REREC Officials on the Spot for Hiding Documents to Conceal Fraud in Audit

Parliament gives rural electrification agency five days to submit missing documents as MPs probe Sh8.59 billion discrepancies

The management of Rural Electrification and Renewable Energy Corporation (REREC) is facing mounting pressure from Parliament after being accused of deliberately withholding crucial documents from auditors to conceal potential fraud involving billions of shillings.

The National Assembly’s Public Investment Committee on Energy and Commercial Affairs has given REREC Chief Executive Rose Mkalama a five-day ultimatum to furnish Auditor-General Nancy Gathungu with all outstanding documents needed to clear unexplained financial discrepancies totaling Sh8.59 billion.

The dramatic confrontation unfolded during a committee session on Tuesday, where MPs expressed frustration over REREC’s apparent attempts to obstruct the audit process by failing to provide essential documentation.

The committee was forced to adjourn for two and a half hours after Dr. Mkalama tabled fresh documents that auditors had not previously examined. When proceedings resumed at 2:30 PM, representatives from the Auditor-General’s office declared they could not proceed due to missing critical documents.

“We are unable to collaborate the information and there are still missing documents that need to be provided by REREC,” the auditor’s representative told the committee.

Committee Chairman David Pkosing expressed his displeasure with REREC’s conduct, warning: “Going forward, do not wash your dirty linen before us. The office of Auditor-General must receive your final audit responses two days before you appear before this committee.”

Massive Financial Discrepancies Exposed

The audit queries center on unexplained and unreconciled variances of Sh8,595,681,628 between balances reflected in REREC’s financial statements and those in ledgers. Auditor-General Gathungu issued an adverse audit opinion, stating that “the accuracy and completeness of the financial statements could not be confirmed.”

Among the most significant discrepancies identified:

Computer Assets Variance: Financial statements show computers with a net book value of Sh59,307,000, while re-computation revealed Sh55,483,000 – creating an unexplained variance of Sh3,824,000.

Intangible Assets Discrepancy: The financial statements reflect intangible assets worth Sh61,212,000, but re-computation showed Sh37,981,000, resulting in an unreconciled variance of Sh23,231,000.

Currency Exchange Irregularities: REREC’s Escrow US Dollar cash book was adjusted by Sh46,172,436 for exchange rate gains that were not properly reported in financial performance statements.

The audit revealed serious procurement violations, including Sh571,062,727 paid to three firms for land survey services to unspecified projects. The Auditor-General found no evidence of budgeting for these services, their inclusion in annual procurement plans, or competitive procurement processes.

“This was contrary to Section 45(3)(a) of the Public Procurement and Asset Disposal Act, 2015,” Gathungu noted, adding that the services lacked proper documentation including local service orders, contract agreements, and project reports.

Misclassified Expenditures Under Scrutiny

The audit uncovered extensive misclassification of expenditures, including:

• Sh419,290,463 for staff costs incorrectly recorded under capital work in progress
• Sh48,406,107 for rent improperly classified
• Sh20,521,543 for security services misrepresented
• Sh38,446,015 for software maintenance and SAP cloud platform subscriptions wrongly categorized as intangible assets

Interest and Revenue Classification Errors

Further irregularities include Sh335,406,000 in interest receivable incorrectly classified under receivables from non-exchange transactions instead of exchange transactions. Additionally, Sh303,599,495 had already been paid but was still listed as receivable.

The audit also questioned the classification of Sh10,437,436,000 in other accrued revenues – representing five percent Rural Electrification Projects Levy due from Kenya Power Company Limited – which was improperly categorized.

Dr. Mkalama defended the corporation’s position, stating: “We have certain documents and schedules that we need to retrieve from the office to enable the auditors to verify and clear some audit queries.”

However, MPs remained skeptical of REREC’s explanations, with Chairman Pkosing directing Dr. Mkalama to ensure all documents reach the auditor by Friday and appear before the committee at 10 AM next Tuesday.

The controversy represents a significant test of transparency and accountability in Kenya’s energy sector, with billions of taxpayer funds at stake. The outcome of next week’s hearing could determine whether REREC officials face further investigation or potential prosecution for the alleged financial irregularities.

This scandal adds to growing concerns about financial management in state corporations and the effectiveness of audit oversight mechanisms in preventing misuse of public funds.