Direct access to county bank accounts reshapes accountability, tightens fiscal discipline, and raises new compliance burdens for banks.

When Kenya adopted the 2010 Constitution, the principles of public finance were deliberately enshrined in Chapter 12 to guarantee that the use of public money would remain transparent, accountable, and prudent. Fifteen years later, these principles are confronting their sternest test in the management of devolved resources. The County Public Finance Laws Act 2025, which now grants the Auditor General direct access to counties’ bank accounts, marks a defining moment in the struggle to align devolution with the constitutional demand for financial prudence.

The 2023-2024 County Governments’ Auditor General Report laid bare the extent of fiscal indiscipline across the counties. For instance, Homa Bay was found to operate 558 commercial bank accounts, many of which were outside the purview of the Controller of Budget and the National Treasury. The national picture is even more alarming. Counties collectively hold thousands of accounts in commercial banks. A significant number of these accounts are not reconciled in real time with the Integrated Financial Management Information System (IFMIS). The result has been the emergence of a parallel financial ecosystem where public funds are hidden, poorly reported, or diverted for private gain.

The Constitution is unambiguous in Article 201, stating that public money shall be used prudently and responsibly. Openness and accountability are not aspirational ideals. They are binding obligations. The unchecked spread of county accounts has undermined both principles and created fertile ground for the misuse of funds.

Closing Fiscal Loopholes

The County Public Finance Laws Act, 2025, is a direct response to these gaps. The law requires the Auditor General to have access to all county bank accounts, ensuring that withdrawals, transfers, and payments are visible in real-time. While Article 228 of the Constitution gives the Controller of Budget the mandate to authorise withdrawals from public funds, there has been a missing link in terms of visibility at the account level. The new law cures that deficiency.

The implications are significant. Governors and county officials will no longer move funds without the knowledge of the Auditor General. For a country where audit reports have repeatedly uncovered ghost projects, inflated procurement costs, and unaccounted expenditures, this is a profound corrective measure.

Operational concerns have been raised in defence of commercial accounts. County hospitals, licensing departments, and water companies require accounts to receive payments from the public. The difficulty has never been the existence of such accounts but their unchecked proliferation, lack of consolidation, and absence of reporting standards.

The Banking Sector at a Crossroads

The regulatory burden for commercial banks is about to increase substantially. For years, banks have served as custodians of county funds without significant scrutiny of whether such accounts complied with public finance management principles. As long as accounts were legally opened and basic banking compliance rules were met, little else was required.

The new law introduces a new reality. Banks will be expected to provide disclosures, reconcile accounts with government systems, and maintain technological capabilities that permit real-time monitoring. Consequently, CBK could issue new prudential guidelines to govern the management of county funds.

The financial implications for banks are considerable. County governments are major depositors. Large balances have provided liquidity to many institutions, particularly mid-tier banks. Enhanced oversight may lead to consolidation of accounts, with counties retaining fewer banking relationships. This will reduce the spread of deposits and could expose smaller banks to liquidity pressure.

Reputational risks will also rise. If account audits reveal misappropriation, questions will follow on whether banks enabled questionable transactions. Even if no legal liability is attached, banks will face greater public pressure to demonstrate vigilance. The debate mirrors international trends that extend anti-money laundering and suspicious transaction reporting obligations to institutions that hold government funds.

PFM Principles Reinforced

The constitutional principles of public finance are equity, prudence, accountability, openness, and a commitment to sustainable development. Centralising oversight in the Auditor General strengthens transparency and accountability. It also introduces a deterrent effect. County executives know that financial indiscipline can no longer be hidden behind unreconciled accounts or delayed audit reports.

The principle of equity is equally advanced. Mismanagement of devolved funds disproportionately punishes the most vulnerable citizens. Patients endure shortages in hospitals, bursary applicants wait in vain, and farmers struggle without extension services. Curtailing leakages at the source increases the likelihood that resources reach the intended beneficiaries.

The measure must, however, be matched with enforcement. Visibility without accountability will render the reform a mere procedural ritual. The Auditor General has repeatedly exposed the misuse of funds, yet prosecutions and recoveries have lagged. For this law to have a real impact, enhanced monitoring must lead to sanctions, restitution, and stronger deterrence.

Historical Lessons and the Road Ahead

The dangers of unchecked fiscal discretion at the county level are not theoretical; they are real. The Auditor General previously flagged Nairobi County for maintaining over 70 bank accounts whose reconciliation was incomplete, resulting in billions of unexplained expenditures. In Kiambu, a 2019 audit uncovered payments for phantom supplies and projects that existed only on paper. In Migori, investigations revealed diversion of county funds into personal accounts linked to senior officials. Each scandal shared one common denominator: the existence of opaque financial channels that weakened oversight and accountability.

The County Public Finance Laws Act 2025 targets this very weakness. Enhanced visibility will not end corruption in itself, but it removes the cover of secrecy under which many abuses thrived. Policymakers are likely to propose additional reforms to complement this law. For instance, the National Treasury and Auditor General may push all county accounts to be integrated into IFMIS to ensure automated reconciliation of inflows and outflows.

The devolution journey is fundamentally anchored on trust. Citizens expect that resources devolved to their counties will translate into improved services. Allowing the Auditor General access to counties’ accounts is an important step in rebuilding this trust. Consequently, county governments face a narrowing space for opacity, banks face a new age of regulatory scrutiny, and citizens hold a high level of expectation that transparency will finally bring meaningful delivery.

If executed with rigour, this reform will do more than strengthen financial discipline. Not only will it recalibrate the relationship between the government, regulators, and financial institutions, but it will also anchor devolution in the constitutional promise that public money shall be used openly, equitably, and responsibly. The public will be watching, because the credibility of devolution depends not on how much money is devolved, but on how prudently it is managed.