92. (1). A State organ or other public entity is primarily responsible for foreseeing, identifying, avoiding and resolving financial problems in that State organ or public entity. (2) A State organ or other public entity shall ensure that the conduct of financial management is in accordance with the Constitution and this Act. (3) If a State organ or other public entity encounters a serious financial problem or anticipates serious challenges in performing its financial function or meeting its financial commitments, it shall immediately— (a) seek solutions to resolve the financial problems; (b) notify the Cabinet Secretary or the County Executive Committee member for finance where the State organ is a county government organ; (c) notify the Controller of Budget and the Commission on Revenue Allocation; and (d) inform the Intergovernmental Budget and Economic Council, of the nature of the financial problem and proposed remedial measures it proposes to put in place. Assessment of the need for intervention in accordance with

Article 225 of the Constitution. 93.(1) If the Cabinet Secretary becomes aware of financial problems in a State organ or other public entity, the Cabinet Secretary shall promptly — (a) ascertain the seriousness of the problem and the proposed remedial measures or solution to the financial problem by the State organ or public entity; and (b) determine whether the situation constitutes a serious material breach or persistent material breach requiring stopping of transfer of funds under Article 225(3) of the Constitution. (2) In the case of a State organ which is a national government entity, if the financial problem has been caused by or resulted in a failure by the national government entity— (a) to perform its functions or comply with obligations imposed under the Constitution or any other Act; or (b) to meet its financial commitments, the Cabinet The Public Finance Management Act, 2012 101 Secretary shall, guided by regulations, consider whether or not to take action under Article 225(3) of the Constitution and in terms of this Act.

(3) In the case of a State organ which is a county government or county government entity, if it — (a) does not operate a financial management system that complies with the requirements prescribed in this Act and the financial problem has met conditions for intervention in terms of Article 190(3) of the Constitution; or (b) is unable to meet its financial commitments as set out in the Constitution or this Act, this shall constitute a serious material breach or persistent material breach for purposes of stopping transfer of funds under Article 225(3) of the Constitution.

(4) When determining whether the conditions for the Cabinet Secretary to stop transfer of funds referred to in Article 225(3) of the Constitution are met, all relevant facts shall be considered before the Cabinet Secretary acts. Additional indicators of serious or persistent material breach. 94. (1) The following factors, singly or in combination, may further indicate that a State organ or public entity is in serious material breach or persistent material breach of the measures established under this Act— (a) the State organ or public entity- (i) has failed to make any payments as and when due; (ii) has defaulted on financial obligations for financial reasons; (iii) had an operating deficit in excess of a percentage of revenue in the most recent financial year for which financial information is available as prescribed in regulations; or (iv) is more than sixty days late in submitting its annual financial statements to the Auditor-General in accordance with this Act or any other legislation; The Public Finance Management Act, 2012 102 (b) the State organ or public entity has failed to make any other payment as and when due, which individually or in the aggregate is more than an amount as may be prescribed or, if none is prescribed, more than two percent of the State organ’s or public entity’s budgeted operating expenditure; (c) the Controller of Budget has raised material issues in their quarterly report; (d) the Auditor-General has withheld an opinion or issued a disclaimer due to inadequacies in the financial statements or records of the State organ or public entity or has issued an opinion which identifies a serious financial problem in the State organ or public entity; or (e) recurring or continuous failure by a State organ or public entity to meet its financial commitments which substantially impairs the State organ’s or public entity’s ability to procure goods, services or credit on usual commercial terms.

(2) Provisions of this sections shall not apply with respect to— (a) disputed obligations which are subject to litigation in a court of law, provided such litigation is not instituted to avoid an intervention; or (b) obligations explicitly waived by creditors. Stoppage of funds process in national government entity. 95. Where the Cabinet Secretary finds a State organ which is a national government entity to be in serious or persistent material breach of its obligations or financial commitments, the Cabinet Secretary shall— (a) determine the reasons for the breach; and (b) assess the national government entity’s financial state. Stoppage of funds process in county government.

96. (1) Where the Cabinet Secretary finds a State organ which is a county government entity to be in serious or The Public Finance Management Act, 2012 103 persistent material breach of its obligations or financial commitments, the Cabinet Secretary shall, in accordance with Article 225 of the Constitution, immediately stop the transfer of funds. (2) Within seven days of stopping the transfer of funds under subsection (1), the Cabinet Secretary shall inform— (a) the accounting officer, of the State organ or public entity; or (b) the Cabinet Secretary responsible for matters relating to intergovernmental relations; (c) County Executive Committee member responsible for finance; (d) the Controller of Budget; (e) the Commission on Revenue Allocation; and (f) Intergovernmental Budget and Economic Council.

(3) The Cabinet Secretary shall in the alternative promptly— (a) inform the County Executive Committee member responsible for finance; and (b) request the Auditor-General to— (i) determine the reasons for the breach; (ii) assess the county government financial state; and (iii) submit to the Cabinet Secretary and County Executive member for finance a report within thirty days from the date of the request. (4) The Cabinet Secretary may prescribe regulations in relation to the process of stoppage of transfer of funds. Procedure for stoppage of funds.

97. (1) Where the Cabinet Secretary makes a decision to stop the transfer of funds to a State organ or public entity in accordance with Article 225(3) of the Constitution and provisions of this Act, the Cabinet Secretary shall stop the The Public Finance Management Act, 2012 104 payment and inform the Controller of Budget in respect of— (a) the date from when the stoppage of transfer of funds takes effect; and (b) the nature of serious material breaches, or persistent material breaches, committed by the State organ or public entity.

(2) Not later than seven days after the date of the decision to stop the transfer of funds, the Cabinet Secretary shall seek approval from Parliament. (3) Within fourteen days after the decision to stop the transfer of funds under subsection (1), the Controller of Budget shall investigate the matter and submit a report to Parliament in accordance with Article 225 (7) of the Constitution. (4) Parliament shall, within thirty days of the decision by the Cabinet Secretary to stop the transfer of funds, approve or renew the decision of the Cabinet Secretary to stop the transfer of funds and the Cabinet Secretary shall abide by the decision of Parliament.

(5) The Cabinet Secretary may not stop the transfer of more than fifty percent of funds due to a county government. (6) Any person may exercise his or her right to petition Parliament in terms of Article 119 of the Constitution in respect of the action taken to stop the transfer of funds. Renewal of decision to stop funds and termination of stoppage. 98. (1) Where the Cabinet Secretary has applied to Parliament to renew a decision to stop the transfer of funds for a period beyond the sixty days, a time allowed by the Constitution, as soon as practicable but not later than fourteen days after being informed of the decision to renew the period, the Controller of Budget shall prepare a report on the matter to Parliament.