page of...6 Ms. Anne Ager Executive Secretary 7 Mr. Thomas Opere Clerk Assistant 8 Ms. Mercy Kaula...

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Table of Contents

Table of Contents ........................................................................................................ 2

LIST OF ABBREVIATIONS ....................................................................................... 4

1.0 PREFACE ................................................................................................................. 5

1.1 Committee Mandate .......................................................................................... 5

1.2 Committee Membership .................................................................................. 6

1.3 Submission of County Government Budget Implementation

Review Report for the Fisrt Nine Months for FY 2018/2019 ................ 7

1.4 Committal to the Budget and Appropriations Committee ............... 7

1.5 Committee Meetings ......................................................................................... 7

1.7 Adoption of the Committee Report…..……………………………………9

2.0 BACKGROUND ................................................................................................... 10

2.1 Legal Guidelines on the Budget Implementation Review Report

for First Nine Months . .......................................................................................... 11

3.2 Local Revenue Income Sources ... Error! Bookmark not defined.

4.0 COMMITTEE’S GENERAL RECOMMENDATIONSError! Bookmark

not defined.

6.0 PRAYER ............................................................................................................... 25

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LIST OF ABBREVIATIONS ADP Annul Development Plan A-I-A Appropriation in Aid ASDSP Agriculture Sector Development Support Programme CA County Assembly CARA County Allocation of Revenue Act CBEF County Budget and Economic Forum CBIRR County Budget Implementation Review Report CBROP County Budget Review and Outlook Paper CBK Central Bank of Kenya CECM County Executive Committee Member CFSP County Fiscal Strategy Paper CIDP County Integrated Development Plan COB Controller of Budget CRA Commission on Revenue Allocation CRF County Revenue Fund DANIDA Danish Development Agency FY Financial Year IB Internet Banking ICT Information and Communications Technology IFMIS Integrated Financial Management Information Systems KBRR Kenya Bank’s Reference Rates KASP Kenya Agricultural Support Programme KDSP Kenya Devolution Support Programme KRB Kenya Roads Board Kshs Kenya Shillings KUSP Kenya Urban Support Project MCA Member of County Assembly NARIGP National Agricultural and Rural Inclusive Growth Project O&M Operations and Maintenance OCOB Office of the Controller of Budget PE Personnel Emoluments PFM Public Financial Management POS Point Of Sale RMLF Road Maintenance Levy Fund SRC Salaries and Remuneration Commission UIG Urban Institution Grants WSDP Water & Sanitation Development Project

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1.0 PREFACE

1.1 Committee Mandate

The Budget and Appropriations committee is a Select committee

established pursuant to the provisions of Standing Order No. 187

which provides that, there shall be a select committee to be known

as the County Budget and Appropriations committee consisting of

a chairperson and not more than eight other members.

The committee is mandated to;

(a) Investigate, inquire into and report on all matters related to

coordination, control and monitoring of the County Budget.

(b) Discuss and review the estimates and make

recommendations to the County Assembly.

(c) Examine the County Fiscal Strategy Paper presented to the

County Assembly.

(d) Examine Bills related to the County Budget including

Appropriations Bills.

(e) Evaluate tax estimates, economic and budgetary policies and

programs with direct budget outlays.

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1.2 Committee Membership

The Committee was reconstituted on Thursday 1st November,

2018comprising of the following Members: -

NO. NAME WARD DESIGNATION 1 Hon. Nicholas Ayieta Gwassi South Chairperson 2 Hon. Julius Gaya C/ Karachuonyo V/Chairperson 3 Hon. David Oloo Kanyamwa/Kologi Member 4 Hon. Godfrey Juma Kabondo West Member 5 Hon. Philemon Onditi Kagan Member 6 Hon. Peter Kaula Wang’chieng Member 7 Hon. Susan Onyango MCA Member 8 Hon. Judith Omogi MCA Member 9 Hon. Mary Ojalla Homa Bay Arujo Member

