Exposed: How counties are concealing wage bill crisis

Controller of Budget Margaret Nyakang’o has revealed that at least 16 counties are engaging in “fraudulent budgeting” to hide actual expenditure on employee compensation.

 The COB said counties are deliberately underreporting staff-related expenses by declaring misleading compensation for periods shorter than the full financial year. 

Only eight counties complied with the law and did not exceed the legal threshold for wages.

“Some counties are becoming clever by engaging in fraudulent budgeting. They are deliberately not requisitioning salaries for a month or two so that, by the end of the year, they report spending for fewer months,” she said.

The unpaid salaries for one or two months are then reported in the subsequent financial year, creating the illusion of compliance with fiscal regulations.

Nyakang’o explained that this deceptive trend began in the last financial year, as counties sought to appear compliant with the law that caps spending on employee compensation at 35 per cent of total revenues.

Despite manipulation, some counties still exceeded the 35 per cent limit, Nyakang’o said.

“If they were to make full disclosures for the entire year, some of these counties could be spending up to 70 per cent or more of their revenues on employee compensation,” she said.

Regulation 25(1)(b) of the PFM (County Governments) Regulations, 2015, limits county government expenditures on wages and benefits to 35 per cent of the devolved unit’s total revenue.

In the last financial year, the Controller flagged 16 counties that engaged in fraudulent budgeting to obscure their actual spending on employees.

These include Bungoma, Narok, Turkana, Bomet, Kilifi, Kisumu, Machakos, Makueni, Mandera, Marsabit, Meru, Murang’a, Nyandarua, Tharaka Nithi and Mombasa.  

Nyakang’o said Bungoma and Narok failed to disclose their spending on compensation of employees for May and June, while the remaining counties failed to disclose for June.

This practice persists despite all the counties receiving full disbursements from the National Treasury within the fiscal year to finance their operations, including payment of salaries.

“The Treasury and the Central Bank even left the system open for several days after the close of the financial year, but they still failed to report,” she said.

“They are trying to manage the ratios. It is what we call fraudulent budgeting.”

According to the report by Nyakang’o on the county budget implementation review for the 2024-25 financial year, Bungoma failed to disclose expenditure on employees for May and June, but still spent 45 per cent of its revenue on staff compensation.

The county spent Sh6.31 billion for 10 months.

In Narok, the county government spent Sh5.5 billion without disclosing expenditures for May and June. Its wage bill stood at 35 per cent of its revenues without the two months.

Turkana reported an expenditure of Sh6 billion on wages without reporting the month of June, but still surpassed the 35 per cent threshold by two per cent.

In Bomet, the wage bill stood at 48.6 per cent with the disclosure for June. The county spent Sh3.75 billion on compensation of employees.

Kilifi, Kisumu, Machakos, Makueni and Mandera posted a wage bill of 28 per cent, 48 per cent, 54.4 per cent, 44 per cent and 38 per cent, respectively, without June disclosures.

The counties spent Sh4.64 billion, Sh5.95 billion, Sh7.07 billion, Sh4.89 billion and Sh5.03 billion, respectively.

Marsabit’s wage bill stood at 43 per cent, Meru (42.5 per cent), Murang’a (48 per cent), Nyandarua (30 per cent), Tharaka Nithi (53 per cent) and Mombasa (47 per cent).

Overall, the report shows that employee compensation consumed 47 per cent of total county spending (Sh470.23 billion) and 41 per cent of actual revenue (Sh533.11 billion)—far above the Public Finance Management thresholds.

The 47 counties spent Sh220.64 billion on salaries and allowances in the financial year ending June 30, 2024. This is an increase of Sh10.8 billion compared with the previous financial year.

The surge exposed the wage bill as the single biggest threat to devolved governments.

In some counties, the wage bill consumes as much as 55 per cent of revenues, leaving only 45 per cent to cover operations and development.

According to the report, counties that spent the highest amount as a percentage of their revenues include Nyeri (55 per cent), Machakos (54.5 per cent), Baringo (53.4 per cent), Tharaka Nithi (53 per cent) and Taita Taveta (51 per cent).

Others are Elgeyo Marakwet (51 per cent), Nairobi (50.8 per cent), Homa Bay and Lamu at 50 per cent each, Murang’a (48 per cent), Kisumu (48 per cent), Bomet (48.6 per cent), Mombasa (47 per cent), Vihiga (47 per cent), Marsabit (43 per cent), Nyamira (44 per cent) and Busia (44 per cent).

Counties that complied with the law’s percentage ceiling include Kilifi (24), Siaya (26), Tana River (27), Nakuru (30), Kwale (31), Nandi and Nyandarua (33 per cent each). 

INSTANT ANALYSIS

The wage bill, now devouring nearly half of county budgets, is squeezing out development spending and threatening the future of devolution. Unless counties curb the fraudulent accounting and overspending, Nyakang’o warned, the promise of devolution risks collapsing under the weight of unsustainable personnel costs.