Effect of Budgetary Compliance on Performance of County Governments in Kenya

Abstract

Research on the interactions between budgetary compliance and economic performance has turned inconclusive results on the actual interplay of the variables. Generally budgetary compliance is used as a financial performance measure in government institutions but particularly it is not the only determinant of performance as other factors also account to the overall achievement of its goals. The excellent performance of an organization can be realized starting from mounting of clear objectives, accounting of true financial performance and evaluation of performance based on consistency of the budget with the set goals. The main intention of this research was to examine budgetary compliance influence on performance of county governments in Kenya. Agency theory, modern decentralization theory and attribution theory were adopted to anchor the study. A descriptive research design was used in this research. The target population was the 47 county governments in Kenya. Secondary data was obtained from the Office of the Auditor General and individual county governments annual reports for a 5 year period (2017 to 2021). Upon collection of the data, inferential as well as descriptive statistics generated included frequencies and percentages and simple and multiple linear regression respectively. The regression results produced an R square of 0.2472 which implies that 24.72% of the changes in performance among county governments in Kenya can be explained by the four selected variables for this study. The overall model was found to be statistically significant as exhibited by a p value of 0.000 which was less than 0.05. The study further revealed that revenue transfer and local revenue collection had a positive and significant effect on performance of county governments in Kenya. Budgetary compliance and recurrent spending had no significant effect on performance. This study concluded that revenue transfer and local revenue collection are essential for county governments’ performance. “The study recommends that policy makers such as members of parliament should come up with policies that increase revenue transfer to the counties as this will lead to an increase in performance of devolved units. County heads should also advocate for an increase in revenues allocated to the counties. The study further recommends that heads of devolved units should develop strategies aimed at increasing local revenue collection without hurting the businesses as an increase in local revenue leads to a rise in performance. Members of the county assembly should also develop policies aimed at increasing the local revenue tax base.