Financial Management Dimensions and Financial Distress in County Governments of Kenya

Abstract

County governments of Kenya have experienced significant challenges in financing key development projects, paying contractors and suppliers as well as employees’ salaries in time. The accumulation of these due payments and liabilities have contributed immensely to the deterioration of financial health of counties in the country. This situation necessitated the undertaking of research on financial management dimensions and financial distress in county governments of Kenya. The objectives of the study were based on dimensions of financial management in government sector and included; to examine the influence of revenue management on financial distress, to determine the influence of auditing practices on financial distress, to assess the influence of debt management practices on financial distress, to examine the influence of financial information systems on financial distress in county governments of Kenya and to determine the moderating effect of counties’ resource allocation on financial management dimensions influencing financial distress in County Governments of Kenya. The research was further guided by six theories comprising; wrecker’s theory, theory of critical accounting, debt management theory, entropy theory, resource dependency theory and financial distress theory. Descriptive survey research design was employed. Data was collected from auditors and accountants in Nairobi, Nakuru, Kakamega, Meru and Kilifi County Governments. A sample of 103 respondents was obtained from total 212 auditors and accountants using stratified random sampling technique. Data was collected through questionnaires and analysed using descriptive and inferential statistical methods with aid of statistical packages for social sciences. Study findings were presented by statistical tables. Descriptive findings established that financial management dimensions; local revenue management, auditing practices, debt management and financial information systems influenced financial distress. The correlation coefficient results established a strong relationship between the financial management dimensions in the county governments and financial distress. In particular, the coefficient of determination revealed that financial distress was explained by the changes in the revenue management, auditing practices, debt management, and financial information systems. Based on study findings, County governments of Kenya are recommended to formulate proper policies and strategies for revenue collection and utilization. They should come up with better collection methods and ways of sealing loopholes for revenue loss. It is also recommended that county governments should relook into competences of the auditors and increase financial support for auditing activities. The research work will be beneficial to finance departments in National and County Governments. They will guide on sourcing and utilization of financial resources, management of debts and efficiency in service delivery. It will also provide ingredients for improving the monitoring of county activities by national government through the office of auditor general to ensure compliance and efficient service delivery.