Uwezo ‘gravy train’ sinks Sh4 billion, audit shows

On March 16 last year, the Uwezo Fund, one of Kenya’s Vision 2030 and Jubilee government’s flagship projects, paid Sh1.05 million for the supply of vehicle tyres.

It was a routine maintenance cost to aid the operations of the Fund and consequently the management procured several tyres of sizes 265/65R17, 265/65R18, 245/70R16 and 195/65R15 at the respective costs of Sh47,250, Sh50,800, Sh38,500 and Sh45,000 per piece.

From ordering the tyres on January 13, delivering them, invoicing on February 26 and paying, all the processes were smooth - until the Auditor-General knocked asking for accountability from management to ascertain that public funds were spent lawfully.

“However, the prices of the tyres paid for were significantly above the recommended Market Price Index Survey Results of Public Procurement Review Authority (PPRA) for the month of February, 2020,” Auditor-General Nancy Gathungu notes in her audit report.

The report indicates that the market price for the tyres bought at the time were in the range of Sh6,611 to Sh15,756, revealing that they were overcharged by between Sh24,761 and Sh38,389 per piece.

No value for money

“No explanation was rendered for the procurement at prices higher than the prevailing market index. The Fund did not realise value for money from the expenditure of Sh1,052,990 on the supply of tyres,” the Auditor-General notes in the report that has lifted the lid on gross mismanagement at the Fund entrusted with billions of taxpayer money meant to benefit some of Kenya’s most vulnerable groups – young people, women and people with disabilities.

The Uwezo Fund was established in 2013 when the Jubilee administration ascended to power and was tasked with expanding access to finances in constituencies across the country. This, the government intended, would then spur economic growth by supporting job creation and the realisation of Vision 2030 goals such as poverty reduction.

The Fund administered at the constituency level, received a Sh6 billion in seed capital and has been receiving exchequer releases annually to support lending to the groups.

But if the Auditor-General’s report is anything to go by, Kenyans could be staring at a loss of over Sh4 billion due to gross mismanagement, which has denied millions access to much-needed funds that would improve their socioeconomic welfare.

The 2019/20 Auditor-General report paints a picture of a Fund staring at collapse and facing serious problems, ranging from breaking procurement laws, unexplained payments to the tune of millions of shillings, dealings with dubious characters and a serious gap caused by lack of proper book-keeping that has made it impossible to establish whether over Sh4 billion in public funds purportedly lent out, with no documents to support, will be recovered.

Outstanding loans

“The statement of financial position reflects a balance of Sh4,111,156,213 being outstanding loans to groups of as at June 30, 2020. The balance has been derived by adjusting the National Government capital fund grants of Sh6,499,650,004 for amount of monies presumably held at Central Bank of Kenya (CBK), loan repayment and main accounts of Sh44,747,632, Sh1,267,738,578 and Sh1,076,007,578 respectively,” the report says.

“The presumed bank balances are unsupported. Further, there were no debtors’ ledgers detailing loans issued by the Fund since inception and repayments made over the years on account of loan recoveries. There were no comprehensive loan listings or aging analysis in support of the outstanding loans. Consequently, the accuracy and completeness of the reported loans to groups balances of Sh4,111,156,213 as at June 30, 2020 could not be confirmed.”

This represents a worsening situation from last year’s Auditor-General report, where she reported Sh3.99 billion in outstanding loans to groups that had no documentations to support.

“No records of the loans advanced to groups including the evaluation and authority to issue loans were availed for audit review. Consequently, the existence, accuracy, completeness, validity and recoverability of the loans to groups balance of Sh3,992,873,484 as at June 30, 2019 could not be confirmed,” the 2019/20 report stated.

Audit opinions

In the two financial years, audit opinions for the Fund have been ‘Disclaimer of Opinion’, meaning that during the audit process, auditors came across widespread and persistent misrepresentation of facts in reporting financial statements and the lack of evidence to support expenditures, to the point that they could not make an opinion whether public funds had been spent lawfully and effectively, and whether the Fund’s governance and internal controls are working.

The Auditor-General faults the Fund for failing to comply with the Public Finance Management (PFM) law to establish a PFM Standing Committee, which would oversee its financial operations.

Had the committee been in place, Ms Gathungu observes, financial misconduct at the Fund would be minimised.

For instance, the 2018/19 report revealed that between July 2017 and January 2018, Sh3.16 million was fraudulently withdrawn from Bumula Constituency’s loan repayment account and by the time of the audit, the Fund’s management had not provided evidence that the money was ever recovered “or any legal or administrative action taken against the involved officers entrusted with management of the funds.”

Ms Gathungu further questions the Fund’s huge administrative costs, stating that there is no prove that the constituencies are returning as much value as the money they are consuming. In the year to June 2020, the Fund’s constituencies’ administrative costs were Sh94 million, down from Sh115 million in the year to June 2019.

Subsistence allowances

The Fund is also on the spot for paying its employees to perform tasks that they have been employed to undertake. In 2019/20, the audit reports that Sh1.88 million was paid as daily subsistence allowances to various officers to carry out activities that form part of their daily routine duties, including preparation of annual financial statements and quarterly reports.

The excuse was that the officers performed the tasks outside the office, although the Fund could not justify why they were working away from the office in the first place.

This is despite over Sh20 million that the Fund paid for procurement, installation and consultancy for a software programme - Enterprise Resource Planning (ERP) - back in 2015, but which has never been implemented after the deal was called off.

The Fund had made a down payment of Sh19.5 million for procurement and installation out of the Sh48.8 million total cost and Sh1.3 million as down payment for consultancy services out of the total Sh6.6 million, but implementation of the software was later cancelled.

“Information available indicates that the implementation of the ERP has been called off even though there is a valid contract in force between the Fund and the supplier. In the circumstances, the recoverability and likely utilization of the part payment of Sh19,522,765 is doubtful,” Ms Gathungu warns.

Bank accounts balances

She further notes that the Fund has not provided documents to explain balances in its many bank accounts, which held over Sh2.9 billion by last year.

The Fund holds three types of bank accounts in the 290 constituencies - main, administration and loan accounts.

By June 2019, the Fund had revenues of Sh198.3 million, up from Sh137 million in 2017/18. But its expenditures were higher at Sh240.6 million in the year to June 2019, down from 278.2 million in 2017/18, which has resulted in deficits of Sh42 million and Sh141 million respectively over the two years.

The Fund’s assets also grew from Sh6.7 billion by June 2018 to Sh6.9 billion in the following year, while it cut employees from 32 to 24 between June 2017 and June 2019.

Documents from the National Treasury show that the Uwezo Fund received a Sh454.1 million budget allocation for the FY2021/22, up from Sh400 million in 2020/21 and Sh300 million in the previous two years.

Under the PFM law, any government entity that receives a Disclaimer of Opinion in Auditor-General reports is not supposed to receive any funding from the for three months, to give room for management to address key issues raised by the Auditor General.

But this has not been observed in government, as entities with both Disclaimers of Opinion and Adverse Opinions continue to receive funding, despite huge risks for loss of money.

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