The Central Bank of Kenya (CBK) has revealed it has no direct Constitutional mandate to dictate the opening of numerous bank accounts, most of which are unauthorised, by county governments.
While appearing before the Senate Standing Committee on Devolution and Intergovernmental Relations on Thursday, July 24, CBK Governor Kamau Thugge disclosed that the institution’s hands were tied despite it being the central regulator for banks across the country.
Thugge in turn recommended the upholding of the law and strengthening of current legal frameworks to ensure compliance.
“The Standing Committee on Devolution and Intergovernmental Relations, led by the Chairperson Sen. Mohamed Abbas, met with the Governor of the Central Bank of Kenya, Dr Kamau Thugge, to deliberate on the large number of commercial bank accounts operated by the county governments,” the Senate stated.
“Dr Thugge informed Senators that the Central Bank of Kenya lacks a direct constitutional mandate to compel county governments to close unauthorised accounts, and recommended strengthening the existing legal frameworks on the matter,” it added.
A previous report by Controller of Budget Margaret Nyakang’o revealed that governors had opened 2,421 unlawful bank accounts as of September 30, last year. This was a jump of more than 400 accounts from the 2,000 commercial bank accounts that were reported in the first nine months of the previous fiscal year ( 2023-24 ).
While flagging the high number of accounts, Nyakang’o noted that this was in total disregard of warnings by oversight agencies.
As per the Public Finance and Management Act (PFMA), county governments accounts must only be opened and maintained by the CBK. However, a disturbing trend has seen most counties open accounts at commercial banks making it difficult for auditors to track the transactions.
In the report by Nyakang’o, Nakuru had the highest at 301 commercial bank accounts. Bungoma was second with 300 while both Baringo and Kiambu had 292 commercial bank accounts.
Nyakang’o disclosed that Machakos was operating 221 commercial bank accounts at the time of the review followed by Elgeyo Marakwet with 155.
Regarding the CBK, their mandate includes licensing, regulating, and supervising all commercial banks operating in Kenya under the Banking Act (Cap 488) and Prudential Guidelines.
The primary account for each county government is the County Revenue Fund (CRF), which must be opened and maintained at the CBK. All county revenues are supposed to be deposited into this fund.
While the CRF is central, the PFM Act allows for the establishment of other accounts under very specific conditions.
Such accounts include the County Government Emergency Fund and other County public funds that must be explicitly authorized by a County Assembly Resolution and regulated by the County Executive Committee Member for Finance.
Further, recent legislative amendments, such as the County Public Finance Laws (Amendment) Bill, 2023, have sought to establish a dedicated County Assembly Fund for each County Assembly, often to be held at the CBK, to grant them greater financial autonomy from the County Executive.
While it might not have direct Constitutional authority over the counties regarding the opening of unauthorised bank accounts, CBK can, in its capacity as regulator, compel a commercial bank to provide information, investigate non-compliance, impose penalties and direct closure of such accounts.
