PUBLIC SECTOR ACCOUNTING AND FINANCIAL CONTROL IN RIVERS STATE

PUBLIC SECTOR ACCOUNTING AND FINANCIAL CONTROL IN RIVERS STATE

The broad aim of this study is to examine empirically the relationship between the public sector accounting system and financial control in Rivers State.

CHAPTER ONE :INTRODUCTION

1.1 BACKGROUND TO THE STUDY

In a democracy, the elected members of the legislative branch or arm have governing authority, which includes the power to levy and collect taxes and borrow money. The Constitution of the Federal’ Republic of Nigeria assigned to the legislature the control of the federal government’s financial affairs, and stipulate that the treasury could spend only money that had been appropriated by the legislature or the Provisional Ruling Council in the case of a military regime. Government activities nowadays have largely increased. The increase in government functions and activities come as a result of the complex nature of modern society. For the government to live up to its responsibility, care must be taken in the management of scarce resources available to achieve these laudable goals. Other than the maintenance of law and orders, peace and stability, the government is also involved in providing social services such as the provision of good roads, transport, portable drinking water, power, and energy, etc. All these services need money (finance). The government also must generate revenue for the achievement of its set goals and objectives- creating social welfare and harmony in society.

Finance is a critical resource in the chain of production and therefore must be prudently used to achieve results. It is on this premise that financial control and accountability in the public sector becomes imperative. This research work attempts to discover the reason(s) behind poor performance by the government about financial control and accountability in the public sector.

Government agencies or the public sector is very heterogeneous and so the nature of financial control is completely different from that of the private sectors in so many ways.  At one end we have government-owned companies that must be operated as a private business, in the middle, our Parastatal, that are somewhat amorphous, often having conflicting goals to achieve and then the government machinery itself which is a services outfit, (Azubuike and Njemanze 2006, 15) Consequently upon the heterogeneous nature of the public sector, the financial regulations guiding the activities or financial transaction in the public sector is contained in the law setting it up.

The Nigerian society is filled with stories of wrong practices such as stories of ghost workers on the payroll of Ministries, Extra-ministerial Departments and Parastatal, frauds, embezzlements and setting ablaze of offices housing sensitive documents and corruption are found everywhere in the country (Okwoli, 2004; cited in Onuorah, 2012). A huge amount of Naira is lost through one financial malpractice or the other in Nigeria, which to say the least, drains the nation‟meager resources through fraudulent means with far-reaching and attendant consequences on the development or even socio-economic or political programs of the nation (Bello, 2001). Billions of Naira are lost in the public sector every year through fraudulent means. This represents only the amount that is ferreted out and made public. Indeed much more substantial or huge sums are lost in undetected frauds or those that are for one reason or the other hushed up. Appah and Appiah (2010) argue that cases of fraud are prevalent in the Nigerian public sector and that every segment of the public service, could seem to be involved in one way or the other in some of these nasty acts.

The bane of public sector financial mismanagement in Nigeria since the oil boom years a period under which there existed structurally weak control mechanism, which creates a variety of loopholes that have tended to facilitate and sustain, corrupt practices. This is coupled with the fact that there is a near-total absence of the notion and ethics of accountability in the conduct of public affairs in the country (Bello, 2001). According to Block & Geoffrey (2008) cited in John, et al, (2014), financial control is defined as the procedures designed to protect assets and ensure that all financial transactions are recorded to prevent and reduce errors and fraud. Public sector organizations deal with large amounts of public funds and operate in a larger political environment, thereby necessitating a need for a high degree of confidence in the way in which their financial affairs are being conducted (Prowle, 2010). The goal of having a strong system of financial control is to promote the institution‟s ability to reach its objectives, providing reliable financial data, safeguarding assets and records, evaluating operational efficiency through the budget, organizational control, and encouraging adherence to prescribed policies and regulations.

