Document of The World Bank

FOR OFFICIAL USE ONLY

C

Report No: 34590

IMPLEMENTATION COMPLETION REPORT (IDA-3562 - KE)

CREDIT

IN THE AMOUNT OF SDR 11.9 (USD15.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF KENYA

FOR A

PUBLIC SECTOR MANAGEMENT TECHNICAL ASSISTANCE PROJECT

December 31,2005

Public Sector Reform and Capacity Building Unit Country Department 5 Africa Regional Office

This document has a restricted distribution and may be used by recipientsonly inthe performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUNALENTS

(Exchange Rate)

CAS co DCA DFID DO DPM DPP EC FMS GOK HIPC ICB ICR IDA IFMIS M&E MDAs MLG MoF MoPND MTEF MTPRS NAO NCB NGO PAC PEMFA PFM PCU PMEC PRSP PSM PS QAG SDR SIDA SWAP TTL

Currency Unit = Kenya Shillings (Ksh.) US$1 = Ksh.78.00 at appraisal US$1 = Ksh.72.55 as of 12/28/2005

FISCAL. YEAR

July 1 - June 30

ABBREVIATIONS AND ACRONYMS

Country Assistance Strategy Cabinet Office , Development Credit Agreement Department for Intern'ational Development Development Objective Directorate of Personnel Management Directorate of Public Procurement European Commission Financial Management System Government of the Republic of Kenya Heavily Indebted Poor Countries International Competitive Bidding Implementation Completion Report International Development Association Integrated Financial Management Information System Monitoring and Evaluation Ministries, Departments and Agencies Ministry of Local Government Ministry of Finance Ministry of ~ l&ing and National Development Medium-Term Expenditure Framework Medium Term Pay Reform Strategy National Audit Office National Competitive Bidding Non-Governmental Organization Public Accounts Committee Public Expenditure Management and Financial Accountability Public Financial Management Program Coordination Unit Payroll Management and Establishment Control Poverty Reduction Strategy Paper Public Sector Management Permanent Secretary Quality Assurance Group Special Drawing Rights Swedish International Development Agency Sector Wide Approach Task Team Leader

KENYA PUBLIC SECTOR MANAGEMENT TECHNICAL

ASSISTANCE PROJECT (PSMTAP)

CONTENTS

1 . Project Data ................................................................................................................... 1 2 . Principal Performance Ratings ................................................................................... 1 3 . Assessment of Development Objective and Design. and of Quality at Entry .............. 2

...................................................................... 4 . Achievement of Objectives and Outputs 4 .................................................. 5 . Major factors affecting implementation and outcome 9 . . .

6 . Sustainability ............................................................................................................ 10 7 . Bank and Borrower performance ................................................................................ 11 8 . Lessons Learned ........................................................................................................ 13 9 . Partner comments ........................................................................................................ 14 10 . Additional Information ............................................................................................. 16

. Annex 1 : Key Performance Indicators ........................ : .......................................................... 24 Annex 2: Project Costs and Financing ................................................................................... 28

............................................................................... Annex 3: Economic Costs and Benefits 30 Annex 4: Bank Inputs ............................................................................................................. 31 Annex 5: Ratings for Achievement of Objectives/Outputs of Components .......................... 33 Annex 6: Ratings of Bank and Borrower Performance ......................................................... 34

............................................................................... Annex 7: List of Supporting Documents 35

1. Project Data .

Project ID: PO66490 Team Leader: Sahr Kpundeh ICR Type: Core ICR

Project Name: PUB.SEC.MGMT.TA TL Unit: AFTPR Report Date: December 3 1,2005

Name:

I I .

L/C/TF Number:

Public Sector Management Technical Assistance Project

Countiy/Department: 1 KENYA/AFCO5

Sector/subsector: Theme:

PPFI-Q2400; PPFI- 4240 1 ; IDA-35620; TF- 52274

Region: 1 Afiica Regional Office

Central government administration (92%); Law and justice (8%) Public expenditure, financial management and procurement (P); Other accountability/anti-corruption (P); Law reform (S); Judicial and other dispute resolution mechanisms (S)

2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

I I

Revised/Actual 11/12/2001 06/27/2003 06130/2005

Borrower/lmplementing Agency: Other Partners:

Original 11/12/2001 06/27/2003 1213 112004

KEY DATES PCD;

Appraisal: Approval:

The Republic of KenyafDirectorate of Personnel Management

Outcome: Sustainability:

Institutional Development Impact: Bank Pedormance:

Borrower Pedormance:

0611 212000 11/09/2000 0713 11200 1

STAFF Vice President: Country Director: Sector Manager: Team Leader at ICR: ICR Primary Author:

U L M U U

Qualiiy at Entry: Project at Risk at Any Time:

Effective: MTR:

Closing:

Current Gobind Nankani Colin Bruce Helga Muller Sahr Kpundeh Smile Kwawukume

QAG (if available) Not Applicable Yes

At Appraisal Callisto Madavo Harrold Wackrnan Brian Levy Hany Garnett

ICR U

-

-2-

3. Assessment of Development Objective and Design, and of Quality at Entry.

3.1 Original objectives

The development objective of the Public Sector Management Technical Assistance Project (PSMTAP) was to improve governance by putting in place systems and human resources capacity that are necessary to achieve greater fiduciary responsibility and reduce corruption in the public service.

, The objectives and design of PSMTAP need to be evaluated within the context of the Government of Kenya's (GOK) own initiatives on public sector reform and the World Bank's Country Assistance Strategy (CAS). The objectives were consistent with the World Bank's CAS for Kenya (Report No. IDAm98-137, September 24, 1998). Public sector reform is a key ingredient for sustained development, poverty reduction, and growth in Kenya. The project aimed at supporting three areas of emphasis in the CAS: (i) public sector restructuring to create a more responsive and effective public sector, (ii) public expenditure management reform to ensure efficient use of public resources, and (iii) strengthening accountability mechanisms to restore institutional checks and balances and fight corruption. The PDO remained relevant to the CAS and government priorities.

The objectives were also consistent with the government's stated needs, priorities, and development agenda. In 1998, the Government produced a strategy document titled "Civil Service Reform Medium Term Strategy 1998-2001 (CSRP 11)". The document recognized the need for an efficient public sector as a pre-requisite for sustained growth. A significant feature of the strategy was that it situated civil service reform within a broader and comprehensive public sector reform agenda that would include a medium term expenditure framework, public financial management, teachers service reform, parastatal reform and privatization, and local government reform. Subsequently, in July 1999, the Government announced a major public sector reform initiative, with emphasis on addressing the declining productivity in the civil service. Two workshops were held in October 1999 and February 2000 to discuss the dimensions of the reform program. The program was consistent with the CAS and the government's reform program in that it aimed at supporting reforms that would involve reducing the number and functions of ministries, commercialization, divestiture or closure of non-core functions, rationalizing staffing levels in the public sector, public sector pay reforms, aggressive and transparent privatization of major parastatal firms, and establishing appropriate regulatory structures. It is in this context that the PSMTAP (No. 21397-KE) was approved as a 3 year project.

3.2 Revised objectives

The project objectives were not revised.

3.3 Original components:

The following provides a summary of the objectivesJtargets and project costs for each of the four components of the project.

Component 1. Public Service Reform (US$8.4 million)

The objective of this component was to create a leaner and highly motivated public service, better equipped to deliver services to the public. Under the component, the project was expected to support the preparation of exit plans for functions to be abolished, privatized or contracted out. It was also suppose to support the establishment of benchmarks against which to measure service delivery and public service performance and the development and implementation of service delivery surveys to monitor and report

on performance. Furthermore, it was supporting the implementation of an Integrated Payroll and Personnel Database system (IPPD) in the Civil Service and the Teachers' Service; the development of a comprehensive performance based pay scheme; the preparation and initial implementation of plans to improve pay benefits; the preparation of options for a senior executive and professional service and a related High Flyers' Scheme; the development of a contributory pension scheme; the preparation of medical insurance options; a training needs assessment; and the development of a national policy framework and strategy on information technology.

Component 2. Public Financial Management (US$7.0 million)

This component's objective was to achieve a more effective and efficient utilization of public resources with enhanced accountability and transparency and to improve transparency and efficiency in the procurement of goods and services. This component was to support the implementation of the Medium Term Expenditure Framework (MTEF); the linking of the MTEF to the IPPD and the Integrated Financial Management System (IFMIS); the development and implementation of a comprehensive budget management system encompassing the Treasury, all line ministries and districts; the adoption of Generally Accepted Accounting Principles (GAAP) and adherence to International Accounting Standards (IAS) and value-for-money principles; capacity building and training in the offices of the Accountant General and the Controller and Accountant General (renamed National Audit Office) and the Department of Internal Audit; and the development of Computer Aided Auditing in the NAO. The project was also to support the creation and staffing of a Public Procurement Directorate; the enactment of a new public procurement law; the development of measures to help enforce public procurement reelations; and the preparation of enabling instruments to legalize the appointment and operationalization of the Procurement Appeals Board.

