Financial Management Reforms and the Economic Performance of Public Sector in Kenya

Abstract

The research aimed at determining the impact of financial management reforms on the economic performance of public sector entities in Kenya. The study used the economic unit performance contracting results as the measure of performance. The study’s main objective was to determine the relationship between financial management reforms and the economic performance of the public sector in Kenya. The study used descriptive survey design. The population was the 42 ministries and departments that were in existence during the period of the study.  The study was carried out at the Ministry’s headquarters based in Nairobi. Data was collected from secondary and primary sources for five years between financial years 2007/2008 – 2011/2012.Analysis was done using ordinary least squares (OLS) method. Three types of financial reforms were targeted; budgetary reforms, accounting reforms and auditing reforms. The findings of the study revealed that financial reforms achieved more than half of the intended performance targets over the period under investigation. The results show that budgetary reforms had the strongest explanatory power on performance indicators at 0.681, followed by accounting reforms at 0.47 and audit reforms at 0.387. We therefore conclude that audit reform does not aid in improving performance of public sector entities while budgetary and accounting reforms are the most effective tools. The reason for this misnomer could be that civil servants could have developed a negative attitude against audit and see it as slowing down delivery of services or that audit is a conduit for corruption. More financial and budgetary reforms should therefore be undertaken for improved results. Audit reforms need to be closely reevaluated and new approaches employed to yield better results and economic performance.

Key words: Financial reforms, Budgeting, Accounting, Auditing, public sector