Former Town Clerk Philip Kisia used unauthorised junior officers to commit the City Council of Nairobi to an expensive overdraft facility with Equity Bank, a House team has been told.
Local Government PS Karega Mutahi on Tuesday told the Parliamentary committee on Local Authorities Fund Account that the ministry had approved the borrowing of Sh5.2 billion, but that the terms were varied to execute the overdraft which attracts higher interest rates.
“The overdraft attracts more interest than a loan. We went for an overdraft, contrary to the approval for a loan,” said Town Clerk Roba Duba.
The council’s director of legal services, Aduma Owuor, said one of his deputies, Wilbeforce Wambulwa, worked on the contract on instructions from Mr Kisia on the basis of a letter of offer from the bank instead of a legal contract.
“It is surprising that they signed a letter of offer rather than the contract. Why would one sign letters of offers on a matter of such magnitude,” posed Prof Karega.
Council treasurer Jimmy Kiamba said he was also not involved in paying the proceeds to creditors, some of who were not in the list approved by the Ministry of Local Government.
“I was not involved in making the payments although the law requires that I authorise the same. My deputy, Margaret Osili, made the payments,” he said.
The claims by the heads of department mean Mr Kisia, who is aspiring to become the first governor of Nairobi County, acted illegally.
“The law does not provide for a deputy treasurer and that officer is not authorised to make any payment that is not signed by myself,” Mr Kiamba said.
Mr Duba and top council officials were for the second time unable to produce the original contract for the loan agreement or explain its whereabouts. “Procedurally, every department has a place to keep legal documents.
When documents are signed, they are protected under fireproof cabinet. I am shocked to hear that there is no such legal document for the loan,” Prof Karega said.
It further emerged that no money (loan) was credited to the council’s accounts held at Equity Bank and that interest rates on the facility were varied without the resolution and approval by the council.
The council was to repay the debt at 10 per cent, but this changed to 12 per cent and is currently 24 per cent.
Equity Bank officials were turned away from the proceedings, with committee vice-chairman Benjamin Langat saying they should be accompanied by the chief executive, James Mwangi.
An audit on the fund accounts questioned how the council passed a resolution for the loan on March 30, 2011.
The then minister—Musalia Mudavadi — approved it a day later and the council paid Sh2.3 billion to Local Authority Pension Trust Fund for outstanding remittances and Sh50 million to Equity Bank as loan processing fee.
“We want to know why this deal was rushed at a supersonic speed,” said Mr Lang’at.
The auditors said Sh294 million was paid to outstanding creditors who were not in the approved list.
The escrow account, held by the council in Equity Bank requires a daily deposit of Sh2 million. The council had Sh500 million that was earning no interest at the bank.
Prof Karega said those found to have misappropriated the money would be prosecuted in line with Article 226(5) of the Constitution.