Counties caught: The KSh100B payroll scandal Kenya can no longer hide
Controller of Budget Margaret Nyakang'o
A new automated system has shut the door on county governments that have spent years pocketing workers’ deductions — but the damage already done will take years to repair
By David Kimani
County governments across Kenya have been systematically withholding taxes, pension contributions and statutory deductions from workers’ salaries for years, accumulating arrears now estimated at KSh100B — and a new automated financial system introduced on July 1 has finally closed the loophole that made it possible.
The scale of the problem, laid bare before the Senate Labour Committee by Controller of Budget Margaret Nyakang’o, is striking. For years, counties processed payroll in a way that allowed them to pay employees their net salaries while quietly holding back money owed to the Kenya Revenue Authority, pension schemes and other statutory bodies. The deductions were collected from workers’ pay — meaning employees believed their obligations were being met — but the money never reached its intended destination. Instead, it was absorbed into county budgets to finance other expenditure, leaving a growing pile of debt that has quietly ballooned into one of devolution’s most damaging financial scandals.
“The Integrated Financial Management Information System has been mapped to the payroll,” Nyakang’o told senators, describing how the reform works. “The moment the county presses ‘pay’, the net salary goes to the employee, PAYE goes to the KRA, pensions go to the schemes and the statutory payments are paid.” The change, she explained, was made possible through improvements to the Human Resource Information System, with the Ministry of Public Service playing a key role in connecting payroll processing to the national financial management platform known as IfMIS.
The logic of the reform is elegant in its simplicity. By integrating the two systems, the government has removed the human decision — or human temptation — from the equation. Counties no longer have a window between processing salaries and remitting deductions. The payments now happen simultaneously, automatically, without requiring any further action from county treasuries. The gap that existed before July 1, and that allowed billions of shillings to be diverted over more than a decade, has been sealed.
But the reform fixes tomorrow’s problem, not yesterday’s. The KSh100B in accumulated arrears — money owed to pension funds, to the taxman, to statutory institutions and ultimately to the workers whose contributions were withheld — remains outstanding, and Nyakang’o was direct about the limits of her office’s intervention. “We are dealing with what happened before July 1,” she told the committee, directing senators to a detailed report classifying county salary arrears by how long the amounts had remained unpaid. The classification is intended to distinguish between debts inherited from previous administrations and those incurred by current county governments — a distinction that will matter enormously as accountability conversations intensify ahead of the 2027 General Election.
The political timing of this reckoning is not incidental. Kenya is entering one of the most consequential electoral periods in its devolved history. Governors who have presided over counties with substantial arrears will face voters in under a year, and the Controller of Budget’s report now provides senators — and ultimately the electorate — with a county-by-county breakdown of who owes what and for how long. Murang’a County was cited specifically, with Nyakang’o noting that its own returns showed approximately KSh1.096B in outstanding liabilities. It will not be the only county named as the committee’s scrutiny deepens.
The broader problem Nyakang’o identified goes beyond deliberate misappropriation. Some county governments, she said, have been budgeting only for employees’ net salaries — the take-home figure — rather than the full cost of employment, which includes employer pension contributions, statutory deductions and other obligations. The practice is not merely poor accounting. It is a structural guarantee of arrears, because from the moment a budget is approved on this basis, the county has already committed to spending money it has not allocated. The gap gets filled, predictably, by withholding the deductions that should have been remitted — and the cycle continues.
The Senate Labour Committee’s engagement with this issue reflects a growing political awareness that the county payroll crisis is not a technical footnote. It is a workers’ rights issue. The people most directly harmed by this practice are not abstractions in a budget spreadsheet. They are public servants — teachers, nurses, engineers, administrators — whose pension contributions have gone unpaid for years, whose tax compliance records may show liabilities they did not create, and who face retirement having had money deducted from their salaries with no guarantee it was ever invested on their behalf. For workers in counties with the longest outstanding arrears, the consequences of this failure will be felt long after the political figures responsible have left office.
Nyakang’o set a clear benchmark for the new system’s success. By the end of the 2026/27 financial year, there should be no arrears in the category covering deductions less than one year old. “As every payroll is made, the statutory deductions are paid automatically,” she told the committee. “Any failure to meet this target would likely result from a system malfunction” — a statement that effectively removes any remaining excuse for non-compliance. If the numbers still show fresh arrears after July 1, the problem is no longer a system failure. It is a deliberate one.
For Kenya’s devolution project, the stakes extend beyond any single county’s balance sheet. The promise of devolution was that bringing government closer to the people would make it more accountable, more responsive and more efficient. A decade of payroll deduction theft — for that is what the sustained and systematic withholding of workers’ contributions amounts to — has left that promise with a serious credibility problem. The new system is a necessary correction, and a welcome one. But it cannot by itself repair the trust that has been eroded, compensate the workers who have been shortchanged or recover the KSh100B that county governments spent on things it was never meant to fund.
That work — slower, harder and more politically uncomfortable — is only just beginning.
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