Component 3. Legal Sector Reform (USS1.7 million)

The objective of this component was to establish the foundation for an, accessible, and responsive legal and judicial system. This was to be achieved through the establishment of an improved records management system for the registration and retrieval of case documents; the development and application of a better system for recording court proceedings; the development of an Improved Court Management system; the revision of all chapters of the Law of Kenya and making the same available in CD-ROMs; assistance to the Legal Sector Reform Secretariat and the regular collection and dissemination of information relating to the reforms in the legal sector.

Component 4. Public Sector Reform Coordinating Unit (USS.4 million)

This component was included to provide an efficient and effective coordinating body and process to support the reform program across the public sector. The coordinating unit was to be located in the directorate of Personnel Management in the office of the President. Support under this component consisted of paying the consultancy fees for one year of the key members of the change team in the Office of the President; consultants in public procurement, financial management. It was also supporting monitoring and evaluation as well as the development and implementation of an Information, Education and Communications (IEC) strategy and action plan.

3.4 Revised components

Component 3- Legal Sector Reform was revised after the mid-term review of the project. This was necessitated by the creation of a new Ministry of Justice and Constitutional Affairs. The new ministry was

established following the new government's desire to fight corruption and to deal with judicial integrity. The following activities were therefore agreed upon by the Government and the World Bank:

(i) Improving court registries in Nairobi, Mombasa and Machkos, and the registries in the office of the Att6mey General in Nairobi and Mombasa through the provision of technical advisory services, training, and the acquisition of computers and other equipment.

(ii) Enhancing the capacity of the Borrower's High Courts and Magistrates Courts to record court proceedings, through the provision of technical advisory services, training, and the acquisition of equipment.

(iii) Development of a computerized case management system in the courts of the Borrower through the provision of technical advisory services, the acquisition of computers and other equipment, and related training.

As a result of the revision of the component activities, the output indicators for the component were also revised (see Annex 1 for details and achievements).

3.5 Quality at entry:

Although the project's objectives were consistent with the CAS and the government's development agenda, the ICR deems the quality at entry to be moderately unsatisfactory. The rating is based on an evaluation of the project objectives, consistency with World Bank policies, the quality of design, reasontibleness of assumptions and assessment of risks.

The objectives were not in conflict with safeguard or other policies of the World Bank. During the preparation of the project, various consultations were held with government officials. To validate the scope of the project at the final stage, a stakeholder's workshop was organized.

However, the design of the project suffered fiom various weaknesses. The ability of government to carry out the reforms was overestimated. The project design was ambitious as it sought to support reforms in three difficult areas within three years. The World Bank wrongly assumed that two critical actions would be taken for the successful implementation of component two: (a) Parliament would pass a public procurement law and, @) Parliament would pass financial and accounting regulations. As of the time of project closure, the Public Procurement and Disposal Bill was still in Parliament. The financial and accounting regulation, which was changed into a Bill, was passed by Parliament and received Presidential assent on December 31, 2004. However, the new act has not been gazetted, and hence was not effective till project closure. It is now called the Government Financial Management Act, 2004. With respect to retrenchment, there was no clear communication strategy to reach out to the labor unions to explain the retrenchment strategy and modality in order to receive feedback. Second, there was no consultation with the major political parties. As a result there was no commitment by the new government to go along with the retrenchment program. The project did not benefit from any quality at entry assessment.

4. Achievement of Objectives and Outputs

4.1 Outcome/achievement of objective

Overall, the achievement of objectives and outcomes is rated unsatisfactory. This is based on an evaluation of the relevance of the project objectives and the efficiency of the project in delivering the objectives. The rating is also based on an assessment of the outcome indicators (see Annex 1) and a

detailed description of outputs by components in the next sub-sections. The project is rated unsatisfactory because even though most of the outputs were delivered, the outcome indicators were not met. The following indicators were used in the assessment:

(i) Leaner and highly motivated public service, better equipped to deliver services to the public: No functional integrated human resource system was developed. The public service at the end of the project still remains large.

(ii) Efficient and effective utilization of public resources with enhanced accountability and transparency and improved transparency in the procurement of goods and services: An automated financial management system that ensures enhanced accountability and improved transparency was developed but is not fully operational. A public procurement law that would underpin the effective use of public resources was not enacted before the project closed.

(iii) Establishment of a framework for the achievement of timely, accessible and responsive legal system: A lot (485) of senior staff of the judiciary were trained on IT related skills. However, due to interference in the procurement process, the computers were delivered to the courts very late.

(iv) Efficient and effective coordinating body and process that support the reform program across the public sector: A project coordinating unit was formed that regularly prepared work and procurement plans. The unit also produced progress reports.

4.2 Outputs by components

4.2.1 Public Service Reform Component

This component is rated unsatisfactory due to the reasons outlined for each of the sub-components below:

4.2.1.1: Ministerial rationalization

This sub-component is rated moderately unsatkfactory. A study to identify functiondservices was undertaken. Strategic plans have been developed for all ministries and departments. The Cabinet approved a proposal for the retrenchment of 21,000 staff, on top of further reduction by 8,000 through natural attrition, over a four year period. The proposal was based on a targeted voluntary early retirement scheme (VERS), with an adequate separation package in order to mitigate the effects of retrenchment and reduce opposition fi-om employees and Parliament. However, implementation of the VERS was very slow and it also suffered a major setback. So far, only 1,023 staff have successfully gone through the VERS. The process was stalled due to court actions by the labor unions against the VERS and by Parliamentary opposition to the program. This was a result of poor involvement of all stakeholders in the design of the scheme and poor communication on the scheme to the labor unions. There was no clear indication of who was going to pay for the retrenchment costs or where the funding would come fiom. As a result, the public sector wage bill did not decline even though it was one of the objectives of the reform. The VERS failed also because there was no back-up plan.

The VERS was designed on the assumption that civil servants would whole-heartedly going to opt for it. When the civil servants challenged the implementation of the VERS, no alternative scenario was offered. Another challenge for this component was the apparent lack of coordination between officials of Ministry of Finance, Ministry of Planning and National Development and the Directorate of Personnel

Management. This resulted in the preparation of unrealistic strategic plans by various ministries and departments. '

4.2.1.2: Establishment Control and Harmonization of Payroll and Personnel Data System

This sub-component, which is rated unsatisfactory was to support the computer based Jntegrated Payroll and Personnel Database (IPPD System) which was developed and piloted in four ministries before the project was effective. The system was aimed at overcoming the weaknesses in payroll and establishment \

management by minimizing irregular payments; introducing on-line data capture facilities to minimize delays in updating personnel data; generating timely and accurate reports in formats suitable for managers; provide a links with budget and financial expenditure data systems. The IPPD system was installed and in use in 24 ministries, departments and agencies. However, systems in the 24 MDAs are stand alone systems. This makes it difficult for updating personnel records and generating timely reports for managers and decision makers. Since the IPPD systems were stand alone systems, there was no link with the IFMIS in the Ministry of Finance. One of the objectives of the IPPD system is to prevent reentry of retrenched civil servants back into the public service and its operation as stand alone systems jeopardized the attainment of that objective.

4.2.1.3: Develop and Introduce a New Pay and Beneflts Policy and Performance Management

This sub-component is rated unsatisfactory. Under this sub-component, a Pay Policy was developed and approved by Cabinet. In addition, a Permanent Public Service Remuneration Review Board was also set up. The board has developed a harmonization instrument for use in the public service. The Board has also developed a draft Pay Policy. However, implementation .of the draft policy did not begin before the project closed. This sub-component was expected to deliver the following as part of the medium term pay and benefits policy - options for the creation of a Senior Executive and Professional Service, Selected (SEPS), Accelerated Salary Enhancement Scheme (SASES) and a High Fliers Scheme (HFS). At the end of the project, none of the above schemes were in operation. In addition, there was no clearly articulated timeframe for the development and implementation of the medium term pay policy.

4.2.1.4: Training Policy and Training Needs Assessment

This component is rated moderately unsatisfactory. A recruitment and training policy was developed. The policy was submitted to Cabinet in July 2004. It was subsequently discussed and approved. As a result, 21 officers of DPM and the Human Resource Departrnqt were trained on how to conduct training needs assessment. The trained officers later undertook training needs assessments in selected MDAs. However, undertaking a training needs assessment in itself and undertaking training has not led to improvements in the performance of the civil service.

