Background

The Institute is dedicated to the development and regulation of the accountancy profession in Kenya so as to enhance its contribution and that of its members to national economic growth and development. Given its mandate, it continuously engages with key stakeholders in the public and private sectors including the National Government Ministries, Department and Agencies, the 47 County Governments, the Judiciary, the Legislature, regulatory agencies, professional bodies and the private sector players in Kenya. In addition, the Institute has been instrumental in setting up and advancing the profession in East Africa through the East Africa Community Institutes of Accountants (EACIA) and Africa at large through the Pan-African Federation of Accountants (PAFA).

The Institute establishes an Accountability Index to assess public finance management and prudent management of public resources at County and National level. The initial phase will commence with assessment of counties and ranking aimed at supporting public finance management systems for better service delivery.

In Kenya, Fiscal discipline is clearly stipulated both in the Constitution (2010) and the Public Finance Management Act, 2012. Article 201 of the Consti tution, outlines Principles of Public Finance in Kenya.

Furthermore, Article 203(e) of the Constitution identifies fiscal capacity and efficiency of County Governments as a criterion for determining the equitable share. Equally, in formulating recommendations relating to the financing of the County Governments, the Commission on Revenue Allocation (CRA) shall consider fiscal responsibility (Article 216(3 c). Section 107 of the Public Finance Management Act, 2012 outlines the principles of fiscal responsibility in relation to a county government as:

  1. The county government's recurrent expenditure shall not exceed the county government's total revenue.
  2. Over the medium term a minimum of thirty percent of the county government's budget shall be allocated to the development expenditure.
  3. The county government's expenditure on wages and benefits for its public officers shall not exceed a percentage of the county government's total revenue as prescribed by the County Executive member for finance in regulations and approved by the County Assembly.
  4. Over the medium term, the government's borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure.
  5. The county debt shall be maintained at a sustainable level as approved by county assembly.
  6. The fiscal risks shall be managed prudently; and a reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future.

The Problem

Strong fiscal discipline builds up financial management capacity which contributes to sound governance at the county levels. Given limited resources, expenditure claims would result in chronically high deficits and increasing debt and tax burdens if governments at both the national and county levels are not fiscally restrained. Lack of fiscal discipline at the local level and perverse fiscal behavior by county governments in the case of Kenya could lead to macroeconomic risks.

Unsustainable fiscal policies can jeopardize the country’s international creditworthiness and macroeconomic stability. This poses the danger of increasing the cost of future borrowing with the ultimate effect of deepening investor confidence. Therefore, failure to maintain fiscal discipline during implementation of county government budgets could lead to imposition of in-year expenditure cuts and disruption of the county government services.

It is worth noting that the current Revenue Sharing Basis left out the component of fiscal responsibility which is a key factor in measuring financial management at the county government level.

It’s against this background that the Institute is developing an accountability index dubbed ICPAK Kuwajibika index (ICPAK-KI) which borrows from already successful similar projects. The projects benchmarked against include; Public Expenditure and financial accountability (PEFA), the Institute of Chartered Accountants of Nigeria (ICAN-AI), Tax Administration Diagnostic Assessment Tool (TADAT), Public Investment Management Assessment (PIMA) and Open Budget Survey. Further, the Index will benefit from the Institute’s Financial Reporting (FiRe) award analysis.