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How county officials rig tenders through proxies
Top officials and county tender committees are orchestrating elaborate schemes, awarding contracts to their own shadowy firms and receiving kickbacks from bidders.
Kenya’s financial intelligence unit has flagged widespread fraud across counties involving employees using proxies and shadowy companies to irregularly award themselves multi-billion shilling tenders, sidelining genuine bidders.
The Financial Reporting Centre (FRC), which monitors illicit financial flows in the country, says banks have captured suspicious transactions worth billions of shillings from counties flowing to firms owned by officials, their proxies and politically affiliated persons.
The fraudulent schemes are mostly orchestrated by top officials working in cahoots with members of the county tender committees to award contracts to the secretly established firms.
They rig tender bids to benefit the firms to the exclusion of other bidders in tenders that often fail to deliver the goods after overpayments, the FRC says.
Other county officials additionally receive kickbacks from bidders and falsify documents to justify the illicit flow of money into their accounts.
In most cases, the funds are quickly withdrawn in cash to avoid scrutiny, with analysts saying devolution has simply increased the opportunities for officials to misuse public funds.
While the devolved system of government was expected to hasten rural development, the analysts reckon it has spread the chronic corruption that plagues national politics to a local level.
The FRC reckons that conflict of interest, procurement fraud, embezzlement and receipt of kickbacks were observed in more than 130 cases that banks flagged and forwarded to the watchdog for action.
At stake is over Sh200 billion annually that the 47 devolved units spend outside workers’ salaries and perks.
“These trends were prevalent both at the county and national level, with the ongoing trend of public officials trading either directly or through proxies. The schemes also involved acts of fraud and forgery whereby the corrupt officials used forged documents to legitimise the transactions as evidenced by discrepancies in the support documents provided,” says the FRC.
“The funds acquired were eventually withdrawn in cash, transferred to accounts of related companies and eventually invested in different sectors of the economy.”
The FRC says it forwarded the suspicious deals to investigating authorities, including the Directorate of Criminal Investigations (DCI), following revelations that the officials tried to forge documents in a bid to justify the huge sums of money wired into their bank accounts and withdrawn in cash.
For instance, in one county, the FRC uncovered that all 15 companies awarded contracts for fumigation, cleaning, landscaping and construction services were linked to county employees—some of whom sat on the tender award committees or had their relatives listed as directors and shareholders.
The tender committee has a minimum of three members, often county workers who evaluate bids and recommend contract awards.
Notably, all the 15 companies were registered on the same day. The companies listed for construction works had not been registered with the National Construction Authority—a prerequisite for all construction-related companies operating in Kenya.
Between February 2021 and July 2022, the 15 companies received Sh361.86 million from the county, whose name the FRC has not revealed.
The financial crimes watchdog says the payments were made despite various discrepancies, including some of the tenders being awarded before the companies were registered, contract agreements being signed after the project was executed and duplicated local service orders (LSO) being issued to different companies for the same service.
“The funds were utilised through cash withdrawals in structured amounts below the reporting threshold and transfers to proprietors’ accounts, to County X employees and related companies’ accounts,” says the FRC.
Such shadowy dealings are happening at a time the Conflict of Interest Bill, 2023, is yet to be signed into law, with President William Ruto blaming the National Assembly and the Senate for the delay.
The proposed law bans public officials from being party to or benefiting from contracts floated by the entities where they work and also disallows officials holding interests in partnerships or companies contracting with such entities.
President Ruto in May refused to sign the Bill into law, sending it back to parliamentarians even as he argued that Senate amendments had weakened the proposed law, especially on the issue of receiving gifts by public officials and their families.
The FRC report also reveals how county officials influence tenders and then use forged documents to hide illegal transactions.
It says that two politically exposed persons (PEPs) working in a certain county (named county K) as a member of the County Public Service Board and chief officer in the department of public construction and public works, respectively, colluded with directors of five related construction companies to embezzle public funds.
The FRC says that between 2019 and 2023, the five companies, all owned by a couple, received Sh1.1 billion from county K, Sh78 million from county H and Sh48 million from county Z as payments towards multiple construction works.
However, the documents supporting the payments came with various discrepancies. The FRC notes that the local purchase orders (LPOs) presented were addressed to companies different from those paid, tender documents were undated and tender numbers in the award documents differed from the letters of award.
In addition, some of the payments to the five companies were duplicated. When the funds were credited to the bank accounts, they were withdrawn in cash by the directors and transferred to two companies owned by the members of the County Public Service Board.
The flow of money pointed to a possible link between the two county officials and the five companies that were registered by a man and wife. Other incidents flagged by the FRC involved county officials using community-based organisations (CBOs) for corruption and money laundering.
This was the case in a county identified as ‘Y’ where a CBO formed in November 2022 to promote the general welfare of its members received Sh185.69 million in June 2023 from county Z.
The Sh185.69 million was marked as payment for emergency aid and supported with a project funding proposal. However, the FRC found that the proposal was done a month before the CBO was registered.
The funds were utilised through cash withdrawals and transferred to two hardware businesses dealing in the supply of construction materials.
