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Financial scandals that tarnished 2013

By Jackson Okoth | Jan 1st 2014 | 5 min read
By Jackson Okoth | January 1st 2014

By Jackson Okoth

Kenya: In a well-calculated plot involving a network of high-level bureaucrats, a huge stake of the Government’s shareholding in Telkom Kenya was sold to France Telecom.

The sale was approved when the country was in the middle of general election campaigns, with no substantive Cabinet in place.

This share bought is estimated to have been worth Sh34 billion, yet it was sold off without any oversight from the ministry of Information and Communication, Communications Commission of Kenya or even Parliament’s knowledge. To date, the House is still trying to figure out what transpired in this deal, who authorised it and why other parties were not involved.

The parliamentary Public Investment Committee (PIC) is also investigating the identity and details concerning Alcazar Capital Ltd, a private equity firm that had been sitting on Telkom Kenya’s board until recently.

“We want to know who the directors of Alcazar Capital were and when they made their exit from Telkom, how they did this and why,” said PIC Chairman Adan Keynan.

The Dubai-based Alcazar Capital has interests in transport and telecommunications and was one of the bidders during the privatisation of Telkom Kenya.

Legal experts

Interestingly, Treasury is said to have sought transaction advisors and legal experts without CCK’s knowledge in the France Telecom deal.

A letter from the Attorney General’s office, while acknowledging that it was consulted on the legality of the deal, notes that it was not privy to the negotiations between France Telecom and the  Government.

It is still unclear why Treasury failed to pump in the Sh2.4 billion into Telkom required and instead relinquished 10 per cent shareholding.

“We are in the process of instituting legal action on this matter and I am not willing to disclose any more details. We are being careful not to expose the Government or destabilise the industry,” ICT Cabinet Secretary Fred Matiang’i told PIC members.

Also under the spotlight in 2013 is the National Social Security Fund, which is in the process of being converted into a pension from provident fund.

NSSF’s management was at pains to explain glaring omissions, unexplained expenditures and “fraudulent transactions” in its books of accounts before a parliamentary watchdog committee.

The national audit office had questioned why the fund purchased several parcels of land in gazetted areas worth Sh2 billion, yet it cannot develop them.

“We have gone to court and sued all the directors of these companies that were involved in selling the gazetted pieces of land to the fund. These matters are yet to be concluded by the courts,” said NSSF Acting Managing Trustee Hope Mwashumbe.

Under investigation

The fund is also yet to explain why Sh2.4 billion is showing on its suspense accounts, meaning there are contributions that have no returns or details on whom they belong to.

Also under investigation is a Sh324 million advance payment  NSSF made to Mugoya Construction and Engineering Company, despite the firm not having completed construction work on phase one and two of the Nyayo Estate Embakasi housing project.

Mugoya’s contract was eventually terminated in 2004. The firm sued for damages totalling Sh7 billion for breach of contract, with NSSF making a counterclaim for Sh9 million. The matter is before the courts.

In the bond market, Treasury was at pains to explain how rogue traders were able to collude and engage in unethical practices under its nose.

In yet another elaborate scheme, dealers in the bond market colluded in a sell-buyback plan, making huge capital gains in the deals.

To curb malpractices within the bond market, the Central Bank of Kenya insisted that all deals in the bond market be captured in its automated system.

In the oil industry, former Kenya Pipeline Corporation CEO Selest Kilinda was shown the door over nepotism claims. He was sent home in May by the board on accusations he had employed Agnes Kilinda, Marietha Kilinda and Donald Kilinda without following due process.

Fleecing entrepreneurs

A government agency established six years ago to support youth in business may have all along been fleecing  instead of helping budding entrepreneurs.

Investigations revealed that the Youth Enterprise Development Fund had been losing hundreds of millions of shillings to corrupt dealings, with its chief executive Juma Mwatata Mwangala at the centre of the controversy.

He was suspended by the board over financial and procurement irregularities, and interviews for his replacement are ongoing.

He is accused of venturing into major projects and risking huge amounts of money without approval from the fund’s board.

For instance, Mwangala bought 1,050 egg incubators at a cost of Sh208 million for a hatchery project. The price of the equipment turned out to be highly inflated, and the project had not been approved by the board and was outside the fund’s mandate.

The CEO also unilaterally entered into a new contract for the purchase of motorcycles without the approval of the tender committee that cost the fund Sh13.3 million.

He also authorised an enhanced per diem for the fund’s management, which cost Sh20 million.

In the sacco industry, Harambee Sacco was this year hit by a serious liquidity crisis, putting at risk more than Sh4 billion belonging to 100,000 Government employees.

A confidential inspection report compiled by the Sacco Societies Regulatory Authority (Sasra) showed that the sacco has been using creative accounting tactics to cover up fraud and non-payment of loans by some members.

The inspection conducted by the regulator between August 27 and September 6 found that the sacco did not meet nearly all of the prudence parameters and had negative core capital.

The report implicated Harambee Sacco’s chief executive officer, the head of information technology, the finance manager and chief accountant in the mismanagement scam, but does not identify them by name.

It recommended a thorough investigation, full reconciliation of the Sacco’s transactions and the recovery of billions of shillings belonging to members.

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