A SHORT GUIDE - AfriCOG · cooperation from staff.) The table below shows the breakdown per...

Kenya’s Drought Cash Cow:A SHORT GUIDE

A SHORT GUIDE

A SHORT GUIDE

Lessons from the Forensic Audit of The World Bank Arid Lands Resource Management Project


1

The Facts• A17yearprojectinKenya’saridandsemi-aridlands

• OverUS$220millionfundingfromtheWorldBank

• 62% of transactions audited during 2007-08

suspectedfraudulentorquestionable

• At least45%of audited, ineligible funds (Ksh341

million)hasbeenpaidback.

In ShortTheAridLandsResourceManagementProject(ALRMP)

wasanextensionofaWorldBankfundedproject–the

EmergencyDroughtRecoveryProject (EDRP1993-96)

–thatbeganin1993.Theoriginalproject,designedto

addressthedevelopmentimbalancesbetweenKenya’s

high and low potential areas, was in 4 arid districts

only:Baringo,Mandera,TurkanaandWajir.Bytheend

ofALRMPII, inDecember2010, itcovered28aridand

semi-aridland(ASAL)districts.

Between 1993 and 2010 theWorld Bank had funded

theprojectstothetuneofoverUS$220million.Before

theresultsofaWorldBankauditwererevealedinJuly

2010,athirdphasewasplannedusinganotherUS$145

million inWorld Bank and donor funds. However, the

funds were frozen in July 2010 after an audit of the

accountsfortheyears2006to2008disclosedat least

341 million shillings’ worth of suspected fraudulent

andquestionablespending.Theprojectwasclosed in

Decemberofthesameyear.

The Project TheapparentsuccessoftheEDRPledtothefirstphase

oftheALRMPinJuly1996,when5moreariddistricts

were included in the funding:Garissa, Isiolo,Marsabit,

SamburuandTanaRiver.

InMay2003,ALRMPIIbegan,and this time11semi-

ariddistrictswereadded to theproject:Kajiado,Kitui,

Laikipia,Makueni,Mbeere,Mwingi,Narok,Nyeri,West

Pokot, Tharaka and Trans Mara. At the same time,

Moyale and Ijara (previously included inMarsabit and

Garissa)becameindependentdistricts.

InJuly2006extrafundingwassuppliedfor6additional

semi-ariddistrictstojointheproject:Kilifi,Kwale,Lamu,

Malindi,MeruNorthandTaitaTaveta.

How the ALRMP workedTheALMRPhad3parts:

• NaturalResourcesandDroughtManagement(NRM)

- strengthened conflict management between

groups competing over resources, strengthened

droughtearlywarningsystemsandsoughttomake

droughtmanagementanintegralpartofgovernment

systems.

• CommunityDrivenDevelopment (CDD) (for the 11

ariddistrictsonly)-aimedtoempowerandinvolve

thecommunity in theirowndevelopmentandwas

theproject’slargestcomponent.

• Support to Local Development (SLD) - meant to

encouragesustainableeconomicactivities.


2

The ALRMP II was a community driven model that

reliedheavily ondecentralising responsibility, authority

and finance to district and community levels. ALMRP

staff liaised with community development committees

(CDCs),electedbythecommunity,andhelpedtoplan

andprioritiseprojects.TheDMO,whowas thedistrict

headof arid lands, then forwarded theproposals to a

districtsteeringgroup(DSG) forapproval.Fundingnot

only covered proposed projects but also extensive

training forall relevantparticipants.Because theDMO

andthecommunitydevelopmentprojectofficer(CDPO)

actedas intermediariesbetween thecommunitiesand

theDSG,theybecamepowerfulindividualsintheproject

process,ableto influenceoutcomestotheadvantage,

ordisadvantage,ofanycommunity.

The Audit ProcessFollowingyearsofrumoursaboutfundsmismanagement,

INT, the integrity branch of the World Bank, finally

undertookalarge-scale,detailedauditoftheprojectin

2009,16yearsafteritbegan.Duetoresourceconstraints,

INTchosetoauditonly7ofthe28districts(asasample)

plus theNairobioffice,over thefinancialperiod2006-

2008.Thoughsmall,consideringthenumberofdistricts

and the time frame involved, the audit nevertheless

covered 28,000 transactions. To ensure an element of

knowledgeonGovernmentofKenya (GoK) regulations

and policies, INT included in their team a number of

experienced Kenyan chartered accountants, together

with the local World Bank financial management

specialist.

