Nairobi unable to account for more than Sh20 billion, audit report says

In one of the biggest financial scandals in the counties, Nairobi is unable to account for more than Sh20 billion, exposing the chaotic running of the government, theft and misuse of taxpayer money.

It now appears that the county government is a citadel of ghost workers with non-existent personal identification numbers (PINs) and weak control systems.

Curiously, billions of shillings collected through the JamboPay system are first deposited in a trust deed private account held by a third party — PKF Consulting — according to the latest Auditor-General’s Report.

It says the county government is not a party to this trust deed, which also holds funds from other private entities.

That means billions of shillings collected on behalf of the county government are put together with other incomes collected by WebTribe — the company that owns JamboPay.

The auditor says that, given this scenario, it is not possible to ascertain how much revenue Evans Kidero's government collects every year.

For this and other reasons, Auditor-General Edward Ouko has refused to offer an opinion on the accounts of Nairobi County.

Auditors refuse to give an opinion if they have doubts on the completeness of the records and when they question the maintenance of books of accounts and, in Nairobi’s case, the amount received from JamboPay.

JamboPay is a controversial electronic payment system used by the county to collect revenue from market rents, parking fees, house rents, single business permits and land rates and is a subsidiary of WebTribe Ltd, founded by 32-year-old IT whiz kid Danson Muchemi.

It gets 4.5 per cent of the value of payments made on the system, which means that in the last financial year, it deducted Sh513 million from the Sh11.4 billion collected.

BLEAK PICTURE

Dr Ouko’s report not only paints a bleak picture of Governor Kidero’s government but also says its “negative financial assets … may cast doubt about the ability of the Nairobi City County Government to continue as a going concern”.

When on Friday we reached City Hall Director of Communications Walter Mong’are, he promised to get back to us but did not.

On Sunday, we called Dr Kidero and wrote him an SMS asking him to comment on the report and the future of the JamboPay system. He, too, did not respond.

More shocking is that Dr Ouko says he is unable to determine the “accuracy and validity” of Sh11.4 billion listed under revenue receipts and which was illegally banked in the county’s accounts and not transferred to the County Revenue Fund Account, where all money received by the unit are supposed to be paid.

The reason auditing the Nairobi County government books has turned into a nightmare is that it still uses the old Laifoms (Local Authority Integrated Financial Operations Management System), inherited from the defunct Nairobi City Council, about which the auditor raised concerns three years ago.

Like other public entities, the county should be using the Integrated Financial Management Information Systems (Ifmis).

While questioning the accuracy of the Sh11.4 billion collected via JamboPay, the auditor says it is hard to determine the amount collected since the system does not reconcile the amounts paid by users of the platform, the amount banked and the revenue recorded.

Because of this anomaly, the county government has no way of knowing how much revenue is collected on its behalf since it does not own this system, says the auditor.

TRUST ACCOUNT

Also, the billions of shillings paid through this system are held in a trust account owned by a third party that is “not contracted” by the county.

“Pooling of public funds with cash from other private entities may pose a challenge in accounting … there is a possibility of loss of public funds due to lack [of] control in managing the revenue,” says the report.

While the contract between JamboPay and the county government provides that funds collected should be remitted to the county government within 72 hours of receipt, a review of records by the auditor found that it takes up to a month to remit the funds.

“Consequently, the county is not in full control of its revenue collection process,” says the report.

There was also no explanation why Sh15 million was listed as “cash reversal” from the JamboPay system, with the auditor terming it “irregular”.

Also, hundreds of millions of shillings might never be tracked through the Laifoms since banking slips are not posted into the system.

The auditor found that Laifoms was supposed to ensure that all revenue collected was banked intact and that the total receipts should equal the direct banking made by clients and also by cashiers.

This was not possible since banking slips were not posted into the system and were, instead, recorded manually in a register, outside the system.

“Non-posting of bank pay-in slips in the system would make it difficult for the county to determine if all monies received are banked intact,” says the report.

The biggest loophole that the auditor has identified, however, is on the agreement between WebTribe and the county government, where there is no penalty chargeable to the firm in the event of a breakdown of the system.

Also, the responsibility of ensuring regular backups of the JamboPay configurations lies with the county. The auditor says backups were not being carried out regularly and it was not ascertained if they could be used to restore the business operations.

“In the circumstances, loss of data can occur in the event of system failure without regular backups,” says the report. Such data could contain transactions worth millions of shillings.

