Public Finance Expenditure - Accountability Deferred or Institution Failure

INTERNATIONAL CENTER FOR
POLICY AND CONFLICT

Empowering people, transforming public policy
OFFICE OF THE AUDITOR GENERAL

Promoting Accountability in Public Sector
OFFICE OF THE
CONTROLLER OF BUDGET
DOCUMENTATION OF
RECOMMENDATIONS MADE
ON PUBLIC EXPENDITURE
Supported by

POLICY AND CONFLICT Kenya’s National Civic Education Programme
International Center for Policy and Conict

P.O. Box 44564-00100,Nairobi, Kenya
14th Floor View Park Towers, Utalii Lane, Off University Way
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ICPC
ACKNOWLEDGEMENT
T he International Center for Policy and Conflict (ICPC) would

like to extend its sincere gratitude to our partner, Uraia for their
generous support in implementing the project, “Promoting
Democratic Governance, Accountability and Electoral Integrity”.
Without their support, the
research activity and production of this document would not have been
made possible.
ICPC also appreciates Joy Karemesi, an Independent Consultant, for

her research and compilation of this report. The Center appreciates the
strong leadership and guidance offered to the consultant by ICPC
Executive Director Ndung’u Wainaina during the period of
implementation.
This publication is the culmination of a four-month long research,

review and documentation of recommendations made on public
expenditure in the Office of the Auditor General (OAG), Parliament,
Controller of Budget (CoB) and Ethics and Anti Corruption
Commission (EACC).
Lastly, we recognize the participants who participated in the validation

forum of this report, which took place in October 2017. The
tremendous contributions made by the participants helped the
consultant in putting together a final document.
ICPC
Documentation of Recommendations Made on Public Expenditure
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
F ollowing the enactment of Kenya's new Constitution (2010), issues

relating to public financial management are now at the center of
policy reforms. The new Constitution introduced fundamental
changes in the management of public finance by establishing various
commissions and state agencies to provide financial oversight by checking
on malpractices that arise from unethical financial practices and weak
regulatory systems.
Despite this, recent public interest in the management of resources in the
public sector requires us to rethink our approach to public finance
oversight. There has been an increase in questionable financial
malpractices covering the entire spectrum in the public sector over the
recent years. This begs the question, “Why does this corruption trend
continue with a rapid increase of the amounts involved despite the
numerous agencies set up to control it?” Should we continue using the
same methods we used yesteryears to fight the war against fraud,
corruption, wastage and abuse of public resources?
This report serves to review and document recommendations made on
public expenditure by specific oversight bodies. These are the Office of
Auditor General (OAG), Parliament, Controller of Budget and the Ethics
and Anti-Corruption Commission (EACC). The report goes further to
critically analyse how effective each of these institutions is in providing
financial oversight, and gives recommendations on how their role can be
strengthened.
The report also aims to sensitize stakeholders such as members of the
public and development partners on issues pertaining to budget
implementation by the National and County Government entities in
fulfillment of Article 35 of the Constitution of Kenya, 2010, Section 39(8)
of the Public Finance Management (PFM) Act, 2012 and Section 9(6) of
the Controller of Budget Act, 2016. Such knowledge is essential to
facilitate and increase participation of the public in positively influencing
the budget execution of both the national and county governments.
The report recommendations are a starting point in pushing for improved
accountability by national and county government institutions by ensuring
that public resources are utilized in a prudent and responsible manner. It is
envisioned that this report will contribute positively towards enhancing
accountability and integrity of the use of public finance in the country.

LIST OF ACRONYMS
ACRONYMS

00 CONTENTS Table of Contents
CHAPTER 1 .............................................................................................................................. 1
Introduction................................................................................................................................. 1
Public Finance in the New Constitution ....................................................................................... 2
How the Audit Process in Kenya Works ...................................................................................... 3
CHAPTER 2: OFFICE OF THE AUDITOR GENERAL (OAG) .......................................... 7

Background ................................................................................................................................. 7
National Government Budgetary and Expenditure Review .......................................................... 8
Budget Review ........................................................................................................................ 8
Key Issues Identified in the FY 2014/2015 ......................................................................... 11
Recommendations on Public Expenditure ......................................................................... 13
CHAPTER 3: OFFICE OF CONTROLLER OF BUDGET (OCOB) .................................. 15

Background ............................................................................................................................... 15
National Government Budget Implementation Reviews ............................................................ 15
Key Issues Identified in the FY 2016/17 ........................................................................ 15
Recommendations made on National Government Expenditure .................................... 17
County Governments Budget Implementation Reviews ............................................................ 18
Recommendations made on County Governments Expenditure ..................................... 22
CHAPTER 4: THE ETHICS AND ANTI-CORRUPTION COMMISSION........................ 24

Background ............................................................................................................................... 24
County Government Budget Implementation Reviews .............................................................. 24
Major highlights/ findings of the Examination and CRA Reports ........................................... 25
Recommendations on Public Expenditure by County Governments ........................................... 26

CHAPTER 5: PARLIAMENT ............................................................................................... 30
Parliament and the Budget Process ............................................................................................ 30
Mandate of the Public Accounts Committee (PAC) ............................................................... 30
National Government Budget Implementation Reviews............................................................. 31
Key Issues Identified in the FY 2016/17 ................................................................................ 31
Recommendations Made on Public Expenditure by Parliament .............................................. 36
Challenges Experienced by the PAC ...................................................................................... 38
/ I ! t Ç9 w ‫⁬ﻲ‬TOWARDS A MORE ACCOUNTABLE PUBLIC FINANCE ................... 39

Key Observations Made ........................................................................................................... 39
Auditor General’s and Controller of Budget Office’s ............................................................. 39
Challenges Faced by the OAG and the COB ................................................................. 40
Recommendations to Enhance Public Finance Oversight .............................................. 41
Parliament ............................................................................................................................ 42
Barriers to Effective Fulfillment of Parliament’s Role ................................................... 42
Recommendations to enhance for Parliamentary Oversight ........................................... 43

EACC ................................................................................................................................... 43
Main Challenges Faced By the EACC ........................................................................... 43
Recommendations to Strengthen EACC’s Public Finance Oversight ............................. 45
COUNTY GOVERNMENTS ................................................................................................ 45

How Can Civil Society Collaborate With Public Oversight Institutions To Advance Financial
Integrity? ............................................................................................................................... 46
Recommendations for Potential Engagement Areas ....................................................... 47

CHAPTER 1
1.0 INTRODUCTION
Kenya's new Constitution promulgated in the year 2010 introduced fundamental changes in the
management of public nance. The Constitution captured the public nance management reform agenda
and established various commissions and state agencies to check on malpractices that arise from unethical
nancial practices and weak regulatory systems. These include the ofce of the Controller of Budget,
Auditor General, Salaries and Remuneration Commission, Central Bank of Kenya, Commission on
Revenue Allocation among others. These independent institutions were given wider mandates in the
oversight of the nancial resources of the country and budget execution.
Despite the efforts by the said oversight institutions, recent public interest in the management of resources
in the public sector requires us to rethink our approach to public nances oversight. A cursory glance at the
local dailies, news channels and social talk over the last few months reveals questionable nancial
malpractices covering the entire spectrum in the public sector. From the collapsed Kshs.1.2 billion Sigiri
Bridge, 1.6 billion National Youth Service (NYS) Scandal, Standard Gauge Railway implementation
scandal, Afya Scandal to wheel barrows being purchased at Ksh.109,000 each at the county level; it seems
that Kenyans barely go one month without hearing of a corruption scandal.
The question begs, “Why does this corruption trend continue with a rapid increase of the amounts involved
despite the numerous agencies set up to control it?” Should we continue using the same methods we used
yesteryears to ght the war against fraud, corruption, wastage and abuse of public resources? Could we
then say that the Kshs. 2.6 trillion shillings proposed expenditure in the nancial year 2017/18 is safe
amidst the demonstrated nancial malpractices being experienced? This is a sad state of affairs as we strive
to become a middle income economy by 2030.
It may be argued that most of these oversight agencies come into the picture long after the horse has bolted.
They seem to be either too slow or too late in reacting to these malpractices in a deterrent manner. To add
on, the perpetrators drag the oversight agencies in long, frustrating litigation games that run into years,
many times without a conclusive end. There is need to strengthen institutions and mechanisms of ensuring
that most of these anomalies are detected, deterred and acted upon in real time.
This report serves to review and document recommendations made on public expenditure by specic
oversight bodies. These are the Ofce of Auditor General (OAG), Parliament, Controller of Budget and the
Ethics and Anti-Corruption Commission (EACC). This is with the aim to improve accountability in
government institutions by ensuring that public resources are utilized in a prudent and responsible manner.
This will serve to deliver services efciently and effectively to the citizenry.
The report also aims to sensitize stakeholders such as members of the public and development partners on
issues pertaining to budget implementation by the National and County Government entities in fulllment
of Article 35 of the Constitution of Kenya, 2010, Section 39(8) of the Public Finance Management (PFM)
Act, 2012 and Section 9(6) of the Controller of Budget Act, 2016.Such knowledge is essential to facilitate
and increase participation of the public in positively inuencing the budget execution of both the national
and county governments. It is envisioned that this report will contribute positively towards enhancing
accountability and integrity of the use of public nance in the country.
Documentation of Recommendations Made on Public Expenditure 1

1.1 PUBLIC FINANCE IN THE NEW CONSTITUTION
The public nance provisions in the new Constitution were therefore signicantly inuenced by the need
to correct past executive excesses and abuses. Chapter 12 of the new Constitution begins in Article 201
with guiding principles and a framework for public nance, which if strictly adhered to can alter policy
formulation and the management of public resources for the better. Among the key principles are
requirements that there should be:
· Openness, accountability and public participation.
· Promotion of equity, meaning that the tax burden is shared fairly at both national and county levels.
· Public expenditure that promotes equitable development and addresses marginalized areas and
groups.
· Equitable sharing of debt benets and burden between current and future generations.
· Prudent and responsible use of public resources.
· Responsible nancial management with clear scal reporting.
The provisions of the new Constitution have also enabled the transfer of key public nance responsibilities
from the executive to the legislature. Furthermore, some of the oversight institutions have been
reorganized and new independent constitutional ofces created by splitting the control function of the
Controller and Auditor General (CAG), for example, into two, i.e., the Controller of Budget (COB) and the
Auditor General (AG) under Articles 228–229.
Second, the Constitution extended the role of the COB to monitor budget execution and report on a
quarterly basis to Parliament.
Third, and perhaps most signicant, it overhauled the roles, functions and duties of the Treasury. As a
result, the Secretary of Finance (formerly the Minister for Finance) and the Principal Secretary
(formerly the Permanent Secretary, Treasury) were relegated to legislation. This is a complete
departure from the 1963 Constitution, which, in Chapter VII, gave very clear and distinctive mandates
to the Finance Minister, leaving the legislature to deal specically with matters of approval and
oversight.
In addition, Article 201 of the Constitution has laid down very good and basic principles of budgeting as
follows:
1. There shall be openness and accountability, including public participation in nancial matters.
2. The public nance system shall promote an equitable society and in particular:
i) The burden of taxation shall be shared fairly
ii) Revenue raised nationally shall be shared equitably among national and county
governments; and
iii) Expenditure shall promote the equitable development of the country, including by making
special provision for marginalized groups and areas
3. The burdens and benets of use of resources and public borrowing shall be shared equitably
between present and future generations.
4. Public money shall be used in a prudent and responsible way; and
5. Financial management shall be responsible, and scal reporting shall be clear.
These principles can only be achieved if the principle of good governance is observed by all
stakeholders.
1.2 HOW THE AUDIT PROCESSIN KENYA WORKS

The audit process is guided by the International Auditing Standards and International Standards on
Supreme Audit Institutions (ISSAIs) to ensure effectiveness of its audit processes. These Standards
emphasize heavily on good communication with the audited entities. As such, the Ofce of the Auditor
General (OAG) ensures that there is continuous communication with the different public institutions being
audited during the entire process.