TheINTteamprimarilylookedforthefollowing:

• Suspected fraudulent expenditure, often identified

by inconsistentdocumentation,ordocumentsand

informationobtainedthroughthirdparties.

• Questionable transactions, which might include

fraudulentspending,butcouldalsoincludepayments

madewithoutthecorrectback-updocuments,and

paymentsthatbreachedgovernmentregulationsor

thatdidnotmeettheWorldBank’screditagreement

standards.

The INT team’s thorough and objective investigations

includedmakingfieldvisitstosuppliersandcommunity

projects, cross referencingbank statements, cheques,

payment vouchers and cashbooks, comparing

VAT payments to the KRA with receipts, and even

crosschecking the handwriting on winning and losing

quotations.

The FindingsTheauditfindingswereeyeopening:62%oftransactions

forthefinancialyear2007/08inthe7districtstogether

with the Nairobi office (worth over Ksh 500 million)

were found to be fraudulent and questionable. (This

does not include payroll, the single biggest expense,

whichtheteamcouldnotfullyaudit,partlyduetopoor

cooperation from staff.) The table below shows the

breakdown per district of suspected fraudulent and

questionableexpenditurefor2007/08only.INTsaysthat

theirregularitiesweresystemicacrossall7districtsand

theNairobioffice, implyingthatotherdistrictsmight, if

audited,showsimilarresults.

TABLE 2. INT suspected fraudulent and questionable ALRMP expenditures financial year 2007-08 (in Ksh.)

District

ALRMP Budget

(World Bank and GoK)

FY 2007-2008

Suspected Fraudulent

& Questionable Expenditures

(World Bank and GoK)

FY2007-2008

Percent Suspected

Fraudulent and

Questionable

FY2007-2008

Garissa 123,694,000 76,782,000 62%

Isiolo 118,517,000 88,013,000 74%

Kajiado 43,320,000 25,964,000 60%

Nyeri 34,371,000 24,154,000 70%

Samburu 102,862,000 69,623,000 68%

Tana River 84,736,000 37,533,000 44%

Wajir 158,854,000 119,373,000 75%

District sub-total

without HQ666,354,000 441,442,000 66%

Headquarters 162,023,000 70,181,000 43%

Total with HQ 828,377,000 511,623,000† 62%

Source: “Forensic Audit Report: Arid Lands Resource Management Project - Phase II, Redacted Report,” (July 2011), World Bank Integrity Vice-Presidency (INT); Table 3, page 23. †: GoK funds made up Ksh. 75,730,000 of the total suspected fraudulent and questionable funds; the rest were World Bank funds.If 62% questionable expenditures over the two years sampled is typical of the project as a whole, how much money was lost through fraudulent and questionable activities over the 17 years that the project existed? Just as worrying is the fact that the project was audited every year by the GoK and reviewed periodically by the auditor general’s office; yet nothing of

this scale was ever revealed. Some of the findings are shown below.

Examplesofsuspectedfraud:

• Useofpro-formainvoicevendorquotationsinstead

ofreceipts

• Collusion between ALRMP staff and suppliers to

influenceprocurementprocesses

• Falsificationofdocuments forgoodsandservices

procured

• Paymentforgoodsbeforereceipt

• Singlesourcetenderswereusedwhen3quotations

wererequired

• Fuel used for personal vehicles or purchased for

othergovernmentdepartments

• Altered or missing documents needed to support

fueluse


3


4

• Vehicletyresboughtwithoutsupportingdocuments

• AllegedkickbackstoDMOs

• Excessimprestsadvancedandnotremitted

• Fraudulentbankcharges

• Suspiciouscashwithdrawals.

Examples of the systemic problems that were

identified,includingsloppyandunprofessionalfinancial

management:

• There was no uniform system across all the

districtstomatchvoucherswithexpenditure.While

some filed receipts chronologically, others filedby

product category,while others still filed according

todepartment.Inaddition,voucherssubmitteddid

not match expenditure claimed, several districts

couldnotproducecashbooks,andtheprojectitself

did not hold an accurate and complete record of

fixed assets. Thus, assets could be sold without

accountability.

