A parliamentary watchdog has called for a special audit of the Sh6 billion Judiciary mortgage scheme, which has been in operation for over a decade without a supporting legal framework, despite managing funds in excess of Sh5.3 billion.
The Public Accounts Committee (PAC) announced on Thursday that it will write to Auditor-General Nancy Gathungu, FCPA, requesting a special audit of the scheme.
The probe will seek to establish the fund’s governance structure, disbursement criteria, beneficiaries, and compliance with the Public Finance Management (PFM) Act.
Butere MP Tindi Mwale, who chairs the committee, noted that the memorandum of understanding (MOU) signed between the Judiciary and Kenya Commercial Bank (KCB) in 2011 was essentially a gentleman’s agreement that could be disregarded at any time.
According to Mwale, the special audit will also determine how the fund has been managed since its inception, including the legal basis of its transactions, the role of the National Treasury, and the beneficiaries of the mortgages.
“We will be asking the Auditor-General to undertake a special audit on this scheme, including the MOU entered into between KCB and the Judiciary. Because you see, an MOU is a gentleman’s agreement. We are talking about five billion shillings. What happens in the future if KCB tells you, ‘We don’t have the funds, we can’t lend you for the next five to ten years’? What will you do?” Mwale posed.
The revelations emerged on Wednesday during the committee’s consideration of the Auditor-General’s report on the Judiciary’s financial statements for the year ending June 30, 2023.
In her findings, Auditor-General Nancy Gathungu noted that a review of documents and information provided for audit revealed that the Judiciary Mortgage Scheme lacked enabling legislation to establish the fund.
She further observed that the Judiciary’s management did not provide a satisfactory explanation for the scheme’s continued operation without such legislation.
As a result, the legality of the fund and its operations could not be confirmed.
During the session, committee members accused the Judiciary of disregarding the Public Finance Management (PFM) Act by running the scheme based on a memorandum of understanding (MOU) with Kenya Commercial Bank (KCB), signed in 2011, two years before the fund formally started in 2013.
Led by Bura MP Yaqub Adow, the members questioned how such a colossal fund could operate without enabling legislation or competitive procurement, noting that the Judiciary only began drafting regulations in 2024, twelve years after the scheme’s launch.
“This is a very serious matter, close to 6 billion shillings. That is a whole year’s budget for Tana River County. It is not pocket change. And operating such a huge amount of money without any enabling legislation is a matter that we cannot wish away,” Adow warned.
“As we are wondering on the gap between when the scheme started, from 2013 to 2025, that’s 12 years and still counting. It seems the Judiciary is very comfortable operating without the enabling legislation,” added Adow.
The committee faulted Judiciary officials for dragging their feet in enacting regulations despite repeated correspondence with the Treasury dating back to February 2024.
Draft regulations were reportedly prepared in October 2024, but nearly a year later, no tangible progress has been made.
Turkana Central MP Joseph Emathe Namuar said the Judiciary wields significant authority, as demonstrated in recent court rulings affecting government flagship projects, including the implementation of affordable housing and the Social Health Authority.
Namuar wondered how it had operated a fund for over a decade without the backing of any legal framework.
“You know, your office (Judiciary) in this country holds one of the highest authorities. When rulings are made, like when we wanted to implement affordable housing, you said no, it should not proceed because there was no legal framework,” he said.
“Similarly, with the Social Health Authority, you insisted that nothing should move forward until proper regulations were in place. Now, your mortgage scheme, operating since 2012 or 2013 on just an MOU, lacks any legal backing. Seriously, the scheme will be abolished because there is no regulation. Yes, that will be the decision from our courts,” MP Namuar added.
But appearing before the committee, top officials from the Judiciary defend the operation of the scheme even as they were hard-pressed to explain why the fund, which started in 2013 with seed capital from the Exchequer, has been managed through a mere memorandum of understanding (MoU) rather than enabling legislation.
The scheme, currently valued at over Sh5.3 billion as of the 2022/2023 financial year, has only undergone two audits since inception, raising questions about transparency and accountability in its management.
“The scheme started in 2013 with seed capital from the Exchequer. Over time, it has become a revolving fund. As of the 2022/2023 financial year, it had grown to Sh5.3 billion. The scheme has also undergone two audits, including the current one,” Chief Registrar of the Judiciary, Winfridah Mokaya, told the committee.
However, the committee members expressed concern that the absence of regulations not only exposes public funds to misuse but also undermines the very principles of accountability that the Judiciary is expected to uphold.
