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THE PROBLEMS AND PROSPECTS OF LOCAL GOVERNMENT FINANCING IN NIGERIA (A COMPARATIVE STUDY OF ENUGU – NORTH AND ENUGU – SOUTH)

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF THE STUDY

In Nigeria, there are three tiers of public sector administration – the Central (Federal) government, State government; and Local governments.  This project is devoted to the examination of the local government’s accounts, and the development of financial management with their departments.  It is therefore pertinent at this point to mention that the local government is the third tier of government in Nigeria. Local government in Nigeria derives their existence from the constitution of the Federal Republic of Nigeria (promulgation) Decree No. 12 of 1989 and the civil service (re-organisation) Decree No. 43 of 1989 as brought about a new awakening to make the public sector virile dynamic, result and development oriented.  At present with the creation of more 177 local governments, the total number of local governments in Nigeria has therefore increased to …..   One would then guess what effects will it have.  Even before that, like since 1979, there has been a significant rise in local government expenditure in line with greater emphasis on grassroots participation.  For instance, in 1992 while complete political administrative and financial independence was granted to the local government. 
From State control, its responsibility was enlarged with effect from 1992, local government has been directly responsible for primary health care.  This is in addition to its statutory functions. Johnson (1992) said that, though virtually all developed countries have a system of local government, some systems involve considerable local autonomy while others involve less.  On a spectrum, the Nigeria systems probably involve less, rather than more autonomy.  Then the question and answers are important as they reflect that type of financial and accounting framework required. Sharpe (1980) noted that the participatory value if not the liberty value, still remains as a valid one for modern local government.  Not perhaps in the full glory of its early promoters, but as an important element in a modern democracy nonetheless.  But as a co-ordinator of services in the field, as a reconciles of community opinion, as a consumer assure group as an agent for responding to rising demand and finally as a counterweight to incept syndicalism, local government seems to have come into its own.
The following points were listed in the local government’s favour by the Layfield Committee (2005).
(a)  It provides democracy
(b)  It acts as a counterweight to the uniformity inherent in government decision.  It spreads political power.
(c)  It embraces accountability because it brings those responsible for decision close to their electors.
(d)  It is efficient because services can be adjusted to local needs and preferences and because responsibility can be more decentralized.
(e)  Central government would be overloaded by more functions;
(f)  It provides a vehicle for formulating new policies and pioneering ideas.
As a result of increase in the responsibilities and the fantastic expenditure associated with them, it is vital that the local governments extend their sources of revenue beyond the present level.  They would endeavour to tap all the potential resources so as to see their revenue base fortified.  Any improvement to this effect will be welcomed as it would give the local government an added impetus in discharging its statutory functions and socio-economic advancement to the local inhabitants.
 From the inception of local governments, they have been relying substantially on grants from State and Central governments and also statutory allocation from the federation account in addition to a percentage of the internally generated funds of the State. As a matter of fact, the internally generated revenue by the local governments was very abysmal.  Now that it has been granted autonomy, it is statutorily required to rely more on internally generated funds for the performance of its functions.  This being the case, government grants and statutory allocation are only supplementary sources of revenue to the local government.  Babangida (1992) for the local government to self-sustaining financially without reducing the level and quality of its services to the people.  It is essential that it exploits all potential internal revenue sources which would supplement existing ones.  This as well suggests that the existing ones be adequately exploited and properly managed.    
1.2  STATEMENT OF PROBLEM:
Finance and Accounting in local governments is probably more complex, than in any other part of the public sector.  In Nigeria, the inability of local governments to raise adequate funds and keep accurate accounts to sponsor its expenditure and activate grassroots development has been discovered as one of the major predicaments thwarting the frantic efforts of the local governments.  The purpose of this study, therefore, is to assess the problems of finance and accounting in local government so as to determine their prospects.  
1.3  HYPOTHESIS:
Since this research work is on the problems and prospects of local government finance and accounting in Nigeria” the writer obtained facts chiefly through interviews and questionnaires.  Some hypotheses have been formulated to enhance better results.      
HYPOTHESIS I:
Ho:    That an increase in federal government statutory allocation of federation account from 20% - 25% would not help local government in achieving at least 75% of their statutory responsibilities.
HI:     That an increase in federal government statutory allocation of federation account from 20% - 25% help local government in achieving at least 75% of their statutory responsibilities.  
HYPOTHESIS 2:
Ho:    That the employment of low caliber staff has no significant negative relationship with the low efficiency and productivity of the local governments.
