State auditor exposes rot at the NSSF

• Fund disregarded critical ministries in Sh43.7bn stock market investment

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.