Revealed: Why counties have failed to meet revenue targets
County Governors during the Biennial Devolution Conference at Eldoret Sports Club in Uasin Gishu County on August 17, 2023.
What you need to know:
- Lack of commitment by some counties in revenue collection has led to significant losses, Auditor-General report reveals.
- More than three-quarters of Kenya’s 47 counties are still struggling to meet their own-source revenue targets.
Amid a struggle by county governments to meet revenue targets, ‘political’ waivers and selective collection of levies could be denying devolved units millions of shillings.
Some governors, while pursuing debts have been issuing “expensive” waivers to please the electorate at the expense of much-needed revenue, leaving counties heavily dependent on disbursements from the national government.
Reports by Auditor-General Nancy Gathungu for the 2022/2023 and 2023/2024 financial years reveal a lack of commitment by some counties in revenue collection leading to significant losses.
Thirteen years since the advent of devolution, county governments continue losing billions of shillings due to theft and leakages in porous and opaque revenue collection systems often exploited by unscrupulous officials.
More than three-quarters of Kenya’s 47 counties are still struggling to meet their own-source revenue targets and according to a recent report by the Commission on Revenue Allocation, counties have the potential to collect Sh260 billion annually but are now raising less than Sh80 billion.
In Kisii County, the auditor-general has fingered the executive over selective and lack of commitment in collection of revenue.
A review of records during the 2023/2024 financial year revealed that the county had budgeted to collect a total of Sh25 million from land rates during the year under review, but only collected Sh18 million, resulting in a shortfall of Sh6.8million.
"Further, review of the county executive electronic (LAIFOMS) records revealed that the devolved unit had shown lack of commitment and had failed to collect long outstanding property rates, inclusive of interest and penalties totalling Sh546 million, which is owed by plot owners within Kisii municipality and other areas in the region," reads part of the report.
"In addition there were no records or evidence provided indicating that the county executive had initiated additional measures to collect the outstanding amounts.”
It also emerged that the county executive had failed to collect revenue amounting to Sh1.6 million from a land lease at the Kisii Agricultural Training Centre.
The county had leased two acres of land and signed a Memorandum of Understanding with a processing company at the Kisii Agricultural Training Centre, for a period of 15 years.
The company was supposed to pay a monthly rent of Sh70,000. The lease had been given a one year grace period.
However, at the time of the audit in August 2024,the rent amounting to Sh1.6million had not been paid.
The county did not explain why it failed to collect the revenue and had not shown any efforts to demand payments, according to Ms Gathungu.
A review of revenue collection in Kisii County further revealed that invoicing in revenue collection was done manually and electronic record was kept on revenue stream for property rates and county premises monthly rates.
Invoices raised could not be matched with the amount paid into the bank account, leading to unaccounted revenue. This was as a result of lack of audit trail from invoicing to payment of revenue into the bank and final reporting.
Nakuru County government is owed more than Sh7.9billion revenue arrears, amid its struggle to meet own-source revenue targets.
County revenue collectors have however not shown commitment to collect the billions. Kenya Railways tops the list of State Corporations and private entities that owe Nakuru.
The amount includes unpaid rates dating back to more than four years ago. State Corporations including Kenya Railways and Kenya Wildlife Services(KWS) owe the county the bulk of the arrears.
The Kenya Railways alone for instance owes the county Sh4.3billion, KWS, through the Lake Nakuru National Park, owes the county Sh3.7billion.
Others include; Pyrethrum Processing Company (Sh17.6 milion), Kenya Grain Growers Cooperation Union (Sh1 million), Nakuru Catholic Diocese (Sh4.4 million), Kenya Farmers Association (Sh2 million), Midlands Hotel (Sh2.3 million) and Keroche Breweries (Sh11 million).
Nakuru County, whose capital Nakuru was granted city status in December 2021,has been struggling with revenue collection only managing to collect between Sh3 billion and Sh3.6 billion.
For example when Governor Kihika took over office in 2022, the annual revenue collection stood at Sh3.2billion. In the last financial year, Ms Kihika managed to push the revenue collection to Sh3.6 billion.
Recently, the Senate Public Accounts Committee chairman Moses Kajwang revealed that Nakuru County which hosts a city can not be able to sustain itself, as it coughs more than Sh6 billion towards payments of salaries and other benefits.
This means the county through its own -source revenue can not afford even payment of salaries to staff alone.
"When we were awarding Nakuru City status in 2021,we considered the issue of revenue and the authorities then offered to make efforts to ensure the county generates sufficient revenue to sustain at least the operations of the city. But since then the revenue hasn't hit even Sh4billion.The amount can't sustain the county or the city. Salaries gobble more than Sh6 billion, meaning the county government cannot pay salaries from it's own revenue," noted Mr Kajwang, who spoke when Governor Kihika appeared before the committee.
"As Senators we urge the county to be aggressive in pushing to collect more revenue. Currently Nakuru is on the red in terms of revenue collection," added Kajwang.
In the 2023/2024 financial year, Nakuru further failed to collect liquor licences fees amounting to millions.
Records revealed that 2609 liquor outlets had been approved, but only 1,522 out of the total paid for their licenses, resulting in 1,087 or 41 per cent of liquor outlets operating without licenses.
This, the audit report says was contrary to Regulation 63 of the Public Finance Management (County Governments) Regulations, 2015, which requires application of adequate safeguards for prompt collection and proper accounting for all county government revenue and other public moneys.
Governor Susan Kihika is also in the process of implementing a Sh 693million waiver on rent arrears owed to the county government.
The waiver targets residents living in various county houses in areas of Kivumbini,Bondeni and Flamingo, among others, who have defaulted in rent payment since the advent of devolution.
The waiver could further stall chances of rise in own source revenue.
In Kajiado,it emerged that the county is owed a revenue of Sh 11,984,425,260 by several debtors which comprise of uncollected land rent,rates and royalties.
However, the county executive did show any efforts and measures put in place to collect the outstanding revenue.
Further, no evidence was provided for the progress made in recovery of the outstanding debts by the finance department.
"The audit revealed revenue in arrears of Sh11.9 billion owed by several debtors. However ,the county executive did not provide evidence of any efforts made to recover the debt," reads the audit report.
Also affected is Kericho County, where records revealed that money collected by the Receiver of Revenue excluded its own source revenue from inspection fees for fire compliance.
"An inspection fee of Sh 3500 was levied in the Finance Act for the period but was not being collected.Further ,an officer of the county executive however registered and operated a mobile payment number which was not authorized by the county Treasury to collect the fees,"says the report.
"Between the period covering January 24,2024 and August 5,2024, revenue amounting to Sh152 ,290 was lost and internal investigators recommended disciplinary action on the officer," Ms Gathungu said.
The report showed that the county was selective and not committed to revenue collection.
Other affected counties include Baringo, Kilifi, Nairobi, Kisumu and Kiambu ,which are owed millions in land rates, but little efforts have been made to recover the arrears.
In some instances the counties have been forced to offer huge waivers, losing revenue.