Wednesday, 16 October 2019 12:33

Public Finance Expenditure and Management in Brief

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Counties have for a long while been projected and perceived as dens of corruption with incidences of public finance mismanagement reported. Whereas most of the counties were enfeebled about having received qualified reports, the Auditor General’s Report for the FY 2017/18 showed that Makueni and Nyandarua were the only two Counties with unqualified reports. In an environment that is trying to streamline management of public resources, this pointed out to a lack of understanding of either what Public Finance Management dictates or the implications of the queries.
It is against this backdrop that the Council of Governors with support from the World Bank will hold a peer to peer learning mission for CECM’s Finance in all the counties to improve their knowledge on the audit process using the Nyandarua County Model. Ahead of the meeting, we engaged with the CoG Finance Technical teams to help unravel some of the key issues relating to this. Mr. Joseph Kung’u from the Trade Committee at the Council of Governors had this to say.
PFMWhat is Public Finance Expenditure and Management?
Simply put, it is the prudent management of public resources by public officers for the purpose of providing services to the citizenry. Public Finance Management (PFM) is a concept applicable to both the private and the public sector. In the private sector, it especially entails Non-Governmental Institutions entrusted with public money for expenditure in public spaces to support and deliver services. In the Public sector it entails the utilization of people’s resources garnered through taxes or grant or other revenue streams for delivery of essential services to its citizenry.

What is the source of County monies?
Counties have three sources of funding namely; own source revenue, equitable share and Conditional and unconditional grants. Their own sources revenue is derived from rates rents, levies and user fees charged from services rendered in the counties. Equitable share allocated to Counties by Parliament, is nationally collected revenues shared between the National Government and County Government. This forms the biggest source of County revenue stream and as such there must be a conversation on how the allocations are distributed. The last source, conditional and unconditional grants is derived from either the National Government or Development Partners who want to attain a specific agenda in all or some counties. The Revenues collected by the County Governments are deposited in the County Revenue Fund (CRF) and its withdrawal for expenditure can only be authorized by the Controller of Budget.
We cannot talk about revenue without understanding where the resources are spent in the delivery of services. In Public Service, expenditure is directed to emoluments of public officers, construction of roads, and provision of essential services like medicine among others. In Kenya, the expenditure is guided by the Public Procurement and Disposal Act and the Public Finance and Management (PFM) ACT. The Acts provides for the role of the County Treasury, the Accounting officers in each departments the budgeting process and the expenditure process.
The process of expenditure as guided by the law requires that each County Government before the beginning of the financial year is required to submit its budget for approval to the County Assembly for approval. The enactment of the Appropriation Act gives the County the legal powers to spend under the approved budget lines and submitted to the Controller of Budget to enable the office approve release of revenue from the CRF for expenditure.
As part of setting up internal controls, each county must have an internal audit department and committee. The stronger both of these organs are, the better the accountability and quality of audit reports. This is because both conduct a continuous audit process reviewing expenditure Vis a Vis the budget. Where there are any risks, they are queried before end of year. The Auditor General at the end of the year reviews how the projects are implemented as an external independent oversight body.
What then does a qualified, unqualified and adverse report mean?
An unqualified Audit report is a clean audit opinion where the auditor express their opinion on the financial statements that they reflect a true and fair view. This means that the auditor has reviewed the financial statements and the internal procedures of the organization and is satisfied that the report prepared by the management reflect fair expenditure.
Qualified audit report is an audit report where the auditor has been able to express his opinion on the affairs of the organization with regards to financial statements and internal control but raises has raised issues that are material but not pervasive. In this case the auditor general has reviewed the expenditure and the system in the County and has raised some material but not highly significant with regards to expenditure and system process in the County.
An adverse report on the other hand the auditor has reviewed the financial statements and the systems employed and is able to express an opinion to the affairs of the where in his few they are misrepresented, misstated and do not reflect the true and fair view of the organsation. In this case the auditor general gives an opinion that the financial statements of a County presents material breach in expenditure or policies and systems.
In case of a Disclaimer, the Auditor means that he/she is unable to give an opinion of the affairs of the financial statements and systems being used this can either be due to lack of cooperation, scanty information provided, no documents provided among others and the auditor is unable to conduct all audit procedures. Meaning that no audit could be conducted under the circumstances hence the Auditor General is unable to ascertain if the expenditure and systems in the County were employed as required or stipulated.
It is important for the public to note that audit reports by auditors are objective and reflect their opinion using the generally accepted standards and audit procedures to test the true and fair view of the status of affair of the organizations’ internal control system vis a vis financial management in the operations of an organization.
What is the role of National Government and Independent institutions in Supporting Counties in prudent financial Management?
There are four institutions that are critical in supporting Counties in prudent Financial Management being:
i) National Treasury through training of officers in financial reporting, use of the IFMIS system, internal audit function, budgeting process among others. This capacity building initiatives has been a continuous process by the National Treasury which has seen the quality of the financial statements improve over the years.
ii) Office of the Controller of Budgets is mandated to ensure that withdrawals are properly supported, authorized by law and issue quarterly reports on budget implementation. The office has been sensitizing Counties on withdrawal procedures and what is required to ensure that there is no delay in release of funds from the CRF.
iii) Commission on Revenue Allocation apart from recommending the equitable share to both levels of Governments are mandated to enhance revenue sources and ensure fiscal responsibility in Counties. To achieve the mandate the commission is expected to support Counties through capacity building and system development to ensure the realization. Over the years the Commission has been instrumental in supporting counties to increase their revenue potential through system development and trainings. Further, they have championed the formation of County Budget Economic Forums (CBEF) to ensure fiscal management of resources.
iv)The Office of the Auditor General who is mandated to audit County Governments and give opinions on the affairs of the County. To improve prudence and audits the office has been undertaking capacity building for internal audit departments and County officials on how to deal with audit quarries to ensure that they do not reoccur in the subsequent reports.
What will be your Parting shot?
In view of prudent financial management, Counties need to strengthen their internal audit departments and ensure their independence is maintained through establishment of internal audit committees. This will help identify and deal with the risks and challenges way before they are highlighted by the auditor general at the end of the Financial Year. Internal Auditors are most of the time seen as enemies of the organization as opposed to risk mitigation and one of the most critical pillar in an institution in supporting the management in risk management. Six years down the lane, if the internal audit departments are to be strengthened with qualified and competent staff, we will have better reports.

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