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12.6Expenditure Control - Letter of transmittal of the interim report on devolved government

12.6Expenditure Control

12.6.1Expenditure Controls Framework


Figure 12-5 shows the expenditure control framework, indicating the funds expected to be withdrawn from the Revenue Fund account and the control mechanism of the spending.

Article 207 of the constitution provide for the establishment of County Revenue Fund for each county government, into which all money raised or received by or on behalf of the county shall be paid except money excluded by an Act of Parliament. The conditions given for withdrawals from this Fund can only be made it is a charge against provided for by an Act of Parliament or by legislation of the county, and is authorized by an appropriation by legislation of the county. Secondly the money can only be withdrawn from the fund only with the approval of the Controller of Budget.

Article 190 and Article 225 require all the county governments to maintain proper and adequate financial management systems and to be fully accountable to the public on the expenditure and utilisation of the funds of the county. This whole process is graphically explained in the expenditure control framework shown as figure 12-5. The expected system as explained above in the chart will be as follows:

  1. All the county funds as explained in the revenue section above will all be consolidated in the County Revenue Fund. The fund will contain own revenues and transfers from the national revenues, grants and borrowings.(Move it to the revenue fund)

  2. The county assemblies will vote for the budget as explained in the last section and the necessary Appropriations approved to facilitate expenditure by the various departments of the county.

  3. It is anticipated that the county treasury will seek quarterly approvals from the Controller of Budget for withdrawals from the revenues fund based on the needs and functions being undertaken by the various departments.

Figure 12.: Financial Control Systems in County Governments





  1. The treasury will then disburse the funds to the departments for expenditure as per the appropriation act and the necessary approved project proposals which informed the original budget. As noted above in the budget section it is anticipated that the public participation will be part of the evolution of the budget in accordance with the good principles of project cycle management.

  2. In every county there will be the county accountant general within the treasury who will maintain up to date financial records of all funds withdrawn from the revenue fund and expenditure incurred as per the appropriation act. Details of the financial and accounting systems to be maintained in the county are outlined below.

  3. At the expenditure level illustrated in the diagram above, the community will further be involved in monitoring the project in accordance with the PCM principles as outlined in the expected PCM regulations,

Additional controls will be exercised through the internal audit function which is explained in the section below. Important control measure shown in During the county consultations the communities raised various issues which were relevant to the planning, expenditure and revenue linkages, they would want to see implemented at the county level:

  1. The county governments should consistently develop their medium and long term plans that will guide them in development of their counties.

  2. There is need to embrace ICT as a tool for planning.

  3. proposal that county government budgets should provide for a minimum of 70% development expenditure, a maximum of 20% personnel emoluments and a minimum of 10% operation and maintenance.

  4. The budgeting should be preceded by socio-economic needs assessment, resource mapping and development prioritization.

  5. Priority should be given to the needs of the people and that grants whether conditional or non-conditional should be project targeted

  6. Grants allocations should be based on sound fiscal policies and successful past project implementation

  7. For a county to receive funds or grants from the National Government, or have the National Government guarantee loans, the county should have established an independent county revenue authority as supervisory body for management of such funds. The authority to be composed of community stakeholders elected but not handpicked by the governor.

  8. the chart is the independence of the internal audit as it will require to report to an independent audit committee.

12.6.2Budgetary Controls


Planning and budgeting are key tools for financial controls depending on how they are institutionalized in the county governance systems.

Article 225 (2) provides that Parliament shall enact legislation to ensure both expenditure control and transparency in all governments and establish mechanisms to ensure their implementation.

The public expressed their wish during the county consultation (see the box) that proper budgetary control mechanisms be implemented to ensure that funds are only used for the purposes they were budgeted for and that the three Es (efficiency, effectiveness and economy) of value for money are achieved. SWAp sector framework provides measures for monitoring and evaluation which constitute one of the budgetary controls options to achieve expenditure controls. Secondly the principle of using SWAp process as a budgetary control measure could be enhanced by incorporating the public participation in monitoring and evaluation through the PCM/PC systems described below. Article 201 (a) provides for openness, accountability and public participation in financial matters.

12.6.2.1Public Oversight Role
Community participation (PC) has been used to some extent in the local government sector as a tool for monitoring community based projects developed by the local authorities. However project cycle management (PCM) as a tool for monitoring and evaluation has not been practiced in Kenya. Available literature shows that the combined PCM/CP as a tool for monitoring is very effective in project expenditure controls.

