Seven years ago, Kenyans had all reasons to be expectant when the 47 devolved governments were ushered in through the 2010 Constitution. This devolution created an era identified by ambitious pledges to bridge the development gap between the well-off and the poor areas. To support these inclusive development campaigns, well-timed resource mobilization strategies were set up to raise resources for the effective delivery of devolution.
Over the years, budget implementation reports by the Office of the Controller of Budget (OCoB) have indicated that budget absorption by the county governments has not been sequenced in a manner that raises their productivity growth.
To illustrate this, the overall absorption rates (the amount of budgeted resources actually spent on both development and recurrent votes) since FY 2013/2014 averaged at 74 percent as shown below. This rate may seem quite ok in the scheme of things, but it is important to note that the ever-rising wage bill (levels that contravene the Public Finance Management Act 2012 as discussed in our previous blog) forms a greater portion of the recurrent absorption rate. Lagging behind is the development absorption rate which has remained below 30 percent.
Diagram 1: Both absorption rates dipped during the electioneering period of FY 2017/2018
Source: Office of the Controller of Budget
That said, the OCoB report findings indicate that several perennial factors derail budget implementation in the counties despite increased commitments by both levels of government to tackle them. These factors include: untimely disbursements of the equitable share, subdued revenue sharing processes, delayed e-procurement processes, bloated wage bill, unrealistic revenue projections, and institutional/administrative challenges.
Additionally, budget institutions have traditionally focused on these challenges, but less attention has been paid to implementation processes within the Integrated Financial Management Information Systems (IFMIS). IFMIS is supposed to be an effective way of instilling transparency and fiscal discipline.
Ever since its launch in 2003, IFMIS has undergone far-reaching improvements in Kenya. Most notable of these is the re-engineering phase in 2014 which sought to move from a modular approach (modules loosely linked to General Ledger (GL)), to a full cycle end-to-end integrated approach activating several modules. .
Other noteworthy improvements include IFMIS mapping and integration with Standard Chart of Accounts (SCOA): an organized and coded listing of all the individual accounts that are used to record transactions and make up the ledger system of MDAs and Counties, and the development and implementation of a Plan to Budget (P2B) system for enhanced budget-making.
According to the PFM Act 2012, Sec 129, the county executive is expected to submit to the county assembly the budget estimates, supporting documents, and any other bills required to implement the budget by 30th April in that year. One of the budget documents referred to is the work plan – which is a detailed outline of a set of programmes, interventions and resource requirements that a county entity intends to implement through the execution of limited public resources within a financial year. The work plan is typically drafted in Excel.
Preparation of these work plans commences from the county government entities, with the county treasury playing a coordinating and consolidating role. The county executive committee (CEC) and county assembly make budget approvals after deliberations, after which the county treasury has to embark on the process of uploading the work plans into the P2B System.
The main work plan components usually loaded in the system include programmes, sub-programmes, amounts, and resource requirements with respective item codes as per the Government Finance Statistics Manual . The loaded data is reflected in the IFMIS General Ledger to facilitate subsequent payment processes‒Internet Banking and requisitions.
However, during the uploading process, other critical work plan elements are sometimes left out: interventions, project location, project target and task descriptions. Failure to capture these essentials has resulted in the following budget implementation constraints:
- Weak monitoring of expenditures. Due to the scanty information availed in the General Ledger, the finance and accounts units are not able to tell what intervention/task they are paying for, nor can they tell the outstanding balance for each. This results in unbudgeted spending, leading to depletion of vote book balances without achieving the intended budget objectives.
- Manual exchequer requisitions to OCoB are subject to error and delays. During any financial year, OCoB is required to approve exchequer requests to withdraw public funds. Counties prepare and submit mandatory requisition documents through OCoB county budget coordinators. Whilst the fund approvals are made based on submitted documents, the IFMIS data is not adequate to guide OCoB in making follow-ups on how the approved funds are spent.
- Fragmented data. Despite the OCoB county budget coordinators being issued with detailed templates to obtain data from the counties, the data is sparse and very fragmented, which affects the quality of OCoB reports. Besides, it becomes difficult for the officers to counter-check any discrepancies between the implementation of the planned interventions in the work plans and what is captured via IFMIS.
The above constraints not only succinctly describe potential system-based interventions needed, but also emphasize why the work plan elements are critical in budget execution. It is envisaged that the implementation of system-approach proposals (shown below) will improve efficiency in expenditure management within the county governments.
- System automation. OCoB needs to rethink approaches geared towards automating its processes. The office has already kick-started the process of developing an exchequer automation system in partnership with National Treasury and the Central Bank of Kenya, which is set to immensely improve the requisition process. However, it is equally important to emphasize the need of automating other budget making processes that particularly aid in the tracking, evaluating and reporting on expenditures.
Improve the quality of data loaded in the system. Effectiveness of the proposed systems in 1 (implementing, monitoring and generation of stellar reports ‒ Programme Based Budgeting (PBB) financial and non-financial information) will depend on credit-worthiness of the captured data via P2B. As such, OCoB should liaise with the counties, by extension the Hyperion officers (Officers responsible for the P2B system), and push for drastic reforms in the uploading process.