Learning institutions in the spot over caution money and overpaid fees

An audit of eight sample learning institutions has shown that they held unclaimed financial assets in form of caution money and overpaid fees.

According to Auditor General’s performance audit report on management of unclaimed financial assets by Unclaimed Financial Assets Authority (UFAA), learning institutions are expected to remit caution money and overpaid fees that remain unclaimed for a period exceeding two years after successful completion of studies, graduation and clearance.

“Interviews with eight sampled institutions revealed that they held unclaimed financial assets in the form of caution money and overpaid fees. Further, five out of the eight sampled universities revealed that they did not locate and notify students whose refunds were due,” the report dated August 2025 shows.

The audit also revealed that the sampled learning institutions did not proactively reunify unclaimed financial assets at source, and that some institutions had financial constraints and ended up utilizing refundable deposits for their operational activities.

This, said the auditor, resulted in the accumulation of refundable deposits that had not been remitted to the Authority.

Similarly, review of compliance audit reports revealed that public universities held unclaimed financial assets worth Sh2.6 billion, that were due for remittance to the Authority.

“Due to non-compliance of the learning institutions, it was established that penalties imposed in three out of five of the institutions were more than the principal amount of unclaimed financial assets identified,” the report states.

“The hefty penalties imposed on the institutions resulted to non-closure of the assets, that is, holder's not surrendering the identified unclaimed assets to the Authority or failure to provide evidence of the assets not qualifying as unclaimed. This occasioned the non-recovery of the identified assets,” it adds.

The University of Nairobi had the highest amount of identified unclaimed financial assets amounting to Sh2.3 billion followed by Moi University Sh171.4 million then Maseno with Sh40.6 million then Egerton and Kenyatta with Sh30.2 million and Sh20.7 million respectively.

As part of safeguarding unclaimed financial assets, the auditor said that Section 44(2)(a) of the Unclaimed Financial Assets Act of 2011 requires holders of unclaimed cash assets to deposit the assets into the Trust Fund Account at the Central Bank of Kenya.

The Trust Fund is responsible for safeguarding unclaimed financial assets while Regulation 15 of the Unclaimed Financial Assets Regulations, 2016 stipulates that those investments should be drawn from monies in the Fund that are not immediately needed for the Fund's purposes.

“The Authority invests these assets in government securities and uses a portion of the income to fund its operations, both subject to approval by the Cabinet Secretary, The National Treasury. This investment decision was instituted since investments in government securities offered higher yields,” the Auditor General states.

Review of the Authority's lnvestment Policy Statement (lPS) indicated that the Authority should invest 50 per cent of the available cash in Treasury Bonds, 45 per cent in Treasury Bills, and retain 5 per cent as cash to pay out claims.

According to the Auditor, the Authority had invested Sh22.3 billion and generated an income of Sh1 3.1 billion over the financial years 2018/19 to 2023/24.

“This implied that the Authority was able to safeguard the unclaimed financial assets received from holders and at the same time make returns on investment. A portion of the returns from the investments were used to finance the Authority's operations,” the auditor explained.

The audit has also revealed that the Authority received reports on unclaimed non-cash assets, such as shares amounting to 1.7 million units, which remained in the custody of their original holders.

This was because the Unclaimed Financial Assets (UFA) Act, 2011 did not have a mechanism for the receipt and secure management of non-cash assets.

As at the time of audit, in August last year, the Authority was not allowed under the law to operate a Central Depository and Settlement Corporation (CDSC) account, which is necessary for facilitating the transfer of unclaimed shares.

Consequently, the Authority could not directly safeguard non-cash assets beyond the direct control of the Authority.

The auditor has also stated that Section 44(1)(b) of the UFA Act, 201 1 stipulates that the Authority may utilize funds from the Trust Fund, with the approval of the Cabinet Secretary, The National Treasury, to finance costs associated with the administration of the Authority and the performance of its functions.

The audit established that out of Sh13.1 billion generated as investment income, Sh3.4 billion was used to finance the Authority's operations for the six years under review.

The report has also shown that although the Authority was able to capitalize on the investment income to finance its operations, there was still an unutilized investment income of Sh9.6 billion lying in the Trust Fund.

The Taskforce Report on Unclaimed Financial Assets of 2008, that recommended the establishment of an Unclaimed Financial Authority, proposed that the proceeds of investment of unclaimed financial assets should be used for long term socio-economic development.

As at the time of audit, the Authority had not undertaken any activity geared towards socio-economic development, despite the availability of reserves from investment income.

This was due to lack of a policy or legal framework to guide the Authority on how the accruing proceeds of investment were to be fully utilized for long-term socioeconomic development.

“The absence of such a policy or legal framework may pose the risk of the country losing out on public investment opportunities that could uplift the economy. For instance, Sh9.6 billion in the Trust Fund account is a substantial amount to construct and equip a medical facility equivalent to the Kenyatta University Teaching and Referral Hospital, which cost approximately Sh10 billion,” the auditor has said.