NYS scandal: Auditor General uncovers eight ways to syphon Sh1 billion

NAIROBI: Fuelled by greed, corruption and fraud, individuals named in the National Youth Service (NYS) scandal made away with almost Sh1 billion.

And now after interviewing 45 people, the Auditor General reveals how the money was stolen.

Behind the good intentions in the programme, millions of shillings were being siphoned through at least eight different schemes from paying for air, paying twice for the same invoice, overpayment and outright theft.

It started when Nelson Githinji’s authority to make payments was revoked on February 19, 2015. He was immediately replaced by his deputy, Mr Adan Harakhe.

The next day, on February 20, 2015, instructions were issued to the director of the IFMIS (Integrated Financial Management Information System) at the National Treasury to define Mr Harakhe as the new accounting chief for NYS.

This was the period when Sh460 million out of the Sh791million was fraudulently paid out. Before this date, the service had recruited small armies of youth from around the country from as far back as September 2014 to be part of the re-branded service.

The recruits, who were categorised in cohorts – local youths engaged by the NYS in their locality – were being paid a daily wage of Sh471.


A third of this amount was retained as mandatory savings and deposited into the NYS Huduma Fund. It was a grand plan targeting millions of youths that the Government hoped would help provide some stop-gap employment opportunities.

The 30 per cent retained was to be invested in savings and credit cooperative societies (saccos), which were to be created by youths in respective counties.

A year later, as at September 2015, there were 83,076 cohorts who had been registered and paid a total of Sh3 billion.

The first fraudulent scheme as documented by the Auditor General was at the pay-point of the youth groups.

This is how it was done. The same identification document was used to make multiple payments to different individuals. At least Sh19.4 million was paid to individuals that had identical national identity card numbers.

Payment of another Sh18 million was also fraudulently made to different beneficiaries using identical mobile numbers.

There was another Sh12.7 million for alleged excess days, which was processed through excel and Sh190 million was stolen through the NYS ERP system, also in the name of excess days.

In total, the auditor says he was able to find at least Sh240 million lost through this scheme and he notes the amounts could be bigger if all payments were audited.

“This special audit did not independently confirm directly with the cohorts to acknowledge receipt of funds, which could have revealed further fraudulent activities,” the report notes.

The auditor says he found the fraud when he analysed the payments done through Safaricom’s M-Pesa to participating youths through their mobile phones.

The service was contracted by the National Bank of Kenya (NBK), which kept the NYS billions. To make matters worse, the agencies had two accounts at NBK which were operated without the authority from the principal secretary of the National Treasury, Dr Kamau Thugge, as is required by the law.

“Subsequent arrangements with Messrs Safaricom Ltd, may also be rendered irregular in the absence of an authority from the PS National Treasury to operate the NBK bank accounts and therefore costs incurred thus far deemed recoverable,” the report adds.

But the auditor absolves Safaricom from any wrongdoing, noting that the mobile firm executed its mandate based on information provided by NYS, like details of recipients of funds; such as mobile numbers and names.

The auditor notes this created opportunities that exposed the total wage payments of Sh3 billion to the risk of misappropriation due to lack of adequate controls.

When reviewing the Safaricom payments, the auditor also found that another Sh360,315 was paid to permanent staff. These payments were irregular because the permanent staff of the NYS draw salaries.

The auditor wants these amounts recovered from the permanent staff.

The other scheme was to alter contracts. An altered supplies branch contract was used to facilitate fraudulent payments of Sh222 million to various suppliers without proof of the goods being delivered or services being rendered.

“These payments of Sh222,122,919 by NYS to supplier branch for procurement done using a contract from suppliers branch based at the Ministry of Lands, Housing and Urban Development, was not supported in its entirety,” notes the report.

To identify this fraud, the auditor found Sh66.9 million identified as ‘recurrent’ had no documentation while documents supporting another Sh155 million had said the payment was for the supply of items that were neither received nor taken on-charge in any of the NYS stores’ records.

“Therefore, it’s likely that the entire amount of Sh22,122,919 was fraudulently paid,” the report notes.

The Consulting House, which is owned by political analyst Mutahi Ngunyi, has also been adversely mentioned in the report after it was given two contacts.

Consulting House received Sh12.5 million more than the contract price, with the excess money being drawn from an invoice that had already been paid.

The firm provided consultancy services for the controversial NYS rebranding exercise. “In order to rebrand and re-engineer the NYS to make it more effective, Mssrs, the Consulting House Ltd of P.O Box 72289 – 00200 was hired to restructure the NYS as per the terms of reference and proposal in what was later referred as NYS Five-Point Vision,” the report notes.

According to records from the registrar of companies, the firm was registered on November 20, 2009. Its directors are Dr Godfrey Mutahi Ngunyi and Ms Judith Langat Mutahi.

