158.

The quarterly consolidated FMR reports relied upon by the Bank were prepared by the
project. These FMRs were prepared by consolidating quarterly reports prepared by
each district and by headquarters and were held out to represent the expenditure by the
project in the relevant quarter. On the basis of this representation, disbursement by the
Bank’s LOA occurred. The FMRs themselves:
• Were prepared in Ksh and then converted to USD;
• Included bank reconciliation related solely to the Special Account and headquarters
Citibank’s account, no other bank reconciliation were provided for either
headquarters or any of the 28 districts local bank accounts;
• Contained no separate disclosure of non-current assets detailing assets purchased or
disposed during the relevant period;

Reconciliation of FMRs to vouchers provided

159. For the seven districts sampled, INT attempted to reconcile the FMRs to the vouchers
originally provided to INT. The reconciliation of the FMRs was problematic in Garissa
(see section below) and Tana River, due to the disconnect between ledger and voucher
numbering system detailed above but it did reveal a number of issues and raised a
number of concerns. Most notably, in some instances, there is little relationship
between the vouchers and the expenditure reported in the corresponding district FMRs.

160. From an audit perspective as there was no audit trail between the transaction vouchers
and the accounts of the projects and the FMRs, only significant substantive audit testing
coupled with detailed analytical reviews would allow INT to determine whether the
FMRs and annual financial statements were supported by actual expenditure.

161. All districts provided their original vouchers to INT, filed normally by the votehead in
which that expenditure was captured. The FMRs had seven broad voteheads under
which payments could be made in the project, in accordance with the loan and
disbursement conditions. For some districts, the value of these vouchers were itemized
in summary schedules. In turn, the schedules should have aggregated to the value of the
payments set out in the FMRs. This did not occur. For those districts where there were
no schedules linking the vouchers provided to the FMRs, a heightened risk existed that
there was insufficient vouchers and/or the vouchers do not support the claimed
expenditure.

162. A further issue encountered in the audit was the way in which multiple vouchers were
created for the same transaction. A single transaction was normally split into 3
components – GOK funded, IDA funded and VAT. At the district level, separate
vouchers were required for each component, however at headquarters a single voucher
which recorded the component split was produced. Normally a typical transaction
required either 1 or 2 or 3 cheques to be generated, depending on whether VAT was paid
to the supplier or direct to the Kenya Revenue Authority (see the separate section for a
fuller explanation of VAT implications and also the commentary of VAT cheques
issued). Where separate vouchers were created, copies of supporting documents were

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