THE ROLE OF ACCOUNTING IN THE CONTROL OF PUBLIC EXPENDITURE IN NIGERIA

(A CASE STUDY OF CENTRAL BANK OF NIGEIRA (CBN))

By

AMANI EBERECHUKWU

Presented To

Department of Accountancy

PROPOSAL

In recent times some of the public organizations in Nigeria have been faced with cases of financial crisis. Those of them that survived more in a snail pace. Obviously the causes of financial crisis in our public sector have been attributed to total negligence of the roles of accounting in our public organizations.

This research work will look into the role of accounting in the control public expenditure in Nigeria. It will try to analyze the implications of applying the accounting principles in our public organizations and then look at how these principles controls the operations of the public sector organizations in Nigeria.

In a bid to achieve a meaningful research study work, this research will review related literatures on the role of accounting in the control of public sector in Nigeria. Oral interview will also be conducted with the managers of the selected public organization in Nigeria.

Other supplementary instrument will be data that will be collected from periodicals and existing literature. The data that will be collected will defines descriptively, with tables in these research work.

On the course of writing this project study, there are factors which should be considered like finance, Access to library facilities and limited time and difficulties in obtaining required information.

In finance, our project used to be joint project but now it has to be an individual student. Atimes there is difficulties in obtaining the required information from the respondents of the company because of the current problem some of the company is going through.

Consequent upon this, recommendations will be made in how or the steps that will be taken to eradicate these set backs and deficiency in the system.

TABLE OF CONTENTS

Title page

Approval page

Dedication

Acknowledgement

Proposal

Table of content

CHAPATER ONE

1.1 Introduction

1.2 Historical Development of CBU (A Public company)

1.3 Statement of problem

1.4 Purpose of study

1.5 Research questions

1.6 Significance of study

1.7 Scope and limitations of the study

1.8 Definition of term

References

CHAPTER TWO

2.1 Literature Review

2.2 Historical development of Accounting in Nigeria

2.3 The nature of accounting principles

2.4 Types of accounting principles

2.5 Factors affecting accounting principles

2.6 Budgeting and budgetary control

2.7 Standard costing as a tool for control

References.

CHAPTER THREE

3.1 Research Methodology

3.2 Research design

3.3 Determination of sample

3.4 Area of study

3.5 Population study

3.6 Sample of study

3.7 Method of investigation

3.8 Method of data analysis

3.9 Development of research instrument

CHAPTER FOUR

4.1 Presentation of data & Analysis

4.2 Presentation of data

4.3 Analysis of data

CHAPTER FIVE

5.1 Summary of findings

5.2 Conclusion

5.3 Recommendations

5.4 References

CHAPTER ONE

11 INTRODUCTION

In most developing countries including Nigeria, government participation in economic activity is usually significant One of the ways through which government has intervened in Nigerian economy is through the establishment of public enterprises and statutory bodies operating services of an economic or social character on behalf of the government

Since the colonial era, especially after independence in 1960, Nigerian public enterprises have witnessed a steady growth unit recently Its Olisa (1988:133) pet it Beginning as a trickle in the period between this era of the second world war and Nigeria attainment of independence the creation of public corporations had risen to flood level since independence and his maintained a steady growth The rational behind the establishment of public enterprises in Nigeria are many Some of the reason include: generating revenue, they would add to available rational capital for the support of development and welfare programme, making to be controlled by a few individual, it possible for important profitable enterprises to be controlled by a few individual or group, organization certain critical activities national survival and economic stability and providing employment opportunities (Ademolukun 1983) However, after a long period of growing, starts intervention in the Nigerian economy through public enterprises, the and of 1980's onwards had witnessed a reversed which has sometimes been dramatic in public opinion and therefore public policy

This has been brought by the persistent losses which state enterprises that have been running over fears Consequently, there has been a willingness to look at alternative policy strategies for the achievement of economic development At the forefront of these strategies is the minimization privatization of public enterprises

