EXTENT OF COMPLIANCE WITH GOVERNMENT FINANCIAL REGULATIONS
BACKGROUND OF THE STUDY
The worth of any local government is determined by the quality and quantity of services it renders to the people at the grassroots. Local governments are the third tier administrative structure in Nigeria, created to bring government closer to the people at the grassroots and render social services to the people (Agba, Ogwu and Chukwurah, 2013). According to Agi (2002), local government is a political authority set up by the federal government as subordinate authority for the purpose of dispensing or decentralizing political power. Akpan (2005) defined local government as a separate tier of government that enjoys some reasonable measures of autonomy, with elected representatives as officials especially in a democracy. Local government, therefore, is a political subdivision of a nation which is constituted by law and has sub-national control of local affairs including the power to impose taxes or to extract labour force for prescribed purposes. According to Oguonu (2004), the success and the effectiveness of local government depend largely on the financial resources available to the individual local governments and the way these finances are utilized by the local government administrators in the course of the administration.
Administration covers almost every sphere of activity involving cooperation action. Different meanings have thus been attributed to the concept of administration. According to Johnson (2009), administration is concerned with the determination of the corporate policy, the coordination of finance, and operational performance of routine office tasks, usually 1internally oriented and reactive rather than proactive. In the local government administration, administrators are those saddled with the responsibility of managing both human and material resources in order to improve the standard of living of the people. Local government administration deals with gathering, processing and communication of information. One of the basic functions of the local government administration is the utilisation and management of its financial resources.
The responsibility for the management of local government finances lies collectively with all members of staff. According to the model financial regulations (2009), the revenue officer, treasurer, internal auditor, and accountants are the principal personnel in the management of financial resources in the local government administration. The revenue officer is an individual who collects revenues such as taxes and dues on behalf of the local government. They shall ensure the collection of revenue and shall continue to account for them and render returns to the local government treasurer in accordance with the financial memoranda and other existing financial regulations. It is the duty of a revenue officer to: collect promptly all sums due to the local government, to keep such books of account and other records prescribed by these financial memoranda and the treasurer as are needed to ensure that all revenue and other monies due to the local government and for which the revenue officer is responsible, are collected in full. Revenue officer is to record in a revenue collector’s cash book details of all receipts of revenue and the payment of such revenue collections to the treasury or a bank pending the payment to the treasury or a bank, to safeguard all revenue collected by placing it in the safe or cash tank provided by the local government, to keep all his revenue earning books in a lock and key when not in use. The revenue officer is also responsible for paying all revenue collected for the local government to the treasury or bank at intervals prescribed by the local government, to present all his revenue earning books, accounts books and cash to the person responsible for checking his accounts when required to do so and to submit used, partly used and unused revenue earning books, license books and relevant documents to the treasury once a month or at such lesser intervals as may be prescribed and to return all exhausted revenue earnings books to the official from whom they were received. Revenue officers in the local government are under the treasurer.
The treasurer is the chief accounting officer and head of the finance department of the local government. The treasurer as the chief finance adviser to the local government shall be in attendance at executive committee meetings and other committees to provide advice concerning the financial implications of proposed policies, the state of the local government’s finances and financial matters generally. The treasurer is responsible for the administrative control of the finance department of the local government; perform duties as chief accounts officer of the receipts and payment of the local government; responsible for the budgetary control and supervising the accounts of all departments of the local government; prepare and publish monthly and annual financial statements of the local government; be a signatory to all local government cheques, vouchers and other contractual documents; responsible for the maintenance of sound accounting and internal control systems; custodian of security documents of the local government; ensures that accounting systems as laid down in the revised financial memoranda for local government are complied with by all the departments and supervising the accounts for all departments of local government. The treasurer is also responsible for ensuring that: there is strict compliance with the financial memoranda in the finance and other departments of the local government. All the instructions relating to expenditure of public funds by the financial administrators are written and no payments are made unless properly authorized. All accounts books, records, vouchers, cash and securities are produced for check or audit, inspection as and when required by the internal auditor.