Dr Ouko also dismisses parking data posted from JamboPay as “significantly compromised due to lack of constraints” and says it “may not be relied upon in decision-making”. This casts doubt on whether the county government knows the amount collected via this Internet/mobile phone-based system.

NO CONTRACT

The auditor also questions why the county pays 1.25 per cent of the value of all cash office transactions made using the JamboPay when there is no contract on that.

“These are the transactions that are made when one pays directly to the county’s offices, which are later pushed to the Laifoms system … from the supplied contract, there is no provision for the payment of 1.25 per cent … therefore, any payment made to WebTribe of 1.25 per cent will be deemed irregular since there is no binding contract,” says the report.

Besides, the County Executive transferred Sh11.3 billion — the amount from the Exchequer — to operation accounts in several commercial banks without written approval from the Controller of Budget, who is mandated to authorise withdrawals from the County Revenue Fund.

And since the county opted not to use Ifmis, this amount is not reflected in Ifmis together with other receipts via JamboPay.

While the county indicates that it collected Sh11.4 billion, it does not explain how it reported the “under-collection of Sh1.9 billion … considering that available data indicates that the county has the potential to collect more than double the amount it currently collects”.

City Hall also used two formats in accounting: One for financial statement of revenue targets and another for the approved budget. That made it difficult for the auditor to verify “the completeness, accuracy and validity” of the Sh11.4 billion ostensibly itemised as revenue collection.

It now appears that millions of shillings could be disappearing in off-street parking — and there is no explanation for it.

In 2014, the county Executive automated three off-street parking lots at Law Courts, Sunken and Intercontinental with 72, 222 and 36 slots, respectively.

With 100 per cent occupation — the auditor says vehicles are usually double-parked, meaning there are more cars than the available slots — the county government should have collected Sh36.3 million a year but the revenue returns only indicate Sh23.6 million.

“The variance of Sh12.7 million was not explained or accounted for,” says the report. “The revenue collected should have been more than double.”

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Some deals highlighted in the auditor-general's report

Payment for substandard desks

The Nairobi County government used Sh1.95 million to purchase 300 lockers and chairs for Ofafa Jericho Primary School. While these had been accepted as fit for use, the Auditor-General found that “most of them were broken”, implying that “most…may have been of substandard quality.” He says: “It is evident there is no value for money.”

Incomplete Pumwani borehole

The auditor’s report questions a contract for the drilling of a borehole at Pumwani Maternity Hospital at Sh3.9 million. The drilling company, Super Drill International, requested a variation amounting to Sh999,978, which was 25 per cent of the contract sum. “No justification was given to support the variations. At the time of audit, the borehole was not complete.”

Sh500,000 county logo

The county paid Sh500,000 for branding of 10 containers in various wards. An inspection of some of the containers found that they were not branded as per the contract.

Missing water tank

A 10,000-litre water tank purchased for Sh105,200 for the Dandora Phase V Social Hall was not on site. “It was explained that it had been taken by youths to [an] unknown place…consequently, it was not possible to confirm whether the Sh105,200 expenditure is proper charge to public funds.”

Undelivered uniforms

The county government paid Sh16.1 million to a company to deliver uniforms. But more than two years after the amount was paid, the uniforms were never delivered “and there is doubt that the supplier will honour the contract”.

Blue Estate legal fees

A law firm, Momanyi and Associates, was paid Sh60 million for a case filed by Ferdinand Waititu seeking orders to restrain the county from evicting residents of Blue Estate in Shauri Moyo.

Initially, the county had appointed Abwao Erick Odhiambo and Advocates to represent it on September 18, 2012. A day later, it appointed Momanyi and Associates to take up the case. On August 21, 2013, Momanyi and Associates raised a fee note of Sh968 million.

“On August 28, 2015, a Mr Abwao Eric Odhiambo, an assistant director, Legal Affairs, at Nairobi City County, responded to the Momanyi and Associates fee note, reducing it to Sh818 million.”

The fee note was based on serving notice of charge, perusal of amended chamber summons, and taking researches. The auditor said Blue Estate had a population of 6,000 families, with each household having an average of 4.5 occupants, amounting to 27,000 people “and not the 282,000 people…under the circumstances, the legal fees paid of Sh60 million and the pending bill of Sh758 million does not appear valid.”

Surveillance cameras

The auditor doubts whether the Sh437 million paid to Nanjing Les Information Technology was value for money since most cameras installed to manage traffic were not functional and the signal could not be displayed on the LCD monitors located at City Hall due to poor Internet services.