CBK under fire for withholding Sh3 billion in upfront agency fees, auditor-general says practice breaches law
Under current arrangements, CBK charges 1.5 per cent commission on funds raised through Treasury bills and bonds, with a cap of Sh3 billion per year.
The Central Bank of Kenya (CBK) has come under criticism from the Auditor-General for taking Sh3 billion upfront from government debt proceeds as agency fees during the fiscal year ending June 2025.
Auditor-General Nancy Gathungu said the bank’s approach breaches the Public Finance Management Act, noting that deducting fees at source and sending only the remaining funds to the Exchequer is unlawful.
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Under current arrangements, CBK charges 1.5 per cent commission on funds raised through Treasury bills and bonds, with a cap of Sh3 billion per year.
Deducting this fee directly at collection deprives the national government of the full amount, a point highlighted in the Auditor-General’s report.
“It was noted that the bank deducted its commission at source and remitted net proceeds to the Exchequer, contrary to article 206(1)(a) of the Constitution and section 17(2) of the Public Finance Management Act 2012, which require all money raised or received by or on behalf of the national government to be paid into the Exchequer Account, except money that is reasonably excluded from the fund by an Act of Parliament,” Gathungu stated.
CBK’s commission is based on an agreement with the Treasury signed in 2007, before the Public Finance Management Act came into effect.
“The current practice has been in place over the years and is in line with the agency agreement between the CBK and the National Treasury,” the bank told the Business Daily.
The Auditor-General, however, pointed out that the agreement does not specify how the fees should be paid.
“Although the agency agreement provides that the National Treasury and the bank should agree on the commission and method of payment, no evidence of an agreed payment was provided for review. In the circumstances, the management was in breach of the law,” she said.
CBK defended its position, stating that the commission is accounted for once the services have been delivered.
“The performance obligations, as well as the timing of their satisfaction, are identified and determined at the inception of the contract. The bank has generally concluded that it is the principal in its revenue arrangements because it typically controls the services before transferring them to the customer,” the bank added in its annual report.
The issue echoes previous complaints by government agencies about delays in receiving agency fees from the Treasury.
The Kenya Revenue Authority (KRA), for instance, has long sought legal changes to allow it to retain fees upfront to cover operational costs, including the purchase of equipment needed to collect revenue.
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