By Vision reporter

THE National Social Security Fund (NSSF) lost sh2.7b in the sale of Government bonds under the management of now suspended MD David Jamwa. The money lost is the difference between the amounts NSSF received for the bonds and the prevailing market price.

Since the bonds were sold a few days before their maturity date, the workers’ fund lost another sh3b in accrued interest.
This is one of the conclusions Conclusions of the Auditor General’s report on the management of NSSF between 2005 and 2008, submitted to Parliament last week. The report confirmed the findings of an earlier forensic audit by the Kenyan firm KPMG, but found additional irregularities.

It discovered that Jamwa unilaterally ordered the sale of 13 treasury bonds worth 70b to Crane Bank, owned primarily by city tycoon Sudhir Ruparelia.

Not only was the amount received below the market price published by the Uganda Security Exchange, NSSF also lost out by selling before the maturity date.

For example, Jamwa gave a mandate to Crane Bank to sell a two-year bond with a value of sh19b in early November 2007. The bond was sold 23 days before the maturity date.
The report says NSSF lost sh971m compared to the market price at the time, and sh1.5b if it had waited for the bond to mature.

The report also gives more details on questionable transactions with shares on the Ugandan Stock Exchange (USE), using Crane Financial Services, a company also belonging to Sudhir.

It documents how NSSF sold shares in British American Tobacco (BAT), Bank of Baroda and DFCU through the broker and received less than the amounts indicated on the USE trading slips.

For example, NSSF sold its shares in BAT in July 2007 at sh370 per share and should have received sh868m. However, it only received sh705m from Crane Financial Services, which claimed the shares were sold at sh300, a difference of sh163m.

It also notes that Crane overcharged for its commissions. According to USE regulations, brokerage commission should have been 0.8% of the total sales, yet the firm charged 1.7%.

So, NSSF was overcharged sh62m in commissions for the sale of its shares in British American Tobacco and Bank of Baroda.

Following complaints about irregularities by the then NSSF chief investment officer, Keith Kalyegera, the capital market authorities imposed a penalty on Crane Financial Services and suspended it.

NSSF lost more money in the process of buying shares. The report found that Jamwa ordered the same broker, Crane Financial Services, to purchase shares of Stanbic Bank.
However, on several occasions the broker either overstated the purchase price or understated the number of shares. This made NSSF lose another sh176m.

Advances
The report confirms that irregular salary advances, allowances and loans were awarded to NSSF officials and staff in a manner contrary to the NSSF loan policy and financial regulations.

Jamwa awarded himself sh259m in housing advances and sh148m in salary advances between February 2007 and September 2008.

His deputy, Prof. Mondo Kagonyera, also on suspension, received sh206m in housing advances and sh20m in salary advances in the same period.
“Jamwa received housing advances exceeding the limit of his gratuity. Further, he was paid gratuity without recovery of housing advances,” the report says.

The NSSF loan policy allows for only one salary advance per year, yet a total of six salary advances were authorised for Jamwa.

Moreover, on three occasions he received salary advances which exceeded his monthly salary. As at January 31, 2009, he owed NSSF sh244m, more than his salary for the entire remaining period of his contract.
His deputy received four salary advances, contrary to the policy, and owed NSSF sh111m by January 31, 2009.

The report also confirms personal expenditures of Jamwa which he charged to NSSF, including expenditures in casinos, amounting to sh72m.

PPDA rules
The report further points out that NSSF did not adhere to the rules and regulations of the procurement body, PPDA, in the procurement of its Integrated Management Information System, legal services and private investigations services.

The management information system was divided into three phases and the three contracts were awarded to the same company, CIAL, for sh12b.

The Auditor General noted that it was irregular for NSSF to have contracted the same firm to identify problems and to fix them since “they would have a conflict of interest”.

The second contract was awarded despite the fact that the NSSF managing director was informed that CIAL’s report on the first phase contained inaccuracies.

There was also no advertising for the second phase or any open bidding process. Furthermore, the contract sum was increased from $4.9m to $5.4m.

On the hiring of legal and detective services, the Auditor General noted that NSSF did not prepare a shortlist of service providers.

In addition, none of those hired provided proposals or quotations and they never submitted the necessary documentation, as required by PPDA.

NSSF House
Procurement rules were also flouted in the construction of NSSF House on Lumumba Avenue. The Auditor General noted that Ssentoogo and Partners were appointed as architects for the project without any evidence of competitive bidding.

It was agreed that they would get 12% of the total project sum, or $720,000 (sh1.3b). However, they handed in a first fee note of $1,1m – exceeding the agreed amount by $455,971 (sh866m).

The report also noted: “Ssentoogo did not follow the terms of reference and sent invoices for work that was either not completed or partially completed.”

In May 2008, Jamwa instructed Ssentoogo to modify the design to increase the number of floors from four to 16 and the number of basement parking levels from two to four.

As a result, the project, which at the start in 2000 was projected to cost $6m (sh11b), increased to $22m (sh41b) in 2007 and to $75m (sh142b) in 2008 after the changes in design – a 12-fold increase.

Temangalo
On investments in real estate, the report notes that there are conflicting opinions on whether PPDA rules apply to such deals.It points out that the matter is in court and the outcome will bind NSSF.

On the Temangalo land deal, the report gives a summary of valuations from three different valuers, ranging between sh14m and sh18m per acre.
It also mentions that the board was told by the NSSF management that the surrounding land was valued at sh30m per acre and that Akright had proposed sh30m for the same plot.

“There was no documentation showing how NSSF arrived at a figure of sh24m per acre,” it said.

Part of the land belonged to Arma Limited, a company belonging to the NRM Secretary General Amama Mbabazi who had given powers of attorney for the deal to his partner, Amos Nzeyi.

The report notes that the cheque of sh11b was deposited into an account belonging to Nzeyi and Mbabazi, yet it should have been into an account in the names of Nzeyi and Arma Limited.

Conflict of interest
The Auditor General further found instances of conflict of interest where NSSF managers and board members were also directors or managers in other companies the fund was doing business with.

It found that Jamwa and other managers held positions in Victoria Property Development, a company that received a $1m (sh1.9b) loan advance.

The loan agreement, entered into in 2004 and repayable in four years, was not approved by the NSSF board or the minister; it was also not secured.

Jamwa in June 2008, wrote in response to an internal audit report that the money was not a loan but an advance payment for design works that have substantially been delivered.”

The report also raised concerns about a deal Jamwa secured with Centenary Rural Development Bank through his wife, who is the chief manager of the treasury.

In a letter to her husband, she offered to place sh5b of NSSF funds into a 12-month fixed deposit at 12% interest. Jamwa approved the deal the same day, on January 23, 2008, and payment was made the following day without declaring his relationship.