Kenya Railways is facing renewed scrutiny after Auditor General Nancy Gathungu exposed deep financial and operational flaws, including the failure to settle a Sh646 billion loan from China Exim Bank, which has since accumulated Sh34.1 billion in penalties and interest.

In her report for the financial year ending June 2024, Gathungu warned that continued failure to pay the loan has led to Sh5.3 billion in penalties and Sh28.85 billion in interest.

She termed these charges as avoidable and wasteful expenditures that could have been prevented through timely repayments.

“Failure to meet obligations when due has attracted avoidable expenditure of Sh34,166,273,919 in the form of penalties amounting to Sh5,309,944,132 and interests amounting to Sh28,856,329,787, which could have otherwise been avoided,” the report stated.

The Auditor also cautioned that the corporation is at risk of disruptions should contingent liabilities—now standing at nearly Sh28 billion in lawsuits and Sh166.8 million in guarantees—materialise.

“As reported in the previous year, the balance comprises lawsuits against the Corporation yet to be determined, estimated at Sh27,978,266,389 and guarantees given on behalf of the Corporation amounting to Sh166,832,810. I draw your attention to the fact that the Corporation is at risk of operations interruption should the contingent liabilities crystallise,” Gathungu said.

The report further revealed glaring weaknesses in Kenya Railways' revenue collection systems, especially on the commuter and meter gauge services. It showed that although revenue inspectors are deployed, overcrowding on trains limits their ability to confirm all passengers are ticketed, leading to revenue loss.

It also emerged that passengers' receipts were dropped in open trays, with some being reused later, as there were no safeguards to prevent ticket reuse.

“In the circumstances, the effectiveness of internal controls on revenue collections in the commuter service trains could not be confirmed,” the report observed. “Internal controls on the handling of the issued receipts at the main railway station exit were noted to be weak.”

On mobile payments, the Auditor pointed out that the system was poorly coordinated. Cash-paying customers were often served first, while those using mobile money sometimes alighted before being issued receipts.

The report added that ticketing staff could not verify the authenticity of MPESA messages shown to them and that cashiers doubled up as ticket checkers, raising the risk of collusion and fraud.

“Considering that there are instances where dishonest people tamper with MPESA messages, chances of the cashier recording doctored messages could not be ruled out. The cashiers who gave out tickets were the very same people who walked around to check the tickets. Lack of segregation of duties can easily lead to collusion and loss of cash. Mostly, the inspectors/supervisors are not on the train to check the tickets,” the report noted.

In addition to revenue and loan concerns, the Auditor flagged long-pending prepayments to multiple suppliers, including Kenya Power, Nairobi City Government, National Youth Service, and Kenya Railways Staff Retirement Benefit Scheme.

These prepayments, totalling Sh1 billion, have remained unsettled for more than a year.

“No satisfactory explanation was given why the amount did not form the first charge in the succeeding year,” Gathungu stated.