INTERNATIONAL JOURNAL OF ACADEMICS & RESEARCH (IJARKE) · 2019. 9. 23. · Safia Mohamed Ngazi, Jomo Kenyatta University of Agriculture & Technology, Kenya Dr. Abdullah Ibrahim Ali,

INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH ISSN: 2617-4138 IJARKE Business & Management Journal DOI: 10.32898/ibmj.01/2.1article17

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172 IJARKE PEER REVIEWED JOURNAL Vol. 2, Issue 1 Aug. – Oct. 2019

Influence of Public Finance Management on the Financial Performance of

Mombasa County Government – Kenya

Safia Mohamed Ngazi, Jomo Kenyatta University of Agriculture & Technology, Kenya

Dr. Abdullah Ibrahim Ali, Jomo Kenyatta University of Agriculture & Technology, Kenya

1. Introduction

Effective institutions and systems of public financial management play a critical role in the implementation of government

policies and sound economic management. A good PFM is the linchpin that ties together available resources, delivery of services,

and achievement of government‟s policy objectives. Strong PFM systems are required to maximize the efficient use of resources,

create the highest level of transparency and accountability in government finances and to ensure long-term economic success. If it

is done well, PFM ensures that revenue is collected efficiently and used appropriately and sustainably (PEFA, 2016). PFM is a

lever to broader country development, to raising revenues effectively, planning and executing budget decisions reliably and

transparently, and to building trust for donors and investors and the entire citizenry. The recognition that development should be

led by countries if it is to have lasting transformative impact requires greater international reliance on country PFM systems

(CIPFA, 2009).

Notably, a dysfunctional PFM will not guarantee a proper public revenue collection and public expenditure that is done

according to the law hence leading to poor service delivery. The most evident signs of a bad PFM system are persistent budget

deficits and large differences between approved budgets and actual expenditures. Well-designed and well-functioning financial

management systems are essential prerequisites for effective states and development outcomes. The aims of public financial

management are the provision of services to citizens and optimum and sustainable use of public resources through aggregate fiscal

discipline, allocative efficiency, equity, redistribution of wealth and value for money in a transparent and accountable way (NAZ,

2017).

INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH (IJARKE Business & Management Journal)

Abstract

The rapid growth in government expenditure in Kenya has caused concern among policy makers on the implication of such

growth. Over the three decades, government expenditure in the country grew at a faster rate than the growth rate. Given this

fiscal scenario, an explanation of this requires studying the impact of government expenditure on economic growth. The

specific objectives of the study were to examine the influence of revenue mobilization, budgeting practices, internal control

and financial planning on financial performance in Mombasa County Government, Kenya. To strengthen the conceptual

framework the researcher used theories such as the systems theory, new public management theory and allocative efficiency

theory. The study adopted a descriptive research design. The study collected primary data through use of questionnaires with

respondents in the construction industry. The target population was 210 people. The sample size was 138. On revenue

mobilization, the study findings established that Mombasa County Government collects insufficient revenue to finance its

function. The study established that Mombasa County Government is majorly financed by the central government of Kenya.

On budgeting practices, the study established that through the County Integrated Development Plan, residents are allowed to

prioritize the areas where they want development to happen within the county. On internal control, the study established that

Mombasa County Government has put in place sufficient mechanisms for detecting fraud, theft and misuse of scarce financial

resources through checks and balances. On financial planning, the study established that through budgeting process, Mombasa

County Government has a financial plan. However, the study revealed that due to lack of sufficient finances, the study

findings the county is not able to implement all the financial plans set out in the budget. The study concluded that internal

controls have a significant effect on financial performance in Mombasa County Government, Kenya. The study recommended

that; Mombasa County Government should mobilize finances from other sources such as offering municipal bonds to increase

revenue for development purposes rather than depend on the central government allocation; Mombasa County Government

should prioritize spending on projects that will have a positive impact on the residents, and this will have an effect which will

enable residents land rates; Mombasa County Government should continuously strengthen internal controls to safeguard the

little resources available from theft, misuse and misappropriation; Mombasa County Government should not offer waiver on

land rates, instead they should allow residents to make partial payments.

Key words: Public Financial Management, Revenue Mobilization, Internal Controls, Financial Performance, County

Government of Mombasa


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Although PFM has been regarded as essential to effective development programmes there has been no clear definition of what

it is. Lawson (2015) defines PFMP as a set of laws, rules, systems and practices used by governments to mobilize revenue,

allocate public funds, and undertake public spending, account for funds and audit results. The practices include resource

generation, resource allocation, and expenditure and resource utilization. Comparatively, CIPFA (2009) defines „Public financial

management practices (PFMP) as the system by which the financial aspects of the public services‟ business are directed,

controlled and influenced, to support the delivery of the sector‟s goals. The „Public‟ in PFMP draws attention to the features that

are distinctive about financial management practices in the public sector, particularly the heightened expectations of transparency

and accountability, the constrained resources in the face of demand levels that are not primarily controlled by price, and the

political environment. Resolving competing demands for resources is a value driven process rather than a technocratic solution.

There is also a set of processes that are specific to the public sector, such as tax administration. Financial management in the

public sector is qualitatively different from its private sector counterpart, even though there are some common professional

standards and techniques (CIPFA, 2009).

PFM is at the center of this national socio-economic system. PFM underlies all government activity and is, therefore, practiced

in a dynamic environment. It has a lot in common with private financial management, as many of the practices of budgeting,

expenditure and reporting also hold true for private organizations. Whereas the main focus for private financial management is to

ensure that investors and owners of businesses make a profit, the focus of public financial management is the efficient provision

of services to citizens and optimum use of public resources. Hence, public financial management practices concern it with

achieving aggregate fiscal discipline, allocative efficiency, equity, redistribution of wealth and value for money in a transparent

and accountable manner. It is, therefore, important to understand how various PFM functions fit into a broader system of rules and

regulations that govern the management of public resources, and what these functions are ultimately intended to achieve as a

whole (NAZ, 2017).

