Senate uncovers “ghost” municipalities and Deep Financial Irregularities in counties

A Senate committee has uncovered widespread dysfunction, financial mismanagement and weak governance structures in municipalities across the country.

The Senate County Public Investments and Special Funds Committee has revealed what it describes as “ghost” urban entities that exist in name but are largely non-operational.

The panel established that several municipalities have failed to put their charters into full operation.

They also suffer from weak budgetary controls, revenue far lower than expected, and lack the required autonomy to be granted by county executives.

The committee reported that many municipalities are operating below the legal threshold set out under the Urban Areas and Cities Act, and key governance structures are either missing or heavily interfered with by county administrations.

The report highlights that despite being granted municipal charters, numerous urban centres have not implemented the functions delegated to them.

Instead, these roles continue to be performed by county executives, effectively rendering the municipalities dormant.

“Inadequate funding, absence of strategic plans and non-functional municipal boards have significantly undermined service delivery in these urban areas,” the committee notes.

A case in point is Maralal Municipality in Samburu county, which was granted a charter in 2018 but remains largely non-operational.

Similar patterns, the committee says, are replicated in other counties where municipalities exist on paper but lack functional independence.

The committee, chaired by Senator Godfrey Osotsi, also found serious anomalies in asset management and financial reporting.

Many municipalities either lack comprehensive fixed asset registers or are unable to provide valuation reports and ownership documentation for properties listed in their books.

In several instances, municipalities disclosed zero values for properties, plants and equipment, despite these physical assets being visible on the ground.

The report also reveals that key assets remain under the control of county executives and are not transferred to municipal authorities as required by law.

“Some municipalities could not even demonstrate ownership of the land on which their offices sit,” the report read, raising concerns about accountability and governance.

The committee observed that the operational autonomy of municipalities has been severely compromised, contrary to provisions of the Urban Areas and Cities Act.

Sections relating to management independence, functional autonomy and financial self-governance are largely violated.

In practice, municipal budgets are prepared by county executives, revenue collection is centrally controlled by counties, payments are processed through county treasuries and municipal employees remain on county payrolls.

“This centralised control undermines the municipalities’ ability to make independent operational and financial decisions, thereby hampering their effectiveness in delivering services efficiently to urban residents,” the report read.

The audit further exposed widespread inaccuracies in financial statements prepared by municipalities.

These include misclassifications, omissions, casting errors, unexplained variances, and non-compliance with Public Sector Accounting Standards Board (PSASB) reporting templates.

The committee noted discrepancies between financial statements and supporting ledgers, inconsistent comparative balances, missing notes, incorrect budget-versus-actual reporting and failure to adhere to the required accrual accounting basis.

For example, Eldoret Municipality in Uasin Gishu county was flagged for multiple financial anomalies, including missing notes on cash generated from operations, inconsistencies in depreciation figures, unsupported prior-year adjustments and unreconciled inter-entity transfers.

“These errors reflect weak financial controls and a lack of adherence to established accounting standards,” the committee observed.

To address the problems, the committee has issued recommendations aimed at restoring accountability and functionality in municipalities.

It has directed governors to ensure that by the 2026-27 financial year, all municipalities are fully operational in line with their delegated functions and gazetted mandates under the Urban Areas and Cities Act.

The committee also wants municipalities adequately resourced in accordance with the Public Finance Management Act, 2012, to ensure effective service delivery.

Further, it recommends that municipal boards develop Integrated Development and Economic Plans as well as Integrated Strategic Urban Development Plans to guide urban growth and management.

The Auditor General has also been tasked with reviewing progress in subsequent audit cycles and reporting on the extent to which counties have granted municipalities operational autonomy.

In addition, governors are required, within 60 days of the report’s adoption, to fast-track the transfer of ownership documents of all municipal assets from county executives to municipalities.

Municipal management is also expected to conduct comprehensive valuation of assets and submit reports for verification by the Auditor General. Accounting officers must then update and maintain proper asset registers in compliance with public finance regulations.

Finally, the National Treasury has been urged to strengthen training and awareness programmes on public sector accounting standards to improve financial reporting across counties.