Internal auditor is an officer of the local government charged with the responsibility for conducting internal audit of the management of the finances of a local government. The internal auditor is to provide a complete and continuous audit of the accounts and records of revenue, expenditure, plant, allocated and unallocated stores where applicable. The internal auditor is responsible for carrying out an independent appraisal of the accounting, financial and other processes of the local government with the following objectives: to assist in protecting the assets and interest of the local government by carrying out a continuous examination of activities in order to detect fraud, misappropriation, irregular expenditure and losses due to waste extravagance and mal-administration; to secure the continued maintenance of soundly based systems of control with each area of departmental responsibility; to review and, where necessary, make recommendations for the improvement of systems, control and procedures to ensure that they remain adequate in the light of changing circumstances and are adhered to in practice. It also the duty of the internal auditor to monitor the use of resources in the pursuit of the defined objectives of the local government and to ensure that local government accounts is reconciled by the accountants.
Accountants are essential to the financial management of the local governments. The primary responsibility of accountants involves intense monitoring of accounts payable and receivable. They are in charge of the daily reconciliation between bank and local government account. They are also required to ensure that all monthly transactions are accurately recorded and they additionally assist financial analysts in updating revenue tracking sheets and processing loyalties. Other activities of the accountants include participating in monthly, quarterly and yearly accounting cycles and preparing of monthly financial statements. Accountants are not signatories to any account of the local government. The financial administration are involved in financial affairs and in particular, are concerned with ensuring that within their field of operations and responsibility, proper value is obtained for money spent. Section one, article one of the revised financial conventions (1991) provides that it is the responsibility of the principal staff to approve, debate and when necessary, amend local government annual budget, subject to the Chairman’s veto, which could be overridden by a two-third majority of the council. It is also the responsibility of the financial personnel to monitor the execution of projects and programs in the local government annual budgets to ensure that there is compliance with provisions of the financial conventions in the local government for better accountability to the citizens.
Accountability in the local government system involves the obligation imposed by financial regulations on the administrators for keeping accurate records of financial resources, documents, property and funds. In recent years, the financial resources of local government activities have increased from N32.7 billion in 1999 to N69 billion in 2013 (Ajayi, 2000). This increase in local government funds with expected increase in activities had brought with it an increased clamour for more accountability. Financial administrators of the local governments who manage the funded activities seem to rarely render adequate and timely accounts of their stewardship to neither the local government authority nor the general public. The public needs to receive reliable and understandable reports of account in order to access the performance of those entrusted with public resources. For the council to make meaningful services, in form of provision of basic amenities, such as rehabilitation, construction and maintenance of roads, creation of employment opportunities for the people and payment of staff salaries as at when due, money is undoubtedly needed. Hence, for the local government areas to perform her constitutional functions effectively and efficiently it should not only be well funded but such funds should be judiciously utilized and accounted for. This implies that for the local government areas to function well there is need for proper management and accountability of available resources especially financial resources. This can only be possible through strict adherence or compliance to government financial regulations.
Government financial regulations are a body of rules designed to achieve probity and accountability in government spending and use of funds. The rules deal with the opening of bank accounts, cheques and the collection of revenue. Financial regulations define the duties and responsibilities of finance officers of government (Okwoli, 2004). Financial authorities are the legal instruments that empower and guide all public officers in carrying out government financial transactions. Such financial transactions include the receipt, custody of and accounting for government revenue; the procurement, custody and utilization of government stores and assets, and the disbursement of funds from the major government funds. These mechanisms are embedded in the financial regulations. In Nigeria, the mechanisms are embedded in the 1991 revised financial memoranda for local governments. The Financial memorandum stipulates the generation and judicious management of funds for the benefit of the entire communities under a local government. According to the Federal Republic of Nigeria (2009), government financial regulations are provided in the following areas: financial estimate, expenditure classification and control, standardization and accounting procedures, payments procedure, bank accounts and cheques, cash book and monthly accounts, custody of public moneys, stamps, security, financial management and control.
