Auditor-General wants powers to audit revenue firms contracted by counties
The Senate Committee on County Public Investments and Special Funds (CPIC) during the session at the Bunge Towers Nairobi on Tuesday, July 9, 2024.
MPs are pushing for Auditor-General Nancy Gathungu to audit external revenue collection firms contracted by counties to collect their own source revenue following concerns over the accuracy of the amounts they declare.
The development comes after the lawmakers raised concerns over the lack of auditing of the revenue service providers, saying the gap has opened a loophole where the companies siphon billions of shillings from the devolved units.
The move follows new revelations of fraudulent schemes perpetrated by governors and senior county officials, where contracts to procure the systems are designed to loot public funds.
Appearing before the Senate Committee on County Public Investment and Special Funds on Wednesday, Ms Gathungu raised issues with how counties continue to lose revenue through contracting of the firms.
Briefcase tax collectors
She told the committee chaired by Vihiga Senator Godfrey Osotsi that there has been a proliferation of some briefcase revenue collection firms with questionable backgrounds contracted by counties.
Ms Gathungu said that as much as the law gives the National Treasury powers to prescribe revenue collection systems to be used by counties, governors have ended up contracting the companies without even carrying out due diligence and contracted by the county governments at different rates.
“The rates should be standardised so that the commission charged by the firms does not vary from one county to the other. The lack of standard rates is why counties are losing a lot of revenue,” said Ms Gathungu.
Narok Senator Ledama Olekina called for amendment of the Public Finance Management Act, 2012 to give Ms Gathungu powers to audit the revenue collection firms.
He argued that giving the companies a blank cheque to operate has seen counties lose a lot of revenue running into billions as no one can audit what they collect to ascertain that whatever they declare as money collected is indeed the exact amount from taxpayers.
The Senate Minority Whip said that there are so many loopholes when it comes to management of own source revenue in the counties and it is time the same is fixed.
“We are going to push for amendment of the law to give the auditor-general powers to audit the systems of the revenue service providers. This will ensure there is discipline and we are able to follow the money trail from the service provider to the county and later to the County Revenue Fund,” said Mr Olekina.
The senator added that despite the law not allowing the service providers to deduct their commission from the revenue they collect at source, they still end up doing the same.
“We must tighten these loopholes because if we do not manage the same, then you will just be giving us figures which the firms will be laughing at,” he said.
Migori Senator Eddy Oketch echoed the sentiments by Senator Olekina, saying amending the law to require audit of the service providers will strengthen the process of revenue collection in county governments.
The Ethics and Anti-Corruption Commission (EACC) last October flagged several counties over reports of hijacking the revenue collection system to divert revenue.
Governor Johnson Sakaja’s Nairobi, Narok under Governor Patrick Ntutu, Kajiado under Joseph Ole Lenku, Machakos under Governor Wavinya Ndeti, and Kilifi under Gideon Mung’aro were singled out as major culprits.
The EACC said senior officials in the devolved units are using the revenue collection system to divert county revenues by colluding with service providers, resulting in the loss of billions of shillings.
In some counties, the commission said, private service providers have total control over revenue management systems, making it difficult for county governments to ensure accountability.
According to the Commission, senior county officials also have access to super-user rights on the automated systems, with the power to delete and edit the amount of revenue collected, leading to diversion of revenue.
Some counties also lack mechanisms to reconcile revenue management systems in cases where the county has different service providers.
“As a result, many county governments are unable to meet their revenue targets, with some performing worse in revenue collection than even the local authorities that existed before them. Others have stagnated at the same level despite increased revenue streams,” said EACC spokesperson Eric Ngumbi.
The commission has encouraged counties to audit the revenue system to address some of the problems identified.
“It is a new trend we are witnessing in the devolved units where there is collusion to steal public resources. They are doing this because it is a safe way to steal resources and it is not easy to detect. Some counties have parallel revenue management systems while others have diverted funds to personal accounts of individuals,” he added.
However, Kisumu Senator Professor Tom Ojienda warned the firms have signed agreements with the counties allowing them to retain a certain percentage of the revenue they collect and trying to reverse that could lead to a long legal battle.
