OPINION: Which way Kenya: The forgotten reforms

When the Cabinet Secretary for Finance John Mbadi came into office, there was an unmistakable sense of anticipation within the country’s financial and accounting circles. Promises of reform, transparency and fiscal discipline were made boldly and repeatedly. For many Kenyans, such declarations are now familiar political refrains. But within the accounting profession, one proposal stood out with particular weight: the proposed integration of accrual-based accounting into Kenya’s public sector financial reporting framework. It was not merely a technical adjustment; it was presented as a structural shift in how government finances would be recorded, understood and ultimately governed.

The debate around accrual accounting in the public sector is not new. Experts, policymakers and practitioners have argued for years about whether Kenya is institutionally prepared for such a transition. The issue, however, is twofold. On one hand lies the technical and capacity dimension; on the other lies the political reality of how public finance operates in Kenya. To understand why this reform matters, one must first appreciate the difference between the current system and what is being proposed.

For decades, the Kenyan government has largely relied on the cash basis of accounting. Under this method, revenue is recorded when cash is received and expenditure is recognised only when payment is actually made. The national budget itself is approved on a cash basis, and expenditure is authorised based on the availability of actual cash allocations. The system is simple, administratively convenient and easier to manage within the existing public finance structure. If funds have not been released, then the expenditure is not recognised. If cash has not moved, the transaction effectively does not exist in the financial statements.

While this approach has functioned for years, it has also created significant limitations, particularly in matters of transparency and auditability. One of the most visible consequences has been the persistent issue of pending bills. County governments and national ministries frequently enter into contracts for infrastructure projects, medical supplies, consultancy services and other public works. When contractors complete the work but payment is delayed due to cash constraints, those obligations often do not fully reflect in that financial year’s reports under the cash system. On paper, the books may appear balanced; in reality, the government owes billions.

Under an accrual-based system, such obligations would be recognised at the moment they are incurred, not when cash is eventually disbursed. This would force public entities to disclose their true financial position, including outstanding obligations, pension liabilities, guarantees and long-term commitments. It would significantly reduce the ability to postpone financial recognition simply by delaying payments.

This is precisely where the political dimension becomes apparent. Cash accounting offers flexibility. It allows expenditure recognition to align strictly with cash availability. In times of fiscal pressure, obligations can be deferred. Under accrual accounting, that flexibility diminishes. Liabilities must be disclosed whether or not the Treasury has released funds. The true cost of decisions becomes visible in real time. For a political system accustomed to managing budgets within the constraints of cash flows, such visibility may be uncomfortable.

The implications extend beyond pending bills. Public-private partnerships, long-term infrastructure financing arrangements, pension obligations and even court-awarded compensations would need to be reflected clearly and consistently. Accrual accounting provides a fuller picture of the government’s financial health, but it also exposes fiscal risks that may previously have remained obscured. For taxpayers, this matters deeply. Hidden liabilities eventually become public burdens. Deferred obligations today translate into higher taxes or increased borrowing tomorrow.

 We are living in a moment where major national projects are being flagged off at unprecedented speed. Affordable housing developments rise across counties. Stadiums are announced and relaunched. Roads, markets, industrial parks and special economic zones are unveiled with ambitious price tags. Figures are quoted at political rallies, sometimes those figures shift depending on the location or the audience. But how does the public follow the money?This is not a small issue. Take the example of affordable housing. The project involves land acquisition, infrastructure development, contractor payments, financing structures and long-term repayment models. At various points, different figures are cited: total project cost, annual allocation, cost per unit, projected revenue from sales. Without a system that records obligations as they arise, the public cannot clearly see how much the government has committed itself to pay, regardless of when the cash leaves the Treasury.

The way government accounts for its finances determines how transparently public funds are managed. It influences how accurately public debt reflects reality, especially when guarantees and long-term project commitments are involved. It determines whether fiscal deficits represent the true economic position of the country or merely the cash that happened to move within a twelve-month window. Ultimately, it shapes the level of accountability that citizens can demand from those entrusted with public resources.

However, migrating to accrual accounting is not simply a matter of issuing a policy directive. Significant structural challenges lie ahead. Many county governments still struggle with incomplete asset registers and inadequate documentation of public property. Accrual accounting requires accurate valuation of land, infrastructure, equipment and other public assets. It requires skilled personnel capable of applying complex standards. It requires robust information systems capable of tracking liabilities in real time.

There is also the structural mismatch between cash-based budgeting and accrual-based reporting. As long as Parliament continues to approve budgets on a cash basis and authorise expenditure based on cash allocations, the public sector will operate within a hybrid framework. Reporting may shift to accrual principles, but operational control will remain cash-driven. Without investment in training, systems and institutional reform, the shift risks becoming superficial.