Governments have a responsibility to provide goods and services for their citizens in an efficient and effective manner despite

having differing ideologies and value systems. The different ideologies and values influence the direction of economic policies on

how best to make use of the country‟s scarce resources. The environment in which economic activity takes place, therefore,

depends upon the people, the resources available within the country, PFM practices and the systems designed to provide for the

welfare of the citizens (NAZ, 2017).

In the early 2000, the Government of Kenya identified a well-functioning PFM system as a cornerstone to achieving national

development. The first PFM reform strategy covered the period 2006-2011 under the theme “Revitalization of Public Financial

Management System in Kenya” (ROK, 2016). At the end of implementation period, many of the reforms had not been completed.

Furthermore, changes in the Constitution of Kenya, 2010 also presented new opportunities for major institutional and legal

reforms in PFM practices. These included the creation of counties through a major devolution policy and the establishment of new

institutional roles. In addition, the enactment of the Public Finance Management Act 2012 and other PFM practices related

legislations expanded the demand for PFM institutional reforms. These issues among others formed the foundation upon which

the 2013-2018 PFM Reform Strategy was formulated (ROK, 2016).

Wang'ombe and Kibati (2018) point out that the PFMA, 2012 clearly stipulates the principles, practices and framework for

public finance management by all government entities. The requirements and practices of public finance stipulated in Article 201

of the constitution are: openness and accountability, including public participation in financial matters, equity in distribution of

resources to ensure that resources are shared between the current and future generations. Further, it requires that public funds are

used prudently for the intended purposes and in a responsible manner. Finally, the PFMA 2012 requires that there is clarity in

fiscal reporting and responsible public financial management practices. These constitutional principles are further expounded

under Section 107 of the PFMA, 2012 ("Public Finance Management Act," 2012).

Presently, Kenya is seven years into implementing the devolved system of governance as espoused in the Constitution of

Kenya (CoK) 2010. In addition to introducing 47 County governments with fiscal responsibility, the CoK 2010 also established

new PFM institutions such as the Commission on Revenue Allocation (CRA), Salaries and Remuneration Commission (SRC) and

Office of the Controller of Budget (COB) and expanded the mandate of the Auditor General. Additionally, the PFM Act 2012 has

specified roles for the National Treasury and Parliament on public financial management practices. Furthermore, so as to meet the

enlarged financing demands of both the national and 47 county governments there was a need for increased efficiency and

effectiveness in utilization of scarce public resources (RoK, 2016).

Just like most countries in Africa and other parts of the world, the need for reforms in the public financial management sector

in Kenya arose out of previous challenges faced and gaps identified that lead to embezzlement of public funds, inequities arising

in resource redistribution nationally and centralized systems of governance with inadequate checks and balances. The PFM

reforms in Kenya were aimed at making public financial management more efficient, effective, participatory and transparent

resulting in improved accountability and better service delivery. The PFM Act 2012 aims at achieving better public finance

management as envisioned by public finance in Chapter 12 of the Constitution of Kenya. Enactment of this Act repealed the

Public Financial Management Act No. 5 of 2004 (SID, 2012). ROK (2016) notes that there is momentum to reform the PFM in


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Kenya to make it more efficient, effective, participatory and transparent, thus resulting in improved accountability and better

service delivery

The responsibilities of the County Treasury with regard to public funds are outlined in Section 109-116. Each county

government is required to establish a County Revenue Fund. The County Treasury for each county is to ensure that all the money

raised or received by or on behalf of the county government is paid into the County Revenue Fund, except money that is outlined

in Subsection 2(a-c). The Act allows the County Executive Committee to establish county government emergency funds, which

will consist of money from time to time appropriated by the County Assembly through an appropriation law. The purpose of an

Emergency Fund is to enable payments to be made in respect of a county when an urgent and unforeseen need for expenditure for

which there is no specific legislative authority arises. Authority is conferred to the County Executive Committee to make

payments from emergency funds. On accountability, the County Treasury is required to submit a financial report to the Auditor-

General in regard to utilization of the Emergency Fund. Subsection 2(a) further outlines what should be included in the financial

statement. In addition to the emergency funds, the County Executive Committee (CEC) is permitted to establish any other public

fund, with approval of the CEC and the County Assembly, and appoint a designated person to administer such public fund.

2. Statement of the Problem

Despite the strong legislative and institutional frameworks for PFM in the last six years, Kenyan public finance management

arena continues to experience myriad challenges that are not in tandem with the principles of public finance. For instance, since

the beginning of devolved systems of government in 2013, every annual Auditor General‟s and Controller of Budget‟s Report has

been indicating that some devolved units spend in total disregard to the PFM Act of 2012, the PPAD Act of 2015 and other fiscal

responsibility principles (CoB, 2017). In particular, the reports clearly note that every year the county governments are allocated

more than the stipulated 15 per cent of the national revenue with regular annual increments with KES 368 billion given in FY

2018/2019 compared to KES 341 billion in FY 2017/2018. However, lack of proper accounting systems and weak controls at the

county level have continuously facilitated misuse of the allocated public funds, slowing down service delivery and overall

performance of the county governments (CoB, 2017).

While various past studies have suggested that in order to optimize performance and effectively deliver services, county

governments should consider having robust public financial management practices that include good financial planning and

budgeting, effective internal control, prudent public finance procurement, efficient revenue mobilization and potent public

financial governance, a few of them have adopted these practices but the rest have not ( (Lerno, 2018; Lotiaka, Namusonge, and

Wandera, 2018; Mutua and Wamalwa, 2018; Njahi, 2018; Obwaya, 2018; Ochoi and Memba, 2018). For instance, in FY 2016/17,

the aggregate revenue raised by the county governments amounted to Kshs.32.52 billion, which was 56.4 per cent of the annual

local revenue target of KES.57.66 billion. This performance represented a decline of 7.1 per cent from KES.35.02 billion

generated in FY 2015/16, which was 69.3 per cent of the annual revenue target. It is therefore imperative to note that these low

local revenue performance leads to insufficient funds and hence delayed or hindered service delivery in certain important sectorial

areas within the affected counties hence need for this study.

It is therefore evident from the various past studies that there are inconsistences in results and gaps in the literature that have

been occasioned by various factors hence the need to for this study to investigate the influence of public financial management on

the financial performance of Mombasa County Government, Kenya.

