GREAT ZIMBABWE UNIVERSITY

MUNHUMUTAPA

SCHOOL OF COMMERCE

Impact of Corporate Governance Principles on Public Financial

Management in Zimbabwe
A Case of Matabeleland Urban and Rural Councils

COMPILED BY

MUDIMBA CAVIN JEFFRY

M151251

SUPERVISOR: DR J. BEMANI

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR MASTER OF

COMMERCE DEGREE IN PROFESSIONAL ACCOUNTING AND CORPORATE
GOVERNANCE

JUNE 2020
 APPROVAL FORM
The undersigned certify that they have read and recommend to Great Zimbabwe University for
acceptance, a research study entitled “Impact of Corporate Governance Principles on
Public Financial Management in Zimbabwe. A Case of Matabeleland Urban and Rural
Councils” submitted by Cavin Jeffry Mudimba in partial fulfilment of the requirements of
the Master of Commerce Degree in Professional Accounting and Corporate Governance / Grad
ICSAZ.

…….............................................................. ………………………...

SUPERVISOR DATE

……………………………………………… ………………………….

CHAIRPERSON DATE

…………………………………………….. …………………………...

EXTERNAL EXAMINER DATE

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 RELEASE FORM

NAME OF STUDENT CAVIN JEFFRY MUDIMBA

PROJECT TITTLE The impact of Corporate Governance Principles on Public

Financial Management in Zimbabwe. A Case Study of

Matabeleland Region Urban and Rural District Councils.

DEGREE TITLE Master of Commerce Degree in Professional Accounting

and Corporate Governance / Grad ICSAZ

YEAR DEGREE GRANTED JUNE 2020

Permission is hereby granted to Great Zimbabwe

University Library to produce single copies of this
dissertation and to lend or sell such copies for private,
scholarly or scientific research purpose only. The author
reserves other publication rights; neither the dissertation
nor extensive extracts from it may be printed or otherwise
without the author’s written permission.

SIGNED …………………………………………………………….

DATE 30 JUNE 2020

PERMANENT ADDRESS 114 SOTSHANGANE FLATS, BULAWAYO,

ZIMBABWE

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 DECLARATION

I, Cavin Jeffry Mudimba declare that this is my original work except to the extent indicated
in acknowledgements, references and comments included in the study and that this research
has not been submitted elsewhere or replicated from other universities in support of any other
qualification.

STUDENT SIGNATURE………………………… DATE………………

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 ACKNOWLEDGEMENTS
I am grateful to my supervisor Dr J. Bemani for his diligent and insightful guidance
throughout the course of this research project. To, Bulawayo City Council, Binga Rural District
Council and Municipality of Gwanda management and staff, thank you for the permission to
extract data from your records and communities that you afforded me during this research
project. Finally, to all my Great Zimbabwe University lecturers, thank you for opening my
mind and implanting the knowledge that was used in this research project, without which this
project would not have been possible.

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 DEDICATION
This dissertation is dedicated to the Almighty Jesus Christ, my wife Lukia and my children
Schantel, Calvin Jeffry II and Aisha for encouraging and cheering me up to the end.

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 Table of Contents
APPROVAL FORM ................................................................................................................ii
RELEASE FORM.................................................................................................................. iii
DECLARATION..................................................................................................................... iv
ACKNOWLEDGEMENTS .................................................................................................... v
DEDICATION......................................................................................................................... vi
LIST OF ABBREVIATIONS ................................................................................................ xi
LIST OF TABLE ...................................................................................................................xii
LIST OF FIGURES ............................................................................................................. xiii
ABSTRACT ........................................................................................................................... xiv
CHAPTER I ............................................................................................................................. 1
INTRODUCTION.................................................................................................................... 1
1.0 Introduction ................................................................................................................. 1
1.1 Background of the Study ............................................................................................. 1
1.2 Statement of the Problem ............................................................................................ 4
1.3 Research Objectives .................................................................................................... 5
1.4 Research Questions ..................................................................................................... 5
1.5 Significance of the Study ............................................................................................ 5
1.6 Assumptions ................................................................................................................ 6
1.7 Limitations of the Study .............................................................................................. 6
1.8 Delimitation of the Study ............................................................................................ 6
1.9 Definition of key terms ............................................................................................... 6
1.9.1 Urban and Rural Councils .................................................................................... 7
1.9.2 Corporate Governance and Principles defined .................................................... 7
1.9.3 PFM Health .......................................................................................................... 8
1.9.4 Public Financial Management.............................................................................. 8
1.10 Summary .................................................................................................................. 9
CHAPTER II .......................................................................................................................... 10
LITERATURE REVIEW ..................................................................................................... 10
2.0 Introduction ............................................................................................................... 10
2.1 CONCEPTUAL FRAMEWORK ............................................................................. 10
2.2 William Niskanen’s Bureaucratic Behaviour Model (1968)..................................... 10
2.3 Contextualising Urban and Rural in Public Sector ................................................... 12
2.4 Objectives of Public Financial Management ............................................................ 14
2.4.1 Aggregate fiscal discipline................................................................................. 14

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 2.4.2 Allocative efficiency .......................................................................................... 15
2.4.3 Operational Efficiency ....................................................................................... 16
2.5 CORPORATE GOVERNANCE PRINCIPLES ....................................................... 17
2.5.1 Transparency and Accountability of Public Resources ..................................... 17
2.5.2 Ethical Considerations in Management of Fiscal Reporting Risks ................... 18
2.6.0 THEORETICAL FRAMEWORK ......................................................................... 21
2.6.1 Whole Systems Theory ...................................................................................... 21
2.6.2 Agency Theory................................................................................................... 23
2.6.3 Stewardship Theory ........................................................................................... 23
2.6.4 Wagner’s Law ..................................................................................................... 24
2.6.5 Displacement Effect ........................................................................................... 24
2.7 EMPIRICAL EVIDENCE ........................................................................................ 24
2.8 Chapter Summary ...................................................................................................... 30
CHAPTER III ........................................................................................................................ 31
RESEARCH METHODOLOGY ......................................................................................... 31
3.0 Introduction ............................................................................................................... 31
3.1 Research Philosophy ................................................................................................. 31
3.2 Research Design and Justification............................................................................. 32
3.3 Research Population and Sample Design .................................................................. 32
3.4 Sampling Size............................................................................................................ 32
3.5.0 Data Collection ...................................................................................................... 33
3.5.1 Primary Data Collection .................................................................................... 33
3.5.2 Questionnaire ..................................................................................................... 33
3.5.3 Semi-Structured Interviews and Justification for Use ....................................... 35
3.6.0 Secondary Data Collection .................................................................................... 35
3.6.1 Justification of using secondary data ................................................................. 36
3.7 Limitations to Data Collection .................................................................................. 36
3.8 Model Specification .................................................................................................. 36
3.8.1 Analytical model ................................................................................................ 36
3.8.2 Justification of the Model .................................................................................. 37
3.8.3 Dependent Variable ........................................................................................... 38
3.8.4 Independent variables ........................................................................................ 38
3.9 Data Analysis Procedure ........................................................................................... 39
3.9.1 Testing the Data ................................................................................................. 39
3.9.2 Correlation Test ................................................................................................. 39

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 3.9.3 Multicollinearity Test......................................................................................... 40
3.9.4 Testing the Model .............................................................................................. 40
3.9.5 R2 Test................................................................................................................ 40
3.9.6 The F-Test .......................................................................................................... 40
3.10 Data Validity and Reliability ................................................................................. 41
3.11 Ethical considerations ............................................................................................ 41
3.12 Chapter Summary .................................................................................................. 41
CHAPTER IV......................................................................................................................... 42
DATA PRESENTATION, ANALYSIS AND DISCUSSION OF RESULTS................... 42
4.0 Introduction ............................................................................................................... 42
4.1 Analysis of Data Response rates ............................................................................... 42
4.1.1 Questionnaire response rate ............................................................................... 42
4.2 Impact of bad Corporate Governance Principles on Public Financial Management 44
4.2.1 Testing effect of bad corporate governance principles on public financial
management ..................................................................................................................... 45
4.2.2 Testing the existence of a relationship between the variables ........................... 46
4..2.3 Using Spearman’s rank Method......................................................................... 46
4.2.4 Correlation Analysis between allocative efficiency and Frequency of Fiscal
Reporting.......................................................................................................................... 46
4.3 Transparency and Accountability.............................................................................. 48
4.4 Leadership ................................................................................................................. 49
4.5 Audit and Risk Management ..................................................................................... 50
4.6 Compliance and Stakeholder relationships ............................................................... 51
4.7 Fiscal Reporting Risks Caused by Bad Corporate Governance Principles ............... 52
4.7.1 Inflated Public Expenditure ............................................................................... 52
4.7.2 Understated Revenues ........................................................................................ 52
4.7.3 Corruption, Waste and Abuse of Public Resources ........................................... 52
4.7.4 Public-Private Projects ....................................................................................... 52
4.7.5 Citizens and Corporates refusing to pay for services......................................... 53
4.8 Sources of Revenue ................................................................................................... 53
4.9.1 Aggregate Fiscal Discipline ............................................................................... 54
4.9.2 Allocative efficiency .......................................................................................... 57
4.9.3 Operational efficiency ........................................................................................ 59
4.10 Frequency of fiscal reporting ................................................................................. 60
4.11.1 Diagnostic Test of the Analytic Model .............................................................. 60

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 4.11.2 Multiple Regression Output ............................................................................... 61
4.11.3 Post-Results Model ............................................................................................ 62
4.12 Chapter Summary .................................................................................................. 63
CHAPTER V .......................................................................................................................... 64
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ....................................... 64
5.0 Introduction ............................................................................................................... 64
5.1 Summary of the Study ............................................................................................... 64
5.2 Summary of Major Findings………………………………………………………………………………………..65

5.3 Conclusions ................................................................................................................. 66

5.3.1 Impact of corporate governance principles on public financial management ... 66
5.3.2 Fiscal Reporting Risks Caused by Bad Corporate Governance Principles........ 67
5.3.3 The Model .......................................................................................................... 67
5.4 Recommendations ..................................................................................................... 68
5.5 Suggested area for further study................................................................................ 69
Bibliographic References....................................................................................................... 70
APPENDIX 1 .......................................................................................................................... 76
APPENDIX 2 .......................................................................................................................... 84

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 LIST OF ABBREVIATIONS

ADB – African Development Bank.

ANOVA – Analysis of Variance

BCC – Bulawayo City Council

BRDC – Binga Rural District Council

CEO – Chief Executive Officer

CIPFA - Chartered Institute of Public Finance and Accountancy.

IMF - International Monetary Fund.

IPSASB – International Public Sector Accounting Standards Board.

MoG – Municipality of Gwanda

OECD – Organisation for Economic Commission on Development.

PEFA – Public Expenditure and Financial Accountability.

PFM – Public Financial Management.

USAID – United States of Agency for International Development.

ZACC – Zimbabwe Anti-Corruption Commission.

ZINARA – Zimbabwe National Roads Authority

ZRP – Zimbabwe Republic Police.

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 LIST OF TABLES
1. Table 4.1: Questionnaires distributed and returned by respondents……………..45
2. Table 4.2 Impact on public financial management tabulation…………………..45
3. Table 4.3: Expected Frequency………………………………………………….46
4. Table 4.4: Calculation of Sample Statistic………………………………………46
5. Table 4.5: Correlation Analysis for Public Expenditure on Aggregate Fiscal
Discipline (Using Spearman’s rank Method)………………………..47
6. Table 4.6: Relationship between Allocative Efficiency and Frequency of Fiscal
Reporting……………………………………………………………..48
7. Table 4.7 (a): BCC Budgets and Actual Income and Expenditures Council by
Council……………………………………………………………….56
8. Table 4.7 (b): MoG Budgets and Actual Income and Expenditures Council by
Council………………………………………………………………56
9. Table 4.7 (c): BRDC Budgets and Actual Income and Expenditures Council by
Council………………………………………………………………57
10. Table 4.8: BCC Year 2019 Proposed Budget…………………………………...58
11. Table 4.9: Independent Variables Multi-Collinearity Table…………………….62
12. Table 4.10: The regression output…………………………………………………63
13. Table 4.11: Regression Model Summary………………………………………...64

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 LIST OF FIGURES

1. Figure 4.1: Percentage Response from Each Local Authority……………………….44

2. Figure 4.2: Corporate Governance Practice in Local Authorities……………………49
3. Figure 4.3: BCC Budget Expenditure for year 2017…………………………………55
4. Figure 4.4: BCC Budget Expenditure for year 2017…………………………………59
5. Figure 4.5: Capital Budget (2010-2019) Bulawayo City Council…………………....61

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 ABSTRACT
The purpose of this research study was to explore whether good corporate governance
principles can chlorinate bad Public Financial Management systems to usher good
public administrative services and welfare to citizens in Zimbabwe during the period
2010-2019. There was no previous research that had been carried out to examine the
effect of bad corporate governance principles in local authorities in Zimbabwe.
Research carried out elsewhere had shown mixed results on the effect of corporate
governance in general on public financial management. Of interest to many were the
research findings that, bad corporate governance principles negatively affected revenue
inflows such that taxpayers refused to pay taxes in urban and rural councils in
Zimbabwe. Literature in this study covered different aspects, such as transparency and
accountability, stewardship and agency, aggregate fiscal discipline, and allocative and
operational efficiency, world trends on public financial management, corporate
governance principles and practices in Africa, theories of corporate governance, factors
that hinder effective and efficient public financial management systems in the public
sector. The research study followed a mixed approach to gather both quantitative and
qualitative data. A structured self-administered questionnaire complemented by
follow–up interviews were used to gather primary data while documentary evidence
was used to gather secondary data from the Auditor General’s Reports, websites and
fiscal reports. A sample of three urban and rural councils from Matabeleland Region of
Zimbabwe was used.

A total of 100 respondents for the questionnaire and interviews was further purposively
selected and distributed to key local authorities’ executives, councillors and citizens.
The study found that bad corporate governance principles led to plunder of public
resources with corruption, fraud, waste and abuse of public finances in local authorities.
Conclusions made that good corporate governance principles chlorinate bad public
financial management and that bad corporate governance practices led to high fiscal
reporting risks in local authorities. .Finally, it was recommended that, a Whole Systems
Approach of Public Financial Management should be applied by council stewards and
place a minimum educational qualification of a Diploma for one to be elected or
appointed as a councillor. Legal frameworks which enforce application of good
corporate governance must be put in place by Government.

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 CHAPTER I

INTRODUCTION

1.0 Introduction

This is an introductory chapter which seeks to highlight the Background of the Study,
Statement of the Problem, and the research objectives and questions which guided the
study. Key assumptions of the researcher, delimitation of the study and limitations
encountered in this study were also brought to the fore. The chapter ends with definition
of key terms with the acronyms used listed and expanded.

1.1 Background of the Study

Public Financial Management is vital to the welfare of citizens of any country and
public administrative sphere the world over. Public resources must effectively and
efficiently be put to good use with the sole thrust of advancing public interest and
national interests first ahead of any other. Chandrashekhar (2007:8) says that, “The
reality of the public sector today is that it is assessed by the efficiency of its service
delivery. No longer is the effectiveness of the public sector measured by the revenue it
generates or the employment it provides...” Good public financial management systems
aim at achieving a combination of allocative efficiency of resources, aggregate fiscal
discipline of revenues and expenditures as well as operational efficiency of financial
health systems.

