Forensic Accounting Techniques and Financial Performance of All Counties in Kenya
No Thumbnail Available
Date
2025-12
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
County governments are mandated to collect revenue and finance projects to ensure proper service delivery. County governments in 2022 collected 11% of their revenue potential and absorption rate was below 80%. This affected the delivery of services and raised concerns about future financial performance. Forensic accounting might help improve the financial performance of county governments. The researcher aimed to study the effect of forensic accounting techniques, audit committee size and financial reporting quality on the financial performance of counties in Kenya. In particular, determine the effect of forensic auditing, fraud detection, and forensic litigation on the financial performance of county governments in Kenya. The moderating effect of audit committee size on the connection between forensic accounting techniques and the financial performance of county governments in Kenya, and whether financial reporting quality mediates the link between forensic accounting techniques and financial performance. Fiscal federalism theory, forensic accounting theory, upper echelons theory, and positive accounting theory informed the analysis. The study used a positivism philosophy and correlational research design. The target population was 47 county governments in Kenya from the financial period 2014/2015 to 2022/2023 and sampled 45 counties. Data from audited financial statements was obtained and recorded using excel. Data was analyzed using R statistical tool and a dynamic panel model was fitted using one or two lag periods. Hypotheses were tested at a 0.05 level of significance. Model specification tests, instrument validity, and autocorrelation tests were conducted on each model and all models passed the diagnostic tests. Before collecting the data, a letter from Kenyatta University Graduate School and a NACOSTI license were obtained. The findings showed that forensic auditing had a significant effect on the financial performance of county governments at the first lag (p-value = 0.00419 and 0.04892 for the own source revenue model, p-value = 0.0146 for overall absorption rate and p= 0.002336 for development absorption rate). Fraud detection and forensic litigation had no significant effect on the financial performance of county governments in Kenya (p-value > 0.05). Audit committee size had a moderating effect on the relationship between forensic accounting techniques and financial performance (for own source revenue, the interaction between audit opinion and audit committee size p-value = 0.0196, for overall absorption rate model, audit expenditure and audit committee size had a p-value = 0.0072 and recurrent absorption model interaction between red flag index and audit committee ( p=0.0091458 ), fraud detection and audit committee (p=0.00005739) and cases reported and audit committee size (p=0003749)). Financial reporting quality had a partial mediating effect on the relationship between forensic accounting techniques and own source revenue, the relationship between financial reporting quality and red flag index ( p= 0.01942), financial reporting quality and audit expenditure (p= 0.03029), and financial reporting quality is significant at lag 1 ( p= 0.014724). Financial reporting quality had no mediating effect on absorption rate (p-value > 0.05). The study concluded that forensic auditing is important and that each county should invest in the forensic auditing function to help identify financial crimes. Parliament should introduce tougher rules to ensure accountability and address of audit issues. The study recommended that county leadership should ensure a functional forensic auditing department, have an independent audit committee and prepare quality financial reports.
Description
A Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the Degree of Doctor of Philosophy in Business Administration (Accounting) of Kenyatta University. December 2025
Supervisors
Farida Abdul
Margaret Kosgei