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

Public utilities

Regulatory of service body

Financial institutions

Commercial ad industrial enterprises

Being a mixed economy, individuals also own and operate private enterprises A firm classified as private enterprises when it is founded and managed by an individual and Ora group of individual These firms are expected to be registered in the local government within which they operate

The rationale for the establishment of private enterprises are numerous just like establishment of public enterprises T hey include amongst other Provision of employment opportunities Generating income for the owner of the enterprises Government interest in profit growth of the enterprises which determine the tax liabilities of the firms, improve the performance of the public sector through competition Moreover, the general public is concerned with the contribution which makes towards social upliftment which is exhibited to the environment in which the business is loaded and its willingness to contribute to the development of the environment

The activities of the public enterprises have been on the increase in resent times which necessitated the introduction of the accounting practice to check and monitor the financial activities of these enterprises In this book, titled principles of accounting, by Bimage (1985) accounting is defined as a process by which data relating to the economic activities of an organization are measured, recorded and communicated to interested parties for analysis and interpretation

The earliest method of accounting records were kept in physical quantities These records came from the Eastern (early) civilization which involved in the countries around the Mediterranean sea such as Mesopotamia, Egypt, Crete, Italy etc money was recorded as soon as money took the place of barter as a medium of exchange and unit of accounting practice has been closely related to the economic development of the country If the business organization grows in size and complexity, management and outsiders became more clearly differentiate from the outside groups which include owners of the firm (stock holder) creditors, government employer and the general public

The differentiation necessitated the need to have accounting department in the enterprises to give accurate financial of the management and to satisfy the outside demands or the general public who are already interested on whether the enterprises in growing or not

The role of accounting in public enterprises in Nigeria is primarily to ensure accurate accountability in these sector and present the time and fair financial position of the enterprises The role is of utmost importance in any organization An organization can only grow or profit when the resources are well managed and effective observed over expenditure These resource can only be well managed if accounting department of the organization give an accurate financial information to know how ,much the enterprises having It is only when this is done that the firm allocate its resources and knows what is to be done

The role of accounting seems to be more pronounced in the public enterprises In recent time there are cases of misappropriation of funds in the public enterprises and improper accountability These factors have led to a lot of public enterprises going into oblivon If the government has reorganized the role of accounting, all these febles should not have arisen No enterprises can move forward without having a well organized financial departments to give accurate financial; information about the firm

This is because if improper accounting records are not minimized or where possible eradicated these is bound to be cases of public enterprises failure Consequently, staff of such enterprises will forced out of their job This will result to economic and social; activities in the society

12 HISTORICAL DEVELOPMENT OF CBN (A PUBLIC COMPANY)

The formation of CBN started gradually in the early 1950's but gathered momentum by the middle and towards the decade Precisely CBN was established in 1958 Among the factors that led to the formation for an apese financial institution in the early "50s" were the dissatisfaction and short coming to the west African currently board The WACB established in 1912 was playing the role for an apese monetary institution in the British West Africa especially in areas of the country

The issue of West Africa Currency exchanging this with the existing currencies, investment of reserve mainly in London and the repatriation of existing currencies However, because of the anomalies and short coming of the WACB especially as if could not perform the monetary management, Nigeria nationalist continued to amount pressure on the colonial administration for the establishment of a central Bank that should have all pioneers of a central bank, and not just a glorified currency exchange house

In 1952 at the floor of federal house of Assembly (First sitting) Lagos-Chief Anthony Enahoro Summoned up courage and mored a private member motion calling for the establishment of central Bank for the purpose of rapid economic development in all its phases

However, as result of the composition of he house then and lack of awareness of the importance of central bank on the part of some Nigeria members the bill failed Even though the motion was not successful, it stirred the hornet comb It gingered the colonial office in London Administration appointed Mr Fisher, a Senior staff of Bank of England, to inquire into the desirability and practicability of establishing a Central Bank of Nigeria as an instrument for promoting the economic development of the country

