Auditor General's report exposes schools' financial mismanagement

Auditor General Nancy Gathungu has exposed widespread financial misconduct within secondary schools, prompting the potential for school heads and their boards to be summoned before Parliament for the first time to account for their financial practices.

In an unprecedented audit aimed at ensuring the responsible use of public funds across government institutions, Gathungu's findings reveal substantial financial irregularities, including unauthorized fee hikes and questionable expenditures, among various national schools, some of which manage budgets comparable to state corporations.

Key schools, including Butula Boys, PCEA Kikuyu High, Kijabe Girls High School, Nyamira Girls, and SA Kolanya Boys, have been cited for imposing illegal fees on students, directly violating Ministry of Education regulations.

Apart from the unauthorised fees, Gathungu raised concerns about the management of school resources, highlighting irregular large cash withdrawals by school principals.

In addition, the Auditor criticized the use of taxpayer money to support the Kenya Secondary Schools Heads Association (KESSHA), an organization not officially recognized by the government for funding.

The audit also uncovered issues related to remedial pay for teachers, where extra payments made by parents for additional lessons are not subjected to the mandatory Pay As You Earn (PAYE) tax.

The audit, which is the first comprehensive scrutiny of secondary schools in Kenya, reveals rampant violations of the Ministry of Education's fee guidelines. According to the Ministry, schools seeking to raise fees must obtain formal approval from the Cabinet Secretary. However, many schools have ignored this directive, imposing illegal extra charges on parents, resulting in substantial school revenue.

For example, Butula Boys High School charged an additional Sh13,554 per student, generating Sh23.4 million from its 1,723 students. The audit revealed that the school had blatantly flouted its official annual fee cap of Sh45,000. Similarly, PCEA Kikuyu High School raised fees by Sh5,535 per student, despite the ministry’s limit of Sh35,000. Without any authorisation, Kijabe Girls High School charged an extra Sh4,500 per student.

“In the circumstances, management was in breach of the Ministry of Education guidelines,” Gathungu noted in her report, pointing out that no supporting documents were provided to justify the fee increases.

The audit also revealed troubling practices in school fee management, expenditures, and payroll processes.

For instance, Nyamira Girls was unable to account for Sh13.4 million in withdrawals due to a lack of supporting petty cash books. Several other schools, such as Kinyui Boys, were found to have collected fees in cash but failed to bank the receipts, a violation of the Public Finance Management (PFM) Act.

In payroll matters, the audit highlighted the failure of some schools to deduct taxes on payments made for remedial lessons, exposing them to potential penalties from the Kenya Revenue Authority (KRA).

Chania Girls, for example, did not tax Sh5.2 million in payments made to teachers for remedial classes, while Kinyui Boys lacked an approved staff establishment and salary structure, leading to concerns about HR controls.

“Revenue collected in cash was not banked, instead it was spent at the source which could be prone to misuse,” Gathungu said.

Additionally, Gathungu flagged PCEA Mai-A-Ihii High for paying ghost workers, with Sh828,390 disbursed due to unclear and unsupported payroll entries.

“Review of the monthly payrolls revealed unclear and unsupported payments to staff defined as "others" and which varied from month to month,” she said.

Beyond fee irregularities, the audit also uncovered numerous instances of schools mismanaging their resources. The report flags large cash withdrawals, unauthorised payments, and unbanked fee collections, all of which violate public financial management laws.

Kinyui Boys High School was found to have collected Sh2.9 million in fees that were never deposited into the school’s bank accounts, while Mombasa Secondary School for the Physically Handicapped similarly failed to bank Sh1.5 million received in cash.

Gathungu’s audit also revealed widespread abuse of petty cash, with many schools spending collected revenue directly without banking it first. This practice, the auditor warns, exposes schools to potential misuse of funds. For instance, Ndivisi Girls collected Sh43.6 million in fees, but only deposited Sh33 million, leading to concerns about the missing Sh10.7 million.

“Revenue collected in cash was not banked; instead, it was spent at source, which could be prone to misuse,” Gathungu cautioned.

Failure to remit taxes

The report also exposed several schools for failing to remit taxes, particularly Pay As You Earn (PAYE) on payments made to teachers for remedial lessons. Schools often charge parents extra fees for additional classes, but the money collected is not taxed, potentially opening the institutions to penalties from the Kenya Revenue Authority (KRA).

“Failure to deduct and pay PAYE may attract penalties by the Kenya Revenue Authority,” Gathungu noted.

Procurement malpractices were another significant finding in the audit. Many schools were found to be violating procurement laws, with some making payments without inviting tenders or bids. Goods were often not inspected upon receipt, and in some cases, procurement plans were either nonexistent or not followed.

At Kanyawanga High School, Sh19.6 million in operational expenses was not backed by any supporting documents. Similarly, the lack of supporting documentation cast doubt on Kijabe Girls High School's payment of Sh584,464 to the African Inland Church for electricity bills.

Maranda High School, a notable institution with a significant budget, faced adverse audit opinions for personnel costs amounting to Sh23 million that were not supported. The school also made cash payments amounting to Sh1.5 million, exceeding the capped limit of Sh50,000 per item annually.

“There was no evidence of signed board minutes or an attendance list to support the expenditure,” the audit stated.

The audit also highlighted a troubling trend: schools fail to receive full government capitation due to incomplete student registration on the National Education Management Information System (NEMIS). Without accurate student data on Nemis, schools miss out on critical state funding, leaving them underfunded and pushing administrators to seek additional revenue from parents.

Afraha High School, for instance, missed out on Sh8.5 million in state funding due to Nemis anomalies. Butula Boys forfeited Sh4.9 million, while Maranda lost Sh3.2 million. Schools like Kwale Girls and Chania Girls also had hundreds of students not listed on the system, depriving them of much-needed financial support.

Gathungu’s audit has opened up a can of worms, with calls for urgent reforms in how secondary schools manage public resources. Education stakeholders are urging Parliament to take a stronger role in ensuring transparency and accountability within school management boards. There are also increasing calls for the Ministry of Education to strengthen its oversight mechanisms to curb these widespread malpractices.

"This is not just about financial integrity; it’s about ensuring that our students have access to quality education without placing undue financial strain on their parents," said a parent from one of the affected schools.