4.2.1.5: Development of a National Strategy and Policy Framework on Information Technology

This is rated unsatisfactory. The objective of this sub-component was the development of an ICT strategy, as well as the implementation of a regulatory and legal framework to mainstream the use of information technology based solutions and to increase efficiency and effectiveness of public sector service delivery. Very little progress was made in meeting the objectives of developing and rolling out a government owned IT strategy, guidelines, use and support of information systems and infi-astructure,. The other objective was to simplify operational support so that government information systems and infrastructure can be managed efficiently, reliably and cost effective. As of the time of project closure, only a draft of the ICT strategy was developed. IT infrastructure in government continued to be developed in an uncoordinated manner with some systems not compatible with each other. Even though a national IT

strategy was essential, the government placed emphasis on the development of an E-Government agenda and program without first developing the IT strategy, which would have served as a basis for a national IT program. As a result, the roll-out of an Integrated Financial Management Information System (IFMIS) suffered significantly.

4.2.2: Public Financial Management

This component is rated moderately satisfactory

4.2.2.1: Implementation of MTEF

This sub-component is rated moderately unsatisfactory. There was progress to improve budget planning and execution. However, the MT,EF had little impact on actual budgetary allocations. This is because the MTEF process has been used more as a planning tool than a budgeting tool. The MTEF process is not as effective as it could be because of a flawed institutional structure. The line item budget, MTEF, ministerial Public Expenditure Reviews, and the strategic plans are all carried out by separate parts of the Ministry of Finance, the Ministry of Planning & National Development and the Office of the President. However, with the integration of the MTEF Secretariat into the Budget Supply Department of the Ministry of Finance within the last six months before project closure, it is anticipated that the process of resource planning, management, allocation and execution would improve significantly.

4.2.2.2: Strengthening Government Finance and Accounting

This component is rated moderately unsatkfactory. Over 300 officers have been trained in CPA, over 800 'in job-related training and a significant number have undergone training-of-trainers courses as well as short courses in Financial Management. There has been an improvement in cash book management and timely preparation of financial statements. There are currently no arrears in the preparation of financial statements for the various ministries and departments. A revised Financial Management Bill has been prepared and placed before Parliament. The Bill (now called The Government Financial Management Act, 2004) was enacted by Parliament and received Presidential assent on December 3 1, 2004. Up until the time of preparing this report, the new Act awaits the Minister of Finance to gazette its effectiveness. The process of gazetting this Act has taken a longer time than expected.

An Integrated ,Financial Management Information System (IFMIS) was developed during 2002-2003. From the beginning of 2004, two ministries, Finance.and Planning and National Development have been piloting the software. However, the public sector budgeting module was not adequate to satisfy the MTEF requirements. The roll-out of the IFMIS was hamper4 by the unavailability of strong human resource support and a robust infrastructure system. The inhstructure includes the networks, data center, and a disaster recovery center. Top level support and commitment for this important computer system was not adequate. As a result, the system has not been rolled-out yet. Another factor that impeded the successful roll-out of the FMIS was the absence of a national IT strategy and policy that would guide government on the roll-out.

4.2.2.3: Internal Auditing

This sub-component is rated satisfactory. Activities undertaken include staff training, purchase of equipment, and the development of an internal audit manual for use by internal audit staff for effective and efficient audit service. All this was aimed at the introduction of a systems audit to replace transactions audits. There have been a lot of improvements after the systems audit was introduced, including records being on time and the flow of funds going well. In collaboration with the DPM, the Internal Audit

department audited the payroll and noted processing errors, lack of security data and management information, as well as a lack of compliance with DPM circulars. As a result of the review, a Payroll Monitoring Unit was formed comprising of Internal Audit, DPM, and Government Information Technology Service (GITS). This has resulted in improved compliance with management

4.2.2.4: Strengthening of the Auditor General's Department (National Audit Office)

This sub-component is rated satisfactory. The efficiency and effectiveness of the NAO has been enhanced through capacity building. Officers of NAO underwent a lot of training and received post graduate degrees in accounting and passed professional examinations (Certified Professional Accountancy I1 and 111). Capacity was also built through the provision of vehicles, computers, photocopiers and other office equipment. As a result the enhanced capacity of staff, the Office has reduced the backlog of annual audit reports f?om three years to one year. In addition, the National Audit Office has improved upon the quality of audit reports that it currently prepares on time.

4.2.2.5: Procurement Reform

This is rated moderately unsatirfactoly. The Government has not yet established the Public Procurement Oversight Authority as an independent body. However, a Public Procurement Complaints Review and Appeals Board had been established. A third version of the Public Procurement and Disposal Bill which is comparable to international standards was approved by Cabinet on May 16,2003. This followed a long and protracted process. Earlier in November 2001, one version of the bill that was approved by Cabinet and published was withdrawn when it was realized that key issues had not been well addressed. Subsequently, a second revised Bill was drafted and submitted again to Cabinet on July 25, 2002 and approved. Following the general elections at the end of 2002, a new government came to power. The new government drafted a revised Public Procurement and Disposal Bill in 2003. However, the Bill which was presented to Parliament could not be enacted before the project closed and was however passed into law two months after project closure.

4.2.3: Legal Sector Reform

This component is rated moderately unsatisfactory. When the new government came to power with a strong desire to fight corruption and restore judicial integrity, it created a new ministry - Ministry of Justice and Constitutional Affairs. Subsequently, during the mid-term review of the project, it was agreed to focus support under this component on computerization of the Ministry of Justice and Constitutional Affairs. In addition, it was expected to undertake IT training. Computerization and local area networking was done for the ministry. The rating of this component is based on the fact that inputs (computers and training) were delivered. However, the computers were delivered only at the very end of the project. Therefore, the rationale of introducing automation to improve filing of court cases was not achieved at the end of the project. Suspension in procurement processes, resulting in undue delays in international competitive bidding processes for the procurement of computers, accountsfor the delays in the late delivery of the computers. It is also worth mentioning that during the duration of the project, Pennanent Secretaries (PS) who were in charge of this component were replaced on two occasions. The fiequent

, turnover impacted negatively on speedy decision making for the attainment of the component objectives.

4.2.4: Project Coordination

This component is rated moderateZy satisfactoy. The Public Sector Coordination Unit produced and submitted on time quarterly progress reports, quarterly work plans as well as procurement plans. The

project finance and accounting was done according to World Bank financial management guidelines. About 70 percent of the contracts were signed on time, in accordance with procurement plans. There were some delays in the undertaking of International Competitive Bidding. Annual audits were executed though two of them were not submitted within the six months stipulated timeframe as indicated in the DCA. The Project coordinator's services were terminated for breach of contract. As a result, the M&E specialist of the project acted as the project coordinator for more than a year.

4.3 Net Present ValudEconomic Rate of Return:

Not applicable

4.4 Financial rate of return

Not applicable

4.5 Institutional Development Impact

The project had modest institutional development impact. The entire focus of the project was on institutional development. Therefore, to the extent that the project did not deliver as planned, its institutional development impact is also limited. Even though the PDO is rated unsatisfactory because the major outcomes were not achieved, capacities of most of the institutions were built through training and acquisition of office equipment. The institutions that were to be developed and change the way things are done are the Budget Supply Department through the MTEF, the Accountant General's Department through the new accounting system, the size of all MDAs were to be rationalized for efficient service delivery. All MDAs were to judiciously use public resources through the use of a sound procurement system. However, it is worthy to note that a lot of human capacity has been built at the National Audit Office, the Office of the Internal Auditor and the Budget Supply Department of the Ministry of Finance. Staff of the above-mentioned institutions received a lot of training. Based on the training, NAO has no arrears in the preparation of audit reports. Based on the new manual for internal auditing and training the Office of the Internal Auditor is now using a systems-based approach to auditing.

5. Major factors affecting implementation and outcome

5.1 Factors outside the control of implementing agency:

(i) The change in government administration after the 2002 general elections. At the end of 2002, a new govenunent was sworn into office. Some bills like the Public Procurement and Disposal Bill that was drafted and approved by the previous Cabinet was not acted upon. Subsequently, a new bill was drafted and placed before Parliament. Midstream through the implementation of the project, the new Government, with a focus on fighting corruption and dealing with judicial integrity, created the Ministry of Justice and Constitutional Affairs and requested for the amendment of the legal component. The component was therefore restructured after the mid-term review to accommodate the request from Government.

(ii) Failure of Parliament to pass key pieces of legislation: Even though the Public Procurement and Disposal Bill had been laid before Parliament in May 2003, the Bill was not passed at the time of project closure on June 30,2005.

(iii) Termination of contract of all procurement officers: When the new government assumed office, contracts for all procurement officers were terminated including the procurement officer of the project.

This action of govemment adversely affected the procurement processes in the entire public service including those related to project.

5.2 Factors subject to government control:

(i) Inadequate commitment to the reform. The Government prepared the MTEF but did not use it as a tool to reallocate resources to high priority areas. Even though Parliament enacted "The Govemment Financial Management Act, 2004" and it received Presidential assent on December 3 1,2004, it has taken , longer than expected to gazette the new Act. Inadequate commitment manifested also in the non- finalization of the National Anti-Corruption Action Plan.

(ii) Poor communication on the benefits of the reform. The Government did not adequately communicate the importance of the reforms and the details of the VERS to the public and the civil servants in particular. As a result, lawsuits were filed by labor unions and individuals that slowed down the implementation of the scheme.

