LOCAL GOVERNMENT EXPENDITURE CONTROLS: A CASE STUDY OF OYE LOCAL GOVERNMENT OYE-EKITE

ABSTRACT

An  allegation  of  illegal  expenditures  implies  ineffectiveness of barrier controls over local government expenditures. It is against this background that is decided to examine the Oye Local Government Expenditure Control as a case study: the lessons  from  this  study  can  be applied  to  the operations  of any local government in Nigeria. The    study    sought    to    review    basic    controls    over expenditures in local governments. The findings show that whilst the basic organizational procedural, budgeting and accounting   and   administrative   controls   are   in   place   as specified  by  various  enabling  legal  documents,  there  is  yet the possibility of beating the control system and exploiting it to satisfy the personal interests of officials through the executive of illegal expenditures or budgetary offences. The qualitative data gathered provides the evidence. The study incorporates basic recommendations to help local  governments  resolve  the  operators  problem  of budgetary offences or illegal expenditure.

CHAPTER ONE

GENERAL INTRODUCTION

1.1   INTRODUCTION

Local Governments,  the third  tier of government  in Nigeria, are statutory creations. They derived their powers from the constitution just like the other two levels of government, namely: Federal and State governments. The Constitution of the  Federal  Republic  of  Nigeria  of  1979  (as  amended  to date) requires a local government to participate in economic planning  and  developments  of  the  its  area.  Local governments  (Basic  Constitutional  and  Transitional Provisions)  Decree  No.  15  of  1989,  and  the  Constitution  of the Federal Republic of Nigeria of 1989 have similar requirements.

Essentially,  local  governments  exist  to  cater  for  local public  needs.  As  Haruna  (1972  p.  224)  puts  it  ‘the  raison d’etre  for  creating  local  government  bodies  is  to  cater  for local  public  wants;  he  then  argued  that  local  governments need  to  spend  money  to  accomplish  this  goal.  The  money which   local   governments   spend   is   derived   largely   from Federal  and  State  statutory  allocations.  They  also generate some  revenues  internally.  These  amounts  (internally generated     revenues     and     statutory     allocations)     are considered to be very substantial. To ensure an optimal use of  these  revenues,  it  has  been  argued  by  Nuhu  (1972  p. 245) that there is the need for effective  and equally honest public expenditure control.

The   control   over   expenditure   of   local   governments could   be   classified   into   two   broad   categories   namely: internal controls (controls emanating from within the local government) and external controls (controls emanating from outside the local government). These controls are not substitutes,  both  are  complements.  Nuhu  (1972  p.  251) stress the importance of the internal and external controls in the   following   words:   “The   exercise   of   suitable   form   of internal and external  controls over local authority finance  is of importance to efficient financial management”.

External controls over expenditure of local governments are  exercised  by  the  State  government.  The  State government  derived  the  power  to  exercise  these  controls from section 7(1) of the Constitution of the Federal Republic of Nigeria of 1979 (as amended) section 7(10) and 123(3) of the  Constitution  of  the  Federal  Republic  of  Nigeria  of  198 and section 1(9) and (10) of the local government (Basic Constitutional  and  Transitional  Provision)  Decree  No.  15  of 1989.

Local governments are required to submit their annual budgets to the State government for consideration and approval. The financial regulations applying to local governments usually tagged “Financial Memorandum” are formulated and handed over to the local government by the State governments. The local governments do not have exclusive power to regulate and control their expenditures. There  is  even  the  need  for  increased  State  government controls over  local spending because  of mismanagement of council’s   fund   by   council   members   and   officials   (Haruna 1972 p. 234).

The  internal  controls  which  originate  from  within  the local   government   include   budgetary   control,   accounting system  and  control,  supervision  by  the  finance  committee and internal audit.

1.2 STATEMENT OF THE PROBLEM

The problem necessitating this study is the making of allegations  of  illegal  expenditure  by  local  government officials. Freedman and Lynn (1974 p. 220) defined illegal expenditures  as  comprising  of  over-spending  of appropriations,  spending  for  illegal  purposes,  use  of improper  methods  and  procedures  and  unwise  or inappropriate expenditures.

One  of  such  general  allegations  was  well  documented by Onyia (1990, p.1): “There have been rumblings and murmurs from Local Government Areas of high degree of corrupt practices unprecedented in the history of Local Government. Reports of accounting clerks making away with huge   chunks   of   money   abound.   Disturbing   reports   that revenue  staff  print  their  own  rate  tickets  or  run  private Motor Park are received”.