Fishers in his report as an agents of colonialism and on orthodox bank stated that central Bank cannot be established in a financial environment where all factors that make a central Bank perform are not existent

In the same year, while fisher was submitting his report to another independent term of financial expects were in Nigeria from world Bank (international Bank for reconstruction and development) with a mission like that of fisher at examining the desirability and practicability of establishing a central bank of Nigeria

The world Bank mission were more objective in their report and less inclined to perpetual economic dependence They really agreed with the recommendation of fisher on the instability of the financial environment as a result of weak money and market instruments but they were quick to add, that the continued political and economic advancement of Nigeria is bound to lead to the establishment of a central bank To postponed the day when functions of currency issue and the management of foreign assets are performed in Nigeria will also postponed the day when trained Nigeria will be able to perform these functions responsible by themselves

In 1957, even though Nigeria had not totally got her indigence, but she gained the antonomy of self internal rule The nationalists did not wash time in commissioning another financial expert from Bank of England JB Loyness to advise then as:

i The establishment of a federal institution to perform appropriate central banking functions

ii The introduction of Nigerian currency and the administration of such as currency so as to presence in external value and its acceptability within the country

iii The relationship of the federal institution to the federal and regional government, to government institutions, to the commercial Bank and to the public and

iv The role of such an institution in the development of a local

money and capital market The report of JB Loyness led to establishment of the central Bank of Nigeria (CBN) by the Central bank of Nigeria ordinance of 17^th March, 1959, The bank officially commenced business on 1 ^st July, 1959

OWNERSHIP AND CONTROL OF CBN

The 1959 Central bank ordinance of Nigeria established the CBN with an authorized capital of $15 million (123m) which was fully paid up by the federal government of Nigeria The Bank was 100 percent a public company, and there was no provision in the ordinance of 1958 establishing the bank and subsequent amendments there of required the bank to maintain a general reserve fund from profit arising from its operation the rate of the reserve and was dictated by the prevailing economic condition at that point in time

Furthermore, the 1958 central Bank ordinance provided that the Bank should transfer one eight (1/8) of the net profit made every year to the fund (general reserve) until the fund is equal to the paid up capital (the proceed should be used to pay the federal government for the amount contributed) and therefore only 1/16 of the profit for each year was to be transferred to the fund Meanwhile the balance of the profit would be appropriated in the following manner

50% of the balance to be applied for retirement of any outstanding obligation of the federal Government to the Bank in respect of cost of printing, mining shipment of the initial of the Bank notes and coins

ii The remaining 50 percent as to be paid to the president appoints the governor of the CBN (on the advice of the senate 1979 constitution and 1995 draft constitution) Infact CBN is directly under the federal ministry of finance ie the governor who in turn reports to the president This war amended by the military in 1997

In 1997, with the presidentialization of key ministries in Nigeria, the CBN has been sent the presidency, and the governor who is solely appoint by the military president reports directly to him (the president) The board of Director of the bank under this system is equally appointed by the president

In 1999, when democracy returned Back to the state/country (Nigeria) The president appointed the Governor of the CBN, but the Governor report to the ministry of finance The CBN governor Mr Solud Economist by profession The ministry of finance is Mrs Ngozi Okonjo Iwuani, Doctor by profession

ORGANISATION

The central Bank of Nigeria took after the British pattern (the Mother of all central Banks) in many respects especially in organization and management Infact, the first governor of the bank in British Mr Fanton, was seconded from the bank of England

The apex policy making body of the Bank is the Board of Directors At the incept, the enabling law establishing the bank shall comprise seven members the governor (who is the chairman), the Deputy governor and five part time Directors The ordinance went further to stipulate that it was the responsibility of the governor general to appoint the governor and the deputy governor of the bank while the appointment of the part - time director was responsibility of the prime minister