5.3 Factors generally subject to implementing agency control

(i) Late submission of annual project audit reports. Since the Development Credit Agreement requires that annual audit reports should be submitted not later than 6 months, it was important that the implementing agency adhere to this covenant. This requires that the annual financial statements are prepared on time and the audit process initiated early enough. The audit reports most of the time were submitted after six months.

(ii) Faulty procurement procedures. The Project Coordinating Unit should have adhered to the tenets of the Procurement Guidelines to ensure speedy and efficient procurement of goods. The faulty procurement procedures inhibited the successful implementation of some project activities.

5.4 Costs andfinancing:

The estimated cost of the project at appraisal is SDR 11.9 (US$ 15 million equivalent). As of the end of the four month grace period (after the close of the project) for all withdrawals applications to be honored, a total of US$14,021,355.14 was withdrawn from the credit leaving a balance of US$3,142,966.86. There was a gain of US$ 2,164,322 due to changes in SDR/US$ exchange rates. The govemment provided KSH 14,838,908 which is equivalent to US $305,667.141. The government's contribution was far below what was estimated during project preparation.

,

6. Sustainability

6.1 Rationale for sustainability rating:

Sustainability of the modest gains achieved during the project is rated likely. To improve public expenditure management, the Government is continuing to implement the action plan that formed part of the 2003 public expenditure management assessment action plan (PEM-AAP). To improve the budget formulation process, the Government has unified the MTEF secretariat with the Budget Supply Department of the Ministry of Finance.

The Government is also implementing a new timetable that initiates the budget formulation process in October to ensure that the public expenditure review, the preparation of the medium term expenditure

framework, and the budget process are aligned. The introduction of systems audit in the internal auditing process has been remarkable. An internal audit manual was developed and is been printed for use by internal audit staff for effective and efficient audit service which is an important step in the fight against corruption.

In the Accountant General's Department, about 300 officers were trained in CPA and on-the-job training. The human capacity that has been built would go a long way to provide the necessary building blocks to sustain the modest gains. ,

To sustain the achievements, the Government, jointly with the World Bank, is preparing a follow-up project (Institutional Reform and Capacity Building Project) to further strengthen public financial management and build capacity of MDAs.

6.2 Transition arrangement to regular operations:

To sustain momentum for the reforms, the Government in February 2005 has set up a Public Financial Management Coordinating Unit within the Ministry of Finance. This unit is coordinating all the reform initiatives related to public financial management. In addition, the Government has developed a comprehensive public financial management program. This program is the basis for support by the World Bank in the forthcoming Institutional Reform and Capacity Building Project (IRCBP). Other development partners, such as the Department for International Development (DFID), Swedish International Development Agency (SIDA), and the European Commission (EC), are also discussing their support for the Government's program through a joint program with the World Bank's IRCBP.

7. Bank and Borrower performance

Bank

7.1 Lending

The World Bank's overall performance in lending was moderately unsatisfictory. The assessment is based largely on the same criteria used for assessing the quality at entry - objectives, design and assessment of risks, and assumptions. The preparation of @e project was based on the needs of the Government and the CAS objectives. Many consultations were held with government officials. However, the World Bank did not bring its vast knowledge on the management of retrenchment programs to bear on the design of the retrenchment program. Even though "resistance to reforms, especially retrenchment" was identified as a high risk, no clear mitigating measures were put in place. Overall, the project focused very much on training and computers and more emphasis should have been put on underlying necessary policy reforms.

7.2 Supervision

The World Bank's performance during supervision was moderately satisfactov. The Bank fielded a total of eight missions during the life of the project. Missions lasted on average two weeks and consisted of a minimum of six team members of varied expertise (public sector management, economics, information technology, financial management, procurement, law and others). During the three and half years of the project, two TTLs managed the project. Even though the TTLs were not in the field, economists, together with financial management and procurement experts located in the country office, provided daily support to the project team. When it was detected that the Project Coordinator was engaged in another paid job, the Bank reacted swiftly by recommending the termination of the contract of the Project Coordinator.

However, the Bank supervision mission did not provide data for M&E in the PSRs. The PSR (later ISRs) did not record any baselines, targets and actuals until the last ISR. No disbursement flags were raised despite the fact that there was a disbursement lag of 24 months at closing.

7.3 Overall Bank Performance

Based on the above, the overall performance of the World Bank is moderately unsatisfactory.

Borrower

7.4 Preparation:

The borrower's performance during preparation was moderately satisfactory. The Government team worked closely with World Bank staff during preparation. In 2000, the Government prepared a new "Strategic Plan for Public Sector Reform". The new Strategic Plan was used as a basis for a stakeholders' workshop to discuss the reforms and gain buy-in. The borrower, however, did not critically examine its ability to quickly gain approval for some of the reforms in Parliament.

7.5 Government implementation performance:

The Government's implementation performance was unsatisfactory. The previous Government spent a lot of time on drafting of the Public Procurement and Disposal Bill. Two separate drafts were presented to the previous Cabinet. Due to the poor communication strategy on VERS, the labor unions filed a law suit in the courts that suspended the implementation of the scheme. .

The project was supervised directly by the Permanent Secretary in the DPM. In early 2004, a new position was created for a Permanent Secretary on public sector reforms without a proper delineation of oversight responsibility over the project. As a result, implementation of some activities came to a halt. Some procurement processes were suspended, and some staff were also suspended due to conflicting signals. It was not clear who was then in charge.

In late 2003, the project coordinator was released fiom his post due to conflict of interest. Despite assurances gven to the World Bank about replacement, no coordinator was recruited. Instead, the M&E specialist of the project was acting as the project coordinator. As a result, M&E activities were down- played during the last one and half years for the project,

7.6 Implementing Agency:

The performance of the project implementation agency was moderately unsatisfactory. The Directorate of Personnel Management (DPM) was the designated agency to implement the project which covers civil service reform, public financial management reform, including procurement reform, and legal sector reform. However, the DPM did not appear to have the institutional strength within the civil service to take responsibility and be held accountable for the completion of the planned activities within the set timefiame for all the components. The DPM did not follow up with the individual agencies to resolve bottlenecks.

It is, however, important to note that project staff was dedicated. As expected, annual and quarterly work plans and procurement plans were prepared. The plans provided information on the type of procurement planned under the project, details of the processing steps, as well as the time required for each processing step till completion. The other aspects of project management were also satisfactory - procurement,

disbursement and reporting. Records relating to the IDA disbursements were properly kept, and easily accessible, ,expenditures documented under the Statement of Expenditures were all found to be eligible for financing under the credit. A forensic audit conducted by the World Bank for Bank supported projects gave the project a clean bill of health.

7.7 Overall Berrowerperformance:

The overall Borrower performance was moderately unsatisfactory.

8. Lessons Learned

Various lessons could be drawn fiom the implementation of the project. However, the four listed ones below stand out clearly.

(i) When re-establishing a relationship with a country, keep reforms simple. Between 1996 and 2000, the World Bank had a difficult relationship with the Kenyan Government. As a result, there was only one project in the entire portfolio. Policy dialogue with the Government was at its lowest with little agreement on the way forward. Therefore, much cannot be expected to be achieved under a project that requires major policy reforms.

(ii) Provide for adequate time for implementation of reforms. Reforms require a lot of time to mature especially when there is the need for Parliamentary approval. There is, therefore, the need to build adequate support and coalition among all stakeholders, including parliamentarians, during the preparation of the reforms and the drafting of bills. The project life of three years was too short for any meaningful policy reforms to be carried out successfully.

(iii) Develop an effective communications strategy to communicate the benefits of the reform duringpreparation and implementation. The design of the project was undertaken by the Government and the Bank without much involvement of civil society groups, the private sector and parliament. Effective communication would have helped to gain broader support of stakeholders which is a critical ingredient for the success of major policy reforms. Major reforms, such as those expected to be executed in the project, need to be discussed broadly not only with civil society groups but also leaders of major political parties in order to gain their support. This is required so that in the event of a change in the political leadership of the country, the new party in government will appreciate the issues and the rationale for the reforms.

(iv) Align appropriate institutional arrangements \with the champions of the project. It is important during preparation to identify the political champions at the responsible for the various reform processes which have wide political ramifications. Based on this, the managerial responsibility for the Project should be assigned to someone who clearly has the authority, means, and stature to carry out the reforms.

A governance review completed by forensic auditors for the Government in July 2005 found some '

shortcomings in the control environment in the Public Sector Management Technical Assistance Project but concluded that these appeared not to have translated into fraud. The review contained several recommendations that should be incorporated as lessons in future projects design. They include the following:

(i) Fraud-risk management must become an integral part of all future projects. Specific attention should be paid to fraud risk by including transparency and accountability mechanisms, as well as supporting the development of institutional risk management policies and independent and effective ministerial risk management oversight committees. It is important to develop a framework for the preparation and presentation of timely and comprehensive periodic financial management accounts and annual financial statements based on generally accepted accounting principles and professional best practices.

