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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Financial management focuses on decision making about the use and management of the finances of an organization or corporation. Financial management is a subset of managerial activities that concentrates on how to plan and control the financial resources of an organization. Financial management also involves the sourcing and optimal utilization of funds for the smooth running of an organization. Financial management centers on the identification of possible ways of maximizing the net-worth of an organization, allocation of scarce productive resources between competing demands and execution of strategies to attain the stated objectives of such organizations.  To this end, public financial management can be describe as process of sourcing, controlling, planning, coordinating, organizing and directing the financial resources of government’s parastatals. These parastatals can be federal ministries, state ministries, local councils, government agencies and departments.

The local government is the lowest level of government which is closest to the people. Local government in this present dispensation emerged from the pre-colonial transitional system of government which was highly localized according to peculiarities of the state. The local council represents the basic unit through which any nation administers her people at grass-root level. The implication of its constitutionally guaranteed governance structure and its proximity to the people necessitate the need for accountability in financial management, and their norms in governance, more evident at this level (Adiogu, 2013).  But contrarily, local governments in Nigeria are often recognized as a breeding ground for barefaced corruption and near absence of accountability in the conduct of public service. Local government council however, instead of discharging their functions as development centers to the people at grassroots, acquired notoriety for corruption, fiscal indiscipline and gross financial mismanagement. Agbo (2012) maintained that lack of integrity; accountability and transparency at the local government level constitute a set-back to the wellbeing of the people. In addition to these, stealing, embezzlement, nepotism, misappropriation of public funds, ill-use of public assets and circumvention of financial and non-financial issues has become customary in Nigerian local governments.

Public accountability is a characteristic of a modern-day democratic society. Accountability in the public sector across the globe is given maximal attention because public fund is in the hands of the government. Those in authorities assume fiduciary status with attached responsibilities requiring them to render stewardship accounts to those for whom the authority is held in trust (Haruna, etal, 2015). Public officers are expected to be accountable by demonstrating effective use of public assets and funds in the discharge of services and pursuit of government’s objectives.

1.2   STATEMENT OF PROBLEM

The public sector is saddled with the responsibility of harnessing public resources, collection of monies (revenue) and their expenditure for the betterment of the populace. The principle of accountability is based on trust, faith and resources vested on the management of an organization (private accountability) or government (public accountability). There is a strong need for public officers that are accountable to the general public to deliver complete, relevant and accurate information about the management of public funds. The public sector which is regarded as the manager of public resources, statutes and mechanisms for national development has lost its goodwill in the eye of the citizenry due to lack of proper accountability.

Haruna, etal, (2015) alluded that government ministries, agencies and departments are not duly adhering to the tenets of accountability.  This assertion conforms to that of Akinbuli (2015) who stated that the duties and trust vested on public officers are not effectively and efficiently performed. There has been disrespect for accountability in public sector. Majority of public parastatals in Nigeria do not keep good records of account and they rarely publish annual reports and audited financial statements as at when due. Financial mismanagement, inefficiency, ineffectiveness, maladministration and negligence have been identified by scholars as the characteristics of public sector in Nigeria.

The problems associated with lack of accountability in public sector financial management especially in local government councils are employment racketeering, corruption in procurement, siphoning of funds meant for infrastructural development into personal bank accounts, stealing of public assets, illegitimate internal revenue collection, award of contracts to wrong contractors, friends and families, payment of salaries and allowances to ghost workers, lack of documentation of overhead expenditures, misappropriate of funds by council executives  for illegitimate personal gains,  destruction of documents that are not favorable to the council chairman or officer-in-charge to avoid prosecution after service, nepotism, etc. Most of government parastatals are not totally complying with the principles of accountability.  Little wonder, Appah (2012) averred that accountability is very difficult to achieve in the Nigerian public sector. To this end, this study examines the impact of accountability on public sector financial management in Nigeria – a case study of some selected local government areas of Lagos State.

1.3     Objectives of the Study

The main objective is to examine the impact of accountability on public sector financial management in Nigeria.

