Banks sucked into Sh24.5bn State stipends row

Elderly residents during a past launch of a cash transfer programme in Nyeri. PHOTO | JOSEPH KANYI | NMG

By EDWIN MUTAI
More by this Author

Summary

• Auditor-General Nancy Gathungu said the department has no records for the cash transfers effected in the year to June 30, 2019 through four contracted financial institutions.
• An audit revealed that the department did not have payrolls and reconciliation reports for each of the service providers.
• It also could not provide other key accounting records such as credit reports, dormant accounts reports, performance reports and balance returned to principal by clawback.

The State Department for Social Protection has failed to account for Sh24.5billion stipends disbursed to the elderly, the disabled and orphans across the country, raising questions on whether the amount reached its intended beneficiaries.

Auditor-General Nancy Gathungu said the department has no records for the cash transfers effected in the year to June 30, 2019 through four contracted financial institutions, including Co-operative Bank of Kenya, Post Bank, Equity Bank and KCB Bank

An audit revealed that the department did not have payrolls and reconciliation reports for each of the service providers. It also could not provide other key accounting records such as credit reports, dormant accounts reports, performance reports and balance returned to principal by clawback.

“Management has explained that it was unable to access the information, though it was enshrined in the contract, due to the confidentiality clause of the Banking Act,” Ms Gathungu said, noting that the accuracy and completeness of the amount disbursed through the banks could not be ascertained.

The contract agreements signed between the department and the individual payment service providers (PSPs) require that they provide reconciliation reports showing the funds received and disbursed to the beneficiaries.

The Banking Act ordinarily dictates that bankers cannot divulge information on their clients to third persons, without the express consent of the customer unless they are compelled to do so by a court order. The banks can also make disclosure on clients in special circumstances of public interest or protection of the banks’ own interests.

And in what raises further concern about the probity of the cash transfer scheme, an audit revealed that the Postal Corporation of Kenya (PCK) still held Sh169.3million in unpaid cash transfer balances —long after its agency contract with the department lapsed.

The department contracted PCK as an agent to disburse cash to the vulnerable beneficiaries throughout the country.

“A review of the matter during the year, revealed that the status had not changed and the amount of Sh169,300,000 due to the State Department was still outstanding. Management has not demonstrated efforts being made to recover this long overdue refund from PCK,” Ms Gathungu said.

The Auditor-General also revealed that some beneficiaries of the stipends were forced to sign up with specific service providers.

“The contractual agreement with the PSPs provides for beneficiaries to identify a convenient bank of their own choice. However, information from field audit inspections revealed that some beneficiaries were coerced into enrolling into PSPs they had not applied for. The affected beneficiaries stated that their accounts were opened at KCB without their consent,” she said.

Under the cash transfer scheme, commonly known as Inua Jamii, citizens above the age of 70 are entitled to a Sh2,000 per month allowance, which is paid every two months in a Sh4,000 lump sum. Those eligible include orphans and disabled persons.

The cash transfer programme targets three categories of the vulnerable persons namely; the elderly persons, orphans and vulnerable children and persons with severe disability.

As at mid last year, official data showed that there were 1.09 million beneficiaries under the programme, with those aged above 70 the majority at 764,644. The Senate recently asked the Labour and Social Protection ministry to add more than 350,000 senior citizens on the register of the State’s safety net programme.

The stipend is considered a non-contributory social pension for the elderly. Beneficiaries are required to present themselves physically to the bank to collect the cash.

The Social Protection Department, which is mandated to oversee implementation of the enhanced Older Persons Cash Transfer (OPCT), says the scheme currently covers 523,000 people.

The bi-monthly stipend is intended to alleviate the suffering of the senior citizens through enhancing their purchasing power, thus reducing poverty levels.

The scheme has, however, been fraught with claims of fraud amid concerns that some administrators at the grassroots abused it to illegally enrich themselves. A common complaint is that some officials falsify records and re-route the money to personal use at the expense of the targeted beneficiaries.

As at April 2020, the government had cumulatively invested a total of Sh151.6 billion in the Inua Jamii scheme since its inception in 2004.