Strengthening PFM in Kenya's Devolved System

A decade into devolution, Kenya's counties collectively manage over KES 400 billion annually in equitable share allocations and own-source revenues. This represents a historic shift of fiscal resources toward local governance — and with it, new accountability challenges.

Our experience supporting county government PFM improvement, combined with analysis of Controller of Budget reports and OAG audit findings, paints a complex picture: meaningful progress in institutional capacity alongside persistent governance gaps that affect service delivery and public trust.

The PFM Framework: What Works and What Doesn't

The Public Finance Management Act, 2012 provides a comprehensive framework for county PFM — covering budget preparation, execution, accounting, reporting, and oversight. Implementation of this framework has been uneven across Kenya's 47 counties.

Counties that have invested in PFM systems — including IFMIS integration, internal audit capacity, and audit committee establishment — show measurably better financial management outcomes. Counties that have not made these investments continue to attract qualified audit opinions, persistent budget absorption gaps, and recurring internal control failures.

Internal Audit: The Critical Weakness

Perhaps the most significant structural weakness in county PFM is the state of internal audit functions. The PPFMA requires each county to maintain an internal audit function that meets professional standards. In practice, most county internal audit departments are understaffed, underskilled, and insufficiently independent to provide meaningful assurance.

Internal audit reports in county governments too frequently focus on compliance checking rather than risk-based audit, do not reach meaningful findings, and are not acted upon by county management. County audit committees — where they exist — often lack the expertise to drive improvements.

Strengthening county internal audit requires investment in professional development, adequate staffing, and genuine independence from county executive departments. The IPPF standards provide a clear benchmark.

Revenue Enhancement: An Underexploited Opportunity

Most Kenyan counties collect significantly less own-source revenue than their economic potential would suggest. Analysis of county revenue performance consistently shows gaps in property rate collection, business permits, market fees, and other local revenue streams.

Effective county revenue enhancement requires a structured approach: a comprehensive revenue mapping exercise to identify all revenue sources and their potential; systems improvement for billing, collection, and receipt management; enforcement of payment obligations; and addressing revenue leakages in the collection process.

Counties that have invested in revenue enhancement — often with technical assistance — have achieved significant improvements in own-source revenue, reducing their dependence on equitable share transfers.

Recommendations for Strengthening County PFM

Based on our experience, we recommend the following priority interventions for counties seeking to strengthen PFM: First, invest in internal audit capacity — recruit qualified internal auditors, establish a functioning audit committee, and mandate risk-based audit planning. Second, implement a comprehensive revenue enhancement programme — understand revenue potential, fix collection systems, and enforce payment. Third, strengthen budget execution monitoring — establish monthly budget performance reviews with departmental accountability for absorption. Fourth, improve IFMIS utilisation — ensure that all county transactions are processed through IFMIS and that the system's reporting capabilities are fully exploited.