• Thefinancialmanagementreportssubmittedtothe

World Bank did notmatch the fund flow patterns

indicated in bank statements, the former showing

stable expenditure across all quarters, while the

latterindicatedthatover50%offundswerespentin

thelastquarter.Bankbalanceswereoftenreported

inaccuratelyandtherewereirregularitiesinthedates

thatchequeswerecashed,oftenlongafterthedate

onthechequeitself.Somecheques,whileshowing

inbankstatements,werenotrecordedincashbooks,

andcouldnotbeproducedfortheauditors.

• TherewereVATdiscrepanciesbetweenwhatALMRP

staffwithheldtopayVATandtheamountreceived

bytheKRA.Inaddition,somedistrictsrecordedVAT

paymentsthatwereneverreceivedbytheKRA.

• TheALMRP‘doubledipped’inthatitreceivedfunds

fromotherdonorsthatwerealreadycoveredbythe

WorldBankandclaimed for thesameactivity from

twoseparatedonors.

Therewasalsoevidenceofpossiblecollusionbetween

KenyaCommercialBank(KCB)employees,projectstaff

andgovernmentemployees.Infacttheauditwasimpeded

bythenon-cooperationofsomeKCBstaff.Forexample,

ninemonthsaftertheoriginalrequest,certainbankshad

notproducedclearedcheques, andof those thatwere

produced,somehadbeenalteredtoaffecteitherthepayee

orthedate.Inaddition,manyKCBbankstatementsdid

notmatch thosesuppliedearlierbyprojectstaff.Some

werealteredwhileothershadcashtransactionsdeleted.

Because both the district accountant (from the district

treasury) and the DMO’s signatures were mandatory

onallcheques, theabovecheque irregularitiescall into

questioneithertheiraptitudeortheirintegrity.

At the end of the audit, suspected fraudulent and

questionableexpendituresforonly7of28districtsand

over a two-year periodonlyamountedtoKsh511million.

The Government’s Response TheinitialresponsewastodirecttheGoKInternalAudit

Department(IAD)togooverallINTflaggedtransactions

(andnomorethanthat).Bydoingso,thefraudulentand

questionable expenditures were supposedly reduced

fromKsh511million toKsh159million.However,after

ajointreviewandreconcilingtheINTreportandtheIAD

report,thefinalamountagreedasineligibleexpenditures

from the 7 districts and headquarters was Ksh 341

million.The reduction fromKsh511millionwasdue to

thefactthatKsh76millioncamefromGoK,whileother

amountswereclarifiedbasedontheproductionofnew

documents. World Bank rules state that all ‘ineligible’

expendituresmust be refunded to theWorldBank – in

thiscase,Ksh341million.


5

On23June2011PermanentSecretaryintheMinistryof

Finance,JosephKinyuawrotearesponsetotheaudit.

Hismainpoints,andINT’sresponsetohispoints,were:

• That the INT report was incomplete. INT

disagreed, asserting that it was complete and

insisting on a proper response from project

officials.

• That INT had not shared its information. INT

assertedthattheyhadsharedinformationabout

all the3,257questionable transactionswith the

government.

• That INT did not understandGoK regulations/

policies.INTrespondedthattheyhadincluded

Kenya based chartered accountants in their

teamaswellastheirlocalfinancialspecialist.

• ThatINTdidnotdiscussitsfindingswiththeGoK

before reaching its conclusions. INT explained

that they were satisfied with the evidence;

ALRMP project staff had been spoken to and

DMOs had been given a chance to provide

explanationsforallquestionabletransactions.

• ThatINTshouldnotpublicisethereportuntilthe

jointGoK/INTteamhadconveyeditsfindingsto

thegovernment.INTpublisheditsreporton15

July2011.

On6March2012aquestionwasasked inParliament

about the missing ALRMP funds. The Minister of

DevelopmentforNorthernKenyaandOtherAridLands,

Mohamed Elmi said that he was “not aware of any

money that had been misappropriated” by ALRMP,

that therewasno “concreteevidence that fundshave

beenmisappropriated”and that “no fundinghasbeen

stoppedasaresultofthisparticularaudit”.1

1Hansard, National Assembly, Tuesday 6 March 2012, Question No. 1155, Page 13.

There was little other discussion in Parliament about

the project and since MPs lacked information on the

ALRMP,MinisterElmi’sresponsecouldnotbeeffectively

challenged.

