1.1 Introduction
Funds of local government councils are managed by the key officers of respective councils. Financial management has to do with the efficient use of funds. It is a method of showing and ascertaining the financial position of government or business over a period of time (Ojo, 2009). Local government, which is the third tier of government in Nigeria have undergone various reform towards making the system more efficient and effective in rural development autonomy introduced by Mohammed/Obasanjo regime. The 1976 local government reform was a local government in Nigeria.
According to Okoli (2005) the idea behind the entire exercise was to make local government an effective stratum of government rather than leaving them more appendages to their various states government. This was to ensure that political development economic responsibilities of local government was performed with full autonomy and entrusted to where it is most critically and beneficially needed for the purpose of developing the rural communities.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitation of the study and Definition of terms.
1.2 Background of Study
In Nigeria, there are three tiers of public sector administration − the Central (Federal) government, State government; and Local governments. This project is devoted to the examination of the local government’s accounts, and the development of financial management with their departments. It is therefore pertinent at this point to mention that the local government is the third tier of government in Nigeria.
Local government in Nigeria derives their existence from the constitution of the Federal Republic of Nigeria (promulgation) Decree No. 12 of 1989 and the civil service (re-organisation) Decree No. 43 of 1989 as brought about a new awakening to make the public sector virile dynamic, result and development oriented. At present with the creation of more 177 local governments, the total number of local governments in Nigeria has therefore increased to, one would then guess what effects will it have. Even before that, like since 1979, there has been a significant rise in local government expenditure in line with greater emphasis on grassroots participation. For instance, in 1992 while complete political administrative and financial independence was granted to the local government. From State control, its responsibility was enlarged with effect from 1992; local government has been directly responsible for primary health care. This is in addition to its statutory functions.
As a result of increase in the responsibilities and the fantastic expenditure associated with them, it is vital that the local governments extend their sources of revenue beyond the present level. They would endeavour to tap all the potential resources so as to see their revenue base fortified. Any improvement to this effect will be welcomed as it would give the local government an added impetus in discharging its statutory functions and socio-economic advancement to the local inhabitants.
From the inception of local governments, they have been relying substantially on grants from State and Central governments and also statutory allocation from the federation account in addition to a percentage of the internally generated funds of the State. As a matter of fact, the internally generated revenue by the local governments was very abysmal. Now that it has been granted autonomy, it is statutorily required to rely more on internally generated funds for the performance of its functions. This being the case, government grants and statutory allocation are only supplementary sources of revenue to the local government.
The local government in Nigeria is the closest government to the people especially those who reside in rural areas. It is most important institution which can be used as a tool for motivating and encouraging self-help in rural areas as well as helping rural dwellers participate in the process of decision making at the local level (Eluwa, 2012).
Local government in Nigeria according to Bello-Imam (2007) was established for four main purposes which include; furtherance of democracy that involves the people’s participation, local autonomy, development of national unity and service provision such as road, healthcare among others which they can best provide compared to other government levels.
He further stated that there are a number of factors that prevent the attainment of these purposes. These factors can be attributed to the inadequate and incompetent personnel, excess controls by both state and federal governments owing to the autonomy they lack, differing and conflicting orders from higher levels of government, inability of councilors and chairmen to actualize their mandate due to lack of determination as well as lack of adequate funds.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Challenges and Remedies of Local Government Accounting.
1.3 Statement of Problems
Investigation revealed that finance and accounting in local governments is probably more complex, than in any other part of the public sector. In Nigeria, the inability of local governments to raise adequate funds and keep accurate accounts to sponsor its expenditure and activate grassroots development has been discovered as one of the major predicaments thwarting the frantic efforts of the local governments. The purpose of this study, therefore, is to assess the problems of finance and accounting in local government so as to determine their prospects.
1.4 Aim and Objectives of Study
The aim of the study is to determine the Challenges and Remedies of Local Government Accounting in Nigeria with particular reference to Nsukka Local Government Area, Enugu State. In achieving this aim, the following specific objectives were laid out as follows:
- To examine the accounting department to find out if it is being manned by the desired competent and of course qualified personnel;
- To identify the major causes of these maladies in the financial system of the local government;
- To examine the various instruments of management and control of the local government finances;
- To examine the prospects of improving sources of the local government finances;
- To examine whether the sources of income to the local governments is enough as to enable it discharge its constitutional, statutory and/or otherwise obligations with ease; and
- To examine the various problems of the local government’s finances and accounts, and ascertain the financial autonomy of the local governments.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Is accounting department being manned by the desired competent and of course qualified personnel?
- What are the major causes of these maladies in the financial system of the local government?
- What are the various instruments of management and control of the local government finances?
- What are the prospects of improving sources of the local government finances?
- What are the various problems of the local government’s finances and accounts in Nigeria?
