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
Kenya’s Drought Cash Cow:A SHORT GUIDE
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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.
Kenya’s Drought Cash Cow:A SHORT GUIDE
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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
Kenya’s Drought Cash Cow:A SHORT GUIDE
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Kenya’s Drought Cash Cow:A SHORT GUIDE
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• 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.
Kenya’s Drought Cash Cow:A SHORT GUIDE
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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
Kenya’s Drought Cash Cow:A SHORT GUIDE
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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.
Kenya’s Drought Cash Cow:A SHORT GUIDE
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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