Support   Programme   (KESSP).   The   preliminary   forensic   audit,   undertaken   by   the   Treasury,   indicated   that   while   the   education   sector   has   been   largely   well   managed,  certain  cases  of  fraud  had  been  found.   As   a   Government,   we   moved   swiftly   and   took   firm   measures.   The   officers   who   were  involved  in  the  misappropriation  of  these  funds  were  suspended  to  give  way   for   further   investigation   by   the   Kenya   Anti-­‐corruption   Commission.     Further,   following   the   investigations   by   the   Kenya   Anti-­‐corruption   Commission   these   officers  were  promptly  committed  to  court,  and  the  prosecution  of  their  cases  is   ongoing.   In  the  said  press  statement,  I  indicated  that  we  will  be  updating  Kenyans  once  the   outcome   of   the   final   audit   work   by   the   Internal   Audit   Department   (IAD)   was   concluded.       This   process   involved   the   verification   of   additional   documents   submitted   by   the   Ministry   of   Education,   as   well   as   on   site   or   physical   visits   to   512   primary   schools   out   of   26,000   schools   and   institutions   receiving   support   under   the   KESSP.   The   512   1

schools  were  selected  on  the  basis  of  risk  assessment  which  revealed  that  these   schools   represented   75%   of   the   issues   that   required   detailed   investigation.   The   audit   scope  covered  a  period  of  four  (4)  financial  years  running  from  July  2005  to   June  2009  of  the  programme’s  implementation.     The  forensic  audit  itself  was  carried  out  between  April  and  September,  2010  and   involved   the   Ministry   of   Finance   Internal   Audit   Department   (IAD)   with   technical   support  from  DFID.  This  audit  is  now  complete.     Outcome  of  the  Final  KESSP  Audit  Investigation     Ladies  and  Gentlemen     The  additional  audit  work  done  by  IAD  since  the  first  draft  report  was  issued  has   confirmed   that   ineligible   expenditure   from   the   KESSP   final   audit   is   Kshs.   4.2   billion,  having  reduced  from  the  original  figure  of  Kshs.  8.2  billion.     Out  of  the  ineligible  expenditures  of  Kshs.  4.2  billion,  a  large  percentagrelated  to   physical   infrastructure.   Physical   visits   to   the   schools   during   the   audit   confirmed   that  Kshs.  1.9  billion  did  not  reach  the  schools.     Additional  third  party  evidence  obtained  from  the  dispatching  bank  disclosed  that   the  funds  had  either  been  paid  to  institutions  which  were  not  registered,  or,  the   school  bank  accounts  into  which  disbursements  were  made  were  not  the  genuine   bank   accounts.   The   forensic   trail   was   able   to   determine   the   individual   account   numbers   and   details   to   which   the   returned   funds   were   deposited   and   later   withdrawn.     In   addition,   some   of   the   funds   totaling   Kshs.   3.1   million   were   deposited   in   bank   accounts  for  schools  which  did  not  have  TSC  codes  implying  that  the  schools  were   not   officially   recognized.   The   money   was   subsequently   withdrawn   by   individuals   whose  particulars  are  available.     Cases  concerning  imprests  amounting  to  Kshs.  8.2  million  could  not  be  accounted   for.     The  audit  discovered  a  discrepancy  relating  to  financial  monitoring  reports  (FMRs)   amounting   to   Kshs.   2.27   billion   which   amount   was   not   reconcilable   with   the   Ministry’s   cash   books   or   bank   account   balances.   The   forensic   trail   revealed   an   attempt  to  cover  up  the  discrepancy  through  manipulation  of  the  cash  books.  The   details  of  how  it  happened  and  the  individuals  involved  are  available.     In  summary,  the  IAD  report  contains  specific  information  on:     The  specific  bank  account  details  where  funds  were  wrongly  or  irregularly  paid   into;   Details  of  signatories  of  some  of  the  bank  accounts;   The  details  of  amounts  disbursed  into  the  wrong  accounts;  


