Civil Servants Default Sh6.5B Housing Loans – Audit

Civil servants have defaulted on repayment of Sh6.5 billion in loans they were given to acquire houses under a scheme run by the government.

A recent audit revealed the outstanding loans, raising questions about whether the managers of the Civil Servants Housing Scheme Fund would be able to reclaim them.

As of June 30, 2022, the sum was still owed after an examination of the schemes’ financial records.

The lack of sufficient documents that may be used to assist recover the money has further aroused concerns, according to Auditor General Nancy Gathungu, who gave the fund a negative assessment.

“The supporting schedules provided for audit in respect of each category of the reported balances were incomplete as they did not reflect key beneficiaries’ information,” the auditor general said.

Gathungu claimed that the government records were missing information regarding the addresses of the residences, the names of the employees who were borrowed, their personal numbers, the jobs they were assigned to, and the dates of the loans.

The records also lacked information on each borrower’s loan amounts, repayment terms, opening loan balances, annual repayments, and closing loan balances.

“In the circumstances, the recoverability, accuracy, and completeness of long-term receivables balance of Sh6,558,557,448 could not be confirmed,” Gathungu said.

“In addition, management did not provide for bad and doubtful debts during the year.”

Additionally, management did not offer evidence to substantiate an Sh10 million spent on house renovations made during the year.

Gathungu added that she was unable to verify the fund’s Sh95 million in rental income for the year.

“Management did not provide detailed analysis in support of the balance,” she said.

The revelations may help to explain the difficulties in running government-sponsored housing programs.

The same can provide as a hint as to what President William Ruto’s administration’s housing program has in store.

Kenya Kwanza intends to tax Kenyans earning basic incomes at 3% of their income to fund the program.

Such difficulties also plague the State Officers Mortgage Scheme Fund, whose operations are remarkably similar to those of other government officials.

In this instance, the management neglected to present the necessary paperwork to substantiate more than Sh2.7 billion in outstanding loan obligations.

According to the Public Finance Management (State Officers House Mortgage Scheme Fund) Regulations of 2015, the loans are repayable at a rate of 3% per year on a monthly decreasing balance.

Principal secretaries are eligible for up to Sh35 million apiece, as are members of independent commissions and those who hold independent offices, such as Controller of Budget and Auditor General.

The DPP, the IG of Police, the NIS director general, and KDF commanders are among the cadres that are eligible for Sh30 million apiece.

The loans must be repaid by state officers in 20 years or before they turn 70.

The Housing Fund only makes loans for the exclusive purpose of buying or developing residential property that will be occupied by the borrower or improved for their personal use.

At the fund, repayments have been an issue. Only two officers paid their outstanding debts, according to an audit for the fiscal year ending June 2020.

The most recent examination also revealed that financial and accounting records are manually managed and maintained.

According to Gathungu’s unfavorable assessment, there is no backup of the records.

“Financial reports, ledgers, trial balance, budgets, and financial statements are prepared manually and there was no evidence of backup,” she said.

“Therefore, the fund’s records are prone to errors and loss,” Gathungu said in the report for the year to June 30, 2022.

Additionally, it has come to light that some of the dwelling units are placed on property parcels for which the ownership of the titles is lacking.

The units in Kileleshwa Gichugu I and II, Kileleshwa Dennis Pritt, Park Road in Nairobi, Jogoo Road, Kibera Highrise, Mukenia South B, Kileleshwa Flats, Shauri Moyo in Kisumu, Kiambu, Bondeni in Nakuru, Machakos, and Embu could not be traced by the auditors.

According to Gathungu, the ownership of the investment properties worth Sh864 million could not be verified under the current conditions.