SRC chairperson Sarah Serem. The commission set the maximum duration of
mortgage schemes at 20 years and five years for car loans for both
national and county government staff. FILE PHOTO | NMG
Many counties issued unsecured mortgage and car loans to
employees, exposing themselves to massive financial liability in the
event of defaulted repayments.
The Treasury said audits
on the county governments’ accounts revealed that in most of the
devolved units mortgage and car loan funds were directly transferred to
beneficiaries who did not deposit securities with the fund managers.
“Loan
and mortgage repayment was pegged on beneficiaries’ allowances rather
than their salaries. A number of funds are uninsured, exposing them to
contingent liabilities in the event of defaults or upon expiry of
beneficiaries’ employment contracts,” the Treasury said in its Budget
Outlook statement for 2017.
The Public Finance
Management Act stipulates that mortgages and car loans are each handled
by a fund administrator who keeps custody of all collateral against such
facilities and ensure all loans are recovered from beneficiaries.
The
fund managers are also required to file quarterly financial statement
updates to the county Treasury and the Controller of Budget office to
safeguard the funds.
County government provide for car loan and mortgage funds in their budgets.
The
Salaries and Remuneration Commission (SRC) in 2015 set the maximum
duration of mortgage schemes at 20 years and five years for car loans
for both state and public officers in national and county governments.
The
rate of interest on both the car loan and mortgage scheme was set at
three per cent yearly on reducing balance for the duration of the loan.
According
to a circular by the SRC, a county governor is entitled to a car loan
of up to Sh10 million and a mortgage of up to Sh40 million while a
deputy governor can access a car loan of up to Sh 5 million and a Sh25
million mortgage.
Issuance of mortgage and car loans to county staff is tricky because many of them serve for five-year terms.
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