Committee Secretariat

S/NO NAME DESIGNATION 1 Mr. Charles Olela Deputy Clerk 2 Mr.StephenOjako Principal Clerk Asst. 3 Mr. Simon Oyindo Snr. Fiscal Analyst 4 Mr. Jared Mingusa Fiscal Analyst 5 Mr. Gabriel Awiti Chief Sergeant Arms 6 Ms. Anne Ager Executive Secretary 7 Mr. Thomas Opere Clerk Assistant 8 Ms. Mercy Kaula Hansard Reporter

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1.3 Submission of Budget Implementation Review Report for

the First Nine Months of FY 2018/2019 From the Controller of

Budget:

Budget Implementation Review Report for the First Nine Months of FY 2018/2019 from the Controller of Budget was submitted by the

County Treasury to the County Assembly on 16th July, 2019 pursuant to the provisions of Section 149(4) of the PFM Act 2012.

1.4 Committal to the Budget and Appropriations Committee

Pursuant to the provisions of Section 149 (3&4) of the PFM Act

2012, Hon. Speaker made a communication to the House on31st July

2019 that his office was in receipt of the County Budget

Implementation Review Report for the First Nine Months of the

Financial Year 2018/19 from the office of the Controller of Budget

submitted by the CEC Member for Finance, Economic Planning and

Service Delivery to the office of the Clerk. He subsequently

committed it to the Budget and Appropriations Committee pursuant

to the provisions of Section 149 (3) of the PFM Act2012 for scrutiny

and subsequent tabling in this House for adoption.

1.5 Committee Meetings

The committee held its first sitting to deliberate on County Budget

Implementation Review Report for the FY 2018/19 from the Office of

the Controller of Budget on 26th August, 2019and held several other

meetings with the CECM Finance, Chief Executive Officer for River

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BankSolutions Limited as the Company contracted by the Homa Bay

County government on automated revenue collection, Chairperson of

the County Executive Committee ( Cabinet) Taskforce on Revenue

collection , CECM Trade, Chief Officer Trade and County Director of

Revenue for further deliberations that culminated in the preparation

of this report.

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2.0 BACKGROUND

2.1 Legal Guidelines on the County Budget Implementation

Review Report from the Controller of Budget Estimates.

It is a requirement under Article 228(6) of the Constitution of Kenya provides that after every quarter, the controller of Budget shall submit to each House of parliament a report on the implementation of the budgets of the National and County government.

Article 228(6) of the Constitution of Kenya, 2010 provides that the Controller of Budget shall oversee the implementation of the budgets of the National and County government by authorizing withdrawals from public funds under Article 204,206, and 207 of the Constitution of Kenya ,2010.

Section 149(3) of the PFM Act, 2012 provides that not later than three months after the County Assembly has adopted a report by a committee of the County Assembly with respect to report submitted by the Controller of Budget under Article 228(6) of the Constitution of Kenya, 2010 an accounting officer shall for each entity for which the officer is designated to prepare a report on actions taken by the entity to implement any recommendations made in the committees report by the County Assembly.

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3.0 COMMITTEE’S GENERAL OBSERVATIONS

1. Homa Bay County government signed an agreement on 2nd June,

2017 with RiverBank Solutions Limited and Kenya Commercial Bank

for the supply, delivery, installation, customization, commissioning

and maintenance of revenue collection and management system

(Revenue automation). In the agreement, RiverBank Solutions

Limited was to provide the software and hardware components to

execute the revenue collection and management system in

partnership with KCB. The Solution provider and KBC was jointly a

consortium to provide to the County government a comprehensive

revenue collection and management Solution.

