Senators push for audit of private firms collecting revenue for counties

Private firms collecting revenue for counties may soon be required to open their systems for audit if a new push by senators gains traction.

Senators are advocating for Auditor General Nancy Gathungu's office to audit these firms amid concerns about the accuracy of the revenue figures they report.

The lawmakers have expressed worries that the absence of audits on these revenue service providers has led to opportunities for counties to misappropriate billions of shillings due to discrepancies in the reported revenues.

Appearing before the Senate County Public Investment and Special Funds on Wednesday, Gathungu raised issues with how counties could be losing revenue through the firms.

She explained that although the law grants the National Treasury the authority to prescribe revenue collection systems for counties, governors have often hired companies without conducting proper due diligence.

"We are seeing these firms claim they collected low revenue due to system downtimes and failures. There's underreporting, and some of these providers are reluctant to share complete data," Gathungu said.

"If a firm is hired to collect public revenue, its system must be subject to public scrutiny because these are public funds."

The committee chaired by Vihiga Senator Godfrey Osotsi also heard that the companies are contracted by the county governments at different rates and that there has been a proliferation of some briefcase revenue collection firms contracted by counties.

"The rates should be standardised so that the commission charged by the firms does not vary from one county to the other. The lack of standard rates is why counties are losing a lot of revenue," Gathungu said.

The Auditor General also highlighted that some counties are breaking the law by hiring unlicensed and unapproved revenue collection firms, bypassing the revenue systems prescribed by the National Treasury.

"We've found that some counties are engaging firms with questionable backgrounds, failing to conduct due diligence. This opens the door to significant revenue losses," she said.

Standardise commissions

However, Gathungu emphasised the need to standardise the commissions charged by these firms, as the current lack of uniformity contributes to revenue leakage.

Auditor General Nancy Gathungu appearing before the Senate Committee on County Public Investment and Special Funds on September 4, 2024 at Parliament Buildings, Nairobi. (Photo: Senate)

"The rates should be standardised so that commissions do not vary between counties. This inconsistency is costing counties a lot of money," she said.

As a result, Narok Senator Ledama Ole Kina called for an amendment to the Public Finance Management (PFM) Act, arguing that current legal loopholes have led to wastage in county governments.

He noted that giving companies unchecked authority has resulted in counties losing billions in revenue.

According to him, amending the PFM Act would ensure transparency and enable the tracking of funds from the service providers to the County Revenue Fund.

"We will push to amend the law, granting the Auditor-General authority to audit the systems of these revenue service providers," Ole Kina stated.

Ole Kina, who also serves as the Minority Whip, noted that even though the law prohibits service providers from deducting their commission directly from the revenue they collect, they continue to do so.

"We must tighten these loopholes because if we don't, then you will just be giving us figures which the firms will be laughing at," he said.

Migori Senator Eddy Oketch echoed this sentiment, stressing that legal reforms would improve the accuracy of financial statements and strengthen accountability in county revenue collection.

"When counties rely on third parties for financial statements without a legal framework for audits, it creates accountability issues," he said.

Last October, the Ethics and Anti-Corruption Commission flagged several counties over reports of hijacking the revenue collection system to divert funds.

Counties like Nairobi, Narok, Kajiado, Machakos, and Kilifi were cited as examples where revenue collection systems have been tampered with, risking significant revenue losses.

The EACC revealed that senior officials in county governments are exploiting the revenue collection system to divert funds by colluding with service providers, resulting in the loss of billions of shillings.

In some counties, private service providers have complete control over revenue management systems, making it challenging for county governments to enforce accountability.

The commission further noted that senior county officials have super-user rights on these automated systems, allowing them to delete or edit revenue figures, which facilitates the diversion of funds.

Some counties also lack mechanisms to reconcile revenue management systems in cases where the county has different service providers.

As a result, many county governments are unable to meet their revenue targets, with some performing worse in revenue collection than even the defunct local authorities.