3. Objectives of the Study

3.1 General Objective

The main objective of the study was to determine the influence of public finance management on the financial performance of

Mombasa County Government, Kenya.

3.2 Specific Objectives

The study was guided by the following specific objectives:

i. To examine the effect of revenue mobilization practices on financial performance of Mombasa County Government, Kenya ii. To examine the effect of budgeting practices on financial performance of Mombasa County Government, Kenya.

iii. To evaluate the effect of internal controls on financial performance of Mombasa County Government, Kenya. iv. To examine the effect of financial planning on financial performance of Mombasa County Government, Kenya.

4. Literature Review

4.1 Theoretical Framework


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4.1.1 Systems Theory

This theory was applied in this study to indicate how the PFM practices of budgeting and accounting, auditing and regulatory

framework work as a system to ensure that public finances are efficiently utilized to provide services to the people. The systems

theory was devised by Easton (2015). Easton broadly posits that the systems theory focuses on a set of patterned relations

involving frequent interactions, and a substantial degree of interdependence among members of a system. Systems theory is

grounded on the notion that intents or foundations within a group are related to one another and in turn interact with one another

on the basis of certain recognizable processes.

Broback and Sjolander, (2016) describe public financial management as consisting of key sub-components identified as

revenue collection, planning and budgeting, accounting, auditing and governance. Anderson and Isaksen (2018) further state that

sub-components exist as a system of related constituents and that reform or development of one subcomponent is dependent and

conditioned on the state of the other components if development objectives are to be met. All the identified sub-components of

public financial management are important in a development context and must be improved in order for government to implement

its development and service delivery objectives. This therefore was used in this study to explain how the four selected public

financial management practices can influence each other and in turn influence service delivery.

4.1.2 New Public Management Theory

This theory was applied in this study to link effective practices of revenue collection, allocation and oversight in the effective

delivery of services in the public sector. The new public management (NPM) theory focuses specifically on issues of making

governments efficient (Kaboolian, 2018). Savoie (2003) notes that the theory recommends changes to make governments more

efficient and responsive by employing private sector techniques and creating market conditions for the delivery of services.

Additionally, Osborne (2006) indicates that the NPM theory asserts the superiority of private managerial techniques over those of

public administration and has the assumption that the adoption of private sector practices would lead to improvements in the

efficiency and effectiveness of public services. In effect, NPM theory relies heavily on the theory of the private sector and on

business philosophy (Osborne, 2016).

The assumptions of NPM easily apply to issues of public financial management and its influence on service delivery. NPM

perspectives emphasize compliance with ethics, transparency, equality, fairness, responsibility, accountability, prudence,

participation, responsiveness to the necessities of the people and efficiency in the administration of public resources. Public

financial management is the coordination of public financial resources for efficiency in public service delivery. It involves

revenue collection, planning and budgeting, internal controls, audit and external oversight, among others with a view to promoting

availability of benefits to the greatest number of citizens (Broback & Sjolander, 2016).

Bartle and Ma (2018) posit that PFM involves effectively organizing, directing and managing financial transactions in the

public sector. There is therefore a need for effective management and institutional designs, both of which are aimed at making the

public sector more efficient like the private sector. This is expected to invigorate performance and decrease corruption. Other

assumptions include citizen-centered services, value for taxpayers‟ money, and a responsive public service work force. Osborne

(2016) describes some other elements of NPM which have strong relevance to public financial management. NPM theory was

applied in this study to link best practices in budgeting, revenue collection, auditing and governance to public service delivery.

4.1.3 Allocative Efficiency Theory

Allocative efficiency theory was applied in the study to link budgeting practice to service delivery in the devolved county

units. The allocative efficiency theory was devised by Farrell (2017). Also referred to as social efficiency, allocative efficiency

depicts how scarce resources could be efficiently allocated to priority areas to meet people‟s needs optimally. It is a declaration

around the ethically ideal use of funds, where there is unquestionably a just atmosphere to the model, as it is deliberated to be

decent and communally accountable to use public resources to meet the needs of the electorate.

In the current study, this theory was applied to establish how financial management practices of revenue collection, budgeting,

auditing and governance can be effectively applied to enhance allocative efficiency. For allocative efficiency to be present,

resources must be set aside for the needs and projects that people want. This is regardless of the economic value or correctness of

their priorities.

5. Conceptual Framework

Bryman & Bell (2015) defines conceptual framework as a concise description of phenomenon under study accompanied by a

graphical or visual depiction of the major variables of the study. According to Young (2019), conceptual framework is a

diagrammatical representation that shows the relationship between dependent variable and independent variables. A conceptual

framework shows the relationship between independent and dependent variable. In this study, the dependent variable is the


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economic growth while the independent variables are public debt servicing, investment expenditure, transfer payment and

development expenditure (See Figure 1).

Independent Variables Dependent Variable

Figure 1: Conceptual Framework

6. Discussion of Key Variables

6.1 Revenue Mobilization Practices

Revenue mobilization is classified as one of the sub-systems of public funds management, and which has a link to service

delivery in decentralized government units. Akpa (2018) observed that revenue is a necessary tool for the effective functioning of

any government machinery and no government agency can survive without adequate revenue. Revenue for government is

collected through taxation and other fees. Thies (2010) and Salami (2011) posit that taxation is the primary mechanism of revenue

mobilization for government.

According to Bird (2010), sound revenue mobilization practices for government units are an essential pre-condition for the

success of public service delivery. This is because, apart from raising revenues, local revenue mobilization has the potential to

foster political and administrative accountability by empowering communities (Oates, 2011). According to Baumann (2013)

successful decentralization needs to give scope and resources for the contribution to development by all actors. In many countries,

the decentralized governments act as a tier of government requiring adequate finances to enable them cope with numerous

developmental activities within their jurisdiction. Nevertheless, many of them are coupled with dwindling revenue generation,

remaining overwhelmingly dependent on central government for its financial resources, with limited revenue raising ability

(Oyugi, 2010).

