Kenya: Auditor General Flags Gaping Holes in Use of National Funds

(File photo).
17 August 2021

The National Government Affirmative Action Fund (NGAAF) in Tharaka-Nithi County reported it spent Sh3.78 million to award some 600 deserving students bursaries in 2019/20.

Ideally, this would mean that each of the 600 students got at least Sh6,307- supposing each received an equal amount, good news for the poor parents of Tharaka-Nithi, and a blessing to the 600 students.

But when Auditor General Nancy Gathungu asked for proof of identities of the beneficiary students the Fund reports to have supported and confirmed that respective education institutions received the money, there was a problem.

"The beneficiary institutions did not acknowledge the receipt of the bursaries amounting to Sh3,304,286. Consequently, it was not possible to ascertain whether the funds were put to the beneficial use of the intended institutions and individuals," the Auditor General says, opening the can of worms that is management of National Funds in the country.

The National Government audit report for 2019/20 shows that the NGAAF Tharaka-Nithi office could only prove disbursement of Sh480,000, through provision of documents confirming receipt of the funds by intended education institutions and records of students who were funded.

Vulnerable Kenyans

For a Fund established to empower socioeconomic lives of vulnerable Kenyans, this was a big gap. NGAAF receives handsome budgets annually for onward disbursement to vulnerable women, youth, children, the disabled and elderly, to enhance their access to financial facilities, besides promoting enterprise initiatives.

Yet still, in the Fund's Meru and Embu offices, similar cases were reported where the actual usage of Sh8.3 million and Sh2,168,000 respectively could not be confirmed, even though it is claimed to have been issued as bursaries for 1,200 students.

"However, evidence of the participatory process applied for identification of the needy students, applications vetting reports, the qualifying beneficiaries and the beneficiary learning institutions receipts acknowledgements were not provided for review. In absence of the information it was not possible to confirm the validity of the expenditures," Ms Gathungu stated in the report.

It is a report that has revealed how public money in the custody of national funds is getting lost, as those entrusted with its administration live large, when they are employed to promote poverty-eradication initiatives such as enterprise and education.

For instance, Ms Gathungu reports that in 2018/19, NGAAF spent some Sh14.5 million to buy a classic vehicle for its board chair, then employed a driver for him to ride around comfortably besides noting that "the Chair is not an Executive Chairman of the Fund therefore not entitled to a car owned and maintained by the Fund."

Public resources

"Further, request by the Fund to The National Treasury seeking approval to procure the motor vehicle was declined due to lack of budget and the vehicle was procured using funds voted for other purposes without seeking for authority for reallocation," the auditor general adds, stating she could not ascertain lawfulness in the use of public resources.

Ms Gathungu in 2019/20 questioned the spending of Sh28,616,216 by the agency, down from Sh2.7 billion that she flagged in 2018/19, mostly from funds it claimed to have disbursed to counties, but which had no records to prove the counties received.

She faults the Fund, whose own records indicate it has disbursed over Sh6.5 billion between 2014 and 2018 to counties, for notoriety in irregular procurements, loss of funds and resources, and giving out funds to ineligible people.

Yet the NGAAF is merely a tip of the iceberg, inasmuch as the discouraging tale of mismanagement at national funds in Kenya goes. An analysis of audit reports for the last two financial years indicate that the Auditor General has questioned the spending at least Sh110 billion -- Sh53 billion in 2018/19 and Sh56 billion in 2019/20 -- an amount more than double the Sh47.7 billion budgeted for Universal Health Coverage (UHC), more than 10 times the Sh8.7 billion set aside for Covid-19 Emergency Response and close to 30 times the Sh4.1 billion budgeted for maternity healthcare in 2021/22.

The amounts range from loans given out irregularly- without collaterals, recovery mechanisms or even records to show who has been loaned what-, missing records to prove what Funds actually have in accounts, to failure to utilise public funds effectively, thus eroding value for money.

For instance, Ms Gathungu questions the spending of Sh396,984,000 by the Land Settlement Fund to purchase a parcel of land for resettlement of thousands of Internally Displaced Persons (IDPs) in 2012, yet the land has never been sub-divided.

"The matter remained un-resolved as at the time this audit report was finalised. Consequently, the objective for which the land was acquired had not been achieved as at June 30, 2020," she says.

The audit report observes that the Fund issued loans amounting to Sh7 billion to settlers in 1962, which have never been recovered. By close of June last year, they had accumulated interests totalling at Sh5.2 billion, resulting in a Sh12.2 billion debt the report doubts will ever be recovered.

Post-election violence

At the National Humanitarian Fund, established in 2008 to aid resettlement and mitigate effects of the 2007 post-election violence, the Auditor General reveals that even though the Fund reports to have spent Sh237.8 million making payments to IDPs between July 2019 and June 2020, "examination of the records and documents provided to support the expenditure of Sh237,822,385 revealed that the payment schedules provided, though duly stamped and signed by the branch managers of the banks from which the disbursements were made to the IDPs, were in excel sheet format. They were not system generated and had no specific reference codes of individual IDPs indicating how each account was credited for both Equity and KCB banks."

