Equalisation Fund records dismal performance — audit report

The report on national government, ministries, departments and agencies for the financial year 2020-21 said the country may not improve the quality of requisite services in marginalised areas within the set timelines as envisaged in the constitution.

“The Equalisation Fund will lapse in 20 years since inception after which it will cease if no extension is approved by Parliament as provided by Article 204(7) of the Constitution,” the report by Nancy Gathungu said.

The fund was established by the 2010 Constitution to address historical marginalisation and unequal development across Kenya.

The fund beneficiaries are Garissa, Isiolo, Kilifi, Kwale, Lamu, Mandera, Marsabit, Narok, Samburu, Tana River, Turkana, Taita Taveta, Wajir and West Pokot counties.

In her report, Gathungu said the total accumulated entitlement to the fund is Sh30.78 billion as of June 30, 2021.

She said a review of the financial statement for the year ended June 30, 2021, revealed that only Sh12.4 billion out of the expected Sh30.78 billion of the total entitlement had been transferred to the Equalisation Fund account.

“The National Treasury had not remitted the remaining balance of Sh18,386,056,051 to the fund as of June 30, 2021, and is therefore in breach of the constitution,” the report said.

The fund is supposed to receive 0.5 per cent of all the revenue collected by the national government each year as approved by the National Assembly.

The report added that the Sh12.4 billion was transferred in two tranches of Sh6.4 billion during the 2015-16 financial year and a further Sh6 billion in the 2016-17 financial year.

“This is only 40 per cent of the total entitlements of Sh30.78 billion for the financial years 2011-12 to 2019-20. The National Treasury did not transfer any allocation to the fund during the 2020-21 financial year,” the report said.

It attributed the non-disbursement to a High Court ruling dated November 5, 2019, that declared the guidelines on the administration of the Equalisation Fund published on March 13, 2015, null and void.

Equalisation Fund delayed in its first disbursement after its creation in 2012 due to the failure of the Treasury and MPs to agree on the model for the fund in line with the Public Finance Management Act.

The Auditor General further said that of the Sh12.4 billion so far transferred, only Sh10.1 billion or 82 per cent had been expended for approved projects through parent ministries, leaving a balance of Sh2.2 billion still held in the fund account as on June 30, 2021.

“Comparison between the total entitlement and disbursed amount represents a dismal overall performance of 33 per cent for the nine years since inception of the fund," the report said.

"The administration has attributed the low level of disbursements to delayed formulation of policies, delayed project identification and legislative hurdles.” 

The Council of Governors has over the years lamented the delayed release of the funds, saying that the monies have been with the Treasury since the advent of devolution.

According to the constitution, the fund is to be used by the national government “only to provide basic services including water, roads, health facilities and electricity to marginalised areas..."

It continues to say that the services shall be provided "to the extent necessary to bring the quality of those services in those areas to the level generally enjoyed by the rest of the nation.”

 

(edited by Amol Awuor)

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