Communication with the auditors takes place through the following sequential channels:
1. Letter of understanding
This is sent out to the specic public institution before the audit commences, to explain the nature and
scope of the audit. This is aimed at arriving at common understanding about the terms of the assignment.
The letter informs both auditors and management on the expectations of the audit.
2. Entrance meetings with the management of the audited entity

This is an inaugural meeting with the management before the audit exercise starts. The contents of the
letter of understanding and the audit strategy are discussed during this inaugural meeting.
3. Audit queries issued, communicated and responses sought from auditee

During the course of the eldwork, there is regular contact between the auditors and auditee's staff. The
auditee is informed of any audit ndings/observations in the course of the audit and management of the
entity being audited is accorded an opportunity to respond to the queries raised.
This back and forth engagement takes place numerous times until the queries are cleared or remain
outstanding, if not satisfactorily responded to by the management.
4. Exit meetings with the Management of the Audited Entity

At the end of the audit exercise, the Management is invited to attend the exit meeting where the auditors
share with them the ndings of the audit exercise, and indicate any outstanding issues that require further
explanation or documentation.
5. Management Letter
This letter is issued to the Accounting Ofcer and includes all unresolved audit ndings and exceptions
arising from the audit exercise. Management is requested to respond tithe audit ndings within a specic
timeline after which the Auditor- General is under obligation to issue the report as it is. When
management's response is received, the same is veried and the audit ndings are either retained, dropped,
or kept in view (to be checked in the next audit); depending on the materiality (signicance) of the ndings,
and response provided.
6. Draft Audit Report

The draft audit report is issued to the public institution to give an overview of issues in the management
letter which were not satisfactorily addressed by the management in the response to management letter.
7. Final Audit Report

This is issued to the Auditee and shows the overall audit opinion on the nancial statements as well as
pointing out other key issues arising from the audit.
8. Reporting to Parliament
In line with relevant Constitutional provisions, audit reports are submitted to Parliament or the relevant
County Assembly. National Assembly Committees which receive audit reports include Public Accounts
Committee and Public Investments Committee for National Government Accounts and State
Corporations Accounts, respectively. At the Senate, there is Public Accounts and Investments
Committee. Reports for County Governments are received by the Public Accounts and Investments
Committees at the respective County Assemblies.

9. Deliberations of Reports by Parliamentary/ County Assembly Committees
The audit reports are submitted to Parliament (National Assembly and the Senate) and the relevant County
Assemblies who represent the people of Kenya. The reports are discussed byte relevant standing
committees at National Assembly, the Senate and County Assemblies.
At the National Assembly, the Public Accounts Committee (PAC) discusses audit reports formational
Government entities while the Public Investment Committee (PIC) discusses those for State Corporations.
At the Senate, the Public Accounts and Investments Committee of the Senate discusses audit reports for the
County Governments and County Corporations. On the other hand, the County Assemblies Public
Investment and Accounts Committees (PIACs) discuss reports for the County Governments, County
Assemblies and County Corporations.
The deliberations by the relevant watchdog committees involve inviting key ofcers from the various
entities to respond to the audit queries. The public hearing sessions are open to members of the public.
10. Reporting by Parliamentary/County Assembly Committees

After the discussions are complete, the Parliamentary and County Assembly committees with assistance of
the Ofce of the Auditor-General come up with recommendations for implementation by the entity
concerned.
11. Follow-up of Implementation of Parliamentary/County Assembly Recommendations

The Auditor-General makes a follow up in the subsequent year to conrm whether recommendations made
have been implemented by the Accounting Ofcers. In cases where no action has been taken, the matter is
included in the subsequent year's audit report.
This audit process is summarized in gure 1 below:
Figure 1:
The Audit Process in Kenya

CHAPTER 2
OFFICE OF THE AUDITOR GENERAL (OAG)
2.1 Background
The Ofce of the Auditor General (OAG) is an independent Ofce created under Article229 of the
Constitution of Kenya. The Ofces charged with the primary oversight role of ensuring accountability
within the three arms of government i.e. the Legislature, Judiciary and the Executive; as well as
Constitutional Commissions and Independent Ofces.
Article 229 (4) species that within six months after the end of each nancial year, the Auditor-General
shall audit and report in respect to that nancial year on the accounts of National and County government,
accounts of all funds and authorities of the National and County governments, the accounts offal courts,
accounts of every Commission and Independent ofces established by the Constitution, accounts of the
National Assembly, the Senate and the County Assemblies, accounts of political parties funded from
public funds, the public debt and the accounts of any entity that legislation requires the Auditor General to
audit.
In addition, Article 229 (6) of the Constitution requires the Auditor-General to conrm whether or not
public money has been applied lawfully and in an effective way. The Ofce is mandated to provide
assurance unaccountability of public resources through; Certication of Accounts, Continuous Audit
presence and Service Delivery to all Kenyans.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
nancial statements. It also includes evaluating the accounting policies used and signicant estimates
made by Management, as well as evaluating the overall presentation of the nancial statements. Further, it
includes procedures to determine whether public money has been applied lawfully and in an effective way.
The new Constitution envisaged a new concept of auditing requiring the Auditor-General not only to look
at the scal and managerial accountability aspects of auditing, but to also conrm that the programmes
implemented lead to results and outcomes that positively transform the lives of our people.
The role of the Ofce of the Auditor-General in the accountability process is summed up below:
Figure 2:
Summary of the Role of the Auditor
General in the Accountability Process

Whereas scal accountability has been the major focus of the Auditor General, there is need for continuous
auditing if the country is to respond to managerial accountability and assessment on service delivery.
2.2 NATIONAL GOVERNMENT BUDGETARY AND EXPENDITURE REVIEW
2.2.1 Budget Review

a) Budget Trend Analysis
The gross estimated expenditure has increased over the last ve years from Kshs.999,277,657,525 in the
year 2010/2011 to Kshs.2,099,370,186,391 in the year 2014/2015. This is approximately an increase of
110% over the ve year period. Similarly the actual gross expenditure has increased over the years from
Kshs.901,295,758,038 in the year 2010/2011 to Kshs.1,906,841,500,924 in the year 2014/2015
representing an increase of approximately 112% over the period. This implies that the scope of my audit
has also more than doubled over the last ve years. The tabulation below depicts this trend:
Table 1: Budget Trend Analysis
Zf bs 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015

J r gr -! J r gr -! J r gr -! J r gr -! J r gr -!
F qnr r Dr shl ` sdc 999,277,657,525 1,170,478,418,074 1,485,438,350,899 1,557,192,721,388 2,099,370,186,391
Expenditure
Actual Gross 901,295,758,038 1,066,835,338,744 1,275,862,845,060 1,461,965,849,061 1,906,841,500,924
Expenditure
Figure 3: Budget Trend Analysis
b) 2014/2015 Budget
In 2014/2015 the Approved Estimated Gross Expenditure was Kshs.2,099,370,186,391 while approved
Appropriations-In-Aid (AIA) were Kshs.401,419,514,999 resulting in Net Approved Expenditure of
Kshs.1,697,950,671,392 as follows:

Table 2: Approved Estimated Gross Expenditure
Gross Estimated AIA Approved Net Net

Expenditure Kshs. Expenditure Expenditure
Kshs. Kshs. as a %
of Approved
total Net
Expenditure
Recurrent 736,726,691,515 61,593,196,194 675,133,495,321 40%
Votes
Development 696,492,214,740 339,826,318,805 356,665,895,935 21%
Votes
Consolidated 436,887,630,136 00 436,887,630,136 26%
Fund Services
Sub-total for 1,870,106,536,391 401,419,514,999 1,468,687,021,392 87%
National
Government
County 229,263,650,000 00 229,263,650,000 13%
Governments
Grand Total 2,099,370,186,391 401,419,514,999 1,697,950,671,392 100%
As shown above, 40% of the approved net expenditure was budgeted for meeting the National
Government recurrent expenditure and 21% for development expenditure. Consolidated Fund Services
including repayments of Public Debt accounted for 26%, while County Governments accounted for 13%
of the total budgeted net expenditure.
The 2014/2015 gross budget of Kshs.2,099,370,186,391 was shared between the National Government
and the County Governments at the ratio of 89% and 11% respectively as follows:
Table 3: FY 2014/2015 Gross Estimated Expenditure Share between National and

County Governments
Level of Government Gross Estimated As a % of Gross Estimated
Expenditure Kshs. Expenditure
National Government 1,870,106,536,391 89%
County Governments 229,263,650,000 11%
Grand Total 2,099,370,186,391 100%
Figure 4:
FY 2014/2015 Gross Estimated
Expenditure Share between National
and County Governments

The County Governments allocation of Kshs. 229,263,650,000 for the year 2014/2015 was based on the
audited revenue for the year 2009/2010, since the audited nancial statements for 2010/2011, 2011/2012,
2012/2013 and 2013/2014 had not been approved by the National Assembly. The County Governments
expenditure has been accounted for and was reported individually by each of the forty seven (47) County
Governments and the respective audit reports issued for the County Governments and County Assemblies.
2.2.2 KEY ISSUES AND RECOMMENDATIONS IN THE FY 2014/2015

The following are the ndings of the Auditor General for the audit of the FY 2014/2015:
1. Unsupported Expenditure
During 2014/2015, a number of Ministries, Departments, Commissions and Funds failed to avail
documents in support of various expenditure totaling 7,321,277,260 which was a signicant improvement
compared to the previous year where Kshs.66,782,697,987 was unsupported.
In absence of the records and documentation, the propriety of the expenditure of Kshs. 7,321,277,260
could not be ascertained and therefore these public funds may not have been utilized lawfully and in an
effective manner.
2. Value for Money/ Effectiveness Observations

During the year 2014/2015, a number of Ministries, Departments, Commissions and Funds incurred
expenditure totaling Kshs. 14,435,690,489 of which value for money could not be established. With no
value in return, the funds spent on the expenditure of Kshs. 14,435,690,489 is deemed to have been wasted.
Much of wastage occurred in the course of procurement.
3. Pending Bills
During the year ended 30 June 2015, a number of Ministries and Departments did not settle bills
amounting to Kshs, 43,212,107,778 which was an increase of 160% from the previous year's gure of
Kshs.16,638,164,142. The gure of Kshs 43,212,107,778 comprises of Kshs. 17,168,420,458 and Kshs.
20,731,068,491 under Recurrent and Development Votes respectively and a further Kshs. 5,312,618,829
not classied. The bills were instead carried forward to 2014/2015 nancial year.
However, the total outstanding imprests of Kshs. 117,553,816 for the current year signicantly reduced
by Kshs.233,489,395 or approximately 67% from Kshs.351,043,211 reported as outstanding as at 30
June 2014.
4. Maintenance of Cashbooks and Bank Accounts

Maintenance of Cashbooks across the ministries during 2014/2015 was noted to be weak. As reported in
the previous years, the Bank Reconciliation Statements for Recurrent, Development, Deposits and Fund
Cashbooks as at 30thJune 2015 for several ministries and departments continued to reect material receipts
and payments in the Cashbooks not reected in the Bank Statements, and also receipts and payments in the
Bank Statements not reected in the Cashbooks. Several entries in the Bank Statements were not analyzed
while others had been outstanding for a very long period of time. Most of the ministries' Cashbooks'
th
balance as at 30 June 2015 had not been reconciled with Paymaster General Account (PMG) in the ledger.
th
As a result the accuracy and validity as at 30 June 2015, of most of the Bank and Cash balances could
not be ascertained.
5. Bank Reconciliation Statements

(i) Recurrent Account
The bank reconciliation statement for the National Treasury's recurrent account No.1000181467 as at 30
June 2015 indicated that the cashbook balance was Kshs.13,836,202.25. This amount differed with the
actual cashbook balance of Kshs.9,937,240.55 by Kshs.3,898,961.70.

