The Treasury is on a collision course with governors after it issued tough new measures it says are designed to prevent county executives from misappropriating funds during the campaigns.
Governors say the new rules are an attempt to sabotage devolution and could see the activities of county governments grind to a halt.
But national government officials say the measures will prevent loss of public money.
In a detailed internal memo issued by the Director-General for Account Services and Quality Assurance Bernard Ndung’u to Principal Secretary Kamau Thugge and copied to other strategic departments, a series of steps are outlined to be applied in the next three months.
“As you are aware, the period between May and August 2017 poses unprecedented challenges in public financial management at the county level due to heightened political activity,” reads the communique seen by the Nation.
“In particular, it is expected that many political office bearers, including governors … are engaged in the electioneering activities. Some are said to have lost in the primaries, yet they will be in office up to the date of the elections and probably beyond, subject to hand-over process.”
According to the plan, salaries for staff will still be paid but suppliers are likely to be hit by the new measures and a plan to deactivate elements of the Integrated Financial Management System (IFMIS).
Some of the steps include monitoring movement of cash and detecting money laundering acts with a focus on any transaction involving more than Sh5 million, guarding against tampering with financial systems and stringent checks on financial commitment by counties.
The National Treasury, Controller of Budget and Central Bank of Kenya are among the agencies taking part in the initiative.
When contacted, Mr Thugge said there was nothing sinister in the move.
“We just wanted to ensure that monies sent to counties are used only for the purposes they were intended for. It is an enhanced way of safeguarding public resources,” he said.
Governors have warned of a financial crisis in counties due to late disbursement of funds and possible collapse of the electronic payment system.
Council of Governors finance committee chairman Wycliffe Oparanya said a number of counties could resort to borrowing from banks following failure by the government to release money to devolved units.
Outgoing CoG chairman Peter Munya raised concerns about the expected shutdown of IFMIS from June 1.
According to Mr Oparanya, the delayed release of Sh74.7 billion earmarked for the fourth quarter of the financial year had seen a number of counties opt for bank overdrafts.
“We will see an upsurge of court cases as suppliers sue county governments over delays in payment.
The government should know the supremacy of the Constitution. Delaying and denying money to the counties is an affront on the Constitution,” said Mr Oparanya.
He said there are enough measures established in law that ensure that public money is not stolen.
And perhaps as a reaction to the crisis, Council of Governors Chairman Josphat Nanok has already written to President Uhuru Kenyatta and Deputy President William Ruto requesting a meeting of the Intergovernmental Budget and Economic Council (IBEC).
In his letter to the President dated May 24, Mr Nanok called for an urgent meeting preferably before June.
A similar meeting set for May 3 was cancelled by State House.
“There are national issues of concern leading to the first elections under the county governments that are critical and if possible need to be discussed at the summit,” wrote Mr Nanok. “Key resolutions made in previous summits have not been implemented and both levels of government need to agree on how to address these gaps as this first phase comes to a close.”
Kiambu Senator Kimani Wamatangi, who has proposed a Bill to block governors from spending on new projects 90 days to the General Election to safeguard public resources from possible plunder by county officials, expressed caution over the move by the Treasury.
“The idea is good but it is being done through an informal manner. We are a country that has laws and we should therefore not do things that are not within the law,” he said.
Sources indicated that after the Kenya Revenue Authority, for the umpteenth time, failed to reach its revenue targets, the government is hard pressed to get money for pressing spending commitments.
The national government’s priority as of now is to facilitate the General Election.
Sources indicated that the Independent Electoral and Boundaries Commission, National Police Service and National Intelligence Service will be the beneficiaries as they are the key agencies tasked with ensuring a smooth election.
The IEBC has been allocated Sh21 billion this financial year while the Kenya Police Service was allocated over Sh55 billion with the NIS receiving Sh35 billion.
By December 2016, KRA had collected Sh623 billion against a target of Sh643 billion, leaving a deficit of Sh20 billion.
This leaves the tax collection agency facing a tall order to meet its June 31 target of Sh1.3 trillion.
Sources indicated that the government is also facing pressure to meet its fixed foreign debt obligations as well as a myriad of new issues like doctors’ and nurses’ allowances.
The Treasury memo notes that in the recent past, CBK has highlighted significant transfer of funds by counties to commercial bank accounts.
The memo, dated May 9, proposes that CBK will monitor high-value transactions and present them to the committee of top officials.
“It was agreed that the report will be covering transactions of Sh5 million and above as some counties were splitting transfers to commercial banks accounts to disguise them as imprests. The report will be discussed and analysed during the daily monitoring operational meeting between National Treasury and CBK. COB (Controller of Budget) requested to be attending the meeting as well. Further follow up and necessary action will be taken by any of the three parties, depending on the outcome of the analysis and discussions,” reads the memo.
It was also agreed the three institutions – National Treasury, Controller of Budget and Central Bank – would issue circulars so as to meet the common plan.
CBK was to write to the commercial banks reminding them of their responsibilities on money laundering checks by questioning high value payments and transfers from the accounts of county governments and other public entities.
The COB circular was to be directed to county governments and clarifies that requests for funds should be accompanied by detailed lists of projects and payees already processed by IFMIS.
This will mirror the practice in ministries and parastatals to guard against diversion of funds.
It is not clear if all the measures proposed have been taken.
On its part, the National Treasury was to issue two circulars, one to national government and another to counties, on commitment control and year-end closing procedures covering various legal requirements, responsibilities of accounting officers and public finance management staff sanctions for non-compliance and other key issues.
The upsurge of these interventions was to tighten the release of funds from the County Revenue Funds at CBK.
“Measures would include requiring detailed listing of projects and payees.
The control to the exchequer unit, requiring the exchequer requests, should be supported by a list of the items transacted in IFMIS is highly recommended.
This will provide the COB with an opportunity to interrogate the payments and follow up to ensure the funds are not diverted once released to operational accounts.
The COB will make use of their field officers based at the county level to scrutinise details of the requests for withdrawal and monitor spending by the counties,” reads the memo.
This effectively means that for one to be paid there will be a system of rigorous checks and a simple mistake could cost a supplier money.
But the biggest blow coming from the Treasury was to tamper with Integrated Finance Management System (IFMIS) after May 31.
They propose to invoke The Public Finance Management Act regulations 2015 which provides that all commitments for supply of goods or services shall be done no later than May 31 each year except with the express approval of the accounting officer in writing.
“It was proposed that this requirement should be enforced by deactivating the commitment functionality of IFMIS. Any requests from both ministries and county governments to make new commitments after the date shall be in writing and authorised by the accounting officer or CEC finance.
The director of budget will review the requests and for few necessary and justifiable cases request the IFMIS department to allow the new commitment,” reads the memo.
Finally the memo calls for amendment of the PFM Act relating to the management of bank accounts by counties to be fast tracked.