Public Financial Management (PFM) is all about resource mobilization and expenditure management in the public sector. It is, therefore, an integral part of the development process.
Suffice is to indicate that the involvement of the public sector in providing for various segments of society, including the under privileged, arises from the lack of motivation, incentives and moral sentiments of the private sector to do the same.
The Kenya Government has laid out an elaborate institutional and regulatory framework providing support for public finance management in national and county governments.
This derives from the Constitution, various Acts of Parliament, and other regulations. Under the Constitution, PFM matters are stipulated in Chapter 12 in which openness, accountability and promotion of an equitable society are the guiding principles.
A recent review by KIPPRA of the PFM systems in six county governments yielded mixed results. So far, county governments have made considerable effort towards establishing the foundations for a sound PFM system in many areas within the devolved system of government in Kenya. Among the notable achievements include the establishment of various PFM systems such as budget documents, which include County fiscal strategy papers, County budget review and outlook papers, and budget estimates as per the PFM Act 2012 guidelines and timelines. These measures, together with implementation of IFMIS, have facilitated timely and systematic budget preparation and execution by County governments.
To improve on own source revenue mobilization, there are efforts to expand the tax revenue base, with many county governments embarking on preparing valuation rolls, upgrading infrastructure to improve tourism revenues, and strengthening management and regulation of parking charges. In addition, to improve on compliance, many counties are automating revenue collection, training revenue collectors and improving their terms of service and sensitizing the public and private sector on county governments revenue generation programmes. In addition, some counties have entered into agreements with the Kenya Revenue Authority (KRA) to collect revenues on their behalf.
On the expenditure side, county governments are administering expenditures according to administrative, economic, and programming classifications, thereby simplifying record keeping and analysis of budget out-turn. Besides, majority of the counties adhere to the 70 per cent and 30 per cent allocations towards recurrent and development expenditures.
On the flip side, a lot more is required to ensure fiscal discipline, strategic allocation of resources, and efficient service delivery within the devolved units. For instance, it was notable that most county governments have very high rates of resource reallocations which leads to low levels of budget reliability. A budget is said to be reliable if it is implemented in accordance with the approved estimates before the beginning of the financial year. There are also inconsistencies in total expenditures and low absorption rates. On the revenue side, discrepancies arise from expensive and unreliable revenue collection systems, cases of delays in passage of finance bills in some counties, over-projection of non-specified revenues, low compliance rates, and corruption.
Key among the challenges facing the counties include inadequate technical capacities, be it in terms of skills, and physical number of employees necessary within various segments of the PFM system. County governments clearly require technical support to strengthen linkages between policy, planning and budgeting and ensure that approved expenditure policy proposals are aligned to costed ministerial strategic plans or sector strategies as identified in County Integrated Development Plans (CIDP). Forecasting and sensitivity analysis, and selection criteria and economic analysis of identified investment projects are areas that require capacity building. Weak capacities undermine strategic resource allocation and efficient use of public resources.
The other significant challenge is the weakness in internal audit systems, which compromise accountability, sound controls, identification of risks, irregularities and errors within the PFM systems. So far, the focus of the internal audit is mainly on compliance and regulatory issues as opposed to providing full oversight of all budget users and the effectiveness of the internal control system. Weak internal control systems lead to unreliable financial records, resulting into loss of organizational integrity, which may affect the execution of the budget and implementation of projects. This is evidenced by the increased losses of funds reported following requisitions for fake meetings, travels and inflated expenditures on supplies.
In technological development, county governments use the Integrated Personnel Payment Database (IPPD) management system to generate monthly payrolls and staff payslips. However, they do not have approved staff establishment and hire new employees on need basis, thereby undermining transparency. In addition, some staff are paid through the manual system, which is outside the records and the payroll. The implementation of the Integrated Finance and Information System (IFMIS) has facilitated budget preparation and execution, and monitoring procurement. However, poor connectivity continues to hinder the efficiency of the system. Besides, it has occasionally been prone to abuse despite the restrictiveness to access by un-authorized persons. The automation of own revenue collections continues to be embraced by many counties expanding outreach but also enhancing transparency and reducing loss of cash to unscrupulous revenue officers. However, county governments must grapple with balancing of the costs of hiring service providers and the total revenues realized.
Regarding procurement, information about procurement plans, annual procurement statistics and details on awarded contracts are rarely posted in the county government websites as required in the law. Lack of transparency in the procurement process leads to inflated tender prices, collusions in awarding of tenders, and payments for non-completed or haphazardly done or non-existent public works and services.
Low levels of transparency in the PFM system are also common in many counties. Although the counties organize public participation forums for budget formulation, the information provided in these forums are limited, and participants do not comprehend discussions, hence making them mere formalities. Besides, public access to information is limited, especially the access to budget documents within set timelines, for example publishing of budget statements (including citizen’s budget), budget execution reports, audit reports, macroeconomic assumptions.
Considering the above challenges and constraints, there is an urgent need to undertake measures to strengthen PFM systems in county governments to raise levels of fiscal discipline, improve resource allocation, enhance transparency and accountability, strengthen oversights and increase efficiency and effectiveness of service delivery.
Authors: Dr Christopher Hugh Onyango, Manasse Otieno and Paul Odhiambo, Policy Analysts, Trade and Foreign Policy Department