EVALUATING LOCAL GOVERNMENT CODE OF ACCOUNTING PRACTICES AND FINANCIAL REPORTING (A CASE STUDY OF OHAUKWU LOCAL GOVERNMENT AREA, EBONYI STATE)
BACKGROUND OF THE STUDY
Financial reporting as an element of financial
accountability is very significant in ensuring proper use of public finances
for providing social services. Faridi and Nazar (2013) point out that the need
for strong management of public resources at local government has been
accelerated by the fiscal decentralization which grants fiscal autonomy in both
revenues and expenditure responsibilities. The nature of operations in local
governments attracts strong mechanism of financial accountability and one of
the key elements of financial accountability is financial reporting. Also,
Setiyawati (2013) argues that one of the main roles of internal control is to
ensure reliability of local government accounting and financial information
which leads to quality of financial reporting. The government of any nation is
saddled with the responsibility of ensuring that its citizens get the best of
social and developmental facilities available. They are responsible for setting
macroeconomic policy; seek to promote equity by aiding the poor and the
disadvantaged. According Shamsuddin et.al (2012), Local government administration
in Nigeria has been inexistence since 1972 but its inefficiency and
ineffectiveness in addressing the primary needs and wants of the people at the
grass root has made this third tier of government irrelevant in its
administration to the people. Reasons for this evolving problem include issues
around accountability, value for money, transparency, indiscipline and
financial challenges. In response to solving this prevalent problem many
countries, both developing and developed, have adopted various accounting
reforms or practices since the genesis of neo-liberal agenda discourses (Boex
et .al, 2011; Pollitt and Bouckaert, 2011; Lapsley and Mussari, 2008; Bogt,
2008. These budget reforms are usually responses to internal and external
pressures to ensure efficient and effective allocation of scarce resources and
to foster “good governance” through democratic participation in
decision-making, budget transparency and accountability (the Danida, 2009; the
World Bank, 2011, 2006; Economic Commission for Africa, 2009, 2010; Lapsley and
Mussari, 2008, Alnesafi et. al,2015). In developing countries, external
pressures have been the major driving force for accounting reforms and this is
as a result the level of dependence of these countries to supranational aid or
financial support from institutions, such as IMF, the World Bank, and others.
Hopper, 2009). Another very key factor that as influenced
accounting reforms is the practice of the private sector in the form of the New
Public Management (NPM) reforms and its relationship with organisational
operations (Hood, 1991, 1995) which generally modernized the Local Government
councils by adopting practices such as benchmarking, balanced score cards, and
competitive tendering (Ball, Bowerman, and Hawksworth, 2011; Bowerman, Ball,
and Francis, 2010; Bowerman, Francis, Ball, & Fry, 2014). . New Public
Management (NPM), which derived it basis in management theory and new
institutional economics, has been a global movement in many countries since the
2015s (Hood, 1991; Humphrey et al., 1993; and OECD, 1995). Its belief is that
private sector management and commercial business practices are superior to
public management and practices. Although many variations exist, the common set
of reform prescriptions is characterized by a greater focus on results,
devolution of authority, strengthened accountability and control, client or
customer orientation, and introduction of market elements (Hood, 1995a; and
Cheung, 1997, as cited in Yamamoto,1999). Accounting plays a central role in
NPM; indeed, Power and Laughlin (1992) describe the change in modes of public
management as a shift towards accountability. The change from cash based
accounting or budgetary accounting to accrual accounting is part of a broader
public sector reform process in the Anglo-Saxon democracies (Robinson, 1998). A
notable example is the New Zealand government which has prepared its annual
report on a full accrual basis since 1992 (Pallot, 1994). The aims of the
introduction of accrual accounting are to facilitate more transparency in
agency performance and to improve efficiency and effectiveness. It is argued
that a full accrual accounting system is able to provide more information in
terms of quantity and quality. Accountability in the financial management of
any local government must be held in high esteem if the local government is
expected to develop. This role is nonetheless, generally seen as the sole
responsibility of the local government core staff but the government made of
government representatives on the management of the public financial resources.
