NSSF savers lose billions in dubious contracts, land deals

Social security savers have lost more than Sh3 billion in dubious contracts, land and share purchase deals that are unlikely to be recovered, an audit report tabled in Parliament says.

Auditor-General Edward Ouko says contributors to the National Social Security Fund (NSSF) may have permanently lost Sh1.13 billion that the agency invested in Karura and Ngong forest land, but cannot access.

“The properties, being in gazetted areas, cannot be owned, possessed, utilised or accessed and any development on such land would be illegal,” the audit report says.

Mr Ouko also casts doubt on the recoverability of Sh1.2 billion that NSSF invested in the purchase of shares at the Nairobi Securities Exchange (NSE) through the collapsed Discount Securities Limited.

The NSSF also has in its books a Sh1.94 billion outstanding doubtful debts, including Sh251.51 million it invested in Euro Bank and unremitted rental income of Sh30.68 million collected from tenants in Bruce House, Viewpark Towers and Nyayo Estate.

Mr Ouko says, in a qualified NSSF audit report for the year ended June 2011, that the fund also lost Sh64.14 million in the irregular disposal of three plots in Kikambala-Mombasa.

NSSF lost the money by awarding the tender to the lowest bidder who paid Sh633.7 million against the Sh697.8 million deemed as the reasonable price.

The audit report also questions the devaluation of NSSF’s Mavoko plots by Sh900 million in a year and doubts the accuracy of value and existence of three undeveloped plots worth 1.26 billion in the same locality.

NSSF’s Mavoko plots were valued at Sh2.98 billion in 2010, but the agency’s financial statements for 2011 showed that the value had depreciated to Sh2.08 billion – running against a market trend that has seen the value of land rise by double margins annually.

The audit also examined a Sh146.6 million shortfall arising from the non-advertised sale to EPCO Builders of NSSF’s Ojijo Road plot.

EPCO Builders, who were at the time of sale working for the NSSF as a contractor, bought the land valued at Sh450 million for a heavily discounted price of Sh305.37 million.

NSSF has been left in legal quandary after it acquired 18.41 hectares of Karura Forest near New Muthaiga and a piece of Ngong Forest that it has been unable to access or utilise.

Mr Ouko says the NSSF management failed to make provisions for impairment losses in the agency’s financial statements for the two plots that are now worth Sh1.13 billion.

The audit report also questions NSSF’s payment of Sh233.84 million to new consultants for completion of Hazina Trade Centre before the work was completed. Mr Ouko says additional information indicates that the fund intended to construct a 36-storey building against an original plan for 31 floors and that is yet to be done.

(Read: NSSF revives plan to build Nairobi’s tallest office tower)

The report, which was tabled in Parliament last week, questions the inclusion of Sh6.5 billion in members contributions, held in a suspense account, in the accumulated members fund of Sh110.35 billion at the time of audit.

“As was observed in the previous year, the fund continues to hold these contributions in a suspense account without indicating how affected members will benefit from them (Sh6.5 billion),” Mr Ouko says in the audit report.

The auditor also casts doubt over the recoverability of Sh911.27 million in tax receivables from the Kenya Revenue Authority. The amount relates to tax overpaid prior to January 1, 1997 when the NSSF was exempted from taxation.

“Information available shows that the balance is under dispute and KRA has indicated that the entire amount had been utilised against unpaid penalties and interest incurred. In the circumstances, it has not been possible to confirm that the receivables balance of Sh911.279 million as at June 30, 2011 represents a realizable asset,” the auditor concludes.

The audit report dated June 18, 2012 also queries the recoverability of some Sh324.35 million that the NSSF advanced to Mugoya Construction and Engineering Limited, a private contractor, for completion of the Nyayo Estate Embakasi project. The money was paid out without collateral, making it impossible to recover.

NSSF’s financial statements had included the money in the Sh1.19 billion debtors and prepayments balance.

Mr Ouko has also raised audit queries on NSSF’s purchase of power generators for its buildings in Nairobi-Social Security Block A and B, Bruce House, Hazina and Viewpark Towers that had not been commissioned at the time of audit.

The fund also irregularly awarded a lifts installation contract for Social Security House block C and the Annex Parking Silo to M/Smits Electrical Co. Limited at a price of Sh18.9 million and the firm sub-contracted EPCO Builders to do the job for Sh13.85 million.

At the time of audit, the lifts had not been delivered and the management did not present an acceptance and inspection report for audit verification.

“In the circumstances, it has not been possible to confirm that the fund got value for money in the transaction,” Mr Ouko concludes.

The audit also indicated that the NSSF lost Sh7.24 million in fraudulent practices at its Westland’s branch in Nairobi which had not been recovered because the matter is pending in court.

Mr Ouko also questions the NSSF’s failure to earn returns on its 8.05 million (4 per cent) cumulative shares and 2.22 million ordinary shares held in Consolidated Bank of Kenya yet the bank had started posting positive returns in the year under review.

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