Legal Audit findings

Review area

Findings

Recommendations

Management
comments

Obligations
relating to
provision of
water
services,
licences,
planning and
registration.

Lack of clarity on the scope of AWSB activities

in relation to the system of devolution
During our reviews and discussions with
management, we noted that although AWSB was still
carrying out its functions of construction and
maintenance of water provision facilities, its scope in
relation to dealing with WSPs was not clear since
WSPs were understood to operate within the
structures of the county governments. Other entities
in the water sector such as WASREB and WRMA also
had different opinions on the functions to be
performed at the national level vis a vis the county
government level. Although the Constitution under
Article 6(2) requires the national and county
governments to work on the basis of consultation and
cooperation, we noted that in this area, the national
and county government entities had challenges.

As a policy issue, the

management should follow up
with the concerned
government ministry and
continue engaging other water
sector entities in order to get a
way forward on the clarity on
the activities to be performed
by each entity in the sector.

Management
agrees with
the
recommendati
on that
continuous
engagement
and
cooperation is
needed to
ensure there is
harmony
between the
two levels of
Government
and sector
institutions,
and will
endeavour to
do so.

This will enable the entities to

clearly understand their
respective mandates and
scope. It will also create clear
reporting lines and processes
for interaction among the
entities.

Further and as a result, monitoring of activities

carried out by WSPs falling under the county
governments was affected since audits and other
supervisory activities could not be effectively carried
out.
This situation could also result in duplicity of roles
and failure to take responsibility and ownership
among the different water sector entities.
Obligations
relating to
provision of

Delays in obtaining approvals for

implementation of projects
AWSB is required to obtain approvals from various

All approvals should be

obtained prior to
commencement of projects.

Management
agrees with
the

Review area

Findings

Recommendations

Management
comments

water
services,
licences,
planning and
registration.

entities before commencement of projects including

from NEMA and WRMA. For instance, Part part VI of
the Environmental Management and Coordination
Act, Cap 387, requires proponents of any project to
submit EIA report before commencement and
implementation of the project.

Conditions included in the

approvals should be enforced
to ensure projects do not have
adverse effects to the
environment and where there
are adverse effects, controls
are put in place to prevent
significant exposure.

recommendati
on that all
approvals
necessary for
the
commenceme
nt of a project
should be
obtained prior
to
commenceme
nt and the
conditions
therein
continuously
monitored.

ASWB should conduct an

energy audit and prepare the
Energy Investment Policy and

Management
agrees with
the

During the course of our review of approvals from

NEMA and WRMA, we noted delays in obtaining the
same resulting in the commencement of projects
without all the required approvals. For instance, we
noted that works for various WASSIP-AF funded
projects such as construction of Northern Collector
Tunnel Phase 1, construction of Kiambu water supply
works, development of Kikuyu springs water sources
for Kikuyu town and drilling and equipping of
boreholes within Tanathi Water Services Board - Lot 1
in Kajiado had commenced without the approval of
WRMA.
AWSB explained that the delays in obtaining
approvals were as a result of lengthy internal
processes and capacity challenges in the entities
concerned.
Commencement and implementation of projects
without all the required approvals is non-compliance
with the legal requirements. Projects which may have
adverse effects on the environment may be
commenced without prescription of proper control
measures to mitigate the adverse effects.
Energy, air
emissions,
environmenta

Failure to conduct an energy audit and to

prepare an Energy Investment Policy and Plan
We noted that an energy audit had not been carried

Review area

Findings

Recommendations

Management
comments

l and waste
management
obligations.

out. Further, Energy Investment Policy and Plan had

not been prepared. The Energy (Energy Management)
Regulations, 2012 require energy audits to be carried
out as well preparation of the Energy Investment
Policy and Plan.

Plan to guide in effective

utilization of energy.

Accounting,
financial and
tax
obligations.

Non compliance with tax obligations to deduct

and remit taxes
Various tax legislations require that AWSB should
deduct and remit taxes to KRA on a timely basis.
During our review, we noted that AWSB had an
outstanding claim of Kshs479,915,049 from KRA in
taxes, penalties and interest as detailed below.

