CC:

His Excellency, The President

Hon. Mwai Kibaki
Harambee House
Harambee Avenue
Nairobi

The Right Honourable, Prime Minister

Hon. Raila Amolo Odinga
P.O. Box 74434-00200
Treasury Building, 14th Floor,
Harambee Avenue
Nairobi

Speaker of the National Assembly

Hon. Kenneth Marende
National Assembly
P.O. Box 41842
Parliament Bldg, Parliament Road

Mr. Amos Wako

Attorney General
State Law Office
P.O. Box 40112, Nairobi
Harambee Avenue

Hon. Mutula Kilonzo

Minister Justice & Constitutional Affairs,
P. O. Box 56057 – 00200, Nairobi
Cooperative Bank House,
Haile Selassie Ave

Hon. Ekwe Ethuro

Chairperson
The Constituencies Fund Committee (CFC)
Kenya National Assembly
P.O Box 41842
Parliament Building, Parliament Road

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GROSS ILLEGALITIES IN CONSTITUENCY DEVELOPMENT FUND NEED
URGENT REDRESS
Public Interest at stake due to poor performance of CDF national officers

The CDF Status Report, December 2009

Alarm over illegalities in CDF operations

Prepared by The Institute for Social Accountability (TISA)

1.0 Background

The Constituency Development Fund (CDF) is one of the devolved funds in Kenya.
Prior to the establishment of CDF the constituency was solely a unit of political
representation in Kenya, of which there are 210 in the country. CDF provides that at
least 2.5% of government revenue will be allocated to the fund, which is geared towards
the alleviation of poverty and promotion of local development. Almost Kshs. 60 billion
has been channelled through CDF since its inception. CDF contributes over 10% to all
development in Kenya.

The implementation of CDF has been marred by repeated accusation of abuse of funds,
patronage due to excessive powers of the MP, incomplete projects, a lack of technical
capacity, poor planning and a litany of other weaknesses which threaten to undermine
the very success of the fund. These and other critical challenges facing the fund spurred
the Minister of Planning, National Development and Vision 2030 to establish a taskforce
to review the fund. The taskforce was established in June 2009 and our sources indicate
that it hopes to present its findings to the Minister before the end of this month.

The publishing of the findings of the CDF taskforce is timely as it coincides with the
ongoing constitution review process both of which will feed into the long term
strengthening of Kenya’s presently weak over centralized and ad hoc decentralization
framework. We await the publishing of this report and hope that it will address the
fundamental flaws in the fund’s design.

In preparing this report, TISA seeks to evaluate the impact of the 2007 Amendments.
We also wish to draw attention to some critical failures in the fund’s operations, some
of which render some CDF operations illegal. We urge quick action from the Board,
Parliament and the Ministry of Planning, National Development and Vision 2030 in
addressing these.

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Identified Problems and contradictions

I. Removal of printed estimates unconstitutional

The CDF Amendment Act, 2007, did away with printed estimates allowing parliament
to draw funds from the consolidated fund in contravention of section 100 (1) of the
Constitution of Kenya and needs to be redressed.

II. Failure by Board to Publish project lists and progress reports contravenes CDF
Act

Under the 2003 Act, MPs were required to submit the list of the proposed constituency
projects to the Clerk of the National Assembly before the month of February each year.
The lists were to include projects and their cost estimates. At constituency level the CDF
Implementation Guidelines provided for a calendar of actives to guide the constituency
planning and submission process.

However, Section 28 of the Amended Act removed this provision and now allows the
approval of projects on a monthly basis. Section 28 provides that the Board will submit
the following reports to parliament on a monthly basis;

(a) A summary of the project proposals received from the constituencies in the
preceding month and indicating the approval status of such projects; and
(b) A summary of the status of disbursements of funds to the constituencies for that
preceding month;
(c) A summary of the status of disbursements from the Treasury to the National
Account.

No CDF project lists and updates for the last 2 years

Despite the legal provision, a visit to the Board website (www.cdf.go.ke) indicates that
project lists and progress reports were last updated in 2007/8. Our repeated requests to
the Board have also failed to realise the required information. Our attempts to obtain
data on project allocations from the past two years from local CDFC’s in a number of
consistencies also failed.
These reports enable constituents’ track which projects have been funded and the status
of expenditure to those projects. They also enable the Board keep a track of CDF
expenditure. Without them CDF committees can eat to their hearts’ content.

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According to official sources from the National CDF Management Board reports are
slowly ‘trickling in’, but the board is unable to up load reports until it verifies their
accuracy.

A visit to the CDF website demonstrates that only a handful of constituencies have
project status information up to 2008-2009. Dagoretti Constituency is one such
constituency. However, whilst Dagoretti has project status information, it does not have
allocations information (Schedule 2) which is also a statutory requirement.

