According to Auditor General Nancy Gathungu, NSSF lost the amount through subscriptions to corporate bonds bought from banks that collapsed.
The Auditor General report reveals that NSSF invested in the bonds without approval from the National Treasury.
However, the social security fund had received clearance and approval from the Capital Markets Authority (CMA) to invest in the two banks.
NSSF entered into contractual agreements with four fund managers in February, 2018, to carry out investments in the bonds on its behalf. The NSSF has subsequently made a provision for the entire sum invested in line with the accounting requirements on impairments.
One of the managers sunk Ksh174.7 million in one bank, while another manager invested Ksh160 million in the other bank. The other two managers sunk Ksh100 million each in corporate bonds in the same bank.
In the second bank, two managers lost Ksh90 million and Ksh42.2 million in a fixed bond meant to last for 5.25 years. The Auditor-General warned that the funds may never be recovered.
â€œIn the circumstances, the realization of the investment in corporate bonds invested by the fund managers could not be ascertained, and membersâ€™ contributions are at risk of being lost,â€ the audit report read in part.
The two banks went down shortly after issuing their commercial papers with investors yet to recoup their investments in the two lenders to date.
In April, the CMA commenced enforcement proceedings against former board members of one of the banks over failure to oversight the compromised bond issue to investors.
Details in a commercial paper issue dated September 2015 revealed that some directors had sustained financial statement fraud since 2006.
Although depositors in the two banks are assured of part of the funds held in the banks, corporate bond holders are likely to walk away empty handed, there being no current cover for the asset class.