AWSB should follow up on the

outstanding tax issues and
ensure compliance moving
forward. The outstanding
claims should also be resolved
with KRA to avoid punitive
actions by KRA that may affect
the operations of the ASWB
such as freezing of the bank
accounts.

recommendati
on and will
institute
measures
geared at
ensuring
regular energy
audits are
undertaken for
its facilities.
Management
agrees with
the
recommendati
on and has
commissioned
the services of
a tax
consultant who
is advising and
assisting in the
resolution of
this liability.

Tax
Head

Princip
al Tax
(Kshs
000)

Penalti
es
(Kshs
000)

Intere
st
(Kshs
000)

Total
Tax
(Kshs
000)

Corpo
ration
tax

202,971

40,594

84,588

328,153

376

572

948

5,556

5,556

75,596

13,505

56,152

145,253

VAT
PAYE
Withh
olding

Review area

Findings

Recommendations

Management
comments

tax
Total

278,94
3

60,227

140,7
40

479,910

According to the correspondences reviewed, we

noted the following as causes of non-compliance:

Corporation tax AWSB did not remit corporation

tax since it was the managements understanding
that it was tax exempt. However, AWSB is not
included in the schedule of entities that are not
required to pay corporation tax and hence the non
compliance.
VAT AWSB did not deduct the required
withholding VAT from payments made to suppliers
including contractors.
PAYE Staff benefits including parking were not
taxed and remitted as required.
Withholding tax - AWSB did not deduct the
required withholding tax from payments made to
suppliers including contractors.

Failure to deduct and remit taxes as required meant

that AWSB was non -compliant with the various tax
laws including the Income Tax Act, VAT Act among
others and hence the outstanding claim continued to
attract penalties and interests.
Contract
management

VAT claimed by contractors over and above the

contract sum

Management
AWSB should seek in depth agrees with
expert clarity on this matter the

Review area

Findings
During our review of procurement of and payments to
contractors, we noted various instances where
contractors had indicated through correspondence to
AWSB that the contract sums with respect to their
respective contracts were exclusive of VAT. We also
noted that the bid documents indicated that prices
should be inclusive of all taxes while the agreement
with contractors was silent on this issue. We therefore
noted there was an issue in the interpretation of the
contractual documents.
One such contractor who had notified the Board
about exclusion of VAT in the contract sum was
Shanxi Geological Engineering Exploration Institute.
During the review, we noted that Shanxi Geological
Engineering Exploration Institute was awarded two
(2) contracts for water supply in Kiambu (Kshs
749,882,570) and in Muranga (521,015,817). In both
contracts, the contractor had written to the Board
citing that both contracts were awarded exclusive of
VAT.
Based on the contractors assertion vis-a-vis the
contractual documents, a task force was formed to
look into the issue and report on status of VAT on
Muranga and KiambuWater Supply contracts (Ref
AWSB/WaSSIP AF/Comp. 1/W-5/2013). The task force
recommended among other things that the Board
should settle the VAT as proposed by the contractor
or else appoint an adjudicator to resolve the issue.
Our review
From our review of the procurement documentation

Recommendations
in order to resolve the
same before making
payments on the same.

Management
comments

recommendati
on and will
seek further
advice from
procurement
experts.

Review area

Findings
(including contractual documents), we noted that
both agreements relating to this contractor indicated
the total contract sums without indicating whether
the same was inclusive or exclusive of VAT. Both
agreements also indicated that the agreement shall
prevail over all other contract documents such as the
letter of acceptance and the letter of bid among
other.
We also noted that the letter of bid did not state
whether the contract sum was inclusive of VAT or not
while the letter of acceptance from the contractor
stated that the contract sum was exclusive of VAT.
Further, the Bid Documents sent to the contractors
stated that all the prices shall be inclusive of taxes.
Analysis
Based on the fact that the bid documents obtained by
the contractor at the time of bidding stated that the
prices shall be inclusive of all taxes, it was clear to
the contractor that all the prices quoted would be
inclusive of taxes including VAT. Moreover, it was on
this basis that the Board conducted the evaluation
and selection of the best contractor, otherwise, the
contractors bid would have been non- compliant at
this stage.
The letter of acceptance issued by the contractor
purporting to exclude taxes from the contract sum
impliedly varied the terms of the bid documents. At
the point of receiving the letter of acceptance, the
Board should have considered seeking a clarification
from the contractor and if indeed the contractors

