Local government financial management in Nigeria

CHAPTER ONE
INTRODUCTION
 
1.1 BACKGROUND OF THE STUDY
          Local government is the third tier of government, exercising authority within a defended area in a state. It is designed to mobilize the people at the local level and to ensure popular participation, by bringing the government nearer to the majority of the population, put simply, it is aimed at bringing even and rapid development at the grass root level throughout the country.
The creation of local government is based on the principle of decentralization the idea being that local governments nearer to the people, have potential to increase grass roots participation in the development process.
Before the 1976 local government reforms, local governments in Nigeria were colonial innovation through which the natives were involved in modern government in line with the indirect rule system being practiced by the colonial masters.
Between 1980’s and the 1930’s, the colonial native authorities were established in their rudimentary forms in the country. Lord Lugard, the British administrator who became the governor of amalgamated Nigeria in 1914 used traditional rulers as natives authority to administer colonial policies especially in the collection of taxes and rates to maintain the government of the time.
However, the use of traditional rulers in the administration of native authorities was possible in the northern part of the country because of the already existing traditional institution, Ugwu (1989:49)
Nonetheless, the situation was different in the southern Nigeria, which introduced the system of chiefs-in-council, and chiefs and council successively instead of sole native authorities. By this arrangement, the chiefs and emirs were required at least in theory to consult with the other members of the council.
The 1950s had also marked the beginning of the democratization of the local government administration, with the introduction of non-traditional elected or selected members who constituted about 75 percent of the council membership.
Generally, between 1964 and 1974, the local government authorities all over the country lost a number of their major functions including local government police and prisons, natives/customary courts in the northern and the then mid-western and east central states, urban water supply, and in the then southern states, primary school administration. This phenomenon was one of the major factor which lowered the status of local government and created uncertainty in the minds of qualified or trained staff as to the nature of local government in the country and hence led to their departure in large numbers for other areas of the public service or the private sections.
It was because of the depression in the area of local government and as part of the programmed for the return to civil rule in 1979, that the then federal military government in collaboration with the state government embarked on extensive all purpose, single-tier local government reforms in 1976. This was  the case throughout the nineteen states into which Nigeria had just been divided. This step is significant in one respect in that for the first time in a quarter of a century a national rather than a regional / state approach was adopted towards local government.
The main features of the 1976 Local Government Reforms
Were:-

1. There should be only a single-ties system of local Government throughout the country and each is to be known as the local government authority with a population range of 150,000 to 180,000. For the first time, in the history of local government in Nigeria an effort was made to introduce reforms throughout the country rather than the state-by-state efforts of the past. What this means in effects was that the federal government became directly involved in local government and took the initiative from the state governments.
2. Each local government should be all purpose in that it will have full responsibility for all local government functions (including the treasury) in its areas of authority.
3. The local government council will be large elected, the elected members being at least 75% of the total membership. The other members to be appointed by the state military governor, will be traditional office holders and persons nominated to represent special interests.
4. State government were made to set up local Government Service Board /Commission to see to the improvement of the caliber of personnel of the local governments and where the right caliber could not be found locally, the state government service.
5. There were full time chairmen, supervisory councilors and non supervisory councilors as opposed to the system in the past when there were only part-time councilors. Each council was mandated to set up certain key committees, such as:-
   1. Finance and general purpose committee
   2. Health committee and

• Works committee Udem (1986:21)

 
The conditions of services for local government personnel were made uniform with those of their state and federal government counterparts.
Following the federal governments decision to create local government based on Federal House of Representatives Constituencies the number of local governments was increased from 141 to 442 in 1988.
In response to further agitation by various communities in the country, the number was increased again to 454 in 1989 and 589 in 1991, the latter figure excluding that of the FCT Abuja, which has not assumed the majority status. Orewa (1966:113).
Although both federal and the state government assisted these local governments, the amount given to them then as grants was usually not enough to cope with the challenges, especially in their educational, health and other social needs.
For example, with effect from April, 1977, the Federal Government give a grant to 10 percent of its’ retained revenue to all the local government in the country, while each state government was required to give a grant of 10 percent of its’ total recurrent revenue to its’ local governments, using a criteria of 75 percent population and 25 percent equality in sharing both grants.
Both the federal and state grants were to be paid into the state joints local government fund from where they would be distributed to the various local governments. Bases upon the reports of the Aboyade Technical committee, the 1979 constitution made provision for local governments to have direct assets to nationally generated revenue. Thus the Okigbo Commission recommended and the federal government accepted (though the revenue Allocation Act No. 1 of 1981). That local government is entitled to ten percent  of the federation account to be distributed among the states on the criteria of 50 percent population, 40 percent equally and 10 percent land mass. The state was required to add 10 percent of its’ total internal revenue to the fund, so that the total receipts from both sources would be shared to the local governments in the state using the criteria approved by the state House of Assembly.
The shares of local governments in the federation account were increased to 15 percent in 1990 at the expense of that of the federal government whose share was reduced to 50 percent. This move was aimed at enabling the local governments cope with the challenges posed by the 1989 constitution,  which made the payment of the emolument of the primary schools; teaching and non teaching staff their exclusive responsibility.
By 1991, the revenue allocation of local government was again reviewed upwards to twenty percent. Yet the local government were still agitating for additional allocations to enable them meet their increased responsibilities.
We can see that at the present the sources of  revenue to local government in the federation can be classified as external and internal.
External sources include government grants, and levies in business enterprises while internal sources include rates, tickets, sales from agricultural farms produces, commercial services, such as hire of council’s plants and equipment, and money realized from mass transit buses.
The management of such funds is the exclusive responsibility of the local government chairmen or sole administrators and as such should be held responsible and accountable for such funds. (Aboyemi et al 1991:54)
1.2 STATEMENT OF PROBLEMS
For some years now, there has been persistent out cry from the chairmen, and Heads of Personnel and Management (HPM) of our local government areas in the various states of the federation as to the inadequacy of funds for use in running of their administration. We hear all these over the radio and television and read them in national and local daily newspapers. Most of the chairmen have claimed that poor funding is hindering them from embarking on some worthwhile developmental projects. It is because of these continuous complaints and outcry that we would like to ask as follows:-

