Tricks parastatal bosses use to fatten their wallets with stolen public funds

Kenya Meat Commission factory in Athi River. A former MD withdrew Sh27m from two separate accounts and then stashed the money in his private account

They steal, eat and walk away leaving their parastatals reeling under a mountain of debt. The public, which is supposed to receive the services, is left suffering.

This is the story of the blatant theft of public funds in Kenya’s parastatals and politically expedient policy blunders that has turned some public bodies into loss-making entities.

Take the case of the Kenya Meat Commission — and this has nothing to do with President Uhuru Kenyatta’s ‘endeleeni kumeza mate, lakini nyama tutakula nyama’ slur — where a former managing commissioner went into two bank accounts, held in two separate banks and withdrew Sh27 million, then stashed the money in his private account.

The former KMC boss, who is not named in an audit report by Auditor General, withdrew Sh11.5 million from the First Community Bank and Sh15.6 million from the Kenya Commercial Bank in Kitengela. Taking cue, the Company Secretary also raided the KMC accounts, and withdrew Sh3 million.

When the Auditor General Edward Ouko asked the questions, he was told that the whole amount — Sh30 million — was used to purchase livestock. There was no other documentation about the transaction, and no explanation why public money was stashed in a private account.

Incur losses

Clearly, that money was probably “eaten” because in his official language, the auditor said “the authenticity of the Sh30 million withdrawn from the commission’s bank accounts ... could not be confirmed.”

In the case of the Kenyatta National Hospital, the management appears to have told the Auditor General that the free maternity policy — a flagship political pledge for the Jubilee administration — was a policy blunder that had dented their books to the tune of Sh134 million.

“Kenyatta National Hospital being a referral hospital receives complicated maternal referrals and as a result the costs are higher than the reimbursable amount of Sh17,500 per delivery. The amount has remained the same despite the high costs. The hospital will therefore continue to incur losses if the reimbursable amounts are not reviewed,” the Auditor General said.

The Ministry of Education also has an audit query of about Sh205 million in “unsupported expenditure” under the Education for Young People Programme which was undertaken in partnership with the United Nations International Children Emergency Fund. The money, equivalent to 96 per cent of the budget, was used for peace education, nomadic education, education in emergencies, child friendly schools and early childhood development.

At the Kenya Industrial Research and Development Institute it is the colossal losses that have the auditor worried. He noted that the parastatal had made a Sh101 million loss and that it had a “negative working capital.” The warning is that the institution which is crucial for the country’s jump into an industrial nation, is likely to fail.

“The institute’s going concern status is doubtful problem and its continued existence is dependent on government and creditors support,” the auditor said.

At the Export Processing Zone Authority, a former chief executive disregarded the law and took a salary advance many times his monthly pay, and more millions in imprest and simply failed to pay. The audit report says the former CEO appeared to have intimidated the officers, never mind that the Government’s financial regulations cap salary advance at one month’s salary.

Communication breakdown

“It further provides that advance may be granted only when an officer has no other outstanding salary advance and should not be more than two within one year,” the auditor said. But in this case the advances were doled out and never recovered from the pay. When the time came for the CEO to leave, he left with Sh10 million.

The supply of ‘air’ was also exposed at the Kenya Bureau of Standards where Sh2.7 million was paid to three firms “for goods and services that were never supplied or rendered.”

There are dozens of cases where people who are neither board members nor staff of parastatals got paid sitting allowances just for attending meetings. There are other parastatals, such as the Kenya Agricultural Research Institute (now known as the Kenya Agriculture, Livestock Research Organisation) where former MPs received Sh537,000 in questionable manner.

In another case at the Kenya Civil Aviation Authority, there was a Sh64 million “mistake.” The bosses went to the accounts of the East African School of Aviation, took out Sh64 million and placed it in a call deposit account — really a fixed deposit where you can take out your money at any time. The interest rate was 0.5 per cent per annum.

The auditor wanted to know how the interest rate was negotiated, and how the whole transaction was authorised, and how much interest was received.

“The management has explained that the debit was due to a communication breakdown between the bank and the authority,” reads the audit report, which points out that it took a year for the bank to credit the interest into the KCAA accounts.

It added: “No evidence was availed to confirm how the rate of interest of 0.5 per cent per annum was arrived at, why it took the bank over a year to credit the interest to the authority’s bank account and what measures have been put in place to deter and avoid a recurrence of the same action by the bank in future without director’s approval.”