It was observed that despite this agreement, revenue collection has

continued to decline at an alarming rate as indicated in the C.O.B

report page 64. In the C.O.B report, the trend in own sources of

revenue collection for the first nine months from 2013/14 to FY

2018/19 is worrying as it has fluctuated from Ksh.98.87 M in FY

2013/14, Ksh.113.70M in FY 2014/2015, Ksh.138.42M in FY

2016/17, Ksh.114.63M in FY 2016/17, Ksh.72.04M in FY 2017/18

and finally to Ksh.58.27M in FY 2018/19 (first nine months)

In the report, the County generated a total of Ksh.58.27M from own

revenue sources in the first nine months of FY 2018/19 which

represented a decrease of Ksh.13.77M compared to that realized

during a similar period of the FY 2017/18 and represented 33.7% of

the annual target.

Decline in revenue collection was attributed to the following factors

despite of automation;

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(a) Revenue collection is not fully automated. The Committee

was informed that the following revenue streams are

automated;

i. Markets

ii. Parking fees

iii. Slaughter Houses

iv. Animal auction

v. Cess

vi. Stall rents

vii. Kiosks

The remaining revenue streams have not been automated.

(b) Leakages in revenue collection as some funds collected were

not being banked to the CRF Account as required by Section

109 of the PFM Act, 2012.

(c) Lack of organized enforcement to boost revenue collection.

(d) Lack of verified and authenticated register for Single

Business Permits.

(e) Printing and circulation of forged Single Business permits.

(f) Non-payment of wages to the agents commissioned to collect

revenue on behalf of the County government for the last two

years.

(g) Non remittance of revenue collected in 140 beaches across

the County to the County Treasury.

(h) Lack of clear inventory on the revenue streams.

(i) Poor record keeping by the revenue department.

(j) Mpesa Pay Bill Integrated into the revenue collection and

management system but does not provide self-service due to

the fact that it lacks USSD platform.

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(k) Lack of adequate infrastructure and facilities to the revenue

department both at the headquarters and Sub-County offices.

(l) Non-remittance of liquor licensing fees collected from all the

bars, clubs and restaurants across the County to the County

the County Treasury.

(m) Incompetence exhibited by the Officers in the County

Directorate of Revenue.

(n) Rampant spending at source of revenue collected especially

in hospitals and health facilities as a result of the failure by

the County Treasury to develop guidelines on management of

Appropriation in Aid (A.I.A).

River Bank Solutions in partnership with KCB is operating in 16

counties whose revenue collection is on the upward trend. Some

of the counties they are operating in include;

(a) Nakuru - Ksh.1,509,640,000 to Ksh.1,958,640,000

(b) Kajiado - Ksh. 446,390,000 to Ksh.731,060,000

(c) Meru - Ksh. 183,060,000 to Ksh.361,075,000

(d) Kisii - Ksh. 176,080,000 to Ksh.260,100,000

(e) Makueni - Ksh. 207,220,000 to Ksh.317,280,000

(f) Mombasa - Ksh.1,676,830,000 to Ksh.2,611,770,000

(g) Kericho - Ksh. 226,910,000 to Ksh.305,370,000

(h) Baringo - Ksh. 225,060,000 to Ksh.268,980,000

(i) Nyandarua - Ksh. 179,870,000 to Ksh. 208,750,000

(j) Nyamira - Ksh. 69,240,000 to Ksh. 120,300,000

(k) Kitui - Ksh.216,320,000 to Ksh. 324,840,000

iii. The County Executive established a taskforce to find out reasons

for declining revenue collection in the County. It comprised of the

following;

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1. Mr. Aguko Juma - CECM for Agriculture,Livestock, Fisheries

and Food Security department (Chairperson)

2. Mr. Nicholas Koriko - CECM for Finance, Economic Planning

and Service Delivery department

3. Mr. Eliud Otieno - Chief of staff

4. Prof. Richard Richard Muga-CECM for Health Services

department

5. Mr. Sam Owiyo –Director of Revenue.

However, it was noted that the taskforce had met only twice and

this last meeting was held in March, 2019. It seemed as if

members of the taskforce did not take their work seriously. One of

the members of this taskforce, Mr. Sam Owiyo (County Director of

Revenue) was alleged to be an impediment to enhance revenue

collection when he played a role in sabotaging the work of a

temporary enforcement team that was mandated by the taskforce

to enforce revenue collection across the County. He allegedly

colluded with some senior County officials to withdraw a vehicle

that was assigned to those enforcement officers.

