Sh10bn was paid for no work done, says new PAC report

A new report by the Public Accounts Committee (PAC) has indicted the national government and a number of its agencies for several financial crimes.

The audit for the 2017/18 financial year reveals instances where the government incurred huge expenditure on projects that had either stalled or remained incomplete well beyond the contract period.

There were instances where payments were made for work not done, casting doubt on value for money for such expenditure. 

The audit found that the government spent Sh9.75 billion on various projects where no work was done, the project stalled or remained incomplete.

Those cited in the report include the State Department for Planning and Statistics, which spent Sh4.29 billion on Arror dam project, where no work was done. It also found that the State Department of Public Works spent Sh2.45 billion on the stalled construction of Lamu Police Station and Management Housing, which was contracted for Sh615.8 million.

The government also pumped Sh1.2 billion into the stalled construction of Mathare Nyayo Hospital while an additional Sh629 million was spent on the stalled construction of Kenya Institute of Business Training.

For its part, the Judiciary spent Sh1.5 billion on uncertified completion of works for various courts while the State Department for Labour spent Sh442.7 million on stalled construction of the proposed National Employment Promotion Centre in Kabete. The contractor has abandoned the site despite receiving Sh117.9 million.

The PAC, which examined the Auditor-General's report on the financial statements for the national government for the 2017/2018 financial year, has recommended far-reaching reforms that if implemented would require the Treasury to seek parliamentary approval before borrowing any amounts above Sh1 billion.

The committee observed that there is poor maintenance of public debt records. The Auditor-General noted variances between figures reflected in the loan registers, other supporting schedules and the financial statements.

Public debt

Further, according to the Medium-Term Debt Strategy Paper 2021, the nominal stock of public debt was Sh7.2 trillion or US$65.6 billion as of the end of December 2020, equivalent to 65.6 per cent of GDP.

The James Opiyo Wandayi-led committee, which held 110 sittings to come up with the report, noted that the outstanding amount of public debt has increased over the years from Sh2.2 trillion in 2013/2014 to Sh4.8 trillion in 2017/2018. This is an increase of Sh2.5 trillion, which means the country accumulated public debt at the rate of 20 per cent per year over those five years. 

The committee recommended that the PFM Act 2012 should be amended to obligate the National Treasury to prepare and publish every quarter an up-to-date national debt register.

“Section 50 of the PFM Act 2012 should be amended to provide that any borrowing by the national government for a project to the tune of Sh1 billion and above should be approved by the National Assembly before the loan contracts are signed by the government," the report notes.

It also wants the Treasury CS to – within three months of tabling and adoption of this report – form a national task force on public debt and engage an independent audit consultant to audit the national debt register and report to Parliament within the three months.

The report noted that Kenya's total gross estimated government expenditure has increased from Sh1.55 trillion in 2013/2014 to Sh2.69 trillion in the 2017/2018 financial year. This represents an increase of Sh1.13 trillion or approximately 73 per cent over the five years.

Similarly, the actual gross expenditure has increased from Sh1.46 trillion in 2013/2014 to Sh2.419 trillion in 2017/2018, representing an increase of Sh957.3 billion or approximately 65 per cent over the five years.

The committee observed that, on average, there was underutilisation of the approved budget by approximately 8.5 per cent over the five years.

In the 2017/18 financial year, only 90 per cent of the approved gross estimated expenditure was spent, leaving Sh270.95billion underutilised. 

National budget

"The low utilisation of the approved budget is attributable to the late approval of supplementary budget estimates by the National Assembly," the committee noted.

It recommended that the National Treasury Cabinet Secretary should ensure that no supplementary budget estimates are submitted to Parliament later than two months before the close of the financial year.

The committee is also proposing to amend Section 44 of the PFM Act 2012 to provide that all supplementary budget estimates are submitted to Parliament not later than two months (60 days) before the close of the financial year.

In the year under review, the Approved Estimated Gross Expenditure was Sh2.6 trillion, while approved Appropriations-In-Aid (AIA) was Sh380.2 billion, resulting in Net Approved Expenditure of Sh2.3 trillion.

The committee noted that the National Treasury failed to enforce the requirement of a minimum of 30 per cent of the national government’s budget allocation to development expenditure as per the provisions of the PFM Act 2012.

It now wants the National Assembly to only approve the national budget estimates for the 2021/2022 financial year and the medium-term if the allocation estimates for development expenditure meet the 30 per cent threshold.

"The delays in approvals of the audited statements of revenue collected nationally disadvantage counties in sharing the national cake," the report noted.

To enhance the technical capacity of watchdog committees, the report recommends that the Parliamentary Service Commission should establish a dedicated technical unit within the Parliamentary Budget Office (PBO) to provide technical support to the committees to clear up any audit report approval backlog.

The report notes that the actual recurrent revenue (tax and non-tax income receipts) of Sh1.3 trillion reported in the audited revenue statements during the year differs by Sh807 million from the ordinary revenue receipts reflected in the National Exchequer Account.

Revenue shortfall

The difference of Sh807 million is not reconciled or explained to the auditors. 

"The National Treasury attributed the different figures to system challenges while capturing revenue receipts through IFMIS accounts," the report notes.

"The committee observed that the financial statements were later reconciled in the succeeding financial year. The delays in the reconciliation of revenue statements undermine the principle of collection, accounting and reporting revenue collected nationally by understating the reported revenue receipts."

The total revenue of Sh1.4 trillion comprised Sh1.36 trillion and Sh44.5 billion relating to recurrent (ordinary revenue) and development revenue respectively.

However, analyses of estimated receipts indicate that actual recurrent revenue collected during the year reflected a shortfall of Sh124.5 billion or 8.3 per cent while there was a shortfall of development revenue collected of Sh1.9 billion or 4.2 per cent.

"The recurrent revenue shortfall of Sh124.56 billion or 8.3 per cent is attributable to other factors, including ambitious revenue forecasting by the National Treasury and an unpredictable tax system that creates uncertainty among businesses and general taxpayers," the report notes.

It also prevails on the Treasury to ensure there is tax certainty in the country.

It further notes businesses base investment and operational decisions on the predictability of the long-term impact of the taxes on business decisions.

"The trend where the National Treasury makes frequent and unpredictable revision of tax rates and administration causes multiple shifts in the tax base and tax rates for businesses in Kenya within a considerably short period. This unpredictability of the tax system makes revenue forecasting unrealistic and unstable," it adds.

The National Treasury was also on the receiving end for inaccuracies in its financial statements.
 "Comparisons between the General Ledger (GL) and the supporting schedules generated from the Integrated Financial Management System (IFMIS) revealed variances. Since the two reports read from the same database in IFMIS, there should be no variances," the report says. 

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