International Journals of Academics & Research: (IJARKE Business & Management Journal)

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

(IJARKE Business & Management Journal)
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
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
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).
172 IJARKE PEER REVIEWED JOURNAL Vol. 2, Issue 1 Aug. – Oct. 2019
INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH ISSN: 2617-4138 www.ijarke.com
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
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
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
economic growth while the independent variables are public debt servicing, investment expenditure, transfer payment and
development expenditure (See Figure 1).
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
Financial Performance
 Prioritization of Issues in
budgeting  Revenues
 Employment
 Capital Accumulation
Internal Controls  High Ratings of services
 Control Environment & Activities
 Internal Audit
 Risk Assessment
Financial Planning
 Financial Reporting & Analysis
 Financial Strategy
 Financial Controls
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
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
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,
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.
Table 3 Revenue Mobilization

Std.
N Mean Deviation
There are efforts in the county to optimize own source
112 4.68 .588
Revenues
The county revenue management system conforms with
112 4.03 1.219
existing national and county policies
Revenue automation will increase performance 112 4.08 1.600
The county has not developed new and sustainable strategies
112 3.96 1.445
to improve revenue mobilization
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

Std.
N Mean Deviation
The budgeting process in the county is inclusive and wide
112 4.32 .808
consultations take place
Citizens participate in the budgeting process to ensure that
112 4.43 1.406
important issues are given priority
Enough resources are allocated to various projects based on
112 4.41 .679
clear criteria understood by stakeholders
The budgeting and planning process is realistic and practical 112 4.40 .822
Addressing marginalization and inequalities are key concerns
112 4.24 1.245
in the budgeting process
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
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

Std.
N Mean Deviation
The county has standardized documents used for financial
transactions, such as invoices, internal materials requests,
112 4.69 .987
inventory receipts and travel expense reports, to maintain
consistency in record keeping over time.
There are specific managers/officers required to authorize
112 3.77 1.489
certain types of transactions
There are robust access tracking mechanisms that serve to
112 4.27 .977
deter attempts at fraudulent access
Auditing helps the county by moving county officials into
112 4.71 .731
action on areas that are reported to have issues
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

Std.
N Mean Deviation
The county government utilizes county Integrated Development
112 4.38 1.148
Plan as its primary planning document.
Financial planning can be used as a tool to prevent financial
112 4.22 1.271
challenges
The county‟s plan includes an analysis of the financial
environment, revenue and expenditure forecasts, debt position and
112 3.84 1.182
affordability analysis, strategies for achieving and maintaining
financial balance
The financial plan(s) has/have monitoring mechanisms that
112 3.64 .837
indicates financial health.
The county government conducts monthly and yearly budget
112 4.02 1.439
variance analysis.
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,
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

Std.
N Mean Deviation
The county liaises with the national treasury for timely release
112 4.74 .640
of the County equitable share of revenue.
Revenue collection has been automated and all funds
112 4.04 1.433
deposited in the county revenue fund.
Supplementary budgets are approved in good time to allow
112 4.42 .496
sufficient time for implementation of activities.
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 Revenue Budgeting Internal Financial
Performance Mobilization Practices Control Planning
Financial 1
Performance
112
Revenue -.028 1
Mobilization .002
112 112
Budgeting -.204* .485** 1
Practices .002 .000
112 112 112
Internal .289** .383** .385** 1
Control .002 .000 .000
112 112 111 112
Financial -.008 .606** .603** .807** 1
Planning .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).
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

R
Model 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

Sum of Mean
Model Squares df 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

Unstandardized Standardize
Coefficients d Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 10.42
1.557 6.694 .000
5
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
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 t = 1.193 Accept H01 null hypothesis
significant effect on financial performance P = 0.235 revenue mobilization has no
of Mombasa County Government, Kenya. significant effect on financial
performance in Mombasa
County Government, Kenya.
H02: Budgeting practices has no t = -1.710 Accept H02 null hypothesis
significant effect on financial performance P = 0.090 budgeting practice has no
H03: Internal Controls has no t = 6.068 Reject H03 the null
significant effect on financial performance P = 0.000 hypothesis Internal control has a
H04: Financial Planning has no t = -3.863 Reject H04 null hypothesis
significant effect on financial performance P = 0.000 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).
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 JOURNALS OF ACADEMICS & RESEARCH ISSN: 2617-4138 www.ijarke.

INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH

Influence of Public Finance Management on the Financial Performance of

2. Statement of the Problem

3. Objectives of the Study

3.1 General Objective

3.2 Specific Objectives

The study was guided by the following specific objectives:

4.1 Theoretical Framework

4.1.1 Systems Theory

4.1.2 New Public Management Theory

4.1.3 Allocative Efficiency Theory

Revenue Mobilization Practices

Independent Variables Dependent Variable

6. Discussion of Key Variables

6.1 Revenue Mobilization Practices

6.2 Budgeting Practices

6.3 Internal Controls

6.4 Financial Planning

6.5 Financial Performance

Table 1 Target Population

Table 2 Sample Size

8.1 Descriptive Statistics

8.1.1 Revenue Mobilization

Table 3 Revenue Mobilization

8.1.2 Budgeting Practices

Table 4 Budgeting Practices

8.1.3 Internal Control

Table 5 Internal Control

8.1.4 Financial Planning

Table 6 Financial Planning

8.1.5 Financial Performance

Table 7 Financial Performance

8.2 Inferential Statistics

8.2.1 Coefficient of Correlation

Table 8 Pearson Correlation

8.2.2 Coefficient of Determination (R2)

Table 9 Model Summary

8.3 Regression Results

8.3.1 Analysis of Variance (ANOVA)

Table 10 Analysis of Variance

8.3.2 Regression Coefficients

Table 11 Regression Coefficients

The regression equation was:

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

Table 12 Test of Hypothesis

9. Discussion of the Findings

10. Conclusions and Recommendations

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