Mr. Sam Owiyo (County Director of Revenue) further violated the

provisions of section 27 (3) (f) and (g) of the County Assemblies

Powers and Privileges Act, 2017 by intending to deceive and

mislead the Budget & Appropriations Committee by giving false

information when he was put to task to substantiate that his

department had helped to collect Ksh.96,249,396 which were

subsequently deposited in the County Revenue Fund Account

contrary to what was captured in the C.O.B. report of Ksh.58.27M

Section 27(3)(f) of the County Assemblies Powers and Privileges

Act, 2017 states as follows;

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‘’A person commits an offence where the person with intent to

deceive or mislead a County Assembly or a Committee, produces a

false, untrue, fabricated or falsified document’’

Section 27(3)(g) of the County Assemblies Powers and Privileges

Act, 2017 states as follows;

‘’A person commits an offence where the person willfully furnishes

a County Assembly or a Committee with information which is false

or misleading or makes a statement before a County Assembly or

Committee that is false or misleading’’.

iv. There is no accurate and factual data on the number of

commission agents mandated to collect revenue on behalf of the

County government. At some point a list prepared by the revenue

department and submitted to the above mentioned County Executive

taskforce had even names of permanent pensionable employees

including the Deputy County Director of Revenue. At that time, the

number of commission agents stood at around 703. This in essence

means that there could be several persons purporting to be

commission agents collecting revenue on behalf of other people and

not necessarily on behalf of the County government thus leading to

loss of millions of shillings. It was also noted that there are several

instances where these revenue collectors shared out whatever

amount of money they had collected in the evening hours. Some of

them would go around in the markets during the evening hours to

collect revenue from the traders without issuing the receipts hence

these funds could not be accounted for. The CECM – Finance is

mandated to designate collection agents of revenue in writing as per

Section 9 (2-9) of the Homa Bay County Finance to keep a true record

and monitor the performance of these agents.

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v. There is laxity among the concerned officials in ensuring that

revenue collection and management system operates fully. It was

observed that despite the fact that these officers have access to the

system that they can monitor real time, this hardly happens. River

Bank Solutions Limited in partnership with KCB supplied 300 POs

machines to be used by the revenue collectors. 290 of them were

meant to be in operation while 10 were to be on standby. By 4th

September, 2019, 282 POS were in operation but it was noted that

their users were not being keenly supervised to maximize revenue

collection. There were also allegations of the existence of illegal POS

being handled by unauthorized commission agents.

vi. Riverbank Solutions Limited in partnership with KCB was paid

initial set up fee of Ksh. 18M that kick started the supply, delivery,

installation, customization, commissioning and maintenance of

revenue collection and management system. POS were supplied at a

cost of Ksh.50,000 each. The Company has designated one of its staff

to assist the revenue staff in managing the system. However, to date

the Company is owed Ksh.9,566,589.60 for the work done since

2017. Formal requests have been made to the County Treasury to

pay the outstanding debt without success.

2. CONDITIONAL GRANTS

It was observed that the County received Ksh.261.03M as

conditional grants in the first nine months of the FY 2018/19.

This is out of the total annual budget allocation of

Ksh.924,234,016.

The received funds represent30% of the annual budget

allocation for Conditional grants. Kenya Urban Support

Program (KUSP) amounting to Ksh.119,361,500 had been

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received in full (100%). However, 8 types of Conditional grants

had been not been received at all (0%). In the C.O.B. report, the

following is the analysis of the Conditional grants:-

1. Leasing of medical equipment zero receipt out of expected

Ksh.200M.