Financial estimate is the statement of the objectives of the government including local government in financial terms in the financial year. It is the local government working plan within a period of one year. The activities of the local government must be conducted within the financial framework (Ajayi, 2000). The financial estimates regulations have been established to include the planning and controlling of organizational finances towards the attainment of stated objectives (Pandey, 2005). In line with this, Pere and Buseni (2013) pointed out two main instruments of financial estimate in the local government as budgetary control and auditing control mechanism.
Budgetary control is the process of comparing achieved results with budget or planned results, and reporting on the variations. Budgetary control is concerned with the establishment of responsibilities with the set targets to achieve, and at the end of the day comparing the actual achievement with set target with the aim of putting in place corrective measures that will ensure that the actual result achieved are in conformity with the planned or budgeted results (Lekarchman, 2007; Mueller, 2008). The objectives of the local government estimates or budget are as follows: to provide financial plan of action; to provide legal authority for incurring expenditure; to provide mechanism for ensuring that adequate controls are maintained over expenditure and revenue, and to establish the financial position of the local government by the auditors and a basis for measuring performance against plans (Shehu, 2004). The financial estimates establish the framework on which the auditing process or activity is based.
Auditing is an activity involving the gathering and evaluation of evidence relating to the validity of statement of performance or conduct of an agent in respect of his stewardship to the principal (Johnson, 2009). In the same way, Akpakpan (2002) defines auditing as the independent examination of the financial statement of an organization with a view to expressing an opinion as to whether these statements give a true and fair view and comply with the relevant statutes. Auditing or audit opinion is a tool for promoting financial discipline for the grass root development (Azuatalam, 2010). The audit authority in a local government covers such activities as revenue collection, sources of income and expenditures.
Revenue collection procedures as outlined in the 2009 model financial memoranda for local government are those regulations which provide guidelines on how monies are collected and utilized for proper accountability. Adams (2004) defined revenue as the fund required by the government to finance its activities. These funds are generated from different sources such as taxes, borrowing, fine, fees. It is also defined as the total amount of income that accrues to an organization (public or private) within a specified period of time (Mueller, 2008). Bhartia (2009) contends that revenue collections in the local government are done internally and externally. Internally collected revenues are those derived within the state from various sources such as taxes (pay as you earn, direct assessment, capital gain taxes, and others) and motor vehicle license, among others. While the statutory allocation from federation account and Value Added Tax (VAT) constitutes the external source. Revenue generation and collection in local government in Nigeria is mostly derived from tax.
Taxation is an internal source of revenue to government especially at the local government level. Its collection and service to the government depends largely on the government itself. Taxation has been described in many ways and for the purpose of this study it will be seen as compulsory levy imposed on a subject or upon his property by the government having authority over his property through its agencies with the aim of providing, maintaining and improving social facilities in the communities at large. Resources generated through taxes are plunged or utilized for local government area expenses such as staff salaries, rehabilitations and construction of roads, among others. The revenues collected or generated in the local government are used for various expenditures of government.
In the local government administration, expenditures are made on the procurement of goods, salaries, and for the day-to-day running of the council’s affairs. According to Appah (2009), expenditure system involves the operational procedures for making payment on goods bought and services rendered. In Nigeria, local government expenditures are made using a variety of procedures. These include book adjustments, issuance of cheques, cash and other payment systems. The procedures for making payments are documented in the 2009 Federal Republic of Nigeria Financial Regulations to guide the local government administrators on how to make payment for goods procured and services rendered. Akpan (2002) observed that most local government financial administrators arbitrarily spend government fund without recourse to the guideline stipulated in the government financial regulations. This abnormally creates room for misappropriation of funds and inadequate provision and maintenance of the essential social amenities. Wuam and Ngarka (2010) stated that the local government financial administrators rarely comply with the financial regulations in making payments, which invariable leads to inaccurate financial statement.