H1:    That the employment of low caliber staff has significant negative relationship with the low efficiency and productivity of the local governments.      
HYPOTHESIS 3:
Ho:    That the Accounting system of local government is not effective in operation.
H1:    That the Accounting system of local government is effective in operation.  
HYPOTHESIS 4:
Ho:    That another source of tax revenue is not essential for Nigerian Local Governments.
H1:    That another source of tax revenue is essential for Nigerian Local Governments.  
1.4  OBJECTIVE OF STUDY: Local governments like any other organization encounter financial and of course accounting problems.  These problems here in no small measure contributed to their poor performances.  It is therefore, imperative to mention that one of the major reasons for undertaking this work is the belief that for any meaningful improvement to take place in Government Accounting and finance control, the strands forming part of these systems must first be put together in doing so, the inadequacies inherent in the areas of each system would be pointed out and criticized or mentioned as probable areas for future development. In carrying out the study, efforts should gear to:
1.       Identify the major causes of these maladies in the financial system of the local government.
2.       Examine the accounting department to find out if it is being manned by the desired competent and of course qualified personnel;
3.       Examine whether the sources of income to the local governments is enough as to enable it discharge its constitutional, statutory and/or otherwise obligations with ease.
4.       Examine the various instruments of management and control of the local government finances.
5.       Examine the various problems of the local government’s finances and accounts, and ascertain the financial autonomy of the local governments.
6.       Examine the prospects of improving sources of the local government finances.
1.5  SIGNIFICANCE OF STUDY:
Our local governments have in these recent times been riddled with financial and accounting problems.  These undoubtedly have stultified the unflinching efforts of most local governments to instill and of course restore sanity in the system, hence the need for a study on the problems and prospects of contemporary local government finance and accounting in Nigeria. The study leaves no stone unturned in examining the problems confronting the existing revenue sources of the local governments and appraises talent revenue resources which could be used to fortify the overall revenue base of the local governments.  This study therefore points out significantly that improved local government finance and accounting system in the cornerstone to the much desired economic growth and development.  It potentially serves as a guide to policy making in designing a better strategy for the rural development in Nigeria.  The study also forms a source of reference in other related topics and to researchers in similar topics.    
1.6  LIMITATIONS OF STUDY:
As has been earlier mentioned, finance and accounting in local governments is fraught with complexities.  It is then not possible to provide a fully comprehensive coverage of all facts of the subject in this kind of study, local government finance and accounting has developed in a distinctive fashion and as such has evolved a terminology that may be unfamiliar even to those with experiences of finance and accounting in either the public or private sector. This study restricts itself to the evaluation of the various revenue sources and expenditure patterns of the local governments, examination of the problems associated with them and the prospects for enhancing them.  Since it is not possible for a research project of this kind to delve into a study of the entire local governments in Nigeria individually, this research work is confined to information gathered from Nsukka Local Government.
The student researcher of this work is of desired intention to carry out an elaborate and comprehensive study of the problems and prospects of the local government in Nigeria, but has to obey impenetrate limitations encountered during the research.  At the local government under study necessary statistical data could not be obtained in a particular location and bureaucratic tendencies seemed to be a rule rather than an exception. Moreso, majority of the local government staffers are illiterate people and could not give written information without assistance from enlightened fellows.  Yet some respondents are reluctant to comply with piece of information needed from them. In the final analysis, this research work was also limited to the data gathered from the finance and accounting department of the local government.  As such, it should be interested to note that treasury department was the major source of information used in analyzing the study.  
1.7  DEFINITION OF TERMS:
LOCAL GOVERNMENT Local government is the third tier of government.  According to Shehu (1976), it is that level of government which is organized as close as possible to the people at the grassroots and vested with statutory powers to perform certain functions both inherent and ascribed confining its activities and authority within particular district or neighbourhood and subject to the control of the central government.
 FINANCE: Finance refers to the raising of funds, controlling and using them in the running of an organization, be it private, corporation or government (Ume, 1980).
 ACCOUNTING: Accounting is defined by Douglas (1976) as “a discipline concerned with the recording, analysis, and forecasting of income and wealth of business and other entities.
FUNDS: The National committee on Government Accounting (USA) defined a fund as “an independent fiscal and accounting entity with a self-balancing set of accounts recording cash and/or other resources together with all related liabilities, obligations, reserves and equities which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations”.

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