Assembly report confirms that Machakos will not meet revenue targets

 

Deceit, theft, clumsy and sham
practices inform revenue collection

 

By Martin Masai

A report of the County Assembly of Machakos now details why the county is unlikely to meet its revenue targets.The report, dated March 2024 shows how county revenue collectors take cash from citizens without issuing receipts then enter the proceeds to the county payment till system. The revenue officers also take half the designated rates without issuing receipts.

The report is as a result of an inquiry by the assembly committee on Revenue Collection. The following are key observations of the committee

(i)            Collection of revenue in Cash: Revenue officers are still collecting of revenue in cash and later deposing it in the MPESA paybill. 

(ii)          Collusion and pocketing of revenue: Revenue officers, inspectorate officers, the Department and business people have been colluding to evade payment of revenue. 

(iii)       Inadequate services provided at County facilities: The County has not provides good services before collecting revenue thus leading to resistance in payment.  

(iv)        Inadequate guidelines of operations: In adequate guidelines have been observed.

The Anchor now brings excerpts of the report verbatim: 

 "This report on inquiry on the state of revenue collection within the county was informed by report on the financial statements of the County as at 31^st December, 2022 which reported low revenue collections raising concern whether the County will attain its revenue target for the FY 2022/23. The report indicated that the county had managed to collect kshs.469 million translating to a less than a third of the targeted revenue of Kshs. 1.69 billion for FY 2022/23.

The Committee further compared revenue collections of the previous four years as follows: FY 2018/19 Kshs.1.5 billion, FY 2019/20 Kshs. 1.3 billion, FY 2020/21 Kshs.1.2 billion and FY 2021/22 Kshs. 1.1 billion and noted that revenue collection was on a downward trend.

The committee resolved to undertake an inquiry to establish the causes of decline in revenue collection and if possible propose suitable measures to enhance revenue collection. The enquiry was undertaken between February, 2023 and May, 2023, through site visits and meeting with stakeholders. From its findings, the Committee observed the following as some of the possible causes of revenue decline:

(a)           Collection of revenue in cash and depositing in Mpesa paybill later;

(b)          Collusion and pocketing of revenue by revenue officers;

(c)           Inadequate services provided at county facilities mainly at slaughter houses and at quarries where roads are in poor state;

(d)          Inadequate guidelines of operations such as operating hours for slaughter houses, transportation of quarry materials beyond working time of revenue officers and failure to pay officers overtime;

(e)           Inadequate monitoring and keeping of records including lack of gadgets to verify payment of revenue via Mpesa and not keeping record of lorries from National Cement Company that pass through the pay points;

(f)     Laxity in revenue collection whereby the county has not been collecting revenue from business people including national cement company.

The Committee proposes to the County Executive Committee Member, Finance, Economic Planning, Revenue Management and ICT to:

(i)            Provide a report to the assembly on how it has addressed the reasons /areas that have led to decline of revenue collection.

(ii)          Fully automate revenue collection across the county and embrace cashless revenue collection to reduce cases of revenue leakage.

Establishment of the Committee

 

   The Finance and Revenue Collection Committee is a sectoral Committee of the County Assembly of Machakos established pursuant to Standing Order No. 190 whose functions pursuant to Standing Order 190 (5) are as follows:

(a)          To investigate, inquire into, and report on all matters relating to the mandate, management, activities, administration, operations and estimates of the assigned departments;

(b)         To study the programme and policy objectives of departments and the effectiveness of the implementation;

(c)          To study and review all county legislation referred to it;

(d)         To study, assess and analyze the relative success of the departments as measured by the results obtained as compared with their stated objectives;

(e)          To investigate and inquire into all matters relating to the assigned departments as they may deem necessary, and as may be referred to them by the Assembly;

(f)           To vet and report on all appointments where the Constitution or any law requires the Assembly to approve, except those under Standing Order 184 (Committee on Appointments); and

(g)         To make reports and recommendations to the Assembly as often as possible, including recommendation of proposed legislation.

