Intelligence Report Reveals How County Officials Fraudulently Award Tenders to Proxies

Financial watchdog exposes elaborate schemes involving billions in public funds

Kenya’s financial intelligence unit has blown the lid off a sophisticated web of corruption plaguing county governments, revealing how senior officials are systematically looting public coffers through fraudulent tender awards to shell companies and proxy firms.

The Financial Reporting Centre (FRC), the country’s financial crimes watchdog, has documented over 130 cases of procurement fraud involving billions of shillings being diverted from legitimate development projects into the pockets of corrupt county officials and their associates.

The modus operandi is as elaborate as it is brazen. Top county officials, working hand-in-glove with tender committee members, have established a network of shadowy companies specifically designed to win lucrative government contracts.

These firms, often registered by proxies or family members, systematically outbid genuine contractors through rigged procurement processes.

In one particularly damning case, the FRC uncovered a county where all 15 companies awarded contracts for fumigation, cleaning, landscaping and construction services were linked to county employees.

Some of these officials sat on the very tender committees that evaluated and awarded the contracts, while others had relatives listed as directors and shareholders in the winning companies.

The audacity of the scheme was further exposed when investigators discovered that all 15 companies were registered on the same day.

More troubling, several construction companies had not even bothered to register with the National Construction Authority, a legal requirement for all construction-related businesses in Kenya.

Following the Money Trail

Between February 2021 and July 2022, these 15 companies received Sh361.86 million from the county coffers.

The FRC’s investigation revealed numerous red flags that should have triggered immediate scrutiny: tenders were awarded before companies were even registered, contract agreements were signed after projects had already been executed, and duplicate local service orders were issued to different companies for identical services.

The financial intelligence unit tracked how the stolen funds were laundered through a sophisticated system of cash withdrawals structured to avoid banking reporting thresholds, transfers to proprietors’ accounts, and payments to other county employees and related companies.

In another case involving what the FRC terms “County K,” two politically exposed persons—a member of the County Public Service Board and a chief officer in the department of public construction—orchestrated a Sh1.1 billion fraud spanning four years.

Working with five related construction companies owned by a married couple, these officials embezzled public funds between 2019 and 2023.

The companies received Sh1.1 billion from County K, Sh78 million from County H, and Sh48 million from County Z as payments for multiple construction projects.

The paper trail revealed the extent of the deception: local purchase orders were addressed to companies different from those actually paid, tender documents were undated, and tender numbers in award documents differed from the letters of award.

Some payments were duplicated, and once funds hit bank accounts, they were quickly withdrawn in cash and transferred to companies owned by the County Public Service Board members.

Community Organizations as Conduits

The corruption has even infiltrated community-based organizations (CBOs), traditionally seen as grassroots development vehicles.

In one county, a CBO formed in November 2022 received Sh185.69 million in June 2023, ostensibly for emergency aid supported by a project funding proposal.

The FRC discovered that the proposal was prepared a month before the CBO was even registered.

The funds were then channeled through cash withdrawals and transfers to hardware businesses dealing in construction materials, suggesting the emergency aid was merely a cover for another elaborate procurement scam.

The revelations come at a time when Kenya’s devolved government system, designed to accelerate rural development, appears to have instead provided new avenues for corruption.

With 47 counties spending over Sh200 billion annually outside of salaries and benefits, the opportunities for fraud have multiplied exponentially.

The FRC’s findings suggest that devolution has not eliminated corruption but rather decentralized it, spreading the chronic graft that has long plagued national politics to the county level.

Banks have flagged suspicious transactions worth billions flowing from counties to firms owned by officials, their proxies, and politically connected individuals.

Legal Vacuum

The corruption thrives in a legal vacuum.

The Conflict of Interest Bill, 2023, which would ban public officials from benefiting from contracts floated by their employers, remains unsigned.

President William Ruto returned the bill to Parliament in May, citing concerns that Senate amendments had weakened its provisions, particularly regarding gifts to public officials and their families.

The proposed law would prohibit public officials from being party to or benefiting from contracts with their entities and bar officials from holding interests in partnerships or companies contracting with such entities.

The FRC has forwarded the suspicious transactions to investigating authorities, including the Directorate of Criminal Investigations (DCI), following evidence that officials attempted to forge documents to justify the massive sums flowing into their accounts.

The financial crimes watchdog notes that in most cases, funds are quickly withdrawn in cash to avoid scrutiny, with the money eventually being invested in different sectors of the economy, effectively laundering the stolen public funds.

As Kenya grapples with the reality that devolution may have simply created 47 new centers of corruption, the FRC’s revelations underscore the urgent need for stronger oversight mechanisms and the swift enactment of comprehensive conflict of interest legislation.

The question now is whether investigating authorities will act decisively on these findings or whether the elaborate schemes will continue to drain resources meant for development projects that could transform the lives of ordinary Kenyans.