Auditor General flags shady dealings at KAA in latest audit

The Kenya Airports Authority (KAA) is in the spotlight after Auditor General Nancy Gathungu gave an adverse opinion regarding its financial statements.

Ms Gathungu in her latest report said KAA’s financial statements do not disclose the full picture of its dealings, leaving millions of shillings unaccounted for or at the risk of being lost.

In her audit report covering the year ended June 30, 2023, the Auditor General also cites failure to reconcile funds spent on the write-off of advance payments in the failed Greenfield Terminal Project and failure to collect a debt of Sh6.4 billion owed by Kenya Airways and its subsidiary, Kenya Airfreight Handling Ltd, as part of the reasons she has audit queries regarding KAA’s operations.

The others include under-collection of operation revenue, understatement of rental income on non-aeronautical revenue, unreconciled concession income, unbilled facilitation concession, unsupported manual car park revenue collection, unsupported contracted car park revenue collection system and unsupported administration expenses.

On the Greenfield Terminal Project, Ms Gathungu notes that the financial statements reflect establishment expenses of Sh9,474,376,000, which include write-offs in respect of Greenfield Terminal amounting to Sh5,329,384,000.

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Although the write-off was purportedly approved by the Cabinet, there was also no evidence of communication of the approval of the write-off by the Cabinet to the accounting officer through the Cabinet Secretary in writing with a copy to the Auditor-General.

Further, Ms Gauthungu says, the Cabinet Memorandum on the final settlement of the agreement was not provided for audit review, although a copy of the memorandum had been dispatched to the accounting officer by the Solicitor General.

“In addition, and as detailed in Note 60 to the financial statements, the Authority negotiated with a contractor for final mediation settlement on their claim of Sh17.6 billion in respect of the construction of the Greenfield Passenger Terminal Complex and Associated Works at Jomo Kenyatta International Airport,” says the Auditor General.

“The parties agreed to a full and final payment of Sh614,328,659 and a write-off of the prepaid amount of Sh4,792,805,325. A review of the arbitration records revealed that the Consents Arbitral Award issued thereto under Article 33 of the ICC Arbitration Rules was not made as advised by the Attorney General.”

She adds that the Attorney General made an advisory to the Authority through the Cabinet Secretary via a letter dated September 6, 2023, which had not been heeded, including obtaining Cabinet approval of write-offs under Section 69 of the Public Finance Management Act, 2012 and Regulation 148 of the Public Finance Management (National Government) Regulations, 2015 and issuing instructions to Authority’s legal counsel in the International Chamber of Commerce (ICC) Arbitration Case No 26941/SP.

This was so that they may initiate the relevant steps to record with the Arbitral Tribunal and the ICC Secretariat that the subject matter at arbitration has been fully and finally settled by way of mediation between the parties so that a consent arbitral award is issued thereto under Article 33 of the ICC Arbitration Rules. 

KAA management was also tasked to obtain from the contractor a certified copy of an Order from the Chinese Court duly translated into English and confirming that the suit(s) relating to the Advance Payment Guarantee(s) has been withdrawn by consent of the contractor (as Plaintiff or Applicant whichever the case may be). 

“In the circumstances, the legal status of arbitral award, validity and completeness of the write-off could not be confirmed,” concludes the Auditor General. KAA is owed Sh5,896,715,017 owed by Kenya Airways, which constitutes 38.8 per cent of the total trade receivables Sh15,182,381,000, an increase of Sh1,604,224,628 from Sh4,292,490,389 as at 30 June, 2022 to Sh5,896,715,017 as at 30 June, 2023.

“Further, out of the trade receivables balance of Sh15,182,381,000 an amount of Sh463,103,179 was owed by Kenya Airfreight Handling Limited, a subsidiary company of Kenya Airways Limited. effectively bringing the Company indebtness to Sh6,359,818,196 or 42 per cent. It was also observed that the balance owed has not been attracting any interest to protect the interests of the Authority neither has there been recoveries during the year,” says Ms Gathungu.  On long outstanding trade and other receivables, she notes that the statement of financial position reflects a balance of Sh11,757,140,000 in respect of trade and other receivables, which is net of gross trade and other receivables balance of Sh20,505,880,000 which includes trade receivables of Sh15,182,381,000. 

“However, review of trade receivables customer accounts provided for audit revealed that Sh13,054,247,582 or 86 per cent of the trade receivables had been outstanding for more than 270 days. Management did not demonstrate any efforts to recover the old debts,” the report says.