Audit reveals firms, State holding Sh330 billion unclaimed assets

A majority of public and private entities in Kenya continue to hold onto hundreds of billions of shillings belonging to Kenyans.

This is despite a law requiring them to either turn the money over to the Unclaimed Financial Assets Authority (UFAA) or reunite the assets with their rightful owners or beneficiaries. 

A recent report by the Auditor General reveals rampant non-compliance by asset holders, ranging from banks and insurance companies to listed companies, learning institutions and law courts.

They are keeping over Sh330 billion worth of financial assets, some of it in cash but also in non-cash assets such as shares.

The performance audit report on management of unclaimed financial assets singles out the public sector that has, through the years, failed to remit a single shilling to UFAA.

However, banks, insurance companies continue to defy legal requirements to surrender these funds to the authority. UFAA is, in turn, required to return the assets to millions of rightful owners, many of them living in squalor.

“As of August 1, 2024, the authority had received Sh65 billion, out of the estimated Sh397 billion, in unclaimed financial assets, representing 16.4 per cent of the projected total, based on the 2018 baseline survey. Additionally, the authority achieved 65 per cent of the targeted amount of Sh100 billion as per its 2018-2023 strategic plan,” said the Auditor General. 

“This indicates a relatively low compliance rate among holders in surrendering unclaimed assets.”

A collection of Sh65 billion over the six years has meant that over Sh332 billion remained in the private and public sector institutions despite the law requiring them to have surrendered them to UFAA or reunify them with their owners.

The bulk of these assets is in the form of cash. The report also shows that a large portion, about Sh156 billion, is in shares and other non-cash assets.

These assets cannot be physically transferred to the UFAA due to the lack of the necessary Central Depository and Settlement Corporation (CDSC) framework.

“The authority received reports on unclaimed non-cash assets such as shares amounting to 1.7 million units, which remained in the custody of their original holders. This was because the UFAA Act 2011 did not have a mechanism for the receipt and secure management of non-cash management,” reads the audit report. 

“The authority was not allowed under the law to operate a CDSC account, which is necessary for facilitating the transfer of unclaimed assets. Consequently, the authority could not directly safeguard non-cash assets beyond the direct control of the Authority.”

The report noted that while non-compliance was rampant across all holders of unclaimed financial year assets, public institutions are the worst offenders. None of them, according to the Auditor General, had remitted the assets that they hold.

These range from schools that do not give students pocket money or refund excess fees paid, to law courts that continue to hold on to cash bail even after cases have been concluded.

“The audit reveals that none of the public sector institutions had submitted unclaimed financial assets to the authority. This was attributed to the use of cash-basis accounting, which only recorded actual cash transactions; thus, the entities did not account for unclaimed financial assets held,” said the Auditor General.

The audit reported a low level of voluntary surrender by the holders of these assets, but also a legal gap, whereby UFAA lacks the legal mechanism to receive and safeguard non-cash financial assets such as shares of listed companies.

Economic benefit

For some entities, especially banks and insurance companies, holding onto assets that should be surrendered to UFAA is at times financially advantageous, as penalties for non-compliance might be lower than the economic benefit of retaining the asset on their balance sheets, even over a short period. 

UFAA has been undertaking sensitisation campaigns aimed at encouraging the voluntary declaration and surrender of unclaimed financial assets annually. 

“However, the audit revealed that the maximum number of holders who had voluntarily remitted unclaimed financial assets to the authority was 644, compared to the potential holders’ universe of 477,112, as per the authority’s Baseline Survey Report of 2018,” said the Auditor General in the report.

The Auditor General noted that in instances where UFAA had carried out campaign programmes, the amount of money it received from holdings of unclaimed assets rose.

It was the case in 2024, where after the authority incentivised holders by offering a waiver on penalties, its receipt of unclaimed assets increased by Sh1.3 billion from Sh3 billion in the 2021/22 financial year to Sh4.3 billion in the 2022/23 financial year. 

