Audit: Counties risk losing Sh532 billion due to weak systems

Weak financial systems and failure by officers to safeguard public resources has put Sh532.67 billion at a potential risk of loss in the counties.

A report by the Senate County Public Accounts Committee exposes the worrying levels of fiduciary risk exposure by the counties.

The committee, chaired by Homa Bay Senator Moses Kajwang’, tabled its report after scrutinising the Auditor General’s report for the county executives for the financial year ending June 30, 2024.

“This rigorous examination revealed systemic weaknesses in public financial management across county governments, with a staggering cumulative fiduciary risk exposure of Sh532.67 billion,” the report states.

Fiduciary risk exposure refers to the potential for funds or assets entrusted to someone to be lost, misused, misappropriated, or not used for their intended purpose, often due to weak governance, control systems, or corruption.

“This was assessed based on the extent of misapplication and misappropriation of resources,” the report states.

Nairobi county had the highest exposure at Sh157.36 billion, followed by Kakamega (Sh41.52 billion) and Machakos Sh28.27 billion).

The potential losses are manifested in the financial reporting deficiencies, including inaccurate financial record; procurement violations, non-compliance with the budget, nugatory (avoidable expenses and losses), questionable pending bills and ‘ghost’ workers fueling wage bills.

“Rampant irregular recruitment practices leading to ghost workers, excessive casual employment beyond legal limits and improper compensation, including overpayment of allowances,” the report says.

Others are lack of asset registers that expose them to risk of loss and revenue leakages leading to perennial shortfalls.

“Persistent failure to collect outstanding revenues (property rates, land rates, mineral royalties) due to ineffective enforcement and outdated valuation rolls based on historical rather than current market values,” the report says.

Cumulatively, the 47 county executives could not account for Sh39.09 billion in irregular expenditures, Sh4.97 billion in unsupported expenditures and Sh13,93 billion in excess/unbudgeted expenditures in the 2023-24 financial year.

Others are stalled projects (Sh7.59 billion) and value-for-money concerns (Sh9.57 billion). Kajiado has a fiduciary risk exposure of Sh22.65 billion, Embu could lose Sh20.17 billion, Kiambu (Sh15.22 billion), Kisumu (Sh15.09 billion) and Sh14.54 billion in Lamu.

Some Sh12.42 billion is at risk of loss in Kisii, Sh12.10 billion Kilifi, Kitui risks losing Sh9.58 billion, Nyeri Sh8.10 billion and Tana River Sh7.57 billion.

Mombasa’s fiduciary risk exposure stands at Sh7.64 billion, Busia (Sh6.25 billion), Bungoma (Sh5.83 billion), Kericho (Sh6.79 billion), Elgeyo Marakwet (Sh6.30 billion), Murang’a (Sh6.70 billion) and Nyandarua (Sh6.79 billion).