An institution’s system of effective financial control has a key role in the achievement of public sector objectives. A sound system of financial control contributes towards safeguarding the stakeholder’s‟ investment and the institution‟s assets. Financial controls facilitate the effectiveness and efficiency of operations, thus helping to ensure the reliability of internal and external financial reporting and assist in compliance with laws and regulations (Hayles, 2005). Hayles (2005) opined that effective financial controls including the maintenance of proper accounting records help ensure that the institution is not unnecessarily exposed to financial risks and that the financial information is used only within the business. This also contributes to the safeguarding of assets, including the prevention and detection of fraud (ACCA, 2010). Walters and Dunn (2001) have stated that obtaining sufficient knowledge of the internal financial controls, both information technology controls, and application controls, are needed to facilitate the determination of the audit strategy and to carry out subsequent steps. Financial control activities are the policies and procedures that help ensure that management directives are carried out (Walters & Dunn, 2001). Control of the financial decisions covering the organization, method, process and internal audit established by the administration to ensure that the activities are carried out in compliance with the purpose of the administration and determined policies and the legislation, the assets and resources are protected, accounting records are kept accurately and completely and financial and management information is produced in line and a reliable manner (Khoove, 2010). Hence controls of the financial decisions and transactions of the public institutions related to the revenue, expenditure, assets, and liabilities concerning their compliance with the budget, budget item, available applicable amount, expenditure program, financing program of the administration, to central government budget law and other financial legislation provisions. Okoh & Ohwoyibo (2009), accountability reflects the need for government and its agencies to serve the public effectively by the laws of the land. This increase in activities has brought with it an increased demand for accountability of public officers who manage these activities of the public. Achua (2009) says “serious consideration is being given to the need to be more accountable for the often vast amounts of investment in resources at the command of governments, which exercise administrative and political authority over the actions and affairs of political units of people. Government spending is a very big business and the public demands to know whether the huge outlays of money are being spent wisely for public interests”. Kaufman (2005) argues that an emphasis on accountability by citizens is one aspect of the growing emphasis on eliminating corruption and promoting transparency in government. However, the issue of accountability in Nigeria is a fundamental problem because of the high-level corruption in all levels of government in the country. Amongst the countries surveyed by the Transparency International global corruption Perception Index in October 2010, Nigeria was placed 134 from its 130 positions in 2009 2008 in 121.

Also, Failures to understand the impact of the internal control system in the public sector has drastically eaten the fiber of the public sector as a result of a lack of financial controls (John, 2014). The absence of adequate financial control measures exposes the accountability of the public sector to certain threats such as incorrect financial statements, loss of government assets, fraud, mismanagement of government vital documents, incorrect and unreliable financial records which may lead to loss of government integrity, and implementation of accounting policies inconsistent with the applicable legislation. However, there is a general perception that the institution and enforcement of effective financial controls may lead to improved accountability in the public sector. It is also a general belief that properly instituted systems of financial controls improve the reporting process and also give rise to reliable reports which enhance the accountability function of management of an entity.

1.2 STATEMENT OF PROBLEM

Nigerian Public Sector is plagued with several problems. These problems hinder it from discharging its duties and responsibilities effectively and efficiently for the betterment of the people. One such problem is that of financial control and accountability. Financial control and accountability become a problem when there is no strict measure to ensure compliance with the laid down regulations guiding financial transactions and accountability in the public sector. Control of public finance is very important to public governance. That is why power over public finance is enshrined in the Nigerian Constitution. To promote financial accountability in Rivers State, power over finance is shared between the Executive, Legislature, and the Supreme Audit Institution or the Office of the Auditor-General. Have these institutions been able to play the roles assigned to them?

It is observed that there is the problem of non or partial implementation of the budget by the Executive arm of government in Rivers State. The budget is the legislative instrument of control over public finance. Related to the issue just raised above, is the problem of spending without legislative authority. The checks and balances on public finance require that the Executive cannot spend without legislative approval. Even where voted funds fall short of requirements, the spending agency must apply for supplementary appropriations provisions and obtain legislative approval for such additional expenditure before incurring them. It has been alleged that this requirement of the law is not usually followed.

The Executive arm of government which implements budgets is required to ensure that expenditures are properly covered in the relevant Appropriation Acts. Funds are supposed to be apportioned to spending departments in line with the approved budget. It has been noted that public expenditure is frequently made on items not budgeted for, which of course means that such expenditure has no legislative approval. Once the budget has been approved, it is alleged that funds are shifted to purposes other than those for which they were meant. Limits of expenditure are imposed by the budget. However, spending agencies do not observe these limits when incurring the expenditure. In the course of budget implementation, a vote book is maintained to ensure that approved budgetary limits are not exceeded. This aspect of expenditure control is often abused. We may ask, why should spending agencies not respect limits when incurring expenditure?

With all these abuses, what has happened to the legislative oversight function? The performance of the Auditor General in Rivers State has been called to question. It is alleged that the Auditor General is incapable of discharging the functions of his office which is constitutionally prescribed. The Rivers State Legislature is seen to be weak and unable to discharge its constitutional responsibility of exercising its power of financial oversight on the Executive cannot spend without legislative approval. Even where voted funds fall short of requirements, the spending agency must apply for supplementary appropriations provisions and obtain legislative approval for such additional expenditure before incurring them. It has been alleged that this requirement of the law is not usually followed.

