The pending bills crisis has turned for the worse despite the assurances by President William Ruto-led Kenya Kwanza administration that they would be paid up promptly.
A new audit of the national government has revealed that nearly all ministries, state departments, and agencies did not settle pending bills in the last fiscal year.
The outstanding payments ranging from as high as Sh40 billion to as low as Sh300,000 have affected suppliers across the board, including at donor-funded projects.
Auditor General Nancy Gathungu’s 2023 report reveals that President Ruto’s office and that of his deputy Rigathi Gachagua led the pack.
Details show that the Executive Office of the President had not paid suppliers and contractors Sh12.3 billion while the DP’s office had not paid up Sh58.2 million.
The audit shows that even the Controller of Budget which has on many occasions called out MDAs over pending bills was not spared – albeit being Sh4.3 million.
The National Treasury, which has been blamed largely for releasing cash late hence, compounding the bills, also owed suppliers Sh7.7 billion, part of which was for 2020.
Gathungu has in the report restated the danger of crossing the year without settling pending bills – which were about Sh600 billion in December 2023.
Various circulars by the National Treasury as well as budget implementation directives have made it clear that pending bills form the first charge in successive budget years.
Former President Uhuru Kenyatta made it a policy on June 1, 2019, that accounting officers promptly settle pending bills without queries.
But despite the directives – enforced formally by circulars, the situation is yet to change and was widespread in the year under review.
Many suppliers have agonized over the inordinate wait for the government to settle the bills.
A committee they hoped would have unlocked the payments is taking forever to conclude the review and single out eligible bills.
The committee chairman - former Auditor General Edward Ouko, when contacted for comment, was not clear on the timelines.
"As for pending bills, a time for any interview is not yet. It is the PS who will call the press in due course," he said.
As the lull persists, experts warn that the economy is bound to suffer, saying the government stands to gain more if it pays the Sh700 billion bills.
“Failure to settle bills during the year to which they relate adversely affects the implementation of the subsequent year’s budgeted programs as the outstanding bills form a first charge to that year’s budget provision,” Gathungu said.
Parliamentary Budget Office said the scenario – as prevalent at both the national and county levels, does not augur the country’s economic growth prospects.
“The unresolved issue of pending bills is a critical factor that demands urgent attention for a more robust economic recovery in the upcoming years,” the economics experts who advise MPs said.
Details in the latest audit report show that President Ruto’s administration may have paid just a handful of the bills.
Most of the outstanding payments were carried forward from the fiscal year ending June 2022, being the period of transition into the current government.
Despite the warnings by experts, agencies like the Immigration Department crossed the year with Sh1.3 billion worth of bills.
“No adequate explanation was provided for non-payment of the pending bills before the end of the financial year,” Gathungu said.
State agencies that fail to settle debts are in breach of Regulation 42(1)(a) of the Public Finance Management (National Government) Regulations, 2015.
The rules state that debt service payments shall be a first charge on the Consolidated Fund.
It requires accounting officers to “ensure this is done to the extent possible that the government does not default on debt obligations.”
But still, the National Police Service had pending bills amounting to Sh5.5 billion which were instead carried forward to the 2023 -24 financial year.
“No satisfactory explanation was provided for non-payment of pending bills during the year they were incurred,” Gathungu said.
The devolution department, the audit shows, had pending bills totalling Sh2.8 billion, but a re-computation showed it could as well be Sh3.6 billion.
A chunk of the amounts are in respect of the previous financial year and prior reporting periods, setting the stage for extras in interest and penalties.
“The State Department is at risk of incurring significant interest costs and penalties as they continue delaying the payments.”
At the Foreign Affairs department, suppliers were yet to be paid Sh1.7 billion, most of which were from the previous year.
Ministry of Health had the hugest share of the outstanding payments at Sh41.1 billion, of which Sh40 billion were for the previous year.
The MOH pending bill is historical, and arises from contracts for medical supplies entered into during the President Daniel Moi era.
“An analysis revealed payment of Sh1,671,543,405 towards pending bills for the financial year 2021- 22 but which had not been included in the balance for the prior year.”
Pending bills for road projects were also not paid, with Kenha alone accounting for over Sh26 billion that remained unpaid as of June 30, 2023.
Of the amount, Sh3.1 billion was in respect of the Kenol Sagana Marua highway, Sh846 million for Nairobi Outering Road and Sh1.6 billion for the Magongo Dualling project.
More than Sh3.3 billion was for Sirari Corridor, Sh6.2 billion for NUTRIP projects, Port Access (Sh978 million), Western Bypass (Sh1.7 billion) and Sh3.1 billion for Lunga Lunga –Malindi highway.
Housing had unpaid Sh1.8 billion, Broadcasting (Sh1.5 billion), Public Works (Sh746 million), ICT (Sh464 million), and Environment Sh522 million - of which Sh18.6 million was for security and cleaning service providers.
“The delays in settling the amounts led to the withdrawal of security services at the Kenya Metrological Department, which created a security threat to the strategic facility,” Gathungu noted.
Details show that the Crop Development department owed Sh12 billion, comprising Sh3.5 billion for the supply of goods and services and Sh8.5 billion for historical pending bills.
Fertilizer pending bills amount to Sh8.4 billion and are owed to NCPB and an Export Trading Company.
Another Sh5 billion relating to a loan NCPB obtained in October 2019 to finance the government’s subsidized fertilizer program was yet to be paid, accruing high interest and penalties.
The wildlife department was also called out over unpaid Sh2.7 billion relating to human-wildlife conflict while the Public Service department owed suppliers Sh1.8 billion as at the time of the audit – about three months ago.
The Regional and Northern Corridor Development department had Sh2.4 billion pending bills which management did not explain why they were not settled.
Gathungu reveals that the Attorney General’s office crossed the year with Sh171 million, Judiciary (Sh613 million), ODPP (Sh115 million), NLC (Sh731 million),
IEBC, the report shows, had bills of Sh4.8 billion of which Sh1,948,379,000 was for legal fees accrued during the year under review.
The legal fees payables, therefore, stood at Sh2,909,645,000 while goods and services payables totalled Sh1,947,796,000.
“In the circumstances, the Commission risks legal actions and payment of an avoidable interest on delayed payments,” Gathungu said.
Teachers Service Commission also failed to pay Sh2.5 billion by June 2023, while the ASALs department had an outstanding Sh931 million.
Data from OAG shows that pending bills in respect of donor-funded projects have hit Sh48 billion.
County governments are yet to pay suppliers about Sh160 billion while public universities and constituent colleges have pending bills of about Sh70 billion.
The government is further exposed to interests and penalties in the face of unsettled court awards of more than Sh69 billion.
Budget experts hold that the government would be the biggest beneficiaries if it pays the bills.
“Injecting liquidity into the private sector, through the payment of pending bills amounting to five per cent of GDP or Sh794 billion, is anticipated to stimulate productivity within the private sector,” PBO said.
As a way out of the quagmire, PBO recommended to MPs to provide Sh150 billion each financial year to settle pending arrears for the next five years.
It said ministries could also reserve 20 per cent of their budgets towards clearing the debts and introduce a rule-based legal regime with sanctions for those piling up bills.
International Budget Partnerships-Kenya boss Abraham Rugo, for his part, advised for adoption of an accounting system that will see the bills settled.
“The only way out is to fully implement accrual accounting. Ministries apply cash accounting which doesn’t lock monies committed to supplies and contracts,” Dr Rugo said.
Gathungu said the ever-surging pending bills are an indication of accounting officers committing funds which are not available.