In general, there are two main categories of current revenue for decentralized government units in Africa. One of these is own

revenue or internally generated revenue which includes taxes, user fees, and various licenses (Bahl & Bird, 2014). Decentralized

governments are not completely dependent on central government and do themselves have some revenue-raising powers. Such

local taxation is limited, however, with the lucrative tax fields (for example, income tax, sales tax, import and export duties) all

belonging to the center, while local government has is access only to low yielding taxes such as basic rates and market tolls.

Many local tax systems in Anglophone Africa are characterized by high levels of arbitrariness, coercion and corruption

(Pimhidzai & Fox, 2011). Local governments seem to raise whatever taxes, fees, and charges they can, often without worrying

excessively about the economic distortions and distribution effects that these instruments may create. In a study of small and

medium sized enterprises in Zambia, Misch, Koh and Paustian (2011) found that the effective tax burden varies substantially

Revenue Mobilization Practices

Adequacy of revenue generated

Cost efficiency of revenue collection

Transparency of revenue collection

Budgeting Practices Inclusivity and Consultations

Citizen participation in budgeting

Prioritization of Issues in budgeting

Financial Performance

Revenues

Employment

Capital Accumulation

High Ratings of services

Internal Controls

Control Environment & Activities

Internal Audit

Risk Assessment

Financial Planning

Financial Reporting & Analysis

Financial Strategy

Financial Controls


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between firms. Enterprises face a range of different taxes, fees and licenses, and the types of taxes that firms are subject to differ –

not only between sectors, but also between firms within the same sector. The type of fees and levies differs substantially, even

among businesses in the same municipality. In addition, the levels and types of local revenue instruments by themselves can result

in the tax burden falling more on the poor than on the relatively better-off in local communities.

A study from Uganda shows that small, informal non-farm enterprises pay local taxes in a regressive way (Pimhidzai & Fox,

2011). While the majority of the micro enterprises in the Ugandan sample were poor enough to be exempted from national

business taxes including the small business tax and Value Added Tax (VAT), they ended up paying a large share of their profits to

local authorities – with the poorest paying the highest share of profits. This is mainly due to the basic design of the local revenue

system and the way revenues are collected. Thus, a top-down drive towards more taxation of this sector could be

counterproductive and would increase the vulnerability of these informal enterprises.

A study by Fjeldstad and Heggstad (2011) on the tax systems in Mozambique, Tanzania and Zambia finds that local taxation is

still a major constraint on the commercialization of smallholder agriculture and formalization of small and micro enterprises.

Specifically, multiple taxes (including fees and charges) make it difficult to enter new businesses and markets. Similarly, Misch et

al., (2011) also found that levies were perceived as exorbitant, often charged up-front irrespective of the size and type of business.

New local taxes, fees and charges have been introduced, replacing taxes abolished by the government in recent years. This

contributes to undermining the legitimacy of the local tax system, encourages tax evasion and delays the formalization of micro

and small-scale enterprises.

The devolution of revenue mobilization and spending powers to lower levels of government in turn has had its share of

challenges (Odd-Helge & Kari, 2012). Ola and Tonwe (2010) suggest that lack of finance remains a major challenge to the

success of devolution in many African countries. Many of the devolved units are faced by the challenges of mobilizing

appropriate levels of revenue to enable effective service provision and address poverty and inequality issues at the local level

(Latema, 2013). Fosu and Ashiagbor (2012) posit that many of the devolved units are financially weak and rely on financial

transfers and assistance from the central government. If the local governments were to be able to enhance their revenue collection,

a lot of revenue would be generated for undertaking development projects.

6.2 Budgeting Practices

Budgeting allows resources to be released to the spending agencies to enable them to implement their expenditure programmes

(Lee, 2012). The study by He (2011) and Ma (2007) established that behind China's participatory budgeting are three distinctive

logics based on administration, political reform and citizen empowerment. Each of the three logics denotes different

conceptualizations and understandings of participatory budgeting constituting different frameworks in which participatory

budgeting programmes and activities operated. Application of participatory budgeting in China played a bigger role in creating a

good working relationship between the provincial governments and the people. This was followed by improved efficiency in

service delivery and good prioritization of what the citizens wanted.

Nayak and Samanta (2014) conducted a study in rural West Bengal, India which had the purpose of understanding the role of

community participation in budgeting on public service delivery. The study noted that in India, like many other developing

countries, governments (central, state, and local) spend a sizeable portion of their budget toward creating public utilities and

providing host of public services. However, such services often fail with respect to their access, productivity, and equity. Earlier,

Chattopadhyay et al. (2010) had revealed that resources in India are available, but ironically, there is dearth of ability and

willingness to plan and utilize them optimally. At times, resources are diverted to meet less important needs or there are

conspicuous leakages leading to difficulties of using them productively. There are two interconnected deficiencies that may have

been causing failure of public service delivery in India lack of need-based planning and lack of monitoring over resources.

Nayak and Samanta (2014) conducted a study based on the primary household level survey conducted in the district of East

Midnapore in the state of West Bengal, India. The study established that there is existence of direct relationship between

participation in budgeting and delivery of public services. More political affiliation by locals was seen to have a more powerful

impact on the citizens‟ likelihood of participating in budgets and hence contributing to better service delivery (Chattopadhyay et

al., 2010).

6.3 Internal Controls

McKenna (2011) posits that auditing could be defined as a systematic and independent examination of data, statements,

records, operations and performances, financial or otherwise of an enterprise for a stated purpose. Auditing has the role to ensure

that public funds are not subject to fraud, waste and abuse or subject to error in reporting.

Morin (2011) conducted a study aimed to examine to what extent Auditor General of Quebec had been achieving this objective

of improving service delivery through the Value for Money (VFM) audits conducted in the Canadian province of Quebec from

1995 to 2002. The findings of the study revealed that VFM audits were helpful in the agencies and organizations audited. The


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management of the organization and the service delivery by the organizations were reported to have improved due to VFM audits.

The factorial analysis brought to light two major lines along which auditors saw such audits as helpful. The first is that of moving

auditors into action and the second is that of drawing authorities‟ attention to specific problems.

