Auditor General Nancy Gathungu has exposed significant financial mismanagement in donor-funded projects, saying taxpayers may have lost Sh5.7 billion.
She raised serious concerns over how ministries, departments and agencies (MDAs) handled foreign-funded initiatives, citing inefficiencies, procurement violations and outright negligence.
One of the most alarming findings in the latest audit report covering the financial year ending June 30, 2024, was the Sh4.4 billion paid as interest on delayed payments.
Gathungu said the ‘unnecessary cost’ could have been avoided had the implementing agencies adhered to agreed timelines.
The audit further uncovered Sh1.3 billion in ineligible expenditures across 10 projects, indicating possible misuse of funds.
For the interest payments, the situation could get worse in the face of revelations that the donor projects had pending bills of Sh64 billion at the time of review.
Among the worst-performing projects were those under the Ministry of Health, the Kenya Urban Roads Authority and the State Department for Infrastructure, where delays and financial mismanagement were rampant.
MOH has, for instance, accrued Sh930 million in interest due to the delay in settling debts for the supply of Covid-19 vaccines.
Delayed tax payment for the Mombasa-Mariakani highway project has accumulated Sh856 million in interest, putting Kenha on the spot.
The agency is also set to pay Sh657 million to two construction companies on delays in settling dues from the Isebania-Kisii-Ahero junction road project.
Kenha has another interest demand of Sh615 million for nonpayment of pending bills in the World Bank-funded Kenya transport sector support project.
The Kibwezi-Mutomo-Kitui-Migwani project was slapped with a Sh614 million demand after delaying payments to the contractor, while Sh318 million is sought for nonpayments in the Kapchorwa-Suam-Kitale and Eldoret Bypass project.
Kerra has equally accumulated tens of millions in interest payments for the Gilgil project (Sh38 million) and Sh4.8 million for the Roads 2000 projects in Central Kenya.
For ineligible expenditures, the audit reports issues in 10 projects, including Sh475 million spent by the National Treasury for the ADB Africa Climate Summit.
“The financing agreement was signed after the summit had taken place and hence the expenditure incurred was ineligible,” Gathungu said.
Tvet department has been castigated over unauthorised excess spending of Sh178 million in a project.
MOH has also been flagged for irregularly spending Sh314 million in a World Bank-funded health systems project.
The water department has also been put on the spot for failing to deduct Sh124 million it had wrongfully paid to the Thwake Dam contractor.
A major issue highlighted in the report was the low absorption of funds, with 44 projects failing to utilise allocated resources before their closing dates.
“Although the project periods were ending, some funds had not been absorbed, posing risks that the projects would end without implementing all planned activities and therefore not meeting their objectives,” Gathungu said.
She said the inefficiency not only wastes taxpayer's money but also denies citizens the intended benefits
Another glaring violation was the commingling of funds, where 16 projects failed to maintain separate bank accounts as required by law.
“Project funds were, therefore, commingled with the funds of the implementing agencies,” the report stated, increasing the risk of misappropriation and making it difficult to track expenditures.
Additionally, the audit found that the national government and county administrations failed to provide counterpart funding for at least 18 projects as stipulated in financing agreements, further stalling progress.
In the review period, state entities did not remit up to Sh3.5 billion in local contributions to donor-funded projects.
The most glaring was KPLC, which did not remit Sh1.1 billion counterpart funds for the Last Mile Connectivity project.
Kenha also did not remit Sh663 million for a trade facilitation project. The health ministry also did not release Sh100 million to supplement the Covid-19 response.
NTSA also did not remit Sh447 million to a donor-funded project, Kerra (Sh167 million for Gilgil roads) and the Agriculture department (Sh99 million).
Counties did not remit Sh80 million under the national agricultural value chain development project.
The Auditor General also flagged 28 projects that had exceeded their closure dates without proper completion procedures being initiated.
This administrative lapse has left idle funds sitting in bank accounts, raising concerns over accountability and potential misuse.
Procurement irregularities were another major concern, with multiple agencies violating the Public Procurement and Asset Disposal Act.
Of the affected 16 projects, some contracts were signed before the mandatory 14-day waiting period, while others were awarded after tender validity had expired.
In other cases, contracts were varied beyond the legally permitted 25 per cent threshold and some institutions failed to prepare annual procurement plans altogether.
Most outstanding were unauthorised contract variations, services being sourced outside the procurement plan, irregular use of direct procurement, irregular extension of lapsed contracts, and tender rules breach.
The revelations have come when the government is grappling with mounting debt and budget constraints.
The Auditor General’s findings underscore the urgent need for stricter enforcement of financial regulations.
With billions lost to inefficiency and possible graft, the report serves as a stark reminder of the cost of poor governance, which is ultimately borne by taxpayers.
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