Car loans default by MCAs costing Kenyans millions
Taxpayers are losing millions of shillings as many Ward Reps default on car loans and mortgages issued to them from public coffers, a new audit reports reveal.
Auditor General Nancy Gathungu’s reports for the financial years 2015 to 2020 reveal that some county lawmakers and staff were not repaying their car loans and mortgages while in some cases loans are not insured as required by law.
The reports have also exposed massive mismanagement of public funds in county assemblies, where some of them could not account for funds made available to them to secure car loans and mortgages for their members.
In addition, assemblies also failed to recover tax on car grants and many unsecured loans.
In Samburu County Assembly, Sh15.24 million advanced to 17 former Ward Reps has gone down the drain because the recipients lost or exited in the 2017 election.
Doubtful recovery
“Although the recoverability of these loans is doubtful, no provision for likely impairment has been made in the financial statement for provision,” says the audit report on Samburu County assembly staff mortgage scheme fund for the year ending 2019.
The report adds that there is no evidence of steps being taken by the management to recover these outstanding loans as per mortgage regulation.
Also, the county assembly was yet to recover Sh253.96 million it declared as outstanding loans as of June 2019.
The amounts, however, were not supported by way of a detailed schedule of the principal amount, interest, and repayments outstanding, triggering concerns the outstanding amounts could be higher than stated.
In the case of Kisumu County Assembly, the auditor states that the statement of financial position reflects a debt balance of Sh44,872, 631 relating to payroll deductions made by the assembly on loans advanced by the fund to its employees.
According to the auditor, the loan deduction were not remitted to the fund relating to the financial year 2016-2017. And although the management has explained that full payment of the amount is dependent on approval by the County Assembly Public Service Board, it is not clear why remittance of payroll deduction should be subjected to budgetary approval.
“Consequently, the recoverability of the debt balance to Sh44,872, 631 could not be confirmed and the fund’s ability to continue advancing loans may be curtailed,” reads part of the report.
Breach of law
The County Assembly was also found to be in breach of the law for issuing Sh3,965, 438 to two members with as mortgage, but could not support the issuance with loan application forms, copies of the designs of the residential property, bills of quantities in respect of the proposed development and certified copies of the sale agreement relating to the property.
In Kajiado County Assembly, the auditor notes that the fund disbursed loans totalling Sh28,165,400, which include a debt of Sh2,070,000 to a staff member who could not be traced in the payroll under the mortgage repayment.
The management explained that the employee was not in the payroll because she had not cleared with the former employer. However, no explanation was provided for granting a loan to an employee who did not qualify for the loan.
According to the report, the loans granted during the year under review included Sh3,000,000 to a staff member who had taken a loan in the year 2019-20, contrary to section 23 (5) of the Kajiado County Public Finance Management (Executive Staff Car Loan and Mortgage Scheme Fund) regulations.
The regulations state that no borrower shall be eligible for more than one mortgage loan at a time from the fund.
Gathungu, in her report, also states that the Kajiado County Assembly management failed to develop and implement a loan policy.
A review of the financial statements and records provided for audit revealed that the fund had no documented policies, procedures and guidelines on the processing of loan applications, loan approval and loan recovery, leaving the fund to rely on undocumented regulations.
“This was contrary to regulation 16 (b) of the Kajiado County Public Finance Management (Executive Staff Car Loan and Mortgage Scheme Fund), 2016. The management was in breach of the law,” reads part of the report.
In Baringo County Assembly, the auditor notes that the statement of financial position reflects a revolving fund balance of Sh110,741,991 as at June 20, 2021, which includes Sh95,547,819 total car loans converted to car grants and car loan insurance premiums of Sh51,549.
However, the insurance expenditure was not debited to the beneficiary account as stipulated in regulations 16 (4) of the Public Finance Management (Baring County Assembly Members Car Loan Scheme Fund) regulations.
The report shows that in Marsabit, some Sh3.56 million of the current outstanding loan of Sh39.99 million was advanced to an MCA who has since died.
The MCA received Sh1.44 million and Sh2.12 million in respect of a car loan and a mortgage, respectively.
The ward rep, however, died in April 2019 before clearing the loans.
“The loan, therefore, has been outstanding for 14 months from April 2019 to June 30, 2020,” the report states.
Not insured
And to add salt to injury, the loans had not been insured contrary to Section 13(1) and Section 16(1) of the Marsabit County Assembly Car Loan Scheme Regulations 2014.
The regulations stipulate that a member of the scheme should comprehensively insure any vehicle purchased through the scheme and maintain a mortgage protection policy.
“In the circumstances, the recoverability of the Sh3.56 million as of June 30, 2020, could not be ascertained,” the report reads.
In Baringo, the county assembly had not recovered some Sh65.71 million as of June 30, 2015.
Out of the total amount, some Sh58.83 million were classified as long-term receivables, implying that they had been outstanding for a long time.
“These funds were directly transferred to members’ accounts for purposes of motor vehicles. However, audit verification revealed that the logbooks for the purchased motor vehicles surrendered were not jointly registered with the Baringo County Assembly,” the report reads in part.
“Consequently, the regularity and recoverability of the receivable balance of Sh65.71 million, as of June 30, 2015, could not be confirmed.”
