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Post Reply: CBK Faces Criticism for Deducting Sh3 Billion in Agency Fees Upfront, Breaching Financial Laws

<blockquote><div class="quotetitle">Quote from <a class="profile-link highlight-moderator" href="https://lawguide.co.ke/understanding-law/legal-forum/profile/lawyer/">Lawyer</a> on October 21, 2025, 6:08 am</div><div id="pl-8334"  class="panel-layout" ><div id="pg-8334-0"  class="panel-grid panel-no-style" ><div id="pgc-8334-0-0"  class="panel-grid-cell"  data-weight="1" ><div id="panel-8334-0-0-0" class="so-panel widget widget_sow-editor panel-first-child panel-last-child" data-index="0" data-style="{&quot;background_image_attachment&quot;:false,&quot;background_display&quot;:&quot;tile&quot;,&quot;background_image_size&quot;:&quot;full&quot;,&quot;background_image_opacity&quot;:&quot;100&quot;,&quot;border_thickness&quot;:&quot;1px&quot;}" ><div
			
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	<p dir="auto">Nairobi, Kenya - The Central Bank of Kenya (CBK) has come under scrutiny from the Auditor-General for deducting Sh3 billion in agency fees directly from debt collections before remitting the remaining funds to the national exchequer. This practice occurred during the fiscal year that ended in June 2025 and has been flagged as a violation of key financial regulations.</p>
<p dir="auto">Auditor-General Nancy Gathungu highlighted that the CBK's approach contravenes the Public Finance Management Act. By withholding the fees at the source and only transferring the net proceeds, the bank failed to adhere to procedures that ensure all revenues collected on behalf of the government are fully deposited into the exchequer account first.</p>
<p dir="auto">The issue stems from the CBK's role in managing government debt, where it acts as an agent for the National Treasury. Under this arrangement, the bank is entitled to a commission for its services. However, the Auditor-General pointed out that deducting these commissions upfront bypasses constitutional and statutory requirements. Specifically, this action violates Article 206(1)(a) of the Kenyan Constitution and Section 17(2) of the Public Finance Management Act, 2012. These provisions mandate that all money raised or received by or on behalf of the national government must be paid into the exchequer account, with limited exceptions only as permitted by parliamentary legislation.</p>
<p dir="auto">In response to the audit findings, CBK management defended the longstanding practice, stating that it aligns with the agency agreement established between the bank and the National Treasury. They emphasized that this method has been in use for many years without prior issues.</p>
<p dir="auto">However, the Auditor-General countered that while the agency agreement allows for the National Treasury and the CBK to agree on the commission rate and payment method, no documentation was provided to demonstrate a specific agreed-upon procedure for these deductions. The agreement itself, signed in 2007, sets the framework for the CBK's commission but does not explicitly outline or authorize the upfront withholding method. This lack of evidence further supports the conclusion that the bank's management operated in breach of the law.</p>
<p dir="auto">The Sh3 billion in question represents the total agency fees deducted during the reviewed period. This amount was calculated based on the commissions earned from handling bond issuances and other debt-related activities on behalf of the government. Critics argue that such practices could undermine transparency in public finance management and set a precedent for other government entities to bypass exchequer protocols.</p>
<p dir="auto">This revelation adds to ongoing concerns about financial accountability within key institutions. The Auditor-General's report underscores the need for stricter adherence to procurement and revenue handling rules to prevent potential misuse of public funds. It also calls for a review of the agency agreement to clarify payment mechanisms and ensure compliance with constitutional standards.</p>
<p dir="auto">CBK officials have not announced immediate changes to their procedures but may face pressure to reform in light of the audit. The National Treasury, as the principal partner in the agreement, could play a role in renegotiating terms to address these gaps. Meanwhile, lawmakers and oversight bodies are likely to monitor the situation closely, given the implications for national fiscal integrity.</p>
<p dir="auto">This case highlights broader challenges in Kenya's public finance system, where longstanding practices sometimes conflict with evolving legal frameworks aimed at enhancing accountability and reducing opportunities for irregularities.</p>
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