Public Financial Management and Financial Performance of County Governments in Kenya

Abstract

The annual amount of funds in the counties are not well utilized in the past years, and even the money that was returned to the treasury at the end of each financial year has always been less than what has remained after the total expenditure for the year. Worse still, there has been lack of accountability for the discrepancies and the gap between the allocated funds and the money spent. Based on these concerns, this study investigated the relationship between public financial management and the financial performance of County Governments in Kenya. The specific independent study objectives included: budgetary controls, financial accountability, financial controls and financial monitoring and linked to their influence of financial performance. The study was anchored on agency theory, the stewardship theory, accounting theory and new public management theory. The descriptive explanatory cross sectional survey design was adopted targeting 47 counties in Kenya being the unit of analysis with unit of observation (respondents being the finance managers. The study used census sampling technique was used and thus all the 47counties and its finance managers made the respondent list in this study. Structured questionnaires were used to collect primary data and secondary data was collected using data collection sheet on the dependent variable. The researcher collected data on the financial performance of the counties for a five-year period from 2016-2020. The pilot study was conducted using four staff of the National Government to test the reliability and validity of the instrument. The collected data was entered into statistical package for social sciences analysis tool where descriptive statistics was done and created means and standard deviations. Inferential statistics were also employed in establishing the relationships between the independent and dependent variables. The descriptive analysis showed that respondents agreed that adoption of public financial management practices has improved the financial performance of the counties. The correlation results showed that financial controls and financial monitoring were strongly and positively correlated to financial performance with R values at 0.584 and 0.557 respectively. Furthermore, the budget controls and financial accountability have a moderate effect to financial performance in the county governments based on the R values of 0.465 and 0.403 respectively. The adjusted coefficient of determination was found to be 0.632 meaning that public financial management practices accounted for 63.2% of financial performance in the county governments in Kenya. Based on the study findings, this study then concludes that public financial management practices of budgetary controls, financial accountability, financial controls and financial monitoring led to improvement of financial performance in the Kenyan county governments. Since public financial management practices led to enhanced financial performance in counties; the study recommends counties seeking to improve their financial performance to employ public financial management practices.