However despite the introduction of LASDAP incomplete or irrelevant projects, commonly referred to as ‘white elephants’, have been some of the most glaring symptoms of undelivered services in local authorities in the country. For nearly one decade, massive efforts have been expended towards the implementation of priority projects selected through LASDAPs. By 2009 more than Ksh. 35.5 billion had been spent on projects through the disbursement of LATF funds to Local Authorities in the past 10 years, with glaringly lack of service delivery from this fund. Project completion rates in Local Authorities have been dismal despite the enormous amount of taxpayers’ money spent.

Many reasons have been advanced for the failure of LASDAP projects in local authorities. Some of the most commonly cited factors include corruption, lack of goodwill for LASDAP, lack of capacity in terms of skills and competencies and weak institutional structures in Local authorities; delay in the disbursement of LATF; inadequate procurement systems; and bad governance (MoLG 2008). A weak commitment to implement policies combined with poor service delivery characterizes many Local Authorities, undermining their ability to successfully complete projects that can positively impact the lives of poor people within their jurisdictions.

Despite all the above weaknesses and the perceived failure of LASDAP, the major problem as was established from the lessons learned through the RPRLGSP was lack of adequate project management systems. The programme proved that if project cycle management (PCM) and community participation (CP) were adequately implemented with a well-designed process of monitoring and evaluation, success rate in project implementation can be very high.

PCM is defined as the application of knowledge, skills, tools and techniques to project activities, to meet specific scope, time, cost and quality goals of projects147 (Project Management Institute, 2008). PCM is programmed through a project cycle and this cycle is a logical flow of various project stages or project components broken down into a logical sequence of activities. This phase or stage by stage approach stimulates people to share the same perceptions, speak the same language and use the same tools and formats to design and implement a project. Typically, the project cycle comprises seven standard project stages, phases or activities, arranged in a logical sequence to accomplish a project’s goals or objectives, and include:

Before finalization of this section a number of issues will require to be considered:

  1. How is MTEF, SWAp and PCM used in other countries as planning and budgetary control tools

  2. Challenges of MTEF and SWAp operationalization in Kenya will need to be fully appreciated

  3. Need to get Treasury and Ministry of Planning views on capacity to undertake full implementation of the tools

  4. The importance of monitoring demonstrated by RPRLGSP whereby out of the 65 projects funded under the PRF, 97% had their construction completed and 91%had started operation. This compares with the Local Authorities Transfer Fund (LATF), projects as given by the National Taxpayers Association (NTA) of completion rate estimated at around 45% and an operation rate of 31% (National Taxpayers Association (NTA) 2009).
12.6.2.2Recommendations
The following recommendations are proposed to ensure to ensure the planning and budgeting and revenue linkages are entrenched in the policy and legislations to provides adequate financial controls:

  1. The law to be developed as proposed under Article 225 (2) should incorporate budgetary controls operations which will facilitate monitoring and evaluation

  2. The law should incorporate PCM/CP as tools for monitoring and evaluation through community participation.

12.6.3Procurement/ Supply Chain Management

12.6.3.1Constitutional Provisions and Key Issues in the Current Practice and Law
The Public Procurement and Disposal Act, 2005 which came into operation on 1st January, 2007 underplays as its major objective being to establish procedures for procurement and the disposal of unserviceable, obsolete or surplus stores and equipment by public entities to maximise economy and efficiency. To achieve this overall objective the act was expected to promote competition and ensure that competitors are treated fairly; to promote the integrity and fairness of those procedures; to increase transparency and accountability in those procedures; and to increase public confidence in those procedures. In addition the Act was expected to be a major catalyst in promotion of local industry and economic development.

The Government of Kenya has been implementing the Public Financial Management Reform Programme (PFMR), managed by the Public Financial Management Reform Secretariat in the Ministry of Finance. One of the key pillars of the PFMR is procurement with the objective to promote transparent and accountable procedures in this area within the public sector. As part of this reform effort and through the Public Procurement and Disposal Act 2005, the Directorate of Public Procurement and Public Procurement Oversight Authority (PPOA) has been set up to implement procurement reforms. The new legal and policy framework has continued to reform procurement practices in central and local governments.

