Saving or Splashing Out? Auditor General flags billions invested in dubious NSSF deals

The National Social Security Fund (NSSF) is supposed to be a retirement safety net for Kenyan workers in their old age but latest revelations by the Kenya National Audit Office has unraveled massive financial flaws at the Managing Trustee and Chief Executive Officer David Koross led entity.

Having been established to offer social protection to all workers in the formal and informal sectors by providing a platform to make contributions during their productive years to cater for their livelihoods in old age and the other consequences resulting from unprecedented occurrences, NSSF could be blowing away workers’ lifetime labour through dubious deals.

However, on the contrary, it has over the years been marred by corruption and questionable investments, which mostly end up draining the very money workers expect to ensure their financial security when they leave gainful employment or protect their dependents from abject poverty in the event they pass on.

At a time when President William Ruto is pushing Kenyans to save more, as he defends the enhanced contributions introduced last year, saying his aim is to see the saving hit the Sh1trillion mark by 2027, the revelations by Auditor General Nancy Gathungu that the old habits at NSSF continue unabated were shocking.

According to the audit report by Gathungu, which covers the period to June 2024, NSSF engaged in dubious transactions, inflated procurements and questionable investments putting at risk billions of workers’ savings.

Gathungu revealed how the government-run pension fund operates under a troubling veil of secrecy, rarely publishing financial statements or explaining how taxpayer funds are mismanaged.

She indicated that NSSF purchased Sh5 billion bonds and later lost, incurring a Sh272 million loss.

She noted that the management at NSSF failed to balance the capital losses against yield rates, a lapse inconsistent with prudent investment practices expected of a pension fund.

The report paints a grim picture of an institution riddled with irregularities, raising serious concerns about the safeguarding of contributors’ hard-earned savings.

The report reveals how the NSSF board trustees lavishly spent Sh68.78 million after holding 14 full board meetings and nine finance and investment committee meetings-more than double the government-approved limit of six; an expense Gathungu described as an abuse of governance structures.

Poor documentation and delayed reconciliations with the Kenya Revenue Authority (KRA) by the pension Fund led to Sh940.3million being written off.

“Management did not provide for audit review evidence of progress made in the refund of the overpaid taxes. In the circumstances, NSSF has not been getting any returns on the long outstanding tax receivables balance of Sh940,336,114.00,” the AOG said in her report.

This is even as the routine purchases raised red flags, including a desktop computer for the reception area bought at an inflated cost of Sh2.08 million.

Single-sourced conference facilities, irregular travel claims, and unsupported subsistence expenses added up to Sh317.58 million in questionable spending.

The audit report reveals how Sh51million in cash was spent on fuel procurement, bypassing public procurement rules, while Sh410 million went into renovation works acquired through irregular processes, while Sh1.04 million was spent on the purchase of an eight-bay bulk filer without following laid-down procedures.

The Fund’s real estate strategy is equally troubling as their Land in Upper Hill, purchased for Sh115million, lacks a valid title deed, as it had been revoked-casting doubt on whether any due diligence was conducted.

Gathungu’s report also noted that several buildings owned by NSSF in Nairobi’s Central Business District have been lying idle, with the State-owned pension scheme accruing no income while others were rented out with no valid lease agreements available.

NSSF also has  Sh228million property investment in Kisumu was flagged by Gathungu for irregular operations, though the full details remain under investigation.

Billions are also tied up in non-performing or doubtful investments that include Sh127million in underperforming quoted equities, a Sh38.4 million stake in Consolidated Bank that has lost Sh209.27 million in value, and exposures to failed financial institutions such as Imperial Bank, Chase Bank, and Real People Microfinance.

NSSF also recorded Sh946.6 million in provisions for doubtful debts and accrued income unlikely to be collected.

Despite setting a return on investment target of 15 per cent for the year, NSSF only managed to achieve 8 per cent-well below market benchmarks. The report warns that such poor performance, when coupled with risky investments, could threaten future pension payouts and the Fund’s long-term solvency.

Contributions from members are often delayed in allocation, risking lost earnings for pensioners.

NSSF is also running with a bloated workforce and has failed to recover Sh1.3 billion in staff loans and Sh158.3 million in mortgages, most of which are not being serviced.

A Sh128million project to build a boundary wall in Bamburi has stalled with no clear explanation.

A further scrutiny by the Auditor General revealed two custodial bank accounts holding over Sh3.5million operated under an entity not contracted by NSSF-raising concerns over accountability and possible misappropriation.

At the same time, NSSF has accumulated pending bills worth Sh8.97million, some dating back over two years, and suffers from poor record-keeping and a lack of transaction reconciliation.

The revelations in the Auditor-General’s report cast a long shadow over NSSF’s stewardship of workers’ retirement savings.

With billions at risk and repeated breaches of the Public Finance Management Act, questions abound over whether the board and management will be held accountable.

With the NSSF collecting billions from Kenyan workers annually, yet reports indicate misuse of the collected funds, more information should be made public on how the funds are invested and the returns they generate, or whether contributors’ best interests are being served.

Finance expert Alfred Samarere says a transparent, well-run NSSF could be a game-changer for Kenya’s economy as the billions in contributions it could finance infrastructure, housing, and key industries while ensuring workers see competitive returns on their savings.

He, however, says it is time employers reconsider sending the NSSF remittance as a default and need to rethink it.

“Sending staff contributions to NSSF should be rethought. The audit report raises red flags about how the funds are managed. When funds cannot buy computers without losing millions, should we be trusting it with our employees’ future?” he stated.

Yesterday, former Deputy President and leader for Democracy for Citizens Party Rigathi Gachagua stirred controversy with explosive claims about the misuse of NSSF resources, accusing key figures of corruption and mismanagement.

Speaking at a public gathering in Mazeras yesterday, Gachagua said that the NSSF funds, meant for workers’ retirement, are being diverted to infrastructure projects and questionable deals, including a 99-year lease of Bomas of Kenya to an Indian investor.

Gachagua did not hold back in his criticism of what he described as blatant misuse of public funds.

He claimed that President William Ruto has been siphoning NSSF money for personal gain.

“That NSSF money, Kasongo has planned it, he has taken that money illegally (NSSF hiyo pesa Kasongo amepanga, ametoa hiyo pesa kinyume na sheria,” Gachagua said, his voice ringing with indignation.

He went on to say that the funds are being used to bankroll the construction of the Mau Summit-Rironi highway, a major infrastructure project set to begin in June and expected to be completed by June 2027.

“He has taken that money supposedly to build the Mau Summit road, from Rironi (“Ametoa hiyo pesa ati kujenga barabara ya Mau Summit, kutoka Rironi), he said.

Gachagua argued that NSSF contributions are intended for investments that secure workers’ retirement, not for funding infrastructure.

“NSSF money is not for infrastructure; it’s for investments so that retirees can get their returns (Pesa ya NSSF hapana kufanya infrastructure, hiyo ni pesa ya kufanya investment ndio hao watu uzeeni wapate mapato yao)”, he added.