Runaway spending leaves three universities insolvent

The auditor-general has declared three public universities and a government-owned hospitality training college technically insolvent, shining the spotlight on a ballooning financial crisis in Kenya’s institutions of higher learning.

Mr Edward Ouko says in the audit report for the year ending June 30, 2013 that Maseno University, the University of Eldoret, Maasai Mara University and Kenya Utalii College are technically insolvent, casting a shadow over the long-term survival of the state-sponsored institutions.

The report, which was submitted to Parliament last week, further indicates that Mr Ouko could not ascertain the accuracy of books of accounts for seven public universities — a pointer to the financial management mess in the institutions that are run by some of the country’s best brains.

IN THE RED

Mr Ouko returned a qualified audit opinion on the financial statements of Maseno University, University of Kabianga, Meru University of Science and Technology, University of Eldoret, and Rongo University College — meaning he did not get a complete picture of the state of their finances.

Utalii College tops the list of public institutions in financial distress with Sh1.5 billion deficit for which it is seeking government relief.

During the year under review, the college’s current liabilities of Sh1.7 billion were nearly eight times more than current assets of Sh202.3 million, resulting to a negative working capital position of Sh1.5 billion.

That position led Mr Ouko to conclude that the “Kenya Utalii College is technically insolvent and its continued existence as a going concern is dependent on financial support from government and its creditors.”

Like in the previous year, the college did not comply with a loan agreement it signed with the government in February 1996.

Under the deal, the government extended a Sh140 million loan to Utalii for purposes of refurbishment but the college had paid only Sh6 million by the close of financial year ended June 2013.

“Accumulated interest and principal amounts as at June 30, 2013 stood at Sh1.67 billion,” Mr Ouko says in the report, adding that no meaningful progress had been made in ongoing efforts to have the government write off the loan.

The audit report shows that Maseno University had accumulated a Sh141 million deficit in the year under review, having sunk deeper into the red from the Sh100.1 million deficit it returned in the 2011/12 financial year.

“The university’s current liabilities of Sh161.5 million exceeded the current assets of Sh47.3 million by a large margin,” Mr Ouko says, adding that the university is technically insolvent and may face serious financial difficulties in future operations “as its continued operation is dependent on the support of government and creditors.”

And in a show of how shambolic financial management is at Maseno, the report says the university’s comprehensive income statement for 2012/13 had included “the council’s expenses of Sh21.7 million and other amounts totalling Sh5.9 million for other payments, hotel accommodation, contingencies, payroll payments, undescribed payments and payments to three officers that were not supported by any documentation.”

Maasai Mara University reported a Sh4.9 million deficit, resulting in the decrease of revenue reserves from negative Sh29.8 million the previous year to negative Sh34.7 million in June 2013.

“In addition, its current liabilities of Sh146.9 million exceeded the current assets of Sh90.9 million by Sh56 million,” Mr Ouko says, reaching the conclusion that the university is technically insolvent.

DOUBTFUL OWNERSHIP

The audit report also questions the university’s non-current assets balance of Sh846 million, which included an undetermined value of land measuring 129 acres it inherited from the former Narok Teachers Training College.

Maasai Mara also reported trade and other payables balance of Sh95 million. The amount includes payroll creditors’ balance of Sh50.6 million in respect of unremitted pension scheme deductions, making the auditor general to conclude that “the university is therefore exposed to penalties and interests charged for non-remittance of these deductions.” 

The University of Eldoret, with current liabilities of Sh325.5 million and assets worth Sh274.3 million, was in the same boat as Maseno and Maasai Mara.

It was no different at Rongo University College where the auditor general found that the Sh351.5 million indicated as the value of property, plant and equipment included five parcels of land valued at Sh58.5 million but whose ownership remains in doubt.

Mr Ouko found that the college had titles for only two parcels of land while the other three are registered in the name of Moi Institute of Technology.

“These financial statements exclude the value of assets taken over from the predecessor institution (Moi Institute of Technology) as at July 1, 2012 and subsequently revalued on March 2013,” the report says.

The University of Kabianga has included a Sh60 million land value in the property, plant and equipment balance of Sh1 billion. The money is the value of 110 acres of land on which the university stands.

The land has, however, not been transferred to Kabianga from its previous owner — the defunct Kipsigis County Council — and Mr Ouko says until the process is complete it is not possible to confirm its ownership.

Meru University of Science and Technology included in its books land measuring 540 acres in Tigania West out of which 122 acres has been invaded by squatters.

The article first appeared in The Business Daily.