Cash-strapped universities mull fee increase as debts surge

Poor financial management, underfunding, ethnicity-driven hiring and blatant violation of the law are some of the factors that have brought public universities to their knees.

An analysis of the most recent reports filed by Auditor-General Nancy Gathungu on public universities shows many of them are technically insolvent and have to rely on funding from government and expensive short-term loans.  

And students and their parents may have to bear the brunt of the rot by paying higher fees, which appears to be the only way the government-owned institutions can be kept afloat.

Worryingly, only a few of the institutions attracted income from their research activities, a serious indictment of their performance on the core function of a university. 

Whereas the audit reports are specific to each university, the common thread is that most operate on a deficit, have huge pending bills, stalled projects and in some cases lack ownership documents for the land they sit on. 

The audit reports relate to the financial year ending June 30, 2020, which were prepared only a few months ago.

So cash-strapped are the universities that some have failed to remit statutory deductions, which continue to attract interest and penalties. The unremitted deductions include Pay As You Earn (PAYE), Value Added Tax (VAT) as well as sacco and loan deductions. 

The Vice Chancellors’ Committee, which comprises VCs from all public universities, has already proposed that tuition fees be raised threefold from the current Sh16,000 to Sh48,000 for the universities to run effectively. 

University of Nairobi (UoN) has already doubled its fees from Sh28,500 to Sh59,000 for  government-sponsored students, while Moi University, which is steeped in a Sh4.5 billion debt, is considering following suit as a way out of its financial misery.  

Negative working capital

Besides financial woes, Ms Gathungu has flagged violation of the law in hiring of staff, with reports indicating a majority of the institutions’ employees are from the dominant communities where they are established, in contravention of the National Cohesion and Integration Act, 2008.  

The International Monetary Fund recently recommended that UoN, Moi University, Kenyatta University (KU) and Jomo Kenyatta University of Agriculture and Technology (Jkuat) effect structural adjustment programmes for sustainability.  

In the period under review, for example, UoN recorded a deficit of Sh1.62 billion, which was an increase from Sh1.3 billion the previous year. The university had a revenue budget of Sh18.26 billion, but was only able to raise Sh15.29 billion, meaning that some of the planned activities could not be implemented. 

“Management attributed the shortfall in revenue collection to a challenging business environment brought about by the Covid-19 pandemic. The under-performance affected the planned activities and may have impacted negatively on services to the public,” Ms Gathungu says in the report. 

UoN had a negative working capital of Sh3.54 billion, as its current liabilities were Sh10.27 billion against current assets worth Sh6.73 billion. 

Kenya’s premier university was unable to remit statutory deductions amounting to Sh7.01 billion. These included PAYE & VAT (Sh3.79 billion), pension contributions (Sh3.22 billion) and audit fees (Sh18.6 million).

The Auditor-General concluded that UoN was technically insolvent despite having the largest asset base of all public universities, with its property, plant and equipment valued at Sh209,978,102,000. 

Besides its debt obligations, the UoN is owed more than Sh1.05 billion in unpaid fees.

Kenyatta University had a deficit of Sh1.3 billion. It recorded a negative working capital of Sh4.8 billion as its liabilities were Sh6.4 billion against current assets worth Sh1.6 billion “which indicates that the university is likely to be unable to meet its financial obligations as and when they fall due.

Suffered huge losses

“In particular, the university was unable to remit pension and taxes amounting to Sh3.7 billion, audit fees (Sh8.1 million) and other deductions (Sh342.9 million) to the respective beneficiaries, thereby risking fines and penalties,” Ms Gathungu says. 

She acknowledged that although the university management had put in place stringent cost-cutting and revenue enhancement measures, it had been forced to finance its operations through expensive short-term loans, which may worsen its liquidity position. 

KU suffered huge losses after the closure of two campuses it had opened in Kigali, Rwanda (Sh420.7 million) and Arusha, Tanzania (Sh97.4 million) following changes in local regulations.

“Management has not made any recovery on the amount so far incurred (Sh518, 174, 359).

On ethnic composition, 40 per cent of its council members are from one ethnic community while 45.4 per cent of senior management are from the same community. Permanent staff from the community comprise 40.7 per cent, which is in breach of the National Cohesion and Integration Act, 2008 which states that “All public offices shall seek to represent the diversity of the people of Kenya in employment of staff and that no public institution shall have more than one third of its staff establishment from the same ethnic community”.

Masinde Muliro University of Science and Technology had a worse score on this. Of its 951 employees, 646 (68 per cent) were members of the dominant community in the county, contrary to the law.

Moi University had 2,739 employees and 1,696 (62 per cent) were from the dominant ethnic community. 

The auditor found that some staff on the university payroll either had no KRA PIN or their numbers were erroneous, while others did not have NSSF or NHIF numbers. 

“In the circumstances, I’m unable to confirm the existence of effective payroll controls and governance in the management of public resources,” Ms Gathungu states. 

Financial statements

The university was also found to be under-funded by Sh206.6 million (6 per cent) of its budget. It recorded an under-expenditure of Sh502.6 million (14 per cent), meaning its services to the public were negatively affected. 

MMUST also paid Sh32.1 million in penalties for unremitted NSSF deductions for the years 2018-2019. In 2019, it failed to collect fee arrears of close to nine million shillings after 193 students graduated before clearing their fees. 

Ms Gathungu noted errors in the financial reports of Moi University, which included unexplained variances in the statement of its financial position. These include cash flows (Sh119.1 million) and a restatement of Rivatex reserves (Sh100.8 million).

The university’s net assets balance of Sh10.51 billion also had an unexplained variance of Sh19.9 million from its computed balance. 

“The accuracy and completeness of the financial statements could not be confirmed,” the auditor noted in her report. 

The university also indicated it owed part-time lecturers Sh105.8 million but failed to provide a list of the said lecturers. 

Ms Gathungu declared the university technically insolvent. It was underfunded by Sh282.6 million, which translates to 35 per cent of its approved budget, meaning many of its plans were not implemented. The auditor noted that the university ran the risk of lawsuits owing to pending bills totalling Sh1.1 billion. 

On staff wages, the university spent Sh3.3 billion, which included Sh4.1 million for 44 casual labourers who were not recorded in the master roll. 

For its part, Egerton University has no record of who deposited over Sh36.8 million into its accounts.

However, former and current students owe the university over Sh953 million. The auditor said the university failed to provide documentation regarding its investments and to explain discrepancies in its books. She concluded that it was impossible to determine the accuracy of its financial records.

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