Corporate governance principles’ application to public financial management

processes, results and outcomes lead to health status achievement of the whole public
entity (UN (2016)). Poor governance principles may lead to filthy public financial
management in urban and rural councils. Public finances arise from the public in form
of taxes, grants, aid or sale of public assets or natural resources for reallocation to areas
of priority (UN-HABITAT (2015)). As such objectives of public financial management
must be focused towards enhancing the welfare of citizens and ultimately deliver value
for money to the taxpayer.

The world over is contaminated with high levels of corruption with sophisticated
management frauds by public institutions managers who are entrusted with public
finances (Gwangwava and Matsvai (2014); Ncube and Maunganidze (2014)).

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Traditional and top-of-the drawer forensic audits, robust deterrent laws and coded
corporate governance principles have been put in place since the Cadbury Report of
1992 to improve the health of public financial management (Eyisi and Agbaeze (2014)
; Matei and Drumasu (2015)). The challenges have instead risen exponentially.

In Zimbabwe, the Auditor General’s Office has numerously reported to the

Zimbabwean Government through Parliament gross mismanagement and theft of
public resources in local authorities but the prescriptions have not deterred offenders
from stopping plundering the scarce resources (Makamure (2016) ; Ncube and
Maunganidze (2013) ; Chigudu (2018)). The Zimbabwean Constitution Chapter nine,
Zimbabwe’ Code on Corporate Governance, Public Financial Management Act
[Chapter 22:19], Urban Councils Act [Chapter 29:15], Rural Councils Act
[Chapter29:13] and other supporting statutes all deal with management of public
resources. Presence of these pieces of legislations has not been felt by some
unscrupulous and corrupt council executives and staff.

The government and local authorities’ expenditure has become of great concern among
citizens who question the way public monies are administered by council executives.
Sub-national Governments have elected people who are entrusted with authority to
transparently and honestly collect and expend funds sagaciously (Sarr (2015); UN-
HABITAT (2015); Zhou and Chilunjika (2013); Richard Barton (2009)). This has led
to clear conflict of interest among executives because of the Stewardship roles they
have. Council executives are agents of citizens; as such the executives should be of
unquestionable governance principles.

Law enforcement agents like Zimbabwe Anti-Corruption Commission (ZACC) and

Zimbabwe Republic Police (ZRP) specialised teams have been called to attend scenes
of thefts, frauds or corruption in urban and rural councils, for example, Tsholotsho,
Binga, Bulawayo City Council, Harare City Council, Gwanda, Umzingwane, to name
a few problem councils countrywide. Council executives have been convicted in courts
while several have been suspended and dismissed from work due to criminal activities
through corruption, waste and abuse. There is a yawning gap between the purported
public financial reports and the reality of financial resources (Asquer and
Krachkovskaya (2017)). Revenues are understated while expenditure is intentionally
inflated. The well-knit commercial crimes continue to rise in councils despite public

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outcry. There is no truth reported by councils; if ever there is, the truth is distorted
(Idahosa and Nchuchuwe (2005)). To the surprise of the public, some of the council
executives and staff labelled the most corrupt remain in their positions to the disgust of
citizens who continue bleeding from their funds even after traditional audits by the
Auditor General.

The role of public financial management arises from a number of points when
considering improvements to governance. The public financial management system
must be integrated into the total governance framework if it is to contribute as part of
an organic whole to enhancing a country's development prospects. Lack of integration
between the financial management system and the total public management system can
make administrative duties fail or even take a step backwards (Jordaan (2013)). A
healthy public financial management system is at the heart of a total system of corporate
governance and needs to work in harmony with other elements such as human capital,
strategic and operational planning, information systems employed to achieve the
objectives of government of aggregate fiscal discipline, allocative and operating
efficiency (Dzomira (2017) ; Jordaan (2013)) . The emphasis on a governance
perspective and a total rethinking of public service pave the way to explore the full
range of policy choices, management strategies, ethical responsibilities, and public
commitments, which are necessary for efficient, effective and accountable public
administration.

Public resources allocation has always caught the ire of citizens, law enforcement
agents, those charged with Governance, the Government and International financiers
like the International Monetary Fund (IMF), African Development (ADB) and Briton
Woods Financial Institutions. National Budgets have been crafted but have failed to
make positive impacts on the welfare of citizens. National and Councils budgets are
aimed at ensuring that public financial resources are efficiently and effectively allocated
to various areas of priority to improve welfare of citizens. This has not happened.
Council officials have been engulfed in well-orchestrated institutionalised corruption,
frauds and theft of public financial resources thereby causing acute resources
constraints in councils (Idahosa and Nchuchuwe (2005)). At the end of the tunnel public
value is not realised. At times personal greed by council officials has become so
demonic such that budgets are made to provide for well-oiled frauds and thefts. To
cover for that resources gap, councils have resorted to aid, borrowings and unjustifiably

3
 huge budgets financed by exorbitant levies on citizens even in the absence of high
inflation. This has all resulted in skirmishes in council chambers by executives,
councillors and the general public, with some executives being arrested or suspended
for squandering of resources.

Media is awash with reports of negative publicity on the way public resources are
utilised in local authorities. All this point to an overall poor health of councils in the
area of public financial management (Mwanawashe (2016); Makamure (2016);
Chadenga (2019)). Several researchers have conducted research in public financial
management linking it to corporate governance issues, but very little research has been
done on public financial management in councils. The authors have made a fractured
approach to public financial management in relation to corporate governance and never
had a holistic approach to determine the totality of the public sector well-being. In fact,
there is very little research in the area of public financial management. If such
researches are not enhanced, public resources would be squandered unabated;
development not achieved; public value not realised; and citizens’ welfare not
improved. Local authorities’ business would be chaotic and scandalous.

1.2 Statement of the Problem

Efficient and effective public financial management (PFM) systems should embrace
good corporate governance principles in both urban and rural councils. PFM is a critical
instrument for public resources delivery in local authorities. More than often, councils’
executives deliberately manipulate PFM systems, policies and laid down procedures in
order to abuse and syphon public resources. Ultimately, taxpayers lose out on utilities
and value derived from these public entities. The extent to which council executives’
behaviour affect PFM systems has been topical in public and private spheres.
Contentious issues in PFM include, but not limited to lack of efficiency in the allocation
of resources, aggregate fiscal discipline of revenues and expenditures, and operational
efficiency of public resources by those charged with corporate governance in councils.
Thus, do good corporate governance principles chlorinate bad PFM systems, in order
to provide good public administrative services and welfare to citizens?

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1.3 Research Objectives

i. To evaluate the impact of corporate governance principles on public financial

management in Matabeleland Region Councils.
ii. To assess the effects of risks caused by bad corporate governance principles on
public financial management in Councils in Matabeleland Region Councils.
iii. To formulate recommendations to Urban and Rural Councils’ management in terms
of improving public financial management.

1.4 Research Questions

i. What is the impact of bad corporate governance principles on public financial
management in rural and urban councils?
ii. What are the risks of inaccurate fiscal reporting of public revenue and expenditure
in local authorities?
iii. What are the recommendations for the best public financial management systems
in Urban and Rural Councils in Matabeleland Region?

1.5 Significance of the Study

The study is likely to induce Government to institute legal and public financial
management reforms in local authorities. It will assist in policy formulation.

To researchers, it will help expand the body of knowledge and be a basis for further
research by professionals and academics in the area of management, public finance and
accounting. The research will build theory of valuable use for progressive public
entities in allocative and operational efficiencies as well as aggregate fiscal discipline
in public expenditure through good corporate governance practices.

At the end of each financial year, Government and policy makers will definitely record
financial surpluses through utilisation of recommendations of this study. PFM problems
caused by bad corporate governance would be minimised and ultimately have healthy
PFM systems.

In view of the above benefits, the research was worth undertaking as costs of it were
over-weighed by the benefits.

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1.6 Assumptions

The proposition was that the Government of Zimbabwe has developed a corporate
governance framework and relevant legislature governing urban and rural authorities
to spur a healthy public financial management system. What can be done is only
improving the PFM system by robust corporate governance principles. The study also
assumed that economic inflationary pressures and growth remain constant. It was the
researcher’s assumption that participants would be cooperative and answer all
questionnaires and interview questions honestly and factually.

1.7 Limitations of the Study

Some urban and rural authorities’ executives did not release vital data relevant to
answer the research questions. The alternative was to obtain the data from newspapers,
Auditor General’s Office and independent citizens (willing public figures).

This research was conducted right deep into a Corona Virus (Covid-19) world outbreak
which restricted the researcher’s travel and general movements to meet the interviewees
as the epidemic is air-borne. There was no end in sight, and no one really knew when
the Corona virus outbreak would be halted by health experts or through the Almighty.

1.8 Delimitation of the Study

The study aimed at covering the Matabeleland Region Urban and Rural Councils as the
population. A sample of three local authorities was drawn from the region where a mix
of executives and citizens was interviewed, and questionnaires were distributed. The
impact of corporate governance principles on PFM was explored using dependent
variables of aggregate fiscal discipline, operational efficiency and allocative efficiency
and the independent variables public income and expenditure, Stakeholder engagement,
Frequency of Fiscal Reporting, Public Information Integrity, Quality of Service
provided, Scope of Fiscal Reports and the Fiscal Reporting Risks in local authorities.

1.9 Definition of key terms

Key terms to be defined are Urban and Rural Councils, Corporate Governance, PFM
health and Public Financial Management.
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1.9.1 Urban and Rural Councils

Councils are public administration bodies responsible for local authorities. In

Zimbabwe, these local authorities report to the Minister of Local Authorities. The
Urban Councils Act of Zimbabwe (2002) defines a local authority as a “means a
municipal council, town council, rural district council or local board” The Act provides
for the determination and establishment of councils, qualification for election into
council, management committees of councils, appointment of officials, powers, duties,
functions, rights and obligations of councils and financial matters.

The Rural District Council Act Chapter 29:13 of 2002 defines a council as a rural
district council established in terms of the Act. Declaration, naming, alteration and
abolition of districts is made by the President at any time, by statutory instrument.
He/She may:

(a) declare any area within a province to be a district;

(b) assign a name to any district;

(c) alter the boundaries or name of, or abolish, any district.

Zimbabwe has about 86 Urban and Rural District Councils including local Boards. Of
the 86, 17 are found in the Matabeleland Region’s three provinces of Bulawayo
Metropolitan, Matabeleland North and South. Needless to say, this region has unique
historical and economic challenges different from Midlands and the Mashonaland
Regions of Zimbabwe.

1.9.2 Corporate Governance and Principles defined

Corporate governance is what a ‘licence’ is to a ‘vehicle driver’. Corporate governance

principle refers to a fundamental truth that stands as the foundation for a sound public
financial management system. Corporate governance refers to the way urban and rural
councils are directed and controlled. Corporate governance is the exercise of powers
and actions to achieve goals and objectives of a local authority. Executives and
officials’ actions remain a cause for concern in management of public resources in
public entities. Public entities officials should be accountable to the public for their
actions and ensure that there is transparency in the manner in which they conduct sub-
national government business. Local authorities must uphold ethics and be responsible

7
 for ensuring that resources are effectively allocated and efficiently used in the best
interest of citizens. This puts council executives and officials in a position of
stewardship and agency to cultivate a favourable climate for risk-free and allocative
efficiency of public resources. King III (2009) encourages all staff to practice risk
management in their day to day activities. Clearly, corporate governance has a role in
elimination of fraud, corruption, waste and abuse of public resources.

1.9.3 PFM Health

PFM health refers to sustainable balance between revenues, expenditures and public
debt levels (aggregate fiscal discipline); maximised government objectives attainment
through prioritised allocation and spending of public resources according to citizens
needs and wants (allocative efficiency); and efficient and effective use of public
resources by leakage reduction, debt and cash management as well as mobilisation of
resources to service delivery ends (operational efficiency). A healthy PFM system
should have sound corporate governance practices in place, and executives must not
only be ethically clean and smart, but they should be seen to be such at all times in the
eyes of the public. Hence, a healthy urban or rural authority must bear all or the majority
of the above features for it to be termed “financially healthy” although no system is one
hundred percent perfect.

1.9.4 Public Financial Management

PFM are ways of improving citizens’ welfare through aggregate fiscal discipline,
allocative and operational efficiency of public resources as guided by the Chief Finance
Officer of a public entity. This entails revenue collection and efficient allocation of
collected revenue to areas of priority. Proper PFM ensures that public finances are
safeguarded against loss. However, PFM is not only restricted to public finances but to
any other non-financial resources of local authorities like provision of public facilities
like dip-tanks rural roads and street lighting and safety to the general public.

Mutenga (2019) points out that PFM deals with resource mobilisation and management
of expenditure in the public sector. Scott (2018) was of the same view that PFM and
said that it is concerned with the economic behaviour of government in relation to the
methods, regulations and policies that guide planning, directing, coordinating,
budgeting, influencing and governing the flows of finances to maximise institutional

8
 objectives. Fourie (2005: 679) stresses that public financial management in the South
African context is based on the three elements: improving transparency, entrenching
accountability and ensuring the integration of policies and this is in agreement with the
Zimbabwean PFM Act section 3 which states that its objects is to secure accountability,
transparency and sound management of public resources. Proper checks and balances
of a good PFM system coupled with ideal corporate governance principles must keep
corruption, abuse and waste of public resources at a minimal level.

1.10 Summary

Chapter One showed that there is a glaring knowledge gap between public financial
management systems and corporate governance principles which warrant research into
the way local government officials conduct business. Corporate governance issues have
an impact on PFM systems and the ultimate public service delivery and public value.
Chapter Two will review the supporting literature.

9
 CHAPTER II

LITERATURE REVIEW

2.0 Introduction

This chapter reviews the relevant literature and outlines the main model guiding the
study. Concepts and theories underpinning the study are also investigated before
empirical evidence is given to support the research. The chapter ends with a summary.

2.1 CONCEPTUAL FRAMEWORK

2.2 William Niskanen’s Bureaucratic Behaviour Model (1968)

Niskanen’s bureaucratic behaviour model of 1968 guided the research. Bureaucracy

puts urban and rural council officials in a position of agent-principal relationships,
stewardship and stakeholder theories of corporate governance which needs concomitant
attention in public financial management. This gives rise to fiscal reporting risks to the
government, public and stakeholders. Aggregate fiscal discipline, allocative and
operational efficiencies are affected by behaviour of public officials holding office who
also make key financial decisions on behalf of the citizens and body corporates. The
bureaucratic model is an approach that argues for accountability as the major ethical
control measure (Erakovich and Wyman, 2009). Sound PFM is characterized by
aggregate fiscal discipline; prioritised, efficient and effective resources allocation to
spur economic growth and service delivery (UN Economic Commission for Africa,
2014).

The bureaucratic model argues that bureaucrats seek to maximize power and authority
associated with holding public office. Such power is usually associated with the
resources that the bureaucrat has under command. Bureaucratic power is related to the
size of the local authorities’ budgets or spending behaviour. Niskanen’s analysis points
to attempts by bureaucrats to maximise budgets leading to general overextension of
sub-national governments, in excess of efficient level of output.

The diagram below shows the bureaucratic incentive to supply more than the efficient
amount of output. The marginal social benefit of the bureau’s output per year are shown

10
in figure 2.1(a). The output could be measured in kilometres of new roads constructed
per year.