- What are the sources of income to the local governments is enough as to enable it discharge it’s constitutional, statutory and/or otherwise obligations with ease?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: That an increase in federal government statutory allocation of federation account from 20% − 25% would not help local government in achieving at least 75% of their statutory responsibilities.
- H1: That an increase in federal government statutory allocation of federation account from 20% − 25% help local government in achieving at least 75% of their statutory responsibilities.
Hypothesis Two
- H0: That the employment of low caliber staff has no significant negative relationship with the low efficiency and productivity of the local governments.
- H1: That the employment of low caliber staff has significant negative relationship with the low efficiency and productivity of the local governments.
Hypothesis Three
- H0: That the Accounting system of local government is not effective in operation.
- H1: That the Accounting system of local government is effective in operation.
Hypothesis Four
- H0: That another source of tax revenue is not essential for Nigerian Local Governments.
- H1: That another source of tax revenue is essential for Nigerian Local Governments.
1.7 Significance of Study
Our local governments have in these recent times been riddled with financial and accounting problems. These undoubtedly have stultified the unflinching efforts of most local governments to instill and of course restore sanity in the system, hence the need for a study on the problems and prospects of contemporary local government finance and accounting in Nigeria.
The study leaves no stone unturned in examining the problems confronting the existing revenue sources of the local governments and appraises talent revenue resources which could be used to fortify the overall revenue base of the local governments.
This study therefore points out significantly that improved local government finance and accounting system in the cornerstone to the much desired economic growth and development. It potentially serves as a guide to policy making in designing a better strategy for the rural development in Nigeria. The study also forms a source of reference in other related topics and to researchers in similar topics.
1.8 Scope of Study
The scope of the research is focused on the Challenges and Remedies of Local Government Accounting in Nigeria using Nsukka Local Government Area of Enugu State as a case study.
1.9 Limitations of the Study
As has been earlier mentioned, finance and accounting in local governments is fraught with complexities. It is then not possible to provide a fully comprehensive coverage of all facts of the subject in this kind of study, local government finance and accounting has developed in a distinctive fashion and as such has evolved a terminology that may be unfamiliar even to those with experiences of finance and accounting in either the public or private sector.
This study restricts itself to the evaluation of the various revenue sources and expenditure patterns of the local governments, examination of the problems associated with them and the prospects for enhancing them. Since it is not possible for a research project of this kind to delve into a study of the entire local governments in Nigeria individually, this research work is confined to information gathered from Nsukka Local Government.
The student researcher of this work is of desired intention to carry out an elaborate and comprehensive study of the problems and prospects of the local government in Nigeria, but has to obey impenetrate limitations encountered during the research. At the local government under study necessary statistical data could not be obtained in a particular location and bureaucratic tendencies seemed to be a rule rather than an exception.
Moreso, majority of the local government staffers are illiterate people and could not give written information without assistance from enlightened fellows. Yet some respondents are reluctant to comply with piece of information needed from them.
In the final analysis, this research work was also limited to the data gathered from the finance and accounting department of the local government. As such, it should be interested to note that treasury department was the major source of information used in analyzing the study.
1.10 Definition of Terms
Local Government
Ugwu (2002) defined local government as third tier level of government created for the purpose efficient and effective administration of the localities while the 1976 local government reform conceived local government as government at the local level exercise through representatives council established by the law to exercise specific power within defined areas.
Finance:
Finance refers to the raising of funds, controlling and using them in the running of an organization, be it private, corporation or government (Ume, 1980).
Accounting:
Accounting is defined by Douglas (1976) as “a discipline concerned with the recording, analysis, and forecasting of income and wealth of business and other entities.
Funds:
The National committee on Government Accounting (USA) defined a fund as “an independent fiscal and accounting entity with a self-balancing set of accounts recording cash and/or other resources together with all related liabilities, obligations, reserves and equities which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations”.
Revenue:
Revenue refers to all those monies, each and otherwise received by way of statutory allocation, grants, subvention from higher levels of government, taxes, rates, licenses, fees, royalties, loans and charges which enable the government to meet its day to day expenses and its capital expenditure programmes.
Expenditure:
Expenditure refers to all those activities/services performed/rendered by the government with available resources (Egonwa, 1985).
Capital Expenditure:
This consists of expenditure the benefit of which is not fully consumed in one period, but spread over several periods. It includes assets acquired for the purpose of earning income, or increasing the earning capacity of the business.
Budget:
A budget is a plan expressed in quantitative and usually monetary terms, covering a specified period of time usually a year.
Estimate:
An estimate is a proposed budget which is yet to be approved. It is a statement of planned revenue and expenditure of the government for the coming year. This like budget is normally expressed in monetary units.
Revenue Estimate:
As the name implies, it is the part of the estimate in which is stated the expected revenue from overall sources of the government for the coming fiscal year.
Recurrent Expenditure Estimate:
This is an aspect of the estimate that stipulates in detailed shape, expected recurrent expenditure of the government of the following fiscal year.
