138.

Within the GOK Estimates for the Ministry, INT was advised that there is an estimate
which budgets for sundry income including bank interest and proceeds from the sale of
assets. No information, vouchers or other supporting documents were provided by the
project to INT for either FY07 or FY08 to indicate that any sundry income was received
under the project at either headquarters or at district level. The financial statements for
FY07 do not record any sundry income from either bank interest or the disposal of
assets. The FY08 financial statements record only interest income from the project
account with Citibank, Nairobi. It was noted that this interest earnings were not
transferred over into the statement of comparative budget and actual amount. ..

139. During the course of the audit it was confirmed that the project inherited assets
(including vehicles) from DMI, JIKA, and UNDP. It is clear from the financial records
of the project that assets donated to the project from other projects which were closing,
are always properly recorded.

IDA requirements on project asset disposals

140. Within the DCA there are no stated policies on the treatment of the sale proceeds of
Project assets, either during the life of the Project or on its closure, as no mechanism is
provided for transferring the ownership of those assets formally to the relevant
government ministry or to another successor project. An absence of clarity in relation
to dealing with project assets generally, creates an opportunity for embezzlement and
dissipation without proper accounting. The PAD, loan agreement, or other project
documents could benefit from more transparency, possibly specifically stating
appropriate policies or guidelines, and both the borrower (GOK in this instance) and the
Bank needs to agree on such policies or guidelines, and the ability to review or audit
such procedures. Under the IDA Credit Agreement the Bank may form the view that
the assets are the property of the government, but if the project is run by an independent
PIU outside of government systems, or by a PIU that does not apply relevant
government regulations to its asset management, then there may be additional
requirements for the Bank to ensure that accountability is maintained.

141. The failure to require by the Bank to stipulate within the DCA or project documents,
how the projects are to account for non-current assets, which comply with appropriate
accounting standards, increases the risk of mismanagement and loss of the underlying
assets, without attributing any accountability.

142. GOK has strict controls and policies for Government owned vehicles (Ministry of Roads
and Public Works) and it seems logical that the project should avail itself of these
procedures. It seems that the project has adopted some procedures (such as in some
instances obtaining inspection reports before procuring quotes for repairs) but it is
unclear how consistent it is applying those procedures.

143. The Bank should undertake a stocktake of the current fleet for the Project, prior to
embarking on the successor project to ascertain the true asset position. The stocktake

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