Concern as counties fail to remit Sh600m state dues in three months - CoB

At least 29 county governments failed to remit statutory deductions amounting to Sh10.41 billion in the first three months of 2025-26 financial year, exposing weak financial discipline by the devolved units.

Fresh data from the office of the Controller of Budget show that the unremitted deductions, which include PAYE, pensions, NHIF, NSSF and other statutory obligations, were withheld from employees’ salaries but not forwarded to the relevant State agencies.

This coming despite an increased pressure to the national treasury to disburse the equitable funds in time.

Controller of Budget Maragret Nyakango, pointed out that the trend is exposing counties to penalties, interest charges and potential litigation.

In her report for the first quarter of the financial year, Nyakango warns that the practice not only violates the law but also jeopardises workers’ access to healthcare, pensions and other social security benefits.

Nairobi, Kiambu, Nakuru, Machakos, Kisumu, Mombasa, Kajiado and Uasin Gishu among the worst offending counties, accounting for a significant share of the unpaid statutory deductions.

“During the reporting period, the Nairobi County Executive incurred Sh4.64 billion for compensation of employees, Sh670.76 million for operations and maintenance, and Sh202.18 million for development activities,” said Nyakango.

“Similarly, the County Assembly spent Sh151.61 million on compensation of employees and did not report any expenditures on operations and maintenance and development activities.”

Nairobi County remains the single largest defaulter, driven by its ballooning wage bill and long-standing cash-flow challenges, while several medium-sized counties continue to post arrears despite receiving equitable share allocations during the quarter.

The city county remains the largest defaulter, with unremitted statutory deductions amounting to Sh5.25 billion about half of the national total.

Kiambu failed to remit Sh1.02 billion, making it the second-largest defaulter. Nakuru recorded unremitted statutory deductions of Sh785.6 million, largely linked to pension and PAYE obligations

Machakos accumulated Sh642.3 million in unpaid statutory deductions during the quarter, continuing a trend observed in previous reporting periods.

Kisumu failed to remit Sh489.7 million, Mombasa Sh437.9 million, Kajiado Sh311.5 million and Uasin Gishu Sh298.4 million closing the top seven.

According to the Controller of Budget, the persistence of statutory arrears reflects a worrying trend in which counties prioritise discretionary recurrent spending over mandatory obligations to the State.

This comes at a time when counties are under pressure to improve service delivery amid shrinking fiscal space and rising public scrutiny over how devolved funds are used.

A comparison with previous quarters shows that the problem is worsening rather than improving.

In the last quarter of the 2024/25 financial year, counties had accumulated statutory arrears of approximately Sh9.8 billion, meaning the outstanding amount rose by more than Sh600 million in just three months.

The Controller of Budget notes that some counties have repeatedly appeared on the list of non-compliant governments across multiple reporting periods, showing systemic weaknesses in payroll management, cash planning and prioritisation.

“Despite warnings issued in earlier reports, compliance levels remain low, with only a handful of counties consistently remitting statutory deductions in full and on time,” the report notes.

The Controller of Budget observes that counties continue to allocate the bulk of their spending to recurrent expenditure, particularly salaries, allowances and operational costs.

 Development expenditure accounted for just 2 per cent of annual development budgets absorbed in the first quarter, a trend that has persisted across recent financial years.

Many counties are grappling with bloated wage bills that consume more than the recommended share of revenue, leaving little room to meet statutory obligations and fund development projects.

Others point to weak enforcement mechanisms, noting that counties face few immediate consequences for failing to remit deductions.

The Controller of Budget has warned that continued non-compliance could trigger tougher measures, including withholding of funds and closer scrutiny by oversight institutions.

Counties have been urged to ring-fence statutory deductions at source and prioritise their remittance before committing resources to non-essential spending such as travel, hospitality and workshops.