A study in Brunei by Athmay (2008) sought to establish the role of performance auditing and public sector management in

Darussalam. The study established that the era of NPM has brought some significant changes in the meaning of public sector

accountability. The study revealed that performance auditing is not better established in Brunei. The form of auditing that is

prevalent in Brunei is the traditional regularity and financial audits which focus on compliance with laid down procedures. This

form of auditing did not have any effect on service delivery since it did not focus on outcomes and just focused on conformance

with laid down rules and regulations.

6.4 Financial Planning

Financial Planning is a process of framing objectives, policies, procedures, programmes and budgets regarding the financial

activities of a concern. The long-term financial plans (strategic) serve as script in the preparation of the short-term financial plans

(operational). The short-term financial plans are visualized in one period – from one to two years. The long-term plans go from

two to ten years. This helps in reducing the uncertainties or risks which can be a hindrance to growth of the company. This helps

in ensuring stability and profitability in a concern. In general usage, a financial plan can be a budget, a plan for spending and

saving future income for both private and public sector (Obwaya, 2018).

Shah (2017) states that budgets are important tools of financial management employed to direct and control the affairs of large

and multifarious institutions. They are used not only by governments, where budgeting had its origins, but in other public bodies,

in industry and commerce and in private families. In this study, a budget acts as a tool for planning and controlling the use of

scarce financial resources in the accomplishment of county governments‟ goals as outlined in County Integrated Development

Plans. The county budget is an invaluable aid in planning and formulating policy and in keeping check on its execution. It

stipulates which activities and programs should be actively pursued, emphasized or ignored in the period under scope, considering

the limited financial resources available to the organization. Any good budget process needs to attain three important objectives,

namely, maintenance of fiscal discipline, attaining allocation efficiency and operational or technical efficiency (Obwaya, 2018).

Mwaura (2018) investigated whether financial planning has an impact on the financial performance of the firms in the

automobile industry in Kenya. The design of the study was descriptive research method. Primary data was obtained through

questionnaires to randomly selected employees of the selected companies. The results of the study indicated that the financial

planning measures such as earnings before interest and tax and the capital employed which comprises of fixed assets and working

capital had an impact on the financial performance of the firm measured by return on capital employed (ROCE). This study

showed that there was strong relationship between financial planning and financial performance of a firm. Hence, the success of

any business depends on the manner the financial plans are formulated (Mwaura, 2018).

Ngaruro (2018) examined the relationship between financial planning and financial performance of public service

organizations with particular reference to commercial oriented public service organizations in Kenya. The researcher used

descriptive survey research design in collecting data from the respondents. The census-sampling procedure was used which

involved the use of the entire target population of forty-seven (47) finance managers drawn from commercial oriented parastatal

organizations. The researcher used questionnaires in collecting data that was analyzed quantitatively and qualitatively. The study

established existence of a relationship between focusing on organization objectives, allocation of resources, risk management and

financial performance.

6.5 Financial Performance

Financial management Practice is a managerial accounting strategy focusing on maintaining efficient levels of both

components of fund, current assets and current liabilities, in respect to each other. Finance management ensures a project has

sufficient cash flow in order to meet its short-term debt obligations and operating expenses. Finance management is a very

important component of corporate finance because it directly affects the liquidity, profitability and growth of a business. It is

important to the financial health of businesses of all sizes as the amounts invested in working capital are often high in proportion

to the total assets employed (Simon & Jamal, 2017).

Financial performance refers to the degree to which financial objectives are being or have been accomplished. It is the process

of measuring the results of a firm's policies and operations in monetary terms. It is used to measure firm's overall financial health

over a given period of time and can also be used to compare similar firms across the same industry or to compare industries or

sectors in aggregation. Public institutions in Kenya have traditionally been witnessed poor financial performance due to poor

financial management practices characterized by: Poor controls and audit trails and systems documentation; Lack of system data

checks and controls; Poor response time; Limited ability to generate reports and weak access security. Traditionally, financial

management practices in government institutions are aimed at avoiding wastage and extravagant spending, and especially, the loss

of resources through possible fraud, irregularity or improper spending. But the rise of New Public Finance Management,


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associated with neo-liberalism, has significantly reduced the emphasis given to public financial management regularity and

probity (Cheruiyot, Oketch, Namusonge, & Sakwa, 2017).

7. Research Methodology

The researcher used descriptive research design. Descriptive study is concerned with finding out who, what, where and how

much of a phenomenon, which is the concern of the study. Sekaran, (2015) observes that the goal of descriptive research is to

offer the researcher a profile or describe relevant aspects of the phenomena of interest from the individual, organization, industry

or other perspective. In addition, the design best fit in the ascertainment and description of characteristics of variable in this

research study and allows for use of questionnaires, interviews and descriptive statistics such as frequencies and percentages. In

addition, a descriptive design is appropriate since it enables the researcher to collect enough information necessary for

generalization.

Zikmund, Babin, Carr and Griffin, (2017) defined a population in research as any group of institutions, people or objects that

have at least one characteristic in common. Sekaran (2015) further explains that a target population in experimental research refers

to the total number of all possible individuals relating to a topic which could, if funds were available, be included in a study. This

study targeted 210 people (County Government of Mombasa, 2018) comprising finance managers, finance auditors and finance

officers.

Table 1 Target Population

Category Target Population

Finance Managers 10

Finance Auditors 50

Finance Officers 150

TOTAL 210

Sample size determination is the act of choosing the number of observations or replicates to include in a statistical sample. The

sample size is an important feature of any empirical study in which the goal is to make inferences about a population from a

sample (Bryman and Bell, 2018). The total sample size for this study was obtained using the formulae developed by Cooper and

Schinder, (2013) together with (Kothari, & Garg, 2018). The sample size was 138.

n = N / 1 + N (α) ²

Where:

n= the sample size,

N= the sample frame (population)

α= the margin of error (0.05%).

n = 210 / 1+210(0.05)2 = 138

Table 2 Sample Size

Target Population Sample Size

Finance Managers 10 10

Finance Auditors 50 44

Finance Officers 150 84

TOTAL 210 138

8. Research Findings

8.1 Descriptive Statistics

8.1.1 Revenue Mobilization

The first objective was to examine the effect of revenue mobilization on financial performance in Mombasa County

Government, Kenya. The statement in agreement that there are efforts in the county to optimize owns source revenues had a mean

score of 4.68 and a standard deviation of 0.588. The statement in agreement that the county revenue management system

conforms to existing national and county policies had a mean score of 4.03 and a standard deviation of 1.219. The statement that

revenue automation will increase performance had a mean score of 4.08 and a standard deviation of 1.600. The statement that the

county has not developed new and sustainable strategies to improve revenue mobilization had a mean score of 3.96 and a standard

deviation of 1.445. These results agree Simon and Jamal, (2017) that funds that the county governments use come from the central

governments and revenues from local taxes. The study revealed that majority of counties have not tapped into other modes of

collecting or accessing further finances through the use of a municipal bonds, syndicated loans and grants from international

financial institutions.


