How Sh100 million was lost at the office of the Auditor General

Auditor General Edward Ouko when he appeared before the Senate Assembly Public Accounts Committee over budget at Parliament. [Boniface Okendo/Standard]
A senior officer in the Auditor General’s office is accused of pocketing millions of shillings during purchase of a software system.

A suit filed by Ethics and Anti-Corruption Commission shows the contract was inflated to over Sh100 million, and procurement done irregularly. The company awarded the tender had no capacity to deliver the audit vault software systems and payments were made without documentation.

EACC blamed the scandal on Deputy Auditor General Stephen Ndung’u Kinuthia.

“He dishonestly used his power to influence acquisition of the software at an inflated price in return for a kickback. He signed an agreement with the company before the tender was discussed by the executive committee,” said EACC.

The commission is seeking to recover Sh46.7 million from Kinuthia and several companies involved in the scandal. The amount, according to EACC, was unreasonably high given the system’s value was Sh54 million.

EACC said it received information about the irregularities in April 2014, and that investigations revealed massive collusion and inflation of costs.

Materials inspected

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Their investigations revealed that on November 7, 2013, the Auditor General’s office paid Sh100, 675,680 to Open Systems Integration (OSI) Kenya Ltd even before the materials were inspected or supplied.

As soon as the company received the payments, it started dishing out kickbacks through different bank accounts and law firms.

Court documents show the company first transferred Sh48 million from its Kenya Commercial Bank account to its Barclays Bank account.

It then transferred Sh36 million to another account at NIC Bank held in the name of law firm of Njuguna and Partners Advocates and Sh10 million to Equity Bank to an account held by Value Teq Trading Ltd.

The Sh36 million transferred to Njuguna and Partners Advocates was shared out to various entities and individuals.

Kinuthia allegedly received Sh27 million in kickbacks out of which he used Sh13 million to buy three prime plots in Makuyu Town.

Sh10 million was transferred to Kenya Milk Farmers Investment Ltd while Sh7.9 million paid to Mars Technology Ltd director Charles Mwaduna.

“Our investigations established the procurement was tainted with illegalities and was a fraudulent scheme to defraud the office of the Auditor General. The defendants are jointly culpable and must be compelled to return what they illegally acquired,” stated EACC.

EACC said the fraud started when Kinuthia gave OSI secret information about their intention to purchase the software, and went ahead to sign the contract before it was discussed and approved.

To hasten the fraud, the executive committee allegedly approved the single sourcing without involving the tender committee.

“He colluded with the company’s directors to illegally acquire Sh46, 772,716 which was a higher price than what would have been the cost for the software,” claimed EACC.

OSI directors Charles Gichobi, Kamau Patrick, Ephantus Kairu and Sylvester Kiplagat are listed as beneficiaries of the loot. Others are the manager in charge of ICT at the Auditor General’s office, Annette Mwangi, Director of ICT Justus Ongera and directors of Enkei Holdings Charmaine Kinuthia and Nelson Karanja.

EACC is seeking orders compelling them to refund the Sh46.7 million.

The defendants denied the allegations. They said the procurement was above board and that the amount allegedly overpriced was fully accounted for.

Kinuthia said the suit was misconceived and scandalous. He said he did not influence the tendering process.

“The entire process of acquiring the audit vault software was lawful, regular, legal and conducted in accordance with procurement rules. The orders being sought to recover Sh46.7 million cannot be granted without proper evidence that we corruptly acquired proceeds of crime,” swore Kinuthia.

Allegedly lost

He said he was not liable for the allegedly lost money. He also said the Sh27 million he received from the director of OSI was to pay off a debt.

OSI directors also denied engaging in corruption and money laundering, stating that they were fairly awarded the contract.

They said they made payments to various individuals, out of the Sh100 million, but insisted they were for various services and consultancy.

Justice John Onyiego directed the parties to file their submissions before the hearing on September 25.

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