Ouko questions Treasury’s Sh54bn foreign debt payment

Auditor-General Edward Ouko has once again raised the red flag on the Sh54 billion that the Treasury paid to settle a foreign loan without the Controller of Budget’s (CoB) authority.

The consortium of foreign banks that had lent money to the Kenyan government was paid directly from an offshore account using proceeds from the Eurobond in June last year.

Mr Ouko says in his latest audit of the national government that the Treasury’s move was illegal, restating that all payments originating from the Consolidated Fund must be sanctioned by the CoB.

“Authority of the Controller of Budget to incur the expenditure was, however, not obtained,” the 201314 audit report for the national government says.

Mr Ouko says the payment, which then Controller of Budget Agnes Odhiambo had questioned before backtracking under pressure from senior Treasury officials, exposed Kenya to possible misuse of funds by top government officials.

The money, drawn from the proceeds of the $2 billion sovereign bond, was used to pay for a $600 million (Sh54 billion) syndicated loan that the government had taken in 2012.

Proceeds of the sovereign fund were illegally banked in an offshore account contrary to the law, which provides that the money be channeled to the Consolidated Fund before it is spent.

Mrs Odhiambo was the first to blow the whistle on the Treasury over the payment, saying the payment was made without her knowledge. But senior Treasury officials applied immense pressure on her office, causing her to ‘clear’ the payment.

Ms Odhiambo said her office had acknowledged grounds on which the Treasury had serviced the syndicated loan without her approval, adding that the payment had been audited by the auditor-general and cleared.

This was after Treasury PS Kamau Thugge explained that the syndicated loan payment was made directly from a “Central Bank account” in New York to avoid foreign exchange losses. According to Dr Thugge, this was preferable to importing the money into the local exchequer account before having it released by the Controller of Budget.

That Mr Ouko, who she said had cleared the payment, is now questioning it, leaves Mrs Odhiambo in a tight position besides the fact that the Treasury’s explanation could not cure the illegality that was committed with the payment. 

READ: Budget controller questions Sh54bn foreign debt payment

The ball is now in the court of Parliament, which is in possession of Mrs Odhiambo’s report indicating the payment was made through an overdraft at the Central Bank of Kenya and is set to receive Mr Ouko’s audit questioning the payment.

Treasury principal secretary Kamau Thugge had initially denied any knowledge of an irregular payment made from the Consolidated Fund only to accept later that it was made without authorisation of the CoB.

The Constitution requires all public funds, without exception, to be kept in the Consolidated Fund from where it can only move with authorisation of the Controller of Budget.

Mr Ouko’s report now shows that the money was not from the CBK’s overdraft facility, but was paid from an offshore account without the legally required controls.

The Treasury did not explain why it failed to transfer the proceeds of the sovereign bond to the Consolidated Fund as required by the law before spending it.

Mr Ouko insists that spending public funds in the manner the Treasury did goes against multiple laws, including the Constitution and the Public Finance Management (PFM) Act.

These laws require “that all money raised or received by or on behalf of the national government be paid into the Consolidated Fund.”

“There is the risk of proceeds being appropriated without the authority of the Controller of Budget and also being applied for other purposes other than those the Sovereign Bond was floated for,” he adds.

The Controller of Budget’s office was created as an expenditure monitor to ensure money is spent for budgeted functions and to seal loopholes for fictitious payments that characterised the infamous Goldenberg scheme.

Goldenberg and Anglo-Leasing, the two biggest financial scams in Kenya’s history, have been blamed on weak controls at the Treasury and the Central Bank.

In 2012, Citi, Standard Bank and Standard Chartered Bank aanced $600 million to the government at a premium of 4.75 per cent above the London Interbank Offered Rate (Libor).

The money was to be used to build roads, dams as well as finance implementation of the Constitution and was to be repaid from the proceeds of the sovereign bond.

In June 2014, Kenya offered a $2 billion bond in two tranches of $1.5 billion over 10 years and a five-year $500 million bond. Kenya managed to borrow at 5.875 per cent for the five-year portion while the 10-year bond had a yield of 6.875 per cent making it cheaper than the syndicated loan, hence the repayment.

Mr Ouko’s report shows hundreds of questionable payments, dodgy contracts, poor book-keeping and concealments across the entire government structure with very few entities like the Presidency receiving a clean bill of health.

The Treasury’s chaotic management of finances is, for instance, revealed in the fact that it made two payments on the same day but booked them in two different fiscal years.

The payment for the syndicated loan was made on July 3, 2014 and recorded in the 201415 financial year books.

On the same day, S4 billion was transferred from the same offshore account to the Exchequer to fund infrastructure projects and was accounted for in 20132014 financial year. Other heavily implicated ministries include Interior and Devolution.