The MPs insisted that a special audit by the Auditor-General will help unearth possible breaches in the operation of the fund, including whether the National Treasury aided the Judiciary in circumventing procurement laws by recommending specific banks.
“An independent audit is necessary because this query arose from the annual audit, not specifically from the Judicial Mortgage scheme. Since the scheme now involves more than five billion, we need to establish whether you are truly committed to the MoU and operating within the regulations,” observed Namuar.
Samburu West MP Naisula Lesuuda questioned the choice of Kenya Commercial Bank (KCB) as the sole institution managing the Judiciary mortgage fund, despite admissions that other lenders such as Equity Bank and National Bank had been considered.
“We may need to examine this mortgage issue, particularly whether there was competitive bidding involving KCB, Equity Bank, or any other institution, or if the decision was simply made to proceed directly with KCB,” Lesuuda said.
She further demanded to know why the National Treasury restricted the Judiciary to Tier One banks without subjecting the process to open tendering.
“I really want to know when you said Tier One banks in that context, was it just KCB? If not, we need clarity so we can get to the bottom of this,” she pressed.
Mwale echoed her concerns, pointing out that Tier One banks include several institutions.
“So, how was this one KCB selected? You need to float a tender and follow procurement procedures to arrive at KCB,” he said, stressing that competitive procurement should have been carried out in line with public finance laws.
Mwale added that the committee’s eventual recommendation would likely be straightforward. “During report writing, the recommendation will likely be: abolish the scheme because it lacks proper legislation. That will be the recommendation, I’m telling you. People may blame the Committee on Africa, but our mandate is to act on the Auditor-General’s report,” he held.
Shedding light on the choice of KCB to manage the Judiciary Mortgage Scheme, Chief Registrar of the Judiciary, Hon. Winfridah Mokaya, explained that several options had been explored.
“Why KCB, not Equity? Actually, we have had engagements with Equity Bank, and there were decisions made even at the commission level to explore other banks. So we approached Equity. We also engaged with National Bank, but we later learned that National Bank had been sold to Access Bank,” she said.
Hon. Mokaya added that the matter remains subject to approval. “As of now, we have not been given the approval to move from KCB to any other bank. So that is where we are,” she concluded, emphasizing that the Judiciary is committed to following due process in all financial dealings.
On his part, Mathioya MP Dr. Edwin Mugo said that, given the uncertainties surrounding the judicial mortgage scheme, only a special audit could shed light and answer the outstanding questions.
“Given the complexities surrounding this judicial mortgage scheme, the letter with KCB was signed in 2011, and the scheme started in 2013 with seed capital. However, correspondence only appears from February 2024, which is 11years after inception. I am not sure whether it would be appropriate, even at this stage of report writing, to request a special audit of this scheme. This would allow auditors to examine all these issues thoroughly so that when the report is presented to us, we can interrogate it in detail,” said Dr. Mugo.
Aldai MP Maryanne Kitany supported Dr. Mugo’s call, saying a special audit should be conducted on the scheme, which involves public funds being used without any regulation or governing law.
Under the PFM Act, Kitany noted, all public monies must be expensed through relevant legislation.
According to her, the special audit will reveal the individuals and persons who have benefited from public funds without regulation being in place.
“The accounting officer has stated that the bank chosen, KCB, was recommended by the National Treasury. But if the National Treasury, who insist that public procurement must be done competitively, issues letters directing the use of a specific bank, even when regulations are not in place, this raises serious concerns.”
“It is crucial that, during this special audit, any such letters from the National Treasury be produced, if they exist. This would reveal whether the Treasury has, in effect, facilitated or aided institutions in breaching the law, because that is essentially what the accounting officer is implying that the National Treasury is helping them circumvent regulations that everyone is supposed to follow,” she said.
“It is ironic that the Judiciary, which has previously halted national projects such as affordable housing for lacking legal frameworks, is itself running a multibillion-shilling fund on mere gentlemen’s agreements,” Namuar said.
In their defence, Judiciary officials admitted to “smuggling” the scheme through without a proper legal foundation but insisted that efforts were now underway to regularize it.
“We acknowledge that the scheme has lacked a legal framework. However, since last year, we have been working with the Treasury to put regulations in place. We now have draft regulations which we are keen to fast-track,” the Judiciary’s accounting officer told the committee.
The PAC, however, cautioned the officials not to bow to pressure from the Judiciary’s top leadership at the expense of the law.
“You must understand that accountability rests with you as the accounting officer, not the Chief Justice. If there are violations, it is you who will be held responsible, not the judges,” the chair advised.
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