Higher education crisis looms as 11 public universities face cash crunch

Public universities’ staff union officials announce the start of the strike by their members at the University of Nairobi grounds, January 18, 2017. FILE | NATION MEDIA GROUP 

By MUGAMBI MUTEGI

In Summary

• Audit report says JKUAT, Technical University of Kenya (TUK), the University of Nairobi (UoN), Laikipia University, Machakos University College and Masinde Muliro University were all in the red as of June 2015.
• The list also includes Nairobi-based Multimedia University, Murang’a University, Embu University, Pwani University and the University of Eldoret.
• The universities currently receive an average of Sh130,000 per student in capitation but recent estimates have indicated that they need twice as much to meet their growing liabilities.
• Critics have, however, argued that mismanagement of resources is a key contributor to the sorry state of university finances — pointing to the fact that things are not any better at the private ones.

Eleven public universities are technically insolvent and cannot meet their financial obligations, Auditor-General Edward Ouko has said, painting a dire picture of the state of the country’s higher education.

The audit report says Jomo Kenyatta University of Agriculture and Technology (JKUAT), Technical University of Kenya (TUK), the University of Nairobi (UoN), Laikipia University, Machakos University College and Masinde Muliro University were all in the red as of June 2015.

The list also includes Nairobi-based Multimedia University, Murang’a University, Embu University, Pwani University and the University of Eldoret.

“Our audit of public universities during the year to June 2015 revealed that 11 of them were facing serious liquidity challenges, a position that is worsened by the fact that their current liabilities exceeded their current assets,” Mr Ouko told the Business Daily in an interview.

“These institutions had limited working capital and as a result were finding it extremely hard to meet most of their monthly financial obligations.” Mr Ouko says serious cash shortfalls have rendered the colleges unable to make statutory payments to the Kenya Revenue Authority (KRA) and the pension and health schemes despite making deductions from employees.

The audit also found that financial distress has left the universities with a string of stalled multi-billion shilling construction works, including new lecture rooms, office blocks and hostels, some of which were commissioned years ago.

The institutions — which admit the majority of Kenya’s university students — have blamed under-funding by the government and poor collection of internal revenue for their troubles.

Kenya has 33 public and 35 private universities out of which 17 are fully chartered.

The poor state of the university’s finances were first made public last week in a report Mr Ouko submitted to Parliament showing that UoN was, at the time of the audit, unable to remit Sh673.6 million in statutory deductions from staff salaries.

Financial distress

UoN, which is Kenya’s oldest public university, was found to have been in such a financial distress, it was forced to finance its daily operations using bank overdrafts.

The audit also found that UoN had amassed a Sh458.4 million deficit and eaten into its reserves to the tune of Sh147.6 million.

READ: University of Nairobi is broke, says Auditor-General

“The university, however, recorded a favourable working capital of Sh6.1 billion as at 30 June 2015, if strategies are not put in place to reverse the deficit trend, its future operations are likely to be adversely affected,” the report said.

John Orindi, the UoN’s corporate affairs director, denied that the university is in a financial crisis “but, like other public institutions, was experiencing cash flow challenges emanating from delayed exchequer issues

TUK, formerly Kenya Polytechnic, was found to have current liabilities of Sh863.2 million, compared to its current assets of Sh385.1 million — meaning that if its creditors recalled their liabilities today, the university would not be in a position to settle them within one year.

The audit report, which also questioned payments made for incomplete works, says TUK was unable to remit pension deductions and meet other statutory obligations to the tune of Sh396.7 million and Sh102.6 million respectively.

The Retirement Benefits Authority (RBA) last year said it was preparing to dissolve TUK’s Sh900 million pension scheme, a move that would leave more than 1,500 employees without social protection.

READ: Sh800m debt sinks Technical University’s pension scheme

JKUAT’s current liabilities during the year under review stood at Sh2.4 billion against current assets of Sh1.65 billion while Laikipia University had current liabilities and assets worth Sh368 million and Sh205.9 million respectively.

Machakos University was cited as having overdrawn its accounts to the tune of Sh131.5 million and reduced its general reserves from a surplus of Sh21.7 million in the year to June 2014 to a deficit of Sh153.2 million a year later.

The University of Eldoret closed the financial year to June 2015 with trade and other payables of Sh754.3 million (compared to Sh556.2 million the previous year) and management failed to provide supporting documents for audit verification, Mr Ouko said.

Insufficient capitation

The audit report questioned variances (an overstatement) in Pwani University’ accounts of money owed by the government even as it highlighted that the institution was Sh96.8 million in the red.

Public universities cite insufficient government capitation and the ban on fee increment as some of the reasons behind their deteriorating financial health.

The universities currently receive an average of Sh130,000 per student in capitation but recent estimates have indicated that they need twice as much to meet their growing liabilities.

Critics have, however, argued that mismanagement of resources is a key contributor to the sorry state of university finances — pointing to the fact that things are not any better at the private ones.

A 2016 report by the Commission for University Education (CUE) showed that these institutions, which are wholly reliant on school fees, are indebted to the tune of Sh7 billion, prompting some of them to contemplate closing down.

“The fact that most public universities are technically insolvent should not come as a surprise,” David Some, the CUE chief executive, said in an interview.

“Some of them receive less than what was promised while those who get what was agreed upon, say it is not enough. This has left universities in a bad situation, with some even unable to pay lecturers.”