(ii) Development Account
The bank reconciliation statement for the development account No.1000181664 as at 30 June 2015
indicated a cashbook balance of Kshs.21,665,581.55 which differed with the actual cashbook balance of
Kshs.22,536,245.80 by Kshs.870,664.25. The difference has since not been reconciled.
6. Maintenance of Accounting Records

As in the previous years, and as indicated above, there was weak and inadequate maintenance of
accounting records observed across a number of Ministries and departments during the year. A number of
nancial statements differed materially with the Ledgers and Trial Balances from where ideally they ought
to have been derived.
In addition, the ministries and departments continued to prepare their respective nancial statements on
Cash Basis of accounting as instructed by National Treasury. This implies that capital assets are expensed
as a result of which Statements of Assets as at the end of each nancial year do not show a complete and
true and fair view of the ministry's or department's assets.
As at 30th June 2015, the OAG was not in a position to ascertain what each ministry/department owned.
Consequently the net worth of the Government of Kenya as a whole could not be determined.
2.2.3 RECOMMENDATIONS ON PUBLIC EXPENDITURE BY THE OAG

To address the above identied concerns, the OAG gave the following recommendations:
1. Budget and Budgetary Controls
i) All ministries and departments should adhere to the approved budget in expenditure items during
the nancial year in accordance to the Government Financial Regulations.
ii) Section 71(2) of the Public Finance Management Act,2012, and Regulation 93(5) of the Public
Finance Management (National Government)231 Regulations, 2015 requires that all imprest
holders should account or surrender imprests within seven (7) working days after return to duty
station. Adherence to this will address the unexplained reasons for long outstanding imprests.
iii) In addition, the accounting ofcer should recover all outstanding imprests from the defaulting
ofcer's salary with an interest. Failure to this would mean that the Accounting Ofcer is in breach
of the regulations on imprests.
iv) Necessary supporting documents, records and accounts should be kept in respect to all project
activities.
v) To address the unclear transfer of grants to some Ministry Departments, Accounting Ofcers
should ensure that the draft estimates relating to her/his department are prepared in conformity
with the Constitution and the Public Finance Management Act, 2012 and its Regulations.
vi) Ledger and xed assets registers should be maintained to record all Project assets.
2. Weak Internal Control Weaknesses

i) Public Trustees should fully embrace the use of IT services so as to migrate from the existing
manual system to improve efciency and accuracy in its accounting and record keeping. This will
assure data integrity.
ii) Adequate internal controls should be put in place to monitor expenditure and other nancial
transactions and ensure safe custody of assets exist.
iii) The OAG recommended that all entities should have an approved disaster recovery plan and a
documented and tested emergency procedure in place. This would ensure that should a disaster
occur that may result in loss of the manual records, the entity will be able to recover or manage the
recovery process properly.
iv) All ministries and state corporations should have a Risk Management Policy in place.

CHAPTER 3
OFFICE OF CONTROLLER OF BUDGET (OCOB)
3.1 Background
The Ofce of the Controller of Budget (OCOB) is established by Article 228 of the Constitution of Kenya,
2010. It's mandated to oversee budget implementation of both the National and County Governments. To
achieve its mandate, the Ofce is required to authorize withdrawals from public funds, and to submit to
Parliament a report on the implementation of the budgets by both the National and County Governments
every four months.
In line with this mandate, the OCOB prepared the First Half Budget Implementation Review Report for FY
2016/17, covering the period July to December, 2016. The report provides the status of budget
implementation review during the reporting period to Parliament. While monitoring budget
implementation, the Ofce identied cross-cutting issues that hampered budget execution in the reporting
period. Recommendations were provided on how to address the identied challenges.
3.2 NATIONAL GOVERNMENT BUDGET IMPLEMENTATION REVIEWS
3.2.1 KEY ISSUES IDENTIFIED IN THE FY 2016/17

In the course of overseeing budget implementation by the MDAs, the Ofce identied key issues which
affected budget implementation as follows:
i) Delay in Uploading Budgets and Annual Procurement Plans into IFMIS

Section 12(1)(e) of the PFM Act 2012 requires the National Treasury to design and prescribe an efcient
nancial management system for the national and county governments to ensure transparent nancial
management and standard nancial reporting. IFMIS is the prescribed nancial system by the National
Treasury for use by the MDAs to undertake nancial transactions which includes both procurement and
payments.
In the period under review, MDAs had delays in uploading of procurement plans and budgets in IFMIS,
which interrupted their planned activities as work plans could not be implemented.
ii) Delay in Release of Funds to MDAs

In the rst half of FY 2016/17, the total exchequer released to MDAs amounted to Kshs.483.1 billion
representing 40 per cent of the annual net estimates. This percentage is below the expected 50 percent
projected to have been released as at end of the rst half of FY 2016/17.From the analysis of reports
submitted by MDAs, low level of expenditure by MDAs had been attributed to delay in release of
funds.
iii) Delay in Submission of the Expenditure Reports to OCOB

According to Article 228 (6) of the Constitution of Kenya, 2010, the COB is required to submit to each
house of Parliament a report on the implementation of budgets of the national and county governments
every four months. Further, Section 38 (9) of the PFM Act, 2012, requires the Controller of Budget to
ensure that the public has access to information on budget implementation. However, the Ofce
experienced delays in submission of nancial reports by some MDAs, which affected timely reporting on
budget implementation.

iv) Accounting for Expenditure on Capital and Current Transfers
There are several Semi-Autonomous Government Agencies(SAGAs) that are nanced by capital and
current transfers from parent Ministries. The transfers are treated as expenditure by the line Ministries
once transferred. The OCOB identied this accounting treatment as one that is likely to result in
overstatement of expenditure by the Ministries since amounts transferred are programmed to be spent by
the SAGAs during the year.
Ø It is recommended that the Public Sector Accounting Standards Board (PSASB) review this matter
and develop guidelines in line with international best practice.
Other factors that affected budget implementation during this period included the doctor's strike, which
interrupted service delivery in the health sector and the widespread drought that has resulted in budget
reallocations to augment the Contingency Fund.
3.2.2KEY ISSUES IDENTIFIED IN THE FY 2015/16

Key issues identied and recommendations proposed in the Annual National Government Budget
Implementation Review Report (BIRR) for FY 2015/16 were as follows:
i) Timing of Supplementary Budgets

During the FY 2015/16, the National Treasury prepared two Supplementary Budgets, which were both
approved in the fourth quarter of the nancial year. The rst Supplementary Budget was approved on
6thMay, 2016 while the second on 30th of June, 2016.
While budget revision is permitted under Article 223 of the Constitution and Section 44 of the PFM
Act,2012, the timing of Supplementary Budgets should allow sufcient time for implementation of
activities. When supplementary budgets are approved towards the end of the nancial year,
implementation of activities by the MDAs may be hampered.
ii) Delay in Submission of Expenditure Reports to the OCOB

The delay in submission of expenditure reports by MDAs to the OCOB continues to be a recurrent
challenge. This was no different for the FY 2015/16. The Ofce experienced delays in submission of
nancial reports by some MDAs, which affected timely reporting.
iii) Non-disclosure of A-I-A in the IFMIS generated reports
The National Treasury has prescribed the Integrated Financial Management Information System (IFMIS)
for use by all national government and county government entities in line with Article 12(1) (e) of the
Constitution. This system adequately captures transfers to the MDAs and expenditure by the MDAs.
However, IFMIS is not always updated to capture A-I-A generated by the MDAs. Therefore, nancial
reports generated from the system may be incomplete and could lead to MDAs reporting higher
expenditure than the released exchequer issues.
iv) Accounting for Expenditure on Capital Transfers

There are several SAGAs that are nanced by capital transfers from parent ministries. The transfers are
treated as expenditure by the ministries when transferred. This accounting treatment is likely to result
in overstatement of expenditure by the ministries since transferred amounts are programmed and spent
by the SAGAs over the year.

3.2.3RECOMMENDATIONS MADE ON NATIONAL GOVERNMENT EXPENDITURE BY
THE COB
1. The National Treasury should release funds to the MDAs based on their work plans and cash
ow projections as presented at the beginning of the nancial year.
2. MDA's should ensure timely uploading of procurement plans and budgets in the IFMIS to
ensure timely implementation of planned activities.
3. Parliament should consider and approve budget revisions in good time to allow for timely
implementation of planned activities.
4. In order to meet the constitutional and legal requirements, all MDAs should ensure that
quarterly expenditure reports are submitted to the Controller of Budget on time to allow timely
preparation and publication of the Budget Implementation Review Reports.
5. The National Treasury should ensure that A-I-A generated by MDAs is captured and disclosed
in the IFMIS reports. This will ensure completeness of the nancial reports.
6. It is recommended that the Public Sector Accounting Standards Board (PSASB) should review the
accounting for expenditure on capital transfers and develop guidelines in line with international
best practice. This will ensure that capital transfers to SAGAs are appropriately accounted for.
Conclusion
There is need for concerted efforts by all players to address the challenges identied in order to improve on
budget implementation. Specically, the MDAs should address the operational challenges while the
Public Sector Accounting Standard Board should review the current system of expensing funds transferred
to the SAGAs as Capital Transfers and issue guidelines based on international best practice on the
accounting treatment of capital transfers.
3.3 COUNTY GOVERNMENTS BUDGET IMPLEMENTATION REVIEWS
The OCOB is also responsible for examining the budget performance by the forty seven counties. This
audit is based on analysis of nancial reports submitted to the Controller of Budget by the County
Treasuries, the Approved County Budgets, and reports generated from the Integrated Financial
Management Information System (IFMIS). The information contained in the audit report is useful to
Parliament and the public at large in tracking budget implementation. It is also useful in monitoring budget
implementation by the County governments.
3.3.1 KEY ISSUES IDENTIFIED IN THE FY 2016/17

The aggregate budget estimates for the 47 County governments in FY 2016/17 amounted to Kshs.396.89
billion. During the rst half of FY 2016/17, a total of Kshs.167.37 billion was available to the County
Governments. This amount consisted of Kshs.116.25 billion (equitable share of revenue, grant for Level 5
Hospitals, and grant from DANIDA), Kshs.13.4 billion as revenue raised from local revenue sources, and
Kshs.37.12 billion as cash balance brought forward from FY 2015/16.
The audit report indicates that overall absorption of funds improved marginally to 32.13 per cent in FY
2016/17 compared to an absorption rate of 31.3 per cent recorded in the rst half of FY 2015/16.
The OCOB observed that most counties made progress in addressing some of the challenges highlighted in
previous CBIRRs, such as; capacity building of technical staff, adoption of IFMIS, and compliance with
budgetary timelines. However, the OCOB observed with concern that some of the challenges identied in
previous years were yet to be addressed. Some of the cross-cutting challenges included:
i) Lack of Regulations to Operationalize Established County Public Funds

Section 116 of the PFM Act, 2012 states that; “A County Executive Member for nance may establish other
County Public funds with the approval of the County Executive Committee and the County Assembly”.
While most Counties had established Public Funds and factored these in their Approved Budgets, some
Counties were yet to develop regulations to operationalize the Funds. Failure to develop legislations to
operationalize these funds will affect administration, accounting, and reporting on the Funds.

ii) Inadequate Administration and Reporting on Public Funds Established by the Counties
Section 116 of the PFM Act, 2012 provides for the CECM-Finance to appoint an Administrator for each
established Fund. The Administrator is required to submit quarterly nancial statements to the County
Treasury and a copy to the Controller of Budget in line with Section 168 (3) of the PFM Act, 2012. There
were delays in the submission of nancial reports by some counties on established County Funds contrary
to Section 168 of the PFM Act, 2012.
iii) IFMIS Connectivity Challenges and Downtime

The Government rolled out IFMIS in order to enhance scal transparency, accountability and improve
efciency in public nancial management. In rst half of FY 2016/17, most Counties experienced
operational delays and IFMIS connectivity challenges, which affected approval of procurement requests
and payments to suppliers.
iv) Under-Performance in Local Revenue Collection

