State agencies censured for flouting audit rules, failing to account for Sh3.9 billion

Public Investment Committee on Social Services, Administration, and Agriculture chairperson Emmanuel Wangwe. [Elvis Ogina, Standard]

At least 23 state corporations have been indicted for not submitting their financial reports to the Auditor General.

Consequently, a report by the Public Investment Committee on Social Services, Administration, and Agriculture (PIC-SSAA), accused the state corporations of failing to account for Sh3.9 billion.

The Committee led by Navakholo MP Emmanuel Wangwe received oral and written evidence from Cabinet Secretaries and Principal Secretaries of line ministries, Chief Executive Officers, Directors, and Registrars of the 23 state corporations.

"For various financial years, a total budget of Sh3.91 billion for the few state corporations that complied with the committee's request for evidence, had not been appropriately accounted for due to their failure to prepare and submit financial statements for audit," reads the report.

With more than 400 state corporations operating in various sectors, the failure of 23 to comply with established auditing and transparency regulations highlights just a fraction of the larger governance issue.

The non-compliant state corporations include the Agricultural Information Resource Centre, Mathari National Teaching and Referral Hospital, Clinical Officers Council, Physiotherapists Council of Kenya, Kenya Health Professions Oversight Authority, National Heroes Council, Kenya National Commission on Culture and Social Service and Kenya Sports Authority.

"Further, the committee was informed that the Kenya Sports Authority does not exist as a state corporation," reads the report.

The committee discovered that these state corporations have failed to submit financial statements to the Office of the Auditor General for audit, contravening the Public Finance Management Act and the State Corporations Act.

Furthermore, regulatory state corporations such as the Physiotherapists Council of Kenya, the State Corporations Advisory Committee have not been preparing financial statements, which should be audited as per the law.

The report reveals that Mathari National Teaching and Referral Hospital for instance received Sh1.63 billion but failed to produce before the committee the actual expenditure and un-absorbed amount, a trend that was replicated by several corporations represented by officials in the line ministry.

The National Heroes Forum told the committee they received Sh140 million (in an unspecified financial year), spent, Sh127.9 million while Sh12.1 million was un-absorbed.

The report also noted failure to submit statements for unspent money repaid into the National Exchequer Account, in violation of the Public Finance Management Act. This raises questions about the transparency and accountability of these state corporations even as Kenyans continue decrying government expenditure, accountability and corruption.

While officially recognised as Semi-autonomous Government Agencies (SAGAs), the report revealed that state corporations are grappling with autonomy issues that have severe implications, potentially resulting in substantial financial losses for taxpayers running into billions of shillings each year.

One of the most alarming findings is that certain state corporations continue to operate under the direct control of their parent ministries or state departments, essentially functioning as subordinate directorates rather than independent entities.

This lack of autonomy compromises their decision-making and financial independence.

Perhaps even more concerning is the discovery that some state corporations were never fully operationalised even after having their establishing Acts approved and commencement dates realised. This means they exist on paper but lack the necessary organizational structures and resources to function effectively.

"Some state corporations were managed by their sister state corporations rather than them exercising autonomy derived from their establishing Acts of Parliament. This was observed between the Communication Authority of Kenya and the Universal Service Advisory Council; the Media Council of Kenya and the Media Complaints Commission," reads the report.

The Constitution and the Public Finance Management Act, of 2012, outline strict requirements governing financial records, account audits, and the appointment of accounting officers.

Article 226 of the Constitution stipulates that an Act of Parliament should provide for the maintenance of financial records and account audits for all government and public entities.

The law also mandates the designation of an accounting officer for each public entity, whether at the national or county level, who is ultimately responsible for financial management. These accounting officers are accountable to Parliament for the financial management of their respective entities, ensuring lawful, authorized, effective, efficient, economical, and transparent use of resources.

The Public Finance Management Act, of 2012, further reinforces these obligations by specifying that accounting officers must ensure compliance with financial and accounting record-keeping, protect those records, and submit annual financial statements for auditing.