Figure 2.1 (a) Bureaucracy and Efficiency

Source: David Hyman (2011) page 218

In Figure 2.1 (b) below, efficient output, Q* units per year, corresponds to point E,
where Marginal Social Benefit of output just equals its marginal social cost (MSC).
Bureaucrats seek to maximise the size of their budgets. They seek to obtain as much
funding as possible for their output. The output that the bureau will try to get approved
is QB which corresponds to the point where Total Social Cost (TSC) = Total Social
Benefit (TSB).

The Bureaucracy Model like most such models presume that sponsors are at the mercy
of the bureaucrats. If bureaucrats face no competition and no restraints from budgeting
procedures, this leads to a tendency of over-supply of government output or inefficient
production techniques.

11
 Figure 2.1 (b) Bureaucracy and Efficiency

Source: David Hyman (2011) page 218

2.3 Contextualising Urban and Rural in Public Sector

Section 274 - 279 of the Constitution of Zimbabwe Amendment (No. 13) Act
establishes the Local Government, in particular Urban Local authorities and Local
Authorities for rural areas. Section 276 (2) (a) and (b) confers power to public officers
to levy rates and taxes, and generally raise sufficient revenue for them to carry out
responsibilities on behalf citizens. Figure 2.2 below shows the positioning of urban and
local authorities in relation to Government and Public Sector circles. Public officers are
also empowered to make by-laws, regulations for effective administration. This creates
bureaucratic behaviour which impacts on public financial management. CIPFA
(2016:16) states that, “Strong Public Financial Management is only one of the factors
that make for success in public sector expenditure programmes. It sits alongside other
contextual aspects, such as leadership, transparency and accountability, levels of
resources and staff capacity, and is influenced by many aspects of the social, political
and economic environment.” In broad terms, corporate governance principles need to
be put to test.

12
 Figure 2.2 The Public Sector

Source: GFSM (2013)

SYSTEMS THEORY

AGREGGATE
FISCICAL
WHOLE SYSTEMS THEORY

DISPLACEMENT EFFECT
STEWARDSHIP THEORY

DISCIPLINE
WAGNER’ S LAW
ACCOUNTABILITY
AGENCY THEORY

TRANSPARENCY

ALLOCATIVE
EFFICIENCY

OPERATIONAL
EFFICIENCY

Dependent Variables Independent Variables

Figure 2.3 Systems in Public Financial Management
Source: Author

13
 The diagram above shows the arrangements of the sub-units which feed into the whole system
of PFM.

2.4 Objectives of Public Financial Management

2.4.1 Aggregate fiscal discipline

Striking a balance between revenue collected and public expenditure in local authorities
remains a big challenge. The fiscal gap continues to widen, with public expenditure
higher than revenue. This is the gap which needs high level discipline by local
authorities’ officials to manage it. Rapoport, Mendez and Scartascini (2020:4)
interestingly say that, “If the government is viewed as wasting the revenues at already
collects, citizens have little motivation to throw their money away by paying taxes.”
Councils must not spend more than what they earn. Borrowing may mean mortgaging
the future generations’ earnings and public resources endowed in communities, like
wildlife and minerals, yet the Constitution of Zimbabwe Section 298 (b)(iii) does not
allow this. Other fiscal gaps are financed through Public Private Partnerships for
infrastructure development. The Public-Private Partnerships are usually corruptly
awarded to related private companies through corrupt practices. This leads to loss of
potential revenue to urban and rural councils. Examples of such is the awarding of a
tender to build a multi-million-dollar project to Teracota by Bulawayo City Council
when it was clear that Teracota Company had no capacity to build the Egodini
Complex/Mall. Teracota Company is said to be linked to some politicians who double
as councillors in the Bulawayo City Council (Dube, 2016; Nyoni, 2016). The company
failed to finish the project.

Politicisation of financial plans (budgets) as economic instruments in rural and urban

councils makes it difficult to explain how programs achieve policy objectives and hold
public officials accountable for outcomes and outputs of public finance (Petrie, 2002).
Unlike Zimbabwe, South Africa is in an enviable fiscal space and fiscal resources are
successfully directed to the poor. In such situations, fiscal resources do not become the
binding constraint for improved service delivery and quality (World Bank, 2011). State
capture and corrupt behaviour has led to unjustifiably high budgets being approved
against realistic spending levels (Liu, Moldogaziev and Mikesell, 2018). In some cases,
council officials who remain resolute in upholding the banner of good corporate

14
 governance are fired from their positions by corrupt Government Ministers. In addition
to this, the “tragedy of the commons” or “common pool problem” has exerted pressure
on the scarce resources like revenue (Campos, 2001). This has bled councils of public
resources at the expense of citizens.

2.4.2 Allocative efficiency

Efficient Public expenditure management calls for strategic prioritisation of resources

in budgeting and the ultimate sustainable borrowing levels (Kristensen et al, 2019).
Budgeting and treasury functions are aimed at achieving optimal development and
service outcomes in communities but human behaviour such as corruption, fraud, abuse
and waste retards development (Brini and Jemmali, 2016). Figure 2.4 shows the effect
corporate governance issues in achieving maximum output using minimal resources.
However, it is not feasible to reach maximum allocative efficiency of resources in
reality and there are both formal and informal rules in public expenditure management
(Welham, Krause and Hedger, 2013). The aspect of borrowing to mend the fiscal gap
in relation to corrupt behaviour in urban and rural councils requires serious stakeholder
engagement and fiscal reporting of risks to the taxpayers (Mihaljek and Tissot, 2003).
In the spirit of transparency, accountability and risk management those charged with
corporate governance should disclose all public financial and non-financial matters to
the natural persons and organisations. Local authorities must spend on the right things.

15
 Figure 2.4 Allocative Efficiency Outcomes
Source: CIPFA

2.4.3 Operational Efficiency

Various strata of principal-agent relationships exist in sub-national governments.

Citizens (principals) vote for councillors (agents) to represent their interests in urban
and rural councils. The Minister of Local Government is a principal to urban and rural
district council officials, particularly the Chief Executive Officers and the Mayors who
are the agents to the Minister (Jonga, 2014). No wonder why many councils tend to be
operationally inefficient (Fullton, 2016). To address such operational inefficiency,
councils use the private sector to help deliver services since it is better able to alleviate
the principal agent predicament (Razin, 2000). Some services are privatised or
outsourced (Welham, Krause and Hedger, 2013). Local authorities must deliver value

16
 for money goods and service (Parry, 2010). Where use of private firms is not possible
(perhaps due to legal challenges) then benchmarking public sector delivery with similar
services delivered by the private sector is considered. The Governance Brief (2001:4)
stresses that, “If the private sector could deliver all public services then our worries
would be more easily manageable.” It is sad to note that many government services are
still being delivered by government only, particularly in the rural areas). Appointment
of private players or the outsourcing is affected by corporate governance principles like
lack of accountability, transparency, stakeholder engagement and expose public
resources to economic vultures in councils.

Operational efficiency of government department including local governments in

Ghana is measured and monitored by the Internal Audit Agency to review submissions
by relating to internal audit charters, plans and quarterly audit reports. The audit reports
are then subjected to intensive scrutiny for adherence of quality and legal compliance
and procedures (Betley, Bird and Ghartey, 2012). This improved PFM systems in
Ghana.

2.5 CORPORATE GOVERNANCE PRINCIPLES

2.5.1 Transparency and Accountability of Public Resources

Transparency in councils makes all activities conducted by public officials very clear
for all citizens to see and be satisfied. The public must not be starved of all relevant
information in order to make socio-economic decisions. Garofalo and Geuras (2009:70)
points out that, “Transparency is both an instrumental and a normative value, intended
to increase information to citizens in order to facilitate more effective choices and to
ensure greater accountability, and designed to contribute to legitimate governance by
helping to resolve the perennial principal-agent problem.” In Denmark, government
ministries were asked from 2004 to publish efficiency strategies to ensure co-ordination
between different efficiency tools such as procurement, performance contracts and
outsourcing (Curristine, Lonti and Joumard, 2007).

Zhou and Chilunjika (2013) assert that accountability and transparency, as intimately
related principles puts locally elected council officials to answer questions related to
their actions, policies and use of public funds. Their study pointed out that financial

17
 accountability in the management of public funds and aid funds must be upheld without
any compromise. Provincial and metropolitan councils and local authorities must
ensure that all revenue is accounted for, all expenditure properly incurred (Constitution
of Zimbabwe, 2013). Transparency (achieved through the provision of public
information about financial transactions) entails openness in which local funds are
handled and, in this way, serve as a reliable deterrent to corrupt practices (ICHR, 2005).
Appointment of auditors, pluralistic approaches in the local authority budget making
processes and regular public reviews go a long way towards reinforcing transparency
and accountability practices in local authorities. The study only dwelt on revenue
collection avenues like taxation but did not look at the total well-being of public
financial management, like allocative efficiency, operational efficiency and the
aggregate fiscal discipline required of local authorities.

2.5.2 Ethical Considerations in Management of Fiscal Reporting Risks

2.5.2.1 Risk Mapping

A risk is any event or occurrence that leads to failure of a local authority in achieving
its public financial management objectives and goals. A risk map is a tool for
communicating various risks facing a local authority. The map helps local authorities
identify and prioritize risks associated with a particular council and putting in place
well in advance plans on how each risk would be dealt with. In assessing fiscal risk,
organisations should analyse the overall PFM operating environment, governance and
public accountability and levels of fiduciary risks (USAID, 2014). Mostly risk maps
are presented in a two-axis diagrammatic matrix showing likelihood of occurring and
likely impact of the risk.

2.5.2.2 Fiscal Reporting Transparency

Risk-free fiscal reports are the foundation of good public financial management. The
reports are the source of information for decision making by citizens, auditors,
legislature, and even the private sector. Using the fiscal reports, the public can hold
local authorities accountable for their financial performance. Section 298 of the
Constitution of Zimbabwe Amendment (Number 20) Act of 2013 stipulates that public
funds must be expended transparently, prudently, economically and effectively. The
Constitution further states that fiscal reporting must be clear. Local governments’ fiscal

18
 reports must provide a comprehensive, relevant, timely and reliable overview of urban
and rural financial position and performance (USAID, 2014). Fiscal reporting is the
preparation and publication of financial information concerning the present and future
state of a local authority finances (IMF, 2018). Fiscal reports include the year’s budget
outturn or execution reports, financial and non-financial statistics as well as annual
financial statements.

2.5.2.3 Scope of fiscal reports

Fiscal reports are public sector financial statements which contain consolidated balance
sheets with financial and non-financial assets and liabilities, revenue and expenditure
statements, cash flows and other economic flows, among many other statements.
According to IMF (2018) fiscal reports must cover not only the central and subnational
governments but also other entities that are part of the wider public sector and should
also not only disclose cash transactions but should also clearly account for any accrued
revenue, expense, and financing, as well as fiscally significant other economic flows,
such as volume and value changes in assets and liabilities. This way cost of policies can
be estimated through understanding of tax expenditures.

2.5.2.4 Frequency of fiscal reporting

According to IMF (2012:5) fiscal reporting is defined as, “…publication and

dissemination of … summary information about the state of the public finances to
citizens in the form of fiscal reports (in fiscal strategy or budget documents),
government finance statistics (fiscal reports produced in accordance with statistical
standards), or government financial statements or accounts (fiscal reports produced in
accordance with accounting standards) … .” United Kingdom Secretary to Treasury
(2019:3) views a fiscal risk report as “an assessment of the shocks and pressures that
could threaten our forecast for the public finances over the medium term and fiscal
sustainability over the longer term.” Fiscal reporting risks are factors that lead to local
governments reporting incorrect public financial and non-financial information and
budgets and actual figures to interested parties.

Frequency of fiscal reports depends on whether there is a legal requirement for a public
entity to report on the underlying public financial and non-financial item. Local
governments fiscal reports must be integrated into budgets and disclose the number of

19
 budget estimates as well as quality of accompanying descriptions of public financial
information UK Secretary to Treasury, 2019). Failure to produce regular annual
publication on public estimated costs alongside fiscal statements is a weakness (IMF,
2016).

Fiscal reporting must be more frequently done because financial crises come in many
forms and have multiple dimensions (UK Secretary to Treasury, 2019). Preparation,
publication and reporting to stakeholders lead public officials in obligatory
stewardship positions to show how the public sector discharges its financial
management responsibilities and to account for public funds as this increases
transparency and accountability.

2.5.2.5 Public information integrity

Information is processed data for public consumption whereas integrity is the quality
of being honest and having very strong moral principles in the public domain. Moral
values and norms are crucial in critical interpretation, evaluation and analysis of
behaviour of governance actors (Huberts, 2018). Huberts continues to denounce some
unethical behaviour in PFM like abuse of information and manipulation of information.
The right to access of information does not operate well where the responsible
government Minister determines the disclosure of some information which that
Minister feels may compromise national interest, the economy, national security or
investigation of a criminal matter. Ethics audits and robust legal frameworks must be
used to identify risks to integrity of information in financial management (Whitton,
2001). As such most central and local government public information must be subjected
to deep scrutiny and must be accepted with scepticism.

2.5.2.6 Quality

Quality fiscal reports in PFM in local authorities are financial reports which should
present relevance, faithful representation, understandability, timeliness, comparability,
verifiability and reliability of public financial information. Dishonest application of
statutes and financial reporting standards is one of the factors that affect quality in
government institutions in Indonesia (Safkaur, 2019). The other cause of low-quality
fiscal reports is the poor quality of information on assets (Se Msi, Muda, and Abdullah

20
 (2018). Quality and completeness of financial information presentation determines the
fulfilment of the quality of financial statements and financial performance (Bukenya,
2014).

2.5.2.7 Stakeholders Engagement and confidence

A critical component of good corporate governance it is, it helps strike a balance

between social and economic goals as well as between community and individualistic
objectives. Stakeholder participation is a key driver of change in development; essential
for building robust relationships between the state and the citizens for accountability,
responsive public service delivery and inclusion of socially and economically
disadvantaged groups (Arifin and Alizar, 2016). Most organisations communicate with
stakeholders like private sector partners, staff, suppliers and citizens through provision
of public information about organisational goods and services (IFC, 2009). The
underlying stakeholder theory appears to be an unfinished theory as it relies on other
stand-alone theories like resource dependence, agency, and transaction cost theories of
corporate governance (Gomes, 2006). Stakeholder engagement assumes that an
organisation’s effectiveness is measured by its ability to manage all agents with a stake
in an organisation (Gomes, 2006). Effective community and stakeholder engagement
enable organisations such as councils and government agencies to make better informed
decisions. By engaging communities, communities’ input is acquired from diverse
perspectives and a variety of solution to problems are presented (Institute of Public
Works Engineering Australasia, 2015). Engaging all stakeholders is also a valuable
crisis management tool. All parties to local governance, particularly the volatile area of
public financial management, are kept at bay when they are satisfied about good public
administration of resources.

2.6.0 THEORETICAL FRAMEWORK

2.6.1 Whole Systems Theory

The Chartered Institute of Public Finance and Accountancy has developed the
“Delivering Excellent Public Finance” model. The model stresses the link to outputs
and outcomes, by converting money into social benefit, whether this accrues to
individuals, communities or to the public at large. It is a holistic approach to PFM which
challenges local governments to view public sector from an integrated and sophisticated

21
perspective bringing together corporate governance matters like transparency,
accountability, integrity and sustainability; external elements which include legislation,
standards and scrutiny or auditing and the internal factors such as strategic planning,
budget execution and stakeholder reporting (CIPFA, 2016).

