PROBLEMS AND PROSPECTS OF LOCAL GOVERNMENT FINANCE/ACCOUNTING IN NIGERIA (A CASE STUDY OF NSUKKA LOCAL GOVERNMENT AREA)
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PROBLEMS AND
PROSPECTS OF LOCAL GOVERNMENT FINANCE/ACCOUNTING IN NIGERIA
(A CASE STUDY OF
NSUKKA LOCAL GOVERNMENT AREA)
ABSTRACT
The title of this
research work is, problems and prospects of local government finance/accounting
in Nigeria” with particular reference to Nsukka Local Government Area, Enugu
State. It has been identified that accounting and financial reporting in the
public sector particularly at the local government level was not given adequate
attention.
In the course of
carrying out this study, the following objectives among others were set which
included. The identification of major causes of maladies in the financial
system of the local government; to examine the accounting department, to find
out if it is manned by competent and qualified personnel, to examine whether
the sources of income to the local government finances, to examine the various
problems of the local government finances and accounts and to examine the
prospects of improving the available sources of the local government finances.
To achieve the set
objectives, some hypotheses were formulated which comprised: an increase in
local government share of federation account from 20-25% would help local
governments in achieving at least 75% of their statutory responsibilities, the
employment of low caliber staff has a significant negative relationship with
the low efficiency and productivity of local governments, the Accounting system
of local government is not effective in operation and that another source of
tax revenue is not essential for Nigerian Local Governments.
Two broad research
methods were adopted in this study which were personal interviews and fully
designed and well-structured questionnaires. For the purposes of
analyzing the hypotheses, chi-square (x2) technique was adopted.
As a result of
conscientious and of course painstaking study done, a lot of findings were made
which included inter-alia, there was an ample proof that the greater number of
local government’s employees are unqualified. Other taxes to be collected
by the local governments can improve its financial base, the employment of low
caliber staff has no significant negative relationship with the low efficiency
and productivity of the local government; and increase, from 20 – 25% in the
Federal Government Statutory Allocation of federation account would not be
enough to detray a reasonable proportion of such responsibilities, embezzlement,
receipt of huge kick-backs, contract inflations, large scale salary, fraud,
auditing and internal control problems were discovered as some of the major
accounting and financial problems of the local governments.
As a result, the
following recommendations were proffered: efforts to be intensified in
the collection of revenue and continuously seek new avenues for local
taxations, emphasis to be placed on the recruitment of qualified, experienced
and well-trained personnel for the assessment, collection and general
administration of local taxes and rates, design a sound system of budgetary
control, installation of a system of internal control, projects to be evaluated
and implemented, proper feasibility study to be carried out; and internal
funding to be improved by its engagement in commercial ventures.
PROPOSAL
The title of this
research work is “problems and prospects of contemporary local governments
finance/accounting in Nigeria” with particular reference to Nsukka Local
Government Area in Enugu State. I want to identify why the accounting and
financial reporting in the public sector particularly at the local government
level was not given adequate attention.
In this course of
carrying out this study, the following objectives among others were set which
included – the identification of major causes of maladies in the financial
system of the local government, to examine the accounting department, to find
out if it is manned by competent and qualified personnel; to examine whether
the sources of income to the local government is enough; to examine the various
instrument of management and control of local government finances; to examine
the various problems of the local government finances and accounts and to
examine the prospects of improving the available sources of the local
government finances.
As a result of
conscientious and of course painstaking study, I will do, I hope a lot findings
will be achieved which may include inter-alia, there will be an ample proof
that the greater number of local government employees are unqualified.
Other taxes to be collected by the local government can improve its financial
base, the employment of low caliber staff.
As a result, the
following recommendations will be proffered: efforts to be intensified in
the collection of revenue and continuously seek new avenues for local
taxations; emphasis to be placed on the recruitment of qualified, experienced
and well-trained personnel for the assessment, collection and general
administration of local taxes and rates.
TABLE OF CONTENTS
CHAPTER
ONE: INTRODUCTION
1.1
An Overview
1.2
Statement of problem
1.3
Hypothesis
1.4
Objectives of study
1.5
Significant of study
1.6
Limitation of study
1.7
Definition of terms
CHAPTER
TWO: LITERATURE REVIEW
2.1
Government Accounting
2.2
Local Government Accounting
2.3
Statutory Base of Local Government Finance in Nigeria
2.4
Functions of Local Government
2.5
Sources of Local Government Revenue
2.6
Objectives of Local Government
2.7
Local Government Expenditure
2.8
Management and Control of Local Government Finance
2.9
Problems of Local Government
CHAPTER
THREE: RESEARCH
METHODOLOGY
3.1
Methodology
3.2
Sources of Data
3.3
Population Definition
3.4
Statistical Determination of Sample Size
3.5
Methods of Data Presentation
3.6
Data Analysis
3.7
Decision Rule
3.8
Operation Assumption
CHAPTER FOUR
4.0
Data Presentation and Analysis
4.1
Questionnaire Distribution and Response
4.2
Data Analysis
4.3
Test of Hypothesis
4.4
Interpretation of Results
CHAPTER FIVE
5.0
Research Findings, Recommendations and Conclusion
5.1
Summary of findings
5.2
Conclusion
5.3
Recommendation
Bibliography
References
CHAPTER ONE
1.1
AN OVERVIEW
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.
