Part A: Framework and procurement
Introduction to public financial management
Key takeaways
- Public financial management covers the full cycle of raising, allocating, spending and accounting for public resources, governed by Chapter Twelve of the Constitution.
- Article 201 sets four principles of public finance: openness and accountability with public participation, equitable sharing of the burden and benefits, prudent and responsible use of public money, and clear fiscal reporting.
- The Public Finance Management Act, 2012 gives Chapter Twelve effect for both national and county government, turning its principles into budget processes, reporting duties and institutional roles.
- The Act's budget process turns the priorities in development plans into funded programmes, which makes it a policy implementation tool, not merely an accounting framework.
- The PFM cycle runs from planning to budgeting, budget execution and revenue collection, accounting and reporting, audit and oversight, and evaluation, which feeds back into the next planning cycle.
Authority for this chapter
Chapter Twelve of the Constitution of Kenya, 2010: Article 201 (principles of public finance: openness and accountability with public participation, equitable sharing of the burden and benefits, prudent and responsible use, and clear fiscal reporting), Articles 206 to 208 (the Consolidated, County Revenue and Contingencies Funds) and Articles 220 to 223 (budgets and appropriation); section 3 (object) and section 15 (fiscal responsibility principles) of the Public Finance Management Act, 2012, the Act that gives Chapter Twelve effect for both levels of government.
Scope and principles of PFM
Extends CPA Public Finance and Taxation in depth: PFM covers the full cycle of raising, allocating, spending and accounting for public resources, governed by the constitutional principles of transparency, accountability, prudent and responsible use, and sustainable public debt.
The PFM Act
The Public Financial Management Act, 2012 operationalises the principles in Chapter Twelve of the Constitution into concrete legal requirements, budget processes, reporting obligations, and institutional roles, the primary statutory instrument this whole paper elaborates on.
The PFM Act as a policy tool
Beyond pure financial administration, the PFM Act's budget process is the mechanism through which government policy priorities (development plans, covered in CPA Public Finance and Taxation) are translated into actual funded programmes, making it a policy implementation tool, not merely an accounting framework.
Global best practice
- Medium-term expenditure frameworks linking planning to budgeting
- Programme-based budgeting linking spending to measurable outcomes
- Robust internal control and internal audit (see the chapter on internal auditing)
- Independent external audit and legislative oversight (see the chapter on the Auditor-General)
- Transparent, accessible public financial reporting
Implementation challenges
- Capacity constraints in national and county PFM institutions
- Weak revenue forecasting accuracy
- Delayed or incomplete budget execution
- Political pressure on technical PFM processes
- Coordination challenges between national and county levels
The PFM cycle
- Planning through development plans
- Budgeting
- Budget execution and revenue collection
- Accounting and reporting
- Audit and oversight
- Evaluation, feeding back into the next planning cycle
Exam tip
The PFM cycle is the organising skeleton for this entire paper's remaining chapters, each later chapter maps onto a specific stage of this cycle, revise the cycle first so every subsequent chapter has a clear place within it.
Self-check
(a) State the four principles of public finance under Article 201 of the Constitution. (4 marks)
(b) Explain why the PFM Act is described as a policy implementation tool, not merely an accounting framework. (3 marks)
(c) State the six stages of the Public Financial Management Cycle in order. (3 marks)
Show worked answer
(a) Openness and accountability, including public participation in financial matters; equitable sharing of the burden and benefits of resource use and public borrowing between present and future generations; prudent and responsible use of public money; and clear fiscal reporting (4 marks).
(b) The PFM Act's budget process is the actual mechanism through which government policy priorities set out in development plans are translated into funded, implementable programmes, so the Act does more than govern how money is accounted for after the fact, it shapes what gets funded and therefore what policy actually gets delivered (3 marks).
(c) Planning; budgeting; budget execution and revenue collection; accounting and reporting; audit and oversight; evaluation, which feeds back into the next planning cycle (3 marks).