153.

Monthly expenditure returns, FMRs and the annual financial statements were all
purportedly based on vouchers, ledgers, cashbooks and fixed asset registers of the
districts and headquarters.

154. During the course of the audit it became apparent that some of the project information
was not readily useable and due to different underlying assumptions and purposes, the
reports themselves did not easily reconcile with each other or the underlying
transactions. To illustrate, the monthly expenditure returns did not match the quarterly
FMRs as the returns included ‘committed’ expenditure when FMRs only include actual
expenditure. The project activity and various progress reports did not refer back to
annual work plans, making it difficult to identify whether approved projects were
implemented or whether variations had occurred.

155. Computer printouts of ledgers, which were only available for two districts, supported the
FMRs and not the expenditure returns. It was observed that in these two districts, there
was no audit trail from the ‘ledger’ printouts to the vouchers, as unique computer
generated voucher references replace the manually generated numbers created and
written on the vouchers at the time of the transaction. When conducting a walk-through
audit test commencing with the physical voucher, the auditor would be reliant on
whether or not the computer generated reference was manually recorded or not – if it
was not, then the audit trail was broken.

156. As is the case in many Ministries, the relevant Integrated Financial Management
Information System (IFMIS) modules were not fully operational over this project. INT
were advised by the Finance and Administration Coordinator for the project, Ruth
Gathii, that the project did not have complete ledgers for the FY06/07 and FY07/08
years and further confirmed the annual financial statements for the project for those
periods were based on the FMRs which were prepared from the payment vouchers and
cashbooks. Despite several requests, no work-papers for either FY06/07 or FY07/08
were provided which reconciled the annual financial statements to the FMRs. In
essence ledgers did not exist for all districts for the periods audited. The financial
covenants set out in article 4.01(a) required the borrower to maintain a financial
management system, including records and accounts, and prepare financial statements in
a format acceptable to IDA, adequate to reflect the operations, resources and
expenditures related to the Project. It is questionable whether this covenant was met.

157. As part of the forensic audit work program, tests were devised to determine the
reasonableness and reliability of both the FMRs and annual financial statements. Given
the FMRs were the trigger and supporting document for withdrawal applications
submitted to the Bank, the degree to which these documents could be relied upon was
important. Audit tests were performed to attempt to reconcile the FMRs to the
underlying vouchers provided by the project, across the districts sampled. The
‘findings’ section of this report captures the observations of the underlying transaction
vouchers reviewed, which were provided by the project.

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