I  have  been  privileged  to  receive  oral  reports  from  a couple  of  local government  staff;  The  reports  bear  virtually the same contents of allegations of illegal spending of local government funds.

It is my belief that these allegations are worth investigating  vis-à-vis  the  controls  designed  for  handling local government expenditures. The reason is that any allegation  of  budgetary  offences  (i.e.  illegal  expenditure)  is an allegation of the ineffectiveness of the controls over local government expenditures.

1.3   OBJECTIVE OF THE STUDY

This study is aimed at:

(a)    Investigating,    examining,    reviewing    critically    the controls    over expenditures of local governments

(b) Determining whether expenditure controls in the local government are adequate to prevent and reveal illegal spending.

(c)    Suggesting    ways    of    improving    expenditure    control system in the local government.

1.4   RESEARCH QUESTION

This study will provide answer to the question: Do illegal expenditures  exist  in  our  local  governments,  and  if  so why and how? This main question can be determined by asking the following questions and providing answers to them in this work:

(a)  Is  the  expenditure  control  system  in  the  local governments adequate to prevent and detect over- spending of vote?

(b)  Is  the  expenditure  control  system  in  the  local governments  adequate  to  prevent  and  detect  spending for illegal purposes?

(c)  Is  the  expenditure  control  system  in  the  local governments adequate to prevent the use of improper procedures?

1.5   RELEVANCE AND JUSTIFICATION OF STUDY

In  an  answer  to  a  question  on  what  research  need  to  be done   in   non-business   organizations   (Bird   1981   p.   337) quoted two other participants in a seminar as saying “Almost anything, our ignorance is too profound…” This shows the extent to which research in accounting and financial management   in   the   public   sector   had   not   been   given adequate  attention.  As Tomkins (1981 p. 323) put it, “very few academic in the accounting area have been interested in studying the financial control processes of local governments authority”.

This study will benefit the following:

(a)  The  State  government  in  reviewing  and  up-dating  the financial memoranda for local governments.

(b)  The  local  governments  in  overhauling  their  expenditure control system.

(c)  Research  in  the  field  of  governmental  accounting  and financial management.

The justification for this work is as follows:

(a)  Local  governments  possess  some  characteristics  which differ  from  those  of  other  organizations  so  that  they throw up expenditure control problems which are not normally encountered in other organizations.

(b) Certain aspect of controls over expenditure which are common  to  all  organization  need  to  be  studied  in  the context of local governments.

(c) All    performance    measurement    criteria    for    local governments   rely   to   a   greater    extent   on    amount expended by local governments in discharging their functions.  According  to  Jones  and  Pendlebury  (1987  p.

15) “Public sector organizations are frequently faced with a  lack  of  suitable  output  measurement  and  therefore input consumed are often used as a measurement of effectiveness” in the light of this, expenditure of local governments must be subjected to rigorous control procedures.

(d)   The   amount   that   local   governments   spend   yearly constitute a significant proportion of the national income and  hence  the  need  for  proper  and  adequate  control over these spending.

As  Haruna  (1972  p.  220)  put  it  “total  local  authority spending  as  a  percentage  of  total  public  spending  is  amiss and  is  capable  of  creating  distortion  in  the  national economy”.

1.6   THE  DELIMITATION   AND   LIMITATIONS   OF  THE STUDY

The   research   was   on   controls   over   the   expenditure   of Nigerian local governments. Other systems of controls which exist in the local governments will only be dealt with to the extent that they affect expenditure controls. One local government has been selected as the case study.

The  expenditure  control procedures  and  system  would be   investigated,   examined,   analyzed   and   evaluated   to enable  the  study  achieve  its  aims.  The  system  of investigation and analysis which are to be employed are “unlikely to penetrate the Vail of human interaction, professional  defensiveness  and political  maneuver  (Tomkins 1981  p.  334)  suggested  a multi-disciplinary  research  realm and the introduction of new methods into accounting which place   greater   reliance   upon   the   analysis   of   quantitative rather  than  qualitative  data.  The  suggested  collaboration with     researchers     from     other     discipline     is     obviously impossible in the case of this study. Reliance will have to be placed  on  analysis  of  quantitative  data.  The  depth  of  the study  will  depend   to   some  extent  on  the  availability   of primary data (which will be function of the co-operations enjoyed from the local governments staff and officials) there is the tendency for the local authority officials to understand the job of the researcher as another form of audit.

This  study  also  depends  on  the  important  deadline  to be met,  i.e,  the time  for  the  completion  and submission  of the work. Other limitations include financial resources at the disposal of the researcher.

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