The Controller of Budget (COB) presents the Annual County Governments Budget Implementation Review Report (CBIRR). The report covers the Financial Year (FY) 2017/18.
A financial year is a period the county governments use for budgeting and accounting purposes and also for financial reporting. In Kenya, a financial year runs from 1st July of the current year to 30th June of the coming year.
The Office of the Controller of Budget (OCOB) prepares the report in line with Article 228 (6) of the Constitution of Kenya, 2010 and Section 9 of the Controller of Budget (COB) Act, 2016. Both laws require the OCOB to submit to each House of Parliament a report on the implementation of the budgets of the National and County Governments every four months.
The report also satisfies Section 39(8) of the Public Finance Management (PFM) Act, 2012. It requires the Controller of Budget to ensure that members of the public are provided with information on budget implementation.
This report provides useful information on budget performance by the forty-seven-county Governments for the period July 2017 to June 2018. The OCOB derived the data used to prepare the report from:
- approved budgets,
- financial reports submitted to the Office of the Controller of Budget by the County Treasuries in line with Section 166 and 168 of the Public Finance Management (PFM) Act, 2012 and
- reports generated from the Integrated Financial Management Information System (IFMIS).
The report also highlights the key challenges the counties faced in budget implementation and instances where they breached the public finance management framework and proposes appropriate recommendations.
This article presents a summary of the report. The link to download it is at the end of the article.
Aggregate budget estimates and revenue allocations
The aggregate budget estimates for the 47 County Governments in FY 2017/18 was KSh410.1 billion comprising
- KSh271.32 billion (66.1 per cent) for recurrent expenditure, and
- KSh139.18 billion (33.9 per cent) for development expenditure.
To finance the budget, parliament allocated the county governments KSh302 billion as the equitable share of revenue raised nationally and KSh27.27 billion as total conditional grants from the National Government and Development Partners.
Additionally, county governments expected to generate own source (local) revenue of KSh49.22 billion, and utilize the cash balance of KSh5.75 billion brought forward from FY 2016/17.
Total Revenue Available in FY 2017/18
The total revenue available to the County Governments in FY 2017/18 was KSh387.09 billion. It comprised of
- KSh302 billion as the equitable share of revenue raised nationally,
- A grant to Level Five Hospitals of KSh4.2 billion,
- KSh900 million grant for Foregone User Fees,
- KSh2.0 billion grant for rehabilitation of Youth Polytechnics,
- A grant of KSh10.26 billion from the Road Maintenance Fuel Levy Fund,
- KSh7.54 billion from development partners,
- KSh1.95 billion under the Kenya Devolution Support Programme “level 2” grant,
- Own Source Revenue of KSh32.49 billion (revenue raised locally), and
- KSh25.75 billion as cash balance from FY 2016/17.
In FY 2017/18, the aggregate revenue raised by County Governments amounted to KSh32.49 billion. It was 66 per cent of the annual target of KSh49.22 billion and was a slight decline compared to KSh32.52 billion generated in FY 2016/17.
Further analysis of own source revenue collection as a proportion of annual targets indicated that only three counties exceeded their annual targets. That is, they collected above what they had targeted to collect as own source revenue. These counties were; Tana River, Migori and Kwale Counties at 188.8 per cent, 111.1 per cent and 100.5 per cent respectively.
Exchequer issues are authorised withdrawals of funds from the County Revenue Fund at the Central Bank by the Controller of Budget for County Governments.
During the period, the Controller of Budget (COB) authorised the withdrawal of KSh324.12 billion from the County Revenue Funds to the various County Operational Accounts. This amount comprised of KSh251.96 billion (77.7 per cent) for recurrent expenditure and KSh72.16 billion (22.3 per cent) for development activities.
The County Governments that received the highest amount of funds for operations were; Nairobi City at KSh21.13 billion, Kiambu at KSh11.92 billion, and Kakamega at KSh10.97 billion. Those that received the lowest amounts were; Tharaka Nithi at KSh3.78 billion, Isiolo at KSh3.76 billion and Lamu at KSh2.36 billion.