AfriCOG SaysThe government’s response would have been more

satisfactory if it had addressed the reasons for the

questionabletransactions, includingthoseresponsible,

ratherthandenyingthatmostofthemexisted.

Similarly,theminister’sspiriteddefenceoftheproject’s

achievements does notmake up for the fact that the

funding was suspended and the project prematurely

closed after the audit. The World Bank’s website2

rates the progress towards achieving the project

objectives as “moderately unsatisfactory” (3 out of 6),

towards achieving global environment objectives as

“unsatisfactory”(2outof6)andoverallimplementation

progressagainas “unsatisfactory”.NB.80%ofWorld

Bankprojectsreceivea5to6rating.

Asfortheassertionthatnofundinghasbeenstopped

asa result, twosuccessorprojects,KACCALandArid

andSemi-AridLandsSector-WideProgram(equivalent

toALRMPIII),worthoverUS$150million (between the

WorldBankandotherdonors),havebeencancelled.

2 World Bank Implementation and Results Report No. ISR1996 for Arid Lands Resource Management Project Phase II (P078058


6

AfriCOG Recommends• That the EACC investigate the INT report and the

jointINT/IADreport.

• Thatsuspectedcollusionbetweenbank,projectand

governmentstaffbeinvestigatedbyaparliamentary

committee.

• ThatINTandIADaudittheremaining21districtsas

pertheirpromise.

• That those implicated in fraudulent activities be

subjecttothefullforceofthelaw.

• ThatseniorprojectstaffofALRMP IIbeevaluated

ontheirleadershipandadministrativeabilities(some

stillholdpublicoffice).

• That donor/government development projects be

transparent about spending, procurement, tenders

andrecruitmentthroughanaccessiblewebsite.

• That theaccountingabilitiesofpublic servantsbe

professionalised, including training, audits and

oversight,especiallyinlightofthedevolvedcounty

systemofgovernment.

• Thathighlevelcivilservantsdeclaretheirassetsto

thepublic.

• Thatdonor-fundedGoKprojectsmaintainapublic

complaintsprocedurethatisalsomadeavailableto

donorsandtheEACCorParliament.

• That the vetting of important national offices be

upgraded,especiallyconsideringthatseniorALRMP

officerswereappointedtoimportantnationaloffices

after,anddespite,theauditfindings.


7

Abbreviations and AcronymsALRMP AridLandsResourceManagementProject

ASAL AridandSemi-AridLands

CDC CommunityDevelopmentCommittee

CDPO CommunityDevelopmentProjectOfficer

DMO DroughtManagementOfficer

DSG DistrictSteeringGroup

EACC EthicsandAnti-CorruptionCommission

EDRP EmergencyDroughtRecoveryProject

GoK GovernmentofKenya

IAD InternalAuditDepartment

INT IntegrityVice-PresidencyoftheWorldBank

KACCAL Kenya:AdaptationtoClimateChangeinAridandSemi-AridLands

KCB KenyaCommercialBank

KRA KenyaRevenueAuthority

Ksh KenyaShilling

US$ UnitedStatesDollar

VAT ValueAddedTax

12 Kenya’s Drought Cash Cow:A SHORT GUIDE

AfricaCentreforOpenGovernance

P.O.Box18157-00100,Nairobi,Kenya.

Telephone:+25420-4443707/0737463166

Email:[email protected]

Website:www.africog.org

Acknowledgment

AfriCOGthanksteammembersCharlesWanguhu,MaureenKariuki,BeatriceOdallo,SeemaShah,

AnyonaObutu,CaroleTheuri,StephanieWairimu,KadengeKidiga,NoreenWahomeandMaureen

Gachomofortheircommitmenttoourwork.

AfriCOGalsothanksJeanEnsminger,OtsienoNamwayaandHilaryAtkinsfortheircontributionto

thispublication.

TheproductionofthispublicationhasbeenmadepossiblebythesupportoftheEmbassyofFinland

inNairobiandtheDriversofAccountabilityProgramme,aprogramoftheGovernmentoftheUnited

Kingdom’sDepartmentforInternationalDevelopment(DFID),DANIDAandCIDA.

Wearealsograteful totheOpenSociety InitiativeforEastAfrica (OSIEA) for theirsupport toour

work.

TheviewsexpressedinthisreportarethoseofAfriCOGalone.

December2012

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