Figure 2.5 Whole Systems Theory effect on PFM System

Source: CIPFA, 2016

Scott (2018) crafted a Systems Theory which integrated allocative efficiency, principal-agent
theory, transaction cost theory and the new Public Management view as corporate governance
perspectives. In this study Scott pointed out factors affecting service delivery as dependent
variables and accounting and financial reporting practices as the independent variables which
call for effective and efficient systems in public financial management in local governments in
Ghana.

22
2.6.2 Agency Theory

Cheruiyot et al (2017) contend that, “In agency theory, the agent may succumb to
selfish, opportunistic behaviour and falling short of congruence between the aspirations
of the principal and the agent’s pursuits.” PFM is an open system prone to economic
factors and political cultures and leadership. The issue is whether the strength of new
public financial management procedures will change behaviour of politicians, public
officers and partners. (Cangiano, Curristine and Lazare, 2013). Rapoport, Mendez and
Scartascini (2020) state that behavioural insights can increase revenue inflows and
improve public spending efficiency by promoting energy and water conservation,
reducing civil servants’ absenteeism and improving road safety.

Hires & delegate

Self interest

Principals Agents

Self interest

Performs

Figure 2.7 The Agency Model

Source: Adapted from Abdallah & Valentine (2009)

2.6.3 Stewardship Theory

Stewardship theory assumes that given a chance, public officials entrusted with
governance would have an express choice between self-serving behaviour and public
interest (Davis, Schoorman and Donaldson, 1997). Normally, a steward would place
higher value on public interest than greed or personal interest. Cheruiyot et al (2017)
asserts that strong financial stewardship, accountability and transparency ushers greater
trust in public sector entities.

23
2.6.4 Wagner’s Law

Public Expenditure is ever-increasing in states and local governments. Adolph Wagner,

a German economist (1835-1917) propounded the Law of increasing state spending
stating that public expenditure rises constantly with growth of income. The theory
views that state expenditure increases because social functions by state expand over
time to carter for provision of facilities and infrastructure, natural disasters,
environmental programs, social security and retirements; research and development
through education and investment; and the fact that government and its agencies resort
loans for covering contingencies thereby increasing public expenditure (Singh, 2008;
Afonso and Alves, 2016). Where the public sector is faced with increased expenditure
and income growth as explained by Wagner, scrutiny to local governments officials’
influence in budgets must be made, and the threats to good corporate governance in
local authorities be monitored as they have an effect on public financial management
systems.

2.6.5 Displacement Effect

During times of economic crises due to wars, pandemics, natural disasters or global
economic recession, the state and local governments have a tendency of increasing
taxes to generate more funds to meet increased public expenditure and maintain service
delivery to citizens. The movement from lower tax and expenditure levels to new tax
and expenditure levels produces a “Displacement Effect” as advanced by Peacock and
Jack Wiseman between 1890 and 1955. The new expenditure and tax levels remain
constant over some period of time and taxpayers get used to the levels up until another
increase. The increase in local government and total government revenue pushes
upwards government expenditure.

2.7 EMPIRICAL EVIDENCE

Pimpong (2018) sought to research and delved into the effectiveness of the oversight
role of the Public Accounts Committee in enhancing public financial accountability in
Ghana. The research was based on three fundamental questions as to what formal
procedures were put in place for proper implementation of Public Accounts Committee
and the extent to which the recommendations of the Public Accounts Committee have
been implemented. The study was a qualitative one and used face-to-face interviews

24
and document reviews as data collection tools. The study revealed that there was an
absence of well-structured institutional framework in Ghana for befitting Public
Accounts Committee recommendations. The absence of sanctioning mechanisms for
wrongdoers, deficiencies of institutional accountability coupled with limitations of
human and financial resources adversely impacted on Public Financial Accountability.
Pimpong (2018) contends that the prevalence of corruption tends to be as a result of
institutional handicapped-ness. The researcher could have obtained better results by
using a mixed methodology since there could be some data left out by not using
quantitative data collection tools like the questionnaires which ensures total anonymity
my participants.

Chigudu (2018:1) places a duty on citizens themselves and says, “It is incumbent upon
the governed to be proactive and have the will to stay on the course no matter how
tough it may be, even if the ship of government is wobbling. The governed must make
use of available tools such as citizenship participation, vision and access to information
for them to fulfil their responsibilities within the domain of governance.” CCMT
(2014:29) buttresses this and points out that, “Rural communities receive direct support
from central government. … Some local authorities choose to distribute support
unequally, excluding some members of the community. At times local political
structures seize control of distribution.”

Jordaan (2013) conducted a study on financial performance management in South

Africa and pointed out that poor governance was a major obstacle to effective service
delivery. The research also discovered that poor performance by government officials
in management of public resources resulted in ineffective public service delivery.
Jordaan (2013:182) asserts that, “…public financial management capacity is at the core
of good governance and lies at the heart of effective service delivery.” The study
attempted to construct a theoretical framework on how decision makers in public
financial management can give account of their performance with specific reference to
the area of effectiveness and outcomes.

Conceptual models were proposed to improve public-sector financial performance

management to make a positive contribution to meet the needs of all people in the most
economic, efficient and effective way. Jordaan (2013) notes that public finance
management is an essential part of the governance process and includes resource

25
mobilisation. Rising aspirations of people are placing more demands on effective
mobilisation of financial resources and the emphasis of the citizenry is on value for
money measured in terms of economy, efficiency and effectiveness, thus making public
financial performance management increasingly vital. Jordaan’s study was deductive
and based on the best national and international practices of public financial
management. It was a theoretical investigative study and a combination of current and
historical study. In the view of all this, the study could have obtained better results using
a mixed methodology and data could easily be mined from the audit reports and state-
owned entities themselves.

Parry (2010) in his PFM discussion paper identifies only three major objectives of PFM
as aggregate fiscal discipline; strategic prioritisation of expenditure and technical
efficiency. By way of contrast, the IPSASB considers a conceptual framework for
financial reporting and identifies two objectives for financial statements: accountability
and resource allocation. The IPSASM approach views PFM as an information system
as well as a purposive system, like managing and controlling expenditure. The
Chartered Institute of Public Finance and Accounting (CIPFA) has produced a
consultation draft on a whole systems approach to public financial management which
considers PFM as a purposive system: “Public financial management is the system by
which financial aspects of the public services’ business are directly controlled and
influenced to support of the sector’s goals.”

The CIPFA model goes further to define goals and objectives as “sustainable social
benefits” sub-divided into funder results, public value, community value and individual
value. However, they do suggest that whilst CIPFA defines PFM in terms of financial
aspects, the target objectives are more concerned with delivering a range of benefits for
civil society. What the above approaches indicate is that any attempt to define PFM
objectives in terms of a single approach is too narrow: instead PFM should be seen as
an information and a purposive system with multiple objectives which can usefully be
viewed as a series of dimensions. The research suggested four dimensions of public
financial management namely aggregate fiscal management, operational management,
fiduciary risk management and the governance objective.

Fu, Kraft and Zhang (2012) tested whether higher financial reporting has an impact on
information asymmetry and cost of capital in private profit-making entities. Nyamita,

26
Dorasamy and Garbharran (2015:27), adds to say, “…public financial reporting
contributes significantly to the fulfilment of public financial management objectives on
internal and external reporting for accountability purposes.” Fu, Kraft and Zhang
(2012) used a hand-collected sample from firms with different interim reporting
frequencies from financial statements covering year 1951 to 1973. Their results suggest
that firms with higher reporting frequency have lower information asymmetry and a
lower cost of equity capital. The research however failed to consider the effects of
economic challenges and technology on the general health of entities’ public financial
management and aspects of corporate governance. It is however impressing to note that
the research emphasised on the need for the increase of disclosure frequency of
financial information in the interest of information asymmetry for investors. The
information used in the research was very old before invention of most current
technology which has since changed ways of conducting business and reporting
standards and corporate governance codes like the Cadbury Report of 1992. The
research at least realised the need for good corporate governance in institutions.

Andrews (2010) interrogates the strength of African Public Financial Management

(PFM), after a decade-long reforms. The study sought to discover how well African
PFM systems facilitate effective public financial management with a bias towards
identification of challenges and strategies to counter them. The study found that budgets
are made better than they are executed, practice lags behind the creation of processes
and laws, and processes are stronger where concentrated actors are engaged. In respect
of the latter, the study finds that different countries fall into different ‘PFM performance
leagues’ and countries in the different leagues look very different to each other.

The author used both quantitative and qualitative data on PFM system characteristics
and reform initiatives in 31 African governments. The quantitative data comes from
studies of country systems using the PEFA methodology, and qualitative materials used
included performance reports to explain the evidence. PEFA was not the best
methodology to use given the fact that it is a measurement normally used by donors
with different motives from those of the researcher. The researcher should have used
primary data. Under these circumstances it is important to concede that performance
reports were the best to use for qualitative analysis PFM system characteristics and
reform initiatives. However, the population and sample size seemed very big. So, this
27
researcher sees it fit to zero in on a sectoral public sector from a relatively smaller
population for quality results.

Cashin et al (2017) examined common challenges and strategies for aligning public
financial management (PFM) and health financing systems in support of the universal
health coverage. The research proffered a framework to help health and finance
authorities at the country level engage in productive dialogue, assess alignment between
a country’s PFM system and health financing system, and work toward a joint policy
roadmap to improve alignment. Stakeholders were considered to be helpful in
engagement efforts to move toward universal health coverage by bringing PFM and
health financing systems into better alignment. Cashin et al (2017) contend that health
policymakers must work towards ensuring more efficient spending and increased
allocation to priority populations, programs and services; public budget officials must
ensure that expenditures in the health sector are transparent and accountable; health
providers need more flexible financing arrangements so that they can better align their
resources with population needs; and lastly that external partners and donors who aim
to promote a sustainable transition to universal health coverage.

The research concluded that policymakers, programme implementers and providers

must be committed to clear, measurable goals for which they can be held accountable.
These researchers concentrated on the health sector but rightfully recommended on
improving on the alignment between the PFM system and health system which requires
on-going dialogue between health and finance authorities and other entities, such as
local governments. The area of local governments, that is, urban and rural councils was
never explored.

Baek and Park (2016) examined relevant legislation, policies and practices which spur
disclosure and implementation of reporting practices in State-Owned Enterprises in
OECD countries and developing and emerging economies. It was a desktop research
complimented with voluntary responses to questions on SOE transparency and
disclosure measures in a questionnaire on “Anti-Corruption and Business Integrity
Measures for State-Owned Enterprises” developed by the OECD and circulated to SOE
directors, senior executives and policy makers from the countries participating in the
meeting. Twelve countries involved were Argentina, Brazil, India, Korea, Lithuania,

28
Malaysia, Mexico, Peru, Paraguay, Philippines, Sweden and Vietnam. Responses from
the questionnaires and discussions showed that Government often centralise the
ownership function. This is worsened by lack of effective legal and regulatory
frameworks for public disclosure of information.

The meeting established that good practices for aggregate reporting and quality SOE
financial reporting are key to good corporate governance. A robust audit system was
seen to be related to good disclosure practices. Brown and Jacob (2011) posit that the
key role of public sector financing is to buy down, mitigate risks and leverage private
investments through public guarantees through insurance-like tools. The OECD
concluded that listing and corporatisation of SOE enhanced transparency as had been
previously been found by researches in China and India. While the research richly used
a mixed methodology (questionnaires and discussions), there could be some bias of
results as anonymity and leaving out ideas seen to be from inferior states and
executives. Executives are known for half-truths when they report about their countries
to avoid losing potential investment. The research only had an aerial view of each
country and did not zero in on a particular sector like the local authorities.

Dzomira (2017) basing on two theories of stewardship and agency scrutinized

governance and financial health in an emerging country’s public sector. The study was
centred on an interpretative philosophy through observed evocative and emblematic
content of qualitative data from South Africa’s Auditor General reports covering year
2012-2013 on all national and provincial departments, municipalities, and other
institutions compulsorily required to be audited by national legislation. Given the
circumstances the research methodology of qualitative approach was the best to use in
making inferences on financial risk indicators like debt management, capital budget
under-spending and going concern. The research recommended that public entities’
leadership must continuously monitor the implementation of revenue collection,
effective budget and cash-flow management to ensure that funds are utilized for their
intended purposes. This, according to the study, adds up to improved fiscal health,
going concern and service delivery in the public sector. However, the research was not
specific. If it concentrated on a specific geographical area or public sector area like a
municipal or council, it could have presented more discerning results concerning
corporate governance and financial health in emerging economies’ public sector.
29
 Improving PFM has cross-cutting effects. Hadden (2010) conducted a research in
Kosovo after economic and capacity and sustainability which thwarted achievement of
Government goals in the country’s post-conflict era. USAID provided funding for
government fiscal management like tax policy and analysis, tax administration,
expenditure policy, budget management and control, inter-governmental fiscal
relations, and subnational government finance. Since 1999, the Government of Kosovo
has enhanced legal reform, control, fiscal decentralization and purchasing. Numerous
challenges however remained in Kosovo because of the historical and macro-economic
situation. Jonga (2014:76) is alive to these challenges facing sub-national governments
and says that, “District Councils generally were impoverished, lacking adequate
infrastructures like schools, health facilities and roads, lacking adequate rainfall and
land was infertile compared to farms forcibly grabbed by the colonialists.” In Kosovo,
after some reforms in public financial management and governance there were notable
improvements in areas of economic development, financial management, transparency
and civil service capacity building.

The results of the study were that good governance was a road to creation of a
competitive environment for countries and that risk and opportunity were key drivers
for businesses. The study further states that good governance creates country stability
and encourages business investment to fuel economic growth. Improving governance
was a strategic objective for the Government of Kosovo to create an effective
administration, professional, transparent in accordance with democratic principles and
oriented towards providing the best possible services to citizens. Government Resource
Planning functionality in the Government of Kosovo is comprehensive and
decentralized. The research concluded that modernisation of automation was part of the
PFM Reform Action Plan.

2.8 Chapter Summary

In view of the above literature, this study integrated the Stewardship, Agency and
Systems theories. PFM is mainly made of several systems with corporate governance
taking centre-stage along the lines of stewardship and agency problems.

30
 CHAPTER III

RESEARCH METHODOLOGY

3.0 Introduction

The preceding chapter provided a review of associated literature which included various
methods which were adopted by other researchers in investigating the impact of
corporate governance principles on public financial management in sub-national
governments. The aim of this chapter is to present the study methodology for this mixed
grounded concept concerning the impact of corporate governance on public financial
management. The approach permitted a deep understanding of whether good corporate
governance principles chlorinate bad public financial management systems and
provided means to development of theory using the data to create an understanding of
the impact that corporate governance has on PFM. The applicability of the grounded
concept and an interpretivist philosophy are discussed in-depth in this section. The
research strategy, methodology, research partakers, analysis method, procedures, and
ethical concerns are correspondingly primary components of this chapter.

