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CC: His Excellency, The President Hon. Mwai Kibaki Harambee House Harambee Avenue Nairobi The Right Honourable, Prime Minister Hon. Raila Amolo Odinga P.O. Box 74434-00200 Treasury Building, 14th Floor, Harambee Avenue Nairobi Speaker of the National Assembly Hon. Kenneth Marende National Assembly P.O. Box 41842 Parliament Bldg, Parliament Road Mr. Amos Wako Attorney General State Law Office P.O. Box 40112, Nairobi Harambee Avenue Hon. Mutula Kilonzo Minister Justice & Constitutional Affairs, P. O. Box 56057 – 00200, Nairobi Cooperative Bank House, Haile Selassie Ave Hon. Ekwe Ethuro Chairperson The Constituencies Fund Committee (CFC) Kenya National Assembly P.O Box 41842 Parliament Building, Parliament Road

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GROSS ILLEGALITIES IN CONSTITUENCY DEVELOPMENT FUND NEED URGENT REDRESS Public Interest at stake due to poor performance of CDF national officers

The CDF Status Report, December 2009

Alarm over illegalities in CDF operations Prepared by The Institute for Social Accountability (TISA)

1.0 Background

The Constituency Development Fund (CDF) is one of the devolved funds in Kenya.

Prior to the establishment of CDF the constituency was solely a unit of political

representation in Kenya, of which there are 210 in the country. CDF provides that at

least 2.5% of government revenue will be allocated to the fund, which is geared towards

the alleviation of poverty and promotion of local development. Almost Kshs. 60 billion

has been channelled through CDF since its inception. CDF contributes over 10% to all

development in Kenya.

The implementation of CDF has been marred by repeated accusation of abuse of funds,

patronage due to excessive powers of the MP, incomplete projects, a lack of technical

capacity, poor planning and a litany of other weaknesses which threaten to undermine

the very success of the fund. These and other critical challenges facing the fund spurred

the Minister of Planning, National Development and Vision 2030 to establish a taskforce

to review the fund. The taskforce was established in June 2009 and our sources indicate

that it hopes to present its findings to the Minister before the end of this month.

The publishing of the findings of the CDF taskforce is timely as it coincides with the

ongoing constitution review process both of which will feed into the long term

strengthening of Kenya’s presently weak over centralized and ad hoc decentralization

framework. We await the publishing of this report and hope that it will address the

fundamental flaws in the fund’s design.

In preparing this report, TISA seeks to evaluate the impact of the 2007 Amendments.

We also wish to draw attention to some critical failures in the fund’s operations, some

of which render some CDF operations illegal. We urge quick action from the Board,

Parliament and the Ministry of Planning, National Development and Vision 2030 in

addressing these.

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Identified Problems and contradictions

I. Removal of printed estimates unconstitutional

The CDF Amendment Act, 2007, did away with printed estimates allowing parliament

to draw funds from the consolidated fund in contravention of section 100 (1) of the

Constitution of Kenya and needs to be redressed.

II. Failure by Board to Publish project lists and progress reports contravenes CDF

Act

Under the 2003 Act, MPs were required to submit the list of the proposed constituency

projects to the Clerk of the National Assembly before the month of February each year.

The lists were to include projects and their cost estimates. At constituency level the CDF

Implementation Guidelines provided for a calendar of actives to guide the constituency

planning and submission process.

However, Section 28 of the Amended Act removed this provision and now allows the

approval of projects on a monthly basis. Section 28 provides that the Board will submit

the following reports to parliament on a monthly basis;

(a) A summary of the project proposals received from the constituencies in the

preceding month and indicating the approval status of such projects; and

(b) A summary of the status of disbursements of funds to the constituencies for that

preceding month;

(c) A summary of the status of disbursements from the Treasury to the National

Account.

No CDF project lists and updates for the last 2 years

Despite the legal provision, a visit to the Board website (www.cdf.go.ke) indicates that

project lists and progress reports were last updated in 2007/8. Our repeated requests to

the Board have also failed to realise the required information. Our attempts to obtain

data on project allocations from the past two years from local CDFC’s in a number of

consistencies also failed.

These reports enable constituents’ track which projects have been funded and the status

of expenditure to those projects. They also enable the Board keep a track of CDF

expenditure. Without them CDF committees can eat to their hearts’ content.

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According to official sources from the National CDF Management Board reports are

slowly ‘trickling in’, but the board is unable to up load reports until it verifies their

accuracy.

A visit to the CDF website demonstrates that only a handful of constituencies have

project status information up to 2008-2009. Dagoretti Constituency is one such

constituency. However, whilst Dagoretti has project status information, it does not have

allocations information (Schedule 2) which is also a statutory requirement.

