A recent report by the Office of the Auditor General has exposed significant financial oversights in the disbursement of a shareholder loan totalling Sh16.3 billion to Kenya Airways (KQ) during the financial years 2021/22 and 2022/23.

The National Treasury released the substantial funds without the existence of a valid loan agreement, according to Auditor General Nancy Gathungo.

Gathungo emphasized that Kenya Airways failed to adhere to standard procedures by not establishing a separate account for the government loan, resulting in the commingling of funds with the company's general finances.

This lack of segregation has raised concerns about financial transparency and accountability, making it challenging to track the utilization of the loan.

Furthermore, the shareholder loan agreement between the Government and Kenya Airways Plc had not been signed when the funds were disbursed.

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Gathungo expressed her concern, stating, "This situation suggests a failure in the fiduciary role of the National Treasury by releasing public funds without an effective mechanism of recovery. It also indicates a failure on the part of Kenya Airways Plc’s management to act in good faith by not complying with the agreed covenant clauses."

The disbursement of the funds was intended to support Kenya Airways as part of a strategic effort to revitalize the national carrier, facing consistent economic challenges.

With the government holding a substantial 48.9 percent stake in KQ, the move was seen as a crucial step to navigate the airline back to profitability, especially as the government actively seeks a strategic investor.

The audit report, which scrutinized supplementary budget expenditures and withdrawals under Article 223 of the Constitution of Kenya, revealed that the government's financial support was part of a broader plan to end bailout assistance for KQ by December 2023.

The Public Accounts Committee of the National Assembly initiated the special audit on April 26, 2023, to assess expenditures made under Article 223 during the financial year 2022/2023.

The audit disclosed that the National Government had allocated a total of Sh130 billion for various initiatives, including fuel stabilization, subsidies for flour and fertilizer, provision for relief food, and enhanced security operations.

The findings underscore the need for a rigorous review of financial practices to ensure proper governance and accountability in the disbursement of public funds.