While the drama around the allocation of funds at the Senate may have subsided, the ghost of unused cash sent back to Treasury continues to haunt counties.
The country was treated to high-stakes negotiations, nine failed votes, and claims of bribery and wrongful detention over the revenue-sharing formula, but the billions of shillings that eventually make it to county governments may yet go the way they have in previous financial years.
Since the start of devolution to June 30, 2020, the national government has disbursed Sh2.03 trillion to county governments, with 91.6 per cent of the funds being the equitable share that has been the subject of debate for weeks.
These funds have, however, consistently been underutilised on development and disproportionately directed towards salaries and benefits.
Staff benefits
The Draft 2020 Budget Review and Outlook Paper (BROP) released by the Office of the Controller of Budget last week reports that counties spent at least Sh1 out of every Sh2 they received in the 2019-20 financial year on salaries.
Public finance management legislation, however, requires that counties spend not more than 35 per cent of their total revenue on staff benefits and salaries, yet more than 50 per cent of the governments’ spending went to paying public officers.
Further, eight counties, namely “Embu, Baringo, Garissa, Elgeyo Marakwet, Samburu, Machakos, Nandi and Nyeri had over 60 per cent of their total expenditures going to personal emoluments,” the BROP notes.
This has turned wage bills into a major challenge for counties, with the Controller of Budget calling for “concerted effort” to get counties to meet the legal threshold.
In the 2018/19 financial year, counties spent Sh120.5 billion on personnel, representing 52.3 per cent of the total cash used over that period.
Counties also grapple with pending bills, which is what is claimed by the various traders and entrepreneurs who supply them with a host of services and products. Several suppliers have decried late payments from counties and the national government, making it difficult to conduct business with the State, which is one of the biggest consumers of Kenyan goods and services.
A 2018 audit report of counties by the Treasury and Office of the Auditor-General established that counties owed suppliers Sh89.99 billion, with Sh51.3 billion classified as eligible and Sh37.7 billion ineligible. Of these eligible unpaid bills, 13 county governments disputed receipts valued at Sh1.3 billion.
“...verification of the disputed pending bills is ongoing. Nevertheless, as of June 30, a total of Sh39.17 billion (76.39 per cent) of the eligible bills had been paid by the county governments,” the BROP notes.
A total 21 counties have cleared all their eligible bills, though they still have ineligible pending bills that are awaiting resolution.
Some of the counties that, as of June 30 this year, had no pending eligible bills are: Baringo, Elgeyo Marakwet, Embu, Homa Bay, Kilifi, Kitui, Kwale, Laikipia, Kakamega and Wajir counties.
That leaves 26 counties with outstanding bills. Nairobi leads the pack, with Sh6.7 billion owed to various businesses as of June 30. Mombasa comes second at Sh1.6 billion owed, followed by Isiolo at Sh567.1 million.
Counties have additionally struggled with absorbing the funds sent to them by the Treasury.
“The overall absorption rate (actual expenditure over budget) for the county governments combined for the first nine months of FY 2019-20 was 48.4 per cent, which is equal to the absorption rate in FY 2018-19,” reads the BROP.
While the argument by some governors over the low absorption rate of funds is the late disbursement of funds by the Treasury, the report does not absolved counties from blame, saying in several instances, they provide inadequate documentation. For instance, where counties’ accounting officers are expected to send written submissions to access conditional grants, they failed to do so, which meant the Exchequer could not release funds.
“... an amount of Sh6.12 billion could not be disbursed as there were no written instructions from the respective accounting officers,” reads the report.
Generally, counties absorbed recurrent cash better than they did development funds.
“The absorption rate for development expenditure for the period July 2019 to March 2020 remained low at 25 per cent compared to that of the recurrent expenditure, which stood at 64 per cent for the same period,” the report reads.
However, the government admits it disbursed 91 per cent of the Sh286.8 billion equitable share revenue due to counties by June this year, mainly due to revenue shortfalls occasioned by Covid-19.
Revenue stalemates
Further, the law requires counties to ensure that at least 30 per cent of their budgets are used for development projects. In the 2019/20 financial year, six counties were able to meet this threshold: Isiolo, Kakamega, Kwale, Mandera, Marsabit and Tana River.
In 2018/19, only Uasin Gishu, Wajir, Trans Nzoia and Laikipia counties surpassed the 30 per cent mark for development spending, while Bungoma, Meru and Embu allocated just 12 per cent, 10 per cent and 8 per cent, respectively, to such projects.
To minimise the chances of long-running revenue stalemates, the Treasury has called for counties to generate more of their own funds. However, only 26 counties were able to meet at least 50 per cent of the target for own source revenue in the first nine months to March 2020.
Cumulatively, counties collected Sh28 billion from business permits, park fees, land rates, and so on, against an annual target of Sh57.8 billion.
