Mismanagement of Recovered Proceeds of Crime Uncovered in New Audit

A recent audit has revealed that proceeds of crime recovered from graft and money laundering suspects in Kenya are being mismanaged. The review, conducted by Auditor General Nancy Gathungu, has placed the management of the Asset Recovery Agency (ARA) in the spotlight for failing to properly account for assets and funds entrusted to them. The audit, covering the fiscal years from 2018-19 to 2021-22, has highlighted significant anomalies in the management of recovered assets.

The Auditor General’s report flags numerous issues related to inaccurate valuation, poor record-keeping, and the mismanagement of both movable and immovable assets. Gathungu pointed out that proceeds of crime, which are vital in the fight against corruption and illicit financial flows, were not accurately recorded, and in some cases, were not traceable at all.

The financial statements audited in January 2024 revealed several infractions, with one of the key issues being discrepancies between the reported values of assets and the actual amounts. According to the report, the managers overseeing these funds failed to maintain a register for forfeited and preserved assets, contrary to Public Finance Management (PFM) regulations. These regulations require accounting officers to maintain accurate records for all cash received and payments made, as well as assets under their management.

For instance, five movable and three immovable assets forfeited by criminals had not been valued at the time of the audit. Instead, they were recorded in the books as being worth KSh 402 million. Similarly, the preserved assets were overstated by about KSh 1 billion, with some assets worth KSh 2.9 million missing from the financial statements altogether. This led to an incorrect reported balance of KSh 1.07 billion in preserved assets as of June 30, 2023.

Further compounding the issue, the management of the ARA failed to submit bank reconciliation statements to the National Treasury for the accounts they held at the Kenya Commercial Bank. The PFM regulations stipulate that all accounting officers must complete monthly bank reconciliations and send copies to the Treasury and Auditor General within the first 10 days of the new month. However, these regulations were not adhered to, casting further doubt on the accuracy and transparency of the ARA’s financial practices.

Another major concern raised in the audit was the failure of the ARA to implement a court order related to the deposit of KSh 8.8 million into an escrow account. The order, issued in 2026 as part of an anti-corruption suit, required the fund managers to deposit the full amount. However, only KSh 1.2 million was deposited, with the remaining KSh 7.6 million unaccounted for as of the time of the audit.

The Proceeds of Crime and Anti-Money Laundering Act of 2009 mandates the Asset Recovery Agency to combat the flow of illicit money, and the funds collected through this enforcement are supposed to contribute to the state’s efforts in fighting crime and corruption. However, this latest audit has highlighted serious lapses in the management of these resources.

The Ethics and Anti-Corruption Commission (EACC), another key player in the recovery of proceeds of crime, has been more successful in returning assets to the state. On Wednesday, the EACC handed back assets worth KSh 5 billion, including parcels of land valued at KSh 1.4 billion in Kisumu that had been grabbed from the judiciary. Other notable assets returned included land parcels belonging to the police, the State Law Office, and the Uasin Gishu Referral Hospital, along with cash assets totaling KSh 511 million.

In light of the Auditor General’s report, it is evident that the management of recovered proceeds of crime is not meeting the required standards of accountability. The lapses in financial reporting, inaccurate asset valuations, and failure to comply with court orders suggest that immediate reforms are needed to restore confidence in the Asset Recovery Agency’s ability to manage public resources effectively. Accounting officers have been urged to address these issues and present a full report to the National Assembly to ensure that such mismanagement does not continue.