No end in sight to wastage of public funds without rules to curb the vice

Auditor general

Lack of documentation leaves Auditor-General unable to tell exactly how taxpayers money is used

Wednesday March 18 2020

Mismanagement of public funds is likely to persist if Parliament does not pass strong recommendations to curb wastage as shown by the Auditor-General’s report on the national government’s financial statements for the 2015/2016 fiscal year to be tabled on the floor of the House this week.

Poor accounting practices have become the hallmark of a public service abetting massive loss of public funds, as undocumented spending leaves the Auditor-General unable to ascertain if indeed billions of shillings were spent in the manner claimed, concludes an analysis of the Auditor-General reports for three financial years (2013/2014 - 2015/2016) conducted by the Institute of Economic Affairs (IEA).

Without a trace

Over Sh44 billion could have been lost, having been ‘spent’ without evidence, in the 2015/2016 financial year in just four ministries – Health, Education, Agriculture and Devolution – the analysis shows. This was 42 percent of the total amount (Sh103.9 billion) that drew queries from the Auditor-General up from 30 percent of the total amount queried in the 2013/14 financial year, depicting an upward trajectory.

The combined amount spent by ministries in the 2015/2016 financial year was Sh436 billion, equivalent to more than a third of total national government spending for that year.

Past recommendations by PAC have been more suggestive than prescriptive, appearing to merely advise the executive on how to attain higher score in the Auditor-General’s examinations.

Audit queries do not necessarily confirm loss of money but point to irregular transactions with respect to International Public Sector Accounting Standards. However, many such accounting lapses in government can be and have been used to misappropriate funds.

The Public Audit Act, 2015 anticipates that watchdog institutions such as Parliament, the Office of the Director of Public Prosecutions, the Directorate of Criminal Investigations and the Ethics and Anti-Corruption Commission follows up on the queries raised by the Auditor-General through investigations, prosecutions and specific recommendations to the government. Little in this regards has happened so far.

‘‘In the past, these reports have been seen as a mere ritual but that has changed and we are now working hard as PAC on the fiscal year 2015/2016 report which I will be tabling with clear recommendations for action,” said Parliamentary Accounts Committee (PAC) chairperson Opiyo Wandayi.

However, past recommendations by PAC have been more suggestive than prescriptive, appearing to merely advise the executive on how to attain higher score in the Auditor-General’s examinations. For instance, one of the PAC recommendations adopted by Parliament following the Auditor-General’s report on the national government’s 2015/2016 financial statement report was that: ‘‘The Accounting Officer should prepare the financial statements in a form that complies with the relevant accounting standards …”.

It is unlikely that any punitive PAC recommendation that strongly seeks to instil financial discipline in the executive can sail through the floor of Parliament owing to the current camaraderie between the opposition and the government. ‘‘Once the networks of impunity know that PAC has become stubborn, they will want to frustrate us in the main House to water down our report in the plenary where it is the numbers that will carry the day,’’ says the Ugunja Member of Parliament.

According to Kwame Owino, the executive director of IEA, the consistent refusal by the government to present the Auditor-General with documents that prove spending is one way corrupt public servants use to cover their tracks. “If you look at the trend over the years, it is deliberate. It is not possible that someone can spend billions of shillings and not have receipts or any transaction records. They hide those records because they know that when the Auditor-General looks at them he will uncover very serious issues,’’ he says.

Mr Owino says that such self-preservation tactics have thrived right under the nose of institutions that are supposed to enforce the Auditor-General’s opinions.

‘‘Parliament has condoned the habit of government officials hiding documents during auditing only to produce them in Parliament before MPs, who lack the accounting skills to scrutinise them, long after the audit report is published,’’ he told NationNewsplex, adding that MPs can add great value to the work of the Auditor-General if they have the good will.

Many queries

Other audit issues included failure to reconcile books of accounts, violation of financial regulations, violation of public procurement regulations and lack of value for money. Queries relating to all the audit issues involved a total of Sh319 billion, spent between the 2013/2014 and 2015/2016 financial years.

Devolution consumed Sh100.5 billion, Education Sh96.2 billion, Agriculture Sh73.3 billion and Health Sh49.1 billion.

Overall, donor-funded government projects under the four ministries, which in many cases do benefit from external input in the reporting and accounting process, received much better reviews from the auditor, implying that the government’s failure to properly account for expenses could be deliberate. In the three financial years analysed, donor-funded projects received 54 clearances and 261 queries while the national government got a clean bill of health on only two instances against 497 queries.

In the 2015/2016 financial year, a period when the first and the second National Youth Service financial scams occurred, through which billions of shillings were lost, the State Department of Devolution and Planning received a disclaimer of opinion, indicating that the Auditor-General did not receive sufficient information to render an opinion.

However, there were a few donor-funded projects whose records were so disjointed the auditor could not attempt to issue an opinion on them, such as GAVI, the global vaccine alliance that seeks to work with governments to promote vaccination, and the United Nations Population Fund (UNFPA), a project on reproductive health for the entire Kenya.

In the three years, the total queried amount in the four ministries as a share of expenditure dropped from 19 percent in the 2013/2014 financial year to nine percent in 2015/2016 even as the number of queries increased from 246 to 262 in the same period.

The most remarkable improvement was in reconciling books of accounts - money spent without balancing books of accounts as the share of queried expenses dropped from 48 percent (Sh57.6 billion) in the 2013/2014 financial year to three percent (Sh3.3 billion) of total queried expenses two fiscal years later

The amount of petty cash unaccounted for also dropped to Sh351,000 from Sh2.1 million the previous financial years.
However, these gains were cancelled out by the Auditor-General increasingly questioning the rationale for government spending and the value for taxpayers’ money. In the 2015/16 financial year, such concerns accounted for one in every five shillings flagged, from one in 25 in 2013/2015.

Besides demonstrating that the Auditor-General is not receiving due cooperation from the national government, the IEA analysis also reveals that the reports amount to little as many issues raised recur in successive financial years. Recurrent issues stood at more than a third (38 percent) of those queried in the 2015/2016 financial year, having grown steadily from 15 percent in 2013/2014.

According to Mr Owino, the Auditor-General should, in future reports, escalate the mater by invoking his powers under the Public Audit Act, 2015 to recommend that Parliament withholds funding to specific agencies with a bad record.
Section 54 of the Act states: “Where there is a serious material breach or persistent material breaches of the provisions of this Act, the Auditor-General may in his audit report to Parliament or the relevant county assembly pursuant to the Public Finance Management Act, 2012 (No. 18 of 2012), recommend the withholding of funds to any State Organ or public entity.”

However, the adoption of such recommendations would still depend on Parliament’s goodwill.

Mr Wandayi also proposes that the Auditor-General be given adequate resources so that it can exercise its mandate accordingly.