However, despite these well-designed procurement reforms and regulations, malpractices associated with procurement in the public sector are rampant. Some of the most notable malpractices based on the lessons learned by The Rural Poverty Reduction and Local Government Support Programme (RPRLGSP) include:

Other problems which have been encountered are delay in procuring of goods and services due to protracted period set in the act. For example it requires a minimum of 90 days to procure an international related services or goods. Even for local items the bottlenecks are many to the extent that a basic procurement can take as long as one month even for items of low value.

The Constitution has provided for some amendments to the Procurement and Disposal Act. Article 227 provides that when a State organ or any other public entity contracts for goods or services, it shall do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective, which emphasizes some of the objectives in the current legislation. The Constitution has provided that an Act of Parliament shall prescribe a framework within which policies relating to procurement and asset disposal shall be implemented and may provide for all or any of the following:

  1. categories of preference in the allocation of contracts;

  2. the protection or advancement of persons, categories of persons or groups previously disadvantaged by unfair competition or discrimination;

  3. sanctions against contractors that have not performed according to professionally regulated procedures, contractual agreements or legislation; and

  4. sanctions against persons who have defaulted on their tax obligations, or have been guilty of corrupt practices or serious violations of fair employment laws and practices.

The new Constitutional provisions will undoubtedly enhance the involvement of the Kenyans in supply of goods and services especially where foreigners have benefited more than the locals. However keys issues like capacity, period of procurement and other bottlenecks will require to be addressed.

Legal opinion has been sought from legal practitioners to establish if procurement law can be established for county governments separate from the national procurement law. Article 227 of the constitution provides that Parliament shall enact a law to prescribe a framework within which policies relating to procurement and asset disposal shall be implemented. This means that it is anticipated that the country will have one unifying law to govern procurement and disposal for the two levels of government. In our view this is well acceptable as long as the law provides for a system that is fair, equitable, transparent, competitive and cost-effective.

For these principles to be achieved and maintained the following key proposals are recommended for either inclusion in the proposed Act of Parliament or in policy developed to ensure that operations of the procurement is efficient, effective and provides economy, and more so as a tool for financial controls:

  1. The procurement law will require to be amended to incorporate the new constitutional provisions as indicated above;

  2. The thresholds provided in the First schedule of the Regulations need to be revised periodically to cater for any problems noted in the system

  3. There will be need for each of the counties to establish procurement departments in line with the constitution and the new legislation

  4. There is need for capacity building to ensure that there is adequate capacity at the county level

12.6.4Role of Controller of Budget


Article 228 of the Constitution provides for the creation of the office of the Controller of Budget. The function of the office is to oversee the implementation of the budgets of the national and county governments by authorizing withdrawals from public funds. The Controller of Budget shall ensure that any withdrawal from the public fund is authorized by law. The Controller is also required to submit to each house of parliament a report on the implementation of the budget of both the national and county government. The office therefore acts as a form of control in the areas of Budget, Expenditure, Income and Cash.

While the constitution has provided that the controller shall be required to report to both houses of parliament, it is important that a mechanism be created to have the report disseminated to the public in order that they can effectively participate in the affairs of the county and in particular discharge public oversight from an informed position. This promotes the principle of openness and accountability.
12.6.4.1Issues

  1. Report to county assembly- there is need to have the controller also report to the county assembly. This will enhance the capacity of the assembly to play its oversight role

  2. One of the issues that require to be addressed is how regular and in what amounts the Controller of Budget will be giving the authority for withdrawals of funds by the county governments. There are several options that can be considered:

    • One of the options is to approve withdrawal once at the beginning of the financial year based on the approved budget of the county government

    • Another option is to design a mechanism for regular approval of withdrawals. The periods can either be monthly, quarterly or semi-annual. In this case therefore the county governments will be required to prepare their budget implementation to match the regular flow of funds. This option assumes the amounts approved for withdrawal are of equal instalments

    • Another option is to approve the withdrawals regularly but based on the cash flow projections presented and approved with the budget

It is recommended that the Controller of Budget approves withdrawal of funds on a quarterly basis, based on the approved budget and submitted statement of cash flow requirements that is aligned to the budget. The approval should be granted not less than 14 days before the beginning of the period it relates to. A mechanism must be created to quickly resolve such stand offs so as to ensure that service provision by the county governments does not suffer.

Also it is recommended that an Arbitration Committee (with representatives from both the county government and the office of the controller of budget) be established that will advise the Controller of Budget on the best way to resolve the dispute.

