The Due Process and Management of Public Funds in Nigeria
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Chapter One of The Due Process and Management of Public Funds in Nigeria
Governments, in either developing or developed countries, exist to ensure the happiness of the citizens and by doing this; government adds value to the quality of life of its citizens. Governments all over the world are the greatest providers of services or public goods to the society. However, this depends not only on the resources endowment of such country but on the efficient and effective utilization of such resources at its disposal to ensure that resources are deployed in the overall best interest of the people. The importance of prudence, transparency and accountability in government spending, particularly in the procurement of goods and services for development projects cannot be over-emphasized.
The country’s optimism for rapid and superlative socio- economic growth and development were predicated on its substantial natural resources endowment, such as major oil and gas deposit, a variety of solid minerals, a well-developed industrial base, an extensive banking system, a large labour force, a vibrant private sector, favourable growth indices, and a competent civil service. Nigeria being the most populous country in the African continent and the eleventh in the world must have had resources which would have translated into a profitable market that would make it the envy of the international community. In the light of this revelation, Nigeria has all it takes to become the strongest economy in Africa, and one of the leading economics in the world. In spite of all these blessings, the poor performance of the Nigerian economy in many sectors of economy is very evident. The real sectors of manufacturing and agriculture are performing rather poorly. The country imports a lot of the agricultural produce that the citizens consume. The capacity utilization of industries is around 50% of installed capacity. The country’s per Capita Gross National Product which was as high as $1,218.4 in 1980, declined continuously to its lowest level of $240.0 in 1992; standing at around $250 in 1995 and at $270 in 1997. The figure is still below $300.0 as at today (Obadan and Ayodele, 1999). They also observed that the poverty levels in Nigeria in spite of poverty alleviation programmes by successive governments remain high as population continues to increase.
In the light of the above, Nigeria can best be described as a country of a paradox of being rich while the citizens are poor and deprived. The World Bank (1996) reported the state of Nigeria’s dilemma, “That Nigeria’s poor economic performance overtime is largely attributable to lack of transparency and accountability as well as widespread corruption”. The State and its public bureaucracy are largely to blame for the phenomenon. Olowu (1993) corroborated this assertion that the two institutions have turned out to be not only highly centralized and unaccountable, but they have become opaque, corrupt, self-serving and insensitive to the economic misfortunes of their respective countries in Africa. This inclement situation is also confirmed by Geilerova (2001) when he opined that the main constraint to development in African countries is not lack of resources but unwillingness of their leaders to govern well. This development has thus justified the hypothesis that abundance of resources of all types is not a sufficient condition for all round development of any country (Obadan, 2003).
Since independence of Nigeria in 1960, the country has been experiencing a high degree of mismanagement of resources particularly in the area of public procurement. There have been existing open abuses to rules and standards in the award and execution of public contracts in Nigeria. These were evident in over-invoicing, inflation of contract costs, and proliferation of white-elephant projects and diversion of public funds through all kinds of manipulation of contract system. The regulatory bodies that were set up to ensure compliance with laid down rules and regulations on procurement and award of contracts in the public sector appeared ineffective. This resulted in a high level of corruption and enormous wastage of public resources, lack of transparency, accountability, fairness and openness. The situation made foreign and even local investors lose confidence in the Nigerian economy. It must be noted that the prevailing high level of corruption was closely linked up with the public sector procurement systems, and considering that about ten percent of the gross domestic product (GDP) must pass through the procurement systems. It then became imperative that the public procurement systems must be reformed if Nigeria must achieve economic growth and developmental strides in this new millennium.
It was in the light of the above that President Olusegun Obasanjo on assumption of office, in 1999, sought for and obtained the World Bank assistance to undertake a study of the existing procurement and financial systems in Nigeria. The outcome was the proposal submitted by the World Bank to Mr. President in 1999 that was tagged the “Country Procurement Assessment Report” (CPAR) which indicated the need for reform of the procurement law based on the United Nations Commission on International Trade Law (UNCITRAL) which has proven effective in a number of countries in the developed world, even in Lithuania, Estonia and Tanzania.
The findings of the Study (CPAR), which covered institutional as well as organizational structures relating to the existing procurement regime, are (World Bank, 1999):
i. Proliferation and ineffectiveness of Tender Boards.
ii. Lack of professionalism in the execution of the procurement functions.
iii. Weaknesses in bank financed projects
iv. Excessive deposit for opening of letters of credit. v. Lack of communication strategy.
- Weaknesses in the export, import and tariff procedures.
vii. Lack of streamlined quality control practices.
viii. Lack of knowledge in electronic procurement in the public sector.
It is on the background above that Obasanjo administration reformed the public procurement system in Nigeria. He introduced new procurement system called “Due Process” Policy in 2001, that is transparent, efficient, and effective and which delivers value for money in public finance budgeting and expenditure. This reform constitutes a major landmark in the contemporary Nigeria, which is a deliberate departure from the previous administrations in the country.
The “Due Process Policy” was introduced into the nation’s procurement system via Treasury Circular by the Federal Ministry of Finance No, TRY/F15775 of 27th June, 2001 Federal Republic of Nigeria, (2002). It was passed into an Act under the President Umaru Musa Yar’Adua administration which is now called “Public Procurement Act” 2007. It is this Parliamentary Act that puts Nigeria in the league of countries with legislation on how public funds would be expended or disbursed. Prior to 2007, Nigeria was among the few African countries without legislation on Public Procurement.
BACKGROUND OF THE STUDY
Accountability and transparency have been critical issues in financial management of governments in Nigeria, particularly the local government. It has continually disturbed and hindered the effective running and performance of the council and this has always been a problem that is yet to be solved.
