To end corruption, let’s adopt modern accounting systems

What you need to know:

  • Here is some advice to Mr Yatani and Dr Muia, the two new kids on the block if you want to leave an enduring legacy at the National Treasury.
  • Take major steps to move the government from the primitive and antiquated cash-based of accounting to the modern accrual-based double-entry system.
  • The sheer lack of a proper accounting system is one of the causes of the ills in the civil service.

Former Finance Minister Amos Kimunya was the first qualified accountant to occupy such an office. Former permanent secretary to the Treasury, Martin Oduor-Otieno, was the first qualified accountant to hold that position.

DOMAIN KNOWLEDGE

The rest of the holders of these offices were either economists, people with degrees and experience in public administration or even lawyers.

Cabinet Secretary for the National Treasury Ukur Yatani is an experienced public administrator. His PS, Dr Julius Muia, is an accountant with deep domain knowledge and experience of the subject matter.

What surprises me is that despite the fact that we have had people with vast domain knowledge and experience in accounting and finance occupying positions of influence at the National Treasury, accounting within government is a total mess.

Indeed, individuals such as Mr Kimunya and Mr Oduor-Otieno were, before they were appointed, senior practitioners of accountancy who at one time headed the Institute of Certified Public Accountants of Kenya (Icpak), the accountants’ professional club. And yet reform of accounting has never been a top policy agenda of the government.

ACCRUAL-BASED

Even Icpak, which should be championing accounting reforms, has been deafeningly silent on this crucially important issue.

I’m also surprised at the silence of the big four accounting firms on the matter.

Here is some advice to Mr Yatani and Dr Muia, the two new kids on the block: If you want to leave an enduring legacy at the National Treasury, and in public service in general, take major steps to move the government from the primitive and antiquated cash-based of accounting to the modern accrual-based double-entry system.

I make these remarks against the backdrop of a recent report by the International Monetary Fund (IMF) on fiscal transparency standards in Kenya. Here is a summary of the findings.

First, the government does not keep an asset register, even as it buys more assets. Secondly, while financial reports cover revenues, expenditure and financing, they are mostly on a cash basis. There is no systematic reporting of expenditure arrears.

RUDIMENTARY CONTROLS

Kenya has no general ledger maintained on an accrual basis and that is based on double entry bookkeeping. The minister has no record of what the government owes at any one point and does not keep an accurate creditors ledger, hence the practice of manually compiling pending bills.

The CS has no way of knowing at any instance his net cash position, making it impossible for him to implement a Single Treasury Account, which is considered as best international practice.

The government cannot implement even rudimentary accounting controls.

My suggestion to Mr Yatani and Dr Muia is that they negotiate an urgent technical assistance programme to preside over the transition to a modern transparent system of accounting. Which brings me to the subject of Building Bridges Initiative (BBI).

AUDIT SYSTEMS

With the 2010 Constitution, we adopted a presidential system of government where most economic decisions, including formulating the Budget, is the responsibility of the presidency.

In the earlier stages of President Kenyatta’s administration, there was muted talk about creation of the Office of Management of Budget at State House. But the idea was dropped. This is how we ended up with a presidential system running largely on a public financial management architecture of a parliamentary system of government. In the next dispensation, we should introduce clarity on this issue.

But the elephant in the room remains the dire state of public financial management at the county level. Somebody tell Yatani that when he withholds Exchequer releases to the counties, ostensibly to force them to clear the pending bills in their books first, he is exercising powers he does not have.

Still, we must accept that public financial standards at the county level have collapsed. Public procurement systems public procurement laws and regulations are neither expected nor followed. Internal audit systems in counties are in a shambles.

BIG HEADACHE

And, although we have an enterprise resource planning (ERP) system known as Ifmis in place, it is not a fully fledged integrated system where databases are linked in a general ledger. It is the reason regular financial reporting and disclosure remains a big challenge.

Managing cash flow has also been a big headache.

The sheer lack of a proper accounting system is one of the causes of the ills in the civil service. If we don’t make the critical transition to a modern accounting system, all those anti-corruption crusades the government keeps touting will only scratch the surface of our problems.

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