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How State electricity firm paid Sh430m for fraudulent projects

Silhouette of engineers workers at electricity station. [File]

Three firms lodged fictitious payment claims from the Rural Electrification and Renewable Energy Corporation (Rerec) for work not done and walked away with nearly half a billion shillings of taxpayer funds.

The revelation by an internal audit report, which was prompted by a whistleblower, has jolted the power firm’s board that now wants law enforcement to probe all contracts issued by Rerec over the last decade.

The claims were for survey projects completed years ago, some more than a decade old, by other firms.

With the help of insiders, the three companies were paid Sh430 million between January and June this year without having delivered a single product or service to Rerec.

Internal audit report

The insiders helped the firms take advantage of an oversight by Rerec’s bosses, which left projects completed as far back as 2011 open for manipulation. According to an internal audit report, the projects “were not technically closed and capitalised, and were therefore left open and continued to absorb costs”.

The report noted that insiders helped the firms get paid despite supplying nothing, beating internal control systems through tactics such as low-value invoices that did not require approval by Rerec’s chief executive.

“It has come to the attention of the board of Rerec, through a report by internal auditors, following the alert of a whistleblower, that suspected fraudulent payments have been made from the corporation to three survey companies,” said the board in a letter to Energy Cabinet Secretary Monica Juma.

“These fictitious payments are being made using power distribution projects that do not exist. However, respective payments are being posted to old completed but yet to be capitalised projects that still have some cash balances.” The affected projects where the money was posted were completed, some as far back as the 2010-11 financial year.

“The said payments were charged to old projects (some donor funded projects) of 2010-11 and 2016-17 financial years, which were completed and commissioned but not closed and capitalised,” said the board.

Suspension letters

Rerec Chief Executive Peter Mbugua has since been suspended over the matter, though the report did not directly implicate him in the fraudulent payments.

The board added that other senior officials were issued show cause and suspension letters.

These are finance and accounts manager Davies Cheruiyot, principal finance officer Emmanuel Lelgo, design engineer Simon Ndirangu and design technician Collins Mukhwana.

The board noted that in addition to manipulating old projects that had been left open such that they could continue absorbing more funds, Rerec’s officers also disregarded the process used in paying suppliers.

They also kept the amount of money being paid below Sh10 million, which ensured higher managers were not involved in the approvals.

“Purchase orders for the affected payments were raised by staff in the geospatial department, released and approved by an officer within the finance department as opposed to being raised by supply chain officer, released by finance staff and approved by supply chain officer,” said the board in the letter.

“To execute the purported fraud, the Rerec officers involved ensured that all payments to the said companies were below Sh10 million, that is between Sh7.6 million to Sh9.8 million, which did not require approval from a higher level. The individual invoices raised were below Sh1 million, that is Sh0.99 million. This may have been designed to avoid the approval by the chief executive as all purchase orders from Sh1 million and above should be approved by the CEO.” The board wants Energy CS to invite the DCI to undertake investigations.