Audit uncovers Sh270bn supplier losses

A government audit has exposed deep flaws in how public agencies manage contracts and payments, leaving thousands of suppliers facing financial distress after Sh270 billion in pending bills were ruled invalid.

The verification, carried out by a special team led by former Auditor General Edward Ouko, revealed that many state institutions could not account for huge debts due to poor or missing records.

Out of Sh665 billion in pending claims submitted by suppliers across ministries, counties, and parastatals, only Sh230 billion was approved as legitimate.

Treasury Principal Secretary Chris Kiptoo told lawmakers that all remaining claims are now considered ineligible unless those owed can prove their legitimacy.

“If the audit team declares a bill unpayable, the burden of proof shifts to the claimant,” Kiptoo said during a session with the National Assembly Finance Committee.

The Treasury has vowed not to pay for any goods or services that lack documentation, even as pressure mounts from suppliers who claim they are being punished for systemic failures in government offices.

Many businesses say they submitted the required documents long ago, only to have them misplaced, ignored, or lost in chaotic filing systems.

With the burden now placed on suppliers to track and resubmit years-old invoices, frustration and the risk of legal battles are growing.

The Ouko-led team has so far reviewed 75% of the pending bills and is expected to release a final list of what will and won’t be paid.

Treasury says the Sh230 billion that has been cleared will be paid in two phases—some before the end of June, and the rest after the current budget cycle.

Of the approved amount, Sh80 billion is for infrastructure projects, while the rest covers supplies and services delivered to government entities.

Meanwhile, a report by Auditor General Nancy Gathungu painted an even more troubling picture, flagging Sh194 billion in pending bills as of November 2024.

"Failure to settle the bills has an effect of withholding circulation of cash in the economy and affects the smooth operations of suppliers and MSMEs (Micro, Small and Medium Enterprises)," she said.

She also pointed to a trend of indiscipline in public sector financial practices, calling for urgent reforms.

"All these factors viewed holistically call for the Executive to put in place measures to deter the escalation of pending bills and to enforce discipline in public sector entities," Gathungu said.

The audit also revealed which departments have accumulated the most debt. The Ministry of Defence led with Sh22.9 billion in unpaid bills, followed by the Agriculture department at Sh13.6 billion.

The National Police Service owed Sh9.9 billion, while the Office of the President carried Sh14 billion in legacy debts, mostly tied to former Nairobi Metropolitan Services projects.

Medical Services, which previously had Sh41 billion in pending bills, has reduced its burden to Sh4.9 billion.

The Teachers Service Commission still owes Sh3.3 billion.

While the Treasury says the audit is meant to clean up the system and curb fraud, suppliers warn that genuine claims are being caught in the net of poor government bookkeeping and red tape.