THE ROLE OF ACCOUNTING IN THE CONTROL OF PUBLIC EXPENDITURE IN NIGERIA (A CASE STUDY OF CENTRAL BANK OF NIGERIA)

ABSTRACT

This research work is titled “The role of Accounting in the control of public expenditure” the incessant incident of budget deficit, misappropriation and embezzlement of project fund due to lackof good accounting system constitute the problems that necessitated this research. The main  objectives   are:  To  ascertain   whether  adequate  budgeting   can   regulate  public expenditure,  to ascertain whether a good accounting  system can  ensure transparency and accounting in execution in public expenditure and evaluate standard of costing impact on the control of public expenditure. Data for this work was obtained using questionnaire. The z test formular was used to test the hypotheses, the sample size is (50) fifty, this actual sample size was used because the size was not large. Some of the findings were that: public revenue and expenditure  constitute an integral  aspect of government budget and that the execution  of public project by government entails incurring public expenditure. Recommendations made were that: Adequate government budget can regulate public expenditure, and an efficient and effective  accounting  system  can  ensure  transparency  and  accountability  during  public expenditure    execution. Recommendations proffered were: government should seek for the services of professional accountant during budget preparation. Government and other public institution should instill good accounting and internal control system to check embezzlement of project funds.

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

Public expenditure is the spending made by the government of a country on the  collective needs and wants of her citizenries  such as spending  on; the provision  of  infrastructures, pension provision etc. Until the 19th century, Public expenditure was limited as Laissez faire philosophies which believed that money left in private could bring better returns. In the 20th Century John Maynard Keyness argued the role of Public Expenditure in determining levels of income and distribution in the economy. Since then government expenditures has shown an increasing trend. In the 17th  and the 18th  Century Public Expenditure was considered as wastage  of  money.  Thinkers  are  of  the  view  that  Government  should  stay  with  their traditional functions of spending on defense and maintaining law and other.

Public Expenditures are incurred through budget implementation. The macro-economic goals of the state budget are administered in specific and complex systems which were developed in the managerial information unit of the General Accounting department under the name of “Budget  Implementation  macro  system”  The role of accounting  in  the  control  of public expenditures  relates  mostly  on  setting  of standards  via  budgeting  and  ensuring  that  the standard  set are adhered  to. The accounting  controls  also  ensure the actualization  of the macro-economic goals which are viz:

–          Maintaining the total framework of the planned expenses.

–          Adjustment of expenditure rate to the rate of the reception of incomes.

–          Regular follow-up of compliance with deficit goals.

–           Planning of the financing of the deficit in order to reduce the national debt-product ratio etc.

In  Nigeria,  public  enterprises  are  engaged  in  a  wide  spectrum  of  economic  activities including  agriculture,  mining,  construction,  manufacturing  commerce  and  services.  The classification of public enterprises in Nigeria has been made according to varieties of criteria by different authorities.  The Public Service review commission (1975:101) classified public sector into:

–          Public Utilities

–          Regulatory of Service body

–          Financial Institutions

–          Commercial and Industrial Enterprises.

Nigeria  being a mixed  enterprises.  Eze (2013) opined  that a firm is classified  as  private enterprises when it is funded, owned and managed by an individual or group of individuals.

These firms are expected to be registered in the state within which they operate. The activities of the public enterprises  have been on the increase in recent times which  necessitated  the introduction  of  the  accounting  to  check  and  monitor  the  financial  activities  of  these enterprises.

According  to  Onyekwelu  (2010:2)  Accounting  is  defined  as the  process  by which  data relating   to   the  economic   activities   of  an  organization   are   measured,   recorded  and communicated  to interested parties for making informed decision. The  earliest methods of accounting records were kept in physical quantities. These records came from Eastern early civilization which involved countries around the  Mediterranean  sea such as Mesopotamia, Egypt, Greece Italy etc. Money was recorded  as soon as it was received. Money took the place of barter as a medium of exchange and unit of account. This practice has been closely related to economic development of countries. If the operation of Public enterprise grow in size and complexity,  management  and other stakeholders  will like to be informed  on the enterprise’s operation. Accounting is the only means via which such information which are financial in nature can be communicated to the stakeholders.

