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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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173 IJARKE PEER REVIEWED JOURNAL Vol. 2, Issue 1 Aug. – Oct.
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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
Valid N (listwise) 112
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
Valid N (listwise) 112
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
Valid N (listwise) 112
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
Valid N (listwise) 112
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
significant effect on financial performance
of Mombasa County Government, Kenya.
t = -1.710
P = 0.090
Accept H02 null hypothesis
budgeting practice has no
significant effect on financial
performance in Mombasa
County Government, Kenya.
H03: Internal Controls has no
significant effect on financial performance
of Mombasa County Government, Kenya.
t = 6.068
P = 0.000
Reject H03 the null
hypothesis Internal control has a
significant effect on financial
performance in Mombasa
County Government, Kenya.
H04: Financial Planning has no
significant effect on financial performance
of Mombasa County Government, Kenya.
t = -3.863
P = 0.000
Reject H04 null hypothesis
financial planning has a
significant effect on financial
performance in Mombasa
County Government, Kenya.
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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