The  details  of  confirmation  from    the  schools  that  were  to  receive  the  funds  as   tabulated  by  the  Ministry  of  Education  but  did  not  receive  the  funds  as  reflected   in  the  bank  payment  schedules;     Detailed  reconciliation  of  the  financial  monitoring  reports  (FMRs)   occasioning  the  Kshs.  2.3  billion  difference;   The  reconciled  details  of  funds  received  from  both  Government  and   Development  Partners.       Conclusion  on  KESSP  Audit  Report     Despite  the  integrity  issues  flagged  herein,  I  wish  to  reiterate  that  it  is  important   that   we   are   cognizant   of   the   significant   successes   that   KESSP   has   secured   in   enhancing  our  education  goals  for  the  period  it  has  been  under  implementation.   This   is   demonstrated   by   overall   improved   schools   infrastructure   that   facilitates   conducive   learning,   increase   in   the   school’s   enrollment   rate,   improved   school   retention  rate,  improved  transition  rate  from  primary  to  secondary  schools,  and,   tremendous   improvement   and   enrollment   in   non-­‐formal   schools   including   in   prisons  and  slum  areas  etc     The  embezzled  amounts  I  have  referred  to  in  this  statement  amount  to  about  1%   of  the  total  amount  of  Kshs.  489  billion  allocated  to  KESSP  from  2005  to  2009.       Whereas   this   is   not   meant   to   justify   nor   support   the   misappropriation   tabled   in   this   final   audit   statement,   any   interpretations   of   the   report   must   be   made   against   the   commitment   and   resolve   of   the   Government,   and   particularly   the   Treasury,   in   sustaining  governance  and  anti  corruption  interventions  in  all  spheres,  especially   within  its  core  investment  sectors.       Further,   remedial   measures   have   also   been   instituted   to   enhance   the   control   environment   in   the   Ministry   of   Education.   Treasury   will   continue   to   monitor   the   implementation   of   the   Accountability   Action   Plan   agreed   on   between   development   partners   and   Ministry   of   Education   officials   on   a   regular   and   consistent  basis.       Actions  taken  and  Way  Forward  on  KESSP  Audit       A  copy  of  the  KESSP  report  has  been  shared  with  Head  of  Public  Service  &  and  the   Permanent  Secretary,  Ministry  of  Education  to  initiate  administrative  action  in  line   with   the   Code   of   Regulations,   and   further   reinforce   adhearance   to   the   Government  Financial  Management  Act  and  Regulations.     I  wish  to  hereby  inform  the  public  that  the  audit  report,  together  with  the  names   of  individuals  both  in  government  and  non  civil  servants  who  were  involved  in  the   3

suspected   fraud   have   now   been   forwarded   to   the   police   for   immediate   further   action.   The   Treasury   and   the   Ministry   of   Education   would   wish   to   see   the   individuals  arrested  and  charged  without  further  delay.               II  MINISTRY  OF  MEDICAL  SERVICES  PENDING  BILLS  AUDIT     The  audit  of  pending  bills  was  undertaken  by  the  Internal  Audit  Department  (IAD),   to   inquire   into   the   pending   bills   at   the   Kenya   Medical   Supplies   Agency   (KEMSA)   for  FY  2007/2008.  The  aim  of  the  exercise  was  mainly  to  determine  the  validity  of   the  reasons  for  the  pending  bills  at  KEMSA  up  to  the  end  of  the  FY  2007/2008  as   well  as  conformity  to  regulations  and  procedures.     Key  Findings  of  the  KEMSA  Audit  Report     The   figure   presented   by   the   Ministry   of   Medical   Services   for   pending   bills   as   at   30th  June  2008  of  Kshs.  1,593,976,690.08  was  erroneous.  After  adjustments  which   include   deliveries   up   to   30th   October   2008   and   the   effect   of   exchange   rate   differences,  the  figure  increased  to  Kshs.  1,646,332,693.35.     The  main  cause  of  the  pending  bills  was  under  provision  to  KEMSA  by  the  Ministry   of   Medical   Services.   A   total   amount   of   Kshs.   886,693,090.00   was   given   to   KEMSA   against  a  budget  provision  of  Kshs.  2,943,848,735.00       The   audit   points   to   failure   by   the   Ministry   of   Medical   Services   to   transfer   funds   meant  for  drugs  procurement  as  the  main  cause  of  the  pending  bills  at  KEMSA.     The   audit   report   specifically   points   out   instances   where   the   Ministry   of   Medical   Services   records   of   disbursements   to   KEMSA   are   not   reconcilable   with   the   amounts   received   in   KEMSA’s   cash   book.   Further,   discrepancies   were   noted   between  the  Ministry’s  IFMIS  records  as  compared  to  the  Ministry’s  bank  account   with  Cooperative  Bank.     The  audit  also  highlights  significant  weaknesses  in  the  internal  control  framework,   transparency,  accountability  and  governance  mechanisms  at  KEMSA  and  failure  to   adhere  to  the  statutory  procurement  procedures.     Action  Taken  on  MOMS  Audit  Report     4

