Sh156 Billion in Unclaimed Assets at Risk Due to Legal Gaps, Audit Reveals
A recent audit by the Auditor-General has exposed significant vulnerabilities in the management of unclaimed financial assets in Kenya, with Sh156 billion worth of assets, primarily shares, at risk of loss or devaluation due to the absence of a legal framework for non-cash assets. The Unclaimed Financial Assets Authority (UFAA), tasked with safeguarding and reuniting these assets with their rightful owners, lacks the mechanisms to effectively manage over 1.7 million units of unclaimed shares, which remain in the custody of their original holders.
The Performance Audit Report, which reviewed UFAA's operations over six years, highlighted that the authority is not legally permitted to operate a Central Depository and Settlement Corporation (CDSC) account, a critical requirement for transferring and managing unclaimed shares. This legal gap has left the shares vulnerable, as UFAA has no framework to secure or manage these non-cash assets. The report emphasized that this situation poses a significant risk of loss and devaluation, potentially depriving rightful owners of their property.
Unclaimed financial assets encompass a wide range of property presumed abandoned, including dormant bank accounts, unclaimed dividends, deposits from collapsed financial institutions, unclaimed insurance benefits, utility deposits, uncollected prize money, safe deposit boxes, and gift certificates. These assets often remain unclaimed due to factors such as deaths, migration, or lack of public awareness about the dormancy periods of financial instruments. As of August 1, 2024, UFAA had received only Sh64 billion, representing just 16.4% of the estimated Sh397 billion in unclaimed financial assets, according to a 2018 Baseline Survey.
The audit further revealed that UFAA's enforcement mechanisms have been ineffective in compelling asset holders to surrender unclaimed property. Despite legal requirements under Section 44(2) of the Unclaimed Financial Assets Act, 2011, which mandates holders to deposit unclaimed assets into the Trust Fund at the Central Bank of Kenya, a significant portion of these assets remains unsurrendered. UFAA's compliance audits have identified unclaimed assets, but the authority has struggled to recover them, further exacerbating the issue.
The report also shed light on UFAA's investment activities. Over the six-year review period, the authority generated Sh13.1 billion in investment income from the Trust Fund, which is invested in government securities. Of this, Sh3.4 billion was used to finance UFAA's operations, while Sh9.6 billion (73.37%) was retained for reinvestment. However, the audit noted the absence of a policy or legal framework to guide the full utilization of this investment income for long-term socio-economic development, resulting in a continuous increase in unutilized funds.
A significant concern raised in the audit is UFAA's inability to effectively reunite unclaimed assets with their rightful owners. The mechanisms for locating and notifying owners are inadequate, and the claims process is inefficient, costly, and time-consuming, particularly for low-value claimants. The uniform application of the claims process, regardless of asset value, has created barriers for owners seeking to reclaim their property. Consequently, most surrendered assets remain idle, limiting their contribution to both personal wealth and the broader economy.
Compounding these challenges is UFAA's lack of updated data on asset holders and the value of unclaimed assets as of August 2024. This gap raises serious concerns about the authority's capacity to track and manage unclaimed property effectively. The audit underscores the urgent need for a robust legal and operational framework to address these shortcomings, protect unclaimed assets, and ensure they are returned to their rightful owners.
The findings call for immediate action to strengthen UFAA's mandate, enhance enforcement mechanisms, streamline the claims process, and establish a framework for managing non-cash assets like shares. Without these reforms, billions of shillings in unclaimed assets remain at risk, denying owners their rightful property and hindering economic growth.