MPs urged to amend finance law to tame pending bills

Proposal to ensure that counties pay creditors within 30-60 days.

In Summary
  • The devolved units owed their suppliers Sh64. 2 billion as at October 28
  • Pending bills arise due to overestimation of own-source revenue

The office of the Controller of Budget has asked MPs to amend the Public Finance Management Act, 2012 to compel counties to clear pending bills in a specific period.

Deputy Controller of Budget Stephen Masha said an amendment would ensure that counties pay creditors in 30 or 60 days.

“Should counties fail to pay within this period, then pending bills should attract interest as days go by. This will lead to a smoother implementation of the Budget,” Masha told the Senate’s Finance Committee on Tuesday.

He said that payment should be on a first-in, first-out basis. “This will ensure compliance with various accounting standards which treat debt repayment as a first charge on revenue.”

The deputy CoB called for the enhancement of technical capacity in budgeting and accounting in the county treasury to ensure adherence with the principles of public finance.

His remarks came as 15 counties missed their allocations for failing to settle pending bills.  

Treasury CS Ukur Yatani had warned the counties that they had until December 1 to comply, or their monies would be locked as stipulated in Section 97 of the Public Finance Management Act (PFMA).

Counties owed their suppliers Sh64.2 billion as at October 28 and have failed to heed the resolutions of the Intergovernmental Budget and Economic Council (IBEC) chaired by Deputy President William Ruto.

The IBEC resolved that county governments would pay eligible pending bills on a priority basis as a first charge on the county revenue fund by the end of financial year 2019/20.

The affected counties are Machakos (Sh1.1 billion), Nairobi (Sh21 billion), Vihiga (Sh1.8 billion), Isiolo (Sh1.09 billion), Tana River (Sh1.09 billion), Migori (Sh970 million) and Tharaka Nithi (Sh921 billion).

The others are 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).

Masha said the counties blocked from receiving the money should be allowed to develop a plan on how they intend to clear their bills. “Some counties cannot clear their pending bills in one financial year. A good example is Vihiga county, which needs up to two years to pay its creditors,” he noted.

He said his office in collaboration with the National Treasury would thereafter make follow-ups to ensure creditors are paid.

He reiterated that developing a payment plan should be the first step in clearing the bills.

Nonetheless, the senators asked whether counties will adhere to the new laws if the legislation is amended. “Counties have a history of disregarding the law. We might amend the law but they may still not adhere to the requirements,”  Machakos Senator Boniface Kabaka said.

Bungoma Senator Moses Wetang'ula asked if the office of CoB checks whether the pending bills are for actual goods and services offered.

Masha noted that pending bills largely arise due to overestimation of own-source revenue.

“When you overestimate own-source revenue, there will be a deficit in the budget. As CoB, we want counties to be giving us their budget estimates early enough so that we can advise accordingly. Our focus here will be own-source revenue,” he said.