The contract was was signed on March 5, 2014 at a contract price of Sh40 million exclusive of reimbursable fees. It was signed by Eng Peter Mangiti, the then Planning ministry principal secretary and Mr Japther Rugut, the then director general.

Mr Ngunyi and a Mr Jonathan Maina signed on behalf of the consulting company. According to the contract, 20 per cent of the contract fee was to be paid on the commencement date against submission of a bank guarantee.

Another 10 per cent of the lump sum was to be paid after submission of the inception report.

Ngunyi was to claim the next 25 per cent upon the submission of the interim report, 25 per cent after the draft final report and the remaining 20 per cent was to be paid after the final report was approved.

But the payments did not follow this pattern. On April 1, 2014, NYS made the first payment. It paid the company Sh12million, which was 30 per cent of the contract price.

The second payment was done on May 6, when Sh10 million was paid. This was 25 per cent of the contract price.

The final payment was done on June 16, 2014, when Sh18 million or 45 per cent of the payment was done. “The Consulting House Ltd prepared a document and submitted it to the NYS on June 16, 2014, the same date when the last payment was done,” the report notes.

But it was in the second contract that the Auditor General raised more concerns.

The NYS entered into a second contractual arrangement on October 13 with the Consulting House. The second contract was for advisory services on the implementation of the NYS five-point vision.

The contact price was Sh50 million inclusive of taxes, but exclusive of reimbursable costs as week. This was now Sh10 million more than the first contract.

This time round the contract was signed by Nelson Githinji, who had replaced Mr Rugut as the new NYS director general. The other signatories were Planning PS Mr Mangiti and Mr Ngunyi. Ms Rita Nyawira Gichema signed the contract on behalf of the consultancy company.

But as always, trouble started at the time of payment. Despite having clearly set out terms of reference and a payment plan, NYS ended up paying Sh62.5 million, which is Sh12.5 million over and above the contract price.

“Further inquiries revealed that the payment of Sh12,500,000 on April 21, 2015 was done using a copy of invoice number 001/15/TCH-NYS dated March 11, 2015 that had been used to support an earlier payment of the same Sh12,500,000 (25 per cent) done on March16, 2015,” the report notes.

The auditor also found Sh551million, which was deducted from the salaries of the youth as savings, was used to fund NYS operations.

About Sh925 million had been retained by September 2015 as youth savings, but only Sh342 million was confirmed to have been transferred to the 57 registered Saccos while the balance of Sh582 million expected to be retained within the NYS Huduma Fund bank account, only Sh31 million was available at the National Bank account.

“Due to poor cash-flow projections, there were shortages of funds to finance operations at the NYS. The balance of Sh551,750,000 relating to Sacco deductions held in the NBK Huduma Cohort bank accounts was then internally borrowed to pay for certain expenditure,” the report adds.

The amounts included cohorts weekly wages, Huduma kitchen expenditure, Lamu securitisation wages, water pans personnel wages and Kibera road committee allowances.

The amounts were later refunded and deposited into a new KCB account in January this year. But it was the schemes perpetrated by hairdresser Josephine Kabura Irungu that led to the biggest loss at the agency.

The agency paid out millions to a company five months before it was registered even as the money lost rose to Sh1.4 billion.

In addition to the Sh791 million, another Sh609 million was also paid out in a similar way. The Sh791 million was fraudulently paid to three suppliers whose site details were irregularly defined by Fredrick Munge Musembi on various dates.

The suppliers were Form Home Builders, Reinforced Concrete Technologies, and Roof and All Trading, all associated with Josephine Kabura.

“Messrs Form Homes Builders received all its irregular payments of Sh218 million at least five months before it was even registered by the registrar of companies,” the report says.

On their part, Reinforced Concrete Technologies, and Roof and All Trading also started receiving their payments approximately two months after they were registered.

“This highlighted a case of fundamental disregard to internal controls and an indication that proper due diligence was not done for these suppliers before being awarded any business by the NYS,” it adds.

The registrar of companies also confirmed these suppliers were just recognised as business names and not companies or entities. This means that they are not bound by the Companies Act or registrar of companies.

According to records at the registrar, the proprietor of all the three business names was identified as Ms Kabura and she received the entire Sh791 million.

The millions were received on account of the three business names via their corporate banks accounts held at Family Bank Kenya Ltd, situated at KTDA plaza.

“The payment of the Sh791,385,000 was meant for materials supplied by the aforementioned three business names for the construction of a 3.5kilometeres road in Kibera under the slum upgrading programme,” the report notes.

The report also noted that there were also other fraudulent payments of Sh609million for alleged payments.

The auditor noted there were significant changes in the reporting structures and responsibilities at the height of the theft of public funds.

The special audit also noted timing concerns especially between November 17, 2014 and July 20, 2015 relating to transfers, deployments and events affecting Harakhe before his appointment.