AN audit of the Kenya Railways Staff Retirement BenefitsScheme three months ago recommended the removal of all the ninetrustees including the chairperson Beryl Odinga. The audit, carried out by inspection team fromRetirement Benefits Authority and dated November 14,2011, revealed serious flaws inthe disposal of several properties belonging to the scheme. The report recommends the appointment of an interim administrator to streamline administration structures in the scheme that has approximately 9,000 pensioners and 2,500 deferred members and controls an estimated Sh17 billion portfolio.
Apart from Odinga, the other trusteesare Dr. Mtana Lewa, Nduva Muli, Ken Wathome, Silas Gitari, LazarusKeizi, Moses Njeka, Priscilla Mukuria and Daniel Obop. "Conflict of interest, corruption and breach of trust is evident and this will result in loss of value to members," the audit team concluded. "The Trustees have assumed executive powers and are virtually running the scheme in disregard of internal controls and procedures. The management is clearly not in control," said the auditors. "The actions of the Trustees are unsafe and detrimental to the interests of the scheme," the auditors found.
Apart from removing all the trustees, the audit report recommends that they be surcharged for any irregular payments they have received. It also recommends that a permanent chief executive officer be appointed. They cited the disposal of aproperty L.R Nairobi/Blocks 31/219 or the 'White House' which was valuedat Sh525 million on August 12, 2011.
However two companies, African Star Development Ltd and New Century Development, had offered to buy the property for Sh625 million. African Star owns 50 per cent of New Century which then withdrew its expression of interest while African Star made a counter-offer to buy the price of Sh525 million.
The property was then sold for Sh540 million which was Sh85 million less than the initial price offered. "It is not clear how the negotiations were undertaken to arrive at the price. We say so because there were no minutes availed to validate the issue," declared the auditors. African Star was given a letter of acceptance on August 19, 2011 even before the sale agreement was executed and was expected to pay 30 per cent within 30 days and the remainder within 90 days. By November when the audit was conducted, African Star had yet to pay the 30 per cent. “There were no advertisements put outin regards to the sale of this property nor was there a waiting list shown to us to justify a private treaty sale. It is therefore notclear how the buyer was identified. The process of identification of the buyers was flawed, since the trustees handpicked the bidders. This transaction is being handled directly by the trustees and due process is clearly bot being following in the sale of this property," the report noted and recommended that the sale be stopped immediately.
The auditors wrote to the chairperson Beryl Odinga, sister to the Prime Minister Raila Odinga, on September 28 issuing a directive to halt the sale. The auditors were also concerned by a 50 year lease of property L.R No. 209/12401 or 'Goodshed' to JipeClose Ltd which was to make an upfront amount of Sh100 million and pay Sh15 million every month. The trustees denied the validity of their signature and claimed the lease to have been forged. The agreement was allegedly witnessed by Ahmednasir Abdikadir and Co. advocates for Jipe and allegedly signed by the scheme chairperson and then chief executive officer, Mathews Tuikong.
According to the audit, Sh39 million was paid and Sh61 million was outstanding by June 2011. "The fact that the monies have been received in relation to this lease puts into doubt the allegation that there was no lease agreement made and that the document provided has a forged signature," the report says. It warns of legal challenges ahead as there is no title document or written lease agreement between with Jipe.
The auditors also looked at another asset LR No.XXVI/941 or 'Chambilo' which is in Mombasa. “The trustees handpickednine bidders not appearing in any waiting list to whom documents weresent,” they found although the disposal of this property later stalled “due to vestedinterests and disagreements among the trustees.”
Another disposal that has been questioned is the sale of the Nairobi West property to National Housing Corporation for Sh250million in 2010. The auditors looked at the proposed sale of the Railway Club to the Parliamentary Service Commission which has offered to buy the property at Sh3 billion even though the scheme is demanding Sh4.5 billion based on a 2008 valuation report. The auditors recommend a new valuation as the value of the Railway club may be "significantly higher." “It is not clear how or when thescheme decided to sell the club or how or when the PSC became awareof the sale,” the report says.
The audit said the trustees accepted Sh650 million from Abcon International LLC and Bliss GVSPharma Ltd in respect of L.R 209/8760 Gakuo Court, Sh50 million lessthe Sh700 million valuation. Another company Homebound Realtors hadoffered Sh680 million but was unsuccessful in its bid.
Similar flaws were raised in regard todisposal of land around Muthurwa Hawkers market where 15 acres were sold to the Local Government ministry forSh650 million; another acre was sold to Kenya Power &LightingCompany for Sh110 million; and five more acres to the Ministry of Local Authorities for Sh325 million. Of this amount, Sh225 million remained outstanding by November last year as the ministry had only paid Sh100 million.
The remaining acreage was supposed to be subdivided and sold to individuals. This was advertised but raised contention from the existing tenants who have gone to court. Another plot on Ngong Road LR No.1/450 was sold to Eagle Park Ltd for Sh60 million despite otherinterested buyers offering as much as Sh120 million. “The disposal process for theproperties has been extremely flawed. In most instances, there was notitle deed available prior to the sale, no advertisement, no evidenceof waiting list among other omissions,” the audit says adding " The trustees have not acted in thebest interests of the scheme members and as a result, have forfeitedpotentially higher income from a competitive open market.”
Theaudit questioned how Odinga was appointed chairperson in 2008 since no minutes exist. She has been drawing a monthly pay of Sh40,000unlike other trustees who do not receive such monthly remuneration. Despite her non- executive status, Odinga is provided with an office and a driver, personal assistant and two secretaries. “By reason of this occupation (of Odinga's office), thescheme has foregone rental income of approximately Sh90,000 permonth, an equivalent of what is paid for similar premises within thecompound. This action constitutes unauthorized profits from thescheme. It is a breach of trust,” it says.
The report also makes mention of the“excess of Sh1.2 million” advanced to Odinga by the scheme for local and international travel but which were not recorded in the scheme's financial statements until June 30, 2011. Earlier this year Odinga was charged with other scheme officials over the Sh1.2 million but subsequently appeared in court and said she had repaid the money. The case as dropped.
The audit report revealed that between 2008 and 2010, the scheme paid approximately Sh320,000 to hire a car for Odinga over and above the fuel costs it pays for her personal vehicle. Odinga reportedly sits on every committee thereby creating a situation where she may exert undue influence. Board members draw a sitting allowance of Sh10,000plus an extra Sh5,000 for out of town trips. 'There are too many special board andcommittee meetings held, significantly higher that the statutoryquarterly meetings. These special meetings have no official minutes.In addition, there is a resultant cost to the scheme arising from thesitting allowance paid to the trustees,” the report adds.
The report also highlights othersporadic excesses like sections of board awarding themselves Sh50,000bonus in December 2010; selective invitation of trustees to specialmeetings; inconsistency in the allowances paid to thetrustees; and the award of PR contract at a fee of Sh290,000 a month toProwess Media Associates.
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