Recommendations

Management
comments

Review area

Findings

Recommendations

Management
comments

Staff taking part in the

procurement process should
sign declarations showing that
they do not have an interest in
the procurement of goods and
services. This should take
place every time a staff
member is appointed to serve

Management
agrees with
the
recommendati
on and will
open a Conflict
of Interest
Register for

contract sum was exclusive of taxes, the Board

should have re-evaluated whether or not the
contractors bid was compliant with the bid
documents/instructions to tenderers.
From our review, there was no evidence of reevaluation of compliance of the contractors bid.
Instead, after the letter of acceptance was issued by
the contractor (which mentioned that VAT was
exclusive), the Board proceeded to enter into an
agreement which agreement did not state whether
VAT was inclusive or not.

Public
procurement

In our view, the letter of acceptance amounted to a

counter offer which rendered the entire procurement
process void. However, it is not clear whether the
counter offer by the contractor was accepted by the
Board since the agreement did not indicate whether
the contract sum was inclusive of VAT. In fact, it can
be implied that since the bid documents indicated
that the contract sum would be inclusive of all taxes,
then the agreement was consistent with the bid
documents and amounted to another counter offer by
the Board which was accepted by the contractor.
Lack of evidence on declaration of conflict of
interest for staff involved in procurement
We noted that various staff members from different
departments are involved in the procurement process
through appointments to serve in the various
committees including tender opening committees
and evaluation committees. From our review of a
sample of procurement files, we did not note
evidence of declaration of conflict of interest by the

Review area

Findings

Recommendations

Management
comments

staff.

in a procurement process.

this purpose

The requirement should be

added as a criteria in checking
responsiveness of foreign
tenderers.

Management
agrees with
the
recommendati
on and will
include this in
the evaluation
criteria in
future
procurements.

Section 43 of the Public Procurement and Disposal

Act, 2005 prohibits an employee of AWSB or a
member of the Board or committee of the AWSB who
has a conflict of interest with respect to any
procurement from taking part in the procurement
proceedings or taking part in decision-making
regarding any arising therefrom.
This requires staff participating in the procurement
process not to have any conflict of interest. This fact
should be documented by staff signing forms
declaring that they do not have an interest in the
procurement.
This implies that staff taking part in the procurement
process may have an interest in the procurement
which may be undetected and hence not prevented.
Public
procurement

Lack of evidence of checking compliance by

foreign tenderers
During the review of the procurement process, there
was no evidence from the procurement documents
including the evaluation reports to show that AWSB
ensures that foreign tenderers participating in
international tenders source at least forty (40%)
percent of their supplies from citizen contractors.
The Public Procurement and Disposal (Preferences
and Reservation) Regulations, 2013 Legal Notice No.
114 of 2013 requires AWSB to ensure foreign
tenderers participating in international tenders source
at least forty (40%) percent of their supplies from

Review area

Findings

Recommendations

Management
comments

citizen contractors prior to submitting a tender.

This implies that foreign tenderers who have not met
the criteria might have been selected in breach of the
regulations.
Employment
and labour
relations
obligations

Employment
and labour
relations
obligations.

Lack of evidence of registration with the

Director of Occupational Safety and Health
Services
Section 8 of the Work Injury Benefits Act, 2007
requires AWSB to register with the Director of
Occupational Safety and Health services. During the
review, there was no evidence of such registration.

AWSB should register with the

Director of Occupational Safety
and Health services as
required.

Management
agrees with
the
recommendati
on and will
commence the
registration
process
Lack of evidence of display of statement on
ASWB should display a
Management
employees rights
statement of employees rights agrees with
There was no evidence of a statement on employees in a conspicuous place.
the
rights displayed in a conspicuous place within the
recommendati
organisation. Section 15 of the Employment Act, 2007
on and will
requires the employer to informing employees of
draft and
their rights by displaying a statement of employees
display a
rights in a conspicuous place.
statement of
This implies that employees may not be fully aware of
employee
their rights due to the non-compliance.
rights.