Effect of Public Financial Management Practices on Performance of County Governments in Kenya

Abstract

The general objective of this study was to examine the effect of public financial management practices on performance of county governments in Kenya. The specific objectives of the study were to investigate how: financial planning and budgeting; internal control; public financial procurement; revenue mobilization and public financial governance practices influence on the performance of county governments in Kenya. One of the objects of devolution is to devolve economic resources closer to the people and for this to be felt by the citizens, effective public financial management practices are required. From literature reviewed it was established that there are limited studies done on the same hence this study intends to fill the gap by contributing to the existing body of knowledge. Despite the improved legislative and institutional frameworks on public finance management in the last six years, Kenya continues to experience myriad challenges that are not in line with the expected global standard practices thus leading to impoverished service delivery. In addition, this study intends to enhance policy frameworks that streamline prudent management of public resources. The research was anchored on Theory of Participative Budgeting and Agency Theory among others. The study used mixed research design and a purposive sampling technique. The respondents included all accounting officers and directors from county treasuries in the top ten counties selected on the locally collected revenue list as shown in the Office of the Controller of Budget’s Annual Budget Implementation Report for financial year 2016/2017. Primary data was collected using a questionnaire whereas secondary data was obtained from Office of Controller of Budget, Office of the Auditor General and County Treasury Offices. The study used both qualitative and quantitative data. While content analysis was used to analyse the qualitative data, Statistical Package for Social Science Version 21 was used to analyze quantitative data that generated both descriptive and inferential statistics. Multiple linear regression analysis was used to establish the effect of public financial management practices on performance of county governments in Kenya. The major finding was that internal control practices that include control activities, control environment and internal audits had the highest significance (F (1, 210) =186.715, p<0.05) on performance of county governments. From the findings of the study, it was concluded that those county governments that had invested in effective internal control systems had more improved performance as compared to those county governments that had a weak internal control system. From the findings, it was revealed that those county governments that observed integrity, ethical values, risk assessment, control activities, and monitoring procedures recorded high performance. The study therefore recommends that in order to attain transparent public financial management practices and reporting in public offices, there should be strict adherence to the nations’ constitutional framework in terms of preparation and presentation of financial statements, submission and review as well as timely report of the Auditor-general to the Parliamentary Public Account Committees. The study recommends that the relevant county government officials should be constantly updated and well-grounded in international financial reporting standards (IFRS) and principles in order to enhance their knowledge and skills in application of public financial management practices and to keep them updated on the contemporary issues.