The other aspect for consideration is the requirements that need to be met before the authority can be given for withdrawal of funds. It is important that this information be clearly stipulated in order to ensure that as much as possible objective criteria are used in evaluating a request by a county government for withdrawal of funds. Secondly there is need to develop the modalities or recourse that county government will have in the event they are denied an authority to withdraw while they are convinced that they have met all the conditions required by law. The same applies where the authority is delayed

A mechanism must be created to quickly resolve such stand offs so as to ensure that service provision by the county governments does not suffer. Considering the above, it is recommended that approval be given based on the following

  1. approved budget by the county assembly

  2. county appropriation bill

  3. approvals for withdrawal given quarterly and based on the cash flow as prepared and approved with the budget

  4. Expenditure to be based on items indicated in the application and which tie in with the budget.

  5. Report by the county of utilization of the previous approval

12.6.5Role of Accounting Officer


The office of the Accounting Officer of the County Government is created by Article 226 which states that there shall be an Act of Parliament that shall provide for:

  1. the keeping of financial records and the auditing of accounts of all governments and other public entities, and prescribe other measures for securing efficient and transparent fiscal management; and

  2. the designation of an accounting officer in every public entity at the national and county level of government.

At sub article (2), it is indicated that the accounting officer of a national public entity is accountable to the National Assembly for its financial management, and the accounting officer of a county public entity is accountable to the county assembly for its financial management.

That Article therefore, establishes the office of the Accounting Officer provides the functions and clarifies the reporting requirements. The Article further provides under sub article (5) that should a holder of a public office, including a political office, direct or approve the use of public funds contrary to law or instructions, the person will be liable for any loss arising from that use and shall make good the loss, whether the person remains the holder of the office or not.

According to The Comptroller & Auditor General (Amendment) Act 1993 of Ireland, the Accounting Officer is defined as the “Officer referred to in Section 22 of the Exchequer and Audit Departments Act, 1866 to whom the duty of preparing the Appropriation Accounts of a Department is assigned…”. The Act indicates the principle role of an Accounting Officer as to safeguard public funds and ensure propriety of expenditure of the funds. The officer should ensure that all relevant financial considerations are taken into account where they concern the preparation and implementation of policy proposals relating to expenditure or income. The officer should also ensure economy and efficiency in the use of resources and design systems, practices and procedures used to evaluate effectiveness.

The Local Government: Municipal Finance Management Act, of South Africa, 2003 stated that the Fiduciary duties of accounting officer as indicated below
12.6.5.1Issue

Designation of Accounting Officer



One of the issues is to identify who will be designated as the Accounting Officer. Article 226(1)(b) requires the designation of an accounting officer in every public entity. Article 179(1) of the constitution vests the executive authority of the county to the executive committee that is headed by the Governor. It however does not specifically designate any officer as the Accounting Officer. The National Government structures designate the Cabinet Secretary for Finance as the Accounting Officer. The Ireland Act states that the person designated as the Accounting Officer is one “to whom the duty of preparing the Appropriation Accounts of a Department is assigned…” Mirrored against the National Government structures, it is recommended that the County Secretary for Finance be designated as the Accounting Officer for the County Government.

Role and responsibility of Accounting Officer



The other issue to be addressed is the role and responsibility of the Accounting Officer. Article 226(2) requires the keeping of financial records and the auditing of accounts of all governments and other public entities. There is a provision for national legislation to prescribe other measures for securing efficient and transparent fiscal management. It is recommended that the other measures to be prescribed should include:

12.6.6Oversight Role of the County Assembly


Article 185 provides that the legislative authority of a county is vested in, and exercised by, its county assembly. Sub-article (2) provides that a county assembly may make any laws that are necessary for or incidental to, the effective performance of the functions and exercise of the powers of the county government under the Fourth Schedule. In sub article (3) the county assembly is specifically given oversight role over the executive and any other county executive organs, while respecting the principle of the separation of powers.

Sub article (4) states that a county assembly may receive and approve plans and policies for—

  1. the management and exploitation of the county’s resources; and

  2. the development and management of its infrastructure and institutions.

Article 224 states that on the basis of the Division of Revenue Bill passed by Parliament under Article 218, each county government shall prepare and adopt its own annual budget and appropriation Bill in the form, and according to the procedure, prescribed in an Act of Parliament. Article 226 (2) provides that the accounting officer of a national public entity is accountable to the National Assembly for its financial management, and the accounting officer of a county public entity is accountable to the county assembly for its financial management.
12.6.6.1Concept of Oversight
Oversight can be defined as watchful care. This approach has proven to be an effective technique in holding the executive to account and influence the executive branch. The concept of oversight contains many aspects which include political, administrative, financial, ethical, legal and strategic elements.

