Effect of Budgeting Process on Financial Performance of County Government of Kwale in Kenya

Abstract

This study was to assess the effects of budgeting process on financial performance of County Government of Kwale in Kenya. Research design adopted was Descriptive and a census of the 13 departments in the county was conducted, collecting data from the County Executive Committee members and Chief Officers of the respective departments using a structured questionnaire. Secondary data on financial performance of the county was also collected through a review of financial documents obtained from the department of finance and economic planning. Cronbach's alpha was used to measure Internal consistency of the questionnaire items yielding a reliability index of 0.985. Data was analyzed with the help of IBM SPSS statistics for windows, version 21. The relationship between the budgeting process and financial performance was tested using correlation and Chi-square. On average, the respondents were in agreement with the various statements on attainment of targets, program based budgeting, budgetary control and county legislations. The findings also indicated that a significant majority of the respondents agreed that budgeting process has an impact to improved financial performance at the county. However, the opinion on whether county legislations contributed towards improved financial performance seemed to be equally divided (54%). In spite of the irregular trend in financial performance between 2014/2015 to 2017/2018, a significant majority of the respondents perceived improved financial performance which they attributed to improved budgeting process at the county (77% or 20; X2 (3) = 10.615, p = 0.014). Chi-square and Cramer’s tests indicated significant and strong associations between various variables of this study. Further, the results of Pearson’s Correlation at 5% level of significance indicated significant correlation between financial performance and budgeting process. ANOVA test of deviation from linearity and Shapiro-Wilk test of normality both yielded p> 0.05 indicating that the correlation model was linear in parameters and that the residuals followed a normal distribution. Therefore, the study concluded that there was a significant moderate positive relationship between financial performance and budgeting process. The study recommends that the County Government of Kwale should put in place sound cash flow measures in order to sustain its operations, develop realistic budget projections, link budget programs and budget activities to set goals and targets, comply with budget timelines as per the Public Finance Management Act 2012 and conduct regular checks and assessments to ensure efficient and effective programs and projects execution. In addition, the national treasury should disburse funds to county governments in accordance with the prepared schedule, in consultation with intergovernmental budget and economic councils, and in accordance with approved published gazette. The researcher suggests that the study should be replicated in other counties in order to compare findings with an aim of developing national policies that will promote effective budgeting process in all the county governments.