Pending bills a headache for Governments

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The Auditor General’s primary oversight role is ensuring accountability within the three arms of government (the Legislature, the Judiciary and the Executive) as well as county government, constitutional commissions, and independent offices. A pending bill in the public finance context is a form of credit advanced by the creditors (suppliers) to a government. It is usually in the form of completed projects, work -in -progress and committed Local Purchase/Service Orders. The issue of pending bills has been raised in the recent past by the OAG and OCOB. A special audit by the
Auditor-General in June, 2019 months before Mr. Edward Ouko exited office revealed that pending bills in the counties amounting to Sh57.12 billion are fake and therefore ineligible for payment.
The audit shows that just about Sh51.28 billion out of the general figure of Sh108.41 pending bills in counties are genuine and worth being settled. The report, which was tabled in the Senate,
shows a huge discrepancy between the total figures that has consistently been captured in several reports of the Controller of Budget as at June 2018.

In her annual report for the 2017/18 financial year, Ms Odhiambo had indicated that the outstanding

The biggest thing we are talking about right now isliquidity. There seems to be less money in the economy because government owes suppliers money which is not being released as required.

pending bills in the counties stood at Sh108.41 billion as at June 2018. (Business Daily, 22nd July 2019).However the special audit revealed that the actual figure was Sh88.98 billion, indicating a difference of Sh19.42 billion.

In any case, the report shows, of the Sh88.98 billion figure, only pending bills worth Sh51.28 billion are
eligible for payment, suggesting that an other figure of Sh37.70 billion presented for verification was
ineligible for payment because of lack documentation to support the claims or in some instances goods or services were never delivered.

A total of Sh10.80 billion of the eligible pending bills were paid between June 30, 2018 and February 15, 2019, meaning that the actual outstanding balance of pending bills in counties stands at Sh40.47 billion.

Mr Ouko says the reason for ineligibility for the pending bills as at June 30, 2018 is because of lack of
documentation and work or services not done or delivered. “In addition to the audit of the pending bills statements, a compliance audit was planned and performed to express a conclusion about
whether, in all material respects, the activities, pending bills transactions and information reflected in the pending bills statements are in compliance with the authorities that govern them and the public resources are applied in an effective way,” Mr Ouko says in the report. Government procures services and goods from different entities and it’s expected that it honors payments as soon as the obligation has been met by the
supplier. However, most of the time, government entities find themselves facing cash shortages because of myriad factors which include, delayed transfers from national government, local revenue shortages, disputed payments, delayed legislations among others.

Causes of pending bills
Government financial statements are pre pared on cash basis format. Cash basis accounting format provides that funds should be spent as they are received. Consequently, creditors and debtors are not recognized in the financial statements and should not arise. However, there are various reasons that
cause unpaid bills to accrue to county governments at the end of the year.

  • Delays in release of the equitable share to the counties resulting in projects that had been budgeted for and executed remain unpaid by the end of the financial year.
  • Lots of work-in-progress at the end of the financial year which includes ongoing projects that may not have been completed by the end of the financial year.
  • Delays in the enactment of crucial laws that authorizes payment of funds to the counties
  • When revenue targets are not achieved, and the budget is fully comcommitted, there will arise projects that will have been executed but without funds to match
  • The last few days of the month of June are characterized by overloading of the Integrated Financial Management System (IFMIS), since virtually all the counties are making payments of the completed projects before the expiry of the appropriation act which expires on June 30th

There is no doubt that this figure has gone higher since then as many suppliers at both the county government level and the National government keep complaining over delayed payment for
supplies delivered to these two levels. Doing business with counties and national government and its agencies has become risky because of routine delays in payments, resulting in bankruptcy suits
and social conflicts.