Mandate of the Committee

In accordance with the second schedule of the Standing Orders, the Committee is mandated to consider all matters relating to the management of County public finance and revenue collection. In executing its Mandate, the Committee oversees the following Departments which are under the County Executive Committee Member for Finance, Economic Planning, Revenue Management and ICT;

(h)          Finance;

(i)            Revenue Management

 

Committee Membership

The Finance and Revenue Collection Committee comprises of the following Members:-

1.                   Francis Kitaka                               - Chairperson and MCA, Ndalani

2.                  Paul Wambua                                 - Vice Chairperson and MCA, Kibauni

3.                   Judas Ndawa                                 - MCA, Matuu

4.                   Jackson Ndaka                              - MCA, Tala

5.                  Francis Kavyu                                - MCA, Kinanie

6.                   Philip Ndolo                                  - MCA, Mitaboni

7.                  Hellen Ndeti                                   - Special Elect

8.                   Daniel Muindi                               - MCA, Muthesya

9.                  Paul Muli                                        - MCA, Kithimani

10.              Grace Bahati                                   - MCA, Kyeleni

11.              Lloyd Mutua                                   - Special Elect

12.               Irene Mulu                                     - Special Elect

 Anna Ndilo                                    - Special Elect

 

 Background

Article 185(3) of the Constitution provides that, a County Assembly, while respecting the principle of the separation of powers, may exercise oversight over the County Executive Committee and any other County Executive organs. Pursuant to Article 185(3) of the Constitution, the Committee inquired into revenue collection for the County as at 31^st December, 2022 and observed that the County had managed to collect Kshs. 469,698,367 translating to a 27.2 percent of the targeted revenue of Kshs. 1.69 Billion. This low collection of revenue made the Committee to look into the state of revenue collection of the County. The Committee further noted that revenue collection was on a downward trend since the financial year 2018/2019. Table 2.1 presents data on revenue collection from FY 2018/19 to FY 2021/22.

Table 2.1: Trends of Own Source Revenue Collection for the last four Years

 

	Financial Year	Collection (Ksh)	Change
1.	2018/19	1,557,211,640.00
2.	2019/20	1,376,171,810.00	- 181,039,830.00
3.	2020/21	1,296,364,668.00	-79,807,142.00
4.	2021/22	1,118,461,753.00	-177,902,915.00

 

From Table 2.1, revenue collection has recorded a declining trend from Kshs. 1.557 Billion recorded in FY 2018/19 to Kshs. 1.118 Billion in FY 2021/22. This phenomenon made the Committee carry out an inquiry on the state of revenue collection in the County.

The objective of the inquiry was to establish the causes of declining trend in revenue collection in the County and to propose suitable measures to enhance revenue collection.

The Committee resolved to undertake site visits to observe the process of revenue collection and also where possible interview different stakeholders who are involved in the revenue collection. The exercise was carried out between February, 2023 and May, 2023.

Investigation into the causes of decline in revenue collection

The Committee carried out investigations on the state of revenue collection within the County through:

(a)           Site visit to selected revenue collection points and offices

(b)          Meeting with various stakeholders

 

Site Visits

The Committee conducted site visits in some selected revenue collection points as well as visiting revenue head office. The areas visited were:

(c)           Mutituni slaughter house on 10^th February, 2023.

(d)          Katani and Lukenya quarries and Movoko sub-county revenue offices on 16^th February, 2023.

(e)           Athriver Slaughter House on 17^th February, 2023.

(f)              Mavoko, Lukenya and Matungulu quarries on 16^th March, 2023.

(g)          National Cement Company Limited (Simba cement) Company on 27^th March, 2023.

(h)          Machakos County Revenue Head Office on 6^th April, 2023.

 

Site visit to Mutituni slaughterhouse

The Committee undertook a site visit at Mutituni/Ngelani Ward in Machakos Sub – County to check the mode of revenue collection at the slaughterhouse and the Committee made the following findings:

(i)            That the mode of revenue collection was not clear and Members suspected that the revenue collection was done in cash and deposited by the revenue clerks to a MPESA PAYBILL 1616160. The risk of this was that officers may deposit part of the collection and pocket the rest of the amount.

(ii)          That the revenue officers could not verify whether the traders had really paid the slaughterhouse fees as they did not have a gadget to confirm the payment done by the traders. The risk was that traders could edit the text messages. In addition, there was no officer at the entrance area to check whether those who paid were the actual ones who used the facility.

(iii)       When, asked on the mode of revenue collection, the officers stated that they receive cash and later deposit the amount in the paybill.

(iv)        That revenue officers did not have a receipt book since mid – October, 2022 when the new paybill 1616160 was introduced.

