Billions of shillings held by the National Social Security Fund can‘t be properly accounted for even as the fund continues flouting rules governing the pensions industry.
An audit report seen by the Sunday Nation portrays a loosely regulated statutory fund still losing cash hand over fist through sheer incompetence or probably outright conspiracy - including in the traditionally murky arena of property.
The most worrying revelation is that NSSF has sank Sh43.7 billion in the Nairobi Stock Exchange without approval of the Labour and Finance ministers as required by the law.
Of this market value, Sh778.5 million worth of shares have no certificates with the State auditor saying proof of ownership is difficult.
Separately, the Fund invested Sh1.3 billion in the fallen Discount Securities which has proven hard to account for as no certificates are available.
They are also not in the 82 nominee accounts irregularly used by the broker in investing the funds.
Drafted by the Kenya National Audit Office, the report covers the year ended June 30, 2008 which was the subject of a recent annual general meeting and is signed by controller and auditor general Anthony Gitumbu.
It queries dealings ranging from sale to purchase of land, irregular emolument payments by management, unclear hiring of lawyers and unauthorised inflation of legal bills. This is what the Aegean stable managing trustee Alex Kazongo has walked into.
For one, the fund faces a tough task recovering Sh324 million - part of the Sh1.5 billion under the debtors and prepayments account - advanced to Mugoya Construction without collateral. The contract to the firm, now under receivership, was terminated for non-performance and NSSF has not provided for possible loss in its accounts.
NSSF books also reflect property of about Sh800 million situated in New Muthaiga, Ngong Road and Ojijo Road in Nairobi in yet to be degazetted areas.
“The carrying value of the properties as shown in the financial statements does not therefore reflect the fair value of the fund’s investments in land and building as at the balance sheet date,” says the report dated March. 2Two of the plots are, according to their titles, part of Karura Forest Reserve and Ngong Forest. The third is situated next to Parklands Sports Club.
At the same time, NSSF is holding Sh6.4 billion in contributors’ suspense account in questionable circumstances.
“The fund continued to hold these contributions in the suspense account without showing how the affected members will benefit from them,” says the audit.
In paying its salaries and allowances for the management staff, the fund is on the spot for having contravened sections of its statutes. A salary increment awarded to the management was never approved by a full board despite the committees on finance, investments and tenders giving it the go ahead.
Further, an authority was not sought from the parent Ministry of Labour and that of Finance. The increment became effective from October 1, 2007 and was effected in February and April 2008, before the full board approved, notes the report.
The managing trustee’s house allowance was similarly raised from Sh80,000 to Sh100,000 monthly. This was in total disregard to an Office of the President circular of November 2004 which capped the allowance payable at Sh80,000.
With Sh1.2 billion in administrative expenses during the period, the fund incurred a total of Sh76.1 million in legal expenses. This was Sh16.1 million above the budget that was not approved by both the board and the parent ministry.
While the fund continues to battle several suits in the corridors of justice, the provisions of these are not made in the financial statements. This goes against requirements of the International Accounting Standards, which say that contingent liabilities that might arise in the future from ongoing cases be disclosed.
“It was further observed that most of the fund’s cases arose from litigations related to property and not from its core mandate. In addition, it was not clear how the legal firms that are representing the fund in the cases were identified and whether or not their fees were competitive,” asserts the auditors report.
Part of the fund’s spending, according to the report, was on boosting its Information Communication Technology platform. Despite spending Sh60.9 million, the project according to the report is not fully operational and no tangible benefits appear to have been realised.
While the fund’s core mandate has been the management of pensioners fund, it has invested part of this in land and property. Its investment in land as at the end of the year under review was Sh4.4 billion.
However, out of this the auditors say title deeds for land valued at Sh400 million cannot be traced. “In the absence of title deeds, it has not been possible to confirm the ownership status of the land.
Further, it has also not been possible to confirm that the undeveloped land balance of Sh4.4 billion is fairly stated in the financial statement.”
The fund is also on the spot over irregular sale of properties at prices below valuation. The audit says the sale of two plots was not done in accordance with the provisions of the Public Procurements and Disposal Act 2005.
One plot on Hospital Road measuring 1.07 hectares was sold at Sh85 million against valuation of Sh150 million. The other on State House Road measuring 1.14 hectares was sold at Sh85 million. The piece’s value is noted as Sh226.4 million at the time of sale.
The National Audit Office wants NSSF to appoint a fund manager and custodian to comply with Retirement Benefits Authority rules and to forestall loss of public funds.
The new managing trustee, however, seems aware of the uphill task ahead of him.
“We will ensure that investment is done prudently unlike in the past and we are discussing with RBA so that we comply with all the legislation,” conceded Mr Kazongo when he took over the mantle.
That, however welcome, might amount to bolting the stable after the horse has bolted.