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Table 3 Revenue Mobilization

N Mean

Std.

Deviation

There are efforts in the county to optimize own source

Revenues 112 4.68 .588

The county revenue management system conforms with

existing national and county policies 112 4.03 1.219

Revenue automation will increase performance 112 4.08 1.600

The county has not developed new and sustainable strategies

to improve revenue mobilization 112 3.96 1.445

Valid N (listwise) 112

Notwithstanding, the results showed that a positive statistically significant relationship existed between the two variables with

FPBP explaining 13.4% of performance of county governments in Kenya leaving 86.6% by other factors outside the model.

Therefore, sound revenue mobilization practices for government units are an essential pre-condition for the success of public

service delivery. This is because, apart from raising revenues, local revenue mobilization has the potential to foster political and

administrative accountability by empowering communities; hence, ineffective revenue mobilization practices may hamper service

delivery. In addition, the findings showed that in many counties, the decentralized governments act as a tier of government

requiring adequate finances to enable them cope with numerous developmental activities within their jurisdiction. Nevertheless,

many of them are coupled with dwindling revenue generation, remaining overwhelmingly dependent on central government for its

financial resources, with limited revenue raising ability which hampers their service delivery to the citizens (Cheruiyot, et al.,

2017).

8.1.2 Budgeting Practices

The second objective was to determine the effect of budgeting practices on financial performance in Mombasa County

governments, Kenya. The statement that the budgeting process in the county is inclusive and wide consultations take place had a

mean score of 4.32 and a standard deviation of 0.808. The statement in agreement that citizens participate in the budgeting process

to ensure that important issues are given priority had a mean score of 4.43 and a standard deviation of 1.406. The statement in

agreement that enough resources are allocated to various projects based on clear criteria understood by stakeholders had a mean

score of 4.41 and a standard deviation of 0.679. The statement in agreement that the budgeting and planning process is realistic

and practical had a mean score of 4.40 and a standard deviation of 0.822. The statement in agreement that addressing

marginalization and inequalities are key concerns in the budgeting process had a mean score of 4.24 and a standard deviation of

1.245. This agrees Cheruiyot, et al., (2017) that Budgeting Practices include budget and budgetary practices, financial forecasting

practices and financing decisions practices. Therefore, budgeting allows a county government‟s treasury to plan, make proper

choices, and decide on the mission and direction of a county government. However, the study found out that while various

counties utilize County Integrated Development Plan as its primary planning document for all the projects and programmes,

timely disbursement and resource allocation have always remained the principal means of implementing them.

Table 4 Budgeting Practices

N Mean

Std.

Deviation

The budgeting process in the county is inclusive and wide

consultations take place 112 4.32 .808

Citizens participate in the budgeting process to ensure that

important issues are given priority 112 4.43 1.406

Enough resources are allocated to various projects based on

clear criteria understood by stakeholders 112 4.41 .679

The budgeting and planning process is realistic and practical 112 4.40 .822

Addressing marginalization and inequalities are key concerns

in the budgeting process 112 4.24 1.245


8.1.3 Internal Control

The third objective was to examine the effect of internal control on financial performance in Mombasa County, Kenya. The

statement in agreement that the county has standardized documents used for financial transactions, such as invoices, internal

materials requests, inventory receipts and travel expense reports, to maintain consistency in record keeping over time had a mean

score of 4.69 and a standard deviation of 0.987. The statement that there are specific managers/officers required to authorize

certain types of transactions had a mean score of 3.77 and a standard deviation of 1.489. The statement that there are robust access


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tracking mechanisms that serve to deter attempts at fraudulent access had a mean score of 4.27 and a standard deviation of 0.977.

The statement that auditing helps the county by moving county officials into action on areas that are reported to have issues had a

mean score of 4.71 and a standard deviation for 0.731.

Table 5 Internal Control

N Mean

Std.

Deviation

The county has standardized documents used for financial

transactions, such as invoices, internal materials requests,

inventory receipts and travel expense reports, to maintain

consistency in record keeping over time.

112 4.69 .987

There are specific managers/officers required to authorize

certain types of transactions 112 3.77 1.489

There are robust access tracking mechanisms that serve to

deter attempts at fraudulent access 112 4.27 .977

Auditing helps the county by moving county officials into

action on areas that are reported to have issues 112 4.71 .731


These results agree internal controls practices that include control activities, control environment; internal audits are intended

primarily to enhance the reliability of performance, either directly or indirectly by increasing accountability among information

providers in an organization. Therefore, for any county governments, an effective internal control unequivocally correlates with

county governments‟ success in meeting its revenue target level. These will include; a regular review of the reliability and

integrity of financial and operating information, a review of the controls employed to safeguard assets, an assessment of

employees' compliance with government policies, procedures and applicable laws and regulations, an evaluation of the efficiency

and effectiveness with which county governments achieve their objectives (Onyango, 2018).

8.1.4 Financial Planning

The fourth objective was to determine the effect of financial planning on financial performance in Mombasa County

Government, Kenya. The statement that the county government utilizes county Integrated Development Plan as its primary

planning document had a mean score of 4.38 and a standard deviation of 1.148. The statement that financial planning can be used

as a tool to prevent financial challenges had a mean score of 4.22 and a standard deviation of 1.271. The statement that the

county‟s plan includes an analysis of the financial environment, revenue and expenditure forecasts, debt position and affordability

analysis, strategies for achieving and maintaining financial balance had a mean score of 3.84 and a standard deviation of 1.182.