In the United States of America, congressional oversight prevents waste and fraud; protects civil liberties and individual rights; ensures executive compliance with the law; gathers information for making laws and educating the public; and evaluates executive performance. The functions of oversight are:

  1. To detect and prevent abuse, arbitrary behaviour or illegal and unconstitutional conduct on the part of the government and public agencies. At the core of this function is the protection of the rights and liberties of citizens.

  2. To hold the government to account in respect of how the taxpayers’ money is used. It detects waste within the machinery of government and public agencies. Thus it can improve the efficiency, economy and effectiveness of government operations.

  3. To ensure that policies announced by government and authorised by Parliament are actually delivered. This function includes monitoring the achievement of goals set by legislation and the government’s own programmes.

  4. To improve the transparency of government operations and enhance public trust in the government, which is itself a condition of effective policy delivery.
12.6.6.2Structures for Oversight
The US Congress's oversight function takes many forms:

The issues to be considered are the functions and organs of oversight. The oversight function of the county assembly shall encompass the following: political, administrative, financial, ethical, legal and strategic elements. The function shall seek to:
12.6.6.3County Assembly Oversight Organs
The structures /organs that the county assembly shall utilize for oversight will include:

County Assembly Secretariat



There is need to establish a secretariat for the County Assembly that will be responsible for collecting and collating information and producing reports to help the Assembly in decision making.

12.6.7County Internal Audit Function

12.6.7.1Definition
What Kenyans said during the consultations:

  1. Internal audits should be undertaken on quarterly basis and be made public as a basis for community monitoring and evaluation.

  2. For a county to receive funds or grants from the National Government, or have the National Government guarantee loans, the county should have established an independent county revenue authority as supervisory body for management of such funds. The authority to be composed of community stakeholders elected but not handpicked by the governor.

  3. Article 225 (2) provides that Parliament shall legislate to ensure that there is both expenditure control and transparency in all governments. Internal auditing is one of the established systems of providing the required financial controls in institutions. According to the definition provided by the Institute of Internal Auditors (IIA), Internal Auditing is an independent, objective assurance and consulting activity designed to add value and improve an entity’s operations. It helps an entity accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

Based on the county consultations indicated in the box above, it was clear that Kenyans would prefer there to be established an internal audit mechanism to consistently provide an oversight to the usage of public funds.
12.6.7.2Historical Background of internal Audit
The Local Government Act, CAP 265, do not explicitly provide for the establishment of internal audit functions in Local Authorities, besides in the Third Schedule, which defines the powers, duties and responsibilities of certain officers, including the Chief Financial Officer (the Treasurer). The Schedule states, under clause No. 10, that where an internal audit department is maintained by the local authority, the Treasurer shall be responsible and shall promptly report to the committee responsible for finance any irregularities discovered in the course of such internal audit.

The reporting line to the Treasurer did not enable internal audit functions to have the level of independence required for performance of such duties. Consequently, the Minister for Local Government, through Legal Notice Number 83 of 29th May 2000, published in the Kenya Gazette Supplement No. 43 of 30th June 2000, amended clause No. 10 in Part II of the Third Schedule of the Local Government Act to read that every local authority shall establish Internal Audit Unit independent from the Treasurer. The Internal Auditor shall be responsible therefore and shall promptly report to the committee concerned and the Finance Committee any irregularities discovered in the course of the internal audit.
12.6.7.3Current Operations of Internal Audit Function in Local Authorities
The internal audit functions in Local Authorities currently draw their authority from the Treasury Circular No. 16 / 2005, titled ‘Establishment and Operationalization of Audit Committees in the Public Service’ issued by the PS, Treasury, on 4th October 2005 with an effective date of 31st October 2005; and the Local Authority Financial Management Regulations, 2007,

The Treasury Circular states in part that in order to enhance oversight, governance, accountability and transparency in the Public Service, the Government has enforced the establishment and strengthening of audit committees in all ministries, departments, state corporations and local authorities. The audit committees will have the responsibility for independent in-depth review of the framework of internal control and of the internal audit process.

