Effects of Financial Management Practices on the Financial Sustainability of Non-Government Organizations in Kenya, a Cross-Sectional Survey of Selected Non-Governmental Organizations in Mombasa County

Abstract

Financial sustainability has become a major concern in non-governmental organizations in Kenya. With ‘donors fatigue ‘in rich nations and increasing confidence from developing countries, more and more people are talking about local non- governmental organizations standing on their own two feet and become more financially sustainable. Financial sustainability is about being able to be there for your beneficiaries in the long term. It's the opposite of having to cease your activities simply because you have run out of funds. An organization is financially stable if its core work (functions) will not collapse, even if external donor funding is withdrawn(Leone, 2010).For most Non –governmental organizations working in a development context, meeting the needs of its beneficiaries in the long term and in sustainable manner is an important strategic objective. The declining state of foreign funding coupled with attempts by the government to amend the public benefit Act of 2013, so as to restrict external funding of NGO's, is leading to a situation where the demand will exceed the supply of foreign funding. This research therefore sought to assess the effects of financial management practices on financial sustainability of NGO's. The study was guided by four objectives namely assessing the effects of financial planning, financial controls, donor funding and financial reporting practices on the financial sustainability of NGOs. Their study employed three theories in explaining the variables that is Resource Based View, Agency theory and institutional theory. In this study survey research design was adopted. The target population comprised of all the senior employees of twelve (12) NGOs selected in Mombasa County, giving a sample frame of 83 management employees, with a sample size of 69 employees of the selected NGOs arrived at through the use of simplified formula for proportions. The study used both primary and secondary data. Primary data was a collected using close ended questionnaire which was administered by the researcher to the respondents. The secondary data was collected from NGOS financial statements, finance manuals, financial reports and budgets. Before the actual study a pilot study was done on ten (10) employees selected randomly from three NGOs in Mombasa County other than the ones in the target population. The collected data was analyzed using quantitative data analysis techniques which involved descriptive analysis. Descriptive analysis such as frequencies and percentages were used to present quantitative data inform of tables and graphs. Data from questionnaires was coded and logged in the computer using statistical package for social science (SPSS) version 23. To establish the predictors of financial sustainability and their relationships the researcher used regression analysis. From the analysis, the study revealed that there existed significant relationship between all the predictors, financial planning (0.09), financial controls (0.404), donor funding (0.239) and financial reporting practices (0.298). The study concluded that financial planning, financial controls, donor funding and financial reporting practices have significant effect on the financial sustainability of NGOs. The study recommended investment in innovative ways of financial planning consistent with international accounting best practices, strengthening of financial control mechanisms, diversification of revenue streams and ensuring consistency of financial reporting which should be in accordance to IFRS in order to realize financial sustainability.