CBK rolls out reforms to stop counties from diverting billions in funds meant for suppliers

Counties will no longer be able to cancel approved payments and divert funds, as the national government moves to seal loopholes that have seen billions of shillings misappropriated through voided transactions targeting small suppliers.

New reforms led by the Central Bank of Kenya (CBK) aim to ensure that whatever is authorised by the Controller of Budget is exactly what gets paid, amid rising scrutiny of county fiscal indiscipline.

The measures follow revelations contained in a report by Auditor General Nancy Gathungu showing a disturbing trend where county accounting officers routinely cancel payments meant for suppliers, especially those without political or personal connections and redirect the funds to contractors with political ties.

Appearing before the Senate Committee on Devolution, CBK Governor Dr Kamau Thugge said the reforms will curb this form of abuse by tying approved requisitions to actual payments, thereby blocking discretionary changes by rogue officers.

“On voided transactions, the blame is not with the CBK,” Thugge said.

“The Controller of Budget approves requisitions, but county accounting officers pay for something else. That will no longer be possible. Whatever is approved by the Controller of Budget will be exactly what gets paid.”

To actualise the changes, CBK said it is upgrading two critical banking systems, Temenos T24 and Granular Data Integration (GDI), to prevent manipulation of payment files. The systems will link requisitions directly to funding and allow real-time monitoring of transactions.

CBK Deputy Governor Susan Koech told senators that the Temenos T24 system, which provides end-to-end banking solutions, will go live next month, while the GDI platform is set for rollout by the end of October.

“The new systems will enhance transparency, efficiency, and eliminate discretionary interference in payments,” Koech said.

“We have already onboarded all banks and payment service providers.”

The new system comes amid concerns over widespread abuse, with the Auditor General’s report for the financial year ending June 30, 2024, showing counties voided transactions amounting to over Sh10.9 billion.

Some of the voided payments were for services already delivered, mainly by small suppliers. The most rampant cases were recorded in the last month of the financial year, with counties often citing “missing documents” as the reason for cancelling the deals.

Kisumu County topped the list, voiding 4,127 transactions worth Sh2.6 billion, without any supporting documents. Busia County followed, cancelling Sh2.1 billion, including Sh72.6 million in June alone. In Kajiado, a total of 1,922 transactions worth Sh2.28 billion were voided.

Other counties flagged include Siaya, which voided 1,500 transactions valued at Sh560.6 million and Nakuru, which cancelled 570 payments amounting to Sh308 million.

In Mombasa, transactions worth Sh921 million were voided, including Sh412.9 million that had been allocated to suppliers and statutory deductions. Nyeri was found to have cancelled 722 transactions totalling Sh527.2 million, while Meru voided payments amounting to Sh415.4 million.

In all these instances, counties neither notified the Controller of Budget nor provided documentation required under Section 92(3)(c) of the Public Finance Management Act, 2012.

Wajir Senator Mohamed Abass said the situation had become alarming, warning that corruption was now fully devolved.

“This is very worrying. Corruption has been devolved,” he said.

Beyond voided payments, the CBK also revealed that it lacks visibility over hundreds of bank accounts operated by county governments, especially those in commercial banks, raising concerns over possible misuse of public funds.

Senators questioned Thugge on why counties are allowed to operate multiple accounts with little or no oversight, a situation they said enables the diversion and concealment of funds.

“As Central Bank, can you tell the committee how this can be stopped? Because they are opening accounts for corruption purposes—stealing money, then they close that account, and open another account,” Kiambu Senator Karungo wa Thang’wa posed.

Thugge acknowledged the limitation, saying: “There’s limited visibility by CBK banking teams over accounts opened at commercial banks unless they are flagged by oversight agencies.”

According to senators, some counties claim to have separate accounts for services such as education, donor funding and health. In one instance, counties were found to have opened accounts for all hospitals from Level 4 to Level 1, totalling around 300 accounts.

To address this, Thugge said CBK is pushing for the operationalisation of a Treasury Single Account (TSA), a framework meant to consolidate government revenue into one account, which Kenya has failed to implement despite starting the process two decades ago.

He noted that one of the barriers to implementation is poor coordination between oversight bodies such as the Controller of Budget and the Auditor-General.

He also pointed to legal gaps and contradictions within the Public Finance Management (PFM) Act. For instance, Section 192 allows county treasurers to open accounts either at the CBK or at authorised commercial banks, while simultaneously calling for a Treasury Single Account to be established at the central bank.

Thugge recommended a joint and harmonised oversight approach among regulatory agencies and more robust sensitisation of commercial banks on their obligations under the PFM Act.