A Critical Examination of Local Government Accounting Systems in Nigeria (Case Study of Aguata Local Government)

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Local government, whether in a rural or urban context, plays a critical role in the socioeconomic development of the grassroots. By making governance and service delivery available to residents at the community level, the government is closest to the grassroots. It also aids the administrative and political growth of the grassroots. According to Adebayo,  Dada, & Olarewaju, (2014), social, political, and economic growth become meaningful and genuine when it originates from the grassroots, or the most basic level of society.

The fundamental functioning of financial services in a competitive, efficient, and cost-effective way is the overarching aspect in local government financial management. l. Finance is a thread that goes around the fabric, according to Aborishade and Marshall (1981), referenced in Hassan (2011); if the thread is pulled incorrectly at one end, it would damage the pattern of the cloth and lose its beauty. As a result, funding in any organization must be handled carefully and dispensed in accordance with established norms and regulations. Furthermore, state governors’ political impunity has hampered the efficient administration of local government funds, undermining grassroots development Izueke, Anyadike,  & Nzekwe (2013). This is due to the fact that finance is the lifeblood of every administration, whether private or governmental. It is the lubricants for the wheel of good administration at the local government leve

Most local governments in developing nations confront quick issues as essential participants in the delivery of core basic public services, and this has resulted in a high level of unfavorable view of financial management in local governments. This has resulted in loss and leakages of funds, which is tailored towards mismanagement and corruption pertaining to local government administrations, due to an insufficient internal control system to checkmate the excessive fraudulent activities on revenue collections and insertion of ghost employees’ names in the local government payroll system. As a result, local governments have fallen short of their obligations to satisfy residents’ expectations for public goods and services. As a result, Local Government is required to prepare to guarantee that sufficient financial resources are available at all times to fulfill the demands of Local Government expenditure in attaining the specified goals and objectives, which can only be accomplished via accounting.

Accounting is involved with the measurement, documenting, and reporting of economic and social activities at the local government level, employing double entry methods and controls in the management of financial data. Accounting data is retrospective in nature, yet it may be a better indicator of the future. Accounting is concerned with the accuracy, timeliness, and quality of financial data, whereas finance uses accounting data to make economic and social development decisions that will result in the achievement of desired objectives and goals. Government accounting, according to Ibhahulu (2012), is the process of evaluating, documenting, summarizing, reporting, and interpreting the financial transactions of government entities. Olakunrin, (2008) developed a more comprehensive definition when he asserts that  it is the process of recording, analyzing, classifying, summarizing, communicating, and interpreting financial information about the government in aggregates and detail, reflecting all transactions involving the receipt, transfer, and disposition of government funds and property. As a result, solid accounting methods in local government would help the Nigerian government’s long-term economic, social, and infrastructure sustainability.

1.2 Statement of the Problem

Various accounting system is being used by different organizations or firms to speculate and analyse their financial statue. However, for an organization to know the system of accounting they will adopt depends on the kind of transaction/business or activities such organization engaged Nigeria my country (Ironkwe,  & Muenee,2016). The problem of adopting a particular accounting system especially among the various local governments in the states, has always been taken into consideration to ensure good control and efficient management of government operation. To a reasonable and considerable extent. This has been achieved, but due to the complex system of our local government accounting, there has been some set back.

According to Akinsulire (2019) many scholars have criticized Nigeria local government accounting system following the inherent weakness associated to local government administration and  abnormality in the treatment of expenses and other items, e.g. treatment of capital expenditure as revenue expenditure. Other abnormalities include the addition of cash basic of accounting instead of the rational accrual basis, which is easier and convenient to operate. Others include inappropriate description of accounting terms haphazard and wrong classification of balance items or what is known as the statement of affairs in the local government. The aforementioned abnormalities render the financial statement of the local government greatly misleading. Such financial statements hide the inefficiencies of the people under whose custody the resources of the local government were entrusted thus requiring a study of this nature to critically examine Local government accounting systems in Nigeria (case study of Aguata Local Government).

1.3 Objective of the Study

The broad objective of this study is to examine Local government accounting systems in Nigeria (case study of Aguata Local Government). Specifically, the study seeks:

  1. To examine ifaccounting system of Aguata  local government does allow for the preparation of financial statements that reflect the true financial position of local government.
  2. To determine the challenges and inadequacies associated to Local government accounting system.
  3. To investigate the mechanisms that can promote effective accounting system in Aguat Local Government.

1.4 Research Questions

  1. Does accounting system of Aguata  local government  allow for the preparation of financial statements that reflect the true financial position of local government?
  2. What are the challenges and inadequacies associated to Local government  accounting system?
  3. What are the mechanisms that can  promote effective accounting system in Aguata Local Government?

1.5 Significance of the Study

Findings of the study will be of immense significance to the staff of Aba South local government. It will go a long way in enlightening them on the concept of public sector accounting as well as the best strategies to be adopted to monitor its generated funds. This research work will as well be of benefit to students and researchers because it will widen their scope from the information contained in this research work and lastly, it will help the entire nation in modifying the methods and approaches used by different ministries, parastatal and other inter-ministerial departments in their financial control system and also it will help them in improving revenue generations and minimizes expenditures since public sector is differentiate able from private sector or bodies.

1.6 Scope of the Study

The scope of this study borders on an  examination of  Local government accounting systems in Nigeria (case study of Aguata Local Government).  it will determine the challenges and inadequacies associated to Local government  accounting system and as well investigate the mechanisms that can  promote effective accounting system in Aguat Local Government.

1.7       Limitation of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing to the nature of the discourse thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. Additionally, the researcher will simultaneously engage in this study with other academic work. More so, the choice of the sample size was limited  as few civil servant in the Aba South Local  government were selected to answer the research instrument hence cannot be generalize to other  Local Government outside that region. However, despite the constraint  encountered during the  research, all factors were downplayed in other to give the best and make the research successful.

1.8  Definition of Terms

Local Government: Local government is a generic term for the lowest tiers of public administration within a particular sovereign state.

Accounting System: An accounting system is a set of accounting processes with integrated procedures and controls.

Accounting : Accounting may be defined as the collection, compilation and systematic recording of business transactions in terms of money, the preparation of financial reports, the analysis and interpretation of these reports and the use of these reports for the information and guidance of management

Public Sector Accounting: Public Sector Accounting is the systematic process of recording, communicating, summarizing, analyzing and interpreting the financial statements and statistics of Government in aggregate and details.

REFERENCE

Adebayo, I., Dada, A., & Olarewaju, O. (2014). An appraisal of effective financial management of local government funds: A case of Ido-Osi loca government area, Nigeria. Research Journal of Finance and Accounting., 5(17), 33-39.

Akinsulire, O. (2019). Financial management. (10th ed.). Mushin, Lagos, Nigeria: EL-Toda Ventures Ltd. Banerjee, B. (2009). Fundamentals of financial management. (Special ed.). New Delhi: PHI Learning Private Ltd.

 Eze, N., & Harrison, O. (2013). Financial management in Local governments. The Nigeria experience. International Journal of Financial Research., 4(4), 146-152.

Hassan, M. (2011). Financial management in Nigeria local governments. (Revised ed.). Ibadan, Nigeria: University Press Plc.

Ironkwe, U, & Muenee, K. (2016). Treasury management and local government development in Nigeria: A study of Port-Harcourt city local government council. International Journal of Innovative Finance and Economic Research., 4(4), 21-37.

Izueke, E., Anyadike, N.  & Nzekwe, F.  (2013). Management of local government finance in Nigeria: Challenges and prospects. International Journal of Research in Arts and Social Sciences., 5(1), 148-160.

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