CBK: Why we can't compel counties to close unauthorised bank accounts

Central Bank Governor Kamau Thugge when he appeared before the National Assembly Finance and National Planning Committee on the printing of new currency notes at Parliament on August 21, 2024. [Boniface Okendo, Standard]

Central Bank of Kenya Governor Kamau Thugge has said that the regulator has no powers to compel county governments to close unauthorised bank accounts.

Thugge, who appeared before the Senate Devolution and Intergovernmental Relations Committee, said there is limited visibility by CBK banking teams over accounts opened in commercial banks unless flagged by investigative agencies.

The Governor told the Committee, chaired by Wajir Senator Mohammed Abbass, that the responsibility and accountability regarding county treasury banking arrangements in commercial banks rests with the County Executive Committee Member in charge of Finance.

“There is inadequate coordination among oversight agencies, which include the Controller of Budget and the Auditor-General, in enforcing compliance, while there is limited physical reach of Central Bank of Kenya branches to some counties,” said Thugge.

The Governor told senators that all county bank accounts should be maintained and opened at the Central Bank, with the exception of commercial banks, admitting that there is a lack of clarity on who should open or close bank accounts. This loophole is being used by counties to open numerous accounts.

Thugge said they are encouraging counties to adopt alternative banking arrangements where the Central Bank’s physical presence is limited, as well as a coordinated approach by the Auditor-General and Controller of Budget in enforcing compliance with set regulations.

The Committee Vice Chairperson, Catherine Mumma, asked Thugge how often the Central Bank engaged the Intergovernmental Budget and Economic Council (IBEC) and the Council of Governors (CoG) over the accounts, to which he said that he has never met IBEC over the matter.

“The Central Bank’s role is to facilitate account opening and closing upon request by County Executive Committee Members in charge of Finance and County Assembly Clerks, and to maintain county governments’ bank accounts in our branches, excluding commercial bank accounts,” said Thugge.

Kiambu Senator Karungo Thangwa said there was a need for the Senate to direct the Central Bank of Kenya to send a circular to all commercial banks to ensure that, before opening accounts for counties, they notify the CBK. This would help avoid a situation where there are multiple accounts.

Thangwa called for frequent monitoring of bank accounts run by county governments so that it becomes easier to detect suspicious transactions, noting that these funds are meant to improve the lives of Kenyans but have only ended up enriching a few individuals.

Senator Chute asked the Central Bank to advise the Committee on how best counties can be stopped from opening multiple accounts, as they are an avenue for the siphoning of public funds. He said there was no satisfactory reason as to why a county should have more than 200 bank accounts.

“We need to be told how counties can be prevented from having multiple bank accounts, since this has been used as an avenue through which billions of shillings have been lost since the inception of counties 12 years ago. This should not be allowed to continue,” said Chute.

Siaya Senator Oburu Oginga said that some governors had explained that their administrations have several bank accounts in commercial banks because they are asked to open them, especially for donor-funded projects.

Abbass said what is being witnessed across the 47 counties, in terms of public funds expenditure, is worrying. The matter of multiple bank accounts is raising a red flag and needs to be addressed appropriately.

Thugge told senators that there is a need to monitor the counties’ banking system in a structured way, stating that such oversight would help enhance responsibility and accountability.