Corporate Governance and Financial Management Practices in Public Benefit Organizations in Kisumu County, Kenya

Abstract

Public Benefit Organization boards constantly face the challenge of providing oversight to an entity while being accountable to a network of stakeholders that is not easily defined. A weak board structure is likely to create a lea way for managers to engage in unethical practices. Sound financial management practices are critical to the successful performance of PBO’s. The objective of this study was to establish the relationship between corporate governance practices and financial management practices in public benefit organizations (PBO’s) in Kisumu County, Kenya. Various theories have been employed in explaining these governance conventions, these theories include the agency theory, stakeholder theory and stewardship theory. This study adopted descriptive research design. The study was conducted in Kisumu County of the Lake Victoria Region with an area of about 2,085.9 Km2. As at 2016, there are 1168 PBO’s operating in Kisumu County (Kenya NGO Board, 2016). The researcher employed simple random sampling in selection of subjects for the study. A sample of 298 PBO’s operating for the last three years was selected using Yamane’(1967) formulae. The study adopted purposive sampling which was done in order to select respondents who were directly engaged with corporate governance practices in PBO’s. Data collection was from primary and secondary sources. Microsoft Excel as well as Statistical Package for Social Scientists version 20 (SPSS) were used as tools in data analysis, and presented in tables. Correlations coefficient was used to determine the relationships between independent and dependent variables. The study depicted that PBOs had adequate representation from all departments during the budgeting process, they focused more on members with financial management background followed by regular management meetings and departmental budget representation but they put less emphasis on monthly financial reports. Based on the study findings, the study concludes that corporate governance practices influences financial management practices in public benefit organizations. The study recommends that boards be held accountable to enhance the performance of the public benefit organizations. This is to be done by the Directors and Board Chairs in the case of organizations that do not have CEO duality, there should also be a legislation that governs the behavior and responsibilities of the board members which can help in moderating how board members conduct themselves with regard to adopting financial management practices. Further research can be done in the same area but data be collected for a longer period of more than three years which may be a five or a ten-year period.