The role of accounting in enterprises in Nigeria is primary to ensure accurate accountability in these sectors and true and fair financial position of the enterprise. This role is of utmost importance in any organization. An organization can only grow or profit when the resources at its disposal are well managed. The role of accounting seems to be more pronounced public enterprises.  In recent  times,  there  are  cases  of  mis-appropriation  of  funds  in the  public enterprises and improper accountability. These factors have led to a lot of public enterprises into  oblivion,  if the  government  had  recognized  the  role  of accounting  all most  of  the problems  witnessed  would  not  have  occurred.  No  Enterprise  can move  forward  without having  a  well-organized  and  functional  account  department  which  will  provide  accurate financial information for the Enterprise and other interest group(s).

In summary, the role of accounting in the control of public expenditure deals with the process of setting cost standards and ensuring that the standard set are maintained, However, if the already set standards appear to be in realistic such standard can be reviewed and adjusted for it to be more realistic. Control of public expenditure can be done through adequate budget implementation.

1.2      STATEMENT OF PROBLEM

The amount of public expenditure to be incurred by the government in any fiscal year  is contained in the annual budget. It is the goal of government to maintain balanced budget, but many countries  especially  the  developing  ones  have  rather  witnessed  budget  deficit  this implies excess of expenditure over revenue. The resources to finance this deficit are always unavailable  and  most  government   has  failed  to  acknowledge   the  need  for   adequate forecasting and adjustment of forecast to ensure that a balanced budget is attained.

There are increasing cases of financial mismanagement and misappropriation in virtually all public enterprises in Nigeria, this is occasioned by non-existence of proper accounting system that will ensure accountability and transparency in the execution of public expenditures. Furthermore, non-application of standard costing during forecasting by public administrators has made the control of public expenditures a difficult task. Standard costing, which is a good accounting  technique  for  cost  forecasting  and  control  has  not  been  adopted  by  public administrator hence, there are numerous cases or incidents of unfavorable or adverse variance between the budgeted or standard  amount  of public expenditure and the actual amount of public expenditure. Thus, there is need to evaluate the role of accounting in the control of public expenditure in Nigeria.

1.3      OBJECTIVES OF STUDY.

The aim of this research work in general is to vividly evaluate the role of accounting in the control of public expenditures in Nigeria. The specific objectives for this research work are:

i           –          To  ascertain  whether  adequate  government  budgeting  can  regulate  public expenditures and improve the productivity of public expenditures.

ii          –          To ascertain whether an effective and efficient accounting system in  public institutions  can ensure  accountability  and  transparency  in the  execution  of public expenditures.

iii         –          To  evaluate   the   impact  of  standard   costing   on  the  control  of   public expenditures and also on the productivity of public expenditures  when  adopted by public institution administrators.

1.4      RESEARCH QUESTIONS

i           –          How can adequate government budgeting regulate public expenditures and improve its productivity?

ii          –          How does an effective and efficient accounting system guarantee transparency and accountability in the execution of public expenditures?

iii         –          How does the application of standard costing in the administration of public institutions regulate public expenditures and enhance the productivity of such expenditures?

1.5      RESEARCH HYPOTHESES HYPOTHESIS ONE

H0           –          Adequate government budgeting does not regulate public Expenditures and improve the productivity of public expenditures.

HYPOTHESIS TWO

H0           –          Effective and efficient accounting system in public institution Doesnot  ensure  transparency  and  accountability  in the  execution  of  public expenditures.

HYPOTHESIS THREE

H0           –          Application of standard costing in the management of public institution  will  not  enhance  the  regulation  of  public  expenditure  and  its productivity.

1.6      SIGNIFICANCE OF THE STUDY

This research work which focuses on the impact or role of accounting in the control of public expenditure in Nigeria will be of great importance to federal, state and local  governments who are basically responsible for incurring public expenditure.