(ii) Project Steering Committees must take active leadership roles in project governance by meeting regularly and providing adequate oversight and necessary policy guidance to project implementation.

(iii) Strong leadership is required from the Cabinet which demonstrates political will, as well as Permanent Secretaries and Accounting officers, who have the primary responsibility of spearheading public Sector Reforms. A visible leadership presence is particularly important during project implementation to ensure development outcomes of projects are met and fiduciary due diligence is exercised.

9. Partner comments:

(i) Borrowerfimplementing Agency

Comments from the Government of Kenya:

Para 3.5: Quality at Entry

With respect to retrenchment, we wish to make the following clarification:

On the on set of the Retrenchment Programme, there was no Union in the Civil Service to negotiate with the Government on the modalities of the Retrenchment Programme. However, in the year 2003, the Govemment allowed the establishment of the Union of Kenya Civil Servants and was recognised by the Government in 2004;

The Government developed a retrenchment plan, guidelines, sensitization manuals and sensitized ministeriaVdepartrnenta1 reform committees which thereafter were used to sensitize the entire Civil Service on the Retrenchment Programme;

The new Government (NARC) fully supports the staff rightsizing measures as evidenced in the NARC Manifesto and the economic recovery strategy whose priority is to downsize the Public Sector and make it more efficient and investor friendly in order to promote private sector led growth and poverty reduction. Currently, the Govemment is implementing a staff rightsizing exercise through which 21, 338 Civil Servants will exit from the Service through a Voluntary Early Retirement Scheme (VERS) over a period of three (3) years (2004-2007); and

The last six lines of Para 3.5 need to be recast.

Para 4.2.1.1: ~inisterial Rationalization

All MinistriesDepartments have developed strategic plans that are aligned to the Economic Recovery Strategy for Wealth and Employment (2003-2007) objectives. In addition ministries/departrnents have developed work plans and set targets which form the basis for performance contracting in the Civil Service. Further the strategic plans have assisted in identifying areas where staff can be allowed to retire voluntarily;

The implementation of Voluntary Early Retirement Scheme (VERS) did not take off as \

planned due to a court case between the Union of Kenya Civil Servants and Government over a pay dispute issue raised by the Union. In addition all stakeholders were involved in the design of the Scheme. Civil Servants were fully sensitized on the objectives, retirement benefits and operationalization of the Scheme. The Scheme is on-going and good progress is being made towards the realization of the set targets; and

The public wage bill could not have declined as expected because the implementation VERS was not complete or half way done. The Scheme has been funded by the government to the tune of Kshs.2 billion (US$27.6 million). The sentence to the effect that is was not clear who was going to pay for the retrenchment costs or where the funding would come from is not true. These last sentences of Para 4.2.1.1. need to be recast.

4.2.1.3. Develop and Introduce a New Pay And Benefits Policy and Performance Management

A pay policy was developed and submitted to the Cabinet for approval.

4.2.1.4. Training Policy and Training Needs Assessment

Last lipe: . . .. . . . . . . . .. . ... . . . .. There has not been any visible change in the performance of the Civil Service. This evaluation should.have been made three or more years after the closure of the project. No impact could have been observed on performance of the Civil Service after such a short period of time.

STRENGTHENING GOVERNMENT .FINANCE AND ACCOUNTING FUNCTIONS

The only activity lagging behind is the implementation of IFMIS due to lack of a robust inti-astructure largely because of inadequate funding and absence of a national IT strategy. Roll out of IFMIS has been extended to eleven (1 1) Ministries and is on-going to cover the rest. The infrastructure problem is being addressed and more funds have been requested under the upcoming Public Financial Management Reforms Project. The only performance indicator for our sub-component under the PSM-TAP was training of 60% of professional accounting positions (Chief Accountant and above) cross Government to CPA III standard by 2004 and was fully achieved. Other areas of training have been achieved in excess of earlier targets.

The Government Financial Management Act was enacted 2004 and received Presidential assent December 3 1, 2004 and has now been operationalised with effect from 1'' November, 2005. The revision of the Scheme of Service for Accountants was done in 2002 and the new Scheme became effective December 2002.

In our view, we have achieved our performance targets in the PSM-TAP and therefore the rating for our sub-component should be better than "moderately unsatisfactory" as reflected under paragraph 4.2.2.2 of the draft completion report. This requires re-rating to reflect the correct position.

ADDITIONAL COMMENTS ON ICR FOR LEGAL SECTOR REFORM COMPONENT

,

The opening paragraph on section 4.2.3 - page 13 completely mixes up the rationale for the creation of the Ministry of Justice and Constitutional Affairs and the objectives of the Legal Sector Reform Component. The Ministry was not created solely to carry out PSM-TAP; this is grossly misleading and should be rectified.

It would be equally necessary and prudent to revisit the main conclusions arrived at between the World Bank and the Government, which are contained in the Mid-Term Aide-Memoir and compare the same with the ICR. Doing so will no doubt throw light on the framework and reasons as to why the computerization objectives as contained in the PAD were not met and, secondly, you will be able to note that most of the objectives and activities under the Legal Sector Reform Component were re-allocated out of the component and are currently funded through the Financial and Legal Sector Reform Project (FLSTAP).

It is grossly erroneous on the part of the report to document that the change of Permanent Secretaries in charge of the programme negatively impacted on the speed. of decision making for the attainment of the objectives of the component. It is a fact that the delay in obtaining letters of no objection from the World Bank contributed greatly to the delay in implementation.

(ii) Co-financiers - Not applicable

(iii) Other partners (NGOsIprivate sector): Not applicable

10. Additional Information

GOVERNMENT'S ICR

Introduction

.The agreement for the Public Sector Management Technical Assistance Project was signed on 26"' September 2001 and the project became effective on the 12" November, 2001. This was the second phase of a long term reform process that was to build on the progress made under the Institutional Development and Civil Service Reform Project. The project goal was to put in place the human resource management, training, incentive, financial management, legal and informition technology systems required to improve service delivery, transparency and accountability in the public service.

The project is comprised of the following four components: Public Service Reform; Public Financial Management; Legal Sector Refonn; and the Public Sector Reform Coordinating Unit.

Project Components and Objectives

The following are the project components and their respective objectives:

a) Public Service Reform - To create a leaner and highly motivated public service better equipped to deliver services to the public more effectively and efficiently.

b) Public Financial Management - to achieve more effective utilization of public resources with enhanced accountability and to improve transparency and efficiency in the procurement of goods and services.

c) Legal Sector Reform - To establish a foundation for the achievement of timely, more rapid, accessible and responsive legal and judicial systems of justice.

d) Public Sector Reform Coordinating Unit - To provide an efficient and effective coordinating body and process that supports the reform programme access the public sector.

Public Semce Reform Component

Studies were undertaken on services to be privatized, contracted out or commercialized. Implementation of the studies is in progress as evidenced by the Privatization Bill, already passed by Parliament and the contracting out of some of the services such as cleaning. The studies have enabled ministries to allow staff undertaking functions highlighted to retire under VERS.

Service Delivery Surveys for ministries were undertaken and this enabled the ministries to establish the Work Improvement teams (WITS) to apportion assignments, draw job specifications and measure workload against workforce as well as measuring outputs. The WITS concept has brought about improvement in public service performance.

The implementation of IPPD in the civil service and in the Teachers Service Commission has been accomplished. This has been achieved through establishment of stand-alone systems to run the payrolls.

The size of the civil service has reduced through normal retirement and attrition. The VERS scheme was halted by a court case which was determined towards the end of last financial year. The process has started and over 1000 officers were retired in July and August 2005.

The development of an affordable pay and benefits policy within the MTEF was achieved. A Public Service Remuneration Review Board was established and assisted by Advisors, it has come up with a draft Pay Policy. The implementation of the policy has started in the current financial year where an element of the pay increment was factored in the current budget and its implementation was effected. It mainly targeted the medium and lower cadres as per earlier recommendations of the implementation of the Pay Policy.

Medium Term Expenditure Framework

Core staff were trained on MTEF budget preparation. The development of MTEF has been a continuing process and so has been the staff training. Most of the training was local while a few staff attended overseas specialized training. Study tours were also undertaken to Tanzania, Uganda and South Africa. Resulting from the specialized training and the tours the budget calendar has been

revised and a circular drafted on commitment by ministries which are now required to pass through Treasury.

The linkage of MTEF computer information system to IPPD and IFMIS was not achieved. The development of IPPD and IFMIS was achieved but the roll-out of the systems was hampered by lack of LAN and WAN. This caused connectivity and linkages of the systems unachievable.

National Audit Office

The Controller and Auditor General's office has been renamed as the Kenya National Audit Office. Its capacity has been developed through training of the professional staff in CPA I1 and I11 programmes and post graduate courses. The office also received computers and vehicles which has enhanced its performance. The component achieved its performance indicator.