2. Road Maintenance Fuel levy Ksh.88, 047,241 received out of

the expected Ksh.176,094,481.

3. National Agricultural and Rural Inclusive Growth Project

(NARIGP) zero receipt out of the expected Ksh.140,435,163.

4. Kenya urban Support Project Ksh.119,361,500 out of the

expected similar amount.

5. Transforming Health Systems for universal care project –

Ksh.15,955,798 received out of the expected

Ksh.85,820,342.

6. Kenya Resolution Support project – zero receipt of the

expected Ksh.49,500,526.

7. Rehabilitation of Village Polytechnics – zero receipt out of the

expected Ksh.46,675,000.

8. Kenya Urban Support Project Balance Brought Forward in FY

2017/2018 – zero recipt out of the expected

Ksh.41,200,000.

9. Danida Grant – Ksh.27,481,377 received out of the expected

Ksh.30,818,129.

10. Compensation for User Fee Foregone – zero receipt out of

the expected Ksh.22,185,346.

11. Sweden Agricultural Sector Development Support

Programme–zeroreceipt out of the expected

Ksh.21,091,658.

12. UN Habitat (Nyakwere Market Upgrade) – Ksh.10,

188,000.

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It was observed that delayed disbursement of Conditional

grants by the national Treasury impacts negatively in

implementation of development projects across the County as it

comprises of almost 40% of the development funds.

3. EXCHEQUER ISSUES

It was noted that in the first nine months, the Controller of

Budget had approved withdrawal of Ksh.4.53 Billion from the

County Revenue Fund Account which represented 58.6% of the

approved budget. The approved withdrawal by the Controller

of Budget ought to have been at 75% of the approved budget.

The Committee was concerned that out of the approved

withdrawal of Ksh.453 Billion, only Ksh.676.6 Million were

meant for development expenditure.

It is important to note that by the time the C.O.B report for the

nine months was published, County Supplementary Budget had

not been approved to appropriate Ksh.744,200,675 brought

forward from FY 2017/18.

This implies that the percentage of the approved withdrawal

was lower than 58.6% as indicated above. Slow approval for

withdrawal of development funds derails implementation of the

County Budget and subsequently leads to actualization of

development activities at a very slow rate thus leading to

discontentment by members of the public.

4. OVERAL EXPENDITURE REVIEW

It was noted that the County spent Ksh.3.89 billion on both

recurrent and development activities out of the Ksh.4.53

Billion approved by the Controller of Budget to be

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withdrawn from the County Revenue Fund Account. This

represented 85.9% of the total funds released from the

CRF Account and excluded outstanding commitments as at

31st March, 2019 which amounted to Ksh.620.76 Million

for development activities. By 31st March, 2019 the

recurrent expenditure represented 68.7% of the annual

recurrent budget while development expenditure

represented 12.1% of the annual development budget. It

was therefore noted that for the first nine months,

absorption rate for development expenditure was very low

as under normal circumstances it ought to have been at

75% and not 12.1% as highlighted in figure 3.31 page 66 of

the Controller of Budget report.

5. ANALYSIS OF REVENUE EXPENDITURE

As at 31st march, 2019 recurrent expenditure of Ksh.3.42

billion comprised of Ksh.2,398,910,000 incurred on

personnel emoluments and Ksh.1,071,640,000 incurred

on operations and maintenance. Operations and

maintenance was categorized as follows:-

i. Domestic Travel and Subsistence– Ksh.251,780,000

(Ksh.67,170,000 by the County Assembly).

ii. Purchase of medical drugs – Ksh.110,000,000

iii. Other Capital grants and transfers – Ksh.107,000,000

iv. Insurance Costs – Ksh.67,620,000

v. MCAs Sitting Allowances – Ksh.59,580,000

vi. Bursary Fund – Ksh.51,500,000

vii. Hospitality Supplies & services – Ksh.45,210,000

viii. Training expenses – Ksh.44,830,000

ix. Legal Fees – Ksh.24,870,000

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x. Ward office expenses – Ksh.20,450,000

6. ANALYSIS OF DEVELOPMENT EXPENDITURE

As at 31st March, 2019 the development expenditure was

Ksh.470,710,000 which represented 12.1% of the annual

development expenditure budget of Ksh.2.76 billion. Table

3.21 in page 68 of the Controller of Budget gives a summary of

development projects and expenditure.

