How billions were moved in a shadowy web through e-Citizen

As the country reels from the shocking revelations of how Sh9.4 billion was irregularly funnelled from the e-Citizen services platform by the Auditor General, a scrutiny of the damning report has unearthed how the funds were irregularly diverted and paid out to ‘alien’ companies and private entities.

The report, tabled before the National Assembly Public Accounts Committee (PAC) on Tuesday, told of how the digital service platform may have led to the loss of an accumulative Sh9.4 billion and how it was used to unlawfully collect Sh2.6 billion from Kenyans in convenience fees for using the platform.

The Standard has unveiled the intricate money trails through which the public could have lost billions.

It all started in 2023 when the Information Communication and Technology Authority (ICT Authority) entered into the e-Citizen Platform support and maintenance framework and contracted M/s Webmasters Kenya Limited, in consortium with Pesaflow Limited and Olive Tree Media Limited.

According to the Business Registration Service (BRS), Webmasters Africa Ltd was registered in 2010 and is owned by Lexco Company Ltd, which has 50 ordinary shares, while James Ayugi Otieno holds 50 shares. Others with one share each are Derick Onyango, Thomas Isack Juma, Robert Obel, Charles Karuri, Kennedy Oduory, Oketch Joash, and Samuel Gomba. Abdala Twahir, James Kiarie Gachiu, and Sidney Ngunyi Wachira are directors with no shares.

A BRS search shows that Olive Tree Media, incorporated in July 2010, has two directors: Charles Wambani Sewe and James Kabiru Kihia. The company’s physical location is unclear, though it has a Nairobi postal code. However, Sewe’s address is listed in Kakamega.

A further search for the real owners of Lexco at the Registrar of Companies shows the company has 1,000 ordinary shares split between Abdala Twahir (400), Goldrock Capital Ltd (300), and James Kiarie Gachiu (300), while Godwin Wangondu is company secretary and Sydney Wachira a director with no shares. Wachira is also a director at Webmasters, again with zero shares.

According to the agreement, the government was to pay the vendor for support and maintenance, standardisation of the system, and provision of payment gateway services.

A perusal of the report detailed that total payments made in relation to the maintenance and support contract as at 30 June 2024 amounted to Sh549.69 million — comprising Sh492,162,940 and USD 414,299.60 (Sh545.8 million) — but details show that millions were paid to a company identified as ‘Electronic Citizen Solutions Ltd’, which was not party to the agreement.

“This arrangement exposes the Government to potential legal dispute that might arise from payment to third parties to the contract,” reads the report in part.

Irregular pay

Further, out of the total amount paid, Sh195 million was for provision of payment gateway services. These payments were, however, deemed irregular by Gathungu, as the Government should not pay for the use of a system it owns.

A search of the ownership of Electronic Citizen Solutions Ltd on the Business Registration Service (BRS) yielded no details on its ownership.

The audit further shed light on how massive irregularities led to the unauthorised diversion of revenue amounting to Sh6.3 billion to e-Citizen’s Equity Bank account from an undisclosed account named Pesaflow.

“It was established that the Equity Bank statements for e-Citizen’s collection accounts had receipts amounting to Sh68,719,877 and USD 48,142,844 (Sh6.2 billion) from an undisclosed account named ‘Pesaflow’.

This account was not listed among the approved collection accounts by the National Treasury. In this regard, it was used to irregularly collect money,” detailed the report.

Gathungu noted that the total amount irregularly collected using the ‘Pesaflow’ account over the years could not be established, as the bank statement for this account was not provided for audit.

Records obtained by *The Standard* from the BRS search indicate that Pesaflow was registered in August 2017 and is owned by Frank Lawrence Ochieng Weya with 15,000 ordinary shares, Charles Wambani Sewe with 10,000 ordinary shares, Evid Araka Sibi with 10,000 ordinary shares, and Larry Ochieng Agoro (10,000 shares). Sewe is also listed as a director at Olive Tree Media.

Further, there were unaccounted-for receipts of Sh2.6 billion in settlement accounts that could not be linked to any invoices from the Pesaflow system.

Gathungu noted that the unaccounted-for receipts were due to partial payments, erroneous payments, and duplicate payments.

“This further indicates a lack of revenue traceability and accountability, which can lead to misappropriation, fraud or revenue leakages.”

Irregularities in the operation of the e-Citizen platform’s paybill were also wanton, as evidenced by what the report highlighted as the unauthorised transfer of Sh127.9 million to four private entities from Mpesa Paybill 222222.

The Auditor explained that a review of the records revealed that the National Treasury initially used Paybill number 206206 for revenue collection through the e-Citizen platform, which was operated by the vendor Webmasters Kenya Ltd.

The paybill was initially configured to transfer collected funds to the National Treasury Settlement Account at KCB Bank every midnight.

But following the Presidential directive and Gazette Notice No. 16008 of 20 December 2022, which designated the official government paybill number as 222222, all collections paid using the new paybill number 222222 were expected to be auto-transferred to the Settlement Account held at KCB Bank.

Private entities

“However, a review of the 222222 paybill statement revealed that on January 25, 2024, there were four transactions made from the paybill to private entities instead of the designated collection account. The four transactions amounted to Sh127,850,950,” noted the report.

“Approval and documentation to support this transfer of money directly from the paybill to the private entities were not provided for audit. This is against Article 201 on principles of public finance, which requires public funds to be used in a prudent and responsible way.”

At the same time, it emerged that the government irregularly collected a staggering Sh2.6 billion in convenience fees by charging Kenyans for use of the platform.

Notably, Gazette Notice No. 9290 of December 2014 required a nominal administrative fee per transaction, prorated as a percentage of the amounts paid. However, the report noted that prior to 23 January 2023, the National Treasury had not established a prorating band.

Instead, the convenience fee was charged at Sh50 or USD 1 per transaction, contrary to the Gazette notice.

Similarly, between 14 December 2023 and 30 June 2024, the National Treasury irregularly collected a convenience fee of Sh50 instead of prorating the fee as stipulated in a Gazette notice of 2023.

“This led to an overcharge to the public amounting to Sh30.7 million for collections made through the previous gateway and Sh319.09 million for collections made through the unauthorised new gateway,” the report added.

All this, the audit reveals, was enabled by the government’s failure to develop a legal framework to govern and manage e-Citizen’s operations.

There was a lack of clear governance structures, no designated authority to coordinate the Directorate of Citizen Services and the National Treasury (where the platform is domiciled), and no standard operating procedures or service level agreements with financial service providers such as banks.

By not signing the Service Level Agreements (SLAs) with financial service providers engaged in the collection and settlement of revenue, the National Treasury had created an avenue whereby the service providers could utilise the funds at the expense of service delivery by Ministries, Departments and Agencies.