The Local Authority Financial Management Regulations, 2007, defines “Internal Audit” as an independent review function conducted by qualified and appointed individual(s) for the purpose of ensuring compliance with internal controls, laws and regulations, and the general assessment of performance across the local authority. The internal auditor is defined to mean a person charged with the independent review, appraisal, inspection and monitoring function established by the Council, pursuant to the Act, to examine and evaluate the whole system of internal controls established by the Council, including the operational, financial and accounting activities of the Council. Therefore the regulations provide the following functions for the internal audit functions:

  1. The Council shall establish an Internal Audit department, reporting to the Audit Committee as an independent, non-operational unit of the local authority, separate and apart from the Treasurer’s department.

  2. The Council shall cause to be employed as head of the Internal Audit department an Internal Auditor who meets the qualifications and requirements set out in the scheme of service applicable to local authority staff from time to time, and who shall carry out internal audits evaluating the whole system of controls, financial and otherwise, established by the Council in order to provide reasonable assurance of the local authority’s operational effectiveness and efficiency, compliance with laws and regulations, the safeguarding of assets against unauthorised use or disposition and the maintenance of proper accounting records, and reliability of financial information.

  3. The duties of the Internal Auditor shall be:

    • Conduct regular and continuous internal audits of the financial transactions of the local authority and report any irregularities and/or inconsistencies to the Audit Committee, with copies to the Clerk, the Treasurer and the heads of department;

    • Provide the necessary reports and support to Ministry of Local Government Inspectors, to the Controller and Auditor-General, and to any other outside auditors, with the concurrence of the Clerk, in regard to other external audits and investigations of the local authority; and

    • Have unrestricted access to all establishments and financial records of the Council, and shall be entitled to require such explanations, as he/she considers necessary to satisfy himself/herself of the correctness of any matter under examination.
12.6.7.4Revised Treasury Guidelines on Roles and Responsibilities of Internal Auditors
The PS, Treasury has recently issued Circular No. 4/08, Strengthening of Internal Audit Function in Government Service. The broad framework of the duties and responsibilities of internal auditors set by this circular include:

  1. Conduct systems audits to provide reasonable assurance that key Local Authority operating systems such as cash management, procurement, transport, revenue/AIA, assets management etc. are functioning effectively and that the Government’s strategic and operational objectives are being met consistently, efficiently and in a cost-effective manner.

  2. Conduct Risk Based Audits (RBA) to provide reasonable assurance that risk management processes and structures put in place by management are functioning effectively and recommending appropriate risks mitigation measures where necessary.

  3. Provide consulting services to Local Authorities in developing appropriate risk management, control and governance frameworks and enhance the level of assurance provided to management.

  4. Conduct Value for Money (VFM)/performance audits geared towards economic, effective and efficient use of public resources and sound management of public expenditure with the view to enhancing value for tax payers’ money.

  5. Conduct IT supported audits, including payroll audits, with the view to enhancing internal controls in computerized environments.

  6. Review, analyse, and evaluate budgetary allocation and periodical budgetary performance reports submitted to Treasury by line Ministries to ensure that the allocation and expenditure patterns are in line with the ministry’s strategic objectives and that there is evidence of prudent and effective utilization of budgetary resources.

  7. Review and evaluate Annual Appropriation Accounts, fund Accounts and Statements of Assets & Liabilities before they are submitted to Controller and Auditor General by Accounting Officers.

  8. Verify and analyse periodical financial returns that are required to be submitted to the Ministry of Local Government and/or Treasury by Local Authorities from time to time [such as pending bills returns, expenditure returns, imprest returns, revenue and AIA returns, staff returns and vehicle returns].

  9. Review and evaluate documents used in initiating commitments such as AIEs, LPAs, LSOs and contract agreements etc.

  10. Provide secretarial support to the Local Authority Audit Committee.

  11. Carry out investigations/special audits on irregularities identified or reported and report on any wastage of public funds resulting from decisions which may not have been well-planned; decisions made without being cost conscious; and /or general misuse or misappropriation of public resources and other Local Authority assets.

  12. Conduct periodic Public Expenditure Tracking Surveys (PETS) on specific programmes in different sectors to ascertain economic, effective and efficient utilization of resources and overall quality of public expenditure management.

  13. Tracking of grants and other budgetary resources issued by the exchequer to the Local Authority to ensure that the grants are utilized for intended purposes.

