World Bank sending team over lost funds

The Treasury is headed for a face-off with the World Bank after government auditors massively scaled down the extent of corruption allegations in a Sh10 billion economic stimulus programme.

The draft report by the Internal Audit Department (IAD) slashed the money suspected to have been lost through corruption under the World Bank-funded Arid Lands Natural Resource Management Project from Sh362 million to Sh48 million.

This represented 86 per cent reduction from the initial figure in the investigation by World Bank forensic auditors. The disparity is understood to have angered the World Bank whose officials are expected in the country next week to discuss the two reports.

Development of Northern Kenya and other Arid Lands minister Mohammed Elmi on Monday confirmed the team was scheduled to arrive in the country on October 17.

Mr Elmi backed the government audit, saying it reflected the true position regarding the likely fraud in the project.

“We expect the amount lost to fraud to reduce even further when the teams meet to come up with a final report next week,” he said in an interview.

The minister defended the project, saying it was a “massive success” in improving livelihoods in the districts covered.

The project, suspended last year over the corruption allegations, provided communities in 28 arid and semi-arid districts with assistance to manage drought and improve their livelihoods.

In August, Prime Minister Raila Odinga announced that the government was initiating a thorough review of the project to establish the extent of financial irregularities.

Mr Odinga warned that any fraud noted in the review would be referred to the Kenya Anti-Corruption Commission for investigation.

KACC, led by lawyer PLO Lumumba, has since been disbanded and is being reconstituted as the Ethics and Anti-Corruption Commission.

The World Bank audit covered expenditure in seven districts in the 2006/07 and 2007/08 financial years and established that the government could have lost Sh300 million ($4 million), according to the statement released by Mr Odinga at the time.

In a letter to the Development of Northern Kenya and other Arid Lands permanent secretary Lawrence Lenayapa, Finance permanent secretary Joseph Kinyua said a key outcome of the audit review was the confirmation that the total ineligible expenditure amounted to about Sh48 million.

Spent fraudulently

This is a great reduction from the forensic audit by the World Bank’s Institutional Integrity Department’s (INT) in April 2009, which put the amount of money suspected to have been spent fraudulently at Sh362 million.

“Expenditures amounting to Sh165 million have been categorised as requiring investigations due to various integrity issues, including lack of supporting documentation,” Mr Kinyua said.

The August 16 letter was copied to Public Service head Francis Muthaura, Office of the Prime Minister permanent secretary Mohamed Isahakia and World Bank country director Johannes Zutt.

The second phase of the project came to an end on December 31, last year, following a joint decision by the government and the World Bank to suspend disbursements.

Results of the World Bank’s forensic audit into the allegations of corruption and fraud were communicated directly to the bank’s headquarters in Washington, US.

“The nature and details of the allegations have never been shared with the Government of Kenya,” said the IAD report.

The World Bank forensic audit was only forwarded to the government in April this year.

According to the Draft Report of the Joint Team on the Review of the INT Forensic Report on Second Arid Lands Resource Management Project (ALRMP II), there had been significant gaps in the World Bank report.

The forensic audit initially questioned transactions, which required further investigations amounting to Sh514 million. The queries, said the draft IAD report, were as “a result of fraudulent behaviour observed in all the seven districts and project headquarters”.

They covered areas such as accountability for fuel consumption, vehicle repairs, training, allowances and per diem, payroll and non-recurrent assets, the report said.

“The audit review could not arrive at a conclusive opinion on expenditures amounting to Sh164 million due to various integrity issues,” it added.

Some of the integrity issues raised by the internal auditors included missing payment vouchers and other supporting documentation which were explained as having been misplaced during the INT forensic audit.

“It was not practically possible for the audit team to interview some members of community-driven development committees (CDDCs) who had moved due to drought,” it said.

The audit report said the amount of money earlier classified as likely lost through ineligible expenditure had reduced since accounting documents like fuel detail orders, local purchase orders and tender committee minutes were traced.

The auditors also visited projects that had been implemented using the money where it was evident that funds in question were utilised for the intended purposes.

The internal auditors also said the World Bank auditors had failed to take into account certain government financial policies, regulations and procedures.

They proposed that the Ethics and Anti-Corruption Commission be called in to investigate the likely loss of the money categorised as ineligible.

It also called for further audit tests on the money which could not be conclusively assessed.