The annual collection, however, dipped to Sh3.9 billion in 2023/24 following a period of muted campaigns.

UFAA’s data shows that over the six years to the 023/24 financial year, it held 34 sensitisation and holders outreach initiatives, nearly a third of these or 11, were held in the 2021/22 financial year and resulted in remittances from holders of unclaimed financial assets peaking in the 2022/23 financial year.

“The low level of compliance was attributed to the low level of awareness among potential holders of their obligation to reunify unclaimed financial assets at source, and subsequent voluntary remittance of assets to the Authority,” said the Auditor General.

“Despite the 34 sensitisation and outreach initiatives, interviews with 29 sampled holders revealed that 17 holders, representing 59 per cent of the sampled holders, had not participated in UFAA’s sensitisation campaigns.”

As a result, holders lacked clear information on the categories of assets qualifying as unclaimed financial assets and the statutory timelines for remittance. This led to non-compliance and ultimately under the Authority’s ability to achieve the unclaimed financial assets remittance targets.” 

Financial assets

According to the audit report, UFAA had undertaken 134 compliance audits in five phases as of August last year.

“The compliance audits identified Sh12.2 billion unremitted unclaimed financial assets from holders. As at the time of the audit in August 2024, nine per cent of the identified unclaimed financial assets were reunited at source, 14 per cent were remitted to the Authority, while 77 per cent were still unremitted,” said the Auditor General. 

Post audit, UFAA informed the Auditor General that another Sh1.2 1 billion had been identified, bringing the total to Sh13.43 billion.

The report added that 8.4 per cent was reunited at source, 13.9 per cent remitted to the authority, while the vast majority of 75.6 per cent remained unremitted, a major concern for the Auditor General.

“The authority’s inability to recover 75.6 per cent of the unremitted unclaimed financial assets was attributed to failure to close compliance audits,” said the audit report.

“Closing audits entailed holders either surrendering the identified unclaimed assets to eh authority or providing sufficient evidence to confirm that the assets did not qualify as unclaimed or they were able to reunify the assets with the rightful owners at source.”

Out of the 134 compliance audits conducted, the authority had closed 40 audits and 94 remained open.”

The audit noted that UFAA is short of staff, having only three internal compliance auditors, who were charged with resolving all the disputes and closing all audits.

In undertaking compliance audits, the authority relied on outsourced auditors, who, however, did not have a mandate to follow up in ensuring that the holders remitted unclaimed assets to UFAA or reunited them with their owners. 

Non-compliance was also on account of heavy penalties meted out on the holders who did not remit unclaimed financial assets in time.

For instance, 20 firms that were sampled for the Auditor General’s report were holding a total of Sh5.1 billion in unclaimed financial assets, out of which nearly half or Sh2.23 billion, was in penalties imposed by UFAA for non-compliance, making it even more difficult to comply. 

Heavy penalties

Among the firms that are facing it rough is Carbacid Investments, which originally held Sh1.075 million in unclaimed assets, but this has increased by a staggering 2,870 per cent to Sh30.88 million.

“The audit established that failure to close compliance audits was due to imposition of heavy penalties on holders for assets identified during compliance audits, thereby discouraging holders from remitting assets to the Authority,” said the audit report. 

“The audit revealed that 15 of the 20 sampled compliance audit reports had penalties amounting to more than 50 per cent of the value of the identified assets. The penalties amounted to Sh2.2 billion, against identified assets of Sh5.1 billion.”

The audit report also found that UFAA is sitting on a large pool of money derived from its investment income. It has invested Sh23 billion over six years, mostly in Treasury Bonds that have generated Sh13.1 billion in investment income.

UFAA has spent Sh3.49 billion on operations and, in turn, retained a staggering Sh9.6 billion (or 73.7 per cent) of this total, designating it for unutilised reinvestment. 

The accumulation of the unutilised amount has been due to a lack of a proper legal framework guiding the full utilisation of the income for long-term socio-economic projects, resulting in massive wealth stagnation.