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State sitting on unspent billions

FINANCIAL STANDARD
By | May 31st 2011

By Morris Aron

On the 8th floor of Bima House at the junction of Aga Khan Walk and Harambee Avenue lies an inconspicuous office.

It is the seat of the Public Financial Management System Review (PMFR) programme, a body charged with the task of advising Treasury on how best to design budgetary allocations for maximum impact on the economy, to identify key areas where leakages of budgetary allocations occur and come up with systems to stall the same.

PMFR also acts as the go between with donors and the programmes that need to be put in place to check the excesses and streamline financial operations within the Government.

Health Ministry is one of the culprits of unspent government cash. [Photo: FILE]

But despite the presence of such a body, all indications point to an opposite direction as far as accounting for Government budgetary allocations are concerned, let alone the elimination of inefficiency of the budgetary system, as currently constituted.

Statistics indicate that Treasury will by June 8 expect a return of a whooping Sh142.5 billion in unspent money after Government agencies and line ministries failed to spend them in the last financial year, as had been budgeted.

The latest Government spending report shows that the agencies had accumulated Sh79 billion in unused recurrent funds.

The report, which covered the period up to May 20, further indicates that another Sh63.5 billion lies with the agencies in unused development funds.

Economic impact

These staggering amounts is money that could be used to create thousands of jobs and help immunise Kenya’s economy against recession, according to economic analysts who spoke to Financial Journal.

A fortnight ago, Mars Group Kenya—a non governmental organisation—sounded an alert over the possibility that Treasury has not been able to account for up to Sh714 billion for the financial years 2007/08 and 2008/09.

Analysts further reckon that because of Government bureaucracies, it is no surprise that billions of shillings cannot be authoritatively accounted for in the past financial years, while ministry after ministry is lining up to return millions of shillings to Treasury come June 8, when the financial year ends—money that is dearly needed to make meaningful contribution to economic growth and alleviate poverty.

"There is a lot of bureaucracy in the budget making process and funds disbursement that makes the process inefficient and wasteful," said Dr XN Iraki, economics lecturer at the University of Nairobi’s School of Business.

"In the same way we are getting a new constitutional dispensation, we need a new economic order and it may need to start with putting the right checks and balances in the budget making process and disbursement systems."

Since the start of its operations in 2006, PMFR has secured a total of $114.5 million to be used over a period of seven years in carrying out its mandate.

With such large sums of money within its control, one would expect an office busting with activity. However, all indications are to the contrary.

At a time when there is a lot of hue and cry over budgetary allocations and spending, PMFR does not even have a chief executive as described in its organisation structure.

There is the post of a co-ordinator, Mr Kubai Khasiani, who however, left a couple of months ago for another assignment.

In his place is a programme manager, Ms Pauline Opiyo.

Checks and balances

"As far as I am concerned, our task is to co-ordinate the funding and the programmes that Treasury has in putting checks and balances in Government spending," she told FJ adding: "For the rest of the details you may want to get express permission from the PS Treasury."

According to Mwalimu Mati, the Chief Executive of Mars Group Kenya, Treasury lacks an authentic mechanism to accurately monitor use of funds.

"The auditor-general has consistently pointed out to lack of reconciliation in the books of account. A lot of money goes unaccounted for within the system because nobody seems to have an efficient tracking system," explained Mr Mati.

The Auditor-General report indicates that there are accounting discrepancies on the Government revenue spendings and cited disbursement in the financial years 2007/08 and 2008/09, which lead to the auditor-general refusing to clear 13 revenue accounts.

Leading the list is the Ministry of Education that has not used up to Sh23.5 billion of the funds allocated to it by Treasury in the 2010/11 financial year.

Then there is the Ministry of Provincial Administration and Internal Security that is set to return Sh11.3 billion, the Department of Defence to return Sh10.7 billion, the Ministry of Higher Education, Science and Technology, Sh8.2 billion and the Ministry of Roads with Sh7.8 billion unspent.

Then there is the Water and Irrigation Ministry that year after year returns money to Treasury despite many taps running dry.

This year, the ministry is expected to return Sh6.3 billion to Treasury.

Then there is the list of over-spenders that include the Kenya Anti-Corruption Commission, Ministry of Industrialisation, and the Cabinet office.

As the details of spending inefficiencies sprout through, Treasury officials have stuck to their guns that they are not to blame for the current state of affairs in the budgeting process and are apportioning the blame to the structure of the budgeting process.

Procurement systems

In a long list of inefficiencies, ranking at the top as the reason for the inability of ministries and agencies in spending is cumbersome procurement procedures.

"Procurement remains a big issue for many agencies," said Mr Henry Rotich, the deputy director of economic affairs at Treasury.

"The elaborate procedures involved have often resulted in a miss-match between the time of funds are approved and actual implementation of programmes."

Glaring indications as per recent assessments show that some departments lack the manpower and skills to spend the money.

With growing concerns over the budgeting process, engaging the public in the budget making process has gained currency, as Treasury appears to be slowly taking heed of concerns being raised.

In the financial year 2011/12, Treasury plans to have all cash allocations to Government ministries sent to a single bank account at the Central Bank of Kenya to improve monitoring of expenditure.

Previous practice has seen each ministry have its own account where the budget funds are credited, making it hard for Treasury to monitor the balances in real-time.

This resulted in a situation where the Government borrows money even when some ministries have idle cash in their accounts.

The single account model would work well with the integrated financial management information system (IFMIS), a new platform that connects all ministries electronically, but which is still set to be a common practice among ministries.

Analysts say that the failure to spend large sums of money will be expected to put Mr Uhuru Kenyatta, the Finance minister in a tight spot when he unveils next year’s expenditure plans.

This will be against the backdrop of a rise in the amount of money needed to set up devolved systems of government and the implementation of the new Constitution.

"There are fears that there is very little Treasury will do without crowding out the economy and leading to a rise in interest rates," said Dr Iraki.

With the glaring inefficiencies in the budget process, it is expected that some flaws will still emerge in this year’s budget reading.

For example, approximately Sh10 million will be budgeted for by Treasury and used to fly the President’s speech to provincial headquarters across the country during public holidays when there is e-government that can carry out a similar task at much lower costs.

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