Further, if these reports have indeed not been completed for the past two financial years

we wonder how constituencies have been able to receive disbursements without

fulfilling their reporting requirements as the law stipulates this should be the case.

It is noteworthy that each constituency has a fund manager who is responsible for the

management of CDF record keeping and disbursements since their posting in 2007.

How then can the Board claim not have up-to-date reports? Given the requirements of

the CDF law it is clear that the CDF Board is either in breach of the law, or

deliberately withholding information.

III. Illegal Procurement of CDF Projects

Section 31 (1) of the CDF (Amendment) Act, 2007 states that all works and services

relating to projects under this Act shall be sourced using existing Government

procurement regulations. Thus CDF is governed by the Government Financial

Management Act, 2004; The Constitution of Kenya Chapter VII; and The Public

Procurement and Disposal Act, 2005; further, there are regulations including the latest

through Kenya Gazette Supplement No. 63 of 18th September, 2009 where the Finance

minister made amendments further to the public procurement and disposal regulations.

The Project Management Committee (PMC) is recognized in the CDF Amendment Act

2007 as the committee responsible for implementation of a project. The CDF

Implementation Guidelines further expressly recognise PMC’s as a procurement unit

also subject to government financial regulations.

However, according to the Public Procurement Oversight Authority, the Project

Management Committee (PMC) has no legal mandate to award tenders under the

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current procurement law. Circular PPD2/20/29A/10 recognized PMC’s as Public

Entities under the Exchequer & Audit Act Cap 412 sec. 5A (2h) hence mandated to

establish tender committees. However, the Public Procurement & Disposal Act, 2005

Sec. 143 amended the Exchequer & Audit Act Cap 412 by deleting sec. 5A hence PMC’s

are not longer recognized as an independent public entity and cannot establish a tender

committee.

In simple terms Public Procurement & Disposal Act, 2005 outlaws procurement by

project management committees. In direct contravention to this position the CDF

Implementation Guidelines recognise PMC as procurement entities. Further, Section 5

(1) of the Procurement Act states that where there is conflict with any other Act or

regulation, the Procurement Act shall prevail. It therefore appears that PMC

procurement by CDF PMC’s is illegal.

The Public Procurement Disposal Act legal notice no 141, portends to reconstitute the

CDF tender committees and make this issue even more confusing.

IV. Conflict of interest legalised in CDF

Further, whereas the Public Procurement & Disposal Act, 2005 section 43, expressly

provides that where there is a conflict of interest the affected person shall disclose ones

interest and not take part in the procurement proceedings. It fails to expressly outlaw

engagement as a supplier. This provision has widely been interpreted to mean that CDF

committee members may act as suppliers/contractors to CDF as long as they disclose

their interests and do not sit in the tender proceedings. Thus all over the country CDF

committee members act as suppliers to CDF in full knowledge of the authorities.

Tendering and procurement procedures have become conduits through which some

contractors, Members of Parliament and their political cronies through the complicity of

CDFC members are fleecing hundreds of millions of shillings from the constituency

kitties through skewed processes. More critically the subversion of CDF procurement

processes in this way, pushes out genuine entrepreneurs and professionals, undermines

standards and wealth creation prospects for the constituency.

Common abuses range from establishing personal fronts or ghost companies which are

awarded CDF project tenders un-procedurally and use the opportunity to inflate prices

of goods and services.

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A case in point is Mwatate Constituency in Taita Taveta where the former CDF committee

treasurer was also doubling up as a contractor. In Nakuru Town, the PMCs were allowed to

provide labour and materials like ballast and timber creating a conflict of interest.

It is practice that the procurement law and CDF guidelines allow procuring unit

members to act as tenderers, and a failure to clarify this situation has resulted in

millions being lost over the past 6 years.

V. PPOA Asleep on the job

The PPOA is empowered to investigate and submit evidence to prosecutors, refer cases

of corruption to the Kenya Anti-Corruption Commission (KACC) as well as debar firms

that have contravened the Act and Regulations from participating in future public

transactions. However, it is not clear how far PPOA has gone with these measures. The

PPOA website also does not publish advertisements on CDF open tenders for goods/

works above Kshs. 6 million, as required.

Despite strong provisions contained in the procurement law, the PPOA is not

enforcing financial discipline to reign in runaway corruption in CDF.

VI. CDF has no accounting officer

Another weakness in the CDF accountability process is the absence of a clear

accounting officer. Whereas Ministry of Planning regulations indicate that the DDO is

the defacto accounting officer by virtue of being the AIE holder, the CDF Act does not

recognise this office as such. The 2003 CDF Act sections 7 assigned the responsibilities

of the accounting officer to the then officer administering the fund, but the 2007

Amendments removed this section entirely and did not reassign the functions to any

office. Further, the powers of the Board to enforce prudent utilisation of funds was also

removed with the deletion of sub-section 6(b) of the original Act.

