Justification for a Devolved Systems of Government: Corporate Governance and Financial Management Issues in Kenya

Abstract

Devolution which entailed the ceding of power by a legislated act from a Central Government to the county Governments is Kenya’s historical constitutional transformative aspect from the year 2010 to today.  It is considered as a panacea to the public finance management issues that have dodged the country since independence in 1963. Since then the country has experienced persistent corporate governance and financial management problems both at Central and local Government levels.  Critical of these was when some powers of revenue collection and expenditure among others were transferred to the 47 Counties. Each of these Counties formed the County Governments comprising of the County Assemblies and County Executives with powers to legislate, and executive powers to Implement the Laws and policies respectively. The main objective of this study was to investigate the relationship between Corporate Governance practices and financial performance of Local Authorities in Kenya prior to devolution. Using the agency and stewardship theories, this study examined the corporate governance issues in the county’s local authorities. An exploratory survey was used in a case study since Local Authorities were single tiered and operates under cap. 265. Laws of Kenya. Primary data was analysed using a regression and correlation analysis and an equation that expressed the relationship between the dependent variable and independent variables established. This study found that Local Authority studied had huge debts, operated on huge bank overdrafts and generally practiced poor finance management practices. The study also found a strong relationship between CEO Authority, Transparency and Accountability, Partisan Politics, Skills levels, Debt burden and Performance of local authority and poor corporate governance practices. Generally, governance issues provided major causes of poor financial performance and a key justification to the amendment of the Local Government Act cap 265, creating devolved systems of governance which changed the structures and functions of Local Authorities.

Keywords: Corporate Governance, Financial performance, Devolution, Agency, Stewardship.