This is because this research work will awaken their consciousness  on the enormous  role accounting plays on the control of public expenditures.

This research will also be of great importance to administrators of public institutions who before now may be ignorant  of the roles accounting  plays  in ensuring  transparency  and accountability in the execution of public expenditures.

Finally, this research will also serve as a stepping stone for students of institution of higher learning who may be researching on similar or topic related to this. It could help precisely on the review of related literature.

1.7      SCOPE AND LIMITATIONS OF THE STUDY

In the course of this research the researcher examined the role of accounting in the control of public  expenditure  in Nigeria.  However,  this research covered  only the  Central Bank of Nigeria, Enugu branch.

This research work is not free of limiting factors. The researcher  was constrained  by the following factors:

FINANCE: Previously, research project such as this use to be a joint or group work, but now is  embarked  upon individually.  Thus,  the meager  fund  at the  disposal  of the  researcher constrained her from extending the research to other branches.Some other public (government) establishment in addition to the Central bank would have been visited by the researcher if not for this constraint.

SCARCITY OF RELATED LITERATURE: Most of the libraries visited lacked journals with articles related to the topic of this study. Even when there is related article, such article will not give detailed analysis of the topic. More so, there is scarcity of already made research on this topic. Although one was gotten in the course of the research for it, but its contents were insufficient for this study. All of these constrained  the research from making intense analysis.

STAFF NON COORPERATION:   The uncooperative attitude of some of the staff of the central bank of Nigeria, Enugu in terms of releasing data constituted a major setback for the researcher.Most of the staff is not willing to let out some of the needed data for this research.

1.8      DEFINITION OF TERMS

PUBLIC  EXPENDITURE:  Okwo  (2011:40)  defined  it  as  the  spending  made  by  the government of a country on the collective needs and wants of her citizenry.  It normally leads to the provision of infrastructures.

ACCOUNTING:  Onyekwelu  (2010:2) defined it as the process by which data relating  to economic activities of an organizational are measured recorded summarized interpreted and communicated to users to enable them make informed decisions.

STANDARD COSTING: Nweze (2014:80) defined it as a system of cost accounting which makes  use  of  predetermined  cost  relating  to  each  element  of  cost  layout,  material  and overhead for each line of product manufactured or service supplied.

BUDGETING: Adeniji (2009) defined it as the processes involved in making a budget. That is the act of constructing a budget.

BUDGET: Adeniji(2009:596) defined it as a financial summary of estimated incomes and expenditure of government for a fiscal year.

BUDGET IMPLEMENTATION: The is defined as the execution of budget through either revenue generation or public expenditure.

BUDGETARY CONTROL:  This is the methodical control of an organization’s operations through  establishment  of standards  and  targets  regarding  income  and  expenditure  and  a continuous monitoring and adjustment of performance against them.

ACCOUNTING CONTROLS: These are measures instilled by a good accounting system to ensure accurate recording of transaction, adherence to rules, safety of assets and accuracy of financial statement.

ACCOUNTING SYSTEM: This is defined as an organized set of manual and computerized accounting methods, procedures and controls established to gather, record, classify, analyze, summarize, internet and present accurate and timely financial data for management decisions.

PUBLIC  INSTITUTION:  This  is  defined  as  an  institution  or  organization  owned  and majority managed by the government for the interest of the general public.

ADMINISTRATOR:   This  is  an  individual  who  administers  affairs,  one  who  directs, manages, executes or dispenses, whether in civil judicial, political or ecclesiastical affairs. He is also known as a manager.

MIXED  ECONOMY:  This is defined  by Udeabah (2004:22)  as an economic system  in which public and private ownership of means of production exist and in which government participates extensively in the regulation management and supervision of economic activities.

PRODUCTIVITY   OF  PUBLIC  EXPENDITURE:   This  is  defined  as  the  ability  of government  expenditure  to  yield  the  required  outcome  for  which  such  expenditure  was incurred.

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