AG, Equity boss summoned in probe on Sh9.4b lost via e-Citizen

A watchdog committee has summoned the Attorney General, Equity Bank CEO James Mwangi and four other firms linked to the controversial e-Citizen platform over the possible loss of Sh9.4 billion in revenue.

Private service providers Webmasters Africa Ltd, Electronic Citizen Solutions, Pesaflow Ltd and Goldrock Capital Ltd are set to appear before the National Assembly Public Accounts Committee to respond to queries on how the platform may have led to the loss and how it was used to unlawfully collect Sh2.6 billion from Kenyans in convenience fees.

The committee gave the directive yesterday following a session with National Treasury Principal Secretary Chris Kiptoo, ICT Principal Secretary John Tanui and Immigration Services PS Belio Kipsang.

The special audit report covering 2021/2022, 2022/2023, and 2023/2024 financial years aimed to assess the platform’s operational effectiveness.

The Office of the Auditor General revealed that massive irregularities led to the unauthorised diversion of revenue amounting to Sh6.3 billion to e-Citizen’s Equity Bank account from an undisclosed account named Pesaflow.

“It was established that the Equity Bank statements for e-Citizen’s collection accounts had receipts amounting to Sh68,719,877 and $48,142,844 (Sh6.2 billion) from an undisclosed account named Pesaflow," detailed the report.

“This account was not listed among the approved collection accounts by the National Treasury. In this regard, it was used to irregularly collect money."

Auditor General Nancy Gathungu noted that the total amount irregularly collected using the Pesaflow account over the years could not be established, as the bank statement was not provided for audit.

Mwangi is now expected to appear before the committee as the accounting officer to explain the same. 

But in his submissions yesterday, Treasury PS Kiptoo told the MPs that the issue had since been addressed and the illegal accounts at Equity bank frozen.

“When the matter came to the attention of the National Treasury, a letter was written to Equity Bank requesting details of the agency accounts and gave instructions to freeze them. The accounts were frozen and the funds in those accounts were withheld,” said Kiptoo.

“In addition to that, the collection accounts held at Equity bank were closed and the authority to open new bank accounts was issued.”

Gathungu had also highlighted the unauthorized transfer of Sh127.9 million to four private entities from M-Pesa paybill 222222.

The audit explained that a review of the records revealed that the National Treasury initially used paybill number 206206 for revenue collection through the e-Citizen platform, which was operated by the vendor Webmasters Kenya Ltd.

The paybill was initially configured to transfer collected funds to the National Treasury Settlement Account at KCB Bank every midnight.

But following a Presidential directive and Gazette Notice No 16008 of  December 20, 2022, which designated the official government paybill number as 222222, all collections were expected to be auto-transferred to the Settlement Account held at KCB Bank.

“However, a review of the 222222 paybill statement revealed that on January 25, 2024, there were four transactions made from the paybill to private entities instead of the designated collection account. The four transactions amounted to Sh127,850,950,” noted the report.

PS Kiptoo yesterday claimed that Sh127,850,950 held at paybill 206206 was frozen after Goldrock Ltd, sub-contracted by Webmasters Kenya, went in 2015 after its contract was terminated. 

The money was transferred to paybilll 222222 in January, 2023, after a Sh127,850,950 out-of-court settlement.

“The out of court settlement was authorised by the Office of the Auditor General whereas the approval for payment was made by Treasury,” said the PS.

The Attorney General is now expected to appear before the committee to give clarity on the matter.

“Approval and documentation to support this transfer of money directly from the paybill to the private entities were not provided for audit. This is against Article 201 on principles of public finance, which requires public funds to be used in a prudent and responsible way.”

entered into a private subcontracting agreement with Goldrock Ltd for the management of revenue settlement and reconciliation pertaining to the e-citizen platform.

Subsequently, in 2017, the National Treasury assumed direct responsibility for these functions. Goldrock consequently initiated legal proceedings, contending wrongful termination from its contract.

 This legal action, he said, resulted in the court-order freezing of a convenience fee amounting to Sh127,850,950 held at Safaricom paybill 206206 which was later transferred to paybilll 222222 in January 2023. To facilitate the comprehensive onboarding of all services, the Government opted to resolve the litigation out of court. The Consent agreement required that the Sh127,850,950 be remitted to the vendors as final settlement, he added.

“The out of court settlement was authorised by the Office of the Auditor General whereas the approval for payment was made by Treasury,” said the PS.

The Attorney General is now expected to appear before the watchdog committee to give clarity on the matter.

At the same time, the audit report revealed that the government irregularly collected  Sh2.6 billion in convenience fees by charging Kenyans for use of the platform.

Notably, Gazette Notice No. 9290 of December 2014 required a nominal administrative fee per transaction, prorated as a percentage of the amounts paid.

However, the report noted that prior to 23 January 2023, the National Treasury had not established a prorating band.

Instead, the convenience fee was charged at Sh50 or $1 per transaction, contrary to the Gazette notice. 

Similarly, between 14 December 2023 and 30 June 2024, the National Treasury irregularly collected a convenience fee of Sh50 instead of prorating the fee as stipulated in a Gazette notice of 2023.

“This led to an overcharge to the public amounting to Sh30.7 million for collections made through the previous gateway and Sh319.09 million for collections made through the unauthorized new gateway,” the report added.

All this, the audit reveals, was enabled by the government’s failure to develop a legal framework to govern and manage e-Citizen’s operations.

There was a lack of clear governance structures, no designated authority to coordinate the Directorate of Citizen Services and the National Treasury (where the platform is domiciled), and no standard operating procedures or service level agreements with financial service providers such as banks.

By not signing the Service Level Agreements (SLAs) with financial service providers engaged in the collection and settlement of revenue, the National Treasury had created an avenue whereby the service providers could utilize the funds at the expense of service delivery by Ministries, Departments and Agencies.