Total expenditure by the 47 county governments
The total expenditure for the 47 counties was KSh303.83 billion. It comprised of KSh236.94 billion for recurrent expenditure (87.3 per cent of the annual recurrent budget) and KSh66.89 billion for development expenditure (48.1 per cent of the annual development budget). The KSh303.83 billion expenditure was 74 per cent of the aggregated annual county governments’ budgets for the financial year 2017/18.
The counties that recorded the highest overall budget absorption rates were; Kiambu at 85.5 per cent, Marsabit at 85 per cent, and Laikipia at 84.2 per cent. Conversely, Nakuru, Tana River, and Vihiga counties recorded the lowest overall absorption rates at 59.3 per cent, 53.7 per cent, and 48.5 per cent respectively.
Analysis of development expenditure indicates that Mombasa, Marsabit, Kilifi and Murang’a
counties reported the highest absorption rates of development expenditure at 76 per cent, 74 per cent, 73.1 per cent, and 72.5 per cent respectively. Those with the lowest rates were; Kisumu, Wajir, Vihiga, and Taita Taveta at 23.6 per cent, 22.9 per cent, 17.5 per cent, and 12.7 per cent, respectively.
Absorption rate is computed as a percentage of total development expenditure to the approved annual development budget.
Expenditure by economic classification
Analysis of expenditure by economic classification shows that the 47 counties spent:
- KSh151.09 billion (49.7 per cent) on personnel emoluments (salaries, wages, allowances, etc.),
- KSh85.85 billion (28.3 per cent) on operations and maintenance, and
- KSh66.89 billion (22 per cent) on development activities.
A review of Personnel Emoluments (PE) as a percentage of total expenditure indicates that it accounted for 49.7 per cent of the total expenditure in the FY 2017/18. That is, the 47 counties spent 49.7 per cent of the aggregate budget on salaries, wages, allowances, etc.
However, three counties, namely; Kilifi, Marsabit, and Mandera reported expenditure on personnel emoluments within the maximum allowed limit of 35 per cent of their total expenditure at 33.8 per cent, 28.7 per cent and 24.9 per cent respectively. Counties with the highest percentage of personnel emoluments to total expenditure were; Machakos at 65.3 per cent, Taita Taveta at 64.4 per cent and Meru at 63.9 per cent.
Comparing total expenditure to exchequer issues
Comparison of total expenditure as a percentage of the total amount authorized for withdrawal (exchequer issues) indicated that Nairobi City, Mandera, Murang’a and Laikipia incurred higher expenditure than the amount authorized for withdrawal by the Controller of Budget.
Challenges and Recommendations
The OCOB identified key challenges that hindered effective budget execution by the counties. These included;
- high expenditure on personnel emoluments,
- delay in the submission of financial reports by County Treasuries to the Controller of Budget contrary to Section 166 and 168 of the PFM Act, 2012,
- under-performance of own source revenue collection,
- high level of pending bills (money owed to suppliers) at KSh108.41 billion by the end of the financial year 2017/18,
- frequent IFMIS downtime,
- delay in the establishment and operationalisation of the Internal Audit Committees contrary to Section 155 of the PFM Act, 2012, and
- weak budgetary control by the County Treasuries.
The OCOB recommends that:
- County Governments should establish optimal staffing levels to ensure expenditure on personnel emoluments is within the set limit of 35 per cent of the County’s total revenue as provided in Regulation 25 (1) of the Public Finance Management (County Governments) Regulations, 2015.
- Further, County Treasuries should develop and implement strategies to enhance own source revenue collection, and also ensure compliance with the PFM Act, 2012 on submission of financial and non-financial reports to the Controller of Budget.
- In addition, the County Governments should ensure effective management of pending bills by aligning procurement plans to cash flow plans, while
- the IFMIS Directorate should address the frequent system downtime.
- Finally, counties should establish and operationalise the Internal Audit Committees, and also enhance budgetary control to ensure that expenditure is within the approved budget.
For more about how your county spent its budget in the FY 2017/18, download the County Governments Budget Implementation Review Report FY 2017/18 (64 downloads) .