The specific objectives of the study are:

To examine the impact of regulatory law on financial management in public sector in Nigeria.

To assess the impact of legislative control on financial management in public sector in Nigeria.

To investigate the impact of compliance reporting on financial management in public sector in Nigeria.

1.4   Research questions

The questions of interest in the study are:

To what extent has regulatory law influenced financial management in public sector in Nigeria?

To what extent has legislative control influenced financial management in public sector in Nigeria?

To what extent has compliance reporting influenced financial management in public sector in Nigeria?

1.5   Research Hypotheses

The research hypotheses guiding the study are stated as follows:

H01: Regulatory law has no significant impact on financial management in public sector in Nigeria.

H02: Legislative control has no significant impact on financial management in public sector in Nigeria.

H03: Compliance reporting has no significant impact on financial management in public sector in Nigeria.

1.6   Operationalization of Variables

The study examines the impact of accountability on public sector financial management in Nigeria. Accountability represented by regulatory law, legislative control and compliance reporting on financial management in Nigerian public sector. The dependent variable is financial management and the explanatory variables are regulatory law, legislative control and compliance reporting. The functional form of the model can be expressed as:

Y=f(X)………………………… (1.1)

Y=f(X1, X2, X3)…………….. (1.2)

Where:

Y= Financial management

X= Accountability, proxied as regulatory law (X1); legislative control (X2) and compliance reporting (X3).

Model One: Impact of Regulatory Law on Financial Management

Y=f(X1)………………………… (1.3)

Y=β0 + β1X1+ µ……………… (1.4)

Model Two: Impact of Legislative Control on Financial Management

Y=f(X2)………………………… (1.5)

Y=β0 + β1X2+ µ……………… (1.6)

Model Three: Impact of Compliance Reporting on Financial Management

Y=f(X3)………………………… (1.7)

Y=β0 + β1X3+ µ……………… (1.8)

1.6    SIGNIFICANCE OF THE STUDY

This study through its findings will help to identify the possible factors attributable to improper accountability in financial management in the Nigerian public sector. It is equally expected that the study will provide relevant suggestions that will improve the stability, effectiveness, efficiency and service delivery of public sector in Nigeria. The study will be of substantial benefits to accounting practitioners as it will help them improve on their routine work and as regard the effective management of the finances of their respective parastatals. Financial analysts will find this work invaluable as it serves as a basis for advising their clients on investment decisions.

Furthermore, this research work will propel the management of local government councils, state and federal ministries, agencies and departments to formulate policies that will enhance the process of accountability, transparency and probity in their operations. It will also assist various agencies established by the government in fighting corruption within their parastatals. Students will equally find this study as a guide in their future research undertakings on the subject matter.

1.7    SCOPE AND LIMITATIONS OF THE STUDY

This study examines the impact of accountability on public sector financial management in Nigeria by prioritizing on selected government areas of Lagos State. Five local government areas of Lagos State were selected as case study and they include Alimosho LGA, Badagry LGA, Kosofe LGA, Eti-Osa LGA and Lagos Island LGA. The limitations encountered in the study are time constraint, cost constraint and unwillingness of respondents to provide the necessary data. The time allotted to carry out this study is relatively short considering other academic engagements of the researcher. Due to paucity of funds, the study’s coverage was limited to only five local government areas of Lagos State. Furthermore, the respondents, who are account officers in the selected LGAs were somehow unwilling to participate in the survey exercise. Nevertheless, a robust and fact-finding research is carried out.

1.8      DEFINITION OF KEY TERMS

The definitions of key terms are presented as follows:

Accountability: This refers to a relationship based on the obligation to demonstrate and take responsibility for performance in the light of agreed expectations.

Financial Management: This is concerned with making decisions about the provision and use of a firm’s finances. It is a managerial activity that centers on planning and controlling a firm’s financial resources.

Public Sector: This refers to the fraction of the economy that is controlled by the government. It further includes the organizations, ministries, departments, parastatals and agencies established by the government.

Local Government: This is the third tier of government in Nigeria. It is the government at the lower level that controls the local affairs of the people at grassroots levels.

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