Taxpayers face Sh261bn bill over costly blunders by ministries, state agencies

Taxpayers face a potential Sh261.63 billion burden from court awards, pending lawsuits, disputed claims, unpaid contracts and other contingent liabilities accumulated across government ministries, departments and agencies.

A review by Auditor General Nancy Gathungu for the financial year ended June 30, 2025, reveals dozens of state entities are exposed to claims running into hundreds of billions of shillings.

The findings raise concerns over the growing cost of litigation, contractual disputes and administrative failures in government.

In her audit review, Gathungu warned the liabilities have not been provided for in the government’s financial statements.

The long and short of this is that they could crystallise into actual debts that taxpayers would eventually be required to settle.

“The statement of contingent liabilities reflects a balance of Sh261,632,457,818 in respect of contingent liabilities as disclosed in financial statements,” Gathungu says in the report.

“The significant amount of contingent liabilities poses a potential risk of loss of public funds,” the auditor general asserted.

She further notes the amount excludes liabilities relating to constitutional obligations such as the Equalisation Fund, meaning the exposure could be even higher.

Contingent liabilities are potential financial obligations that may arise depending on the outcome of court cases, arbitration, contractual disputes or other uncertain events.

Data shared by the Auditor General shows the largest exposure stems from guaranteed loans reported under public debt expenditure, amounting to Sh83.24 billion.

The second biggest liability is under the State Department for Medical Services, which faces claims worth Sh71.32 billion.

According to the audit report, the amount includes an avoidable court award of Sh68.42 billion linked to the controversial Managed Equipment Services (MES) programme and debts owed to the Kenya Medical Supplies Authority (Kemsa).

The MES programme has been the subject of intense scrutiny for years, with questions raised over procurement arrangements and contractual obligations entered into by the government.

President William Ruto’s administration has since changed its structure, rebranding it as National Equipment Service Programme (NESP).

The State Department for Agriculture ranks third with contingent liabilities amounting to Sh57.17 billion arising from court awards made against the department.

The State Department for Sports is also facing a potentially costly payout of Sh15.39 billion.

The report indicates the amount relates to compensation awarded to Telkom Kenya for the loss of Posta Sports Grounds, which was used by the government in the construction of Talanta Stadium.

Should the award be upheld and settled, taxpayers would bear one of the largest single compensation claims arising from a government infrastructure project.

The State Department for Internal Security and National Administration has contingent liabilities amounting to Sh9.4 billion arising from court cases filed against the department.

The National Land Commission follows with liabilities worth Sh6.05 billion, while the State Department for Correctional Services has contingent liabilities of Sh5.48 billion relating to pending bills that are yet to be verified.

The State Department for Livestock Development faces a Sh4 billion liability after Halal Meat Products Limited successfully sued the department and obtained a court award.

According to the report, the amount remains unpaid due to a lack of budgetary allocation.

The State Department for Arid and Semi-Arid Lands (ASALs) and Regional Development is exposed to claims worth Sh2.43 billion.

The Auditor General says the liabilities relate to pending bills that were under verification by the Presidential Verification Committee and to active litigation matters that were not disclosed.

The Ministry of Defence has contingent liabilities of Sh2.36 billion arising from court cases against the ministry.

The National Police Service faces claims amounting to Sh1.96 billion. The report shows the amount includes contested electricity charges of Sh323.65 million and disputed insurance premium claims amounting to Sh1.64 billion.

The State Department for Housing and Urban Development has liabilities of Sh846 million from court cases, while the Independent Electoral and Boundaries Commission (IEBC) faces exposure of Sh670.13 million.

The liabilities facing the electoral agency include court awards and disputes arising from election-related contracts.

The Judiciary is listed among institutions with pending liabilities, with claims amounting to Sh576.59 million.

According to the report, these are claims by merchants awaiting verification by the Pending Bills Verification Committee.

The Ethics and Anti-Corruption Commission faces court-related liabilities worth Sh418.51 million.

Other agencies listed include the State Department for Environment and Climate Change, which has contingent liabilities of Sh161.25 million arising from a court case, and the State Department for Wildlife with liabilities of Sh48.83 million.

The State Department for Foreign Affairs is exposed to claims worth Sh47.78 million from court cases, while the Judicial Service Commission has liabilities amounting to Sh33.04 million.

The State Department for Technical Vocational Education and Training has contingent liabilities of Sh20.16 million from court cases and arbitration proceedings.

The National Police Service Commission is facing claims worth Sh16.17 million linked to a pending court case.

The Independent Policing Oversight Authority has contingent liabilities amounting to Sh898,000, while the State Department for East African Community Affairs faces claims worth Sh733,573.

The Commission on Administrative Justice, commonly known as the Ombudsman, has contingent liabilities of Sh699,500 arising from court cases.

The audit findings point to the growing financial risks facing the Exchequer from litigation and contractual disputes involving public institutions.

Experts say the mounting liabilities point to weaknesses in contract management, procurement processes, dispute resolution mechanisms and compliance with legal obligations across government.

Several of the claims cited by the Auditor General stem from court awards that have already been issued against state entities, meaning the government may have little room to avoid eventual payment.

Others relate to disputes that are still before courts and tribunals but could ultimately mature into obligations if judgments go against the state.

According to recent Controller of Budget reports, court awards now form a significant share of pending bills across both levels of government.

Treasury data shows while ministries and agencies are required to budget for legal liabilities, many continue to treat decrees as contingent obligations rather than fixed debts, allowing interest to accumulate unchecked.

Parliament’s Public Accounts Committee has repeatedly raised concerns over the trend, faulting ministries and counties for poor legal risk management and weak defence of cases, sometimes leading to avoidable losses.

In several sittings, MPs have questioned why government lawyers fail to pursue appeals promptly or negotiate out-of-court settlements, allowing interest to pile up while accounting officers rotate out of office without facing personal liability.

The latest exposure comes at a time when the government is grappling with rising public debt, growing expenditure pressures and limited fiscal space.

Any substantial settlement of the claims would place additional strain on taxpayers and could force the Treasury to divert resources from development programmes and public services.

INSTANT ANALYSIS

The Sh261.63 billion exposure is equivalent to the annual budgets of several ministries combined and highlights the potentially enormous cost of government mistakes, delayed payments, disputed contracts and adverse court rulings. If even a fraction of the liabilities crystallise into actual obligations, taxpayers could find themselves footing one of the largest legal and contractual bills ever accumulated by the public sector.