Accountant General's Component

The project's aim was to build capacity and train officers in the Department. This was achieved by sponsoring officers for CPA courses, undertaking in-house training ~ob-related training) and supporting senior officers to attend financial management courses. The training and capacity building has raised the professional standards for the accounting staff. This was further enhanced by the revised scheme of service for the cadre that became effective in 2004.

The component has also developed the IFMIS which is currently being rolled out to the ministries. The functions performed by the component include: accounting for all Government transactions including payment, revenues and balance sheet transactions; financial information including budget execution; cash flow forecasting and automated bank reconciliation. All this has brought discipline in expenditure and accounting of resources by ministries. Through the component, computers were procured and distributed to ministries and districts to facilitate implementation and roll-out of IFMIS.

Internal Audit ~epartment

A lot of training and capacity building has been undertaken. This has resulted into the adoption of systems auditing in Government. This has transformed auditing in Government where focus is now more on high risk areas, operating systems, quality and value for money. The internal audit manual was developed and its awaiting printing and circulation to all the internal auditors.

Public Procurement Directorate

The Public Procurement Directorate was established. Most of the staff were however removed from procurement and new ones recruited through a restructuring process. The new staff have been trained. The Directorate was also capacity build through procurement of equipment and vehicles. Training of procuring entities and establishment of the procurement committees was achieved. The Public Procurement Complaints Review and Appeals Board was established and has been operational since December 2001. The Public Procurement and Disposal Bill has also been passed by Parliament. This will transform the Directorate into an oversight body that will enhance efficiency and transparency in the Public Procurement function.

Information Technology Component

The IT strategy and policy framework was developed. The project financed the consultancy and workshops through which stakeholders from different sectors (public, private & civic) made contributions to the preparation of the strategy. The strategy implementation will be rolled-out during the current financial year.

Legal Sector Reform Component

After the project's Mid-Term Review in June 2003, the DCA was amended to accommodate the , newly constituted Ministry of Justice and Constitutional Affairs. The focus of the component therefore changed in favour of computerization of the Ministry in order to develop computerized system upon which the earlier performance indicators (case management, records management, law revision and recording of court proceedings) would be developed. The earlier performance indicators were therefore replaced with others focusing on computerization, IT training and the development of the Anti-Comption National Action Plan (see performance indicators & achievement matrix). Computerization has been undertaken and LAN for MOJCA and Sheria House was undertaken. This is expected to enhance the use of IT system. The IT training was also undertaken and this will facilitate the utilization of the computer equipment. The Anti-Comption Action Plan was developed but not finalized.

The recording of court proceedings is being funded by' a supplementary funding (Norwegian Grant) which has been extended to December 2005. Requests for proposals have been opened and evaluation is on-going. The program is likely to be achieved by end of the grant.

Public Sector Reform Coordinating Unit

The implementation, coordination and management of PSM-TAP was enhanced by PSRCU. Since the project was being implemented by different ministriesldepartments; its management required a centralized office fiom which all activities would be coordinated. This made communication between the donor and the implementing agencies more efficient and effective. The Unit produced timely and comprehensive reports within deadlines. It also disbursed the project funds to components and prepared SOEs of the same as well as the accounts reports. Procurement of the project was done centrally by the Unit since IDA procurement regulations were followed. This would have been a challenge to the components where capacity to procure under IDA procedures is not available. The Unit also undertook continuous monitoring and evaluation and also developed and implemented an IEC strategy.

Conclusion

The Financial Management Reform Component achieved its performance indicators. The Public Service Reform Component achieved two performance indicators while the other two were partially achieved. Legal Sector Reform Component has achieved its revised performance indicators except the recording of court proceedings whose deadline was extended to December 2005 and is likely to be achieved.

Project Impact

Public Service Reform Component

Studies on contracting out services are being used by ministries to contract out cleaning services. This has brought out a face lift to many Government buildings where the standard of cleanliness has improved immensely.

The ministerial strategic plans has assisted ministries in identifying areas with excess staff which they are using to allow excess staff to retire under the VER scheme.

The Permanent public Service Remuneration Review Board (PPSRRB) has assisted in the control of awarding salary increment to categories of jobs in the civil service. For instance the Board recently gave guidance to salary awards for National Audit Office. The Board also has been instrumental to the recent salary awards for civil service at the beginning of the current financial year.

Through IPPD, PSM-TAP has assisted in the Local Area Networking of Seven Government Buildings. The offices in these buildings are now networked and access e-mail, IFMISIIPPD systems are also being rolled-out. When the PSRCUIGITS team went round recently to inspect the LAN in buildings, senior government officers expressed their appreciation and said it has drastically reduced the cost of communication, and it is more efficient. Below is a case mentioned in Ministry of Foreign Affairs:

> In the head of departments meeting of 22"d August 2005, one member said that before anyone says anything else he would like to be allowed to appreciate the Information, Communication and Technology Unit for the job well-done in networking the offices. He further said that nearly all ofices are on e-mail which has drastically reduced the cost of communicating with the foreign missions. He said this has brought a major impact in running affairs of the ministry, which has become more efficient and improved service delivery significantly.

Another major impact IPPD has created is harmonisation of allowances. IPPD has assisted in the detection of the extraneous allowances and payroll cleansing.

Medium Term Expenditure Framework

PSM-TAP funds were used to undertake an MTEF review. The recommendations given under the review study are being~have been implemented. These include specialized staff training, study tours to countries in the region where MTEF is more developed. This has also led to improvement of MTEF process by introducing a new MTEF system known as the General Financial Statistics (GFS). MTEF is further working on modalities of involving Parliamentarians in the entire budget process in order to improve ownership of the final annual budgets.

Another impact of the MTEF Review is the transfer of the MTEF secretariat fiom Ministry of Planning and National Development to Ministry of Finance. MTEF Secretariat has been incorporated within the Budget Supply Department which has improved the whole process of resource planning, management, allocation and execution.

National Audit Office (NAO)

The capacity build at the NAO has created major impact. In a recent impact assessment for PSM-TAP, about 48% of officers trained in NAO said the training has had great impact while another 52% said moderate impact. Data storage and security

has improved, there is improved efficiency and faster processing of reports, research and sharing of information is better due to use of ernailhnternet and staff morale and motivation has also improved.

The officers in NAO are able to travel widely to the districts as a result of the vehicles - bought under PSM-TAP. This has enabled the office to undertake more assignments at

a given time, thus improving efficiency and effectiveness.

The office has also reduced the arrears of annual audit reports in Government from three (3) years to about one (1) year. This is reported to be due to the training and computers provided as well as improved transportation'since one assignment can now be completed within a much shorter time.

Regarding the Donor-funded projects audit report the impact can be deduced from the following statement by the Financial Specialist at the World Bank Country Office.

The audit reports have been completed in time. This is a major improvement from the previous year where the rate of achievement was below 30% and now it is at 97%. Kenya's case will be mentioned in other countries that timely project audit reports are achievable.

The Deputy Auditor General who has been the Component Coordinator has constantly said that such efficiency was as a result of the capacity built by PSM-TAP to the NAO.

Accountant General's Component

The Component has trained about 415 officers at CPA level. During a recent impact assessment study 86% of the respondents said they are using the skills acquired. There has been remarkable improvement in revenue collection, cash book management and utilization of funds.

The PSM-TAP support has enabled the development of IFMIS. Although the roll-out has been slowed down by networking and availability of equipment, most of the work is complete and roll-out is expected to promote accountability and efficiency in the utilization of funds by ministries apd in the district offices.

Internal Audit Department

= The Internal Auditor General, also the Component Coordinator, has said many times that support by PSM-TAP has raised the standards of the operations of the department and its now recognized by the Permanent Secretaries in Ministries as part of senior management staff.

The capacity of provincial offices have been upgraded through provision of vehicles, computers and training of officers. The officers are able to make impromptu site visits to verify expenditures. This has improved revenue collection and procurement activities.

The auditing process has now shifted fiom pre-auditing to systems audit. Systems auditing has enabled the department to: address the weakness in the operating systems;

enhance integrity and objectivity; identify risk areas; and promote audit planning. All this has resulted to more efficient and effective auditing.

Incidences of fraud have been significantly reduced as the following examples indicate:

- Detection of frauds related to procurement of computers and related equipment has increased due to training in CAATS.

- Payroll anomalies and misuse of government vehicles through inflated fuel expenses has been addressed.

- Streamlining of revenue collection and cancellation of inflated orders for goods and services has resulted from the specialized training undertaken.

Public Procurement Directorate (PPD)

The key achievements of the PPD through PSM-TAP support include: ~stablishment of the Directorate; Training of both procurement officers and procuring entities; operationalisation of Public Procurement Complaints Review and Appeals Board; and the passing of the Public Procurement and Disposal Bill. Specific impacts reported include:

Streamlining of the procurement process making it fair and enhancing professiona~ism, accountability and transparency

Recognition of the Appeals Board by the suppliers as an independent appeals body. Hence suppliers have continued appealing in cases where they feel there was unfairness. This has caused the procuring entities and the suppliers to be more cautious in the procurement process.

