By James Anyanzwa

The Auditor General found out that Sh1.1 billion in respect to four projects were refunded by credit suppliers in June 2004 and projects cancelled.

These refunds include those associated with the Export Lease Purchase contract amounting to Sh72.8 million, Forensic Science Laboratories (Sh375.2 million), Kenya Police Law and Order E-Cops (Sh509.6million) and the Immigration ISDCS (Sh93 million).

The audit confirmed the receipt of these funds by the Treasury with the amounts being credited to a special miscellaneous account. "No reasons were given by the firms for refunding the money," says report. Of the 18 projects,12 were contracted and agreements signed between 1997 and December 2002 while the remaining six were contracted and signed between January 2003 and January 2004.

However the report indicates that out of the latter six projects, three were initiated and negotiated between the years 2000 and 2002 while no information has been made available regarding the initiation and negotiation of the other three projects.

The policy regarding consideration and use of lease financing and supplier credit arrangements in respect of key high priority security projects had received Government approval in 2001, as an alternative approach to the then increasingly uncertain and fast-dwindling donor support.

Found to be fraudulent

The report established that through the 18 securities related supplier/financier credit contracts/projects, the Government had been committed to spending $396.5million and 298.8 million euros (Sh56.33 billion) in the form of irrevocable promissory notes. These were given to the credit providers on the dates the respective credit agreements were signed.

In December 2007 the then Finance Minister Amos Kimunya issued a caveat emptor cautioning both local and global financial and non-financial institutions against honouring the promissory notes after they were found to be fraudulent.

The auditors established that the competitive bidding as provided for in the Public Procurement Regulations (2001) was not applied in the identification and award of the contracts to the various suppliers.

It was also noted that at least seven of the supplier/credit providers did not exist in the countries in which they were purportedly registered.

These firms include Midland Finance and Securities Ltd (Switzerland), Apex Finance Corporation (Switzerland), First Mercantile Securities Corporation (Switzerland) and Infotalent (Switzerland).

Against the total commitment of Sh56.33 billion, the Government had by June 30,2005 paid a total of Sh16.37 billion leaving a balance of Sh39.96 billion still outstanding.

In addition, the Government had by that date paid interest totalling Sh1.16 billion on these credits.

The commitment of Sh56.33 billion, which is equivalent to 16.21 per cent of the Government’s annual gross expenditure for the year 2003/2004, was made outside the Government budget process without the approval of Parliament.