3.1 Research Philosophy

Unlike objects and items, human beings are viewed as social ‘actors’ or players with
roles in their life to the environment (Saunders, Lewis and Thornhill, 2012). People are
always in a continual interpretation of the world around them with a lot of desires.
Similarly, people in and around local authorities have a tendency of causing plunder to
public financial resources for the love of clandestinely self-enrichment. People differ
in views and behaviour. No wonder why local authorities deliver public goods and
services differently with other jurisdictions smarter in general outlook with cleaner and
safer drinking water than others. Humans bring in complexity to the business world so
is public financial management through ethics. Similarly, citizens and public officials
carry different views on what entails good corporate governance in handling of public
finances and public resources by councils. This caused the researcher to adopt the
interpretivism philosophy in the study.

31
3.2 Research Design and Justification

The researcher adopted a mixed methodology of data collection techniques and

analysis. The mixed methodology ensures that qualitative and quantitative methods are
integrated by merging and transforming data simultaneously, that is, qualitative data
being quantified, with quantitative data being qualitised (Saunders, Lewis and
Thornhill, 2012). A descriptive survey design was pursued in the study. The
longitudinal time horizon was adopted covering the period from year 2010 to 2019 to
incorporate changes and developments in local authorities. The population is too big
and covers the whole geographical Matabeleland Region with three provinces which
are Matabeleland South, Matabeleland North and Bulawayo Provinces which were
treated as clusters for the purposes of sampling technique. Therefore, a survey
withstood the economic cost of a research characterised with a huge geographical area
or population of characteristics.

3.3 Research Population and Sample Design

Research population was based on the reality that the whole Matabeleland Region
comprises of three political provinces of Matabeleland North, Matabeleland South and
Bulawayo Metropolitan. The population has too many dispersed urban and rural district
councils. The population has 10 000 probable respondents in total. This led the research
to use random stratified sampling and purposive sampling to save funding and time in
the wake of Covid-19 pandemic.

3.4 Sampling Size

A random stratified sample of three councils was drawn from each of the provinces
from where data was collected for analysis. The sampling frame were council budgets,
audit report by the Auditor general’s Office and council employees and individual
citizens. It is of paramount importance that the sampling technique should be utilized
in line with a relevant sample size, such that the results represent reality and the rest of
the population. Statistics can determine correlations from the results of a study. 100
questionnaires were then distributed to councils’ CEOs, Finance Executives, Risk
Committee Members, Councillors and 5 Senior citizens of each council area using
purposive sampling targeting key personnel in Internal and Risk Sections, Executive,
Human Resources and Treasury of councils and councillors themselves. Where

32
 necessary face-to-face interviews and semi-structured interviews were applied to gather
raw data. Secondary data was uprooted from records by the Auditor General’s office to
balance the outcome of the study. Other secondary data was deduced from journals,
internet, newspapers and textbooks see what experts and other researchers came up
using similar and different methodologies. This holistic approach gave a bird’s eye view
on urban and rural councils in the area of corporate governance and public financial
management.

3.5.0 Data Collection

A well-recognized data collection process is essential as it guarantees that data gathered

is both clearly defined, accurately analysed and that ensuing decision based on
arguments embodied in the findings are valid. The method of data assemblage was
favourable since the data gathering required written measures from council offices and
interacting with people in positions of authority. The sample size was well thought-out,
the required quantity of data and setting of respondents.

3.5.1 Raw Data Collection

Raw data is that data collected from respondents with regards to a certain study area.
For this research, self-administered questionnaires were used because this research
instrument preserves anonymity and that almost all respondents could read and write.

3.5.2 Questionnaire

The researcher designed a questionnaire for use in conducting the study because they
are highly rated as data collection tools for precision and conciseness of required
information. Haralambos and Holborn (1995) hold a view that questionnaires are a good
way of collecting data. The questionnaire had multiple choice questions which also
provided room for multiple responses, closed and open-ended questions to enable
respondents to provide more information related to the questions asked. The researcher
minimized open-ended questions to avoid respondents’ diversion from the study
objectives. Due to this fact, closed questions were used so as to eliminate ambiguity.
Those which were structured in a manner that gave an opportunity for respondents to
choose their responses from provided alternatives increased the comfort of
classification as well as quantification of answers. Robson (2002) pointed that

33
 standardized measurement is key as the standardization is ensured through specific and
un-ambiguous questions. Standardization is pivotal in a survey research.

The study embraced use of questionnaires for the following advantages:

i. The responses were collected in a homogenous way and a more objective than
other data collection methods. It was easier to relate responses from
questionnaires since questions were standardized.

ii. Comparative analysis of responses from citizens and local authorities’ officials
in this study were required. In this respect, use of questionnaires is found
appropriate because this enables to be standardised responses.

iii. It is a cost-effective method of collecting homogenous data since they can be

administered to many respondents.

iv. Questionnaires are usually more handy than other methods because they were
administered and used to collect more forms of information from a wider variety
of sources than other methods.

v. Gathering of various attitudes, experiences, statistics, events, judgements or

assessments was enabled during a single contact.

Even though questionnaires have numerous advantages, they also have shortfalls. These
include not giving the respondents room to seek clarification on issues they may be
having problems in interpreting. In trying to avert this problem, the researcher first
piloted the questionnaire on a small group of randomly selected citizens and
incorporated their suggestions before administering it to the actual or intended
respondents. The detailed questionnaire used in the research is as illustrated in
Appendix 1.

3.5.2.1 Justification for using Questionnaires

Questionnaires were found to be a lower cost way of acquiring data while covering a
wide number of respondents hence the reason why they were chosen by the researcher.
The researcher gains an insight of the views that respondents have with regards to the
subject area if close-ended questions are provided. Respondents had time to complete
the questionnaire at their own spare time thereby reducing the pressure on them. The
study recognised that data was easy to tabulate and interpret.

34
3.5.3 Semi-Structured Interviews and Justification for Use

The researcher also designed a second instrument, the semi-structured interviews to

help in interviewing of respondents who did not like writing or touching other people’s
objects for fear of Covid-19. As such some questions were similar to those captured in
the Questionnaire in Appendix I. However, the main goal of using the semi-structured
interviews was to capture qualitative aspects of the study; some information which
could not be quantified. The researcher then realized that some research questions were
better answered through a structured interview, as illustrated in Appendix 2.

3.5.3.1 Rewards of using semi-structured interviews

Semi-structured interviews have some advantages which include but not limited to the
following.

a) Matters deliberated, questions raised up, and issues explored vary from one
respondent to another creates room for open discovery of emerging matters
which researcher could not have been mindful of (Collis and Hussey, 2003).
b) The researcher is afforded time to prepare the questions and remain guided by
the written question to remain within the subject during the interview.

3.5.3.2 Set-back of semi-structured interviews

One of the major set-back of semi-structured interviews is that its use is time consuming
emanating from a lot of recording of respondents’ answers.

3.6.0 Secondary Data Collection

Secondary data refers to already existing data and as the further analysis of an existing
data set with the aim of addressing a research question distinct from that which the data
was originally collected for and generate a novel interpretation and conclusions.

The researcher gathered information from the Auditor General’s Office and ZIMSTAT.
Journals and economic reports from different economic analysts were also used,
newspapers and economic reports also added a touch of qualitative reasoning to the
study. Apart from that, Auditor General’s Office and ZIMSTAT some websites were
used to provide data. The websites were selected because of their authenticity and
reliability.

35
3.6.1 Justification of using secondary data

The relevant secondary data is relatively current and suitable for the research. Data from
this source was less expensive and less time consuming to collect. There is a Covid-19
pandemic so secondary data gathering was a measure to try and spare the researcher
from contracting the deadly disease. Moreover, secondary data helped the researcher to
formulate and understand the research topic better and broaden the base on which
conclusions were drawn.

3.7 Limitations to Data Collection

The researcher had difficulties in issuing questionnaires and conducting interviews

because of Covid-19 pandemic. It was inevitably difficult to locate key personnel from
local authorities due to Government Covid-19 Lockdown such that traffic movement is
suspended during the time when the researcher is critically in need of research data. To
overcome such a challenge the researcher partly used data from websites and journals.
Apart from that the researcher was constrained financially and in terms of time because
of the long distances that needed to be travelled from one local authority to another.

3.8 Model Specification

The study used the multiple linear regression analysis model to establish the nature and
strength of the relationship between corporate governance principles and the health of
public financial management in the Matabeleland Region Urban and Rural Councils.
Since various variables have to be tested against the Public Financial Management in
local authorities, a model is needed to test the impact of Corporate Governance
principles in this study. Regression analysis works by testing how the values of the
underlying dependent variable varies if any of the independent variable changes.
Multiple Linear regression was employed in this study as more than one independent
variable in the model was be used.

The following multiple linear regression model was used;

3.8.1 Analytical model

The following multi-variate model was applied;

Y =β0 + β1X1 + β2X2 + β3X3 + …+ β7X7 + μ

36
 Where:
Y = Public Financial Management,
X1 = Public Expenditure,
X2 = Revenue collected,
X3 = Fiscal Reporting Risks,
X4= Scope of Fiscal Reporting,
X5 = Frequency of Fiscal Reporting,
X6 =Public Information Integrity,
X7 =Stakeholder Engagement.

In this model β0 = the constant term, the coefficient βi = 1….7 was used to measure the
sensitivity of the dependent variable (Y) to unit change in the variables. μ is the error
term which captures the unsolved disparities in the model.

In this model Corporate Governance was measured by Public expenditure, Stakeholder

Engagement, Fiscal Reporting Risks and Public Information Integrity as these elements
were fertile grounds for frauds, thefts, corruption, abuse and waste by public officers in
Sub-national Governments.

The sign of the Regression Coefficient indicated whether the relationship is positive or
negative. The strength of the relationship was measured by the reported p-values. The
p-value is the probability of getting results which are to the extreme as the observed
results of hypothesis, with an assumption that bad corporate governance principles has
a negative impact on public financial management. A p-value of less than 0.05 indicated
that the relationship is strong.

3.8.2 Justification of the Model

Ordinary least squares regression is one of the several main techniques employed to
analyze data and provides the basis of other methods (Rutherford, 2001). The
worthiness of the procedures can be greatly stretched with use of replica variables
coding to include grouped illuminating variables. Ordinary Least Squares (OLS) has
been chosen because it is fairly easy to check the assumptions of the model for linearity,
persistent variance and the effect of outliers using simple graphical techniques. Apart

37
 from that the regression technique estimates the impact of each variable after allowing
for disparities in the other independent variables.

3.8.3 Dependent Variable

Public Financial Management (PFM) is the dependent variable which was expressed in
terms of level of Aggregate Fiscal Discipline, Allocative Efficiency, Operational
Efficiency in local authorities.

3.8.4 Independent variables

Independent variables were used to express the dependent variable which is PFM.

a) Public Expenditure (PE)

In relation to the independent variables, PE was calculated as the sum of what local
authorities spent towards public goods and services. This was looked at against output
like the length of road constructed or number of public utilities built in the 10 years
spanning 2010 to year 2019.

b) Revenue Collected (R)

Revenue Collected (R) is quantified by budget levels including grants from Central
Government

c) Quality of goods and services provided (Q)

Quality is measured by citizens’ satisfaction of public utilities through water quality.

d) Fiscal Reporting Risks (FRR)

The fiscal reporting risk was computed through incorrect budgets resulting in budget
deficits and omission of key information from fiscal reports.

e) Scope of Fiscal Reports (SFR)

Some fiscal reports were inspected to check whether they contained key and sufficient
public financial information.

38
 f) Frequency of Fiscal Reporting (FFR)

Frequency of fiscal reporting by local authorities to the public was levelled against the
number of publications of financial information to the public either through media or
through community engagement.

g) Public Information Integrity (PII)

Public information integrity was assessed through outcomes of the Auditor General
Office’s audit reports on local authorities.

h) Stakeholder Engagement (SE)

Stakeholder Engagement was gauged through the number of times that a local authority
has engaged citizens in public meetings solely to discuss public financial matters.

3.9 Data Analysis Procedure

Data analysis was done using probability calculations, hypothesis testing and making
inferences thereafter. The mixed methodology data gathering ensured that results of the
study are reliable and valid. Results of the Analysis of Variance (ANOVA) were used
to find the goodness of fit in interpreting the relationship between corporate governance
and public financial management in urban and rural councils. The questions of the study
measured three main dependent variables, namely allocative efficiency, aggregate
fiscal discipline and operational efficiency.

3.9.1 Testing the Data

The data was tested using the following techniques:

3.9.2 Correlation Test

The correlation test was performed to identify the relationship among variables. The
negative correlation implies that there was no relationship between the variables, that
is, the variables moved in opposite direction, while the opposite is true for a positive
correlation.

39
3.9.3 Multicollinearity Test

The element of multicollinearity surges the average errors of the coefficients. By

inflating average errors, multicollinearity makes some of the variables statistically
immaterial when they should be significant in the model. This means that it is necessary
when using regression analysis to test the data for multicollinearity so that the study is
done using variables that have a correlation of a priority less than 0.8. Variables which
have a correlation above 0.8 are used in the regression interchangeably to get the one
with the highest R2 (R-Squared, the Coefficient of Determination to measure how near
data is to the tailored regression line). That is, the variables that were selected, and the
one that gave a lower R2 was dropped out of the model.

3.9.4 Testing the Model

It was also found to be essential that the model be tested for its strength in answering
the research questions and assist in the analysis of results.

3.9.5 R2 Test

In regression analysis it is essential to test how good a regression model is by examining

the coefficient of determination that is the R2. The R2 would be a static measure of the
extent to which the variation in the dependent variable is. In research the R2 is expected
to be above 0.5 for it to mean a large variation in the dependent variable in this study.
Public Financial Management was elucidated by the independent variables as given in
the model. It is essential that this be examined to enable the researcher to derive
conclusive and convincing results of the study.

3.9.6 The F-Test

F- Test in the ANOVA table examine whether the totality of the regression model was
a good fit for the underlying data.

H0: The variables fail to explain the dependant variable

H1: The variables explain the dependant variable

The decision rule: Reject H0 if p-value ≤ α 0.05

40
3.10 Data Validity and Reliability

To ensure that this research was based on valid facts that are acceptable as an addition
to the existing knowledge base, the researcher used analytical generalization which
involved the use of previously researched theories and facts as standard templates for
comparing the findings of this study. Validity and reliability were achieved through use
of pilot studies, seeking expert opinions and discussing with fellow researchers.
Construct validity was also be ensured in this study by linking research questions,
research problem, research procedures and research findings.

3.11 Ethical considerations

Issues to do with professional ethics were respected and observed throughout the
research. Respondents participated voluntarily of their own will after obtaining
informed consent from them and their entities. As such letters of approvals were
obtained from local authorities, and all data was not gathered through unscrupulous
means. Access into council offices and geographical area was lawful upon Great
Zimbabwe University putting it in writing that the research was accepted. Information
obtained during the research was solely for educational purposes and not to be passed
to third parties in a bid to protect concerned urban and rural councils, personnel and its
stakeholders from reputational risks. The researcher has only included summary
statistics and not raw data upholding confidentiality.

3.12 Chapter Summary

The chapter presented the research design, the population, sampling, research
instrument, data collection procedure, limitations, reliability, validity, ethical
considerations and the data analysis procedures that were used. The study justified the
reasons for using the above-mentioned research methodology in the study. In the next
chapter the researcher will analyze and present the findings on the impact of corporate
governance principles on Public Financial Management in local authorities in
Zimbabwe.