The National government is not better either. It’s in this light that President Uhuru Kenyatta during this
year’s Madaraka day celebrations in Narok County directed all government agencies to pay all its pending bills by the end of June 2019. To show some signs of commitment though little as compared
to what the government owe to Kenyans, the former Treasury C.S Henry Rotich set aside Kshs. 10 Billions in the 2019/2020 Budget estimates presented to parliament to be used in settling the bills which
special audits have reported stands at over Kshs. 200 Billion for both the county and National governments. With the President’s directive seemingly not fully implemented, a new directive by the head of civil service Mr. Joseph Kinyua was issued requiring all government agencies to pay outstanding bills by the end of the
year. The big question is whether this directive will be followed and fully implemented.

The delayed release of funds by the National Treasury, coupled with poor revenue collection by the counties, has seen the counties struggle to meet their financial obligations, as their pending bills keep increasing.

Failure by the county governments to pay their suppliers has prompted the acting Treasury CS Ukur
Yatani to write to 15 counties informing them that they will not receive their allocations for failing to settle pending bills. The November 19 letter was addressed to Narok which as at October 28 owed suppliers Sh1.8 billion, Machakos (Sh1.1 billion), Nairobi (Sh21 billion), Vihiga (Sh1.8 billion), Isiolo (Sh1.09 billion), and Tana River (Sh1.09 billion). Others are Migori (Sh970 million), Tharaka Nithi (Sh921 billion), Bomet (Sh893 million), Kirinyaga (Sh1.05 billion), Nandi (Sh1.12 billion), Mombasa (Sh4.07 billion), Kiambu (Sh1.56 billion), Garissa (Sh1.57 billion), and Baringo (Sh35 million). (The star newspaper, 25th November, 2019)

…of the Sh88.98 billion figure, only pending bills worth Sh51.28 billion are eligible for payment, suggesting that another figure of Sh37.70 billion presented for verification was ineligible for payment because of lack documentation to support the claims or in some instances goods or services were never delivered.

The affected counties were given up to December 1 to comply with the directive, failure to which their
monies would be locked as stipulated in Section 97 of the Public Finance Management Act (PFMA). “I hereby stop the transfer of the equitable share of national revenue for the financial year 2019-20 because of the failure by your government to pay the eligible pending bills,” Yatani’s letter reads. He said that nonpayment by government entities has adverse effects on business, including SMEs and those owned by vulnerable
populations – women, youth, and persons with disabilities.

While addressing a press conference in Nairobi late in November, The Chairman of the National Development Implementation and Communication Cabinet Committee Dr. Fred Matiangi said the National Treasury has now enforced adequate provision to see off the long-standing dues. “There are areas where pending bills have strangled some businesses. We are satisfied with the progress being made. We have committed to the private sector of staying on this path so as businesses can grow,” he said.

The private sector meanwhile expects honesty and transparency from government in dealing with the many issues which also encompass tax administration and the competitiveness of locally produced goods and services. “There is a long list of issues that have been with us for a long time. The government has not been clear that it neither wants to keep hearing of this issues nor should anyone act surprised,”

Kenya Private Sector Alliance (KEPSA) Chairman Nick Nesbitt said. Manufacturers have decried low liquidity in the market in the wake of massive lay-offs by companies, amid a tough business environment
which has led to poor performance by businesses. The Kenya Association of Manufacturers (KAM) has said
companies and businesses are suffering from lack of cash, mainly on delayed payment of government’s pending bills, which runs into billions of shillings. “The biggest thing we are talking about right now is liquidity. There seems to be less money in the economy because government owes suppliers money
which is not being released as required,” KAM Chief Executive Officer Phyllis Wakiaga told the star in an
interview. According to KAM, investors and businesses are also suffering from delayed VAT tax refunds, as suppliers continue to operate on negative accounts. Adverse effects of pending bills

When commitment of funds is not matched with the funds available, the county governments are overburdened with debt problem and this may adversely affect provision of essential services

  • When bills remain pending for too long, investor confidence is eroded, and the counties may lose reliable suppliers and contractors.
  • When funds are not released to suppliers in good time it slows down economic activities due to low circulation of currency in the economy resulting in liquidity crisis.

CPA Felix Nasubo is a member of the
Institute of Certified Public
Accountants of Kenya.
email: fnasubo@yahoo.com

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