Johnson (1992) said
that, though virtually all developed countries have a system of local
government, some systems involve considerable local autonomy while others
involve less. On a spectrum, the Nigeria systems probably involve less,
rather than more autonomy. Then the question and answers are important as
they reflect that type of financial and accounting framework required.
Sharpe (1980) noted
that the participatory value if not the liberty value, still remains as a valid
one for modern local government. Not perhaps in the full glory of its
early promoters, but as an important element in a modern democracy
nonetheless. But as a co-ordinator of services in the field, as a
reconciles of community opinion, as a consumer assure group as an agent for
responding to rising demand and finally as a counterweight to incept
syndicalism, local government seems to have come into its own.
The following points
were listed in the local government’s favour by the Layfield Committee (1976).
(a)
It provides democracy
(b)
It acts as a counterweight to the uniformity inherent in government
decision. It spreads political power.
(c)
It embraces accountability because it brings those responsible for decision
close to their electors.
(d)
It is efficient because services can be adjusted to local needs and preferences
and because responsibility can be more decentralized.
(e)
Central government would be overloaded by more functions;
(f)
It provides a vehicle for formulating new policies and pioneering ideas.
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.
Babangida (1992) for the local government to self-sustaining financially
without reducing the level and quality of its services to the people. It
is essential that it exploits all potential internal revenue sources which
would supplement existing ones. This as well suggests that the existing
ones be adequately exploited and properly managed.
1.2
STATEMENT OF PROBLEM:
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.
1.3
HYPOTHESIS:
Since this research
work is on the problems and prospects of local government finance and
accounting in Nigeria” the writer obtained facts chiefly through interviews and
questionnaires. Some hypotheses have been formulated to enhance better results.
HYPOTHESIS I:
Ho:
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.
HI:
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 2:
Ho:
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 3:
Ho:
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 4:
Ho:
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.
OBJECTIVE
OF STUDY:
Local governments
like any other organization encounter financial and of course accounting
problems. These problems here in no small measure contributed to their
poor performances. It is therefore, imperative to mention that one of the
major reasons for undertaking this work is the belief that for any meaningful
improvement to take place in Government Accounting and finance control, the
strands forming part of these systems must first be put together in doing so,
the inadequacies inherent in the areas of each system would be pointed out and
criticized or mentioned as probable areas for future development.
In carrying out the
study, efforts should gear to:
1.
Identify the major causes of these maladies in the financial system of the
local government.
2.
Examine the accounting department to find out if it is being manned by the
desired competent and of course qualified personnel;
3.
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.
4.
Examine the various instruments of management and control of the local
government finances.
5.
Examine the various problems of the local government’s finances and accounts,
and ascertain the financial autonomy of the local governments.
6.
Examine the prospects of improving sources of the local government finances.
1.5
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.
1.6
DEFINITION OF TERMS:
LOCAL GOVERNMENT
Local government is
the third tier of government. According to Shehu (1976), it is that level
of government which is organized as close as possible to the people at the
grassroots and vested with statutory powers to perform certain functions both
inherent and ascribed confining its activities and authority within particular
district or neighbourhood and subject to the control of the central government.
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.
For example, land and buildings, plant and machinery, maintaining of roads and
other projects of capital nature.
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.
CAPITAL EXPENDITURE ESTIMATE:
This specifies the
expected capital expenditure project of the government for the coming fiscal
year.
REVENUE ABSTRACT:
This is a record
which shows at a glance in a concise meaner all revenue receipts heed by all,
and subhead by subhead that accrues to the local government in a given
financial year.
EXPENDITURE ABSTRACT:
This is a summary of
all expenditures incurred by the local government categorized according to vote
heads during a particular fiscal year.
STATUTORY FUNCTIONS:
These are functions
that the local government is legally binding to carry out. An edge
outside it may amount to an ultra vires and will therefore be rendered null and
void and of no effect.
INTERNAL REVENUE:
This is the aspect of
revenue that the local government can generate within its area of jurisdiction.
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