Several county governments are facing scrutiny over delays in adopting a new financial reporting system aimed at strengthening transparency and accountability in public funds.
The counties are yet to set up crucial committees that oversee the transition from cash-based to accrual accounting, raising concerns about compliance with national reforms.
Speaking to the Senate County Public Accounts Committee in Mombasa, Auditor General Nancy Gathungu singled out Tana River, Trans Nzoia, Elgeyo Marakwet and Busia counties for failing to form the Transition to Accrual Accounting Committees. She said the omissions have created significant hurdles for these counties in following the official transition guidelines.
“Four county executives, led by Tana River, Trans Nzoia, Elgeyo Marakwet, and Busia, failed to constitute the Transition to Accrual Accounting Committee. As such, they faced significant challenges in adhering to the transition guidelines,” Gathungu told the committee on Wednesday.
The shift to accrual accounting is part of a broader effort to improve public financial management by ensuring that all revenues and expenses are recorded when earned or incurred, instead of when cash is exchanged. Approved by Cabinet in March 2024 and formalised through Gazette Notice No. 11033, the reform applies to ministries, counties and State corporations nationwide.
Under this new system, all public entities were required to comply with International Public Sector Accounting Standards within three years, capturing all financial transactions, assets, liabilities and obligations regardless of cash movement.
The previous cash-based method only recorded transactions when money was received or spent, which often left unpaid bills, hidden liabilities and unrecorded assets unaccounted for.
“The financial year 2024/2025 was pivotal as this was the first time that national and county government entities, except funds and State and county corporations, prepared financial statements on an accrual basis,” Gathungu said.
She highlighted risks that need urgent attention, including the identification, classification, and valuation of assets and liabilities. Missing ownership documents, incomplete fixed asset registers, and poor asset disclosure remain major hurdles.
“I had raised a number of risks that must be addressed by the government, which included assets and liabilities identification, classification, and valuation due to a lack of ownership documents for assets, fixed assets registers, and disclosure of their assets,” she said.
Other challenges involve the readiness of the Integrated Financial Management Information System (IFMIS) to support accrual reporting, limited budgetary allocations, the need for staff training, and the active engagement of Parliament and county assemblies.
To address some of these system challenges, the National Treasury announced in July 2025 that IFMIS would be redesigned to support accrual accounting, reduce risks from ageing technology, lower maintenance costs, and accommodate more users as new modules are added.
“It is anticipated that there will be a big increase in the number of system users once the accrual accounting system is adopted due to additional modules that will be incorporated to firm up the accrual accounting process, and therefore, this will lead to an increase in capacity requirements for both computing and storage,” the Treasury said.
IFMIS is the primary platform used by government agencies to manage procurement and payments, requiring counties to upload all payment information for contractors and suppliers. The Treasury pointed out that the current system’s infrastructure reached the end of its lifecycle in May 2019 and incurs a 23 per cent surcharge for continued support. Upgrading the system is expected to cost at least Sh800 million.
Once fully implemented, Kenya will join countries such as the United Kingdom, Canada, Australia, New Zealand, and Tanzania in adopting accrual accounting. The International Public Sector Financial Accountability Index projects that more than 120 jurisdictions will implement accrual accounting by 2030, compared to 49 in 2020.
While praising the reform as a major step forward, Gathungu noted persistent gaps in compliance. Some counties continue to report property, plant, and equipment using the cash basis rather than capitalising the assets.
“There were challenges in the disclosure of property, plant, and equipment using the accrual basis. These assets were still being reported on a cash basis where they were expensed instead of being capitalised,” she said.
She added that some counties did not disclose exemptions applied in asset and liability reporting, leading to incomplete financial statements.
Gathungu also said her office is currently handling the largest audit workload since devolution began, covering over 2,000 entities, including Level 4 and 5 hospitals, TVET institutions, and County Equalisation Funds.
“Indeed, county government entities constitute 44 per cent of our audit universe. The universe is expected to expand further as counties implement the Facilities Financing Act, 2023, which will bring on board Level 2 and 3 health facilities as self-reporting entities,” she said.
Despite progress in some areas, challenges remain. Two county executives received adverse audit opinions in 2024/2025, though county assemblies showed improvements with no adverse opinions issued.
“However, we note with concern that the majority of county entities have qualified audit opinions, which is an indicator that there are still gaps in financial accounting and reporting that need to be addressed,” Gathungu said, noting that several entities, especially municipalities, are yet to submit financial statements.
