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14th May 2022

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Ideas & Debate

How graft in aid, debt steals from our borrowed future

Tuesday May 04 2021


National Treasury building. FILE PHOTO | NMG

Since the 1970s, conservationists have repeated the assertion, “We do not inherit the earth from our ancestors, we borrow it from our children”. If we were to replace the word ‘earth’ with the word ‘economy’, the phrase would ring just as true.

With two-thirds of Kenya’s workforce below 40 years, according to the Kenya National Bureau of Statistics Quarterly Labour Force Report of Q4 2019, Kenya’s economy needs to sustain a substantial, youthful population. Another 20 million Kenyans will join the workforce in the not-too-distant future, and all these young people will also “borrow” the economy from future generations.

A sustainable, growing economy requires investment for the future, and Kenya continues to look to external sources of capital in the form of debt, grants and aid.

These funds play an important role in providing technical assistance and funding development programmes, in responding and recovering from emergencies and disasters and generally in improving the quality of Kenyan lives.

In the 2021 Budget Policy Statement, the National Treasury estimated that Kenya would borrow Sh426 billion from foreign sources and receive grants of Sh49 billion.

These figures do not include foreign aid channelled directly through line ministries or to county governments to support specific programmes or funds that flow directly to programmes from development partners or NGOs.

According to the NGO Co-ordination Board’s Annual NGO Sector Report 2018/19, 3,028 NGOs reported having received Sh166 billion in 2018/19 and 88 per cent of these funds were raised from sources outside Kenya.

Kenya’s ability to attract external funding and the cost of the funds (that is, the interest charged on the debt or administrative costs on donor funds), are dependent on two main factors — one Kenya’s ability to repay, especially in the case of debt and two, the extent to which the country is seen as capable of applying the funds transparently and for their intended purpose.

Concerning the second factor, fraud and corruption are serious impediments.

Unfortunately, fraud targeted at donor funds and aid is endemic and takes many forms.

Procurement fraud occurs when implementing institutions purchase non-existent supplies from non-existent suppliers at inflated costs. Abuse of per diems and daily subsistence allowances is also commonplace, fake attendance lists and hotel receipts are used to support non-existent conferences or to overstate the number of attendees. Capital projects utilising significant development funds may be overpriced and/or the funds may be directed towards unwarranted variations from the stated specifications.

Equally concerning are numerous instances of funds having been reallocated from one project to the next, or from one budget line to another.

This practice not only creates a channel for the theft of funds, but it also results in the transfer of money from its intended use, such as funding development or humanitarian projects, to items that have a more direct personal benefit such as staff salaries and allowances.

From a human resources perspective, nepotism in the hiring process and payments to ghost workers are common, too.

Safeguarding all of our resources from fraud is imperative, whether the source of those resources is external or internal. About external resources, however, there is a heightened imperative since in many cases, those resources must be paid back with interest and their theft impacts Kenya’s reputation internationally and our ability to source additional funds as well as the cost of future funds.

We all have a role to play in safeguarding these funds from fraud.

NGOs and donor agencies, for example, may source their funding from individuals or government revenue coffers. Either way, they promise to apply the funds towards development and making the world a better place.

Although implementing partners may monitor the outcomes of their projects, many fraudsters are familiar with traditional project audits and monitoring and evaluation methodologies. Therefore, accountability needs to be monitored and executed in innovative ways.

Fraud analytics can help to identify anomalies and raise the alarm, even in instances where reports and supporting documents are submitted.

Issues such as co-mingling of funds and double reporting could be addressed in part by undertaking joint audits, particularly when more than one party is funding a project.

The entities responsible for overseeing the funds, whether government agencies or donors, must also send a clear message that they will not tolerate the misuse of funds.

If properly utilised and accounted for, foreign-sourced funds can support economic growth and development. Eventually, Kenya could become less reliant on these funds and bequeath a more sustainable economy to future generations, with growth financed internally, accountably, and transparently.

The time is now to proactively anticipate fraud risks and put in place measures to mitigate these practices.

2021-05-04 08:37:46

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By admin