As we reported to you earlier, in March our Kenyan partner organization Ngong Road Children’s Foundation (NRCF) received a disturbing 2015 audit report from their new audit firm, Crowe Horwath, which highlighted possible improprieties. The NRCF and Friends of Ngong Road (FoNR) boards (with support from the board of Karibu Loo) immediately commissioned a forensic audit of NRCF expenditures.
Scope of the Investigation. The audit covered expenditures for calendar year 2015 through March of 2016. Although we did not conduct an analysis of periods prior to 2015 we believe the losses accelerated in 2015 through early 2016. In addition to scrutinizing financial records, the investigation included visits to 25 out of 34 schools and interviews of 329 out of 369 (89%) of NRCF students in primary, secondary and post-secondary institutions, as well as the administrators of the relevant institutions. The remaining 40 students attend schools too far from Nairobi for the audit firm to physically visit but telephone interviews were conducted with students and administrators. The audit firm believed that confirming the child count was a vital first step since that is the basis for many of our costs. NRCF staff and major suppliers of uniforms, shoes, books and other services were also interviewed.
Forensic Audit Results. The forensic review is now complete. While the full amount lost may never be known, we estimate that FoNR will need to send between $70,000 and $100,000 incremental to Kenya to ensure the program continues to deliver on its core promises. These incremental payments will be covered by withdrawing earnings from FoNR’s endowment.
During the audited time period, the Executive Director, Peter Ndungu, was responsible for all financial expenditures and directed staff on all financial activities. The boards of FoNR and NRCF will seek to conclude this episode by recovering unaccounted-for funds to the extent possible. This will be a difficult process in Kenya and may take a long time. Peter Ndungu, Beatrice Theuri and Naomi Kamanda no longer have a role in NRCF or Karibu Loo.
The investigation proved that the core promises of the program have consistently been met. Despite the disappointing misappropriation of funds, students have attended school, received food and medical care, attended camp, and benefited from the computer lab and library. In addition, students have received support from their NRCF caseworkers.
Looking Ahead. Friends of Ngong Road and Ngong Road Children’s Foundation board members believe substantive changes must be made in how NRCF is managed and governed to apply the important lessons learned from this experience.
- Accounting has been outsourced. Amy Johnson, FoNR’s Finance Director, and representatives from the NRCF board have interviewed and selected an outsource accounting firm in Kenya that will be responsible for payroll, accounts payable, financial statement preparation and tax management for both NRCF and Karibu Loo. This will add a higher level of oversight and controls to our financial practices in Kenya.
- Karibu Loo will be restructured as a subsidiary of Friends of Ngong Road. A new manager for Karibu Loo, Wickliff Mutanda, has been hired and is being trained by out-going Volunteer General Manager, Michael Switzer, in preparation for Michael’s return to the U.S. Karibu Loo’s board of directors consists of both Kenyans and Americans who will provide management oversight for Karibu Loo as the business grows and generates profits.
- The boards of FoNR and NRCF have a shared view that the NRCF board must play an expanded role. For example, the NRCF board has acknowledged their duty to recruit and manage the new NRCF Director and they are actively recruiting a successor for Peter Ndungu. The NRCF board looks forward to announcing a new NRCF Director in the next several weeks. Going forward the NRCF board will take a more active role in oversight and will be reorganizing itself and NRCF to ensure tighter practices.
- Friends of Ngong Road will exercise additional oversight. We are thankful for the change in Kenya audit firms that facilitated discovery of the misappropriation of funds and will continue to press for this kind of effective oversight in the Kenyan organizations. We have learned that the level of financial controls and oversight appropriate in the U.S. is insufficient in Kenya and we are increasing our scrutiny of expenditures made in Kenya.
In summary, the boards of Friends of Ngong Road, Karibu Loo and Ngong Road Children’s Foundation are committed to the long-term success of this program. Kenya is a country where corruption is rife. We have experienced that corruption in a very personal way and will implement improved practices to ensure investments are spent as intended.
Our mission and priority. We remain committed to our mission to transform young lives through education and support. That mission has delivered results for nearly 400 Kenyan children and will continue to do so for children in the future. Thank you for your understanding and continued support.
President, Friends of Ngong Road