Article 209(3) of the Constitution allows County Governments to impose property rates, entertainment
taxes and any other tax that a county is authorized to impose by an Act of Parliament. During the reporting
period, the County Governments' cumulative local revenue was Kshs.13.4 billion, accounting for 22.6 per
cent of the annual target of Kshs.59.34 billion, with only two counties attaining at least 40 per cent of their
annual revenue collection targets.
v) Low Uptake of Development Funds

In the rst half of the 2016/17 nancial year, the Counties spent Kshs.34.04 billion on development
activities representing an absorption rate of 21.5 per cent. Some Counties such as Nyeri, Nyandarua,
Bungoma and Embu spent minimal amounts on development activities. The low absorption of
development funds may affect service delivery to the public.
vi) Delays in Disbursement of Equitable Share by the National Treasury

Section 5 of the County Allocation of Revenue Act (CARA), 2016 provides that County Government's
allocations shall be transferred to the respective County Revenue Funds, in accordance with a
Disbursement Schedule approved by the Senate.
For the FY 2016/17, the National Treasury did not fully adhere to the Disbursement Schedule. This
affected execution of budgeted activities. A total of Kshs.116.25 billion was disbursed to the Counties out
of the expected Kshs.143.57 billion as at 31st December, 2016.
vii) Delays in Submission of Financial Reports to the Controller of Budget

Some Counties delayed in the submission of their quarterly nancial reports contrary to Section
166(4)(b) of the PFM Act, 2012. This resulted in the late preparation of the Budget Implementation
Review Report.
3.3.2 KEY ISSUES IDENTIFIED FOR THE FY 2015/16

During this reporting period, County Governments received Kshs.264.04 billion from the National
Government. On aggregate, the Counties spent Kshs.191.85 billion on recurrent expenditure
translating to 91.9 per cent of the approved recurrent budget of Kshs.208.82 billion compared to 92.4
per cent attained in FY 2014/15. A total of Kshs.103.45 billion was spent on development activities
which translated to 65.2 per cent of the approved development budget of Kshs.158.62 billion, an
improvement compared to the absorption rate of 62.4 per cent attained in FY 2014/15.

This improved performance was attributed to better planning and improvement in staff capacity through
training and the efforts instituted by the Counties to address the challenges that affected budget
implementation. Further, oversight institutions including the County Assemblies and the participation of
citizens in budget implementation have enhanced budget execution.
Factors that affected budget implementation of counties in the FY 2015/16 are as follows:
i) High Expenditure on Personnel Emoluments

In FY 2015/16, the County Governments' spent an aggregate of Kshs.118.65 billion on personnel
emoluments (PE). This accounted for 40.2 per cent of the total expenditure for the period and an increase
by 15.1 per cent from Kshs.103.10 billion incurred in FY 2014/15. The OCOB noted that an increase in the
wage bill, if not well managed, would reduce spending on development activities in the long run.
ii) Establishment and Operationalization of the County Budget and Economic Forums (CBEF)
Section 137 of the PFM Act, 2012 requires a county government to establish the County Budget and
Economic Forum (CBEF) to provide means for consultation on matters relating to budgeting and nancial
management at the County level. While most of the Counties have constituted the CBEF in line with the
provisions of Section 137 of the PFM Act, some counties are yet to establish the CBEF.
iii) Late Submission of Financial Reports

Section 166 (4) of the PFM Act, 2012 requires the County Treasury to prepare and submit nancial reports
to the County Assembly, Ofce of the Controller of Budget, Commission on Revenue Allocation (CRA)
and the National Treasury, not later that one month after the end of each quarter. Further, Section 168 of the
PFM Act, 2012 requires the designated Fund Administrators of county established Funds to submit
nancial reports to the County Treasury and the Controller of Budget, not later than fteen days after the
end of each quarter.
During the reporting period, it was noted that some County Treasuries delayed in submitting their nancial
reports leading to delays in the preparation of County Budget Implementation Review Report (CBIRR).
iv) Delays in approval of key budget documents

The Ofce noted that there were delays in the preparation and approval of key planning documents such as
the Annual Development Plan, and the County Fiscal and Strategy Papers in most Counties. This affected
smooth implementation of the budget.
Delay in the approval of key budget and planning documents by the County Assembly negatively affects
the budget process timelines provided under Section 117 and 126 of the PFM, Act, 2012 and overall budget
implementation.
v) Underperformance in Local Revenue Collection

During the reporting period, the Counties collected Kshs.35.02 billion, representing 69.3 per cent of the
annual target of Kshs.50.54 billion, an increase of 3.5 per cent from Kshs.33.85 billion realized in FY
2014/15. The local revenue underperformance implies that some of the planned activities were not
implemented.
vi) Failure by the National Treasury to Disburse Funds based on the CARA, 2015 Disbursement
Schedule
The National Treasury did not fully adhere to the disbursement schedule approved by the Senate in
releasing funds to the Counties in FY 2015/16. Counties therefore, lacked certainty on when to expect
disbursements, which affected planning of activities. This implied that some planned activities could not
be implemented on time.

vii) Inadequate Internal Audit Function and Audit Committees
During the reporting period, the OCOB noted that some Counties were yet to establish internal audit
departments, while in some, where the function and an Audit Committee is established, these were
ineffective in undertaking their functions. This issue was of great concern since it had not been addressed
despite having been raised in previous reports.
viii) Huge Pending Bills

As at June, 2016 the County Governments reported pending bills amounting to Kshs.37.36 billion. This
gure could have been higher if all the counties had submitted their data on pending bills by the time of
nalizing this report. These bills were attributed to failure by the Counties to effectively align their
procurement plans to the cash ow plans as well as delay by the National Treasury to disburse funds to the
County governments.
The accumulation of huge pending bills negatively affects the business community.
ix) Failure by the National Treasury to disburse funds based on the approved Cash Disbursement
Schedule
The National Treasury did not fully adhere to the Disbursement Schedule approved by the Senate in
releasing funds to the Counties in FY 2015/16. Therefore the Counties lacked certainty on when to expect
cash disbursements, which affected timely implementation of budgeted activities.
3.3.3 RECOMMENDATIONS MADE ON COUNTY GOVERNMENT EXPENDITURE BY THE

COB
1. County Governments should ensure that appropriate legislation establishing a county public Fund
is in place in line with Section 116 of the PFM Act, 2012 prior to operationalization.
2. County Governments are urged to ensure adherence to the budget timelines stipulated in law with
regard to the submission and approval of budget and planning documents.
3. The National Treasury should strive to adherence to disburse funds to the Counties in line with the
approved Disbursement Schedule in order to ensure that budget implementation is not affected.
4. County Treasuries should liaise with the IFMIS Directorate for support in application of IFMIS
and the E-procurement module.
5. Counties should develop and implement strategies to enhance local revenue collection in order
to ensure effective budget implementation.
6. It is important for Counties to prioritize implementation of development projects in order to realize
the development objectives and improve the standard of life for Kenyans as envisaged in Kenya
Vision 2030. This will address the low uptake of development funds by Counties.
7. There is need for County Governments to ensure that expenditure on personnel emoluments is
contained at sustainable levels and in compliance with Regulation 25 (1) (b) of the Public Finance
Management (County Governments) Regulations 2015, which sets a limit on the County
Government's expenditure on wages and benets at 35 per cent of the County's total revenue.
8. All county governments should establish CBEFs and also ensure that the CBEFs are actively
involved in the budget, economic and nancial matters.
9. Fund Administrators should ensure timely preparation and submission of nancial reports in line
with Sections 166 and 168 (3) of the PFM Act, 2012 to facilitate timely preparation of County
Budget Implementation Review Reports.
10. To address the inadequate internal audit function and audit committees, Counties should
establish effective internal audit departments and Internal Audit Committees in line with
Section 155 of the PFM Act, 2012 and Regulation 167 of the PFM (County Governments)
Regulations, 2015, in order to enhance transparency and accountability in the management of
public resources.
11. The County Governments should ensure effective management of pending bills by aligning
procurement plans to cash ow projections and also ensuring that all pending bills are budgeted
for in the ensuing nancial year and are settled as soon as possible.

Conclusion
The OCOB has observed enormous progress made by the Counties in budget implementation since
transition to devolved governments in 2013. The success of devolution will largely depend on how the
National and County Governments utilize the scarce resources in implementing planned activities
geared towards stimulating growth and development, creating employment opportunities, creating
wealth and ultimately attaining the high standard of living for Kenyan citizens in line with Vision
2030.

CHAPTER 4
THE ETHICS AND ANTI-CORRUPTION COMMISSION
4.1 Background
The Ethics and Anti-Corruption Commission (EACC) is a statutory body established under the Ethics and
Anti-Corruption Commission Act of 2011. The Act was enacted pursuant the requirements in Article 79 of
the Constitution.
The mandate of the Commission is to combat corruption and economic crime in Kenya through law
enforcement, prevention, public education and promotion of ethical standards and practices. Apart from
the Act aforesaid and the constitutional mandate conferred on it specically in enforcement and ensuring
compliance with chapter Six of the Constitution, the Commission also derives its statutory mandate from a
number of other statutes namely, the Anti-Corruption and Economic Crimes Act of2003, the Leadership
and Integrity Act, 2012 and the Public ofcer Ethics Act, 2003.
4.2 COUNTY GOVERNMENT BUDGET IMPLEMENTATION REVIEWS

The EACC conducted Corruption Risk Assessments (CRAs) of the systems, policies, procedures and
practices of 13 County Executives and County Assemblies. The CRAs were conducted in line with EACCs
mandate as stipulated in section 11 1(g) of the Ethics and Anti- Corruption Commission Act, 2011; which
states that the Commission shall:
1. Advise on its own initiative, any person on any matter within its functions ;
2. Subject to article 31 of the Constitution, monitor the practices and procedures of public bodies to
detect corrupt practices and to secure the revision of the methods of work or procedures that may be
conducive to corrupt practices.
The objectives of the assessments were to:

1. Review the systems, policies, procedures and practices of the County executive and assembly to
identify corruption prone areas,
2. Identify existing structural weaknesses that can be exploited to perpetuate corrupt activities,
3. Recommend strategies for preventing corruption and enhancing accountability in methods of work
at the County executive and assembly,
4. Prepare and disseminate a report of ndings and recommendations.
It was envisaged that after the presentation of the reports, the County Executive and the County Assembly
would prepare plans/matrixes for implementation of the recommendations. The plans/matrixes are to be
submitted to EACC within a period of one month from the date of the presentation of the reports. The plans
will be used to assist EACC to continuously monitor the progress on implementation and to address any
emerging issues.

The Laikipia County Governor, H.E. Joshua Irungu receives
The Corruption Risk Assessment (CRA) Report for Laikipia
County Executive from EACC Commissioner
Ms. Rose Mghoi-Macharia
4.2.1 MAJOR HIGHLIGHTS/FINDINGS OF THE EXAMINATION AND CRA REPORTS
i) Financial Management
a) Lack of Fixed Assets Registers – almost all the assessed County Executives and County
Assemblies do not have comprehensive Fixed Assets Registers.
b) Lack of title deeds and log books for assets owned by the County Executives and Assemblies. For
example in Kwale, Tharaka Nithi and Laikipia County Executives;
c) Use of manual systems that may lead to misappropriation of Revenue;
d) Use of casual employees in revenue collection;
e) Failure to maintain some important books of accounts, and in some cases where they are
maintained they are not promptly updated;
f) Unsupported payment vouchers. For example in Tharaka Nithi CE, Kisii County Executive among
others. In Kisii CE, A payment to a contractor for the construction of Kiogoro washrooms of Kshs:
1,000,000 paid on 25thSeptember, 2014 lacked the approved requisition to procure, invoice and the
level of completion certicate in the same CE A payment to Geosan Enterprises of Kshs: 49,920
paid on 24th September, 2014 for the supply of DSTV services/goods lacked the tender award
document, inspection and acceptance certicate, contract/LPO document, goods received note and
delivery note.
g) Delay in surrender of imprests and in some cases issue of multiple imprests to staff contrary to the
provisions of the Public Finance Management (County Government) Regulations, 2015. This was
a common nding in most of the assessed County Executives and Assemblies.
h) Lack of Audit Committees. E.g. in Kwale County Executive at the time of the assessment, the audit
committee consisted of the Deputy Governor as chair and some member of the CEC as members.
In Tharaka Nithi and Kili County Executives, the Audit Committees had not been established at
the time of the assessment
ii) Procurement
a) Use of contractors and suppliers who have not been prequalied by the County Executive and
Assemblies;
b) Lack of an effective mechanism for inspection and acceptance of delivered items which may lead
to ctitious payments;
c) Weak stores management / control procedures;
d) Failure to disclose evaluation criteria in the bid documents, which may lead to biased award of
Tenders.