Financial statements, according to Ofoegbu (2003), are the end products of all financial transactions and records of an organization at the end of every financial period. The financial statements are important means of demonstrating how the public or private sector meets its financial management responsibilities. The purpose of financial statements is to present a true and fair view of an entity’s financial performance, financial position, equity and cash flows. As such, they are important means of demonstrating how the public and private sector meet its financial management responsibilities. Financial statements and the information contained therein is a valuable asset that must be managed and protected. Financial statements provide the essential evidence that a particular transaction took place or that a particular decision was made. Financial statements support all business functions and are critical to the assessment of policies and programmes, and to the analysis of individual and organisational performance. Without reliable financial statements, government cannot administer justice and cannot manage the local government resources, its revenue and its civil service. According to Udoayang (2001), without accurate and reliable financial statements, and effective systems to manage the financial statements, the local governments cannot deliver services such as education and health care to the masses and cannot be held accountable for the decisions and actions taken in the process of administration.
The heart of any country’s government administration is the effective management and control of its public fund. Government administration needs to be run in accordance to the laid down rules and regulations. However, according to Salawu (2005), in spite of the functions spelt out in the government financial regulation, the local government has over the years been unable to comply with the regulation to the fullest. Several factors including fraud and misappropriation of funds, weak institutional controls, high incidence of tax evasion and lack of foresight on the part of the local government officials negate adequate compliance of these regulations. Furthermore, Obasanjo (2001) opined that all the elements that enhance efficiency; reliability and continuity of the system have been tampered with, resulting in major and severe setbacks for the conduct of local government administration. The author stated that public funds are disbursed illegally without recourse to the financial regulations. The author further stated that government businesses are operated as if laws and rules are no longer in place to govern the way and the manner public funds are expended. It is on this note that the study seeks to determine the extent of compliance with government financial regulations in local government administration in Enugu State.
STATEMENT OF THE PROBLEM
Many scholars assert that good governance has not thrived in the local government areas of Enugu State. The service delivery continued to dwindle and remains epileptic in nature despite huge financial allocations (Oladunjoye, and Agbola 2004, Omadia, 2009). The demands and expectations from local government councils over the years have been on the increase while delivering the dividend of democracy and good governance at the grassroots continues to dwindle owing to mismanagement and misappropriation of funds.
According to Ajayi (2000),despite the fact that Enugu State local governments received more than N69 billion naira from the federation account couple with internally generated revenue of more than N4.5 billion between 1999 and 2007, their performance remains poor. Otinche (2012) observed that local government administration in Enugu State have been characterized by laissez-faire style, poor accounting systems, unavailability of reliable data required for planning, over-politicization, and poor revenue collection procedures have impeded development in local governments in the state. Collaborating with the above statement, Ukiwo (2006) stated that greed, unnecessary government interference, lack of direction and corruption are now the order of the day and public funds are disbursed illegally without recourse to the financial regulations.
As a result of the above factors, local government administrators are most times unable to meet up with their financial obligations in terms of payment of staff salaries as at when due, provision of social services and infrastructural development to the urban and rural dwellers. This has led the public to asking questions on the extent to which local government administrators comply with government financial regulations. It is on this note that this study sought to determine the extent of compliance with government financial regulations in local government administration with regards to financial management control, payment procedures, financial statement procedures and custody of government financial documents in Enugu State.
Purpose of the Study
The major purpose of the study was to determine the extent of compliance with government financial regulations in Local Government Administration in Enugu State. Specifically, the study sought to determine:
1. the extent of compliance with Financial Estimates Regulations in local government Administration in Enugu State;
2. the extent of compliance with Revenue Collection Procedures in Local Government Administration in Enugu State;
3. the extent of compliance with Expenditure Procedures in Local Governments Administration in Enugu State;
4. the extent of compliance with Financial Statement Regulation in Local Government Administration in Enugu State.