Further, if these reports have indeed not been completed for the past two financial years
we wonder how constituencies have been able to receive disbursements without
fulfilling their reporting requirements as the law stipulates this should be the case.

It is noteworthy that each constituency has a fund manager who is responsible for the
management of CDF record keeping and disbursements since their posting in 2007.
How then can the Board claim not have up-to-date reports? Given the requirements of
the CDF law it is clear that the CDF Board is either in breach of the law, or
deliberately withholding information.

III. Illegal Procurement of CDF Projects

Section 31 (1) of the CDF (Amendment) Act, 2007 states that all works and services
relating to projects under this Act shall be sourced using existing Government
procurement regulations. Thus CDF is governed by the Government Financial
Management Act, 2004; The Constitution of Kenya Chapter VII; and The Public
Procurement and Disposal Act, 2005; further, there are regulations including the latest
through Kenya Gazette Supplement No. 63 of 18th September, 2009 where the Finance
minister made amendments further to the public procurement and disposal regulations.

The Project Management Committee (PMC) is recognized in the CDF Amendment Act
2007 as the committee responsible for implementation of a project. The CDF
Implementation Guidelines further expressly recognise PMC’s as a procurement unit
also subject to government financial regulations.

However, according to the Public Procurement Oversight Authority, the Project

Management Committee (PMC) has no legal mandate to award tenders under the

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current procurement law. Circular PPD2/20/29A/10 recognized PMC’s as Public
Entities under the Exchequer & Audit Act Cap 412 sec. 5A (2h) hence mandated to
establish tender committees. However, the Public Procurement & Disposal Act, 2005
Sec. 143 amended the Exchequer & Audit Act Cap 412 by deleting sec. 5A hence PMC’s
are not longer recognized as an independent public entity and cannot establish a tender
committee.

In simple terms Public Procurement & Disposal Act, 2005 outlaws procurement by
project management committees. In direct contravention to this position the CDF
Implementation Guidelines recognise PMC as procurement entities. Further, Section 5
(1) of the Procurement Act states that where there is conflict with any other Act or
regulation, the Procurement Act shall prevail. It therefore appears that PMC
procurement by CDF PMC’s is illegal.

The Public Procurement Disposal Act legal notice no 141, portends to reconstitute the
CDF tender committees and make this issue even more confusing.

IV. Conflict of interest legalised in CDF

Further, whereas the Public Procurement & Disposal Act, 2005 section 43, expressly
provides that where there is a conflict of interest the affected person shall disclose ones
interest and not take part in the procurement proceedings. It fails to expressly outlaw
engagement as a supplier. This provision has widely been interpreted to mean that CDF
committee members may act as suppliers/contractors to CDF as long as they disclose
their interests and do not sit in the tender proceedings. Thus all over the country CDF
committee members act as suppliers to CDF in full knowledge of the authorities.

Tendering and procurement procedures have become conduits through which some
contractors, Members of Parliament and their political cronies through the complicity of
CDFC members are fleecing hundreds of millions of shillings from the constituency
kitties through skewed processes. More critically the subversion of CDF procurement
processes in this way, pushes out genuine entrepreneurs and professionals, undermines
standards and wealth creation prospects for the constituency.

Common abuses range from establishing personal fronts or ghost companies which are
awarded CDF project tenders un-procedurally and use the opportunity to inflate prices
of goods and services.

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A case in point is Mwatate Constituency in Taita Taveta where the former CDF committee
treasurer was also doubling up as a contractor. In Nakuru Town, the PMCs were allowed to
provide labour and materials like ballast and timber creating a conflict of interest.

It is practice that the procurement law and CDF guidelines allow procuring unit
members to act as tenderers, and a failure to clarify this situation has resulted in
millions being lost over the past 6 years.

V. PPOA Asleep on the job

The PPOA is empowered to investigate and submit evidence to prosecutors, refer cases
of corruption to the Kenya Anti-Corruption Commission (KACC) as well as debar firms
that have contravened the Act and Regulations from participating in future public
transactions. However, it is not clear how far PPOA has gone with these measures. The
PPOA website also does not publish advertisements on CDF open tenders for goods/
works above Kshs. 6 million, as required.

Despite strong provisions contained in the procurement law, the PPOA is not
enforcing financial discipline to reign in runaway corruption in CDF.

VI. CDF has no accounting officer

Another weakness in the CDF accountability process is the absence of a clear

accounting officer. Whereas Ministry of Planning regulations indicate that the DDO is
the defacto accounting officer by virtue of being the AIE holder, the CDF Act does not
recognise this office as such. The 2003 CDF Act sections 7 assigned the responsibilities
of the accounting officer to the then officer administering the fund, but the 2007
Amendments removed this section entirely and did not reassign the functions to any
office. Further, the powers of the Board to enforce prudent utilisation of funds was also
removed with the deletion of sub-section 6(b) of the original Act.

