Government Ministries, Department and Agencies (MDA) have pending bills amounting to Sh245.26 billion, a new report shows. The pending bills comprised of Sh130.3 billion for MDA’s, Sh64.39 billion for Donor Funded Projects and Sh50.56 billion for contingent Liabilities for MDAs.

The report of the Auditor-General Nancy Gathungu shows that the arrears were not settled but were instead carried forward to the 2024/2025 financial year yet payment of pending bills forms a first charge of the budget as required by The National Treasury circulars and Section 74(4) of the Public Finance Management Act, 2012. The failure to settle bills in the year to which they relate is mainly attributed to inadequate budgets as a result of starting new projects or activities before completion of projects and activities started in prior years.

 According to Gathungu, the total pending bills do not include an amount of Sh30.8 billion exchequer releases owed to the County governments by the national government as at June 30, 2024 and does not also include an amount of Sh46.5 billion accumulated entitlement to the Equalisation Fund.

At the moment, a team from The National Treasury, known as the Pending Bills Verification Committee has been scrutinising outstanding bills to ensure they are legitimate and compliant with government regulations in order to ensure that payments are accurate as well as prevent potential fraud or mismanagement of public funds.

Reads the report: “In addition, the closing balance of pending bills in a previous year is usually not taken into consideration during the formulation of the budget for the subsequent year.”

This means, it adds, the subsequent year’s budget is unlikely to be sufficient to settle unpaid commitments relating to operations of the previous year and at the same time fund the programmes for a subsequent year.  It is also an indication of Accounting Officers committing funds which are not available.  “Failure to settle the bills during the year to which they relate adversely affects the subsequent year’s budgeted programmes, as it may lead to reallocation of funds or non-delivery of critical services,” Gathungu notes in the report.

The report further raises concerns that the pending bills have continued to put pressure on the scarce resources, with some of these bills attracting penalties and interests, thereby putting more strain on the available resources.

Unwarranted financial charges

The suppliers of goods and services to public entities, the report says have faced unwarranted financial charges from their financiers as they supply goods and services on credit to the government without proper arrangements or agreements on credit facilities with the government.

Reads the report: “Failure to settle the bills has an effect of withholding circulation of cash in the economy and affects the smooth operations of suppliers and Micro, Small and Medium Enterprises (MSMEs). Similarly, failure to pay within stipulated timelines affects revenue collection due from Value Added Tax (VAT) and Withholding Tax. All these factors viewed holistically call for the Executive to put in place strict measures to deter the escalation of pending bills and to enforce fiscal discipline in public sector entities.”

 According to the document, out of 76 institutions with pending bills, those with the highest bills include the Ministry of Defence Sh22.89 billion, the National Treasury Sh22.6 billion, the State Department for Agriculture Sh13.6 billion, the National Police Service Sh9.9 billion, State Department for Correctional Services Sh5.2 billion though it’s a drop from Sh6.8 billion in the 2023/2024 financial year.