The statement that the financial plan(s) has/have monitoring mechanisms that indicates financial health had a mean score of 3.64

and a standard deviation of 0.837. The statement that the county government conducts monthly and yearly budget variance

analysis had a mean score of 4.02 and a standard deviation of 1.439.

Table 6 Financial Planning

N Mean

Std.

Deviation

The county government utilizes county Integrated Development

Plan as its primary planning document. 112 4.38 1.148

Financial planning can be used as a tool to prevent financial

challenges 112 4.22 1.271

The county‟s plan includes an analysis of the financial

environment, revenue and expenditure forecasts, debt position and

affordability analysis, strategies for achieving and maintaining

financial balance

112 3.84 1.182

The financial plan(s) has/have monitoring mechanisms that

indicates financial health. 112 3.64 .837

The county government conducts monthly and yearly budget

variance analysis. 112 4.02 1.439


These results agree with Ngaruro, (2018) that financial planning is critical to the success of any county governments. An

essential purpose of financial planning is to assess the financial resources that will be required to implement the programmes and

activities to achieve the goals and targets of the county integrated development plan, to ensure that funding is available as and

when needed, and to monitor the efficient use of resources and of progress towards reaching the goals and targets. In addition,


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financial planning helps to determine the objectives, policies, procedures and programs to deal with the financial activities of the

county government.

8.1.5 Financial Performance

Table 7 Financial Performance

N Mean

Std.

Deviation

The county liaises with the national treasury for timely release

of the County equitable share of revenue. 112 4.74 .640

Revenue collection has been automated and all funds

deposited in the county revenue fund. 112 4.04 1.433

Supplementary budgets are approved in good time to allow

sufficient time for implementation of activities. 112 4.42 .496


The statement that the county liaises with the national treasury for timely release of the County equitable share of revenue had

a mean score of 4.74 and a standard deviation of 0.640. The statement that revenue collection has been automated and all funds

deposited in the county revenue fund had a mean score of 4.04 and a standard deviation of 1.433. The statement that

supplementary budgets are approved in good time to allow sufficient time for implementation of activities had a mean score of

4.42 and a standard deviation of 0.496.

8.2 Inferential Statistics

8.2.1 Coefficient of Correlation

Pearson Bivariate correlation coefficient was used to compute the correlation between the dependent variable (Financial

Performance) and the independent variables (Revenue mobilization, Budgeting Practices, Internal Controls and Financial

Planning). According to Sekaran, (2015), this relationship is assumed to be linear and the correlation coefficient ranges from -1.0

(perfect negative correlation) to +1.0 (perfect positive relationship). The correlation coefficient was calculated to determine the

strength of the relationship between dependent and independent variables (Kothari & Gang, 2014).

In trying to show the relationship between the study variables and their findings, the study used the Karl Pearson‟s coefficient

of correlation. This is as shown in Table 4.10 above. According to the findings, it was clear that there was a positive correlation

between the independent variables, revenue mobilization, budgeting practices, internal controls and financial planning and the

dependent variable financial performance. The analysis indicates the coefficient of correlation, r equal to -0.028, -0.204, 0.289 and

-0.008 for revenue mobilization, budgeting practices, internal controls and financial planning respectively. This indicates positive

relationship between the independent variable namely internal control and the dependent variable financial performance whereas

revenue mobilization, budgeting practices and financial planning showed that there was no relationship.

Table 8 Pearson Correlation

Financial

Performance

Revenue

Mobilization

Budgeting

Practices

Internal

Control

Financial

Planning

Financial

Performance

1

112

Revenue

Mobilization

-.028 1

.002

112 112

Budgeting

Practices

-.204* .485

** 1

.002 .000

112 112 112

Internal

Control

.289**

.383**

.385**

1

.002 .000 .000

112 112 111 112

Financial

Planning

-.008 .606**

.603**

.807**

1

.002 .000 .000 .000

112 112 111 112 112

*. Correlation is significant at the 0.05 level (2-tailed).

**. Correlation is significant at the 0.01 level (2-tailed).


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8.2.2 Coefficient of Determination (R2)

To assess the research model, a confirmatory factors analysis was conducted. The four factors were then subjected to linear

regression analysis in order to measure the success of the model and predict causal relationship between independent variables

(Revenue Mobilization, Budgeting Practices, Internal Controls and Financial Planning), and the dependent variable (Financial

Performance).

Table 9 Model Summary

Model R

R

Square Adjusted R Square Std. Error of the Estimate

1 .866a .75 .746 1.22213

a. Predictors: (Constant), Financial Planning, Revenue Mobilization, Budgeting Practices, Internal

Control

The model explains 75% of the variance (R Square = 0.75) on Financial Performance. Clearly, there are factors other than the

four proposed in this model which can be used to predict financial sustainability. However, this is still a good model as Bryman

and Bell, (2018) pointed out that as much as lower value R square 0.10-0.20 is acceptable in social science research. This means

that 75% of the relationship is explained by the identified four factors namely revenue mobilization, budgeting practices, internal

controls and financial planning. The rest 25% is explained by other factors in the financial performance in Mombasa County

Government, Kenya not studied in this research. In summary the four factors studied namely, revenue mobilization, budgeting

practices, internal controls and financial planning or determine 75% of the relationship while the rest 25% is explained or

determined by other factors.

8.3 Regression Results

8.3.1 Analysis of Variance (ANOVA)

The study used ANOVA to establish the significance of the regression model. In testing the significance level, the statistical

significance was considered significant if the p-value was less or equal to 0.05. The significance of the regression model was as

per Table 10 below with P-value of 0.00 which is less than 0.05. This indicates that the regression model is statistically significant

in predicting factors of financial performance. Basing the confidence level at 95% the analysis indicates high reliability of the

results obtained. The overall Anova results indicates that the model was significant at F = 11.500, p = 0.000

Table 10 Analysis of Variance

Model

Sum of

Squares df

Mean

Square F Sig.

