Counties risk losing Sh532.67 billion due to weak financial systems and failure by accounting officials to act diligently to safeguard public resources.

The potential losses are manifested in financial reporting deficiencies, including inaccurate financial records, procurement violations, non-compliance with the budget, avoidable expenses and losses, questionable pending bills, and ‘ghost’ workers fuelling wage bills.

Outright violations of procurement laws, questionable spending, irregular and unsupported payments and payroll rot have also exposes financial risks in counties.

The report by the Senate County Public Accounts Committee (CPAC) exposes high fiduciary risk by county chiefs in the last financial year.

Systemic weaknesses

The report was tabled in the House after lawmakers scrutinised the auditor general’s report on county executives for the financial year ending June 30, 2024.

The committee, chaired by Moses Kajwang (Homa Bay) revealed systemic weaknesses in the management of public funds.

“This rigorous examination revealed systemic weaknesses in public financial management across county governments, with a staggering cumulative fiduciary risk exposure of Sh532.67 billion,” the CPAC report says.

Fiduciary risk relates to the likelihood that funds are not used for the intended purpose, do not achieve value for money and are not properly accounted for.

It also refers to the potential loss of funds or assets entrusted to someone, misused, misappropriated, or not used for their intended purpose, often due to weak governance, control systems, or corruption.

“This was assessed based on the extent of misapplication and misappropriation of resources,” said Kajwang’ in the report.

The report was tabled in the House during a special sitting on Thursday last week. Nairobi County had the highest exposure (Sh157.36 billion), followed by Kakamega (Sh41.52 billion) and Machakos (Sh28.27 billion).

Cumulatively, the 47 devolved units could not account for Sh39.09 billion in irregular expenditures, Sh4.97 billion in unsupported expenditures and Sh13.93 billion in excess or unbudgeted expenditures in the 2023-24 financial year.

In addition, stalled projects accounted for Sh7.59billion, while counties could not prove value for money amounting to Sh9.57billion.

Asset registers

Tabling the report, Kajwang said lack of asset registers exposed counties to risk of loss and revenue leakages leading to perennial shortfalls.

“Rampant irregular recruitment practices leading to ghost workers, excessive casual employment beyond legal limits, and improper compensation, including overpayment of allowances, have deeply exposed … counties to fiduciary risks,” he said.

He went on: “Oversight agencies such as Parliament and investigations need to collaborate to curb what is emerging as outright theft of taxpayers’ money.

“The governors, who are described as the county chief executive officers, should change tact. They should take serious administrative actions against officers implicated in the misappropriation of public money.”

According to the report, Mombasa has a fiduciary risk exposure of Sh7.64 billion emanating from avoidable legal expenses, followed by irregular human resource practices (Sh6.28billion) and delayed/incomplete projects worth Sh44.26million.

The coastal county is also exposed to unsupported domestic travel (Sh17.03 million) and unexplained voided transactions worth Sh921.08 million.

The county also displayed “Persistent failure to collect outstanding revenues (property rates, land rates, mineral royalties) due to ineffective enforcement and outdated valuation rolls based on historical rather than current market values,” the report says.

Other counties with huge fiduciary risks are Kisumu (Sh15.09 billion), Kakamega (Sh4.152 billion), Kiambu (Sh15.22 billion), Kajiado (Sh22.65 billion), Kisii (Sh12.42 billion) and Nyeri (Sh8.10 billion).

Others are Kericho (Sh6.79 billion), Nyandarua (Sh6.79 billion), Murang’a (Sh6.70 billion) Busia (Sh6.25 billion), Bungoma (Sh5.83 billion), and Elgeyo Marakwet (Sh6.30 billion).

In Kwale, the risk stands at Sh6.55 billion, which includes stalled projects (Sh253.08 million), irregular payment to the Council of Governors (Sh4 million), and unsupported voided transactions (Sh425.44 million).

Inaccurate bills

According to the report, the Governor Gideon Mungaro-led Kilifi County is at risk of losing a staggering Sh12.10 billion, which comprises inaccurate pending bills of Sh6.09 billion, unsupported payments for construction worth Sh672.52 million, and Sh90.14 million worth of unsupported imprests and advances.

In the Dhadho Godana-led Tana River County, some Sh7.57 billion is at risk of loss arising from unsupported pending bills (Sh4.15 billion), delayed projects (Sh269.85 million), unsupported payments (Sh170.89 million), and irregular procurements (Sh32.10 million).

The report also paints a grim picture in the coastal county of Lamu, where taxpayers risk losing Sh14.54 billion through excessive wage bills (Sh1.59 billion), stalled projects (Sh1.42 billion), irregular procurement (Sh164.02 million), and grounded vehicles, whose values are unknown.

Irregular payments

In Wajir County, headed by Council of Governors chair Ahmed Abdullahi, the financial risk stands at Sh3.35 billion, with pending bills alone amounting to Sh1.67 billion, followed by irregular expenditure (Sh126.08 million), irregular payments to entities (Sh577.34 million) and irregular staff compensation, whose value is unknown.

The report also cites unsupported legal fees (Sh4.32 million), irregular motor vehicle insurance (Sh16.56 million), irregular commitments for goods and services (Sh159.25 million), and wasteful expenditure on travel (Sh3.39 million) as among the fiduciary risks Marsabit County is staring at, totalling Sh4.20 billion.

Tharaka Nithi residents are at risk of losing Sh5.64million, those in Embu could lose Sh20.17 billion, and Kitui risks losing Sh9.58 billion.

“Analysis of the audit report for the County Executive of Kitui for the FY 2023-24 shows a cumulative total of Sh9,586,502,301 as the total financial exposure from fiduciary risks,” the report states.