How NSSF investment blunders sank pensioners' millions

Details have emerged of the investment blunders by the management of the National Social Security Fund that effectively sank millions of pensioners’ money.

A new audit report shows the fund has lost nearly Sh1 billion arising from its investment moves.

Most of the cash was pumped into the stock market and in botched housing projects.

Auditor General Nancy Gathungu has now put NSSF managers under the spotlight for continuing to hold investments in cash-strapped companies.

NSSF is a government agency with the mandate to collect, safe-keep and responsibly invest employees' contributions that would be distributed at retirement.

However, over the years it has been dogged by mega scandals.

In the new audit, NSSF acquired substantial stakes in Consolidated Bank of Kenya, buying shares worth Sh247 million.

However, the fund’s shares at the bank lost value by Sh209 million during the year under review.

At the time of the audit on June 30, 2023, the shares initially valued at Sh247 million had drastically dropped to Sh38 million.

But this is not all. The audit established that NSSF shares held in three other companies — East Africa Portland Cement, Sameer Africa, and Athi River Mining — also plunged by Sh50 million.

The investments were valued at Sh221 million in June 2022 but are now worth Sh170 million.

Despite the share price dropping, auditors said the firms had not paid any dividends to NSSF.

“In the circumstances, the value for money and fair evaluation of the unquoted stocks could not be confirmed,” Gathungu said.

The chief auditor has queried why NSSF managers, despite having powers, have not taken action on the non-performing investments.

“The fund managers were to have full control and unrestricted powers to invest the fund’s money as per investment policy for maximum returns,” she said.

NSSF managers have also been castigated for failing to recover a Sh215 million advance payment to a contractor for a project that never materialised.

The Embakasi housing project stalled due to lack of approval of change of user by the Nairobi City county government.

Gathungu says as of the time of the audit in February 2024, the management had not recovered the advance payment for the Embakasi Phase VI project.

The auditor general said in failing to recover the cash, which is part of members’ contribution, the managers broke the law.

“In the circumstances, management was in breach of the law and the recovery of the advance payment appears doubtful,” the report reads.

NSSF has also been called out for failing to disclose member contributions to the tune of Sh9.54 billion.

A review, the auditor said, revealed that the amounts comprised of mandatory contributions of Sh1.9 billion and outstanding penalties of Sh7.6 billion.

The amounts, Gathungu said, were not included in the statements of net assets available for benefits as of June 30, 2023.

As such, the audit concluded that the balance of Sh26.8 billion, which was stated as the contributions balance, was neither accurate nor complete.

In the same vein, the auditor is concerned that the fund is yet to post contributions amounting to Sh942 million to the respective members.

“No sufficient explanation was provided for the inability to reconcile and post the suspense balance of Sh942,000,000 to the respective members’ accounts which had accumulated over the years.”

As of June 2022, the amount of contributions in transit – representing contributions which had not been posted to individual members' accounts - stood at Sh742 million.

Gathungu said the situation arose from lack of integration between the employer’s bank accounts and the fund’s collection system, leading to delays in updating members’ accounts with their deposits.

“In the circumstances, the effectiveness of the internal controls system on prompt updating of members contributions could not be confirmed,” the auditor said.

Pensioners are also at the risk of losing key assets including a parcel of land in Kisumu on which an individual has opened a garage without a formal agreement with the fund.

Gathungu said no lease or tenancy agreement indicating the rent payable and duration of the same was not provided for audit verification.

Further, rent payments by tenants occupying the land are remitted to the fund by some tenants while others pay the government of Kisumu.

“This has denied the fund optimal revenue on the property. In the circumstances, the fund’s failure to take full control of the land denies the fund revenue.”

Also at stake is Sh31 million spent in the construction of SSH Gym Centre (Sh6.9 million) and Bulk filers (Sh24.3 million).

Gathungu said the status report on completion was not provided for audit, hence the value for money could not be established.

“In the circumstances, the value for money for the expenditure on the projects could not be confirmed,” the auditor general said.

NSSF’s spending of Sh12.5 million on a travel service provider has also been flagged as irregular for lack of a valid contract.

Auditors established that the fund paid the monies between May and June 2023 after the expiry of the contract.

NSSF had entered into a contract with the supplier of travel services in June 2021 for a maximum of two years. The contract ended on April 2023.

Pensioners may also not recover Sh904 million that the fund paid to Kenya Revenue Authority in 1997 before it was exempted from taxes.

KRA, the audit shows, has yet to acknowledge the tax refund due, leaving the recovery in doubt.