EFFECT OF FINANCIAL MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF COUNTY GOVERNMENTS IN KENYA: A CASE STUDY OF NAKURU COUNTY, KENYA

Abstract

The county governments continue to face challenges around the world. In the County Government of Nakuru, the auditor general continues to document diverse financial performance challenges. The purpose of this study was to examine the effect of financial management practices on the financial performance of county governments in Kenya. This study was guided by the following specific objectives; to examine the role of internal auditing on the financial performance of County Government of Nakuru, to establish the role of internal controls on the financial performance of County Government of Nakuru, to examine the role of budgeting on the financial performance of County Government of Nakuru and to examine the influence of account payables management on the financial performance of County Government of Nakuru. The study was based on the agency theory and the resource based theory. In this study explanatory research design was utilized. Specifically the study targeted 128 respondents who were employees in auditing, internal controls, budgeting and account receivables. A sample size of 97 respondents derived through Yaro Yamane formula was used in the study. This proposed study utilized structured questionnaires to obtain data for the study. This study used content validity to find out whether or not the proposed research tools were valid. This study used Cronbach’s Alpha coefficient to test the reliability of the research questionnaires. Both descriptive and inferential statistics were done. Chi Square test for independence, correlations, and multiple linear regression analysis were used. The study established that financial performance was strongly and significantly (p<0.05) related to internal auditing (r=0.769), internal controls (r=0.795), budgeting (r=0.671), and account payables (r=0.759). The study further established that 76.5% of the changes in the financial performance of county government of Nakuru is due to changes in account payables, internal controls, internal auditing, budgeting. It was concluded that there was a statistically significant relationship between financial performance of County Government of Nakuru and account payables, internal controls, internal auditing, budgeting. This study is of great value in highlighting importance of financial management practices in boosting financial performance of county governments. The findings of this study are expected to help county governments in managing their funds, address internals control measures, establish the most efficient ways for budgeting, and monitor their borrowing. The study findings add to the limited literature on financial management practices on which future researchers in this subject area can base their studies.