Fictitious pension claims were quietly processed within the Teachers Service Commission's pensions department for months because the unit lacked basic control mechanisms to spot or halt fraudulent activities.
A court battle between the Teachers Service Commission (TSC) and a former senior pensions official has exposed how fictitious bank accounts were allegedly used to siphon retired teachers’ pension payments before the National Treasury detected the fraud.
The case has opened a rare window into suspected pension fraud operations within TSC’s pensions department, revealing weak internal controls, poor supervision, irregular investigations and failures in anti-fraud systems affecting retired teachers’ payments.
In a judgment delivered by the Employment and Labour Relations Court, the judge ruled that TSC had valid grounds to dismiss former acting Senior Deputy Director Pauline Mbithe over negligence and insubordination linked to the scandal.
However, the court also found that the commission breached her constitutional rights through a flawed disciplinary process, irregular investigations and unlawful retention of her private M-Pesa and bank statements.
The National Treasury Building in Nairobi.
The court ruling shows the fraud was first flagged by the National Treasury in a letter dated October 31, 2018 after some retired teachers failed to receive pension payments despite the Treasury releasing the funds.
"According to the evidence which was tendered in court, the fraud appears to have been happening for some while. This is self-evident from the letters of show cause issued to two other employees both of whom were attached to the pension department," said the court.
“It took the Ministry of Finance to uncover the scandal in October 2018," the court added, noting that although Ms Mbithe instituted preliminary inquiries which exposed the scandal, there is no evidence that the Petitioner unearthed the scandal.
The court heard that suspicious accounts had allegedly been processed within TSC’s pensions department between March and May 2018.
According to the judgment, internal inquiries identified fictitious pension claims and implicated several officers attached to the pensions division.
Ms Mbithe told the court she instructed subordinate officers to investigate the suspicious accounts immediately after Treasury raised the alarm.
She said one officer admitted that fictitious claims had been processed and linked the transactions to other staff members within the department.
But the court found the fraud went undetected for months under her watch, despite her being the head of the pensions division.
Teachers Service Commission (TSC) headquarters in Upper Hill, Nairobi.
The court also found that Ms Mbithe acted insubordinately by failing to promptly escalate to the TSC chief executive a National Treasury letter warning that retired teachers’ pension payments were being diverted through suspicious accounts.
“This state of affairs paints a picture of a department which lacked effective control mechanisms to expose fraudulent activities,” the court ruled.
“It was the Petitioner’s responsibility as head of the pension department to ensure that suitable controls were developed to stem fraud within the department.”
The court added that failure to detect the fraud until Treasury intervened demonstrated weaknesses in internal anti-fraud safeguards.
The ruling also exposed internal confusion and disciplinary chaos after the fraud emerged.
TSC had issued Ms Mbithe with multiple interdiction letters, conducted parallel investigations and relied on reports generated after she had already been interdicted. She was also issued with a show-cause letter before the Investigation Committee was set up.
One TSC witness admitted before the court that the commission may have irregularly interdicted her before investigations were complete.
“The issue at hand was serious and had caused embarrassment to both the Respondent and the Government,” a TSC witness testified, adding that this may have triggered an expedited disciplinary process hence the decision to issue the officer a show cause immediately.
The court further heard that investigators confiscated Ms Mbithe's M-Pesa and bank statements during a vetting exercise and retained them for years despite not using them in disciplinary proceedings.
According to the court, the continued detention of the financial records breached her constitutional right to privacy.
“It was improper for the respondent to hold onto them particularly without a court order or other justification,” it said.
The court also faulted TSC for withholding witness statements and investigation reports from the former official before her disciplinary hearing.
The judge said the documents were critical for preparing her defence.
“This, without a doubt, negatively impacted on her ability to prepare for her case,” he ruled.
The court awarded Ms Mbithe Sh647,955 for unfair termination and Sh1 million for violation of constitutional rights, but declined to reinstate her.
The case has revived scrutiny over longstanding fraud vulnerabilities in the public pension systems.
A previous anti-corruption examination report by the former anti-corruption agency warned of “possible fraudulent activities and manipulations” within pension payment systems because of weak controls, poor supervision and weak ICT safeguards.
The report flagged risks involving changes of pension pay points, manipulation of payroll records, weak password controls and poor monitoring of pension management systems. It also warned that some records could have been “deliberately destroyed to cover up fraudulent activities.”
The report specifically highlighted risks involving pension claims linked to TSC and warned that multiple officers signing pension forwarding letters created “avenues for forgery of documents.”
Recent audit concerns have also pointed to wider pension fraud risks in the public sector.
In April this year, reports emerged raising red flags over billions of shillings in suspected pension payments to ghost retirees and unexplained reconciliation variances within public pension systems.
The National Treasury has since pushed digitisation of pension systems and self-registration platforms aimed at reducing fraudulent claims and improving pension verification processes.
Follow our WhatsApp channel for breaking news updates and more stories like this.