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4.0 COMMITTEE RECOMMENDATIONS

1. Mapping of revenue streams should be finalized by the Finance

department for ease of final input in the automation within

three months and the same be captured in the revenue

automation system to ensure accurate revenue estimates.

2. The integration of the Revenue Automation System with the M-

Pesa platform by acquiring the relevant USSD number to fully

operationlize the Pay Bill number within three months. This

will reduce cash payments and improve inflow of revenues to

the County Revenue Fund Account.

3. There is need for adequate supply and distribution of

infrastructure at the Sub-County Offices to enhance

automation.

4. The County Treasury must develop a revenue automation Policy

to address any shortcomings such as supervisors who abdicate

their roles by giving their juniors their password to generate

sensitive reports. The policy will also define clear roles and

responsibilities as well as sanctions to various users of the

system.

5. There is need to urgently criminalize handling of cash during

revenue collection as cashless platform is what should be

allowed.

6. The Enforcement unit should be set up within three months to

provide adequate support to revenue collection points and

individual collectors. The Homa Bay County Inspectorate and

Enforcement Act, 2018 must be operationalized as provided in

Section 10 (1,2) of the Homa Bay County Finance Act.

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7. The issue of under banking which is rampant in the revenue

collection should be criminalized and or appropriate sanctions

taken against the offenders. There is need to bank all revenue

intact into the CRF Account and discourage use of cash which

is rampant especially in the Health department. The County

Treasury must issue guidelines on the Appropriation in Aid

limits to all departments and ensure that all excess funds are

banked in the County Revenue Fund Account.

8. There is need to adequately train staff in the revenue chain to

effectively understand and operate the revenue automation

system. Traders and the entire business community should

also be sensitized on the benefits of the system.

9. The internal Audit office must ensure adherence to the financial

regulations on revenue management and help in enforcement

of such standards.

11. There is need for the County to hire/train its own registered

Prosecutors to ease cases of litigation of revenue theft,

pilferages and related offences.

12.The leadership of the Homa Bay Beach Management Units

(BMUs) in the County should be consulted by the Task force to

reach an amicable strategy for realizing the revenues along

the beaches.

13. The County Treasury must verify all the revenue collection

agents’ appointments to ascertain all revenues collected since

their engagement and also pay their two years accumulated

commissions. It is important to carry out a cost-benefit

analysis to provide an insight on the viability of these

commission agents in revenue collection.

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14. The CECM for Finance must reorganize the entire Revenue

Directorate and carry out a suitability test of all officers

involved in revenue collection and only retain the productive

officers. All officers found culpable must be adequately

reprimanded and or deployed.

15. The County Treasury must ensure timely disbursement of

funds to entities for which money has been appropriated to

correct the low absorption rate of development funds in the

County.

16. The delay in release of Conditional grants which accounts for

40% of the County development budget has affected project

implementation and given the County a negative image in the

eyes of the public. The County Treasury must put in place

better mechanisms within its mandate to ensure timely

disbursement of these funds.

Timely information must be given to all stakeholders on the

receipt, management and reporting of grants as required by

Section (139) of the PFM Act, 2012.

17. Upon adoption of the recommendations herein above, the

County Executive Committee Member for Finance must ensure

compliance within four (4) months as per Section 149 (3&4) of

the PFM Act, 2012.

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5. 0 PRAYER

The Budget and Appropriations Committee prays that this

Honourable House do adopt this report.

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