Though   the   pending   bills   audit   report   on   the   Ministry   of   Medical   Services   was   concluded  and  forwarded  to  the  Kenya  Anti  Corruption  Commission  in  2008,  we   are  dissatisfied  with  the  pace  of  investigations  if  any,  and  are  handing  over  a  copy   of   the   same   to   the   police   for   their   further   investigation   and   prosecution.   We   urge   that  the  file  be  handled  with  expediency.         CONCLUSION  AND  WAY  FORWARD     The   lessons   learned   from   these   audits   with   respect   to   the   weaknesses   in   the   control   environment   will   inform   further   work   in   the   rest   of   the   ministries   in   order   to  ensure  strengthened  public  financial  management  in  the  entire  government.     In   this   regard,   the   Treasury   is   continually   making   great   strides   in   initiating   and   sustaining   capacity   building,   financial   regulation,   guideline   development   and   oversight   controls   within   the   public   service   so   as   to   develop   an   optimally   efficient   and  effective  public  financial  management  system.     I   specifically   refer   to   the   re-­‐engineered   IFMIS   that   the   Treasury   is   currently   spearheading.   This   system   will   seeks   to   seamlessly   integrate   and   automate   key   financial   management   end   to   end   processes,   with   requisite   authorization   and   security   frameworks,   in   such   a   way   that   transgressions   of   this   nature   will   be   a   thing  of  the  past.  High  spending  ministries  including  the  ministry  of  education  and   the  ministries  of  health  are  among  the  pilot  ministries  being  fast  tracked  for  the   full  implementation  of  the  re  engineered  IFMIS.     At   the   same   time,   the   opportunities   that   the   new   constitution   stipulates   as   regards  effecting  principles  of  ethics,  leadership  and  integrity  of  state  and  public   officers   will   inevitably   offer   a   more   accountable   and   effective   public   service.   These  tenets  will  also  be  reinforced  by  the  enhanced  offices  of  the  National  Police   Service,  Attorney  General,  Director  of  Public  Prosecution  and  the  Ethics  and  Anti   Corruption  Commission.     All  these  interventions  will  ensure  that  the  public  resources  are  no  longer  at  the   same  level  of  risk  as  before.       In   this   regard,   I   wish   to   reiterate   that   the   Treasury   is   developing   a   training   programme  on  financial  management,  and  on  the  Re-­‐engineered  IFMIS,  which  we   intend   to   make   mandatory   for   officers   involved   in   management   of   public   resources  at  the  national  and  county  government  levels.     I  wish  to  further  emphasize  that  the  Government  remains  strongly  committed  to   providing  adequate  resources  to  the  education  and  health  sector  programmes  as   it  is  the  surest  way  of  attaining  our  development  agenda  as  articulated  in  Vision   2030.   Our   resolution   of   these,   and   all   other   concerns   in   the   sector   will   undoubtedly  affirm  our  resolve,  and  eventually  our  success.    


We   appeal   to   all   public   servants,   and,   to   our   children,   parents,   teachers,   development  partners  and  citizens  at  large  to  stand  by  this  commitment,  and  that   of  safeguarding  public  financial  resources.     I  wish  to  conclude  by  reaffirming  that  the  treasury  will  continue  to  play  its  role  in   ensuring  that  public  resources  are  not  only  expended  but  that  they  are  also  used   for   their   intended   purposes.   To   this   end   the   Treasury   has   been   making   public   details  of  public  finance  allocations  and  expenditure  including  on  our  website.  We   shall   endeavour   to   continue   with   this   resolve   in   conforming   with   the   new   constitution,  and  the  draft  Public  Financial  Management  Bill  under  development.       We  therefore  wish  to  put  all  Accounting  Officers  on  strict  notice  that  the  Treasury   will   not   tolerate   any   laxity   or   underperformance   in   the   responsibility   vested   upon   them   to   ensure   effective,   efficient   and   integrity   in   financial   management.   Strict   adhearance   to   the   Government   Financial   Management   Act   and   Regulations   is   not   optional,   and   all   officers   in   breach   of   their   responsibilities   under   the   Act   will   be   made  to  account.       ARID  LANDS  RESOURCE  MANAGEMENT  PROJECT     Before   I   conclude,   I   would   want   to   bring   to   your   attention   the   fact   that   the   Treasury  is  currently  undertaking  a  preliminary  investigation  into  suspected  fraud   and   misappropriation   of   funds   under   the   Arid   Lands   Resource   Management   Project   (ALRMP   II)   within   the   Ministry   of   State   for   Development   of   Northern   Kenya   and   Other   Arid   Lands.   The   Treasury   is   in   communication   with   the   World   Bank,   who   are   the   principal   partners   in   this   project,   to   allow   us   conclude   our   consultations   with   the   line   ministry   concerned,   as   well   as   initiate   an   in   depth   forensic  audit  in  following  with  the  laid  down  procedure.  We  will  be  informing  the   public  on  the  progress  and  outcome  of  this  audit.     Thank  you  and  God  bless  you,       Hon.  Uhuru  Kenyatta   Deputy  Prime  Minister  and  Minister  for  Finance     13th  June,  2011  


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