Executive Summary

In April 2009 INT initiated a forensic audit of the Kenyan Second Arid Lands
Management Project (ALRMPII), a $120 million Bank-supported effort approved in May
2003 to enhance food security and reduce vulnerability in drought-prone and marginalized
communities through a combination of institutional reforms and community empowerment.
The purpose of the audit was to identify any expenditure that appeared to be fabricated, or
inflated, or invalid. The audit proceeded in two stages. Where the documentation supporting
an expenditure was complete and appeared authentic, the transaction was deemed to be valid
and was not subject to further analysis.

On the other hand, where the documentation supporting transactions was either
insufficient or questionable, it was subject to further examination to determine whether it was
a “suspected fraudulent expenditure” or SFE. If this further examination showed there were
inconsistent documents supporting the expenditure, or inconsistent information, or
documents obtained through third parties or field research raised doubts about its
genuineness, it was classified as an SFE. Fuller descriptions of the basis upon which
documented expenditure was initially ‘questionable’ or determined to be a SFE are set out
under the ‘scope’ section of this report.

Because the project involved a large number of relatively small transactions, managed at
the district level and spread across Kenya, the forensic audit did not examine all project
expenditures. Instead, for the fiscal years 2007 and 2008 (the audit period), 1auditors
reviewed all expenditures made in seven of the 28 districts covered by the project. These
seven accounted for almost half the project’s total expenditure, and for the two year period
reviewed, there were approximately 28,000 transactions in these seven districts.

The audit initially questioned transactions worth Ksh514m (Ksh251m and Ksh263m for
FY07 and FY08 respectively). Following further analysis, SFEs of Ksh362m (Ksh176m and
Ksh186m for FY07 and FY08 respectively) were established. This represents about 29% or
a little less than one-third of the total expenditures reviewed.

The fraudulent behaviors in the transactions identified were broadly consistent across all
districts sampled and the headquarters itself and were found in all categories of expenditures
including fuel, vehicle repairs, training (capacity building), allowances and per diem, payroll,
noncurrent assets. In relation to the community empowerment component, SFEs included
income generating activities (matching grants), restocking activities, infrastructure (white
elephants such as butcheries which were not certified by MOH or dispensaries which were
never used), and in the drought management component of the project including allowances,
training and data analysis. The audit did not group transactions by category of expenditure
for headquarters because some SFE exhibited multiple risks and the categorization of
expenditures by headquarter office was inconsistent (as explained later in the report,

1
A Supplementary Report dealing with specific allegations has been produced for Bank operations to
assist in enhancing project design.

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