Factors Affecting Financial Health of NGOs in Health Sector in Kenya

Abstract

The interest in financial health in Non-Governmental Organizations (NGOs) is due to the evolving pressure from donors, governments and citizens to NGOs managers to demonstrate effectiveness in their work. Despite NGOs spending an equivalent of 10% of Kenya’s annual budget, many complaints in financial management have been lodged at the NGO Co-ordination Board. In order to achieve this, NGOs need to evaluate the factors affecting their financial health, measure and monitor the various determinants in order to demonstrate their effectiveness .The principle function of financial health is to ensure organizations are held accountable for their actions and to facilitate learning. However, various weaknesses and deficiencies in accountability in NGOs have been highlighted by donors and Government agencies. This study sought to address the factors affecting financial health of NGOs in the health sector in Kenya. The objectives of the study were to establish the effect of funding mechanisms on financial health of NGOs, determine how corporate governance affects financial health of NGOs, establish the effect of budgetary process on financial health of NGOs, determine how cash management affects financial health of NGOs and examine the intervening effect of government policy on financial health of NGOs. The study adopted survey research design and the target population was 16,844 NGOs operating in the health sector in Kenya. The study adopted stratified sampling technique and the sample size was 384 NGOs. Data was collected using questionnaires which were pre-tested before actual data collection. Discussions were held between the researcher and Managers of the selected NGOs. Data analysis was done using Microsoft Excel and statistical packages for social scientists software version 21. Findings were presented using tables, means and percentages. A regression model was formulated to show relationship between dependent and independent variables. The findings revealed that funding mechanisms, budgetary process, corporate governance and cash management had statistically significant influence on financial health of NGOs in health sector in Kenya and tests for significance also showed that the influence was statistically significant. However, budgetary process was found out to have the highest influence (r=0.419), followed by cash management (r=0.384),funding mechanisms (r= 0.378) while corporate governance had the lease influence (r=0.342).The findings also revealed that Government policy had a higher intervening effect on budgetary process (r= 0.411) when influencing financial health of NGOs in health sector while the intervening effect was lowest on funding mechanisms. Based on the findings of the study, it was concluded that funding mechanisms, budgetary process, corporate governance and cash management influence financial health of NGOs in health sector in Kenya positively. It is therefore recommended to the management of NGOs in health sector and the Government continues to explore and implement sustainable policies and regulations that are geared towards improving funding mechanisms, budgetary process, corporate governance and cash management as a way of accelerating financial health of NGOs in health sector and eventually creating desired impacts in the economy. The findings of the study will be beneficial to the Board of Directors of NGOs, donors, Government agencies and future researchers. The study provides an empirical contribution to literature by establishing the intervening effect of Government policy on financial health of NGOs.