To cope with defects of the economic development couple with the recommendations of the international finance experte the CBNs Board was re-organized for more efficiency In order to be able to face the challenge of the time, the membership of the Board was enlarged to thirteen, the Governor, the Deputy Governor, three executive Directors and eight part-time Directors, (The central Bank of Nigeria Decree No 24) of 1991 went further to enlarge the Board by increasing the member to eleven made up of a Governor, five Deputy Governors and five Directors, while the Decrease (1991) assigns the responsibilities of policy and general administration of he affairs and business of the Bank to the Board, the fire major department see figure 11 below The decree also stipulate that the governor and the Deputy Governor should be appointed by the president in the first instance for a term of five years and each should be eligible for re-appointment for another not exceeding 5 years

Some of he activities of the bank as we shall see are decentralized while others are not, while the ministry and policy formulations are done at the Bank lead office in Lagos (now Abuja), the banking operations of the Bank is decentralized To facilitate the efficient execution of the bank functions over the Nigeria's vast territory, some central banking activity are decentralized and operate through four zones Bauchi, Enugu, Ibadan and kano In addition to the zonal centres, there is a branch network whereby each state capital in the federation has a CBN Branch

However, in the newly-created states currency centers are set up by CBN, pending the time full-fledged branch as could be established the respective heads of each zone, branch controller and the currency officer respectively As at the end of 1992, the CBN had in operation four zonal officer, 15 branches and 6 currency centres As at May 1993, the CBN had 19777 members of the staff comparising 23, executives of whom 22 were departmental director 2581 senior and 6965 Junior staff

THE 1958 CENTRAL Bank ordinance placed the bank CBN under the federal ministry of finance and Development so that the Board of Directors reported to the Minister who in turn reported to the head of state However, in 1988, as part of the military re-organizations in the country aimed placed under the presidency This arrangement is still stating under this arrangement CBN is independent of the Federal Ministry of finance and report directly to the president This nites has been reserve again in 1997 CBN Government now reported to the federal ministry of finance

HISTORICAL BACKGROUND OF GOLDEN GUINEA BREWERIES (AS A PRIVATE COMPANY)

Golden Guinea Breweries limited was conceived by the Okpara Government of the former Eastern region in July 1961 The Brewery was computed in September, 1963 and under the name of independence Breweries produced the first bottle of Golden Guinea larger the same year At this stage, the brewery capacity was 50,000bl per annum-a small brewery After a few years of some Ups and downs, the brewery looked ready to take off and a second product eagle stout was introduced and proved popular in the stout market But unfortunaately, the civil war was shut down the growing hopes and eventually, shut down the brewery itself

After the war, there was shortage of money and materials Then the East central Government could only minter as an initial Brewery reconstruction fund, the sum of $50(100) But they were also to help with a subsequent interest-free loan of N160,000, the first bank of Nigeria then offered an over draft facility, the federal ministry government followed with a loan of $500,000 In 1971, with the name of company completely change to Golden Guinea Brewery limited, Golden Guinea larger and Eagle stout reappeared on the market

In August 1974, the first major expression project took place and triple production from 50,000bl to 150,000bl After consultation with the authorities, the expansion was eventually sited away from Umuhia to help market coverage Golden Guinea was to be produced in Onitsha The brewery went up on schedule then fate intervened again In March 1976, the state was divided into two Imo and Anambra states, and the new brewery stood on the other side of the division It become premier Brewery and golden Guinea's expansionist hope were dashed

Golden Guinea Breweries did not give up The following year, initiatives were again developed for a new expansion project Meanwhile in December, 1978, the company voluntarily went public becoming, with characteristic pace-setting the first indigenous brewery to be quoted in the stock market indeed, no other public quoted company of any sort has a Nigerian ownership approaching that of GGB & a full 90% Furthermore, the breweries own staff were encourages to become shareholders, thereby increasing participation and responsibility in the overall activities of the company

On 28^th November, 1981, the 600,00bi expansion project was officially commissioned by his excellency the governor of Imo state, chief Samuel Onunaka Mbakwe with the latest brewing technology, two separate bottling a brand new fully equipped and expertly staffed quality control department substantial new malt storage silos, capacious Largering talks, new fresh water boreholes and water treatment plants: Golden Guinea can be called truly modern Over 350,000 bottles of "liquid' come off the bottling lines everyday

