FINANCIAL MALPRACTICES

We should rethink finances in varsities

Public Finance Management Act requires the governments to ensure public finances are managed in accordance with Section 102 (1) (a) and (b)

In Summary

• An audit report on the institution’s financial management revealed massive looting and lopsided management decisions.

• The Moi University situation is not unique among the public universities in Kenya.

Graduands during the the 56th University of Nairobi graduation ceremony.
Graduands during the the 56th University of Nairobi graduation ceremony.
Image: FILE

Auditor General Edward Ouko once observed that Kenya’s strive to become a middle-income economy by 2030 may not be realised because of the questionable financial malpractices in the public sector.

This raises interesting questions: Could we then rethink our approach to public finances oversight? Are we either too slow or too late in reacting to these malpractices in a deterrent manner?

An audit report commissioned by Moi University vice-chancellor Prof Isaac Kosgey on the institution’s financial management revealed massive looting and lopsided management decisions that led to gross inefficiencies and ineffectiveness at an institution that was once prestigious and financially sound.

 
 

The institution is in a critical financial constraint with a long list of unpaid suppliers, material non-remittance of statutory deductions, bloated wage bill and unsettled Sacco, deductions among others. Although the new management has initiated robust structural management reforms and top-notch treasury management strategies, they are coming long after the horse had bolted.

The Moi University situation is not unique among the public universities in Kenya. Maseno University was on its financial deathbed when its former VC, the late Prof Fredrick Onyango, took over in early 2000.

The situation was bad so much so that the university payroll was being controlled by the owners of an amorphous shylock entity called “Ten Minutes” formed by some employees with the blessing of the then university management in the cover of staff welfare.

Staff would request for soft loans and they would get whichever amount they wanted in not more than ten minutes hence the name “Ten Minutes”. One would borrow Sh20,000 and repay back over Sh100,000 through the university check-off payroll system. There was no room to complain irrespective of the loan form indicating you were to pay Sh60,000.

School practice money was poorly managed, a number of imprests were unaccounted for, while salary advance and in-advance were grossly abused. Student finance records were not up to date and loss of financial documents in finance and internal audit departments was a common feature among other unsound financial management practices.

However, when Onyango came in, he did a radical survey and instilled fiscal discipline and by the time he was leaving the university after his two terms, the institution’s account balances had accumulated to over Sh300 million.

There was also the acquisition of landmark infrastructures in Kisumu such as Kisumu Hotel and Maseno University Plaza. The two facilities are the financial lifeline of the university up to date.

 
 

In view of the foregoing, we need to take lessons on fiscal prudence and responsibility in managing financial resources in our public universities as premised in the Constitution as well as the Public Finance Management Act.

In particular, Article 201(d) and (e) requires national and county governments to maintain fiscal discipline by ensuring that public money is used in a prudent and responsible manner and exercising responsible financial management.

Public Finance Management Act also requires the governments to ensure public finances are managed in accordance with Section 102 (1) (a) and (b).

When the public universities owe various regulators more than  Sh 7 billion in agency fees and another Sh4 billion in salary arrears, spending of the bulk of their money on staff cost, a long list of unpaid suppliers, non-payment of part-time lecturers and stalled development projects among others, are they observing fiscal prudence and responsibility?

The situation in the public university is likely to worsen following the implementation of a new Differentiated Unit Cost (DUC), the amount of money required to teach one academic programme per year per student.

The Treasury has recommended to the universities to consider laying off staff to cope with the financial constraints they are facing.

Besides, in a meeting recently convened by the Ministry of Education and Commission for University Education to lobby parliamentary budget as well as education and research committee members to intervene on the financial crisis, Prof Francis Aduol, chairman of the vice-chancellors committee, warned that the public universities will shut down by the end of next year due to rising debt.

Which way to go?

Managers of public universities should remodel their financial management system by developing clear strategies to deal with significant risks identified.

Two, university management should demonstrate a commitment to competence, integrity and fostering a climate of trust through their actions.

Three, there is a need to review the accounting functions by a team of competent professionals bringing information, order and controls to decisions made in universities.

Four, review the manner in which internal auditing is constituted in terms of appointment, status and protection from university management manipulation because it is critical but only if it’s effective.

Five, managers should provide direction and explicitly be prohibited from overriding established controls, as well as putting measures in place to provide reasonable assurance that the financial management system is not overridden by management.

Six, the management should be proactive in reducing fraud opportunities by identifying and measuring fraud risks, taking measures to mitigate them and identify a position within the university to own a fraud prevention programme. There is also need to implement and monitor appropriate preventive and detective internal controls and other deterrent measures.

In conclusion, to a large extent, prudent financial management may be associated with the success of some of the former public universities’ management chiefs such as professors Oliver Mugenda of Kenyatta University, George Magoha of the University of Nairobi, the late Onyango of Maseno University and Fredrick Otieno of Masinde Muliro University of Science and Technology.

What did they do differently? They strengthened relevant units in their institutions and initiated strategies of ensuring that most of these anomalies are detected, deterred and acted upon in real time.

The writer is a lecturer at Masinde Muliro University of Science & Technology in  the School of Business & Economics

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