41
 CHAPTER IV

DATA PRESENTATION, ANALYSIS AND DISCUSSION OF RESULTS

4.0 Introduction

Methodological and regressions procedures carried out in the previous chapter are
meant to aid the presentation of the findings of the study and the analysis thereof. Data
gathered from different sources must be correctly presented and analysed to create room
for correct interpretation. Analysis is mainly in the form of narratives, charts and tables
where appropriate. The results in this chapter respond to the objectives of an impact of
corporate governance principles on public financial management. A Case Study of
Matabeleland Region Urban and Rural Councils (2010 to 2019).

4.1 Analysis of Data Response rates

The researcher self-administered questionnaires which were collected after the

respondents had completed them. Structured interviews were also conducted, and
responses collected.

4.1.1 Questionnaire response rate

Of the 100 questionnaires distributed, 5 were returned uncompleted to the researcher

by respondents in Binga District, Gwanda Municipality and Bulawayo City Council
while 4 respondents could not be located. This gave a response rate of 91%. 27 (30%)
were completed by council officials from Binga Rural District Council, 38 (42%) by
council officials from Bulawayo City Council and 26 (29%) were completed by
officials from Gwanda Municipality as shown by results in Table 4.1.1. 4% of the
questionnaires were not returned because some council officials were away on other
business. The researcher only managed to get hold of officials and citizens who were
not averse to Covid-19. This exercise was too risky because the researcher had to join
queues to access council offices where there were scores of people with unknown
Covid-19 virus backgrounds.

42
 PIE CHART

28.6%
41.7%

29.7%

BCC

BRDC

MoG

Figure 4.1 : PERCENTAGE RESPONSE FROM EACH LOCAL AUTHORITY

Source: Primary data

Of the 91 who responded, 61.2% were `Councillors elected by citizens in councils,

30.6% Council Officials in Executive positions. 84.6% of the 91 respondents were male
and 15.4% were female respondents. Almost all the respondents to the questionnaire
have at least a Diploma while 2% of them did not have the least of a Diploma Level in
Education. Of the 98% who attained Diplomas, 49% had attained O’ Level Education.
Of the 49% who O’ Level, 20% of them could not understand Public Financial
Management and Corporate Governance thereby prompting the researcher to readout
questions for them and interpreted in vernacular in order to get proper responses for use
in the analysis. Age groups were varied ranging from those who were below 30 years
to those who were above 60years, 49% represented those who were between 31 to 40
years. The analysis of distributed and returned questionnaires is presented in the table
below;

43
Table 4.1: Questionnaires distributed and returned by respondents

Cumulative
Frequency Percent Valid Percent Percent

Valid BCC 38 41.7 41.7 41.7

Binga RDC 27 29.7 29.7 71.4

Gwanda
26 28.6 28.6 100.0
Municipality

Total 91 100.0 100.0

Source: Primary Data

4.2 Impact of bad Corporate Governance Principles on Public Financial

Management

Data gathered from primary sources was used to test the effect of bad corporate
governance principles. Of the 91 returned questionnaires, they were grouped according
to respondents’ understanding of the impact of bad corporate governance principles,
and the data was tested using statistical computations to prove that fact.
Table 4.2 Ever heard of corporate governance
* Impact on public financial management tabulation

Improvement of public financial

management

Yes No Total

Ever heard or experienced Yes 70 6 76

effects of bad corporate
governance No 10 5 15

80 11 91
Total

44
4.2.1 Testing effect of bad corporate governance principles on public financial

management

From the observation gathered in the study at 5 percent significance level (p=0.05),
assuming a Ho : Bad Corporate Governance Principles has a negative impact on public
financial management and H1 : Bad Corporate Governance Principles do not have an
impact on public financial management, the sample statistic was calculated as follows:

Table 4.3: Expected Frequency

Public Financial Management is affected by bad Corporate Governance

Ef

YES NO
Corporate Governance
Principles has an effect

YES 66.8 9.2

NO 13.2 1.8

Table 4.4: Calculation of Sample Statistic

Of Ef (Of -Ef)

Ef

YY 70 66.8 0.1533

NY 10 13.2 0.7758

YN 6 9.2 1.1130

NN 5 1.8 5.6889

Test Statistic X2 7.731

With 1 degree of freedom (2-1)(2-1) and using the Chi-Squared tables the Critical value
of X2 is 3.841 which is less than the Test Statistic of 7.731. This means that the view

45
 that bad corporate governance principles have a negative impact on public financial
management.

4.2.2 Testing the existence of a relationship between the variables

The variables were tested to show whether a relationship existed between them. It has
to be noted that, the independent variable X1 (PE) is represented by average annual
sum of budget expenditures on public goods and services over a period of 10 years. On
the other hand, YAFD Aggregate Fiscal Discipline is measured by positive or negative
average annual budget deficits over a period of 10 years by local authorities. Results
were obtained after conducting the following tests;

4..2.3 Using Spearman’s rank Method

Table 4.5:Correlation Analysis for Public Expenditure on Aggregate Fiscal Discipline

X1 YAFD Rx RYAFD d d2

US$ million US$ million

BCC 150 17 1 1 0 0

BRDC 50 -1.5 3 2 1 1

MoG 75 0.01 2 3 -1 1

r = 1 – 6 ∑(d2)
n(n2 -1)
r = 0.95 which shows that there is a very strong positive correlation between public
expenditure and aggregate fiscal discipline in local authorities.

4.2.4 Correlation Analysis between allocative efficiency and Frequency of Fiscal

Reporting

The independent variable X5 (FFR) is represented by the average number of times that
local authorities have publicised fiscal reports for the citizens’ benefit while allocative
efficiency is measured by the number of respondents who felt councils efficiently
allocated public resources.

46
Table 4.6: Relationship between Allocative Efficiency and Frequency of Fiscal

Reporting
X5 YAE Rx RYAE d d2

Number of %
fiscal
Respondents
reports
agreeing

BCC 2 70 1 1 0 0

BRDC 1 60 1 3 -2 4

MoG 1 62 1 2 -1 1

r = 1 – 6 ∑(d2)
n(n2 -1)
r = 0.5 which shows that there is a moderate positive correlation between allocative
efficiency and frequency of fiscal reporting in local authorities.

47
 Compliance
MoG

Audit & Risk Mgt

Corporate Governance Principles

Leading
Transp & Acc
BRDC

Present
Compliance
Absent
Audit & Risk Mgt
Leading Neutral
Transp & Acc

Compliance
BCC

Audit & Risk Mgt

Leading
Transp & Acc
0 20 40 60 80 100 120

Figure 4.2: Corporate Governance Practice in Local Authorities

Source: Primary data

4.3 Transparency and Accountability

63% of BCC councillors and council officials did not agree to the fact that there was
transparency practice in local authorities. Of all general citizens, none of them gave
credit to local authorities in terms of transparency in public financial management. An
average of 5% of respondents, mainly in the executive defended local authorities’
officials’ behaviour; these officials defended such behaviour and attributed it to
political interference. 32% of Bulawayo respondents were neutral. A combined 90% of
citizens, employees in the Internal Audit and Risk department pointed out that councils
were inherently exposed to natural risks like droughts, frauds and thefts as they viewed
local authorities as feeding troughs for politicians.

Binga Rural District Council elected councillors pointed out that it was very difficult to
know how public finances are being handled. They complained of poor procurement
processes which only involved executive management who made up the procurement

48
 committee. This made communities not to trust the council hence the poor transparency
and accountability.

Gwanda elected councillors and the general public indicated that they still have some
faith in the executive’s manner in which they handle public financial resources. 70% of
the respondents trusted the elected council. However, they pointed out that political
differences retarded completion of public projects. The politics of the day have led to
loss of focus towards resources allocation to priority areas. This effect was found to be
minimal as compared to Binga Rural District Council and Gwanda Municipality. BCC
audit reports showed that there some dotted corporate mis-governance where in year
2016 a supplier of four ambulances was paid a total amount of US$ 205 000 but the
supplier from Harare could not be located. This pointed to fraud and undue diligence
by the City fathers on the genuineness of suppliers prior to transacting.

In all the three local authorities, an average of 92% of the respondents indicated that
citizens (taxpayers) have never seen fiscal reports from councils, neither have they seen
audited fiscal reports. The 8% of the respondents who claimed against the majority were
council employees mostly in the treasury department and executive. The 8% of the
respondents said that fiscal reports have always been produced failed to show evidence
that citizens have seen the reports.

4.4 Leadership

72 % of respondents felt that BCC was in safe hands of leaders who were focused to
strategically have the most efficient resources allocator at minimum cost. The
leadership from year 2010 to 2019 have changed but all of them showed a deep
understanding of the need to preserve the image and culture of the local authority. The
leadership follow strategic plans in place, for example the City of Bulawayo Corporate
Strategy 2014 -2018 which sought to entrench stakeholder participation and customer
focus as the hallmarks of good corporate governance and service delivery. 50 % of the
respondents in Bulawayo strongly believed that leaders’ behaviour influences public
financial management in local authorities. The City Council also value private players
in the collaborative interventions to ensure quality, efficiency and burden sharing of
service delivery. Following the 2018 national elections, BCC has not been stable in its

49
 leadership due to the political problems which led to politicization of public-private
projects resulting in projects failing to take-off or completing on time.

In Binga, only 3% of the respondents felt that the Rural District Council leadership
showed ethically sound behaviour in handling public financial management matters.
97% of the respondents had no faith in strategic leadership of the CEO, however, they
added that they pointed out that the CEO’s biggest hurdle was to go against the myth
of marginalization of the District since the country’s independence in 1980. The CEO
has been followed by the shadow of corruption, waste and abuse of public resources
and power of authority since year 2014 up to current year.

62% of Gwanda respondents had very strong faith in the Municipal leadership, but
bemoaned political interference as the biggest impediment to service delivery and
provision of public goods. 97% of the 62% respondents mentioned the provision of
water was a divisive issue in Gwanda. The municipality officials did not want water
treatment and pumping to be done by ZINWA instead they wanted the whole water
sanitation and distribution to be in the hands of Gwanda Municipality, a move that was
resisted by Central Government.

4.5 Audit and Risk Management

60 % of BCC respondents agreed that there was a robust audit and risk management
system in place. Visits by the researcher to BCC Tower Block revealed that the
Treasury Department had various sections of Audit and Risk Management, for example
the Main Accounts and Cash Sections have the Cash Flow and Public Finance Risk
Management, while the Finance Department of the Treasury has the Internal Audit.
This was meant to share the workload and closely monitor public financial risks since
BCC was complex in its Public Financial Management because of its huge size. 10%
of the respondents felt that BCC’s risk assessment policy had its shortcomings as it has
failed to stop land sale related frauds, the risk of Public-Private Partnership projects not
completing on time, inflated public expenditure, waste and abuse of public financial
resources.

70% of the respondents in Binga indicated that there was a poor Internal Audit and Risk
management assessment system in place. Respondents added that public financial

50
 management risk mapping is not conducted regularly to deal with foreseen and
unforeseen risks. The 30% of the respondents who were neutral surprisingly included
elected councillors who did not understand what risk management was and the need to
frequently do risk mapping in public finance. However, all respondents appreciated
corporate governance principles and the need to observe ethical behaviour by public
officials in councils.

4.6 Compliance and Stakeholder relationships

BCC had the best relationship with taxpayers with 95% of the residents indicating that
council engaged them in good and bad times. By the time of conducting this study, the
researcher met citizens who complained of sudden poor quality of water, but they
pointed out that BCC had engaged them despite the diarrhoea outbreak which had killed
three people in Luveve suburb. BCC produced evidence that they had passed most
quality tests between year 2010 to year 2019 with the best water treatment works in the
country. Most of their services and public goods met the requirements of the
International Standards Organization (ISO) as per certifications at hand.

Binga Rural District Council struggled to maintain good stakeholders’ relationships

with only 20% respondents saying that they were engaged by council in public financial
management business. The 80% of the respondents were getting it for the first time that
council should engage them in public finance decisions and said they were learning
something from the researcher.

The Municipality of Gwanda faced legal compliance problems in areas of public

expenditure authorizations and employee remuneration. 80% of council officials and
general employees expressed concern on the remuneration backlogs dating up to 6
months behind normal schedule. However, 60% of the respondents pointed that
Gwanda Municipality was legally compliant and engaged taxpayers in public financial
matters.

51
4.7 Fiscal Reporting Risks Caused by Bad Corporate Governance Principles

4.7.1 Inflated Public Expenditure

72% of the respondents from Bulawayo indicated that undesirable behaviour led to
council executives inflating expenditure to the pain of taxpayers even in the absence of
inflation of market prices. 92% of the respondents from Binga felt prices of procured
goods for public use were inflated to factor in thefts or some undesirable motive by
authorities. 84 % of respondents from Gwanda strongly believed public goods and
services costs to the public were inflated simply because prices were inflated by council
officers.

4.7.2 Understated Revenues

78% of respondents from Bulawayo indicated that there was a real risk that revenues
could be understated owing to inconsistent billing systems. They added that unethical
behaviour could not be ruled out because some council executives were known to be
convicted criminals.

Binga respondents all indicated that they felt revenues were being understated and were
not being directed to top priority areas like building of new schools and clinics. 64% of
Gwanda respondents pointed out that revenues were being understated due to poor
water provision billing system and from property taxes.

4.7.3 Corruption, Waste and Abuse of Public Resources

80% of Binga respondents indicated that porous corporate governance principles were
the sole reason why corruption, abuse and waste of public resources was rampant at
Binga Rural District Council. 56% of Bulawayo respondents showed that bad corporate
governance principles led to corruption and abuse of public financial resources. 60% of
respondents in Gwanda exhibited weak corporate governance principles as the reason
why public resources were being plundered unabatedly.

4.7.4 Public-Private Projects

82% of the respondents from Bulawayo showed that they strongly believed that bad
corporate governance principles were the cause of public projects which either fail to
take off or are completed outside time. Public officers within the council are said to be
52
 interested parties in the tender awarding to private players in construction of malls, land
developers and general provision of services. All respondents referred to in Bulawayo
pointed to the failed Egodini multi-million-dollar mall; that it failed to take off largely
because of unethical behaviour by council officials.

In Binga, 72% of the respondents strongly believe that the appointed CEO is used by
officials from Central Government to flout corporate governance principles in use of
public finances, the procurement procedures and awarding of tenders. 76% of the
respondents from Gwanda Municipality indicated that it was indeed the poor corporate
governance principles implementation that caused poor public financial management.

4.7.5 Citizens and Corporates refusing to pay for services

70% of respondents from Binga indicated that they felt they could not pay rent and
rates, licences and fees for development which was tangible in their community. The
30% feel they had a legal duty to pay towards service delivery and public goods
provision, and that whether the council finally deliver or not was secondary.

68% of the respondents from Bulawayo indicated that the Central Government itself
contributed to poor corporate governance as they never paid for their bills on time
owing to poor service delivery in councils. The researcher discovered that Central
Government, ZESA owed BCC a combined amount of US$ 179.77 million against
domestic general citizens (individuals) debt of US$91.77 million in year 2017 alone.
64% of respondents from Gwanda showed that they refused to pay for services and
public goods owing to bad ethical conduct of some council officials in key positions
who defrauded the local authority, but the law failed to hold office.

4.8 Sources of Revenue

The study found out that the highest revenue earner at BCC was rent and rates,
particularly raised from selling of water to domestic households. In Binga, the highest
source of revenue was taxing hunting concessions, and to a lesser extent rental fees and
licences. Gwanda gets most of its revenue from licences and rates and to some extent
the selling of water to households and businesses.