1 Regression 468.706 4 17.177 11.500 .000b

Residual 158.321 107 1.494

Total 627.027 111

a. Dependent Variable: Financial Performance

b. Predictors: (Constant), Financial Planning, Revenue Mobilization, Budgeting Practices,

Internal Control

8.3.2 Regression Coefficients

The researcher conducted a multiple regression analysis as shown in Table 11 to determine the relationship between financial

performance in Mombasa County Government in Kenya and the four variables investigated in this study.

Table 11 Regression Coefficients

Model

Unstandardized

Coefficients

Standardize

d Coefficients

t Sig. B Std. Error Beta

1 (Constant) 10.42

5 1.557 6.694 .000

Revenue Mobilization .084 .070 .125 1.193 .235

Budgeting Practices -.114 .067 -.181 -1.710 .090

Internal Control .516 .085 .890 6.068 .000

Financial Planning -.257 .066 -.707 -3.863 .000

a. Dependent Variable: Financial Performance


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The regression equation was:

Y = 10.425 + 0.084 X1 + (0.114) X2 + 0.516X3 + (0.257) X4

Where;

Y = the dependent variable (Financial Performance)

X1 = Revenue Mobilization

X2 = Budgeting Practices

X3 = Internal Control

X4 = Financial Planning

The regression equation below established that taking all factors into account (Financial Performance in Mombasa County

Government, Kenya) constant at zero financial performance in Mombasa County Government, Kenya will be 10.425. The

findings presented also showed that taking all other independent variables at zero, a unit increase in revenue mobilization would

lead to a 0.084 increase in the scores of financial performance in Mombasa County Government, Kenya; a unit increase in

budgeting practices would lead to a negative 0.114 increase in the financial performance in Mombasa County Government,

Kenya; a unit increase in internal control would lead to a 0.516 increase the scores of financial performance in Mombasa County

Government, Kenya and a unit increase in financial planning would lead to negative 0.257 increase the scores of financial

performance in Mombasa County Government, Kenya (Simon & Jamal, 2017).

Table 12 Test of Hypothesis

Hypothesis Statement Regression Results Decision

H01: Revenue mobilization has no

significant effect on financial performance

of Mombasa County Government, Kenya.

t = 1.193

P = 0.235

Accept H01 null hypothesis

revenue mobilization has no

significant effect on financial

performance in Mombasa

County Government, Kenya.

H02: Budgeting practices has no



t = -1.710

P = 0.090

Accept H02 null hypothesis

budgeting practice has no




H03: Internal Controls has no



t = 6.068

P = 0.000

Reject H03 the null

hypothesis Internal control has a




H04: Financial Planning has no



t = -3.863

P = 0.000

Reject H04 null hypothesis

financial planning has a




9. Discussion of the Findings

The study set out to examine the influence of public finance management on financial performance in Mombasa County

Government, Kenya. The first objective was to examine the influence of revenue mobilization on financial performance in

Mombasa County Government, Kenya. The study findings established that Mombasa County Government does not generate

sufficient revenue collected from Cess, Land rates and single business permits for internal use. However, the study finds out that a

huge chunk of revenue comes from the central government (Simon & Jamal, 2017).

On budgeting practices, the study established that budgeting process in the county is inclusive and wide consultations take

place and that citizens participate in the budgeting process to ensure that important issues are given priority. Further enough

resources are allocated to various projects based on clear criteria understood by stakeholder. The budgeting and planning process

are realistic and practical (Cheruiyot, et al., 2017).

On internal controls, the study findings established that the county has standardized documents used for financial transactions,

such as invoices, internal materials requests, inventory receipts and travel expense reports, to maintain consistency in record

keeping over time. There are robust access tracking mechanisms that serve to deter attempts at fraudulent access. Auditing helps

the county by moving county officials into action on areas that are reported to have issues (Onyango, 2018).


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On financial planning, the study findings established that The county government utilizes county Integrated Development Plan

as its primary planning document. Financial planning can be used as a tool to prevent financial challenges. The county

government conducts monthly and yearly budget variance analysis. An essential purpose of financial planning is to assess the

financial resources that will be required to implement the programmes and activities to achieve the goals and targets of the county

integrated development plan, to ensure that funding is available as and when needed, and to monitor the efficient use of resources

and of progress towards reaching the goals and targets.

10. Conclusions and Recommendations

10.1 Conclusions

That since there was no correlation between the independent variable revenue mobilization and the dependent variable

financial performance In Mombasa County Government, Kenya and that the t-value was below the threshold of 2.0, from the

study findings it was concluded that revenue mobilization has no significant effect on financial performance in Mombasa County

Government, Kenya.

That since there was no correlation between the independent variable budgeting practices and the dependent variable financial

performance In Mombasa County Government, Kenya and that the t-value was below the threshold of 2.0, from the study findings

it was concluded that budgeting practices has no significant effect on financial performance in Mombasa County Government,

Kenya.

That since there was no correlation between the independent variable revenue mobilization and the dependent variable

financial performance In Mombasa County Government, Kenya and that the t-value was above the threshold of 2.0, from the

study findings it was concluded that internal controls has a significant effect on financial performance in Mombasa County

Government, Kenya.

That since there was no correlation between the independent variable financial planning and the dependent variable financial

performance In Mombasa County Government, Kenya and that the t-value was below the threshold of 2.0, from the study findings

it was concluded that financial planning has no significant effect on financial performance in Mombasa County Government,

Kenya.

10.2 Recommendations

From the study results it was recommended that;

i. Mombasa County Government should mobilize finances from other sources such as offering municipal bonds to increase revenue for development purposes rather than depend on the central government allocation,

ii. Mombasa County Government should prioritize spending on projects that will have a positive impact on the residents, and this will have an effect which will enable residents land rates.

iii. Mombasa County Government should continuously strengthen internal controls to safeguard the little resources available from theft, misuse and misappropriation.

iv. Mombasa County Government should not offer waiver on land rates, instead they should allow residents to make partial payments.

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INTERNATIONAL JOURNAL OF ACADEMICS & RESEARCH (IJARKE) · 2019. 9. 23. · Safia Mohamed Ngazi, Jomo Kenyatta University of Agriculture & Technology, Kenya Dr. Abdullah Ibrahim Ali,