Recent regulations seem to indicate that the fund manager may take up the role.

Without a clear accounting officer, the CDF Act is again in contravention of

Government Financial Regulations which require that every public fund have an
assigned accounting officer.

Did the 2007 Amendments deliberately wish to open up the fund to mismanagement
or was this a gross oversight?

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 VII. CDF Lacks Audit
Under the 2003 CDF Act Section 7 (1) d. provided that the officer administrating the
fund would Prepare, sign and transmit to the controller and auditor general accounts
of the fund in accordance with section Cap 412.18 (2) of the exchequer and Audit Act,
under the revised act the responsibility to prepare accounts for audit is left vague and
hanging, Section 34 of the 2007 CDF Amendment Act states that all funds received
under the CDF Act shall be audited and reported upon by the Controller and Auditor-
General.

With procurement having been devolved to the constituency level and in the case of
CDF to the project level, the National Audit Office which is presently not able to
prepare timely audit reports for existing government bodies, will never audit more than
a sample of CDF projects. The most recent Audit reports capture expenditure of the
2005/6 period. Thus MP’s and CDF committees can sit pretty knowing their misdeeds
will never be uncovered. The procurement law further provides that financial records
may be disposed of after 6 years and so in all likelihood Kenya’s will never really know
what happened to their money.

VIII. Minister of Planning Reports on CDF missing in action

The law also states that the Minister shall table an annual report on the activities,
operations and expenditure under the Act. During the preparation of this report we
were unable to obtain these reports, if they indeed exist beyond the preliminary reports
prepared in 2003/4 and 2004/5.

Given the afore mentioned, and in the public interest we demand the following;

1. A clarification of the status of CDF project allocations reports.

a. The CDF board needs to make a report to the public on the status of CDF
allocation and status reports;
b. The Board needs to urgently update the website and make these records
available to the public;
c. Numerous Civil Society Groups have expressed interest in partnering with the
Board in the process of verification of data and it is high time the national CDF
bodies recognise the benefits of such a move;
d. The Board and Minister of planning need to make routine reports to the public
on the status of CDF management and implementation to dispel anxiety and
speculation about the mismanagement of CDF resources;

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 e. The Board needs to publish a list of the status of disbursements to constituencies
to enable the public effectively track local CDF expenditure;

2. Procurement needs to be streamlined

a. The Ministry of Finance and the Board needs to urgently confer and establish a
common position on procurement by PMC’s to bring it into compliance with the
law.
b. The Ministry of Finance and Board need to move urgently to expressly outlaw
CDF committee members and kin from acting as tenderers to CDF projects.
Penalties for this should be swift and steep to stamp out this practice that is
killing the growth of genuine businesses in favour of brokers not committed to
the provision of competitive and quality services;
c. The Board and PPOA need to enforce laid out regulations rigorously to stem the
rampant corruption that has become the hallmark of CDF;
d. Piecemeal reforms of procurement regulations have resulted in a confusing
picture- the ministry of finance needs to publish updated and consolidated
procurement regulations in the interest of transparency.

3. CDF Calendar

Parliament needs to move with haste to amend sections of the law and reinstate the
annual CDF approval process including the printed estimates whereby all allocations
and approvals will be made at the beginning of the financial year. The previous
constituency calendar should be improved upon based on best practices in participatory
planning and implementation in devolved structures.

4. CDF Board is complicit in the fleecing of CDF.....

It is noteworthy that the CDF Board has representatives from esteemed professional
and religious bodies’ among them the Institute of Certified Public Accountants of
Kenya, NCCK, Kenya Episcopal Conference and SUPKEM and others. In failing to
condemn failures in CDF management, in accepting unlawful practices, failing to call
Parliament and the Minister of Planning and in failing to give a report to the public they
are betraying their mandate and betraying the trust of the public whom they represent.

If these bodies are not able to use their mandate to compel performance in CDF they
should resign and make way for more serious board members. If these institutions are

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not able to enforce discipline in the fund they should use their national stature to
compel parliament to streamline the fund.

5. CDF Reform needs to happen now....

The Ministry of Planning National Development and Vision 2030 as the architects and
flag bearers of the Vision 2030 and in line with their stated core values of integrity,
participatory development and results based approach need to act urgently to ensure
that CDF meets its mandate to address poverty and regional inequalities. It needs to
stamp its supervisory and planning mandate to ensure the additionality of all
development resources.

The CDF task force received numerous constructive recommendations on how to

streamline the funds’ operations, this report is much awaited and the Minister of
Planning owes members of the public who participated eagerly in the taskforce
proceedings an update of its progress.

The Ministers of Planning National Development and Vision 2030 and Finance should
move fast to publish it and enact its provisions through the regulatory powers of their
respective Ministries.