53
4.9.1 Aggregate Fiscal Discipline

All the three local authorities under study revealed that, Actual Revenues did not meet
their Actual Public Expenditures due to inflation and taxpayers who defaulted in
making settling their bills. Sadly, among highest debtors, was Central Government and
Parastatals as shown in figure 4.3 below from BCC’s records. The Government as the
Steward of all citizens in a country will be doing a disservice to its people by not paying
local authorities for service provision and consumption of public goods. Transparency
and accountability are compromised thereby exposing insincere motives my
Government officials towards defaulting payment for service provided by councils.

Figure 4.3: BCC Budget Expenditure for year 2017

Source : BCC 2017 Budget Review Page 12

Budgeted Income and Budgeted Public Expenditure on paper were sustainable, but
MoG actual figures did not tally. This means that there was a misnomer in fiscal
reporting. According to the Auditor General’s Reports for 2010 to year 2019,
Information Integrity is compromised, and citizens needed explanations from city
stewards as to what would have happened to the mismatch between budgeted funds and
actual figures as shown in tables 4.7 (a), 4.7 (b) and 4.7 (c) below. Local authorities are
taking advantage of grants from Central Government in form of ZINARA Road Funds

54
 and the Devolution Funds to cushion and subsidise service delivery and payment of
salaries. This means that there was a real risk of funds being used for unintended
purposes.
Budgets and Actual Income and Expenditures Council by Council
Table 4.7 (a): BCC
Actual Budget
Actual Income Actual Expenditure Surplus /
Year Budget (US $) (US $) (Deficit)
2010 123,402,271 82,258,125 46,123,858 36,134,267
2011 102,952,085 46,193,934 60,345,428 (14,151,494)
2012 122,520,279 89,882,971 73,188,441 16,694,530
2013 123,021,318 104,703,108 70,075,893 34,627,215
2014 103,762,104 94,253,712 82,043,318 12,210,394
2015 107,298,518 105,510,868 82,341,931 23,168,937
2016 107,633,672 104,768,768 79,043,410 25,725,358
2017 105,457,120 104,609,600 82,933,180 21,676,420
2018 104,464,476 116,639,756 89,510,547 27,129,209
2019 165,570,925 150,365,431 162,207,475 (11,842,044)

Table 4.7 (b): MoG

Actual Budget
Actual Income Actual Expenditure Surplus /
Year Budget (US $) (US $) (Deficit)
2010 5,500,000 2,369,785 2,300,000 69,785
2011 7,945,202 2,300,000 4,521,362 (2,221,362)
2012 7,100,000 3,692,000 4,121,562 (429,562)
2013 6,400,000 1,856,000 4,235,600 (2,379,600)
2014 13,300,000 2,700,000 4,246,254 (1,546,254)
2015 8,600,000 3,000,000 4,623,150 (1,623,150)
2016 8,700,000 2,900,000 4,712,500 (1,812,500)
2017 6,400,000 2,700,000 4,865,000 (2,165,000)
2018 7,700,000 2,400,000 4,952,478 (2,552,478)
2019 10,200,000 4,488,000 4,975,852 (487,852)

55
Table 4.7 (c) BRDC

Actual Income Actual Expenditure Actual Surplus /

Year Budget (US $) (US $) (Deficiency)
2010 1,450,000 1,189,000 1,200,000 (11,000)
2011 1,500,000 1,065,000 1,000,000 65,000
2012 1,612,000 1,225,120 1,225,000 120
2013 2,100,000 1,449,000 1,300,000 149,000
2014 2,148,852 1,719,082 1,650,000 69,082
2015 2,851,448 2,252,644 2,500,000 (247,356)
2016 2,038,746 1,549,447 1,802,000 (252,553)
2017 1,919,137 1,266,630 1,100,000 166,630
2018 2,253,354 1,757,616 1,654,616 103,000
2019 12,111,917 9,326,176 8,412,100 914,076

To cover up for the fiscal deficits, councils use their borrowing powers to source more
funds. In year 2019, BCC had new borrowing powers amounting to US$ 26 million and
existing borrowing powers of US$ 5.6 million. The repayments of these borrowed funds
exerted pressure on taxpayers who were not aware of the borrowing, yet they were
somehow the Principals in the Agency relationship. In year 2019, BCC borrowed funds
to finance capital budgets from Banc ABC and African Development Bank.

56
Table 4.8: BCC Year 2019 Proposed Budget

Source: BCC 2019 Budget Speech: Chairman Finance and Development Committee

Binga Rural District Council passed the budget deficits to taxpayers, in that the
expenditure was rolled over to the next fiscal year and factored into the following year
budgets. Similarly, Municipality of Gwanda passed the deficits over to the taxpayers.

4.9.2 Allocative efficiency

Allocative efficiency entails allocation of scarce resources to areas of top priority, that
is, where resources are needed the most by citizens. 70% of the respondents from
Bulawayo indicated that BCC was very efficient in allocation of public resources to
areas of top priority. Of the 70%, 56% pointed out that they felt that the definition of
priority areas was influenced by public officials’ motives. The table below shows that
BCC changed priorities from one year to another depending on citizens needs and
national priorities. In year 2017, BCC’s priority area was Water followed by Health and
Community Services with a combined budget allocation of 24.8% while the allocations
were increased to 29.7% in year 2019. Budget allocation towards Housing was reduced
from 2.9% in year 2017 to 2.5% in year 2019. This shows prioritization of citizens’
health over housing.

57
Figure 4.4: BCC Budget Expenditure for year 2017
Source: BCC 2017 Budget Review Page 8

60% of respondents from Gwanda indicated that the Municipality were efficient in
allocation of public resources towards priority areas. Out of the 60%, 52% believed that
officials responsible for town affairs pushed personal interests ahead of public interests.
Councillors and Senior citizens cited poor liquidity due to harsh economic environment
faced by the country and this negatively affected municipality’s financing of service
provision as taxpayers had very little to spend on municipal services. However, MoG
had laid three kilometres of pipeline to alleviate water crisis. The municipal also
prioritised housing.

In Binga, 62% of the respondents indicated that the Rural District Council was good at
efficient allocation of public resources according to taxpayer’s needs. However, of the
62%, 58% indicated that local authorities’ officials were influenced by national politics
at times to divert from local people’s need to deliver public goods and services to areas
of less priority.

58
4.9.3 Operational efficiency

Binga Rural District Council lets out 52% of its facilities to private players to improve
service provision and operational efficiency. The local authority boasts of several rest
camps along the Zambezi River as well as beerhalls and bars around the District but
prefer to let the facilities out because council cannot bear operational expenses.

BCC resorts to letting out 35% of its public facilities and hiring contractors in
construction of major projects and areas which need expertise intermittently. This in
turn improves internal quality of service delivery to citizens. Only BCC separately
produced a Capital Budget among the three local authorities. This showed that the
authority planned for infrastructural development for its future generations unlike
BRDC and MoG whose development risks being forgotten by public officials running
the councils on behalf of citizens. The bar chart below shows that for year 2010, BCC
budgeted $179 115 429 but only managed to raise and use 0,002% of that amount
towards infrastructure most of which was raised through loans and donations. Similarly,
in year 2016 BCC only raised and used 13.6% of its capital budget. Year 2019 declined
slightly down to 13% of the capital budget. This calls for serious scrutiny towards
public officials’ behaviour towards dismal performance of the capital budget, and
corporate governance principles of honesty and integrity among public officials in
sincerely representing citizens’ interests.

59
 287,755,850
300,000,000

179,115,429
250,000,000

200,000,000
Amounts in $

74,808,680
150,000,000

66,057,089

50,797,712

48,142,546
48,109,346
45,978,581

45,977,972
42,435,513

37,718,117
100,000,000

18,007,096
11,889,807
8,398,186

6,258,071
4,689,676
3,014,399

2,951,363
1,679,981
358,030

50,000,000

-
1 2 3 4 5 6 7 8 9 10
Years (2010-2019)

Capital Budget ($) Actual Expenditure ($)

Figure 4.5: Capital Budget (2010-2019) Bulawayo City Council

Source: Primary Data

Gwanda Municipality lets out 10% of its public facilities like the Amanz’amnyama
Beer hall to private players, swimming pools and buildings to raise revenue and
improvement of service delivery.

4.10 Frequency of fiscal reporting

All the three councils of Binga Rural District Council, Bulawayo City Council and
Municipality of Gwanda records show that they produce a fiscal report once per year
and follow the normal budget cycle with a Budget Review mid-year when they engage
citizens. However, only Bulawayo residents understood and attended these public
meetings with Binga and Gwanda having low attendance.

4.11.1 Diagnostic Test of the Analytic Model

To remove multi-collinearity highly correlated independent variables were identified

and isolated for very close study. This was to study the variables for the impact of
corporate governance principles they have on public financial management. Local
authorities’ officials’ behavioural effects were then applied on these variables.

60
 Fiscal of Reporting Risk (FRR) is weakly negatively correlated against all other
independent variables thereby attracting interest as well in the study of effect of
bureaucracy behaviour of public official in councils pertaining to public financial
management conduct. Revenue Collected (RC) and Frequency of Fiscal Reporting
(FFR) are strongly positively correlated with +1.

Table 4.9: Independent Variables Multi-Collinearity Table

FFR (No.
of Public
PE ($) RC ($) FRR % SFR % Meetings) PII (%) SE (%) Q (%)
PE ($) 1.0000 0.9998 -0.4223 0.9086 0.9799 0.9799 0.8585 0.9891
RC ($) 0.9998 1.0000 -0.4053 0.9007 1.0000 0.9834 0.8488 0.9862
FRR % -0.4223 -0.4053 1.0000 -0.7622 -0.4007 -0.2329 -0.8274 -0.5512
SFR % 0.9086 0.9007 -0.7622 1.0000 0.8985 0.8070 0.9942 0.9602
FFR (No. of
Public Meetings) 0.9799 1.0000 -0.4007 0.8985 1.0000 0.9843 0.8462 0.9853
PII (%) 0.9799 0.9834 -0.2329 0.8070 0.9843 1.0000 0.7389 0.9398
SE (%) 0.8585 0.8488 -0.8274 0.9942 0.8462 0.7389 1.0000 0.9247
Q (%) 0.9891 0.9862 -0.5512 0.9602 0.9853 0.9398 0.9247 1.0000

Source : Primary Data

4.11.2 Multiple Regression Output

The below output was found as a result of fitting the variables into a multiple regression
model that was explained in terms of the research methodology.

The general model that was used in the regression was as follows:

PFM=β0+β1 X1+β2 X2+β3X3+....+ µi

βi - is the coefficient of the independent variables

µ -error term

β0 shows that PFM was given a zero value in the independent variables. The
coefficients β1 to β4 reflect the impact that each variable had on the PFM.

61
 Table 4.10: The regression output

COEFFICIENT t-STATISTIC p-VALUE

INTERCEPT 6 615 830 1.4777 0.379

RC 1.000 12.024 0.052

PE 0.224 9.806 0.065

FRR 1.000 0.027 0.983

FFR 9.000 5.196 0.121

SFR 710675 1.698 0.339

PII 1 209 230 10.036 0.063

Q -0.515 -0.145 0.908

Source: Primary Data

4.11.3 Post-Results Model

PFM=β0+β1 X1+β2 X2+β3X3+....+ µi

PFM = 6 615 830 + 0.224PE+ 0.18RC+1FRR+9FFR+710 675SFR+1 209 230PII-
0.515Q

The positive intercept of β0 shows that, given that all the independent variables were
zero the dependent variable that is Aggregate Fiscal Discipline, Allocative Efficiency
and Operational Efficiency would have a positive value of $6 615 830. The negative
coefficient of the independent variable, Q, indicates the independent variable is weakly
negatively correlated to PFM in local authorities. This means that the variable would
have some negative effect on the dependent variable and vice versa for all the positive
coefficients. These results are in line with the fact that corporate governance principles
affect public financial management in local authorities.

62
 Table 4.11: Regression Model Summary
Item Value

Multiple R 0.9948
R Square 0.989
Adjusted R Squared 0.979
F value 96.155
Significant F 0.0646

Source: Primary Data

With an F-value of 96.155, a significant F -statistic of 0.065 and a p value of 0.065

means that the model is good in predicting the dependent variable so we should accept
the view that corporate governance principles application has an impact on public
financial management in local authorities. The model has R-squared of 0.9897 to
explain that 98.97% 0f the variability of PFM could be predicted using the variables. It
means that the variance of its errors is 98.97% less than the variance of the dependant
variable.

4.12 Chapter Summary

The chapter laid down clearly the data findings, data analysis and discussion of results
in line with research objectives outlined in the first chapter. The relationship between
Y and the Independent variables Xi was measured using regression analysis. Diagnostic
tests for the data were done that is test for multicollinearity. The strength of the
independent variables in explaining the dependant variable was tested and found to be
positive. Generally, the findings suggested that there is significant relationship between
public financial management and corporate governance principles. The next chapter
will look at the summary, conclusions and recommendations of the study.

63
 CHAPTER V

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction

This chapter summarises the entire thesis with major emphasis on interpretation of
research findings. This analysis was guided by the research objectives and questions
which are outlined in the introductory chapter. The main objective of the study was to
investigate the impact of corporate governance principles on public financial
management in local authorities, and to make recommendations on the best public
financial management system good for the health of public resources management in
the research undertaken. The recommendations are directed mainly to the Government,
public, investors, donors, advocates for good corporate governance and local authorities
themselves.

5.1 Summary of the Study

The research investigated the impact corporate governance principles have on public
financial management in local authorities in Zimbabwe using Matabeleland Region
Urban and Rural Councils as the prototype over a period of 10 year from 2010 to 2019.
The research was motivated by the fact that most local authorities in Zimbabwe
struggled to deliver public goods and services to citizens and public officials who
superintended over these public institutions exhibited some shortfalls in the way they
conducted council business. BCC was the best run local authority among the three
under study basing on service provision and public goods allocation and fiscal
discipline. Citizens either elect a few individuals or Central Government appoint
councillors, Chief Executive Officers, Town Clerks and Mayors on agency-principal or
stewardship basis on behalf of the general public to provide public resources. This calls
for scrutiny of corporate governance issues on public officers in public financial
management. Some public officers in local authorities have been involved in frauds,
corruption, waste and abuse power and public resources albeit with very few
convictions in courts of law. Most incumbent continue to be followed by the shadow of
corruption despite the taxpayer calling for mercy on public resources being squandered
unabated. This has made some citizens to refuse to pay taxes towards public income.

64
 The research was dominantly a qualitative research with some quantitative research
specifically for the variables that measure public financial management. Questionnaires
were administered to councillors, citizens and local authorities’ executives while
secondary data from the Auditor General’s Office, journals, internet sites and
newspapers was used for the research. A stratified random sample of 3 urban and rural
councils from the Matabeleland Region wherefrom 100 respondents were purposively
selected and used for the study. A response rate of 91% was achieved for the qualitative
analysis.

An analytic model was developed using multi regression and was used to develop
appropriate baseline information. The variables that contribute towards an improved
public financial management system were discussed in the literature review and it was
found that public income and expenditure, fiscal reporting risks, frequency of reporting
risks and quality of service delivery were among the major contributing factors towards
the health of public financial management in local authorities, that is aggregate fiscal
discipline, allocative efficiency and operational efficiency.

