A damning audit report has exposed a staggering Sh7 billion debt owed to the government by civil servants who benefited from a housing scheme.

The revelation comes as the latest in a series of financial scandals to rock the public sector.

The Civil Servants Housing Scheme Fund, established in 2004 to provide affordable housing to government workers, has been plagued by mismanagement and rampant defaulting.

An audit conducted by Auditor General Nancy Gathungu for the financial year ending June 30, 2023, paints a grim picture of the scheme's financial health.

Over 3,000 civil servants took advantage of the scheme, which offered loans of between Sh4 million and Sh20 million at a favourable interest rate of five per cent per annum.

Read More

  1. Auditor-General exposes Sh11.66 billion gap in affordable housing loan funds
  2. Audit reveals alarmingly low submission of financial results by county hospitals
  3. Kenya has bled a whopping Sh1.44 billion on interest for loans yet to be withdrawn

However, the majority of these beneficiaries have defaulted on their repayments, leaving the fund in a precarious financial position.

“Although management provided demand letters issued to the defaulters, the amount remained outstanding as at June 2023,” Gathungu stated in the report.

The auditor general expressed grave doubts about the fund’s ability to recover the substantial sum.

The crisis is compounded by the fact that a principal secretary in the Ministry of Lands owes the fund a colossal Sh109 million.

Additionally, rent and service charge arrears amounting to Sh360 million have accumulated over a decade.

The Auditor General has raised concerns over the fund’s lack of provision for bad and doubtful debts, a critical accounting practice for managing financial risks.

Furthermore, the report highlights the fund’s failure to recover a Sh4.5 million debt from two individuals despite issuing demand letters.

“In the circumstances, the existence of an effective mechanism to ensure recoverability of the long outstanding mortgage arrears could not be ascertained,” the report states.

The scheme’s problems extend beyond loan defaults.

The audit revealed that investments worth Sh843 million are at risk of being lost due to unclear ownership of properties.

Crucial documents pertaining to land parcels on which housing units are located were not provided for the audit.

“In the circumstances, ownership of the investment properties totalling Sh843,125,021 could not be confirmed,” the report warns.

The Auditor General’s findings echo those of her predecessor, Edward Ouko, who, in a previous audit, described the scheme as falling short of expectations.

Ouko had recommended expanding the scheme’s clientele to include public servants in semi-autonomous government agencies and parastatals.

The latest audit has reignited calls for urgent reforms to the Civil Servants Housing Scheme Fund to prevent further losses and ensure its sustainability.

With a significant portion of the fund’s resources at risk, taxpayers are likely to bear the brunt of the mismanagement.

The government is now under pressure to take decisive action to recover the outstanding loans and address the underlying issues plaguing the scheme.