(v)          That there is no slaughterhouse manager to oversee the operations.

(vi)        That the officers slaughtering did not have protection equipment.

(vii)      That the slaughterhouse was in dilapidated state.

 

Site visit to Athi-river slaughterhouse

 

The Committee visited Athi-river slaughterhouse to check on the mode of revenue collection. The Committee made the following findings:

(i)            That revenue collection was cashless using paybill 1616160.

(ii)          That some customers who bring camels for slaughter get services and pay later and this is a loophole which may lead to revenue loss.

(iii)       The slaughterhouse operates from 7.00 a.m. to 9.00 p.m. with camels being slaughtered from 6.00 p.m. to 9.00 p.m. The revenue officer and meat inspector were overworked without overtime claim and this may lead to compromise thus revenue losses. The officers indicated that the slaughterhouse could efficiently operate from

7.00 a.m. to 11.00 a.m. and from 6.00 p.m. to 9.00 p.m. for camels. This calls for some guidelines of operations to be put in place.

(iv)        The Committee was also informed that the slaughterhouse needed repairs, removal of the asbestos roofing and water supply. The butchers had come together to repair the slaughter house and provide gun powder and water using water boozers. This made it difficult for the revenue officers to be firm when asking for payment of slaughter fees. There was need for the County Government to offer quality services at the slaughterhouses if it wanted to continue collecting revenue.

Site visit to Lukenya quarry sites and Mavoko sub – county revenue office

The Committee undertook a comprehensive visit to Lukenya quarry sites because they are among the key revenue sites in the County on 16^th February, 2023, 16^th and 25^th March, 2023. The Committee visited the quarry sites to establish the number of trucks/lorries that leave the quarries everyday so as to compare the same with the records that revenue clerks had at the Lukenya pay point / check point.

Among the sites visited was one of the quarries operated by a company contracted by National Cement Company Limited (Simba cement) to extract pozzolana (raw material) and deliver to its factories along Mombasa road in Mavoko sub-county and at Kaloleni in Mombasa. The quarry foreman informed the Committee that, on average, the company could make 150 trips on tipper trucks per day. At the rate of Ksh. 2,000 per trip per lorry, the County can collect Ksh. 300,000 per day translating to Ksh. 9,000,000 per month and Ksh. 108,000,000 per year.

The Committee established that National Cement Company Limited (Simba cement) had contracted three companies to extract and deliver pozollana (raw material) to them, implying that, on average National Cement Company Limited (Simba cement) was receiving at least 400 trucks per day. Each truck paying Kshs. 2,000.00 per trip, this translates to a revenue of Kshs. 800,000 per day and Kshs. 24 million per month. The revenue collected from Simba cement on pozolanna alone would therefore be at least Kshs. 200 million per year.

At the Lukenya quarries pay point/ check point, the Committee observed that:

(i)            That the revenue clerks could not confirm whether a customer had paid or not. The clerks relied on the customers’ text messages. This was prone to manipulation and one text could be used to clear many trucks or trips.

(ii)          That the enforcement officers manning the pay point / check point, were colluding with the traders by allowing them to pay half amount of the cess fee. This was discovered by one of the Committee members who collected half the amount after pretending to be an enforcement officer.

(iii)       That the amount of revenue collected through the pay point was very little. By noon that day of visit, only 15 trucks had paid cess whereas, the committee had met over 100 trucks as it was going into the quarries. In addition, while at the pay point and within an hour, over 50 trucks had made their way out the quarries.

(iv)        That the officers could not explain some variations on the collections. The Committee compared collections of Wednesdays and Thursdays of 1^st and 2^nd and 8^th and 9^th March, 2023 and observed that, on 2^nd of March, 2023 the officers collected 13,200 while the other three days they collected between Kshs. 26,000 and Kshs. 30,000 (see annex 2(a)&(b)).

(v)          That the contracted companies delivering pozollana (raw material) to National Cement Company Limited (Simba cement) and other companies did not pay cess at the pay point.

(vi)        That transportation of pozzolana and other building materials happened past 6.00

p.m. after revenue clerks and enforcement officers left work and this occasioned loss of revenue.

(vii)      The road to the quarry sites was in a deplorable condition.

