KR pension scheme on brink of collapse over irregularities

PHOTO/JARED NYATAYA Furniture belonging to the Kenya Railways Staff Retirement Benefits Scheme is loaded onto a lorry after auctioneers raided their offices in Nairobi for failing to pay a debt of Sh9.7 million arising from a suit filed by one of the retirees who sued trustees of the scheme for not paying their pension on time, on February 10, 2012. 

By SUNDAY NATION TEAM newsdesk@ke.nationmedia.com

The disposal of a Sh20 billion estate to pay Kenya Railways retirees is at the heart of a controversy that threatens to halt their monthly payments.

An audit report seen by the Sunday Nation cites massive irregularities that could sink the Kenya Railways Retirement Scheme.

Insiders say the scheme has only a three-month reserve after which retirees will not receive their monthly cheques.

As it stands, the source said, the scheme pays out Sh56 million to pensioners every month.

The scheme was set up by Kenya Railways when it went broke and decided to transfer some of its prime property to a board of trustees who would sell the property over time to pay out pensions to more than 9,000 retired railway workers.

Gross misconduct

 The audit report, which was prepared by the Retirement Benefits Authority (RBA) and handed over to the Kenya Railways Staff Retirement Benefits Scheme board of trustees, mentions gross misconduct and conflict of interest by a majority of the nine-member board chaired by Beryl Odinga.

The chair, together with three of its members – Ms Caroline Nyororo, Mr Ephantus Muriithi Githui and Mr Mathews Kipchumba – were recently taken to court on charges of abuse of office.

They were accused of conferring Sh2.1 million to Ms Odinga, the sister of Prime Minister Raila Odinga, for her personal use between March 2009 and January 2011.

The charges have since been dropped, but the case could be revived with new evidence.

Other members of the board are Nduva Muli (Kenya Railways Corporation chief executive officer), Dr
Mtana Lewa, Ken Wahome, Silas Gitari, Lazarus Keizi, Moses Njeka, Priscilla Mukuria and Daniel Obop.

The scheme is one of the biggest owners of land and real estate in Kenya.

The assets, according to the report, have been the object of illegal dealings by some members of the board and now risk making it impossible for the scheme to function.

For instance, a parcel of land on Nairobi’s Lower Hill Road popularly known as the “White House” was sold without following the scheme’s disposal of property manual.

The manual requires a property to be advertised in at least two local newspapers, after which the applicants are invited to make bids, are vetted and a letter of offer is made to the successful applicant.

Then a sale agreement is made upon which a transaction period is defined.

In the case of the “White House” where Crystal Valuers valued the property at Sh525 million, the disposal procedures were not adhered to.

Only two companies – African Star Development Limited and New Century Development Limited – expressed interest in the property.

On August 12, 2011, two days after the “White House” valuation, a special meeting of the trustees was held to discuss the sale.

A letter of offer was later sent to African Star quoting Sh625 million, only for African Star to give a counter offer of Sh525 million, the exact value of the property according to the scheme’s valuation.

A price of Sh540 million was agreed upon as the sale price. However, no details of negotiations were made available to the investigators.

“There were no minutes availed to validate this issue,” the report says.

Several other assets belonging to the pension scheme have been similarly disposed of in unclear circumstances.

Another irregularity cited involved members of the board who have since their appointment lived on or done business on the scheme’s property without paying the required rent, exposing the scheme to a loss of revenue.

Abuse of office charges have also emerged. The report queries the appointment of the chairperson to the board of trustees in 2008.

RBA officials could not locate the minutes detailing her appointment. She is the only sitting board member entitled to a Sh40,000 monthly allowance.

As the chair, Ms Odinga has an office at the scheme’s compound, a personal assistant, two secretaries, and a driver – all of whom are paid salaries ranging from Sh37,000 to Sh62,000 by the scheme.

The RBA investigation concludes that there has been flawed disposal of property, excesses in management from the chairperson’s office and that the trustees, despite their non-executive mandate, have taken over the running of the scheme in disregard of internal controls.

“The actions of the trustees are unsafe and detrimental to the interests of the scheme,” one of the report’s conclusions states.

The report also recommends that all trustees be removed from office and an interim administrator appointed.

Mr Johnson Miano, the chairman of the retirees, said they called for the dissolution of the board last year, but the government had not acted.

“We lost confidence in the board long time ago, and we are wondering why they are still in office even after we had resolved that they be relieved of their duties,” he said.

Board responds

But reacting to the RBA audit report, the scheme’s board of trustees says that the inspection report was done without giving it room to clear the allegations raised.

“It would have been helpful if the inspectors took a little more time to obtain documents that would have allayed their concerns.

"It should also be noted that the inspection was done at a time when the board had released several senior managers as result of malpractices discovered by the trustees.

"This contributed to the delay in providing some of the documents by the new management team,” reads part of the board’s response sent to newsrooms.

It also insists the scheme adhered to its disposal manual in the handling of property during disposal, intended disposal or leasing.