• State corporations had pending bills amounting to Sh323 billion as of June 2021.
• Treasury says some state corporations don't make full disclosure of internally generated revenues.
Image: TREASURY
State corporations without proper plans for settling their pending bills will not have their budgets approved until they devise the framework, the National Treasury has said.
Cabinet Secretary Ukur Yatani, in a memo to the state-owned entities, said there have been numerous reminders to the institutions to prioritise settlement of pending bills.
“It is noted that the level of compliance to these directives is still very low,” the Treasury boss said, even as the ministry restated the austerity measures in the parastatals would be sustained.
“The National Treasury will not grant or recommend for approval of budgets of state corporations with no remedial action to address the accumulation of pending bills.”
Controller of Budget Margaret Nyakang’o in a recent report showed that the agencies have continued to allow the bills to balloon despite several warnings - including by President Uhuru Kenyatta.
Treasury in the current directive wants the state corporations in default of loan repayments to initiate budget cuts and slow down on new projects.
“Those with pending bills and other obligations must reduce non-core expenditures and go slow on implementation of new projects to ensure all the outstanding obligations are cleared,” Yatani said.
A review of the budget proposals by state corporations, through their line ministries, is slated to be concluded by January 28.
State corporations as of June 2021 had pending bills amounting to Sh323 billion – largely owed to contractors and suppliers, while ministries owed to the tune of Sh52.9 billion.
As per the memo, pending bills include any outstanding and undisputed invoices due for more than the corporation’s credit period – and in any event more than 90 days from the due date.
Yatani said the corporations need to take note of a circular issued in June 2020 which directed that they prioritise payment of pending bills.
“The circular reminded the accounting officers of state corporations of their cardinal responsibility of prudent financial management and directed settlement of all pending bills,” the memo reads.
The CS said the directive was particular that accounting officers were to take necessary steps to ensure that pending bills, interest accrued and principal loan are the first charge of the revenue.
“Accounting officers were also reminded that accumulation of confirmed and verified liabilities and pending bills is prohibited and may invite punitive actions against those responsible.”
Treasury further pointed out that state corporations are required to comply with the law not to initiate procurement without budgetary provisions and confirmed sources of funding.
“In this regard, state corporations are required to submit monthly, all verified pending bills in terms of nature and type,” the CS said.
Yatani also reported that some state corporations do not make full disclosure of internally generated revenues or underestimate such during budget preparation.
Going forward, the CS said “any revenues over and above the approved 2022-23 budget will require fresh approval before spending.”
He said state-owned entities are required to disclose all revenues that accrue to the respective entity, including grants.
The CS has further warned the agencies against using the budget exercise as a resource bidding process saying those with projects align the same with line ministries during sector working groups.
On the austerity measures to contain the spending spree at the state agencies, Treasury has maintained cuts on travel, training, seminars, consultancies, legal expenses and overtime.
“Unnecessary expenditures not supportive of an entity’s core mandate must be brought down to the bare minimum,” the CS directed, restating the use of in-house lawyers.
“State corporations should, as a matter of priority, enhance cost control measures with the aim of delivering services in the most cost-effective manner.
“CEOs of state corporations are reminded that incurring expenditures that are not approved by their line ministry and Treasury is irregular.”
The CS said those in contravention of the directive will be held liable for such expenditures in accordance with the Public Finance Management Act, 2012.
State corporations funding, the Treasury added, would also depend on the outcome of their programme performance review.
“This entails a detailed assessment of the progress achieved towards realisation of the targeted outputs after the implementation of the financial year 2018-19 and 2020-21 budgets.
“This should include but not limited to analysis of the previous budgetary allocations, actual expenditures and achievement of actual outputs,” the memo adds.
State corporations are also expected to continue seeking Treasury approval for new projects, review of employment terms for staffers, and recruitment of staff.
Treasury directed that they consider the negative effects of the Covid-19 pandemic in the budgets and how the same has affected revenue outturn and business environment.
“State corporations will be required to develop and implement measures that will allow diversification of internally generated revenue, rationalise personnel, administrative and operational costs.”
Treasury wants the agencies to also leverage on ICT in delivery of services among other measures "with a view to minimising dependence on national exchequer support."
(Edited by Bilha Makokha)