 

The Committee visited the Mavoko sub – county revenue office to find out more on revenue collection at Lukenya quarry sites and authenticate some of the sample receipts acquired at the Lukenya pay point / check point. The Committee found out that some of

the payments were not authentic because they never reflected in the revenue payment system. (See annex 1(a)&(b)). The Committee took some samples of text messages and found that they were not reflecting in the system. For instance, a truck had only paid cess four times between 1^st December, 2022 to 27^th February, 2023. On this particular day, 16^th March, 2023, the truck had not paid but it had acquired a receipt of payment.

Site visit to National Cement Company limited (Simba Cement)

Further, the Committee visited National Cement Company Limited (Simba cement) Company to find out whether the Company was paying cess and through which mode. The Committee found out that:

 

(i)            The company utilizes between 2,500 to 3,000 tonnes a day and each truck carried at least 17 tonnes a day. This implies that the company receives between 140 - 170 trucks a day. The Committee observed that this information was similar to the information received from contractors at the quarries of 150 trucks per day implying that in a month the company should pay between Ksh. 8,400,000 and Ksh. 10,200,000 per day and Ksh. 100,800,000 and Ksh. 122,400,000 per year.

 

(ii)         That the company did not have documentation / evidence of the payments it makes to the County Government. The officer in-charge informed the committee that such documentations can only be obtained from the head office at Ruiru.

 

Site visit to the Revenue Head Office at Machakos Sub-County
 

The Committee made a visit to the Revenue Head office on 6^th April, 2023 to find out whether Simba cement was paying revenue. The Committee found out the following;

 (i)            That it was true that, the companies transporting pozollana (raw material) to National Cement Company Limited (Simba cement) and other manufacturing companies did not pay cess at the Lukenya pay point / check point. This meant that the County was losing a substantial amount of revenue.

 (ii)         That Simba cement wrote to the County Treasury on 19^th January, 2021 reminding it that there was an agreement entered into between the County Government and National Cement Company Limited (Simba cement) on 18^th May 2017 and which the County Government seemed to be breaching through frequent stoppage of the company’s trucks by county officers (see annex 3). In the letter, the company laments that it had not been communicated to, if there were any changes or

cancellation of the agreement and further commits that it will support the County in investment and job creation.

 

(iii)       That the company had been issued with an invoice of Kshs. 500,000 to pay quarry extraction fees on 4^th March, 2021. On the file copy obtained by the Committee, it was indicated that it was paid on 16^th March, 2021 but a receipt was not availed. In addition, another invoice of Kshs. 264,000 for quarry extraction was issued to the company on 22^nd May, 2022 but there was no evidence of payment (See annex 4(a)&(b)). From the records at the quarry site, over 400 trucks carried pozollanna daily and therefore, a payment of Kshs. 500,000 or Kshs. 264,000 per month was an under-estimation as this was equivalent to daily fees for the trucks.

 Responses from the County Executive Committee Member – Finance

The Committee requested information from the County Executive Committee Member for Finance, Economic Planning, Revenue Management and ICT vide letter ref: MKSCA/PSC/CMM/FRC/Vol.9/4 dated 10^th July, 2023. The CECM was to provide the following information:

(i)            That, while on a site visit to Lukenya quarries and National Cement Company (Simba Cement) on 16^th February, 2023 and 27^th March, 2023 respectively, the Committee learnt that, the company does not pay quarry cess fees like other companies but pays quarry extraction fees as evidenced by two invoices from revenue office dated 4^th March, 2021 and 17^th May, 2022. In addition, the Company complained to the County Treasury vide letter dated 19^th January, 2021 that County Officers were stopping company trucks frequently yet there was an agreement entered between the company and the County on 20^th April, 2017 and the company was yet to receive any formal communication reversing or on cancellation of the agreement. In addition, the Assembly has made various recommendations on payment of revenue by National Cement Company and that CECM should provide response on:

(a)               What is the status of the agreement entered into between the County and National Cement Company ltd on 20^th April, 2017?

(b)               A breakdown of the fees that the company has paid for the FY 2022/23 with supporting documentary evidence.

The CECM, provided response to the Committee vide letter ref: MCG/CECM/FIN/MKSCA/VOL.1/16 dated 17^th July, 2023 and stated as follows:

(i)            There is no such agreement between the County Government and the said company and provided a report of the Finance and Revenue Collection Committee on Revenue Enhancement and Monitoring Exercise in the County of the Second Assembly dated August, 2021.

