Why CA boss Ezra Chiloba was suspended

This is even as Mr Chiloba faces a case of gross misconduct for negligence of duty, in a case in which he cleared staff who exited CA despite them having unpaid loans totalling Sh28.9 million and understated loan balances of former employees.

An audit report on management of a staff mortgage scheme has shed more light on why Mr Chiloba was suspended on Monday, revealing a serious lack of integrity and competence in management of a scheme that has loaned out over Sh662 million to current and former staff.

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The audit ordered by CA Board in May to carry out an in-depth investigation into the administration of the Scheme shows how former and current staff of the Authority have abused the scheme, risking the loss of millions of shillings.

This has been mainly through sourcing of private valuers who overstate the value of properties causing the scheme to loan out about Sh40 million more to staff; default in mortgage payments; and poor internal controls.

The audit explicitly recommended disciplinary action against Mr Chiloba, mainly for conflict of interest.

“Explicit disciplinary actions should be undertaken against Ezra Chiloba (Director General) for the gross abuse of the scheme administration,” the report recommends.

It notes that Mr Chiloba in 2022/23 applied for and self-approved a mortgage loan to facilitate the purchase of property between himself and Mr Jacob Simiyu Wakhungu, without subjecting the transactions details to interrogation and approval by a higher authority.

It also notes that the embattled DG purchased a house and land of 7 acres, which was beyond the one-acre limit, violating the Civil Servants Housing scheme requirement. It was also noted that the loan was approved by a junior staff member, who may have not carried out due diligence and advised management about the relationship between the seller and the buyer and the size of the property.

“The Authority remitted the amount of Sh25,000,000 to an Account Number 0180281053527 held at Equity Bank in the name of Kitale Hilmost Ltd as per the seller’s instructions contained in a letter dated 5th December 2022.  Further interrogation to confirm the identity of the seller vide a query through the Companies Registry revealed the sole director and shareholder of Kitale Hilmost Ltd as Ezra Chiloba Simiyu, who is also the buyer. These actions amount to an offence in accordance with Section 41 and 42 of the Anti-Corruption and Economic Crimes Act,” the report states.

“This is reasonably construed to be demonstrative of an intent to defraud the Authority,” the report adds.

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Senior managers at CA are accused of failing to adhere to a February 2021 Board directive to have a prequalified panel of valuers, which has given room for staff to collude with rogue valuers and overvalue properties.

CA Board’s Staff Matters and Administration Committee (SMAC) is reported to have suspended the processing of Mortgage applications for two months in April when it established the state of affairs.

In Mr Chiloba’s case, while privately sourced valuers placed the property’s value at the Sh25 million, which the Authority paid, government valuers sourced during the audit process established that the value could be as low as Sh16.72 million, meaning that the property was overvalued by Sh8.28 million.

As a result of the failure, cases of overvaluation of properties purchased through the scheme were identified, ranging between 14.5 percent and 87.5 percent, comparing valuation reports by government and private valuers. The overvalued amount totalled about Sh40 million.

Mr Chiloba is accused of negligence of duty due to CA’s failure to have prequalified valuers and quantity surveyors in the management of the mortgage scheme, exposing the Authority to loss of money by failing to provide overall management.

The report also found that due to CA management’s failure to have a comprehensive policy manual to guide administration of the staff mortgage scheme, it exposed the Authority to financial loss

“Despite assurances from management that there was no record of default or non-payment of the mortgage loans as shared in the Board meeting held on 3 May 2023, the audit exposed cases of default in mortgage repayment,” it stated.

Former CA Director of Legal Services, Mercy Wanjau, who left the authority last year after her appointment as Secretary to the Cabinet, singlehandedly has an outstanding mortgage of Sh18.38 million, or 63.6 percent of the total outstanding mortgages.

The investigation also found that the Scheme refinanced members for loans without evidence that they were undertaking upgrades or improvements for their purchased and/or constructed houses.

“Refinancing amounted to Sh364,815,120 representing 55.07 percent of the total outstanding balance and with no supporting evidence of upgrades done to the houses,” the report noted.

This was besides cases of poor internal controls in the approvals and authorisations process of the mortgage applications, such as the case where Mr Chiloba’s loan was reviewed and approved by himself and a junior staff.

“Failure to undertake due diligence on transactions between the Seller and the Buyer. In the matter of the mortgage loan processed for the Director-General, there is a direct conflict of interest and abuse of the process,” the report found.

The audit recommended that CA should outsource a professional mortgage administrator as it lacks competence and capacity to appropriately manage the Staff Mortgage Scheme.

It also recommends reporting of quantity surveyors involved in professional misconduct of overvaluing properties to the professional bodies, while staff found culpable of colluding with the valuers be sanctioned, and overvalued mortgages rejected.

“Board audit & risk assurance committee noted cases of variance between the Government valuers and privately contracted valuers. Mortgage applications whose valuations were above the standard acceptable variation given by professional valuers of 20 percent should be rejected. Given the magnitude of variance, it was noted that the private valuation process was unprocedural and the intent was dishonesty,” it states.

The report also wants recovery of overvalued properties and disciplinary measures to be taken on officers who colluded with valuers.

“From the audited sample, there is a need to relook all loans in the loan book and disciplinary measures should be undertaken on the relevant officers and any new officers found with similar issues,” it states.

The report also recommended disciplinary action against CA’s Director of Human Resources for causing a financial exposure of Sh29.9 million that had been defaulted in the mortgage scheme by end of June 2023, the lack of prequalified valuers and quantity surveyors, and failure to put in place a Comprehensive Policy Manual to guide in the Administration of the CA Staff Mortgage Scheme.

The mortgage scheme has been in existence since 1999 when CA was established and exists to enhance staff welfare and facilitate them to acquire decent residential houses. It is administered by the Human Resources and Administration Department.

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