Presently, three brands are produced, namely Golden Guinea, Eagle stout, and Bergedof Also a major investment in Agriculture has been planned whereby the company is expected to be self sufficient in adjuncts, making use of local raw materials like sorgum, maize and rice One of such farm is at Aduchi, Lafia district of Nassarawa state

It account department is organized under three section product and cost Cost/management accounting techniques in use include budget and budgetary control system, standard and sited along costing Golden Guinea Breweries is sited along Aba road in Africa Ukwu Umuahia It is opposite the timber market and beside Aloma specialist Hospital

13 STATEMENT OF PROBLEM

Obviously, every private and public enterprises in Nigeria has their accounting department And there are increasing cases of financial mismanagement in virtually all the public and private organization in Nigeria The problem of this study lies on how the managers of these enterprises are able to recognize the role of accounting in their enterprises so that these cases of improper accountability will be minimized or if possible its total eradication in our society

14 PURPOSE OF STUDY

This study include to investigate the role of accounting in the control of public enterprises in Nigeria The purpose of this study include among other others

i To determine the extent to which accounting is generally affects the economic activities of the public section in Nigeria

ii To examine how managers adequately and efficiently apply the role of accounting in their organizations

iii To disseminate certain factors that affects the accounting departments of most organizations which makes them not to function as expected

iv To determine government policies which aid to promote accounting in all public enterprises in Nigeria

15 RESEARCH QUESTIONS

1 To what extent do accounting records generally affect the economic activities of public enterprises?

2 Do managers adequately and efficiently apply the role of accounting in their organization?

3 What are the factors that have negative effect on accounting departments of most organizations which make them not to function effectively as expected?

4 What are those government policies which aid to promote accounting in Nigerian public enterprises?

16 SIGNIFICANCE OF THE STUDY

In this study, the researchers have set out to examine the role of accounting in the public sectors in this country Nigeria with the aid of highlighting the inherent problem encountered in the account departments of most organizations It is expected that this work will be of interest to the owners of business enterprises, the government, students and the general public

To shareholder, owners of enterprises, interested persons and the governments, this study is expected to enkindle their interest the more and they will take note of various recommendations mentioned here and help steer the management team towards forming a sundry organizations to present an accurate financial information on their firm This study will also help to serve as literature to individual or corporate bodies who want to carry on further research on the role of accounting in the public sectors in Nigeria

17 SCOPE AND LIMITATION OF THE STUDY

Scope of the study shows extent of coverage done in the study The research topic suggest a study on the role of accounting in the public enterprises in Nigeria The focus of the study is on central bank of Nigeria (CBN) I take this to be a fair representative of Nigerian public enterprises that is either avoidable or hand to come by

There are factors as constraints that are normally follows this research work, some of them are

1 TIME: this which was a major problem was adequate not

managed by the researcher There was not enough time for the researcher to get the project topic, get it approved and within a short time we will be talking about our exams assignment and quiz

2 LACK OF MATERIALS: the unco-operative of most

people working in the library and other offices where the researcher needed to get materials posed great problem to the researcher Some of the staff do not feel safe letting have access to some materials while other will change you more than double the cost of Photostat before one can get what he wants

3 FINANCE: Before now our project use to be a joint project of a group of four-ten people but now it has to be on individual student So finance hinder the projects in one way or the other Either by transportation to where to get the materials or where to obtain the necessary information

18 DEFINITIONS OF TERMS

MANAGEMENT: Its function centre on decision for planning and guiding the operation that is going on in the enterprises

ACCOUNTING: accounting is the act of recording, classifying and summarizing in a significant manner and in terms of money, events and transactions which are in part at least financial character and interpreting the result thereof

These are accounting reports issued by a business to described its financial affairs and resuslts of the operations The financial statements are the end product of the general financial accounting activity