4.1 Background
The Ethics and Anti-Corruption Commission (EACC) is a statutory body established under the Ethics and
Anti-Corruption Commission Act of 2011. The Act was enacted pursuant the requirements in Article 79 of
the Constitution.
The mandate of the Commission is to combat corruption and economic crime in Kenya through law
enforcement, prevention, public education and promotion of ethical standards and practices. Apart from
the Act aforesaid and the constitutional mandate conferred on it specically in enforcement and ensuring
compliance with chapter Six of the Constitution, the Commission also derives its statutory mandate from a
number of other statutes namely, the Anti-Corruption and Economic Crimes Act of2003, the Leadership
and Integrity Act, 2012 and the Public ofcer Ethics Act, 2003.
4.2 COUNTY GOVERNMENT BUDGET IMPLEMENTATION REVIEWS

The EACC conducted Corruption Risk Assessments (CRAs) of the systems, policies, procedures and
practices of 13 County Executives and County Assemblies. The CRAs were conducted in line with EACCs
mandate as stipulated in section 11 1(g) of the Ethics and Anti- Corruption Commission Act, 2011; which
states that the Commission shall:
1. Advise on its own initiative, any person on any matter within its functions ;
2. Subject to article 31 of the Constitution, monitor the practices and procedures of public bodies to
detect corrupt practices and to secure the revision of the methods of work or procedures that may be
conducive to corrupt practices.
The objectives of the assessments were to:

1. Review the systems, policies, procedures and practices of the County executive and assembly to
identify corruption prone areas,
2. Identify existing structural weaknesses that can be exploited to perpetuate corrupt activities,
3. Recommend strategies for preventing corruption and enhancing accountability in methods of work
at the County executive and assembly,
4. Prepare and disseminate a report of ndings and recommendations.
It was envisaged that after the presentation of the reports, the County Executive and the County Assembly
would prepare plans/matrixes for implementation of the recommendations. The plans/matrixes are to be
submitted to EACC within a period of one month from the date of the presentation of the reports. The plans
will be used to assist EACC to continuously monitor the progress on implementation and to address any
emerging issues.
iii) Human Resource Management

a) Haphazard recruitment of staff
b) Interference by MCAs in recruitments
c) So many casual employees inherited from defunct Local Authorities
4.2.2 RECOMMENDATIONS ON PUBLIC EXPENDITURE BY COUNTY GOVERNMENTS

To address the identied malpractices in county government spending, the EACC gave proposals that
would assist to enhance integrity and accountability in public expenditure within the Counties. These
recommendations were presented to the Legal Affairs and Human Rights Committee of the Senate on
th
investigations relating to allegations of corruption within the counties on 14 December 2016 and are as
follows:

1. Develop and Implement Anti-Bribery Compliance Policy
i. There is need to develop and implement a clear and unambiguous anti-bribery compliance policy
and ensure adequate training of County staff.
ii. There is need to develop adequate systems, procedures and controls intended to prevent bribery
and identify it when it occurs. This is critical in reducing incidence of bribery in County public
service offering.
iii. A top-down approach should be adopted to curb incidences of bribery. County Executives need
to take responsibility for establishing a culture which makes it clear that bribery and corruption
is unacceptable. These message needs to be communicated down to the lowest levels of the
County Departments.
2. Enhance Public Participation in Budgeting and Project Implementation Process

County Governments should put a policy framework that will guide public participation forum so as to
ensure that the public contributes effectively to the process of budget formulation. This will help in
identifying budget priorities based on their felt needs. This will also give them an opportunity to make
decisions and negotiate for tradeoffs in the budgeting process. This should also involve establishing a
system of receiving and analyzing public views before and during the budget preparation process.
County Governments should also strive to implement the views of the public that were shared in the
budgeting process in order to sustain public trust.
3. Ensure Transparency and Accountability in Public Procurement

i. Procurement positions should be adequately remunerated to attract a well-qualied staff, while
training and other avenues for career progression should be available
ii. Procurement positions should be lled and duties assigned on the basis of abilities and not on
family connection, political inuence or on tribal lines
iii. The following information should be made public except when the information is legally protected
to ensure transparency in public procurement process:
a) Activities prior initiating the contracting process such as needs assessment, procurement
plan and budget allocation
b) Tender opportunities, selection criteria
c) Key elements of bid evaluation process
d) The award decision and its justications
e) The contracts including any amendments
f) Implementation, evaluation, oversight and auditor's report
g) Dispute settlement mechanisms and procedures
iv. Sanctions upon a determination of fraud, bribery or collusion should be effective, proportionate
and dissuasive and include monetary and criminal penalties against companies and individuals.
These should include conscation of illicitly gained prots and debarment from tendering for a
particular period of time. The Government should also respect the debarment list and information
about the sanctions imposed should be publicly available. No bidders should be given access to
privileged information at any stage of the contracting process, and bidding opportunities should be
widely published
v. Open competitive bidding should be the norm for procurement above a certain value. This will
ensure efciency and avoid the difculties inherent in selection the process on a case by case basis
vi. The participation of civil society organizations as independent monitors overseeing all stages of
procurements process should be promoted
vii. A robust, independent and effective appeals process should be put in place for aggrieved bidders
and accessible at any time during procurement process. The appeal process should not be time
consuming or expensive and should be capable of suspending the procurement until judgment is
made

4. Promote Fairness in Recruitment Process
i. All stages of recruitment process must be conducted impartially and objectively
ii. Those involved in recruitment process must be accountable for their decisions and must ensure
proper records are kept to support those decisions
iii. Factors impacting on recruitment and selection decisions must be clear to those involved. The
process by which decisions are made must be transparent while maintaining condentiality in
regard to individuals
iv. Recruitment and selection practices must be carried out in accordance with relevant guidelines,
codes and rules
5. Ensure Value for Money in Road Construction and other Infrastructure

i. County Governments should conduct regular technical audits. This will improve duciary
standards of the roads under construction and address weaknesses in the potential poor quality of
the constructed roads or bridges. Financial audits should take place during each stage of the project
cycle that is during the construction phase and at the completion of the built infrastructure. The
County Government should then use the ndings of the Report to drive improvements in the
infrastructure under question.
ii. Counties should embrace a Construction Sector Transparency initiative with the aim of addressing
weaknesses in transparency and accountability within publicly nanced construction projects.
This should draw representatives from the Government, business community and civil society. The
team will be liable of disclosing information from each stage of the project cycle in a format that is
accessible to all stakeholders. This will help stakeholders identify main issues in a project and then
use the information to hold the procuring entity and the contractors accountable.
iii. Community monitoring should be enhanced in both the procurement and construction process.
This will be useful in mobilizing the public against corruption. This can be done by identifying
incentives for communities to monitor the project and training community groups and other
stakeholders to observe the progress of construction of small-scale infrastructure like County
roads, bridges. Schools and hospitals
6. Enhance Anti-Corruption Mechanisms

i. The Commission needs to adopt a more intelligence led anti-corruption initiative to combat
corruption and unethical conduct in the counties.
ii. There in need for the Commission to partner with counties in various mentioned services areas so
as to prevent corruption in counties. These areas include staff recruitment process, capacity
building on anti-corruption initiatives, procurement process, system reviews to seal corruption
loopholes, formulation and execution of anti-corruption policies.
iii. Fear of victimization is the key challenge experienced by those who endeavour to support the ght
against corruption in the counties. The Commission should thus develop and implement a whistle
blowers protection policy to avoid them being victimized once they report corrupt activities in the
County.

CHAPTER 5
PARLIAMENT
5.1 Parliament and the Budget Process
The role of Parliament in the budget process cannot be overemphasized. In the new Constitutional
dispensation, the legislature has been given a key role in shaping the policy discourse by participating in
determining three main realms in public nance management, namely, affordability, prioritization and
value for money. These tenets are well expounded in the PFM Act, 2012.
Once the Auditor General has nished his/her report, the report is then tabled with the Publics Accounts
Committees (PACs) in the different assemblies at the respective level of government. Article 229 (8) of the
Constitution requires that within three months after receiving an audit report, Parliament or the County
Assembly shall debate and consider the report and take appropriate action. The PACs review the report to
identify the most important issues regarding potential misuse of funds and lack of accountability for funds
and then take some type of action.
The action in the rst instance normally involves calling the ofcers that are being questioned in the report
to come and give responses to what the auditor has raised. Often times however, ofcers are very slow to
respond to the auditor, therefore sometimes the auditor will have a negative nding against an ofcer
because they didn't provide information, and by the time the PAC are reviewing that report, the ofcer is
able to nd the documentation, avail it to the auditor, and the audit issue is then cleared.
One can also nd that most of the issues raised are actually cleared by the time the public accounts
committee is reviewing the report. However a number of other issues will not have been cleared and those
are issues the PAC needs to focus on and nd out what is the problem with a particular case. In such a case,
the accounting ofcer will be called to explain the irregularity, if they are unable to give a satisfying
explanation, then that accounting ofcer should be sanctioned. There are sanctions in the PFM Act for
ofcers who do not account for funds. If there is enough evidence that this is a criminal issue, then the
police or the Director of Public Prosecutions should get involved.
However, more often than not, there is a lot of delay in the review of these reports, and the PACs do not
have the capacity to read and understand the complex issues and transactions of these reports.
5.1.1 Mandate of the Public Accounts Committee (PAC)

The Public Accounts Committee derives its mandate from Standing Order 205 (2) of the National
Assembly, which provides that:
“The Public Accounts Committee (PAC) shall be responsible for the examination of the
accounts showing the appropriations of the sum voted by the House to meet the public
expenditure and of such other accounts laid before the House as the committee may think t”.
The primary mandate of PAC is therefore to oversight the expenditure of public funds by
ministries/departments, to ensure value for money and adherence to government nancial regulations and
procedures. The Committee executes its mandate on the basis of annual and special audit reports prepared
by the Kenya National Audit Ofce (KENAO).

