Financial Sustainability Implications of Non-Compliance in devolved units in Kenya: a case of Meru County Government Payroll Management for the Period between 2021-2024

Abstract

Effective payroll management is essential for public financial sustainability, with Kenya’s Public Finance Management Act mandating that county governments keep employee compensation below 35% of total revenue. Ideally, such compliance ensures balanced resource allocation between recurrent expenditure and development priorities. However, audit findings for Meru County Government from 2021 to 2024 revealed chronic payroll non-compliance.  This study investigated the financial sustainability implications of these irregularities, assessing the extent of non-compliance, its fiscal consequences, and how employment documentation lapses impact the development-to-recurrent expenditure ratio. The study adopted a survey research design using a quantitative approach. Data were collected through document analysis of official audit reports by the Auditor-General for FY 2021/22 to 2023/24. The analysis employed a modified version of Barasa et al.'s (2023) compliance categorization framework, adapted to Meru County’s context. Quantitative data were analyzed using descriptive statistics, means and percentages, and examined using Omondi et al.’s (2022) framework to establish relationships between non-compliance categories and financial sustainability indicators. Content validity was ensured through expert review by public finance specialists, while reliability was achieved by cross-verifying multiple data sources, consistent with Wanyama and Okello’s (2023) recommendations for payroll data integrity. The findings revealed persistent non-compliance, including excessive payroll expenditure exceeding the legal threshold (up to 60%), and systemic failures in contract management. The study recommends that Meru County Government adopts a standard integrated HR -payroll system, the County secretary and the head of public service liaise with the County Public Service Board to enforce strict recruitment and documentation protocols, and the Auditor-General and Controller of Budget to support in intensifying compliance audits. These measures will enhance fiscal discipline, align practices with policy, and protect public resources for development use.