Corrupt National Youth Service officials set up dummy companies, forged tender documents and exploited vulnerabilities in public finance computers — popularly known as IFMIS — to pull off one of the most audacious frauds in recent times, according to investigators and officials who spoke to the Nation on Sunday.
In an extensive conspiracy believed to involve senior government figures, the payment of more than Sh9 billion since 2016 was authorised and executed in favour of entities which did not supply anything.
This is the biggest incident of payment for “air” to come to light since the Anglo Leasing scandals of 2005, while the NYS has become a byword for the basest graft since its budget was bumped up from a mere Sh2.5 billion to Sh25 billion in the 2014/15 financial year.
Investigators have narrowed down on 36 companies which claimed to have supplied NYS with various goods, among them Firstling Supplies, which has already been paid Sh1.3 billion.
Also being investigated are Calabash Investments, Annwaw Investments, Arkroad Holdings Ltd, Kunjiwa Enterprises, Ameratrade Enterprises, Ngiwako Enterprises, Jerrycathy Enterprises, and Ersatz Enterprises.
While the Nation is not alleging wrongdoing on the part of these entities, the Directorate of Criminal Investigations has been digging into whether the law was followed in the award of tenders to them at NYS, and whether they supplied any goods against which they have been paid — collectively — billions of shillings in public money.
Public Service and Youth Cabinet Secretary, Prof Margaret Kobia, told the Nation on Sunday that whoever is found culpable will be held to account.
“The National Youth Service is busy implementing huge and important government projects and emergency disaster management, and anything that touches on its staff is of big concern to all Kenyans who are keen to know the truth,” she said.
“We do not condone any form of corruption and the President has made it very clear that anyone found engaging in this vice will have his job terminated. We will allow the relevant agencies to get to the root of this matter and come up with findings which will inform our next course of action.”
The revelations are a blow to the solar plexus of the government, which has sworn to fight corruption amid mounting scandals and failure to prosecute and punish corrupt officials as well as claim back stolen assets.
According to investigators’ understanding of what transpired, corrupt officials created companies then assigned them contract numbers ordinarily given to contractors pre-qualified by the Department of Public Works.
Whereas the contract numbers were valid and pre-qualified companies genuine, the dummy companies were basically shells created to facilitate fraud. Using a valid contract number, an account could be opened for the shell companies in the Integrated Financial Management Information System (IFMIS). Local Purchase Orders (LPOs) were then raised in respect of the dummy companies and the impression created that they had supplied goods to NYS. The fake payments were slotted into the NYS stock of pending bills.
Interestingly, these suppliers claim to have been contracted to supply goods to NYS’ Mechanical and Transport Branch — which is charged with procuring and operating machinery, spare parts and other mechanical wares — yet the companies were paid for supplies such as food and tents, which are supposed to be procured by other departments within the institution.
Investigators’ focus is also trained on the decisions taken by the Permanent Secretary for Youth Affairs, Ms Lilian Mbogo-Omollo, who took over the NYS docket as accounting officer after it was transferred from Ministry of Devolution to Public Service, Youth and Gender in 2015. At the time, Ms Sicily Kariuki was appointed Cabinet Secretary. Also under the spotlight are Mr Richard Ndubai, the Director-General of NYS who replaced Dr Nelson Githinji, NYS Director of Finance Wellington Lubila, and Head of Supply Simon Kanyi.
Ms Omollo and Mr Ndubai are among those questioned and asked to record statements by detectives. Among the decisions being assessed are an evaluation of suppliers apparently ordered by Ms Omollo soon after she took over supervision of the scandal-ridden NYS. Investigators believe the list of suppliers produced by that evaluation was relatively “clean” and may have included only a few of the problematic companies.
Another evaluation was requested by Mr Ndubai, a source with knowledge of the investigation told the Nation, and it is this second evaluation which produced a list of suppliers that investigators believe was “populated” with fake companies with bogus claims on the taxpayer.
The NYS ordered an audit, apparently carried out internally, of the list produced by the second evaluation, and on the basis of that audit asked the ministry to approve payments to suppliers.
In one of those headache-inducing government procedures, when NYS was moved to the Ministry of Youth, its budget remained in the original line ministry, Devolution. Devolution could not request Treasury to release money to suppliers without authorisation by the accounting officer for Youth, Ms Omollo.
Thus, the payments under investigation were executed by Devolution with authorisation by Ms Omollo. Investigators said they are assessing whether the accounting officer was prudent and cautious in approving eye-popping payments in an ecosystem as corrupt as NYS. We could not establish whether Treasury raised any alarm in relation to these transactions, given NYS’s history of fraud.
The new scandal, coming so soon after more billions were stolen — with some of the money dramatically dragged out of banks in gunny bags — from NYS in 2015, will sorely test the credibility of President Uhuru Kenyatta’s oft-repeated promise to crack down on runaway corruption.
It also points to a culture of fraud and deeply-rooted grand theft in the public sector, encouraged in large part by failure to investigate and prosecute those previously implicated in scandals. Most importantly, it piles pressure on newly appointed Director of Public Prosecutions, Mr Noordin Haji, and his counterpart at the Directorate of Criminal Prosecutions, Mr George Kinoti, to prove that there is will to move beyond previous publicity stunts of bogus arrests and make-believe which end up in the acquittal of the guilty.
In 2015, former Devolution Cabinet Secretary Anne Waiguru was forced to resign after revelations of a Sh791 million looting spree at NYS through the manipulation of IFMIS. It was the first mega scandal to rock the Jubilee administration, which had come into power just two years earlier, in 2013, on a campaign of zero tolerance to corruption.
The NYS was one of the state departments under the Devolution ministry before it was transferred to the newly created ministry of Public Service, Gender and Youth Affairs in 2015. Ms Kariuki headed the newly created ministry until early this year when she was transferred to the Health ministry. It is during her tenure that the Sh10.5 billion scandal was reported to have started.
The NYS had been allocated Sh25 billion in the 2014/15 financial year, compared to Sh6 billion in the previous year. Interestingly, the budget was not itemised as Parliament seemed to give the ministry an open cheque — to spend the billions on projects of its choice. The highest that NYS ever got under the Kibaki administration was Sh2.5 billion.
Former NYS senior deputy director-general Adan Harakhe was put on the spot for approving the payments to suppliers in IFMIS one month before a letter from former Devolution principal secretary Peter Mangiti formally appointing him. He however denied making the payments, saying that his password was stolen and used to approve the payments on the IFMIS.
Businessman Benson Gethi, the alleged architect of the scam, and Ms Josephine Kabura Irungu, the owner of four companies implicated in the scandal, were among 23 other suspects, including State officials, charged with the theft of Sh791 million.
The Sh791 million was siphoned through fraudulent payments to six companies owned by three individuals. One of the companies, Form Home Builders, was registered on June 10, 2015, five days after former Devolution Cabinet Secretary Anne Waiguru wrote to the Directorate of Criminal Investigations to investigate its activities.
In March this year a court in Nairobi acquitted Mr Mangiti and 23 others of conspiracy to steal. Also acquitted of charges of conspiracy to commit economic crime were Hassan Noor Hassan and Adan Gedow Harakhe.
Additional reporting by David Mwere