5.2 NATIONAL GOVERNMENT BUDGET IMPLEMENTATION REVIEWS
For the audit of the FY 2012/2013, the PAC held a total of forty ve (45) sittings in the period under review,
during which it interrogated Accounting Ofcers on audit queries by the Auditor General. In this exercise,
the Committee was guided by the stated principles as well as the rules, procedures and customs of the
National Assembly derived from the Constitution of the Republic of Kenya, Acts of Parliament,
Parliamentary Standing Orders, conventions, usages, practices and rulings and directives of the Chair.
5.2.1 KEY ISSUES AND RECOMMENDATIONS IN THE FY 2012/13

From the proceedings, evidence taken, and subsequent deliberations the Committee highlighted the
following general observations:
1. Expenditure Control
Excess Expenditure incurred during 2012/2013 without Parliamentary approval totaled Kshs. 38,495,253
compared to Kshs.7,048,222,153 recorded in the previous year. This Excess Expenditure of Kshs
38,495,253 was incurred under four (4) Votes as follows:
Recurrent Expenditure
Vote Department/Agency/Commission Excess Vote (Kshs)
127 Witness Protection Agency 5,374,255
165 Commission for Implementation of Constitution 4,219,055
Development Expenditure
Vote Department/Agency/Commission Excess Vote (Kshs)
126 Judicial Department 15,310,912
207 Public Service Commission 13,591,031
Total 38,495,253
The Excess Expenditure of Kshs 38,495,253 did not taken into account pending bills of Kshs.
43,634,365,991 which, though relating to 2012/2013, were however not settled in that year but were
instead carried forward to 2013/2014, as discussed in the ensuing paragraph.
It was the Committee's considered position that expenditure without Parliamentary approval constituted a
grave violation of the Constitution and must be severely punished and cease forthwith.
2. Pending Bills
During the year ended 30th June 2013, a number of Ministries and Departments did not settle bills
amounting to Kshs 43,634,365,991 comprising Kshs. 12,198,920,189 and Kshs. 31,435,445,802 under
Recurrent and Development Votes, respectively, but were instead carried forward to 2013/2014. The
Ministry of Roads topped the list with bills amounting to Kshs 21,324,630,000 followed by Defense at
Kshs 4,463,081,171 and IEBC at Kshs 4,045,023,700.
The Committee noted as follows:-

(1) Failure to settle bills in the year they fall distorts the nancial statements for that year and adversely
affects provisions for the subsequent year to which they are charged;
(2) Failure to settle bills in time has serious implications for suppliers and the economy in general, and
portrays the government in bad light;
(3) Delayed exchequer release signicantly contributes to pending bills and interferes with
procurement plans of ministries/departments.
3. The Paradox of Surplus Funding

The Committee noted that it had become a tradition for government to report of “surplus funds” at the
end of nancial years. For instance, during the year under review, Kshs 496,366,817 was reported as
surplus funds.
The PAC took time to keenly interrogate this position vis-à-vis the phenomena of perennial pending bills,
underfunding of projects and non-nancing of projects. The Committee noted with concern that it was
supremely paradoxical to have a surplus of funds while at the same time is saddled with pending bills,
under-funded projects and un-funded projects in the same nancial year. Exactly how would government
have a surplus and a decit at the same time?
And if indeed this paradox is in fact the reality; that it is true surpluses do exist while government continues
to bear costly decits, then this raises serious questions on Treasury's ability and capacity to manage the
budget.
4. Collection of Appropriations-In-Aid
The Actual Total Appropriations-In-Aid realized in the year under review amounted to
Kshs.161,103,373,462, against estimated receipts of Kshs 246,324,086,619 resulting in a deciency of
Kshs 85,220,713,157. The deciency represented approximately 35% of the estimated collections and
was mainly recorded under the Development Votes, where collections of Kshs 91,266,520,041 were
realized against estimated receipts of Kshs.159,291,712,053.
The Committee noted that failure by ministries/departments to comply with the conditions agreed with
development partners has been a major contributing factor; but development partners also contribute
signicantly to this problem by setting sometimes impossible conditions, including the insistence on
retention of original accounting documents.
It is, however, noteworthy, that in a bid to address this challenge, the National Treasury had been
developing the Kenya External Resources Policy. The PAC emphasized the need to speed up the
completion of this policy.
5. Accounting Standards
During the year under review, the PAC noted several accounting errors in Appropriation Accounts. Most
signicantly, there were numerous cases of balances in Appropriate Accounts and those in Trial Balances
and Ledgers not agreeing or tallying. The Committee put this down to non-adherence to appropriate
accounting standards, which was a contributory factor for several audit queries.
6. Unsupported Expenditure
In FY 2012/2013, a number of ministries/departments failed to avail documents in support of various
expenditure totaling Kshs.33, 922,820,718 appearing in their respective Appropriation Accounts. Though
some of the documents were later submitted for audit verication after production of the audit report, most
of the audit queries remained unresolved as shown in the table below:

Table 2: Approved Estimated Gross Expenditure
Vote Ministry/Department/Commission Amount Cleared Outstanding

(Kshs) (Kshs) (Kshs)
101 Provincial Administration and 3,155,488,759 1,276,630 3,154,212,129
Internal Security
102 State House 150,328,330 94,050,000 56,278,330
104 Foreign Affairs 4,521,596 - 4,521,596
105 Home Affairs 11,482,925 717,875 10,765,050
106 Planning, National Development and 286,009,251 254,889,486 31,119,765
Vision 2030
108 Defence 350,000,000 - 350,000,000
110 Agriculture 27,234,093 4,694,075 22,540,018
111 Medical Services 468,000 2,341,550 (1,873,550)
113 Roads 115,168,355 115,168,355 -
115 Labour 1,157,700 1,157,700 -
116 Trade 660,114,390 266,295,986 393,818,404
118 Gender, Children and Social 4,316,039,546 - 4,316,039,546
Development
119 Livestock Development 5,708,754 2,710,264 2,998,490
120 Water and Irrigation 180,590,130 66,022,504 114,567,626
122 Co-operative Development and 160,047,935 37,099,434 122,948,501
Marketing
123 Cabinet Office 341,790,097 179,090,520 162,699,577
124 East Africa Community 133,962,872 65,208,458 68,754,414
126 The Judiciary 982,523,922 303,275,955 679,247,967
130 Energy 797,649,901 - 797,649,901
131 Education 6,795,174,819 1,044,376,556 5,750,798,263
132 Information and Communication 12,215,050 - 12,215,050
135 Special Programmes 2,591,269,803 1,445,244,760 1,146,025,043
140 Immigration and Registration of 380,000 - 380,000
Persons
141 National Heritage and Culture 140,278,427 - 140,278,427
142 Youth Affairs and Sports 1,794,268,220 820,350 1,793,447,870
143 Higher Education, Science and 4,009,306,708 - 4,009,306,708
Technology
145 National Security Intelligence 403,711,357 - 403,711,357
Service
148 Office of the Prime Minister 53,705,306 - 53,705,306
155 Forestry and Wildlife 13,196,900 - 13,196,900
156 Fisheries Development 31,590,580 31,590,580 -
158 Development of N. Kenya and Other 37,575,443 37,575,443 -
Arid Lands
159 Public Works 40,043,516 - 40,043,516
160 Industrialization 302,968,608 1,499,365 301,469,243
203 IEBC 5,983,736,267 - 5,983,736,267
210 National Police Service Commission 29,978,340 - 29,978,340
Source: Kenya National Audit Ofce (KENAO)

The Committee observed that failure to support expenditure was a serious violation of the Constitution,
Statutes and Regulations. The Committee further noted that in many cases supporting documents required
for audit review were submitted way out of the audit cycle.
7. Imprest Control
The audit of temporary imprest revealed balances which ought to have been recovered or accounted for on
th
or before 30 June 2013 but were still outstanding as at that date, amounting to Kshs 633,178,658.
The Committee observed that Government Financial Regulations and Procedures on imprests as
supplemented by Treasury Circulars spelt out guidelines for management of imprests, and faulted
Accounting Ofcers for failing to enforce them leading to widespread malpractices.
8. Performance by Accounting Ofcers

The Committee noted with concern the poor performance by some Accounting Ofcers, particularly in
respect of:
i) Failure to respond to Management letters from the Ofce of the Auditor General;
ii) Poor responses to audit queries;
iii) Late submission of responses to the Auditor General;
iv) Numerous excuses to avoid or delay appearance before PAC; and
v) Failure to act on the recommendations of PAC
Close to 60% of audit queries in this report had been resolved by way of belated action by Accounting
Ofcers upon being summoned by PAC. These would most probably have never been audit queries if the
Accounting Ofcers had sufciently and promptly responded to the Auditor General's Management
Letters. In most cases, Accounting Ofcers act on queries just when about to appear before PAC or when
ordered by the Committee during sittings. Common issues include:
1. Failure to provide documents at the time of audit;
2. Failure to provide footnotes; and
3. Failure to do reconciliations and provide explanations for differences between sets of records.
The Committee further noted that despite its directives to Accounting Ofcers to take certain specic
actions on audit queries, especially as regards resolving accounting matters after appearance, some
Accounting Ofcers still failed to oblige.
9. Poor Performance by some Contractors

The Committee noted several cases where the performance of contractors was unacceptable. The
serious cases noted included fraud, poor workmanship and slow progress of work on account of
inefciency, inadequate equipment, breakdown of equipment and poor planning. This matter of
unsatisfactory performance had similarly been reported severally in previous reports by the Auditor
General. Yet no marked improvement had been noted.
10. Unresolved Accounting Matters

The Committee observed that over the last ve years, ministries/departments have had several accounting
matters that had remained unresolved for long. Virtually all ministries and departments had account
balances and differences translating into billions of shillings, some of which had been carried forward and
accumulated over the years without clearance. This state of affairs had been of great concern to the
Committee as the upshot of these long outstanding balances could be that the government might have been
defrauded.
Despite the Committee's recommendations that all Accounting Ofcers take necessary action to resolve
outstanding accounting matters, no marked progress had been recorded. However, it is worthy to note that
a Taskforce had been established by the National Treasury to address the matter.

The Committee therefore recommended that:
st
i) Treasury must ensure that all long outstanding accounting matters are resolved not later than 31
December, 2014 and a report specifying status of individual ministries immediately submitted
to the Auditor General;
ii) Immediately upon receipt of the report in (i) above, the Auditor General should prepare a special
report and submit it to the National Assembly for appropriate action.
5.2.2 RECOMMENDATIONS BY PARLIAMENT ON PUBLIC EXPENDITURE
i) Expenditure Control
Stern action is taken by the Appointing Authority against Accounting Ofcer(s) and Treasury ofcials
responsible for this breach of the letter and spirit of the Constitution. The DPP should also seriously
consider prosecution. Further, the Cabinet Secretary, National Treasury must promptly institute stringent
measures to ensure scal discipline in the public sector.
ii) Lack of settlement of Pending Bills

a) Accounting Ofcers should institute measures to ensure that bills are always cleared within the
nancial year they fall;
b) The National Treasury should ensure timely exchequer releases to ministries and departments to
enable them settle bills as they fall due;
c) The Cabinet Secretary, National Treasury should prepare a status report on the work of the Task
Force on Pending Bills, together with a schedule of all pending bills, and submit the same to the
National Assembly by 30th June2015, failure of which he would be held accountable.
iii) Collection of Appropriations-In-Aid

a) All Accounting Ofcers, in liaison with the National Treasury, should develop and implement a
programme of action to comprehensively address the under-expenditure and under-collection of
appropriations-in-aid in their respective ministries/departments;
b) The National Treasury should ensure the Kenya External Resources Policy is submitted to
Parliament for adoption to substantively address all issues related to funding by development
partners.
iv) Accounting Standards

Accounting Ofcers in liaison with the National Treasury should take immediate action to ensure that
ministries/departments adhere to International Public Sector Accounting Standards (IPSAS), in sync with
the Public Finance Management Act, 2012.
v) Unsupported Expenditure
To address this, the PAC recommended that Accounting Ofcers:
(a) Should institute strict measures to ensure that their ministries/departments have in place proper
record keeping systems;
(b) Must ensure strict adherence to Section 68 of the PFM Act;
(c) Must be held personally responsible and be duly surcharged for all the unsupported expenditure.
vi) Imprest Control

a) Accounting Ofcers must take immediate action to ensure that all outstanding imprests within
th
their jurisdictions are fully recovered by 30 June, 2014;
b) Accounting Ofcers should institute measures to ensure that government nancial regulations and
procedures on imprests, including the requirement that imprest should be surrendered within 48
hours after completion of the assignment of the assignment, be strictly adhered to;
c) Accounting Ofcers be held responsible for the failure to enforce the law.

vii) Poor Performance by Accounting Ofcers
In this regard, the Committee recommended that:
(a) Accounting Ofcers should take the audit process seriously and ensure prompt action on the
Auditor General's management letters to forestall unnecessarily numerous audit queries;
(b) In future, the Committee will name and shame Accounting Ofcers who do not take the audit
process seriously, especially those who fail to act on its directives and the Auditor General's
management letters. PAC will hold them personally responsible, with the attendant sanctions.
Conversely, the Committee will duly commend the best performers.
viii) Poor Performance by some Contractors

In this regard, the Committee recommends as follows:-
a) The Ministry responsible for Public Works must identify all contractors with poor track record in
execution of government contracts and blacklist them from being awarded government contracts;
b) The Ministry responsible for Public Works should ensure that an up-to-date database on the
performance of contractors is maintained and that the data is publicized at all times to enable
government departments make informed decisions when awarding contracts.
5.2.3 Challenges Experienced by the PAC

The greatest constraint faced by the Committee in the preparation of this report was the incredibly heavy
workload occasioned by a backlog of accounts inherited from the 10th Parliament going back 3 years. This
backlog has delayed the approval of up-to-date accounts, which is in violation of Article 229(4), (8) of the
Constitution. To correct this aberration, the Committee took the unprecedented measure of considering
audited accounts for three consecutive years simultaneously (2010/2011, 2011/2012, and
2012/2013).This is also of particular signicance in ensuring fair revenue share between national and
county governments calculated on the basis of the most current audited accounts as required by Article
202(3) of the Constitution.
Further, the Committee was quite frustrated by the unacceptably poor performance by some
Accounting Ofcers who made work difcult by their numerous requests to postpone appearance;
coming before the Committee unprepared; submitting poorly prepared, casual and unconvincing
responses; late submission of responses; and failure to furnish the ofce of the Auditor General with
advance copies of responses. The Committee observed that that this was reprehensible conduct that
compromises the audit cycle, and must be strongly discouraged by all means.