(j)            On the amount of fees paid by the Company, the CECM informed the Committee that the company had been invoiced as per the report of the second Assembly.

 Report of Finance and Revenue Collection Committee of second Assembly

 

The Finance and Revenue Collection Committee of the Second Assembly carried out an inquiry on revenue collection in the County and tabled a report titled Revenue Enhancement and Monitoring Exercise in the County in August 2021. The Committee in observation number 4 stated that:

Exemption of cess for National (Simba) cement was against the provisions of Article 210 (1) of the Constitution of Kenya which provides that no tax or licensing fee may be imposed, waived or varied except as provided by legislation. Article 185(1) of the Constitution of Kenya provides that the legislative authority of a County is vested in, and exercised by, its County Assembly. The Department of Finance and Revenue Collection should commence collecting revenue from the company with immediate effect.

The Committee under recommendation 4 stated that:

 

Within thirty (30) days of approval of this report, the Department of Finance and Revenue Collection should invoice National Cement Company (Simba Cement) and start collecting revenue and forward a report to the Assembly.

The Committee noted that the Department was required by the recommendations of the report to collect revenue from the National Cement Company and this was evidenced by the invoices provided to the Committee.

Committee Observations

 

Based on the findings of the Committee during site visits and responses of the officers, the Committee makes the following observations that lead to decline and loss of revenue collection in the County:

(i)            Collection of revenue in Cash: Revenue officers are still collecting of revenue in cash and later deposing it in the MPESA paybill. This can be collaborated by what  the Committee observed at Mutituni slaughter house and at Lukenya quarries pay point where a Committee member posed as an inspectorate officer and was given cash by the drivers.

(ii)          Collusion and pocketing of revenue: Revenue officers, inspectorate officers, the Department and business people have been colluding to evade payment of revenue. This was noted:

(a)           At the quarries where a Committee member pretended to be an inspectorate officer and the truck drivers gave the member cash which was half of what was expected to be paid as cess.

(b)          Where National Cement Company is issued with invoices that are under- stated by the Department of Finance, Economic Planning and Revenue Management.

(c)           Where revenue officers fail to keep records of trucks that National Cement Company uses to transport quarry materials for ease of identification and the number of trips the trucks make in a given day.

(d)          Where the Department fails to provide an accurate system to quantify how much revenue the National Cement Company should pay to the County.

(iii)       Inadequate services provided at County facilities: The County has not provides good services before collecting revenue thus leading to resistance in payment. This has been observed as follows:

(a)           Business people have come together to provide gun powder, water and undertake repairs of the facilities at slaughter houses.

(b)          Roads to quarries are in poor state and the truck transporters also resist payment of cess as they question what service does the County offer to

them.

 

(iv)        Inadequate guidelines of operations: In adequate guidelines have been observed in the following:

(a)               Slaughter houses operate from 7.00 a.m. to 9.00 p.m. leading to overworking of the officers whereas there is very little activity between

11.00 a.m. - 6.00 p.m. Stakeholders proposed operation hours to be from

7.00 a.m. to 11.00 a.m. and 6.00 p.m. – 9.00 p.m. but no one has taken up their proposal.

(b)               Quarry trucks undertake transportation beyond 6.00 p.m. when revenue officers have gone home as there are no guidelines of when should happen after 6.00 p.m. or when should transportation of quarry materials take place.

(c)               Failure to implement human resource guidelines for overtime for officers working long hours. Officers at the slaughter houses work from 6.00 a.m to 9.00 pm without overtime. Officers at the quarries close down at 6.00

p.m. and leave their stations unmanned while transporters continue to transport quarry materials.

(v)          Inadequate monitoring and keeping of records: There is inadequate monitoring of revenue collection at revenue collection points. This was observed through:

(a)           Failure to deploy an officer to verify whether all animals being slaughtered have been paid for.

(b)          Lack of gadgets to verify whether business people have paid for the services needed at slaughter houses and quarry pay points.

(c)           Failure to keep records of trucking passing through their pay points thus relying on the information provided by traders.

(vi)        Laxity in revenue collection: The Department has relaxed in the collection of revenue collection at Lukenya quarries the County lost revenue of approximately between Ksh 100,800,000 to Ksh. 200,000,000 per year from National Cement Company alone."