The recent audit findings by Auditor General Nancy Gathungu regarding the management of the Sh2.1 billion Coffee Cherry Fund have raised serious concerns about the accountability and financial management practices within state corporations. The funds, intended to support coffee farmers, have not been utilized effectively, leading to a situation where farmers have not obtained value for their money.
Misallocation of Funds
According to the audit, the Sh2.1 billion earmarked for coffee farmers was deposited in a commercial bank, directly contravening directives issued by the National Treasury. Gathungu highlighted that the Treasury had issued a circular on March 26, 2018, which stipulated that surplus funds held by state corporations and semi-autonomous government agencies should not be parked in commercial banks. Instead, these funds should be invested directly in treasury bills or bonds through the Central Bank of Kenya (CBK).
This misallocation raises critical questions about the management of the Coffee Cherry Fund and the decision-making processes of its administrators. By failing to adhere to these guidelines, the fund’s management has not only disregarded the law but also jeopardized the financial well-being of the coffee farmers it was meant to support.
Breach of Directives
Gathungu’s report unequivocally stated that the actions of the fund administrators were in breach of the law. The Sh2,181,054,794 deposited in a call account was not only irregular but also indicative of a broader issue regarding compliance with financial regulations. Such breaches undermine the trust that farmers place in the fund, as it is intended to provide them with necessary financial resources.
Furthermore, the decision to hold the funds in a call account rather than investing them in higher-yielding treasury bills or bonds has significant implications for the potential returns on the funds. This not only reflects poorly on the administrators’ financial acumen but also indicates a lack of consideration for the best interests of the farmers they are supposed to serve.
Interest Accrual Irregularities
Adding to the troubling findings is the issue of Sh181 million in interest that was allegedly earned from the deposits. Gathungu reported that the balances held in commercial banks on call deposit had accumulated unapplied interest totaling Sh181,054,794. This is a critical point because unapplied funds do not earn interest unless they are rolled over as part of the principal balances.
The inability to capitalize on the interest accrued from these deposits further illustrates the management’s failure to maximize returns on the fund. Farmers who rely on the Coffee Cherry Fund for support have essentially been deprived of potential earnings that could have been reinvested into their businesses. The implications of this mismanagement could be devastating for the agricultural sector, particularly as coffee farming is a significant source of income for many families in Kenya.
The Bigger Picture
The mismanagement of the Coffee Cherry Fund is emblematic of larger issues within the financial management systems of government agencies. It underscores the need for improved oversight and stricter adherence to regulations regarding public funds. Farmers deserve transparency and accountability from those tasked with managing funds intended for their benefit.
In a country where agriculture forms the backbone of the economy, ensuring that funds are managed appropriately is crucial for the sustainability of the sector. Misallocation of resources not only harms farmers but also has a ripple effect on the economy as a whole. When farmers are unable to access the funds they need, it stifles growth and innovation within the agricultural sector.
Response from the Government
In light of these findings, there is an urgent need for the government to take corrective action. It is imperative that the management of the Coffee Cherry Fund is held accountable for their actions. An immediate audit of all state corporations handling public funds is necessary to ensure compliance with established regulations and to safeguard the interests of citizens.
Additionally, the government should consider implementing stricter regulations regarding the management of public funds to prevent similar occurrences in the future. This could include regular audits and assessments of financial practices within state corporations to ensure they align with the Treasury’s directives.
Conclusion
The findings from the audit conducted by Auditor General Nancy Gathungu highlight significant shortcomings in the management of the Coffee Cherry Fund. The irregular investment of Sh2.1 billion in a commercial bank, alongside the failure to capitalize on accrued interest, is a disservice to the farmers it was meant to support.
As the government moves forward, it is essential to prioritize transparency, accountability, and effective financial management to restore trust and ensure that farmers receive the support they need. Only then can the agricultural sector thrive and continue to play a pivotal role in Kenya’s economy.
In conclusion, the issues raised by the audit serve as a wake-up call for all stakeholders involved in managing public funds. It is a reminder that the responsible management of resources is not only a legal obligation but also a moral imperative to support those who depend on agriculture for their livelihoods.
