The Migori municipal council owes workers six months salary arrears, say union officials.
Union chairman George Owino and secretary Alice Osumba questioned how Sh10.4 million collected between May and August was spent.
Town clerk Jared Chebon suspended Mr Owino after a council kiosk at the open-air market was sold and workers paid themselves using market dues.
He said he also suspended other officers, who he accused of pocketing market cash instead of handing it over to town hall.
But Mr Owino insisted he was innocent and issued a seven-day strike notice.
Mr Chebon froze council accounts at Kenya Commercial and National banks.
“It has been routine in this council every time Local Government Transfer Funds are released, substantive officers are evicted from office,” Mr Chebon said in a letter to the banks.
The council is expecting the funds next month.
“This is not about salary arrears but a scheme to remove the clerk and treasurer and replace them with acting chief officers who are easy to manipulate,” he explained.
Mayor Peter Masara and finance committee chairman Obrien Ochieng defended the chief officers and said they should be given time to work.