1. How do these local government authorities obtain their funds?
2. How these funds are prudently managed?
3. Are there any other sources of funds apart from federal and state government grants available to these local governments for generating revenue?
4. What efforts are being made to secure and tap such sources of funds?

 
1.3 OBJECTIVES OF STUDY:
With regards to the problems mentioned above, it is our intention to carry out research and find out among other things the followings:-

1. The various sources of funds in local government areas and particularly in Nkanu East local government and Igboeze North local government areas and Nsukka local government.
2. How prudent, efficient and effective are all those who are entrusted with the task of managing these funds are carried out.
3. How are the various funds generated by the Nsukka, Nkanu East and Igboeze North local government area in Enugu State used in day-to-day administration of the council and suggestion of other avenue through which local government can generate more funds in future.
4. What are the feeling of the junior workers under them as regards with utilization of the available funds and how their feelings affecting their performance and productivity.
5. To text the hypothesis formulated in the next chapter. By so doing, we shall be contributing to academic knowledge and at the same time assisting the local government in Nigeria to live up to expectation as it regards to financial management.

1.4 SIGNIFICANCE OF THE STUDY
This study is necessary because of the claim that local governments are not adequately funded. It will be recalled that the federal government is laying much emphasis on the development of rural areas using local governments as springboard.
 
This study intends to achieve the following:-

1. This study will be beneficial to local governments in Nigeria as it would help policy makers to take action that would lead to solving problems of financial management in the local government councils.
2. By providing and understanding of the financial management of local government, this study will be of use in correcting the wideffened ignorance of and misunderstanding of local government.
3. This study intends to give some useful solutions towards effective financial management in the local government system so as to achieve the purpose for which the local government, the third timer of government has created.

 

• SCOPES AND LIMITATION OF THE STUDY

As a result, a student with limited resources, it is not easy to go beyond the scope of this study. This fact necessitated by limiting my area of research work to Nkanu East, Nsukka local government and Igbo-eze North local government council. It is my desire to collect all data, samples and related information from the council’s office.
Some of the problems as long as the council local government is concerned are an availing to the researcher classified information belonging to it. Most of the staff of the local government council is not willing to understand the relevance of the research as they bluntly refuse to disclose vital information to the researcher.
In view of the hard time, coupled with the rising cost of goods and services everyday, the researcher’s analysis, findings and conclusion will be based on the data collected form the local government office.
 
1.6  STATEMENT OF HYPOTHESIS:
For the following purpose of this work we made these assumptions;

1. HO: The Federal grants, state subventions and local rates constitutes the major source of generating revenue for the local government.

H1:           The Federal grants, state subventions and local Rates does not constitute the major sources of generating revenue to the local government

2. HO: Nkanu East, Nsukka and Igbo-eze North local government authority make proper use of the approved yearly estimate/budget.

H1:         Nkanu East, Nsukka and Igbo-eze North local Government authority do not make proper use of  the approved yearly estimate/budget.

3. HO: The staff strength of the local Government is sufficient

To generate enough revenue for the local government.
H1:         The staff strength of the local government is not sufficient to generate enough revenue for the local government.
1.7 DEFINITION OF TERMS

1. Financial management: This is the act of raising of funds whenever needed, for the right length of time, at the right proportion and it’s effective and efficient utilization.
2. Misappropriation:- The use of public money for purposes other than that provided by financial instruction and the appropriate law.