Questions have emerged over the National Treasury’s handling of billions of shillings after an audit found that more than Sh3.4 billion was committed or transferred without the necessary legal authority or budgetary approval.
The findings cover tax undertakings amounting to Sh1,353,256,472 and Sh2,096,650,207 sent to various government entities through Authority to Incur Expenditure (AIEs), with the expenditure not included in the approved budgets.
The Auditor General said the tax undertakings were made despite constitutional requirements that any tax imposed, waived or varied must be backed by legislation.
Article 210(1) of the Constitution prohibits the imposition, waiver or variation of taxes and licensing fees unless provided for by law.
Treasury officials explained to auditors that the undertakings were made because of “compelling national interests, humanitarian obligations and strategic development needs”.
The audit, however, established that no budgetary allocation had been made to meet the commitments.
“The undertakings were therefore contrary to Article 210(1) of the Constitution of Kenya, which provides that no tax or licensing fee may be imposed, waived or varied except as provided by legislation. Further, no budgetary allocation was made for the settlement of the undertakings. In the circumstances, Management was in breach of the law,” reads the report.
The audit for the year ended June 30, 2025, also examined funds moved from Treasury to ministries, departments and agencies without corresponding allocations in their approved budgets.
Of the Sh2.09 billion transferred through AIEs, Sh1.884 billion went to a State Department to clear pending bills.
Auditors found the transfer difficult to justify because the State Department had reported no pending bills in its audited financial statements for the preceding year.
Treasury was also unable to produce an approved schedule identifying the bills that were supposed to be settled using the Sh1.884 billion.
An additional Sh212.48 million was sent to State Departments for routine activities. The audit found that the combined expenditure of Sh2,096,650,207 had not been provided for in the budgets of either Treasury or the receiving State Departments.
The Auditor General linked the transfers to Section 68(1)(a) of the Public Finance Management Act, 2012, which requires accounting officers of national government entities to ensure public resources are used lawfully and with proper authorisation.
“This was contrary to Section 68(1)(a) of the Public Finance Management Act, 2012, that provides that an accounting officer for a national government entity shall ensure that the resources of the respective entity are used in a way that is lawful and authorised,” reads the report.
Another issue involved Sh125 million given to a State Department to meet emergency and unforeseen expenditure.
Auditors questioned why the money was not channelled through the Contingencies Fund, which is specifically provided for urgent and unforeseen expenditure where there is no specific legislative authority.
Section 21(2) of the Public Finance Management Act allows the Cabinet Secretary to make advances from the Contingencies Fund when an urgent and unforeseen expenditure need arises without specific legislative authority.
“Management did not explain the reason for not disbursing the funds from the Contingencies Fund. In the circumstances, Management was in breach of the law,” reads the audit.
The report also drew attention to an outstanding court award arising from a dispute over Phase III of a project for the construction of a National Disaster Recovery Site.
On December 21, 2022, the High Court awarded a firm Sh4.1 billion, excluding interest and legal costs. Treasury subsequently paid part of the award.
By June 30, 2025, however, Sh4,091,619,712 remained outstanding after interest continued to accumulate at 12 per cent annually.
Treasury had paid Sh1.882 billion towards the award but had not provided auditors with a clear roadmap or proposed plan for settling the remaining amount.
“Failure to provide adequate budgetary provision for the settlement of the award exposes the National Treasury to additional avoidable interest costs,” reads the report.
The Auditor General also examined Sh178.5 million paid to a local law firm for legal services connected to a private-placement bond under the Kenya-Abu Dhabi Fund for Development partnership and an international sovereign bond.
The audit questioned Treasury’s decision to award the legal work through direct procurement, noting that the transactions were separate from earlier Eurobond arrangements.
Auditors said the justification based on continuity and standardisation with previous Eurobond transactions could therefore not be clearly applied to the deals under review.
They found that the procurement approach did not comply with Section 91(1) of the Public Procurement and Asset Disposal Act, 2015, which states that open tendering should be the preferred method of procuring goods, works and services.
“Review of procurement records revealed that the direct procurement method was used and justified on the basis of continuity and standardisation with previous Eurobond transactions. In the circumstances, Management was in breach of the law and value for money in respect of an amount of Kshs.178,500,000 could not be confirmed,” reads the report.
The Auditor General further listed Sh15.42 billion in outstanding loans as part of the financial issues identified at the National Treasury.