TSC broke, sinks deeper into debt as audit flags Sh7.9bn financial hole

Teachers Service Commission (TSC) is staring at a deepening financial crisis amid revelations that it is technically insolvent.

A new audit has revealed that the commission is unable to meet its short-term obligations and is burdened by a widening deficit.

Auditor General Nancy Gathungu has, in a review ending June 30, 2025, warned that TSC survival is in doubt.

TSC budget deficit in the year was Sh4.38 billion, bringing the accumulated deficit to Sh7.34 billion.

At the time of the review, the commission had current liabilities of Sh12.3 billion and current assets of Sh4.4 billion, resulting in a negative working capital of Sh7.9 billion.

“This is indicative of the commission’s inability to meet its obligations as and when they fall due,” Gathungu said.

TSC, which employs over 340,000 teachers, sits at the heart of the country’s education system.

Any financial distress has immediate implications for salaries, benefits, pensions, and service delivery in schools nationwide.

The audit reveals that the commission is not only running deficits but also overspending beyond approved budgets.

In the year under review, TSC exceeded its recurrent budget by Sh4.48 billion, contrary to the Public Finance Management Act.

“Management has not provided an explanation for the over expenditure,” Gathungu said, citing weak fiscal discipline.

At the height of the crisis are unpaid obligations that continue to pile up.

The report shows that TSC pending bills stood at Sh12.3 billion.

The audit further flagged stale cheques and long-outstanding liabilities, warning that TSC risks penalties, interest charges, and litigation.

Of particular concern is the backlog of compensation claims under the Workers' Injury Benefits Act (WIBA).

It emerged that claims worth Sh186 million, some dating as far back as 2001, remain unpaid.

“In the circumstances, long-outstanding and unpaid WIBA claims may expose the commission to legal cases and accumulation of interest or penalties,” the auditor warns.

SH53.5BN MEDICAL SCHEME

The report also raises red flags over TSC’s multi-billion-shilling medical insurance scheme for teachers, valued at Sh53.58 billion over three years.

While the scheme covers hundreds of thousands of teachers and their families, the auditor found that most government hospitals were excluded from the list of service providers, without explanation.

Further, teachers faced delays in accessing treatment due to lengthy pre-authorisation processes, forcing many to pay out of pocket.

“Management did not provide explanations for the exclusions or the criteria applied,” Gathungu stated. Teachers' unions recently protested the same.

TSC failed to produce actuarial reports to assess whether the premiums paid match the risks covered.

Gathungu said this casts doubt on the value for money and the sustainability of the scheme.

“The absence of these reports undermines the commission’s ability to assess the adequacy of premiums,” the auditor noted.

Serious weaknesses were also flagged in TSC’s payroll system, raising concerns about possible leakages.

Auditors found seven individuals listed on the payroll who could not be traced in the official teachers’ database, pointing to potential ghost workers.

“The absence of the teachers from the official master data undermines the reliability of personnel management systems and increases the risk of financial loss through irregular or fraudulent payments,” the report reads.

In addition, 6,129 teachers were found to be earning less than one-third of their basic salary after deductions.

Beyond finances, the audit exposes operational fissures that directly affect learning outcomes.

At least 199 schools (120 primary and 79 secondary) were found to lack substantive administrators, in breach of TSC regulations.

The lack of headteachers and principals could compromise decision-making, discipline, and overall management in affected institutions.

“No explanation was provided on how the commission addressed the gap,” the auditor noted.

The audit further reveals that TSC is also struggling to process teachers’ pensions efficiently.

Out of 9,175 teachers who exited service during the year, auditors could not confirm whether their pension files were submitted to the National Treasury.

Similarly, the teachers’ transfer system is in disarray, with no clear tracking mechanism for applications.

Teachers must reapply after a year if their requests are not processed, and the system does not indicate approvals or rejections.

“In the circumstances, delays in processing the transfer requests could adversely affect productivity,” the report reads in part.

The audit highlights multiple instances where TSC breached the law or failed to comply with regulations.

Gathungu cited cases of unspent funds that were not surrendered for reallocation as required.

Lease agreements for several offices were signed months after expiry, in some cases, not signed at all, leaving the commission legally exposed.

A landlord for one office was a TSC employee who failed to declare a conflict of interest.

It also emerged that some motor vehicle repairs were procured irregularly without proper documentation.

In addition, the commission has failed for years to establish regulations governing its car loan and mortgage fund.

Gathungu raised concerns that the teachers' employee has not submitted separate financial statements for the fund as required by the PFM Act.

The audit further reveals weak internal controls, including Sh236 million in salary overpayments, nearly half of which may never be recovered.

Also flagged are missing title deeds for eight out of nine parcels of land owned by the commission.

“These gaps undermine accountability and expose public resources to risk,” the audit report states.

Even as it grapples with financial stress, TSC is understaffed.

The commission has 2,913 employees against an approved establishment of 3,333, leaving a shortfall of 420 staff.

TSC is the single largest employer in the public sector after the disciplined forces, controlling teacher salaries, welfare, and deployment.