Reduced costs/expenses due to improved competition. Savings have also been generated through quality, right amounts, timeliness and preparation of procurement plans.

, Another major achievement is the Public Procurement and ~isposal Bill. This has empowered the whole function of public procurement by allowing the establishment of an oversight body.

As the Director of PPD said recently, PSM-TAP support has played a major role in the passing of the Bill as it enabled the Directorate to sensitize all the stakeholders including members of Parliament. By engaging all the key stakeholders in discussions on the content of the draft Bill, a lot of input was given which enhanced ownership and the passing of the Bill with no major hitches.

PSM-TAP also supported operations such that officers were able to visit procuring entities to monitor the application of the procurement regulations and establish the membership of the tender committees.

Information Technology Component

The Component, through the support by PSM-TAP, has been able to set up IT networks in a number of Government buildings. They have also developed a training manual for IT staff in Government.

The IT strategy has also been developed and it gives standards for development of IT systems in Governinent .

Legal Sector Reform Component

The performance indicators for the component were revised after the mid-term review to accommodate the needs of the newly constituted Ministry of Justice and Constitutional Affairs. The computerization process is now complete and the provision of networking in Sheria House and Cooperative Bank House (MOJCA) has enabled most members of staff to access emailhnternet. This has enhanced their research and exchange of information. The IT training has developed capacity among para-legal personnel, state counsels, magistrates and judges. The impact of the skills is demonstrated by the improvement of report quality and timeliness.

PROJECT PROCUREMENT REPORT

Central Procurement

Most of the goods required for use in the implementation of the project were procured centrally by the project coordination unit. These comprises of computer equipment, both hardware and software; office equipment e.g. photocopiers, fax machines, scanners etc; and motor vehicles.

Procurement by Components

To a limited extent, project components were issued with AIEs to undertake minor procurements. However, one major procurement which a component undertook was the acquisition of servers required for use in the implementation of IFMIS by the Accountant General. This procurement was estimated to cost Ksh.30.0m and was conducted through International Competitive Bidding. For procurement of consultants' services, the individual project components were mandated to procure for themselves, and AIEs were issued for such procurements. The components accounted for the funds.

Team Work

The Coordination Unit received a lot of support and cooperation from the World Bank especially as far as obtaining of No Objections is concerned.

The Unit also received a lot of cooperation fiom the project components who submitted their requirements in time and responded to issues promptly.

Within the Coordination Unit itself, the members of staff displayed unity and teamwork and this resulted into efficient performance for each member of staff.

Annex 1: Key Performance Indicators Kenya: Public Sector Management Technical Assistance Project

-

Progress at the end of Project An IFMIS was developed and piloted in two ministries - Finance and Planning and National Development. The system is not yet operational. A Public Procurement and Disposal Bill was prepared but not approved at the end of the project. It had however reached an advanced stage of consideration when the project closed. The IPPD system was developed but currently used as stand alone systems in 24 MDAs due to the lack of connectivity infrastructure.

duringproject supervision) Only a total of 1,023 civil servants left the service. It was planned to retire about 21,000 civil servants through the VERS but this could not be achieved due to a legal writ filed against the scheme by civil servant's union. A harmonized payroll and personnel database system was developed and in use in 24 MDAs. However, due to the inability of the Government to set up a wide area network, the IPPD systems in each of the 24 MDAs are not linked to each other and to the IFMIS that operates in the Ministry of Finance. The MTEF was introduced as a budget formulation framework. An FMIS has also been developed as an instrument efficient and transparent financial management. The system has only been piloted in two ministries. A Directorate of Public Procurement has been established with procurement committees in all procurement entities. A Public Procurement and Disposal Bill was laid before Parliament since May 2003 but not enacted.

The procurement process for the computerization of the courts stalled. The process was later continued and the computers were delivered a few weeks before project closure. Intensive training on IT skills for senior officers of the Judiciary was undertaken.

A project coordinating unit has been in place since the inception of the project. The PCU prepared regular progress reports, work and procurement plans. The PCU also provided implementation support to the implementing agencies. The Unit each year prepared financial statements for the pro-

PDO Indicator Improved governance through the installation of human resource capacity and systems that will strengthen fiduciary responsibilities and corruption in the public service Intermediate Outcome 1. Leaner and highly motivated public service, better equipped to deliver services to the public

2. Efficient and effective utilization of public resources with enhanced accountability and transparency and improved transparency in the procurement of goods and services

3. Establishment of a framework for the achievement of timely, accessible and responsive legal system.

4. Efficient and effeetive coordinating body and process that support the reform program across the

ublic sector p

Baseline No coherent integrated Human Resource system. Weak financial management system including procurement management (as at July 6, 2001).

Indicators (developed The total number of civil servants was 123,000 (as at July 6,2001).

There was poor linkage between government policy and the national budget; There were fragmented procurement procedures and non- existent of procurement committees in public entities; Annual audit reports are in arrears for four years (as at July 6, 2001). Huge backlog of court cases; there were poor enforcement of the rule of law; and inadequate staff (as at July 6,2001). Senior officers did not have IT skills. Not applicable

launches annual audit of the financial statements. Two of the audit reports were received six months afier the end of the financial year which contravenes the agreement in the Development Credit Agreement.

Output Indicators

privatized, contracted out, or commercialized and sound exit plans prepared following completion of these studies by December 2003.

Output Indicators Component 1. Public Service Reform 1. Studies to be completed on services to be

2. Size of civil service reduced in accordance with exit plans by June 2004.

Status

Studies were undertaken on functions and services for

3. Develop and begin to implement an

privatization in the Civil Service. Guidelines for contracting out of government functions were issued to ministries and departments. Very few of the ministries used the guidelines to contract out cleaning services. Ministries have developed strategic plans through which they had identified exckss staff to retire under the Voluntary Early Retirement Scheme. Only a total of 1,023 civil servants left the service. It was planned to retired about 2 1,000 civil servants through the VERS. The process was unable to continue due to the filing of law suits by individuals against the restructuring, and by Parliamentary opposition to the program. A job evaluation exercise to grade jobs and pay

affordable pay and benefits policy within the MTEF by June 2004.

1 and TSC by 2004.

commensurate with remuneration in the Civil Service has been undertaken. A Permanent Public Service

4. IPPD to be fully operational in all ministries

Component 2. Public Financial Management 1. Core staff in ministries/departments trained in

Remuneration Review Board has been established. IPPD systems have been installed 24 ministries and

respective ministerial budget processes by 2004.

departments. Due to the non-availability of a wide area network system, the 24 ministries are neither linked to each other nor to a central system in the Ministry of Finance. The Teachers Service Council Secretariat is also using the IPPD system.

Staff training has been a continuous exercise. In all over 300 members of staff were trained. A few of the staff benefited from overseas training. study' tours were also undertaken to Tanzania, South Afiica and Uganda. ThisJ'includes a total of 86 officers trained in Financial Management in the Public sector; 34 officers trained on costing for the MTEF; and 38 officers trained in MTEF

office filled with staff Gained to post-graduate level or a minimum of part I1 of CPA (K) professional standards by 2004.

2. MTEF computer information system linked to IPPD and IFMIS by 2004. 3.75% of professional positions in C&AG's

directors of audit were trained and received degrees in executive masters of business administration. 14 Senior, Principal Auditors and Assistant Directors of Audit were trained and graduated with M.Sc. in Audit Management and Consultancy.

training-of-trainers module. The MTEF computer information system has not been linked to the IPPD and IFMIS 11 senior auditors, principal auditors and assistant

1 6 senior auditors and one auditor graduated with M.Sc. in /

4.60% of professional accounting positions (Chief Accountant and above) across Government trained to professional standards by 2004. 5. Develop Internal Audit Manual by June 2003.

6. 30% of Internal Audit Staff to be trained on the application of Computer Assisted Audit Techniques (CAATs) by December 2004. 7. Operations of PPD enhanced through the completion of procurement equipment financed by the project by December 2002.

8. Procurement capacity of public procurement entities assessed and appropriate training programs implemented by June 2003.

9. Public entities to have established tender committees as per the procurement regulations by June 2002. 10. Procurement regulations applied by all public entities by June 2002. 1 1. Public Procurement Complaints, Review and Appeals Board established and operational by 2001. Component 3. Legal Sector Reform (revised indicators after the mid-term review) 1. Case management system developed and its roll out commenced and incidence of established number of lost files in the High Courts reduced by 10% by December 2004 2. Average time taken fiom filing to disposal of cases in the High Courts reduced from 5 years

Computer Science whilst 3 Deputy Directors of Audit were trained in General Accounting Office (GAO) Internal Auditor Fellowship Program (USA).

