Three universities are technically insolvent, operating on bank overdrafts and failing to remit billions in employees' statutory deductions including loans, the Auditor General has said.

Reports by Auditor General Edward Ouko show that the University of Nairobi, Kenya’s higher education giant, is drowning in debt. As are Kenyatta University and Multimedia University.

During the 2017-18 financial year, UON, Kenyatta University and Multimedia University alone reported a negative working capital of Sh5.5 billion.

Kenyatta University reported the highest debt at Sh3.4 billion, followed by UoN at Sh1.4 billion and  Multimedia at Sh700 million as at June 2018.

But even more disturbing are revelations that universities have spent workers'statutory deductions, which may result in financial penalties for individual employees.

The University of Nairobi, for instance, was unable to remit workers' deductions of Sh2 billion.

The university failed to remit PAYE of Sh283 million, National Social Security Fund deductions of Sh3.4 million and National Hospital Insurance Fund deductions of Sh10.8 million.

It also failed to submit pension contributions of Sh1.5 billion, Sacco deductions of Sh204 million and Helb deductions of Sh828,387.

The auditor warns that the universities' continued operation is “a going concern” as they now depend entirely on creditors, banks and the government.

Ouko also said KU may further worsen its liquidity position, having resorted to financing its operations using short-term bank overdrafts.

The university recorded a deficit of Sh2.1 billion during the year under review. Its current liabilities exceed its Sh847 million current assets, resulting in negative working capital of Sh3.5 billion.

“This indicates that the university was unable to meet its financial obligations when they fall due,” Ouko said.

In particular, the university was unable to remit taxes and pension contributions amounting to Sh1.8 billion; audit fees of Sh3.4 million and other deductions of Sh204 million to beneficiaries.

“Therefore, the university is technically insolvent and if no urgent positive steps are taken to improve the position, it may not meet its mandate in future,” the auditor warned

Multimedia University is also in the red.

The audit report indicates that the university was unable to remit workers' deductions totalling Sh574.8 million.

These are pensions, gratuity and taxes of Sh242.9 million and Sh331.9 million, respectively

This means that UON, KU and Multimedia are holding onto workers deductions totalling Sh4.6 billion.

As a result of the non-remittance of statutory deductions, staff members of the universities have been subjected to fines and penalties.

Workers are also likely to be denied health services because their NHIF payments are not forwarded to the agency.

The revelations came as Education Cabinet Secretary George Magoha has proposed that some of the country’s 74 universities be merged to free funds for academic projects.

He has proposed a raft of cost-saving measures, including the reduction of staff, especially in non-essential roles,  to reduce the varsities’ wage bill.

The CS has also proposed the merger of courses and reaching out to industry to fund research.

Fees will probably have to be increased.

"Stop dreaming and thinking that the government is going to give you money. It will not," a stern Magoha told university bosses during a Higher Education conference in Nairobi on Monday.

His warning will dash the hopes of cash-strapped colleges and universities that the government would come to their rescue.

Magoha has vowed that a tough review is inescapable if the country is to achieve globally competitive university education.

He gave the Commission for University Education one month to interrogate the quality of courses, especially doctorate courses.

UoN has attributed its poor financial health to the decline in capitation from the Education ministry, the decline in student enrollment, strikes by academic staff and disruptions during the 2017 presidential elections.

The reduction of university cutoff points to C-plus for government-sponsored students has eliminated the self-sponsorship programmes that have been varsities' cash cow.

It has also rendered useless the tens of university campuses that had been opened to accommodate the swelling numbers of self-sponsored students.

Ouko said, “It is a going concern as its operations will continue to depend on the support from the government and lenders.”

At Multimedia, Ouko flagged an outstanding debt amounting to Sh159 million amid concerns over its slow recovery process.

Part of the debt is Sh22 million which staff members of the defunct Kenya College of Communications were to pay, but they left before settling the debt.

“No satisfactory explanation was provided as to how the university cleared the former employees without recovering the outstanding debts,” the audit report said.

The Auditor also questioned the institutions' huge tuition fees still owed by students, some stretching over one year.

Nairobi is yet to collect Sh871 million, while Multimedia is faced with the problem of collecting Sh102 million owed by students, some of whom have withdrawn, or been expelled.

The UoN is also on the spot following its expenditure of Sh1.7 million to buy shares from CMC Holdings Ltd. It was delisted from the Nairobi Securities Exchange in 2015 and the entity privatised.

Management reported to Ouko that efforts to liquidate the shares and reinvest them have been futile as it has no proof of ownership, having lost the shares certificates.

Kenyatta University is unable to recover Sh518 million it spent to set up campuses in Tanzania and Rwanda which have been closed.

The campuses were closed over operational problems “apparently imposed by a change in legislation by the two countries," Ouko said. "The investment may turn out to be a sunk cost,” he warned.

The cash flow crisis is not unique to the three universities as many others have closed satellite campuses after failing to meet the cost of operation.

Campuses have been closed by Moi University, Jomo Kenyatta University of Agriculture and Technology, Kenya Methodist University, the Catholic University of East Africa, Kisii University, Laikipia University, Kabarak University, South Eastern University, Cooperative University and the University of Baraton.