The regression model was applied to answer the question of the of the impact of
corporate governance principles on public financial management in Zimbabwe’s local
authorities.

5.2 Summary of Major Findings

The research unearthed a key issue of elected persons in councils who did not
understand the need for corporate governance principles and interpretation of public
financial matters tabled by council executives. Councillors must represent the will of
the citizens. Elected and appointed council officials did not understand their role of
Stewardship and Agency and the study revealed that there is a serious yawning gap
between citizens expectations and the actual conduct of council business conduct.
Elected councillors are not trusted by the electorate. Being elected into council is seen
to be for personal benefit, reward and political mileage. Councillors take turns to
plunder public resources. This longitudinal research showed that there was no
improvement on ethics and behaviour of council executives must be subjected to checks
and balances by elected councillors.
65
 Local authorities are faced with poor fiscal aggregate discipline, allocative and
operational efficiency. Councils borrow and mortgage the future generations. The
integrity of public financial information in local authorities is questionable; citizens are
not adequately informed of council resources standing while some citizens do not
bother attending public meetings and participate in council business. On average only
one public meeting is conducted per year which is not enough. Other geographical areas
are not covered by councils due to travelling and time constraints by council officials.
Fiscal Reports produced by local authorities were not understandable by citizens and
did not meet public expectations. The fiscal reports were not made public. The public
have difficulties in accessing public expenditure and incomes by local authorities, yet
it is the citizen who pays the funds towards their own welfare. The agent conceals
information to the principal. Chief executives, Town Clerks and Treasurers hide key
public financial management information to conceal waste and abuse of public
resources.

This research indicates that transparency and accountability remain a challenge in

public entities hampered by inaccurate public fiscal reporting. Leadership shortfalls
were noted in Binga as the public did not have faith in the council executives. They
expressed doubts and suspicion. However, ignorance of corporate governance and
public financial management in line with levels of education were noted from the
public. The public officials took advantage of this fact to conceal public financial
information since no one demanded it except for the Auditor General and Central
Government.

5.3 Conclusions

From the findings highlighted above, the researcher came up with the following
conclusions:

5.3.1 Impact of corporate governance principles on public financial management

Elected councillors and appointed executives are not acting in the best interests of the
taxpayers and citizens welfare in general. There is poor transparency and accountability
in local authorities. Bad corporate governance principles have a negative bearing on
public financial management as evidenced by some failure of local authorities to
66
 effectively and efficiently allocate public resources to the benefit of welfare of citizens.
In BCC improvements of corporate governance principles has resulted in improved
revenue inflows and service provision over BRDC and MoG.

5.3.2 Fiscal Reporting Risks Caused by Bad Corporate Governance Principles

The study revealed that there were very high fiscal risks caused by bad corporate
governance principles. These include intentionally inflated public expenditure and
understated revenues, corruption, waste and abuse of public resources. Refusal by
citizens to pay for public services and goods is another fiscal risk which hampers
revenue collection to help improve aggregate fiscal discipline. Procurement procedures
were not being religiously followed with Public-Private Partnership projects not
completing on time because no due diligence is conducted about private partners and
interested parties before awarding of major tenders.

The study agrees with William Niskanen’s bureaucratic model of 1968 which pointed
out that bureaucrats normally seek to maximize power and authority related to public
office which they hold. Such power is linked to resources that the bureaucrats have
under command. Bureaucratic power is related to the size of the local authorities’
budgets or spending behaviour. Niskanen found that maximise budgets leading to
general manipulation of financial information. This study agrees that these bad
corporate governance practices negatively affected PFM well-being in local authorities.

5.3.3 The Model

In the regression model used for the study, it was noted that public revenue and
expenditure, Frequency of Fiscal Reporting, Fiscal Reporting Risks, Public Information
Integrity and Stakeholder Engagement were positively related to the health of public
financial management in local authorities. Quality had a very weak relationship with
PFM systems in local authorities. In conclusion, the overall impact of bad corporate
governance principles has detrimental effects on the totality of public financial
management systems in subnational governments.

67
5.4 Recommendations

To sufficiently address the impact of bad corporate governance principles on public

financial management systems in local authorities, government and its stakeholders
should consider implementing the following recommendations.
i. Sub-national governments should apply the Whole Systems Approach as crafted by
CIPFA (2016) since the system encourages application of corporate governance
principles on public resources utilization while observing public interest,
sustainable outcomes, optimising interventions and building capacity. The whole
systems approach encourages stakeholder involvement in council business, hence,
checks and balances are taken on board as well. This approach will surely enhance
transparency and accountability in local authorities.
ii. Central Government and Auditors should apply the Public Expenditure and
Financial Accountability framework (PEFA) to effectively assess the public
financial management system health and its performance.
iii. Appoint and train firm Chief Finance Officers on good corporate governance
principles and remunerate them well to eradicate frauds as they are the holders of
the purse and signatory to public finances as well as leaders in financial strategies
and operations.
iv. Local authorities must apply austerity measures and avoid unnecessary borrowings
and operate within approved budgets. Where need arises, consultative meetings be
held with citizens to seek authority to borrow for financing of any supplementary
budgets.
v. Aspiring councillors should possess a minimum of an educational qualification of
a Diploma and be able to understand general corporate governance issues and
simple public finance. Training of elected councillors must be done progressively
to capacitate them to be able to perform critical interpretation of key public financial
management and good corporate governance matters in local authorities.
vi. Central Government should put in place legal framework inclined towards forcing
local authorities to apply a mixture of principles and rules based corporate
governance practices to curb corruption, fraud, waste and abuse of public resources.

68
5.5 Suggested area for further study

More studies are required to investigate the impact of corporate governance principles
on public financial management in local authorities making a comparative, cross-
sectional study of two or more local authorities from different regional countries.

Further studies should be directed towards the assessment of the impact of risk
management practices of public finance in local authorities. Local authorities are faced
with high risks hence separate studies being recommended.

Other researchers should also consider exploring performance measurement tools

application to public financial management in rural and urban councils.

69
 Bibliographic References

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 APPENDIX 1

QUESTIONNAIRE
TO BE COMPLETED BY URBAN AND RURAL COUNCILS MANAGEMENT /
COUNCILLORS / SENIOR CITIZENS

My name is Cavin Jeffry Mudimba, a final year student pursuing a Masters Degree in
Professional Accounting and Corporate Governance.

You are kindly requested to participate in this study being conducted on the Impact of
Corporate Governance Principles on Public Financial Management in Zimbabwe [A case
of Matabeleland Urban and Rural Councils]. This study is being done in partial fulfilment
of the requirements for the Master in Professional Accounting and Corporate Governance
degree with the Great Zimbabwe University. The findings will be treated confidentially and
will only be used for academic purposes. Your cooperation is greatly appreciated.

SECTION A

Respondents Demographic Information

(Tick where applicable)

1.) Are you male or female?
Male

Female

2.) What is your highest level of education?

O and A Level

Diploma / Higher Diploma

Degree

Masters Degree

Doctoral

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 Other (Please Specify) …………………………………………………..

3.) In which location do you live?

CBD

High Density

Medium Density

Low Density

Other (Please Specify)…………………………………………………….

4.) For how long have you worked for the council / municipality?
0 - 5 years

6 – 10 years

11 – 15 years

16 – 20 years

Over 20 years

5.) In which department are you currently employed?

Treasury

Executive

Human Resources

Internal Audit and Risk

Other (Please Specify) …………………………………………………..

6) How did you get into your current employment position?

Elected through the ballot

Job Interview

Appointed by Government

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7) Which council do you come from?

LOCAL AUTHORITY Tick one box

Bulawayo City Council

Binga Rural District Council

Tsholotsho Rural District Council

Umguza Rural District Council

Gwanda Municipality

Beitbridge Rural District Council

Hwange Local Board

SECTION B

IMPACT OF CORPORATE GOVERNANCE PRINCIPLES ON PUBLIC FINANCIAL

MANAGEMENT IN LOCAL AUTHORITIES IN MATABELELAND REGION 2010 -
2019

8) Are the following considerations of Cooperate Governance being practised in your

Local authority? (Tick one box against each consideration)

Strongly Agree Neutral Disagree Strongly

Agree disagree
Transparency
Accountability
Leadership
Risk Management and Audit
Compliance and Stakeholder
relationships

9) In your own view, to what extent do corporate governance principles affect public
financial management in the municipal or council area that you live in?
(Please tick one box ONLY against each question)

Large Certain Not Limited Not at

Extent Extent Sure Extent all
Public financial affairs are transparent
to taxpayers and other stakeholders.
Public officials of the council /
municipal are accountable for their
actions in public financial matters.

78
 Council / Municipality has a robust code
of conduct and behaviour in place for
those charged with governance
The council / municipality executives
have acted in the best interest of the
citizens
Council / Municipality officials’
behaviour has influenced the current
standing of the local authority’s public
financial matters or system
At the end of each financial year the
Municipality / Council reports back
public expenditure and revenues to the
community.
The Municipality / Council has
produced annual audited fiscal reports
every year
Do you appreciate what corporate
governance principles are and their role
in enhancing a strong public financial
management system in local
authorities?

Any other comment on corporate governance in your local authority that you wish to make?
......................................................................................................................................................
......................................................................................................................................................
......................................................................................................................................................

10) Does the local authority have a Risk Assessment Policy in place which covers the area
of Public Financial Management?
Yes
No
Not sure

11) How frequent does the council or municipality conduct risk mapping? (Please tick
one box ONLY)

Monthly Quarterly Bi-Annually Annually Never

12) How often does council present audited / unaudited fiscal reports to the public?

Monthly Quarterly Bi-Annually Annually Never

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On a scale of 1 to 5 (with 1 being the lowest likelihood of risk occurring, and highly likely to
occur) Please tick in one box against each form of risk.

13) What do you consider as the fiscal reporting risks caused by bad corporate
governance principles in urban and rural councils? You can tick more than one
form of risk where appropriate

FORM OF FISCAL RISK 1 2 3 4 5

Inflated public expenditure
Understated revenues
Frauds and theft
Corruption
Waste and Abuse of public financial resources
Unsustainable public debt
Uncompleted Public Projects / Out of schedule Public Projects
completion
Citizens refusing to pay taxes

14) Please indicate the level of service delivery by the local authority on the listed areas.
Use the following rating (1= very Poor , 2= Poor, 3 = Fair , 4 = Good , 5 = Excellent)

Service Area 1 2 3 4 5
Garbage Collection / Sewer
Water for drinking Provision
Road Quality
Street Lighting
Housing and New Stands Development
School facilities

15) Does revenue allocated to meet service delivery responsibilities adequate?

Very Adequate

Inadequate

Neutral

Adequate

Very Adequate

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16) What is your alternative way of raising revenue to cover for budget deficits?

Borrow

Central Government Intervention

Increase Taxes (rates)

Donations

Public Private Partnerships

Do nothing

17) What are the sources of revenue to your local authority with corresponding
amounts earned in ZW$ terms? (Please complete using ink pen monetary figures in
millions)

2010- 2012- 2014- 2016- 2018-

2011 2013 2015 2017 2019

REVENUE US$ US$ US$ US$ ZW$

(millions) (millions) (millions) (millions) (millions)

Rent and Rates

Levies
Fees, Fines, Permit and
Licences
Donations
Grants
Other

18) Approximately what are your expenditure allocations for public goods and services
in ZW$ terms? (Please complete using ink pen monetary figures in millions)
2010- 2012- 2014- 2016- 2018-
2011 2013 2015 2017 2019

PUBLIC EXPENDITURE US$ US$ US$ US$ ZW$

(millions) (millions) (millions) (millions) (millions)

Employment Costs

Health and Environmental

Management

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 Education
Housing and Public
Road Construction, Street
Lighting & Repairs
Welfare & Community
Infrastructure
Police and Emergency
Services
Water Treatment and Supply

Philanthropy

19) In your view, are council’s public financial objectives being achieved with the

public resources at hand?

Yes

No

Not Sure

20) What is the current average population covered by your local authority, if you

know? ………………………………………….people.

21) Infrastructure development between year 2010 – 2019

Quantity Time taken to Approximate Cost

INFRASTRUCTURE (in number of Complete / at current to current stage (in
structures or stage (In Years and ZW$ millions)
KMs whichever Months)
is appropriate)
Total length of new
roads constructed / …………….KM Years……………… ZW$.........................
construction in Months……………..
progress in kilometres

Number of new
schools constructed / Years………………… ZW$........................
construction in Months……………..
progress
Number of new clinics
/ hospitals constructed Years……………….. ZW$........................
completed / in Months…………….
progress

82
 Number of capital
projects completed/in Years………………. ZW$.......................
progress Months……………..

22) How would you rate your council / municipality on the following aspects against
public needs and expectations?

Aspect Poor Fair Good Very Excellent

Good
Quality of service delivery
Allocative Efficiency
Aggregate Fiscal Discipline
Operational Efficiency
Public Information sharing with taxpayers

23) What have you done to ensure maximum use of public resources for maximum

return?

Letting out public facilities to private players

Hire qualified companies / contractors to supply or provide public goods / services

24) What have you done to manage spiral demand of public resources?

Introduced levies

Introduced restrictive by-laws

25) You can add more information in the space provided that might be relevant to this

Study.

......................................................................................................................................................
......................................................................................................................................................
......................................................................................................................................................

THE END, THANK YOU!

83
 APPENDIX 2
INTERVIEW GUIDE FOR COUNCILLORS AND CITIZENS IN GENERAL

What is the impact of Corporate Governance Principles on Public Financial Management

in Urban and Rural Councils of Zimbabwe?

Introduction

My name is Cavin Jeffry Mudimba, a final year student with Great Zimbabwe University,
pursuing studies in Masters Degree in Professional Accounting and Corporate Governance.

Purpose of the interview

We are aware that there have been growing concerns in the manner in which public financial
resources have been handled by council officials. There have been public outcry owing to
council some officials’ undesirable behaviour in handling of public resources in general. These
resources have a bearing on the general public who are the taxpayers contributing to financing
of public goods and service delivery.

The researcher is interested in knowing your views on the impact of corporate governance
principles on Public Financial management in your local authority.

It will be appreciated if we could spend some time together to discuss this issue.
Whatever we discuss here will be kept confidential and all other research ethics will be
observed. Information gathered from this interview will not be passed to any third party, and
it is purely for educational purposes only.

[Interview Begins]

Appreciation of the problem in the local authority area

How long have you been resident here?

Do you appreciate that public financial resources are at the core of most local authorities’
problems?

Is your local authority facing problems with ethical behaviour of council public officials in the
area of public financial management?

84
Do you think public finances are in safe hands? If not, explain and suggest best way to secure
public resources.

Do you know of any council officials who have been arrested and jailed for fraud or corruption
in relation to council public finances?

If, yes, what is the actual problem?

Impact of corporate governance principles on public financial management in the local

authority?

In your own opinion, does the behaviour of public officials affect availability or use of public
finances?

Do you think council officials hide some key information meant for public consumption? If
yes, what information are you being deprived of?

How often does your local authority engage you in issues to do with budgeting like revenue
and expenditures, quality of services delivery?

Recommendations to the improvement of public financial management in local

government.

What is your recommendation on how public financial management can be improved in local
authorities?

Do you have anything else to say in relation to this or any other subject or a comment, please
feel free to say it out?

Conclusion

Thank you very much for your time, have a pleasant day.

85