Full Project-PUBLIC SECTOR ACCOUNTING IN NIGERIA (A CASE STUDY OF FINANCIAL CONTROL SYSTEM IN ENUGU SOUTH LOCAL GOVERNMENT AREA)

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Public sector is that sector of the economy established and operated by government or agencies distinguishable from the private sector organized on behalf of the whole citizens. The public sector is devised despite the privatization and commercialization of some government agencies and parastatals; the sector is still large. Almost all the activities in the public sector have to do with political choice, which plays a vital role in resource allocation. It is a government accounting. It is also defined as composite activity of collection, analyzing, recording, summarizing, reporting and interpreting the financial transaction of government units. The government either provides services on natural scale or else redistributes funds, which are managed on semi autonomous basis.

In Nigeria for instance, public sector accounting is based on the principal of fiscal federalism. This implies that the fiscal structure o the government is a reflection of its federal and political structure. The Federal Republic of Nigeria is made up of three levels of government namely Federal, State and Local governments otherwise known as the three tiers of the political structure. All the three tiers of government are guided b the constitution of the Federal Republic of Nigeria form which the government decides on who gets what and how. Allocation of resources to the three tiers of government is granted and this is executed through the process of budgeting. Unique thing about public sector accounting is that legal instruments demand and delimits the form the financial statement should take; many a time they follow budgeting classification. In public sector, we have the federal government accounting, state and local government accounting respectively.

The accountings in the federal and state level are the same in that both are made up to the same ministries, parastatals, agencies and departments. The 1976 local government reforms and the 1988 implementation guideline on application of civil service reforms in local government service established a standard or uniform multi-purpose single tier government structure throughout the federation, consequently, each local government account system is a replica of the other in terms of personal position and functions accounting system. Financial information flow budgeting and budgetary control system approved source of revenue and general administration significantly, a local government is allowed only six departments viz: Personnel, Works and Housing and Transport, Health and Social Welfare, Education, Agriculture and Natural Resources, Financial and Supplies, Planning Research and Statistical Department, out of the six departments, only the finance department headed by the local government treasurer is authorized to collect and keep all the revenue. According to financial control management Act of 1958, which charged the federal ministry of finance as the only government department that is responsible for making the finance of the federal republic of Nigeria. Financial management control Act 1959 also empowered the federal ministry of finance to issue finance regulation, which are binding on other units. The economics of government has shown that a government can be described as a group of people statutorily mandated to generate public funds and convert such funds into social goods and services (public utilities) so as to bring about socio-economic and political development in their area of control. The extent to which a government is able to provide public goods and service depends on the amount of revenue generated both internally and externally over time. This is why a government should devote enough revenue generation and improve its committee to the provision of infrastructural foundation to the development.

However, to carry out its functions and achieve its objective effectively, a government must be viable. Its total expenditure must be less than its total revenue so that the remaining revenue may be channeled towards capital profit development. In Nigeria the government income earnings management is such that each tier of government has its own exclusive source of revenue as spent out in the constitution, with the state and local government receiving the major part of the annual revenue from the federal government and the local government as well gets revenue allocation from the state government purse. From the above, local government source of revenue can be derived and classified into two external and internal. The external source is from the federal and state government revenue allocation, which are made according to revenue sharing formally adopted at the time internal source of local government revenue are as stated in 1979 constitution where the local government is directly responsible for its revenue policy, strategy, revenue collection and expenditure.

The local government has power to fix rate and fees payable by the people in its jurisdiction and to determine how the fees are collected. Although some local governments are more viable than others in terms of financial base, the full realization of a local government revenue generation and collection depends on its effective management. Unfortunately, most local government lose about sixty percent (60%) of their internal generated revenue that is more than three hundred and fiy million (N350m) annually to leakage in the collection and management present. It is not perplexing that in spite of the unalternative salary structure in the local government system and most repellent working environment, professionals and unskilled persons still strive to gain employment in the local government system while those already employed state anything to remain in service. This is why some concerned and nonpolitical local government chairmen and other oicials to beef up their local government revenue are usually frustrated by unscrupulous revenue collectors.

Most local government however either by omission or commission neglects otherwise highly viable sources of revenue while they clamuor continuously for increased statutory allocation. Within this set-up, it is convincing that the local government can actually generate and spend more funds on capital project development if roper managerial concept is adopted by the chairmen and more so where a stable federal government system is in place. However, one of the major reasons for this is the persistent political instability in the country such that both appointed and affected local government chairmen serve their tenure of office in a situation of high uncertainty, which neglects careful, planning and systematic implementation. Still the chairmen hardly know much about the local government system before their appointment or election and have at the back of their minds a profit making venture and so they spend a better part of their times trying to figure out what is happening in their internal revenue generation exercise.

1.2 PURPOSE OF THE STUDY

The major aim of this research is to aid local government and improve on their revenue generation and collection, to that point where all collection are actually collected and safely paid into the treasury and hence know how the collected revenue is controlled or managed. This evaluation will be done in the following ways:

(a) To investigate and expose how and where local government money leakage in their internally generated revenue and collection process occurs.

(b) To recommend strategies by which local government can detect and prevent revenue leakage.

(d) To investigate on the accountability for stewardship and management of funds.

(e) To determine the problem facing the local government on the public funds.

(f) To monitor performance and evaluate the management of public funds in local government.

(g) To provide information that will be useful for planning and budgeting in local government.

(h) To provide financial information useful for determining and predicting the economic condition of the government units.

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