Senators have criticised a new financial reporting system being implemented by county governments, saying it is prone to abuse and will make it easier for governors to get away with fraud.
The development comes as the new reporting standard, accrual-based accounting, continues to raise more questions than answers on its effectiveness.
The Senate County Public Accounts Committee (CPAC) has said the system is riddled with loopholes that could be exploited by rogue governors to “pilfer public funds”.
In August 2024, the Cabinet approved a major shift in Kenya’s financial management system, where it was announced that all national government entities and county governments will be required to transition from a cash-based to an accrual basis of accounting with effect from July 1, 2024.
The net effect of the transition was to improve financial transparency, manage pending bills, and align with international public sector accounting standards.
This is in addition to improving the tracking of non-current assets and liabilities, as well as presenting a clearer picture of a county’s financial health and its liabilities.
Consequently, the final financial statements to be prepared on a cash basis by the affected entities were for the fiscal year ended June 30, 2024, with the subsequent ones adopting the accrual basis of accounting.
The transition has been phased over three financial years, starting from the fiscal year ended June 30, 2025, with full compliance expected by June 30, 2027
In a meeting with the National Treasury and Public Sector Accounting Standards on Monday, Kitui Senator Enoch Wambua was the first to express his frustrations with the new reporting standard, saying it has many loopholes.
He argued that the system will only complicate oversight and management of public funds by senators and governors, respectively.
“I thought the new system was supposed to be a solution, but it has many silos. My frustration is how governors will use the new reporting system to pilfer public funds with own-source revenue collection set to be the worst affected,” said Mr Wambua.
Nyamira Senator Okong’o Omogeni was next to poke holes into the new system, arguing it will make it easy for governors to get away with fraud.
“It seems this is what it was designed to achieve,” said the senator.
Isiolo Senator Fatuma Dullo added, “I am also frustrated. We have questioned the purpose of the new system, but we were told it would cure our current problems, yet that is not the case.”
The committee chairperson, Homa Bay Senator Moses Kajwang, said they do not want a new format that glosses over issues.
“We need a system that allows us to see the collection of our own-source revenue transparently. It should show us where to find loopholes where money is being stolen in counties,” said Senator Kajwang.
Kenya has been using cash accounting, which records transactions only when funds are received or paid and in the process does not recognise revenues and financial obligations until cash is received or paid.
In contrast, accrual accounting records economic events when they occur, regardless of when cash is exchanged, meaning entities will henceforth account for all revenues when earned and expenses when incurred rather than when cash is exchanged.
The entities will also be required to recognise assets and liabilities arising from such transactions to guard against pilferage and loss, as well as show the financial health of an entity, respectively.
