Treasury Minister John Mbadi is setting up a team to investigate allegations that an estimated Sh90.3 billion in county employees’ retirement savings have not been transferred to directors’ schemes.
The Australian Superannuation Commission, the industry regulator, said the accumulated money was deducted from the payrolls of workers in decentralised units from March 2024, but not transferred to superannuation funds.
However, the RBA data contradicts a report by the Board of Governors to the Senate, which puts arrears at Sh40.5 billion as of March 2023.
The Sh49.5 billion discrepancy prompted the Senate Select Committee on Public Investment and Counties Special Funds, led by Godfrey Osotsi (Vihiga), to direct the Treasury to investigate the true status of the backlog of bills.
In a draft of the 2024 budget review and forecast paper, Mr Mbadi’s office wrote: “Given the discrepancies in the figures, the Senate has directed the establishment of a task force to examine the pension liabilities and propose a roadmap to reconcile the amounts.”
The Treasury added that “the National Treasury is in the process of forming a working group, which is expected to complete the verification process within 90 days once it is published in the Official Gazette.”
The announcement comes ahead of the planned release of an interim report by the Pending Bills Verification Committee, chaired by former Auditor General Edward Ouko, next month.
If the untransferred pension arrears recorded by the RBA are confirmed, they would account for about half of the outstanding bills in the provinces.
Counties reported outstanding bills of Sh181.98 billion as of June 30, 2024, comprising Sh179.87 billion for county executives and Sh2.11 billion for county assemblies.
The Treasury is counting on a shift from cash accounting to accrual accounting in an attempt to significantly reduce outstanding bills.
Accrual accounting records revenues and expenses when transactions occur before funds are received and distributed, while the cash basis method records revenues and expenses when cash is received or disbursed.
CPF Financial Services, the provincial pension fund manager, has in the past threatened to auction off the assets of the commissioned units to recover unconverted contributions.
Local Authority Pension Trust (LAPT) chairman Winfred Mbai said debt collectors hired by the body to collect arrears had signed agreements with three major debtors – Nairobi County, Mombasa County and Nairobi Water and Sewerage Company – “to make periodic transfers to reduce outstanding debts”.
“The review of the assets and liabilities of the former municipalities and local councils has been completed, the debts owed to the system have been recorded and ways to clear the debts are being explored,” Ms Mbaye wrote in the latest 2023 annual report.
“The Board has engaged with intergovernmental bodies, the Budget Controller, the Treasury and Parliament on possible mechanisms to enable debt recovery at source. The Trustees have also engaged with the Regulatory Authority in light of the implementation of new regulations on unpaid contributions.”
The arrears, which date back to the years of municipal and regional councils before the transition to the district system in 2013, are added to the outstanding bills accumulated by the delegated units as a result of salary deductions that were not transferred.
This includes Sacco contributions and pay-as-you-earn deductions to KRA.
For example, untransferred deductions to savings and provision associations were estimated at Sh865.12 million last year, a significant decline of 35.81 percent from about Sh1.35 billion in 2022.
“The unremitted funds are large enough to create a negative financial vulnerability to the liquidity of the 10 regulated sakko associations that depend on provincial governments, the majority of whose membership is derived from provincial governments and associations,” the Sakko Regulatory Authority (SASRA) wrote in its annual report released on September 11.
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