The World Bank said Thursday it has suspended disbursements to two of the 25 projects supported by Bank financing in Kenya, pending thorough investigations into allegations of fraud and corruption.
The Bank said in a statement issued in Nairobi the suspension would remain in force until investigations into Kenya Education Sector Support Programme (KESSP) and the Western Kenya Community Driven Development and Flood Mitigation Project (WKCDD) are completed.
"While we are disappointed to learn that project staff may be engaged in corruption in these projects, we are encouraged by the government's immediate response," said Johannes Zutt, World Bank Country Director for Kenya.
The World Bank's move follows an announcement by Finance Minister Uhuru Kenyatta on Wednesday that the government has frozen the accounts of the two projects due to what he said "appears to be fraud and corruption".
In addition to launching a full investigation into all allegations, Kenyatta said the government has initiated a process of suspending about 50 project staff for alleged involvement in fraud and corruption.
The Bank said the east African nation has undertaken important financial management reforms over the past few years that have resulted in a much stronger audit capacity for its development programs.
The Kenyan Internal Audit Department (IAD) initiated its first-ever fiduciary review of all World Bank-financed projects in Kenya earlier this year, with support from the Bank.
Of 25 projects and trust funds, five projects were assessed as having material concerns and selected for forensic review. Serious incidents of fraud and corruption were found in two projects, the KESSP and the WKCDD.
"I appreciate IAD's increased professionalism as well as the commitment of the government to pursue wrongdoing to the full extent of the law," said Zutt.
"On the Bank side, we are determined to have the problems fixed as quickly as possible, so that these projects can resume their important activities and bring to Kenyans the benefits that they were intended to bring."
Kenyatta told journalists on Wednesday that the allegations have been referred to the Kenya Anti-Corruption Commission for further investigations and reiterated a pledge by the government to use public resources entrusted to the government "efficiently and effectively for their intended purposes".
Kenyatta, however, said the audit was not limited to donor-funded projects and that all government initiated projects would be undergoing constant review.
"All projects and programmes, whether funded by donors or through tax payer's money are subject to audit when deemed necessary," he said.
In parallel, the World Bank said it will also be undertaking its own investigation, which may -- in the event that they confirm fraud and corruption -- lead to sanctions such as the debarment of companies and individuals engaged in wrongdoing.
"The World Bank's investigation would complement Kenya's efforts to strengthen the fight against corruption and address governance challenges in development projects in the country," the statement said.
The World Bank said it has been working together closely with the government to tighten oversight of the entire Bank-financed portfolio in Kenya, which includes 16 national and five regional projects, since the Bank completed an earlier review of four Bank-financed projects in 2007.
"All new projects in Kenya have included measures to counter the risks identified in the 2007 review, such as the comprehensive audits and performance reviews that IAD initiated earlier this year," the statement said.
The Bank has also strengthened its supervision methods as a result, and created ways to enable independent third-party monitors to review project activities and report on any perceived shortcomings.
In these two projects, complaints from community-level beneficiaries were a key element in bringing to light the wrongdoing that IAD subsequently documented.
"We have had productive discussions with the government and are greatly encouraged by the fact that Kenyans are leading the demand for accountability," said Obiageli Ezekwesili, the World Bank Vice President for Africa Region.
"We will continue to work closely with the government to resolve these issues comprehensively and in a timely manner. We are also encouraged by the increased capacity of the IAD which would be central to a satisfactory conclusion and critical to strengthening the trust and confidence of the people."
The World Bank's support to the KESSP consists of an 80 million U.S. dollars credit that was approved in September 2006 and has disbursed about 57 million dollars to date.
The Bank's 86 million dollars WKCDD project was approved in March 2007 and has disbursed about 20 million dollars to date.
"The World Bank remains committed to bringing the benefits intended under these projects to the Kenyan beneficiaries and looks forward to an early resumption of project activities once this matter has been resolved," it said.