Auditor-General smells a rat in State agencies’ ‘secret’ spending

Confidential expenditures by government agencies will once again be under scrutiny by MPs after the Auditor-General last week flagged issues at the Office of the President and the Interior ministry.

In reports tabled in the National Assembly, the Auditor-General brought up concerns about how the money used was not properly accounted for as well as the deposit of funds in accounts opened without the approval of the Treasury.

The reports demonstrated the failure by the government to abide by the recommendations of the Public Accounts Committee in the last Parliament.

The committee had attempted to address the issue, saying in its report that while it recognised the need for the government to from time to time incur expenses confidentially for the sake of national security, the agencies also need to keep in mind that the money used is raised from the public.

“Consequently, in line with international best practice, the committee recommends that all ministries, departments and agencies that incur such expenditure be subjected to detailed scrutiny by vetted officers under oath,” PAC recommended.

PRESIDENCY

Concerns emerged last week after the Auditor-General flagged the issues at The Presidency and the Interior Department.

At The Presidency, the Auditor-General reported that the controls over the confidential expenditure are weak.

“Payment vouchers are not supported with necessary documents that can be subjected to audit tests to enable the Auditor-General to confirm that the expenditure was incurred for the intended purposes and, therefore, lawful and effective as required under the Constitution,” said the Auditor-General.

This is likely to cause concern once PAC starts its scrutiny given that from the records, The Presidency spent a total Sh2.7 billion on confidential expenditure between June 2013 and July 2016.

The Auditor-General reported that although officers provided certificates to support the expenditure and explained that the particulars cannot be made public, there were matters that remained unsolved.

VEHICLES

These were specifically on supposed payments for vehicles worth Sh165.5 million, a charge of Sh105 million to an account and payments of Sh22.3 million for goods that were apparently not delivered.

Records showed that Sh165.5 million was spent on vehicles in the 2015/16 financial year, but these payments were not posted in the Integrated Financial Information System ledger.

The Auditor-General reported that this was “an indication that they could have been unexplained cash withdrawals.”

There was also a lack of proper documentation of Sh105 million charged to an account, leading auditors to suspect that the charges to the General Suspense Account were not lawful.

At Interior, the biggest concern was about the use of an account whose opening had not been authorised by the Treasury as required in the law.

The account is with the KCB’s Moi Avenue Branch.

CASH BOOK

“Further, the ministry does not maintain a cash book, bank reconciliations and related payment records in support of cash transfers and withdrawals from the account contrary to regulations,” the Auditor-General stated.

Mr Ouko said that the Accounting Officer did not disclose the existence of the account as well as the balance in it at the time of audit as required by audit rules.

From that account, auditors said, the Interior Department paid out 43 Letters of Credit valued at Sh8.7 billion, but the audit showed one payment of Sh90.2 million.

“In this regard therefore, the ministry and the bank have not clarified how the other 42 Letters of Credit valued at Sh8.6 billion were managed,” the Auditor-General said.

BANK STATEMENTS

There were also issues with the bank statements on that account because while the ministry’s payment vouchers show that it transferred Sh339 million to the account, the bank statement does not show that amount.

There were unexplained cash transfers from the account totalling Sh12.7 billion to deposit and fixed deposit accounts contrary to the requirement in the Public Finance Management Act that the Cabinet approve such payments on the recommendation of the Treasury.

The matter could land the Interior Department in trouble with PAC because there was a similar issue in 2014, when the Auditor-General questioned the use of an account at the National Bank of Kenya to spend Sh2.8 billion, this time as confidential expenditure, in 2012.

The scrutiny of the classified spending is provided for under the Public Audit Act, which provides for the Auditor-General and his representatives to hold a meeting before audit starts to agree on areas that touch on national security and decide how to approach them to ensure confidentiality of information.

The law also provides for reports on national security organs to be redacted to shield the identities of people as well as assets.

The auditors handling the specific audits are then required to be vetted by what the law describes as “the authorised government vetting agency.”

When the law was enacted in 2015, these provisions were seen as constraining the work of the Auditor-General as the vetting agency was given the leeway to decide which auditors could look at the accounts of national security organs.