CHAPTER 6
TOWARDS A MORE ACCOUNTABLE PUBLIC FINANCE
Kenya's new Constitution promulgated in the year 2010 introduced fundamental changes in the
management of public nance. The Constitution captured the public nance management reform agenda
and established various commissions and state agencies to check on malpractices that arise from unethical
nancial practices and weak regulatory systems.
Every year, Parliament approves a budget for the Executive for the administration of the state business. At
the end of the scal year, the Executive is required to render an account of its stewardship to Parliament.
Since Parliament cannot verify the accounts submitted by the Executive, these public nance oversight
commissions and state agencies are mandated to audit these accounts and report its ndings to Parliament.
How effective have these institutions been in providing oversight and enhancing the integrity of our public
nance systems? In particular, this report reviewed the Ofce of the Controller of Budget, Auditor
General, Parliament and the Ethics and Anti-Corruption Commission to determine their effectiveness in
enhancing nancial accountability.
6.0 KEY OBSERVATIONS MADE
6.1 Auditor General's and Controller of Budget Ofces

The Ofce of the Auditor General and the COB ofces have been consistent in issuing yearly audit reports
of the expenditure of respective authorities of the National and County governments. The audits are
conducted in accordance with International Standards on Auditing that require compliance with ethical
requirements, so as to obtain reasonable assurance about whether the nancial statements are free from
material misstatement.
Over the recent years, the audited reports have brought to light various malpractices and theft that have
occurred in public ofces. These incidences of malpractices and theft have been met with public out roar,
with calls for action by civil society organizations, different lobby groups, the media and the general public
for the perpetrators to be brought to book. Sadly, this has not been the case. Many of the perpetrators;
alleged or otherwise, have remained untouched. Where legal action is sought after, it has often resulted in
long, frustrating litigation games that have run into years, many times without a conclusive end.
A case in point is the case of Bungoma County Government where eight ofcials were arrested by the
EACC on September 2015for breaching procurement rules in awarding a tender to Jagia Enterprise to
supply 10 wheelbarrows to the county at Sh109,000 each. The wheelbarrows would otherwise cost no
more than a total of Sh.54,000. In defending the purchases, the then Governor Ken Lusaka said, “The
information that I got from the veterinary department was that these were not the ordinary
wheelbarrows that we know. These were wheelbarrows that are made of stainless, non-carcinogenic
material and are used in the food industry.”The case is still ongoing to date. Meanwhile, the former
Governor was appointed as the speaker of the Senate in the 12th parliament.
The lack of action on identied perpetrators has failed to act as a deterrence of corruption as had been
envisaged by the new Constitution when establishing the OAG.
In terms of auditing, the OAG and COB have not totally answered the call of Constitution on
accountability. This can be attributed to some of the challenges the said ofces face in their quest for
public nance integrity as follows:

6.1.1 Challenges Faced by the OAG and the COB
The Auditor-General is required to audit all the 47 counties and the National Government, together with
other public entities and donor-funded projects. The ofce has about 700 staff tasked with the
responsibility of auditing about 1,466 public entities. This number of personnel is inadequate in respect to
the magnitude of the work. As a result, the Aghast a number of times failed to submit the reports to the
st
Parliament within the constitutional timeline of 31 December.
Secondly, both the ofce of the OAG and the COB are grossly underfunded. It is a fact that the national
budget has been steadily increasing over the years, yet the budget for accountability has remained the
same. This poses disconnect between the Treasury's desire for “efciency, effectiveness and
accountability,” and budget allocations to the Auditor General and the Controller of Budget. Thus, their
budgetary allocation is not commensurate with the intention of enhancing capacity. There is need to
increase budgetary allocation to the OAG if Kenya is to enhance nancial accountability.
Another challenge faced is that of duplication of efforts. The Auditor General and the Controller are
required to prepare reports on the use of nancial resources at both the national and county level. These
reports are then consolidated and presented to the National Assembly. This scenario presents a concern
over the potential duplication of effort in the preparation of these reports.
In addition, there has also been failure by the treasury to abide by the requirement that it should table
memorandum indicating to what extent it has implemented queries raised by the auditor general.
Consequently, this has slowed down the pace at which improvements within the nancial systems are
taken up and implemented.
A critical challenge faced by the OAG is that the nature of the Auditor General's functions requires
guaranteed independence for it to effectively discharge its duties and mandate. However, at present, the
Ofce's budget is negotiated with ofcials of the National Treasury. Although this has not yet done any
harm, it could lead to unwarranted pressure on the Ofce and result in the withholding of necessary funds
thus comprising its independence.
Other challenges faced by the OAG are as follows:

1. Parliament came up with proposals to have the OAG's ofce blocked from auditing the expenditure
of the security sector. Thus the ofce consequently suspects that the secrecy of the docket of
national security is used as a disguise to hide and misuse of public funds. A punitive ne of KShs.10
million ne and a ve year jail term — which MPs upheld as deterrent — was proposed for the staff
in the OAG's ofce who leak audit ndings. These draconian clauses barring the Auditor General
from scrutinising accounts of national security organs are meant to allow unchecked plunder of
public resources.
2. The auditor general as well as key ofcers in his department continue to face intimidation and
political pressure from leaders, especially during the period just before the audit reports are
received.
6.1.2 Recommendations to Strengthen the OAG's Ofce to Enhance Public Finance Oversight
In the current set-up, under Article 221(3) of the Constitution, the Auditor General Ofce's annual
budget estimates are prepared and submitted to the Cabinet Secretary responsible for nance who then
submits to the National Assembly estimates of the revenue and expenditure of the National
government. This arrangement undermines the OAG's absolute independence given that the National
Treasury is an entity subject to its statutory audit. To assure independence, there is need for the
Public Audit law to provide for direct submission of Auditor General's annual budget estimates
to the National Assembly. This model has been implemented in other jurisdictions successfully such
as Canada and United Kingdom.

To assure absolute independence of the Ofce of the Auditor General, The Public Audit law should provide
for the full nancial autonomy of the Ofce. This will be achieved by instituting mechanisms that provide
for direct submission of Auditor General's annual budget estimates to the National Assembly and not
through the National Treasury.
Lastly, there should be a special unit of both the ofces of the Controller of Budgets and the Auditor
General within the Ethics and Anti-Corruption Commission to specically deal with audit issues at both
levels of government.
6.2PARLIAMENT
6.2.1 Barriers to Effective Fulllment of Parliament's Role
Parliament in Kenya still faces numerous challenges that have undermined its potential to effectively
perform its oversight functions where public expenditure is concerned. The challenges include:
i) Lack of Political will

Legislation on accountability is weak. This is seen in how otherwise strong Bills get progressively
weakened through the various stages of debate due to either vested interests or self-interest by legislators.
Parliamentary Committees or Commissions set up to investigate corruption have seemed rather pacist
with no capacity to address root causes or following through with the ndings.
ii) Enforceability of Parliamentary Oversight Reports

For long, there was no Implementation or Assurance Committee (eventually introduced by the tenth
Parliament) that could track the implementation of decisions of the House by the Executive. Formation of
the Implementation Committee was meant to address the problem of the Executive failing to implement
recommendations of Committees. However, the Implementation Committee still does not have sufcient
powers to enable it compel a reluctant Executive to implement recommendations of Committees.
In addition, there is no statutory provision on time limits within which government should respond to
Committee reports.
iii) Resource constraints

Failure to strengthen the technical capacity of parliament to enable it to undertake its oversight functions
effectively. Key areas requiring attention are:
- Inadequate technical and support staff
- Inadequate technical staff particularly for PIC, PAC, Finance, Budget and LAFAC Committees to
undertake high level budget assessment.
- Facilities: The rooms used by the Committees are not tailor made for public participation or even
for the media.
iv) Lack of Transparency

The nature of reporting done by government, especially in management of funds devolved to local
levels and in procurement often does not give parliament enough information need to be benchmarked,
documented and preserved by Parliamentary Service Commission for adoption by Counties.
6.2.2 Recommendations to enhance for Parliamentary Oversight

1. Capacity building of legislators and the technical staff needs to be prioritized and made mandatory
for all to attend. It should be scheduled as part of the agenda at the start of the each parliament.
2. Clerks assigned to Committees need to have expertise in the thematic areas of those particular
Committees. The research ofce needs to be strengthened so that it can support Committees.
3. There is need for Committees to develop Strategic Plans based on the mandate of the committees.
This should then guide their activities.
4. Legislators should be restricted to serving in not more than two Committees to ensure focus,
effectiveness and thus high impact oversight in a given eld.

5. Mechanisms for public participation in legislative oversight are inadequate. The public ought to be
able to access Committee decisions.
6.3 EACC
6.3.1 Main Challenges Faced By the EACC

(i)Policy and Legal Framework
First, Kenya lacks a National Ethics and Anti-Corruption Policy to guide the ght against corruption. This
affects the efcient and effective implementation of anti-corruption initiatives where public funds are
involved. Thus, the efforts in the ght against corruption by EACC and other relevant institutions remain
uncoordinated and varied. This has also affected investigation and asset recovery by EACC particularly in
areas which require an integrated approach among all institutions which may be involved in the matter. As
a result, EACC's capacity to deliver on its mandate is affected.
Secondly, most of the enacted anti-corruption laws such as the Ethics and Anti-Corruption Commission
Act, 2011 and the Leadership and Integrity Act, 2012 are weak, suggesting a lack of political will in the
ght against corruption and unethical conduct in the country. These laws need to be strengthened to
support implementation of chapter6 of the constitution and bolster the ght against corruption. However,
on 6th December 2016, the Kenya National Assembly passed the Bribery Bill 2016, which provides for
preventing, investigating, and punishing bribery. This is the missing link in the ght against corruption.
Thirdly, the Commission does not have powers to enforce implementation of its corruption prevention
recommendations.
To add on, County governments have been slow in mainstreaming the integrity and anti-corruption agenda
in their systems. Currently, most county governments are grappling with challenges of establishing robust
structures and systems to ensure transparency, accountability and good governance.
(ii) Slow Judicial Process and New Rules on Graft Cases

Despite the on-going reforms taking place in the Judiciary, the judicial process and the adjudication of
cases is still slow. EACC has been affected by adverse judicial decisions which have stopped
investigations or prosecution of cases.
To address this issue, the Chief Justice, David Maraga, in December 2016 directed all applications
challenging corruption charges to only be heard by the Anti-Corruption and Economic Crimes Division of
the High Court that is located in Nairobi. This move was aimed to speed up the hearing of applications that
are usually led by suspects facing corruption charges.
Though noble, this move however impedes decentralization of governance and access to justice. In
essence the Chief Justice has stripped jurisdictional powers from other High Court judges. For example, if
cause of action arises at Busia, there is a high court judge there who can hear the case. But one would have
to travel all the way to Nairobi to le the case.
Secondly, the rules gazetted and published in the dailies were crafted without public participation. In
addition, they were unlawful because parliament did not approve them. This raises concerns on public
participation and decentralization on access to justice.
(iii) Inadequate Capacity

As EACC started to expand its services countrywide, it faced acute shortage of human resources. In
addition, high staff turnover was experienced due to the uncertainty associated with transition that led
to outward movement to other more competitive employers. Other internal factor that may have
affected EACC's delivery on its mandate includes lack of an integrated monitoring and evaluation
framework to ensure effective monitoring and evaluation of programmes.