  14. Carry out forensic audit where required and appropriate.

  15. Follow up outstanding audit issues to confirm corrective/remedial action is taken on reported audit findings and recommendations.
12.6.7.5International Practices on Internal Audit Function
Code of Practice for Internal Audit in Local Government in United Kingdom148sets out four main principles to be observed for internal auditors:

  1. Integrity - All internal auditors should demonstrate integrity in all aspects of their work. At all times the integrity and conduct of each internal auditor must be above reproach. The relationship with colleagues, internal clients and external contacts should be one of honesty, truthfulness and fairness. This establishes an environment of trust and confidence that provides the basis for reliance on all activities carried out by individual auditors and the internal audit team.

  2. Objectivity - Objectivity is a state of mind that has regard to all considerations relevant to the activity or process being examined without being unduly influenced by personal interest or the views of others. The internal auditor must be impartial in discharging all responsibilities; bias, prejudice or undue influence must not be allowed to limit or override objectivity. Internal auditors must act objective and be perceived as doing so, and must avoid any conflict of interest arising either from professional or personal relationships or from pecuniary or other interests in an organisation or activity subject to audit; resist undue influences that could restrict or modify the scope or conduct of the work or significantly affect the content or judgments in the internal audit report.

  3. Competence - Internal auditors should apply knowledge, skills and experience to their work, seeking additional advice and support where necessary to ensure work is carried out competently. They should obtain sufficient knowledge of the organisation’s aims, objectives, risks and governance arrangements; the purpose, risks and issues of the service area; the scope of each audit assignment; relevant legislation and other regulatory arrangements that relate to the audit.

  4. Confidentiality - Internal auditors must safeguard the information they receive in carrying out their duties. Any information gained in the course of audit work should remain confidential, without limiting or preventing Internal Audit from reporting within the organisation as appropriate. There must not be any unauthorised disclosure of information unless there

CIPFA also provides that for internal audit services to work properly in the public sector, independent audit committees must be put in place. The purpose of an audit committee is:

  1. to provide independent assurance of the adequacy of the risk management framework and the associated control environment

  2. to provide independent scrutiny of the authority’s financial and non-financial performance to the extent that it affects the authority’s exposure to risk and weakens the control environment

  3. to oversee the financial reporting process.

The South Africa Municipal Financial Management Act 2004 provides that each municipal entity must have an internal audit unit. The responsibilities for the unit are:

  1. prepare a risk-based audit plan and an internal audit program for each financial year;

  2. advise the accounting officer and report to the audit committee on the financial year;

  3. implementation of the internal audit plan and matters relating to internal audit, internal controls, accounting procedures and practices, risk and risk management, performance management, loss control, and compliance with this Act, the annual Division of Revenue Act and any other applicable legislation.

The Act also provides that each Municipal entity must set up an audit committee. The Act provides that an audit committee is an independent advisory body. It’s the responsibility in advising the municipal council, the political office-bearers, the accounting officer and the management staff of the municipality, on matters relating to internal financial control and internal audits; risk management; accounting policies; the adequacy, reliability and accuracy of financial reporting; performance management; and effective governance.

The members of an audit committee must be appointed by the council of the municipality or, in the case of a municipal entity, by the council of the parent municipality. One of the members, who is not in the employ of the municipality or municipal entity, must be appointed as the chairperson of the committee. No councillor may be a member of the audit committee.
12.6.7.6Recommendations
From the above analysis it is clear that internal audit function is major tool for financial controls which could be employed by the county governments. For many years the internal control function has not been operated in accordance with the internationally recommended practices, and hence the many problems which have been the subject of the financial mismanagement in local authorities in Kenya and in the public sector generally. Hence it is imperative that to achieve good governance and controls of the financial affairs of the county government there will be need not only to implement good internal control practices but also to anchor it appropriately in the policy and legislative framework.

The following recommendations are therefore proposed to ensure that the internal audit function is adequately implemented as one of the tools for the control of the counties’ financial management systems:

  1. Each county will be required to establish an independent internal audit department

  2. Each county will be required to establish an independent internal audit committee with its members drawn from the professionals and civil society. The members will have been vetted to be compliant with Chapter 6 of the Constitution. The Chairman besides having been vetted for compliance with Chapter 6 of the constitution will be a professional accountant of good standing with the Institute of Certified Public accountants of Kenya.

  3. The internal auditor will be expected to undertake his/her audit in accordance with the standards of the Institute of Internal Auditors and will report to the Internal Audit Committee

  4. The Audit committee will regularly table its report to the Committee of the County Assembly responsible for Public Accountability with copies to the Governor and the Executive responsible for finance in the county.
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