Recent regulations seem to indicate that the fund manager may take up the role.

Without a clear accounting officer, the CDF Act is again in contravention of

Government Financial Regulations which require that every public fund have an

assigned accounting officer.

Did the 2007 Amendments deliberately wish to open up the fund to mismanagement

or was this a gross oversight?

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VII. CDF Lacks Audit

Under the 2003 CDF Act Section 7 (1) d. provided that the officer administrating the

fund would Prepare, sign and transmit to the controller and auditor general accounts

of the fund in accordance with section Cap 412.18 (2) of the exchequer and Audit Act,

under the revised act the responsibility to prepare accounts for audit is left vague and

hanging, Section 34 of the 2007 CDF Amendment Act states that all funds received

under the CDF Act shall be audited and reported upon by the Controller and Auditor-

General.

With procurement having been devolved to the constituency level and in the case of

CDF to the project level, the National Audit Office which is presently not able to

prepare timely audit reports for existing government bodies, will never audit more than

a sample of CDF projects. The most recent Audit reports capture expenditure of the

2005/6 period. Thus MP’s and CDF committees can sit pretty knowing their misdeeds

will never be uncovered. The procurement law further provides that financial records

may be disposed of after 6 years and so in all likelihood Kenya’s will never really know

what happened to their money.

VIII. Minister of Planning Reports on CDF missing in action

The law also states that the Minister shall table an annual report on the activities,

operations and expenditure under the Act. During the preparation of this report we

were unable to obtain these reports, if they indeed exist beyond the preliminary reports

prepared in 2003/4 and 2004/5.

Given the afore mentioned, and in the public interest we demand the following;

1. A clarification of the status of CDF project allocations reports.

a. The CDF board needs to make a report to the public on the status of CDF

allocation and status reports;

b. The Board needs to urgently update the website and make these records

available to the public;

c. Numerous Civil Society Groups have expressed interest in partnering with the

Board in the process of verification of data and it is high time the national CDF

bodies recognise the benefits of such a move;

d. The Board and Minister of planning need to make routine reports to the public

on the status of CDF management and implementation to dispel anxiety and

speculation about the mismanagement of CDF resources;

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e. The Board needs to publish a list of the status of disbursements to constituencies

to enable the public effectively track local CDF expenditure;

2. Procurement needs to be streamlined

a. The Ministry of Finance and the Board needs to urgently confer and establish a

common position on procurement by PMC’s to bring it into compliance with the

law.

b. The Ministry of Finance and Board need to move urgently to expressly outlaw

CDF committee members and kin from acting as tenderers to CDF projects.

Penalties for this should be swift and steep to stamp out this practice that is

killing the growth of genuine businesses in favour of brokers not committed to

the provision of competitive and quality services;

c. The Board and PPOA need to enforce laid out regulations rigorously to stem the

rampant corruption that has become the hallmark of CDF;

d. Piecemeal reforms of procurement regulations have resulted in a confusing

picture- the ministry of finance needs to publish updated and consolidated

procurement regulations in the interest of transparency.

3. CDF Calendar

Parliament needs to move with haste to amend sections of the law and reinstate the

annual CDF approval process including the printed estimates whereby all allocations

and approvals will be made at the beginning of the financial year. The previous

constituency calendar should be improved upon based on best practices in participatory

planning and implementation in devolved structures.

4. CDF Board is complicit in the fleecing of CDF.....

It is noteworthy that the CDF Board has representatives from esteemed professional

and religious bodies’ among them the Institute of Certified Public Accountants of

Kenya, NCCK, Kenya Episcopal Conference and SUPKEM and others. In failing to

condemn failures in CDF management, in accepting unlawful practices, failing to call

Parliament and the Minister of Planning and in failing to give a report to the public they

are betraying their mandate and betraying the trust of the public whom they represent.

If these bodies are not able to use their mandate to compel performance in CDF they

should resign and make way for more serious board members. If these institutions are

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not able to enforce discipline in the fund they should use their national stature to

compel parliament to streamline the fund.

5. CDF Reform needs to happen now....

The Ministry of Planning National Development and Vision 2030 as the architects and

flag bearers of the Vision 2030 and in line with their stated core values of integrity,

participatory development and results based approach need to act urgently to ensure

that CDF meets its mandate to address poverty and regional inequalities. It needs to

stamp its supervisory and planning mandate to ensure the additionality of all

development resources.

The CDF task force received numerous constructive recommendations on how to

streamline the funds’ operations, this report is much awaited and the Minister of

Planning owes members of the public who participated eagerly in the taskforce

proceedings an update of its progress.

The Ministers of Planning National Development and Vision 2030 and Finance should

move fast to publish it and enact its provisions through the regulatory powers of their

respective Ministries.