1.3 AIM AND OBJECTIVES OF THE STUDY

The broad aim of this study is to examine empirically the relationship between the public sector accounting system and financial control in Rivers State.  Specifically, the study strived among other things too:

1. Evaluate the relationship between accrual basis and revenue control in Rivers State.
2. Examine the relationship between accrual basis and expenditure control in Rivers State.
3. Determine the relationship between cash basis and revenue control in Rivers State.
4. Identify the relationship between cash basis and expenditure control in Rivers State.

1.4 RESEARCH QUESTIONS

1. What is the relationship between accrual basis and revenue control in Rivers State?
2. How does the accrual basis relate to expenditure control in Rivers State?
3. What is the relationship between cash basis and revenue control in Rivers State?
4. What is the relationship between cash basis and expenditure control in Rivers State?

1.5 RESEARCH HYPOTHESES

The research hypotheses that the researcher focused on to achieve the above-stated objectives are:

HO₁: There is no significant relationship between accrual basis and revenue control in Rivers State.

HO₂: There is no significant relationship between accrual basis and expenditure control in Rivers State.

HO₃: There is no significant relationship between cash basis and revenue control in Rivers State.

HO₄: There is no significant relationship between cash basis and expenditure control in Rivers State.

1.6 SIGNIFICANCE OF THE STUDY

• The Labour Union in the public service which will press for improved conditions of employment and security of tenure for their members.
• Members of the Executive Arm of Government such as the President, Ministers, and Governors. Their interest areas are to ensure probity and accountability through record keeping and performance control which are achieved through accounting information.
• Top Management members such as Permanent Secretaries of various Ministries and General Managers of Parastatals. They are the conduit of accounting information generation, transmission and serve as liaison officers between Government, employees, and the public.
• The Members of the Public, to demonstrate accountability and assist the people to appreciate or otherwise the efforts of Governments.
• Researchers and Financial Journalists. Researchers are expected to develop new and better ideas of governance. Financial journalists cherish accounting information to advise existing and potential investors.
• Financial Institutions, such as the Commercial Banks, World Bank, and International Monetary Fund (IMF). Accounting information assists them to evaluate the credit rating of a borrowing Nation.
• Governments, apart from the ones reporting. Governments collaborate on ideas of investment and research. They require accounting information on the well-being or otherwise of each other.

1.7 SCOPE OF THE STUDY

The scope of the study is on the relationship between the public sector accounting system and financial control in rivers state. This study concentrated essentially on Rivers state and used information derived from articles and journals.

1.8 LIMITATIONS OF THE STUDY

The following are limitations to the;

Journals: The journals used for this study were limited reasons being that not much work has been done relating to this study in general.

Time: The time frame allocated to carry out this study was not sufficient enough, as I have to combine school activities and the research work within the same period.

Choice of data: The study was limited to secondary data only whereas primary data is also an important tool being used.

1.9 DEFINITION OF TERMS

Internal Control: is a process for assuring an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations, and policies.

Internal Audit: is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Public Budget: The budget is generally composed of an operating budget, which shows expenditures for the current period, and a capital budget, which shows the financial plans for long-term capital improvements, facilities, and equipment.

Public Funds: Money that is generated by the government to provide goods and services to the general public.

1.10 ORGANISATION OF THE STUDY

This study is organized into five (5) chapters.

Chapter one entails introduction; background to the study, statement of the problem, aims and objectives of the study, research questions, research hypothesis, the significance of the study, the scope of the study, limitations to the study, operational definition of terms, and organization of the study.

Chapter two reviews the related literature of the study which includes the conceptual, theoretical, and empirical framework. And end with the highlight of the relevant knowledge gap to be filled by the study.

Chapter three examines the method of study, it comprises of the research design, sources of data collection, and discusses the procedures used to obtain the data, the data, the reason for the reliability and the validity of the study, population and sampling procedures used to obtain the data and techniques model specification and the method of data analysis of the regression result.

Chapter four entails the presentation of data, which employees a quantitative approach to analyzing the employed data for the study, which entails regression analysis. While chapter five ends the research work with a discussion of findings, the conclusion showing the heuristic knowledge derived the study and policy recommendations and areas of further research. It discusses managerial implications and provides a conclusion to this study.