A recent audit has unveiled a disturbing pattern of fraud, mismanagement, and systemic weaknesses at the Agricultural Finance Corporation, raising concerns that taxpayers and farmers could lose millions of shillings.

The government-backed institution, established to provide affordable credit to farmers, has been a critical lifeline for Kenya’s agricultural sector, but the latest review by Auditor General Nancy Gathungu highlights deep financial and operational failings.

The audit, covering the financial year ending June 30, 2024, shows that unscrupulous officials exploited weak internal controls to siphon funds, leaving the corporation with millions in unrecovered loans and unaccounted assets. At the Eldoret branch, Sh11.8 million remains unrecovered from officials who overdrawn accounts, a fraud first reported in 2018.

While management claimed the courts ruled in AFC’s favour in May 2024, the agency has not provided updates on recovering the funds. Gathungu noted that the “recoverability of the amount could not be ascertained,” raising fears that the money may be permanently lost.

Loan operations, the core of AFC’s mandate, also revealed alarming lapses. In Kapsabet, 13 farmers obtained Sh22.6 million in loans using fraudulent title deeds as collateral.

Although AFC filed seven court cases and won judgments, no warrants had been executed to recover the funds. “The recoverability of loans amounting to Sh22.6 million issued on fraudulent titles couldn’t be confirmed,” the audit reads.

The audit further revealed that AFC’s own directors benefited from the flawed loan system. Seven directors held loans worth Sh48.9 million, five of which were in arrears totaling Sh35.7 million.

The report warned that these loans would likely be “non-collectable,” yet only Sh4.8 million was provided for bad debts, suggesting that AFC was overstating its income. “In the circumstances, the accuracy and recoverability of the directors’ loan balance of Sh48 million couldn’t be confirmed,” Gathungu stated.

Short-term loans were equally problematic. Out of Sh889 million owed by customers, Sh225 million had been outstanding for over ten years. Even after hiring an external agency, AFC had recovered very little.

Payroll management also raised red flags, with nearly 250 employees facing deductions above the legal two-thirds limit under the Employment Act.

Two staff members in acting roles for over six months earned Sh1.9 million in allowances, despite policies limiting such appointments. Collective bargaining agreements were backdated, and AFC ignored the Salaries and Remuneration Commission’s guidance, continuing to pay outdated rates contrary to the SRC circular of September 2020.

Weaknesses extended to AFC’s loan processing system, which failed as a tool for risk management.

A loan of Sh9.9 million appeared fully repaid in management records but showed an outstanding balance of Sh4.8 million in the system.

Forty loans totaling Sh35.7 million were missing entirely, some disbursed before approval, while others had principal amounts exceeding the original loans.

Additionally, 27 loans worth Sh18.9 million were incorrectly classified as “normal” despite being unsecured or in arrears, artificially inflating AFC’s financial standing.

Property management was also poorly handled. AFC’s balance sheet showed Sh1.1 billion in property, plant, and equipment with serious irregularities.

Thirty-one developed plots and two undeveloped parcels valued at Sh191 million lacked proper documentation. One plot in Kimilili had no ownership papers, while land in Nanyuki and Kerugoya had never been formally valued.

The audit paints a stark picture of mismanagement that, if unaddressed, could cost both farmers and taxpayers dearly, while undermining the credibility of a key financial institution in Kenya’s agricultural sector.