AN ASSESSMENT OF THE EFFECTIVENESS OF INTERNAL AUDIT SYSTEMS IN THE MANAGEMENT OF DECENTRALISED FUNDS IN KENYA: A STUDY OF LOCAL AUTHORITY TRANSFER FUND IN KISII MUNICIPAL COUNCIL

ABSTRACT 
The purpose of this study was to assess the effectiveness of the internal audit systems in the management of LATF in Kisii Municipal Council. The study objectives were to determine whether the LATF disbursements were used in accordance with the objectives of LATF and to establish the effectiveness of internal audit systems in the disbursements and use of LATF. A descriptive study design (survey) was adopted in conducting this study. The researcher targeted the upper and middle cadre employees of the Kisii Municipal Council and the Councilors. The data were collected using structured questionnaires. The data analysis was undertaken using percentages and weighted averages. The study established that the internal audit systems were averagely effective in the management of LATF funds. This was a result of: the internal audit department not being fully independent; lack of enough trained personnel in the internal audit department; lack of division of duties in the department and lack of close supervision of projects. The study further established that there were delays in the release of LATF disbursements. The following recommendations were made. The Kisii Municipal Council should organize for the internal audit department to be fully independent. The department should not be a section of another department. This will enable the department to execute its duties well and with ease. The council should ensure that the department is well staffed with enough and trained personnel. This will enable division of duties and close supervision of projects. The managers of the council should organize for frequent meetings with the senior employees of internal audit department to formulate modalities of improving the effectiveness of the audit department. The Ministry of Local Government together with the Central Government should ensure that the LATF disbursements are released on time. The research offers the following suggestions for further study: a case study design should be applied so that we can find out whether it will give different results; further investigations can be done across industries to uncover the similarities and differences when using the internal audit systems in the management of finances; further research can be done by using other research instrument like the interview schedule or open ended questionnaire because this may give more information on this field of study; a further study should be carried out involving more than one LA because the present study focused on only one whose findings may not be generalized to all LAs and a replication of this study should be carried out in future to determine whether there are any notable changes.

CHAPTER ONE 
INTRODUCTION 
1.1 Background to the study 
The Ministry of Local Government through the Kenya Local Government Reform programme (KLGRP) has instituted a number of reforms aimed at strengthening the Local Government Institutional Capacity to effectively manage their revenues and expenditures, improve service delivery, enhance economic governance, promote citizen participation and alleviate poverty in their jurisdictions. One such reform is the establishment of the Local Authority Transfer Fund (LATF).LATF was established in 1999 through the LATF Act No. 8 of 1998, with the objective of improving service delivery, improving financial management and reducing the outstanding debts of Local Authorities (LAs). LATF, which comprises 5% of the national income tax collection in any year, currently makes up approximately 24% of local authority revenues (Oyugi, 2005). Atleast 7% of the total fund is shared equally among the country’s 175 LAs, 60% of the fund is disbursed according to the relative population size of the LAs. The balance is shared out based on the relative urban population densities. LATF monies are combined with LAs revenues to implement local priorities. An advisory committee comprising the private sector, the ministry of finance, the permanent secretary ministry of local government and the KLGRP’s secretariat, guides LATF operations. 60% of LATF allocations (the Service Delivery Account) are released based on LAs meeting set requirements like, upon LAs submission of the annual budget which must allocate a maximum of 50% of total expenditures for personal costs and a minimum amount that is equivalent to 65% of the Service Delivery Account for capital expenditures. In addition, LAs must provide certified confirmation that the amounts due to statutory creditors for the current year have been paid. The remaining 40% (the Performance Account) is released upon sub-mission of a statement of actual revenues and expenditures, debtors and creditors, abstracts of accounts, participatory service delivery plan-Local Authority Service Delivery Plan (LASDAP) and a revenue enhancement plan. Submissions must be timely, complete, include all required forms and be accompanied by full council minutes (Office of the Deputy Prime Minister and Ministry of Local Government, 2010). 

LATF has risen from Kshs. 1 billion in 1999/2000 to Kshs. 10.4 billion in 2009/2010. The total LATF disbursement since inception amounts to 57.546 billion and the trend for all those years is shown in the figure below (KLGRP, 2010).

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Item Type: Kenyan Postgraduate Material  |  Attribute: 50 pages  |  Chapters: 1-5
Format: MS Word  |  Price: KSh900  |  Delivery: Within 30Mins.
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