278 members of staff passed the CPA I1 whilst a total of 265 passed the CPA III.

Over 600 officers were trained for all the levels of the CPA program. About 20% of those trained have received their professional qualification.

An internal audit manual was developed. This manual is yet to be printed and circulated for use by internal auditors. A total of 230 officers of the Office Internal Audit were trained in CAATS. The officers were drawn from the Head Office and also staff located in the MDAs. Procurement equipment procured for PPD. Following the extension of the project fiom December to June 2005, additional 16 computers and accessories were procured for the PPD. Over 1200 procurement officers trained. Due to the restructuring of the procurement and supplies cadre in June 2003, majority of the trained procurement staff were removed from their positions. Capacities of public procurement entities were assessed and training programs developed. The training for the entities are yet to start. Tender committees were established in all public entities.

Procuring entities have been applying the regulations.

The Public Procurement Complaints, Review and Appeals Board established and operational. It has heard a total of 176 cases since inception in 200 1.

No case management system was developed.

IT training of has been undertaken for Magistrates, High Court Judges and senior staff of MOJCA. In all a total of

in 2000 to 3 years by December 2004.

3. Pilot program on Recording of Court

485 staff members were trained. The computerization and local area networking was also undertaken in MOJCA and the Office of the Attorney General. However, all this were done close to the project closure hence the target of reducing the average time taken fiom filing to disposal of cases in the High Courts was not achieved. Recording of court proceedings could not start as the

Proceedings completed by December 2004 and ready for replication throughout the country. Component 4. Project Coordination and Change Mana~ement 1. Quarterly project reports on progress, plans, issues, finance and accounting, and procurement are submitted on time and of high quality from 200 1 to end of project. 2. 70% of contracts signed on time, in accordance with procurement plans for whole of 2003 to end of project.

computers were delivered just at the time the project was closing.

Quarterly reports prepared. Annual and quarterly work and procurement plans prepared and submitted to the Bank regularly till the close of the project.

Less than 50% of contracts are singed on time. There were problems with international competitive bidding (ICB) procurement processes due to interference by the executive.

Annex 2: Project Costs and Financing Kenya: Public Sector Management Technical Assistance Project

Project Cost by component (in US$ million equivalent) -

Appraisal ActuaVLatest Percentage of ,

Component US$ US$ million -

Public Service Reform

Total Pro'ect Costs J Total Financing 20.50 14.02

Total Baseline Cost Physical Contingencies

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

million 8.10

Procurement Methodl Expenditure Category I ICB I NcB 1 other2 N.B.F. Total Cost I I

1 4.85

19.60 0.90

Public Financial Management Legal Sector Reform PSR Coordinating Unit

14.02

4.60 0.64 3.93

6.70 1.60 3.20

1. Works

2. Goods

68.66 40

122.81

3. Services

4. Training

0.00 (0.00)

4.40

Total

0.00 ( (0.00)

0.00 (0.0O)l

0.00 (0.00)

0.30

(0.00) 4.40

(3.10)

0.00

0.00 (0.00)

5. Operating Costs

6. Miscellaneous

0.00 (0.00)

0.00

0.00 (0.00)

. 0.00

0.00 (0.00)

0.00 (0.00)

0.30 (0.20)

10.60

0 4.50

1 ( 3.30 )

0.00 (0.00)

0.00

0.70 (0.50)

0.00 (0.00) 15.80

(1 1.70)

0.00 (0.00)

4.70

0.00

0.00

10.60 (7.90)

P

4.50

0.00 (0.00)

0.00 (0.00)

0 .OO (0.00)

0.70 (0.50)

. 0.00 (0.00) 20.50

(1 5 .OO)

Project Costs by Procurement Arrangements (ActuaVLatest Estimate) (US$ million equivalent)

11 Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. 21 Includes civil works and goods to be procured through national shopping, consulting services, services of

contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Expenditure Category

1. Works

2. Goods

3. Services

Procurement NCB

0.00 (0.00) 0.98

(0.98) 3 .OO

ICB

0.00 (0.00) 1.64

(1.64) 0.00

Project Financing by Component (in US$ million equivalent)

(0.00)

Reform Public Financial Management Legal Sector Reform PSR Coordinating

Methodl other2

0.00 (0.00) 0.00

(0.00) 3.04

4. Training

Component

Public Service

Unit

5.22

1.15 .

3.10 '

I

N.B.F.

0.00 (0.00) 0.00

(0.00) 0.00

0.00 (0.00)

Appraisal Estimate ActualILatest Estimate

I I

Total Cost

0.00 (0.00) 2.62 (2.62) 6.04

Bank 4.74

Percentage of Appraisal

1.78

0.48 0.30

0.00 (0.00) ----

5. Operating Costs

6. Miscellaneous

Total

CoF. Bank 5.53

Bank 85.7

0.00 (0.00) 0.00

(0.00) 3.98

(3.98)

0.00 (0.00) 0.00

(0.00) 1.64

(1.64)

Govt. 0.07

Govt. 2.45

4.45

0.62 ,. 3.92

5.20 (5.20)

CoF. Govt. 2.9

0.20 ' (0.17)

0.00 (0.00) 8.44

(8.40)

CoF.

0.2 1

0.02 0.0 1

0.00 (0.00)

5.20 (5.20)

0.00 (0.00) 0.00

(0.00) 0.00

(0.00)

85.2

53.9 126.5

0.20 (0.17) 0.00 (0.00) 14.06 (1 4.02)

11.8

4.2 3.3

Annex 3: Economic Costs and Benefits Kenya: Public Sector Management Technical Assistance Project

Not Applicable

Annex 4: Bank Inputs Kenya: Public Sector Management Technical Assistance Project

(a) Missions:

Stage of Project Cycle No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)

Performance Rating

MonthlYear

IdentificationIPreparation July 2000

AppraisaVNegotiation November 2000

April 200 1

Supervision

1 1/25/2001 09/25/2002 03/02/2003

02/06/2004

1010 112004

Count

6

6

10

1 1 6

5

7

Specialty

PUBLIC SECTOR MANAGEMENT (2); LEGAL (1);FINANCIAL MANAGEMENT (2); INFORMATION TECHNOLOGY (I)

PUBLIC SECTOR MANAGEMENT (2); LEGAL ( 1 );FINANCIAL MANAGEMENT (2); PROCUREMENT (1) TTL (1); OPERATIONS (1); LEGAL (2);FINANCIAL MANAGEMENT (2);PUBLIC SECTOR MANAGEMENT (1) DISBURSEMENT (2);PROCUREMENT ( 1 )

PUBLIC SECTOR (I) TEAM LEADER (1) TEAM LEADER (1); ANTI- CORRWTION (1); WST. GOV. REVIEW (1); LEGAL (1); INSTIrnIONAL (1); RESTRUCTURING (I) TEAM LEADER (1); TEAM MEMBER, MTEFICSR (1); TEAM MEMBER, IFMIS (1); TEAM MEMBER, PROC. (1); TEAM MEMBER, FM (1) MISSION LEADER (1); PUBLIC SECTOR REFORM (2); FrNANCIAL MANAGEMENT (2); WBI (1); SECTOR MGR. & MEMBER (1)

Implementatn.

S S S

S

S

Development Objective

S S S

S

S

Stage of Project Cycle

IdentificationJPreparation AppraisaVNegotiation Supewision ICR Total

U PUBLIC SECTOR MANAGEMENT (1); FINANCIAL MANAGEMENT (1); PROCUREMENT (1)

ICR July 2005 U 3

ActuaVLatest Estimate No. Staff weeks

19.4 4.0

154.5 6.2

2 10.5

US$ ('000) 54.8 14.4

224.6 12.5

306.3

Annex 5: Ratings for Achievement of Objectives/Outputs of Components Kenya: Public Sector Management Technical Assistance Project

,H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Ratinn

Macro Policies Modest Sector Policies Modest Physical NA Financial Modest Institutional Development Modest Environmental NA

Social

Poverty Reduction Negligible Gender N/A Other @lease specz;jl) -

Private sector development N/A Public sector management Modest Other - Access to Jmtice Modest

Annex 6: Ratings of Bank and Borrower Performance Kenya: Public Sector Management Technical Assistance Project

(HS=Highly- Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance

Lending Supervision Overall

Rating

6.2 Borrower performance R a

Preparation U Government implementation performance U Implementation agency perfomance S Overall U

Annex 7: List of Supporting Documents Kenya: Public Sector Management Technical Assistance Project

(i) Project Appraisal Document, July 6,200 1 (Report No.: 2 1397-KE) (ii) Development Credit Agreement and its amendment (iii) Project implementation support mission reports (iv) Full Borrower's evaluation with annexes

KENYA o SELECTED CITIES AND TOWNS

@ PROVINCE CAPITALS

@ NATIONAL CAPITAL

-1 RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

-.- INTERNATIONAL BOUNDARIES