"Further, no contact details were provided to enable confirmation of receipt of funds by the beneficiaries. In addition, the KCB payment schedules and bank statements reflect an additional amount of Sh94,277,314 paid to the IDPs which was not reported in the financial statements. "

Grants

In the circumstances, it has not been possible to ascertain the completeness and accuracy of the payments of Sh237,822,385 included under other grants and transfers in the statement of receipts and payments for the year ended June 30, 2020," she adds.

In the previous year, the Auditor General had also questioned the spending of Sh176,600,319 recorded as payments to IDPs, for the same reason of lack of documents to support who exactly benefitted from the funds. The Fund claimed banks involved in disbursement requested for more time to collect the data from various branches that paid the IDPs.

Most of the National Funds in the country were established to achieve specific goals, most of which are solving problems that face vulnerable and other disadvantaged groups, the government pumping in billions every year.

But many have ended up spending the resources for wrongful purposes, dishing out cash to cronies of the officials and becoming avenues for stealing, failing to achieve their objectives and defeating the purpose for which they were established. Most of them have ended up becoming a curse for Kenya.

Things get worse as a close analysis focuses on Funds specifically established to benefit women, the youth and people living with disabilities (PWDs).

Take the case of Women Enterprise Fund- a government agency established in 2007 to provide subsidised credit to Kenyan women entrepreneurs to grow their businesses, build their capacity and facilitate growth of women-oriented SMEs.

The Auditor General reports that the Fund is currently owed over Sh3.37 billion, out of which she fears that the recoverability of Sh8 million issued through LPO financing and Sh71.3 million that was due from eight financial intermediary partners is doubtful, since no payment was made between July 2019 and June 2020.

"Further, there are no collaterals to support an advance of Sh60 million to two financial intermediaries who did not make any repayments during the year," Ms Gathungu adds. Most of the amounts have been accruing over the years, yet the Fund continues to issue loans without risk analysis of how they will be recovered.

Audit of financial statements for National Funds have revealed they are the poorest performers in management of public resources, where they lead in the list of agencies with highest cases of Disclaimer and Adverse audit opinions, meaning the level of discrepancies in their financial records is so huge that auditors cannot tell whether public funds were spent lawfully.

For instance, in the financial year 2018/19, out of the 14 government agencies that the Auditor General issued Adverse audit opinions, nine were National Funds- including the Provident Fund, Rural Enterprise Fund, Public Debt, Pension and Gratuities, Commodities Fund and Agricultural Information Resource Centre Revolving Fund.

Of the 13 agencies whose audit opinions were a Disclaimer of Opinion (the worst ranking in terms of management of public finances), National Funds dominated with nine agencies. This means that documents provided to the Auditor General to support spending of public resources by the Funds were so minimal and had persistent, widespread discrepancies that auditors could not conclude how the monies were utilised.

"There is something seriously wrong with the running of National Funds. Clearly, the main culprit of adverse and disclaimer opinions point to the need for further investigation of the reasons behind these audit opinions," says Mr Noah Wamalwa from the Institute of Economic Affairs (IEA).

Some of these Funds have already been recommended for winding up after it was identified that they no longer serve their purpose, but they have continued to exist and consume public money for up to over a decade.

The Auditor General reports that others, such as the Provident Fund- established to offer social protection to all Kenyan workers- had money on the upwards of Sh819.7 million lying idle by June 2019, instead of investing the cash.

A Fund set up to ensure Kenya makes contributions to the AU and other international organizations hasn't also been performing its role, with the Treasury diverting its resources- Sh5 billion in the year to June 2020- to other uses.

The National Government Constituencies Development Fund- popularly CDF- is another culprit, as the Auditor General notes that officials in the Fund have been overstating training needs for their staff in order to pocket millions.

In 2019/20, the audit report indicates that even though the Fund spent a total of Sh171,271,349 on training against a budgetary provision of Sh138,227,000, the annual training needs assessment was pegged at Sh108,660,372. The Fund thus spent Sh62.6 million that was unnecessary.

Commodities Fund

Closing the list is the Commodities Fund- established to provide affordable credit and advances to agricultural sector- whose records show that last year it was owed Sh217 million (amounts overdue), totalling to Sh19.1 billion in gross loans and advances, with 94 percent of the latter amount set aside as provision for the loans and advances (basically to cover potential losses on loaned money). Interestingly, 96 percent of gross loans and advances were identified as being overdue and non-performing.

"Further, no concrete efforts appear to have been made towards the recovery of the long outstanding balances and no documented criteria of appraising the borrowers and monitoring loan utilisations was provided," Ms Gathungu noted.

During an interview with a local Television on Sunday former Agriculture CS Mwangi Kiunjuri- the Ministry in charge of the Fund hinted where the money could be.

"Commodities fund exists to date and issues loans at the rate of 3 percent. But it is a select few people who have been receiving the money for many years," Mr Kiunjuri said.

Having been Kenya's Agriculture CS until he was fired in January last year, he must have been talking from a point of knowledge and his statement can only show how other National Funds operate.

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