(iv)Limited presence/ visibility of the EACC in the counties
Accessibility of the EACC is limited to only 6 counties. First, the commission can be accessed through its
ofces located in Nairobi. The Commission has also devolved its services by establishing three regional
ofces in Mombasa, Kisumu, Eldoret, Garissa and Nyeri Counties. There is need for the EACC to ensure
reasonable access of its services to other counties so as to ensure that all Kenyans have access to its
services, and are able to report any incidences of corruption that they may interact with.
Kakah, M. (2016, December 15) “CJ David Maraga issues new rules on graft cases”, Daily Nation.
Retrieved from http://www.nation.co.ke/news/CJ-issues-new-rules-on-graft-cases/1056-3487112-xng22dz
6.3.1 Recommendations to Strengthen EACC's Public Finance Oversight

i) Strengthen the Anti-Corruption Policy and Legal Framework
The process of formulating a National Ethics and Anti-Corruption Policy (NEAP) in the country gained
momentum in the 2014/2015 Financial Year; and is being spearheaded by the EACC, the Ofce of the
Attorney General and Department of Justice among other stakeholders in the anti-corruption sector. The
draft NEAP is in the process of dissemination to the public, pending adoption by stakeholders. There is
need for civil society organizations to participate in the review of this draft and propose amendments (if
any) with a view to facilitate a national strategic direction on the ght against corruption and promotion of
ethics and integrity in the country.
Secondly, various laws such as the EACC Act, 2011, and the Leadership and Integrity Act, 2012, will need
to be amended to support the ght, especially in strengthening the enforcement mechanism for Chapter 6
of the Constitution and support the ght at the county level. In addition, the Commission needs to partner
with the civil society in order to intensify lobbying for prosecutorial powers to enable it deal with
corruption cases efciently and effectively.
ii) Expediting Corruption Court Cases

There is need for the EACC to work with the ofce of the Chief Justice to develop rules that will enable all
High Court Judges to expedite cases relating to corruption. The two institutions can come up with
performance management tools to assess and track progress of these cases.
The ofces of the Controller of Budgets and the Auditor General should be strengthened at both the
national and county level. There should also be a special unit of both ofces within the Ethics and
Anti-Corruption Commission to specically deal with audit issues at both levels of government.
6.4 COUNTY GOVERNMENTS
i) Enhancing Public Participation in County Budgets Oversight

The Constitution of Kenya and the 2012 Public Finance Management Act require each of Kenya's 47
counties to publish budget information during the formulation, approval, implementation, and audit stages
of the budget cycle. This information allows the public to shape county budget priorities, discuss trade-offs
with their representatives in the county assemblies, and track whether the budget is delivering on what was
agreed during consultations between the public, executive, and assembly.
However, an assessment of budget reporting for all 47 counties for the nancial years 2016/17 and
2017/18 by the International Budget Partnership Kenya (IBPK) found that counties were not making
key scal and budget-related documents available to the public online in a timely fashion. A summary
of the ndings are as follows:

i) With regards to the Annual Development Plans, which are a main anchor to budgets, as of the
second week of September 2017, just 22 counties had published the 2017/18 document online; that
is less than half of the 47 counties. This is, however, an improvement from eleven (11) ADPs during
the analysis for the FY 2015/16.
ii) Only 21 counties published their 2017/18 County Fiscal Strategy Papers online.
iii) In terms of the 2016/17 Quarterly Implementation Reports which detail budget implementation
performance during the year, only Baringo county had published its report for the third quarter of
2016/17. This shows that accessing county implementation documents remains a national
challenge.
iv) Only 15 counties had made their proposed Budget Estimates available online. A couple of other
counties had published only line-item budgets, whereas counties are now required by law to
produce program-based budgets. Our ndings show a decrease in the number of budget estimates
available, decreasing from 22 in 2016/17 to 15 this year.
v) No county had a copy of a citizen-friendly budget on its website.
As a result, citizens cannot participate effectively in the budget process as intended under the Constitution
and Public Finance Management Act (PFMA).
There is need for capacity building for county governments to ensure access to timely and comprehensive
information on county budgets. This is crucial if the wider public in Kenya is to meaningfully participate in
government decision making.
ii) Leadership and Financial Management

The posts of Governor and Senator at the county level are highly political. The Governor is required to
appoint ofcers who will implement the PFM Act, and should thus exercise professionalism and integrity
in doing so. Furthermore, the Governor should be knowledgeable in nancial management. It is assumed
that counties elect governors with appropriate leadership and nancial management skills. Civic education
must therefore emphasize on people to elect credible leaders for the post of Governor, and for the county
and national assemblies.
iii) Procurement in the Counties

There is need to set up Public Procurement Oversight Authority ofces as well as those of the
Complaints Tribunals in the counties to deal with cost and time implications of trying to access such
ofces in Nairobi. There is need for public participation in the tendering process in the Counties.
6.5HOW CAN CIVIL SOCIETY COLLABORATE WITH PUBLIC OVERSIGHT

INSTITUTIONS TO ADVANCE FINANCIAL INTEGRITY?
The Constitution of Kenya 2010 provides a clear set of principles that spell out the role of public nances in
promoting an equitable society, public participation in the budget process and transparent nancial
reporting. Public participation on nancial matters is therefore not a choice but a mandatory requirement
as enshrined in our Constitution and Public Finance Management Act (PFM), 2012. This is, therefore, a
potential area for engagement between CSOs, public oversight bodies and the public to provide support in
enhancing accountability of public funds.

Recommendations for Potential Engagement Areas
1. CSOs can partner with the public to report cases that need OAG attention.
2. CSOs should sensitize the public on OAG recommendations and Parliament's actions on these
recommendations;
3. To collaborate to train local Community Based Organizations (CBO) networks that work with the
OAG;
4. To have OAG conduct audits on the implementation of the Access to information law.
5. Whereas there have been efforts to inform the public about the PFM Act by other institutions such
as the Constitution Implementation Committee (CIC), Commission for Revenue Allocation
(CRA), Kenya National Audit Ofce (KENAO), ofce of the Controller of Budget, and Ministry
of Finance, there is still need for intensive civic education on the nancial management processes
envisaged under the PFM Act.
6. Procurement is not well understood by both Communities and parliament and thus the need for
CSOs to step in to sensitize citizens on procurement regulations and their rights.
7. CSOs should be empowered to analyze and disseminate audit reports. At the moment, audit reports
are not easily understood by the public.
8. There is need to incorporate CSOs in the procurement review processes and should thus be
members of the Administrative Review Board at both the National and County level. The same
should apply in the tendering and award of tenders where CSOs and professional bodies could be
observers.

T
he International Center for Policy and Conict (ICPC) is a non-prot and
non-partisan organization initiated in Kenya in the year 2001 but got ofcial
recognition as a trust in the year 2005, under the Trustee (Perpetual
Succession) Act Chapter 164. It creates a civic platform to foster democratic,
peaceful, secure and just societies in Africa and globally.
The core programmatic investment themes of the organization are: Partnership for
Smart Development, Governance, Peace and Security, Gender Equality and
Sexuality Rights, Knowledge Management through Technology and Institutional
development.
The organization maintains the vision to create and promote free society with
dignity, equality and justice for all while its long standing mission is to create,
promote and engage platforms that transform societies for positive change and
human development.
Supported by

POLICY AND CONFLICT Kenya’s National Civic Education Programme
International Center for Policy and Conict

P.O. Box 44564-00100,Nairobi, Kenya
14th Floor View Park Towers, Utalii Lane, Off University Way
Tel: +254714838894, 020 2219757
E-Mail: admin@icpcafrica.org| Website: www.icpcafrica.org
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INTERNATIONAL CENTER FOR

POLICY AND CONFLICT

OFFICE OF THE AUDITOR GENERAL

INTERNATIONAL CENTER FOR

International Center for Policy and Conict

T he International Center for Policy and Conflict (ICPC) would

ICPC also appreciates Joy Karemesi, an Independent Consultant, for

This publication is the culmination of a four-month long research,

Lastly, we recognize the participants who participated in the validation

F ollowing the enactment of Kenya's new Constitution (2010), issues

Documentation of Recommendations Made on Public Expenditure

Documentation of Recommendations Made on Public Expenditure

CHAPTER 2: OFFICE OF THE AUDITOR GENERAL (OAG) .......................................... 7

CHAPTER 3: OFFICE OF CONTROLLER OF BUDGET (OCOB) .................................. 15

CHAPTER 4: THE ETHICS AND ANTI-CORRUPTION COMMISSION........................ 24

Documentation of Recommendations Made on Public Expenditure

/ I ! t Ç9 w ‫⁬ﻲ‬TOWARDS A MORE ACCOUNTABLE PUBLIC FINANCE ................... 39

Recommendations to enhance for Parliamentary Oversight ........................................... 43

Recommendations to Strengthen EACC’s Public Finance Oversight ............................. 45

COUNTY GOVERNMENTS ................................................................................................ 45

Documentation of Recommendations Made on Public Expenditure

Documentation of Recommendations Made on Public Expenditure 1

1.2 HOW THE AUDIT PROCESSIN KENYA WORKS

Documentation of Recommendations Made on Public Expenditure 2

2. Entrance meetings with the management of the audited entity

3. Audit queries issued, communicated and responses sought from auditee

4. Exit meetings with the Management of the Audited Entity

6. Draft Audit Report

7. Final Audit Report

Documentation of Recommendations Made on Public Expenditure 3

10. Reporting by Parliamentary/County Assembly Committees

11. Follow-up of Implementation of Parliamentary/County Assembly Recommendations

This audit process is summarized in gure 1 below:

Documentation of Recommendations Made on Public Expenditure 4

Documentation of Recommendations Made on Public Expenditure 5

2.2 NATIONAL GOVERNMENT BUDGETARY AND EXPENDITURE REVIEW

2.2.1 Budget Review

Table 1: Budget Trend Analysis

Zf bs 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015

Figure 3: Budget Trend Analysis

Documentation of Recommendations Made on Public Expenditure 6

Gross Estimated AIA Approved Net Net

Table 3: FY 2014/2015 Gross Estimated Expenditure Share between National and

Documentation of Recommendations Made on Public Expenditure 7

2.2.2 KEY ISSUES AND RECOMMENDATIONS IN THE FY 2014/2015

2. Value for Money/ Effectiveness Observations

4. Maintenance of Cashbooks and Bank Accounts

5. Bank Reconciliation Statements

Documentation of Recommendations Made on Public Expenditure 8

6. Maintenance of Accounting Records

2.2.3 RECOMMENDATIONS ON PUBLIC EXPENDITURE BY THE OAG

2. Weak Internal Control Weaknesses

Documentation of Recommendations Made on Public Expenditure 9

3.2 NATIONAL GOVERNMENT BUDGET IMPLEMENTATION REVIEWS

3.2.1 KEY ISSUES IDENTIFIED IN THE FY 2016/17

i) Delay in Uploading Budgets and Annual Procurement Plans into IFMIS

ii) Delay in Release of Funds to MDAs

iii) Delay in Submission of the Expenditure Reports to OCOB

Documentation of Recommendations Made on Public Expenditure 10

3.2.2KEY ISSUES IDENTIFIED IN THE FY 2015/16

i) Timing of Supplementary Budgets

ii) Delay in Submission of Expenditure Reports to the OCOB

iv) Accounting for Expenditure on Capital Transfers