Weak oversight, costly delays sink billions in donor funds Auditor

Auditor General Nancy Gathungu has raised questions on Sh4.8 billion interest payment incurred by donor funded projects in the Financial Year 2023/24 which could have been avoided.

During the year under review, Gathungu said the audit revealed that avoidable interest payments amounting to Sh4.8 billion were incurred across 17 donor funded projects due to delayed settlement of certified works and contractor’s invoices.

According to the auditor, a significant portion of the interest, totaling Sh930.5 million originated from the Covid-19 Health Emergency Response Project.

“The amount relates to interest accrued on payments made by the African Vaccine Acquisition Trust (AVAT) to the vaccine manufacturer for 13,333,333 doses that had been made available for delivery under the contractual agreement,” Gathungu said, in her latest report on donor funded projects, for the year ended June 30 last year.

According to Gathungu, other projects with high interest charges included the Mombasa-Mariakani Highway Project, which incurred a total of Sh856.7 million and the Sirari Corridor Accessibility and Road Safety Improvement Project, which paid Sh657 million in interest.

“These instances reflect weak contract oversight which undermines value for money and effective donor fund utilization,” she explained.

Also during the year under review, the audit revealed ineligible expenditures amounting to Sh1.8 billion across 15 donor funded projects.

She said the costs were incurred contrary to the terms of financing agreements, the Public Finance Management Act, 2012, and related guidelines.

Key findings here included unauthorized over-expenditures, irregular salary enhancements, use of project funds for unapproved and unrelated activities and premature commitments of funds.

For instance, she said the Africa Climate Summit Project spent Sh475.5 million during the summit that took place in September 2023, yet the financing agreement was signed on 15 November 2023, over two months after the summit had already taken place, rendering the expenditure ineligible.

Similarly, the Transforming Health Systems for Universal Care Project incurred Sh314.9 million in expenditure despite a nil final budget, contravening Section 68(2)(h) of the Public Finance and Management Act, 2012, which requires all expenditures to be aligned with approved estimates.

Other significant ineligible expenditures cited include Kenya Water Security and Climate Resilience Project which incurred an amount of Sh301.8 million due to idle time and prematurely connected utilities before land acquisition was finalized.

“An additional amount of Sh178.6 million was reported as unauthorised over-expenditure under the Support to Technical and Vocational Education Training and Entrepreneurship Project, representing a 23 per cent excess above the approved budget without requisite approvals. These findings reflect systemic weaknesses in financial controls, budgeting and compliance with funding conditions across implementing entities,” she said.          

On low absorption of funds, Gathungu said review of the donor funded projects revealed that 44 of them had low absorption of funds.

These projects had consumed a significant portion of their planned implementation period but had drawn down minimal portions of the committed funds.

She said the Mombasa Gate Bridge Construction Project had utilized an amount of Sh960.4 million, representing 2 per cent of the total commitment of Sh49.06 billion despite four years of project duration that ended on April 25, this year.

At the same time, the Kenya Off-Grid Solar Access Project, implemented by the Rural Electrification and Renewable Energy Corporation, had utilized only Sh32.7 million or 1 per cent of the committed amount of Sh3.5 billion.

Other projects, such as the Kenya Off-Grid Solar Access Project (KOSAP-SNV), showed a utilization of only Sh294.6 million out of an approved commitment of Sh4.7 billion, equivalent to an absorption rate of 6 per cent, the project period had already elapsed as at June 30, last year.

Gathungu said the mechanism for follow up on implementation of audit recommendations is ineffective and as such most audit queries recur in subsequent years due to lack of decisive action.