Therefore this study seeks to examine the accounting practices and financial
reporting of Local governments’ councils in Nigeria evaluating the problems
existing in the system and how various reforms have aided the provision of a
lasting solution to the poverty and hardship experienced at the local level by
STATEMENT OF PROBLEM
This study entitled appraisal of the accounting practices
and financial reporting of local government attempt to determine the problem
involved in establishing and applying standard accounting system in local
government with practical reference to Ohaukwu local government area of Ebonyi
state, Nigeria some of the problem facing the local government are; that the
accounting system installed in the local government is not fully effectively
operated. Also, the accounting system of the local government is inadequate in
design. As a result of these, the financial statement as prepared by the local
government does not reflect or show its true financial positions. The entire
instruments of control in the local government seem to have collapsed.
Consequently, there are increases in the mismanagement, scandalous
embezzlement, extravagance, wastage, misappropriation of bills, contract
abandonment, over prizing of goods/service, salaries padding, capital flights
and all other sorts of corruption in Local governments in Nigeria. Thus the
objective of the local government auditing seems to have been defeated owing to
the widespread accusation by the public to the fact that auditors merely
express true and fair view without attempting to conform to professional
standards, legal requirement and other regulatory framework. Therefore, this
study broadly aims to ascertain the effect of accounting practices and
financial reporting on public accountability in Ohaukwu Local government of
1.3. AIMS AND OBJECTIVES OF THE STUDY
The major aim of the study is to evaluate Local government
code of accounting practices and financial reporting. Other specific objectives
are as follows;
To examine the nature of accounting practices and financial
reporting used in Local governments in Nigeria.
To examine the extent to which local government councils
have been able to keep proper accounting statements.
To examine the problems inherent in accounting practices of
To examine the effect of local government code of accounting
practices and financial reporting on local government performance.
To examine how actual undertaking of accounting practices
differ among the Local government.
To examine the relationship between local government code of
accounting practices and financial reporting in Nigeria.
To suggest how Local government finance can be properly
managed in the benefit of the people in particular and society in general.
1.4. RESEARCH QUESTIONS
How is the nature of accounting practices and financial
reporting used in Local governments in Nigeria?
What is the extent of the local government councils being
able to keep proper accounting statements?
What are the problems inherent in accounting practices of
What are the effects of local government code of accounting
practices and financial reporting on local government performance?
What makes actual undertaking of accounting practices differ
among the Local governments in Nigeria?
What is the relationship between local government code of
accounting practices and financial reporting in Nigeria?
What are the suggested ways on how Local government finance
can be properly managed in the benefit of the people in particular and society
1.5. RESEARCH HYPOTHESIS
H0: Effective accounting practices and financial reporting
does not influence local government performance.
H1: Effective accounting practices and financial reporting
significantly influence local government performance.
1.6. SIGNIFICANCE OF THE STUDY
This study is largely significant because it sought to find
empirical answers to questions on the Local government code of accounting
practices and financial reporting in Nigeria. The research paper will be of
interest and useful to the general public’s the government as well as the
governed and also to future researchers in taking a stand on what is prevalent
in the country. This research will also serve as a resource base to other
scholars and researchers interested in carrying out further research in this
field subsequently, if applied will go to an extent to provide new explanation
to the topic.
1.7. SCOPE OF THE STUDY
The study is restricted to Local government code of
accounting practices and financial reporting: case study of Ohaukwu L.G.A,
1.8 LIMITATION OF STUDY
Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
Time constraint– The researcher will simultaneously engage
in this study with other academic work. This consequently will cut down on the
time devoted for the research work.
1.8 DEFINITION OF TERMS
Local Government: Is a form of public administration which,
in a majority of contexts, exists as the lowest tier of administration within a
given state. Local governments generally act within powers delegated to them by
legislation or directives of the higher level of government.
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.
Accrual Basis Accounting: This is a method of accounting
whereby revenues and revenues and expenses are identified with specific periods
of time, such as a month or year and are recorded as incurred, along with
acquired assets without regard to the date of receipt or payment of cash.
Capital Expenditure: All expenditures incurred on the
construction or extension of projects in acquisition of lands and buildings and
on the purchase of plant or equipment (but exclusively the cost of repairs and