Government shouldn’t single out KRA for lifestyle audits


The government is faced with a cash crunch. While we may reasonably debate its causes and effects, there is no doubt that the management of the sovereign bond and other public revenues has been, and is, poor.

Kenyans continue to ask whether there is a crisis in government as payments in wages and contracts are delayed.

The official narrative from government is that quarterly performance was slower than anticipated, which has affected the accumulation of taxes.

The delayed passage of a new excise law, thereby preventing the Kenya Revenue Authority (KRA) from meeting its revenue targets has also been used to explain the cash crunch.

Leading from this unconvincing conclusion, the government annouced lifestyle audits for public sector workers at KRA.

Amidst the claims of corruption in the public sector, this announcement has had massive public support, based on the view that the government cash crunch results partly from dishonest officers diverting public revenues to personal use.

While lifestyle audits are laudable, they remain a curious start to preventing waste and theft of public money.

Reports from the Auditor General show that Treasury, the Central Bank of Kenya and the Kenya Revenue Authority have been unable to reconcile revenue statements among themselves.

According to the most recent audit report, more than Sh2 billion of revenue could not be properly reconciled across these accounts.

That stated, the problem with the cash crunch is not as much about leakage on the collections side as the profligacy and outright fraud in procurement, as Parliament has been told.

Managing Kenya’s cash crunch today requires adjustments both in spending and revenue collection, but the greater risks are on the expenditure side.

Demanding lifestyle audits for officers in KRA only is a diversion from bad spending by the Executive.

So while I welcome the call for lifestyle audits for the KRA leadership and staff, it is surprising that the Executive calls for audits on the revenue side alone.

Its completely ironic that the same call hasn’t been made for Cabinet Secretaries, Principal Secretaries and other officers who handle procurement.

As a citizen paying regular, if modest taxes, this partial approach to lifestyle audits is discriminatory.

Separate from my cynicism that every additional shilling turned to the public sector will be spent effectively, I am sceptical that the cash problem facing the public sector is because of the failure to collect revenue.

Examining data on public spending shows the problem is related more to the structure of government and the manner of public spending than it is to failure to collect revenues.

For a country at Kenya’s income level, collecting more than 20 out of every hundred shillings of output is an impressive task. Comparable tax collections by Kenya’s neighbours and other African countries are at least 10 per cent lower.

This means our revenue collection is impressive and has kept pace, even though the annual pace of growth has been falling. So the idea that government payments are constrained by a sudden fall in revenue collection is not justified.

The real problem is that annual growth in public spending is much higher than a competent tax collection agency can match.

It is not KRA’s fault that the government is momentarily broke. The main driver of the cash crunch is the pace of spending, due to new and ongoing projects being undertaken by the government.

Kenya’s situation is one in which a revenue collection agency is far more efficient relative to the size and structure of the economy.

This is not to make excuses for KRA, but given that its income is partly determined by the collection made, in my view, there is a greater incentive for it to collect revenues more diligently than there is for officers who spend the money.

For Cabinet Secretaries and the rest, there is no mechanism that connects their incomes and budgets directly to the outcomes of their spending.

Any initiative intended to hold state officers accountable must be lauded, but to apply lifestyle audits only to KRA suggests a deflection from the real leakages that occur in the public finance pipeline.

The proper place to start is to ask the top 100 officers in every Ministry, Department and Agency of state to undergo a lifestyle audit and publish the results for public scrutiny.