RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT PRACTICES AND FINANCIAL SUSTAINABILITY OF THE COUNTY GOVERNMENT OF NAKURU, KENYA

Abstract

Since the inception of county governments in early 2013, several functions have been devolved from the national government. The county governments have since then been in charge of billions of Kenya shillings. Since 2013, most of the county governments have reported budget deficits resulting in their inability to sufficiently fund both recurrent and development expenditure within their jurisdictions. The foregoing has been manifested by some county governments’ incapacity to pay suppliers and contractors timely and as such are operating on debt. The present study evaluated the relationship between various financial management practices and financial sustainability focusing on the County Government of Nakuru. Specifically, the study examined how budget management, value management, financial controls and governance and accountability are related to financial sustainability. The study was guided by the agency theory and resource-based theory. The study employed descriptive research design. The study utilized quantitative approach in the collection of data. The study population constituted a total of 84 accountants, finance officers, auditors, revenue officers, and sub-county administrators working with the County Government of Nakuru. A census design was adopted. A set of structured questionnaires was employed to aid in data collection. The research questionnaire was pilot tested in order to determine its validity and reliability before it was used to facilitate collection of data for the main study. The Statistical Package for Social Sciences version 24.0 computer software was used to facilitate data analysis. Data collected from the questionnaires were analyzed using descriptive and inferential statistics. The findings were presented in form of tables and were interpreted and discussed in line with the study objectives. It was found that there existed a weak, positive and not significant relationship between budget management and financial sustainability (r = 0.091; p > 0.05). Financial controls, value management, and governance and accountability were positively and statistically correlated with financial sustainability (p < 0. 05). It was revealed that 26.5% variation in financial sustainability of the County Government of Nakuru could be explained by the studied financial management practices. It was concluded that strengthening the stated financial management practices was likely to lead to improved financial sustainability. As a way of improving its financial sustainability, the county government is recommended to minimize its expenditures. The county government is also recommended to enhance its revenue streams so that it can pay creditors, suppliers and workforce without delays.