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.
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.
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.
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
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
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
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.
(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.
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.
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
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.
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.
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
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
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
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.
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.
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.
Examine the accounting department to find out if it is being manned by
the desired competent and of course qualified personnel;
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.
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:
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
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.
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 LIMITATIONS OF 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
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.
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
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.
1.7 DEFINITION OF TERMS:
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.
refers to the raising of funds, controlling and using them in the
running of an organization, be it private, corporation or government
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.
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
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.
refers to all those activities/services performed/rendered by the
government with available resources (Egonwa, 1985).
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.
A budget is a plan expressed in quantitative and usually monetary terms, covering a specified period of time usually a year.
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.
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
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.
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.
is a summary of all expenditures incurred by the local government
categorized according to vote heads during a particular fiscal year.
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.
This is the aspect of revenue that the local government can generate within its area of jurisdiction.