How Nairobi’s City Hall Bosses Swindle Statutory Deductions From Poor Employees

By The Weekly Vision Team

Cases of employees at City Hall going home empty-handed or even dying after unsuccessfully waiting for their retirement benefits have become rampant. Sources say City Hall has on many occasions failed to remit the statutory deductions, with members of staff left wondering why the trend cannot be stopped by those in positions of responsibility.

In the latest report by the Auditor General, pending staff payables amounted to Ksh.222, 411,928 as of June 30, 2022, which includes a balance of Ksh.8, 794,324 in respect of interest charged on delayed payments due to the Local Authorities Provident Fund (LAPFUND), which is contrary to Section 53A (1) of the Retirement Benefits Act, 2012, which requires remission of pension contributions within the statutory deadlines.

Further, an analytical review of the payroll reveals that an amount of Ksh. 471,115,744 in respect of the employer’s contributions to the staff retirement benefits scheme was not remitted to the pension scheme, contrary to Section D.39 (1) of the Public Service Human Resource Policies 2016, which provides that the government will contribute 15% of an employee’s monthly basic salary, drawn from the 75 Consolidated Funds, towards the employee pension while the employee will contribute 7.5% of his monthly basic salary towards the scheme.

Further, a review of documents also revealed that deductions totaling Ksh. 28,843,248 in respect of various contributions made by the staff members were deferred, and no explanation has been provided for failure to remit the deductions. Similarly, City Hall bosses had not remitted contributions amounting to Ksh. 34,061,222 for 58 retirees for a period of 35 months spread between 2013 and June 2019. Other pending payables amounting to Ksh.72,878,965,572 include amounts due to National Government Entities of Ksh.986,734,337 in respect of Pay As You Earn (PAYE) of Ksh.762,382,808, Value Added Tax (VAT) of Ksh.118,553,546, and penalties of Ksh.105,797,983.

The amount of PAYE and VAT were deducted but not remitted to the Kenya Revenue Authority (KRA), contrary to Section 37(1) of the Income Tax Act, which requires an employer paying emoluments to an employee to deduct therefrom and account for tax thereon, to such extent and in such manner as may be prescribed. Further, the balance includes an amount of Ksh.71, 609,409,396 due to third parties, which includes amounts owed to LAPFUND of Ksh.28, 499,298,304, which further includes an amount of Ksh.24, 991,527,302 in respect of principal and interest.

The penalty is charged at a rate of 3% per month on the 15th of every month and an additional 36%, which was compounded annually and accumulated from the financial year 2011.

The National Treasury financial records revealed total outstanding balances of Ksh.12,166,812,887 and Ksh.1,331,028,494, while the financial statements reflect a balance of Ksh.15,266,472,473 and Ksh.13,232,825,831, resulting in unreconciled variances of Ksh.3,099,659,586 and Ksh.11,901,797,337, respectively. In addition, included in the pending bills amount of Ksh.71, 609,409,396 are historical government loans of Ksh.15, 328,285,000, and Ksh.3, 815,640,000 from Kenya Commercial Bank (KCB). These loans, which date back to the 1970s, were issued to finance the Umoja II Housing Project and water infrastructure.

However, City Hall did not have any contractual records with details of when the loans were taken, the principal amount, and the applicable interest rate. Further, the KCB loan of Ksh. 3, 815,640,000 differs with the KCB bank loan statement of Ksh. 4, 504,199,426, resulting in an unreconciled variance of Ksh. 688, 559,426. A review of records held at LAPTRUST reflected an outstanding balance of Ksh. 23,031,271,451 in respect of principal and interest penalty amounts of Ksh. 16,339,508,857 and Ksh. 6,691,762,594, respectively. The interest was charged at a rate of 1.25% per month (15% p.a.) compounded.

Had the county remitted the respective deductions by the due deadlines since the financial year 2011, savings of Ksh. 41,331,036,159 would have been made. There was no evidence of measures taken by city hall bosses to negotiate with the respective institutions.

In view of the discrepancies, the legality, completeness, and accuracy of the disclosure made of the pending bill balance of Ksh.99, 372,372,918 could not be confirmed.