Nairobi — The country continues to lose millions of taxpayers' shillings through theft and mismanagement of devolved funds, a new Planning ministry report shows.

It reveals that neither the Constituency Development Fund (CDF) nor the Local Authorities Transfer Fund (LATF) has been entirely successful in their objectives.

For the latter, there has been no overall reduction in pending bills or arrears of local authorities.

The report says as a result of weak accountability and poor monitoring of performance, a number of the projects are not yielding projected results.

The Public Expenditure Review 2010 says that in 2007/08, local authorities generated over Sh3 billion from property rates.

Single business permits, vehicle parking fees and market fees make up 16 per cent, 10 per cent and 8 per cent of own-source revenues respectively.

LATF, which accounts for a third of funds, supplements town councils' low own-source revenues to avoid build-up of arrears, as most depend heavily on central government transfers to finance their expenses.

Town councils in Baringo, Bomet and Chepareria, for example, are not even able to finance their personnel and civic expenses from own revenue collections.

"This has resulted in huge salary arrears and inability to pay statutory obligations. Past fiscal indiscipline at the sub-national level and related excessive borrowing have resulted in unsustainable debts and accumulated arrears," said Dr Edward Sambili, permanent secretary Ministry of Planning while presenting the report last week.

LATF regulation 19, as amended in 2004, requires that authorities clear their outstanding debts by 2009/10.

These, however, have continued to grow due to penalties on arrears especially on statutory dues. The outstanding statutory debt increases accounted for 60 per cent of total debt in 2008, up from 51 per cent in 2007.

For instance, the report says, the National Social Security Fund charges a compound interest rate of 5 per cent per month on any outstanding arrears.

The big authorities also have low levels of commitment to meeting their debt reduction plans, with the four largest -- Nairobi, Mombasa, Kisumu and Nakuru -- accounting for 74 per cent of the total outstanding debt in 2007/08.

According to Mr Sambili, to solve this, monitoring and evaluation of expenditures at the decentralised level should be improved and better integrated into the national management.

Planning minister Wycliffe Oparanya says there is a lot of duplication of government services in various departments.

"Many government departments are doing similar roles. The country can easily reduce recurrent expenditure if such departments are merged," he said.

In the 22 local authorities surveyed, there were numerous cases of ghost projects to which funds were allocated but which did not physically exist.

In Nairobi, projects like the construction of toilets in Dagoretti market or the furnishing of Anderson Hall appear on record of LATF plans, but there was no evidence of work on ground.

CDF, another devolved fund established in 2004 to redress regional development imbalances, has been treated to a number of mismanagement instances. The Treasury initially released Sh1.26 billion to the kitty.

Some evidence

The amount was gradually raised to about Sh18 billion in the current financial year. It includes an annual budgetary allocation, equivalent to 2.5 per cent of the government's ordinary revenue, and is managed through four committees.

The report says there is some evidence of misuse and inefficiency.

The Kenya Anti-Corruption Commission reports and those of the Controller and Auditor General show that some politicians and Constituency Development Fund board officials use the funds to reward supporters through award of tenders.

"The annual constituencies' reports are often submitted with long delays and can also be inaccurate and incomplete. As a result, theft, misuse and wastage of funds are detected late," the government report reads in part.

The law does not require constituencies to report unspent funds unless they are no longer needed for that project, which means that there is money in CDF accounts that is not being disbursed.

Two months ago, the National Taxpayers Association lobby group released a similar report that said the country lost Sh445 million in 17 constituencies surveyed.

The report was fiercely opposed by government officials, especially members of the national CDF management board.