Significance of the Study
The findings of this study will be of immense benefits to personnel managers, government, the society, auditors, accounting officers and researchers. The findings on financial estimates would improve public financial management system with regards to providing quality public services for rural and urban dwellers. Thus, the findings of this study will be of benefit to the local government personnel managers by providing information for setting up a sound public financial management system to address the prevailing problems of poverty situation in the local government. This study will also benefit them by directing the attention of local government administrators on good financial planning and control to extend sustainable development projects to the rural and urban areas as the only way to show good governance.
The findings on revenue collection procedures will be beneficial to the society as a whole as data that will be generated from the study on the various means through which local government councils generate revenue for efficient public administration and also how these funds are being spent. To the government, the findings of this study will be of benefit in that the society will be educated on the utility of taxes for rural and urban development and the need to enhance tax compliance to improve the revenue base of the local government. The payment of taxes makes available adequate revenue for the provision of social amenities like water, roads, electricity, primary healthcare and schools for rural and urban dwellers. Such congenial exchange relations promote state-community relations, good governance and sustainable development.
The findings on the expenditure procedures will be of benefit to the internal auditors by providing information on payment procedure adopted by the local government financial administrators in order to independently examine the financial statement of an organization with a view to expressing an opinion as to whether the statements give a true and fair view and comply with the relevant statutes. The findings will also provide information to the society on the guidelines adopted by auditors in expressing their opinion by means of a report done on a regular basis, the auditing of local government accounts; sanction and surcharge a defaulting officer, reply to a query that affect his office; and to have access to sites for purposes of auditing or monitoring contract performance.
The findings on financial statement regulations will be of benefit to the society and the government. The society will benefit from this study in that the financial statements will provide the essential evidence that a particular action or transaction took place or that a particular decision was made, thus, helping in the assessment of the efficiency or otherwise of the performance of local government financial administrators. To the government, the findings on financial statements would provide information, which are critical to the assessment of policies and programmes and to the analysis of individual and organisational performance by providing accurate financial statements. Accurate and reliable financial statements will aid the citizens hold government accountable for the decisions and actions made in the course of administration. The findings would help local government financial administrators administer justice and manage the Council’s resources, its revenue or its civil service effectively.
Finally, the extent of compliance with government financial regulation in local government administration in Enugu State will be of benefit to future researchers as a reference point and a base for improving the knowledge of the researchers; and the findings from the study would assist the researcher on the strategies to alleviate the problems of unaccountability which has become the problem of local governments in Nigeria.
The following research questions guided the study:
1. What is the extent of compliance with financial estimate regulations in Local Government Administration in Enugu State?
2. What is the extent of compliance with revenue collection procedures in Local Government Administration in Enugu State?
3. What is the extent of compliance with expenditure procedures in Local Government Administration in Enugu State?
4. What is the extent of compliance with financial statement regulations in Local Governments Administration in Enugu State?
The following null hypotheses formulated for the study will be tested at 0.05 level of significance:
Ho1: There is no significant difference in the mean responses of auditors, treasurers, accountants and revenue officers on the extent of compliance with financial estimate regulations in local government administration in Enugu State.
Ho2: There is no significant difference in the mean responses of auditors, treasurers, accountants and revenue officers on the extent of compliance with revenue collection procedures in local government administration in Enugu State.
Ho3: There is no significant difference in the mean responses of auditors, treasurers, accountants and revenue officers on the extent of compliance with expenditure procedures in local government administration in Enugu State.
Ho4: There is no significant difference in the mean responses of auditors, treasurers, accountants and revenue officers on the extent of compliance with financial statement regulation in local government administration in Enugu State.
Scope of the Study
The study was focused on the extent of compliance with government financial regulations in local government administration in Enugu State. Although there are many government financial regulations in local government administration, this study will focus on the extent of compliance with financial estimate regulations, revenue collection procedures, expenditure procedures and financial statement regulations in local government administration in Enugu State. The opinions of the principal financial officers in the 17 local government areas in Enugu State will be sought to ascertain the level of compliance with financial regulations in local government administration in Enugu state.