What is currently referred to as local government in Nigeria evolved from the pre-colonial transitional system of government which was highly localized as adapted to the peculiarities of the areas. The local council or native authority presents the basic unit through which any nation administers her people at the grass-root level. The theory of local government therefore, is that for effective administration, there must be an administrative agency through which the central government governs the people in their respective homes.
All over the world, the structure, form and functions of the local government are determined by the political beliefs of the people who control the central government. The local unit usually operates under a council which may consist of persons elected through a democratic process by the local inhabitants or through persons appointed by the government to run the affairs of the local inhabitants.
Starting from the early 1950s, there have been lots of re-examination of the institution of local government in Nigeria. There have been a large amount of military decrees, legislature and judicial activities and finally, reforms from committee’s recommendations. The 1976 Local Government Reforms entrusted political responsibility to the people at the grassroots level. It also desired to improve the social and economic development of, and the effective delivery of service to, the respective local population scattered all over the country. On these bases also, adequate arrangements were immediately made through the federal and state tiers for funds to be recouped monthly for the effective management of the local governments.
But awkwardly, local governments in Nigeria are often seen as breeding grounds for brazen corruption and near absence of accountability and transparency in conducting public service. Instead of discharging their functions as development centers to the people at the grass root, local government council officials have developed notoriety for corruption, financial irresponsibility and fiscal indiscipline. The lack of integrity, accountability and transparency at this level of governance definitely puts a heavy toll on the well-being and development of the people of local government (Adam 2001).
Circumvention of finances and flagrant disregard for following due process in managing public funds in the Nigerian local government has been on an exponential increase. This issue and many others brought the need of this research to identify how much the local governments adhere to due process in carrying out their executive functions since their invention as a tier in the Nigerian government.
STATEMENT OF THE PROBLEM
The main aim of this research work is to evaluate and investigate the problems associated with lack of accountability and transparency in financial management of local government councils. Local government councils have been riddled with such problems as corruption in procurement, internal revenue collection, award of contracts to the wrong contractors, amongst others.
Government pays salaries and allowances to ghost workers without a due process to ascertain this transparent nature of such transactions. The accounting officers in this process go on in this act without adequate accountability of its responsibility.
Overhead expenditures in the council are incurred without documentation, tender for bids are not observed as a process of procurement but contract awards have been on a man-know-man basis, and such ‘contractors’ are either political allies or financers. These contractors either abandon or execute the contract to the extent to which they wish, in other to recoup their money invested in electing the council chairman, with the knowledge that nothing will be done to them.
Consequent upon these, it’s the local council inhabitants that suffer the most especially since the federal government presumes that the introduction of accountability and transparency in government activity through due process could put a check on these illicit activities in the financial transactions and disbursements of government down to the local government council activities.
This research tends to access the efficacy of due process, accountability and transparency innovations of the federal government down to council activities as enshrined by the due process office.
OBJECTIVES OF THE STUDY
The following are the objectives which this research work aims to achieve;
1) To find out if accountability and transparency have been upheld to check the circumvention of due process in financial and non-financial activities of the local government council in Nigeria.
2) To determine if due process has always been followed in the management of public funds in the local government.
3) To determine if the inhabitants of local government councils have benefited from the proceeds of accountability and transparency through the improvement of social amenities.
4) To establish whether the accountability and transparency have affected the financial behavioral attitudes of council staff in Nigeria.
The following research questions were designed to achieve the objectives of this work;
1) To what degree has accountability and transparency been able to put a check on the circumvention of due process in the financial and non-financial activities of the local government council in Nigeria?
2) Has due process always been followed in the management of public funds in the local government?
3) To what extent have the inhabitants of local government council benefited from the proceeds of accountability and transparency in the improvement of social amenities?
4) To what extent has the process of accountability and transparency affected the financial behavioral attitudes of council staff in Nigeria?
This research work is based on the following hypotheses:
HO: Accountability and Transparency has not put a check on the circumvention of due process in financial and non-financial activities of the local government councils in Nigeria.
H1: Accountability and Transparency has put a check on the circumvention of due process in financial and non financial activities of local government councils in Nigeria.
HO: The inhabitants of local government council have not benefited from the proceeds of accountability and transparency in improvement of social amenities.
H2: The inhabitants of local government council have benefited from the proceeds of accountability and transparency in improvement of social amenities.
H0: The process of accountability and transparency has not affected the financial behavioral attitudes of council attitudes of staff in Nigeria.
H3: The process of accountability and transparency has affected the financial behavioral attitudes of council staff in Nigeria.
SIGNIFICANCE OF THE STUDY
- This research work will enable the researcher ascertain the possible factors which are responsible for causing improper accountability and transparency in financial management in the conduct of public sector in Nigeria.
- This study will also help give a better understanding of due process and the ways through with its application will better help the smooth and efficient running of the local governments.
- It is equally expected that, the research work will help to provide solutions to mismanagement of funds in the public sector, which will be applied in improving the effective running of the public sector. This study therefore, will expose the varied weaknesses of the local government council system.
- It will serve as reference material to any scholar/student who is willing to know or to add to his/her knowledge and insight of what due process is and its applications.
SCOPE OF THE STUDY
This study examines due process in accountability and transparency of financial management in the local governments with Agege local government area of Lagos state as a case study. The study takes a holistic approach in its research to unveil the challenges and problems hindering the proper accountability and transparency in financial management in local government and better ways of curbing them.
DEFINITION OF TERMS
LOCAL GOVERNMENT: In almost all contemporary states in the world, there are two, three or more recognized tiers government. In Nigeria, for instance, the tiers of government are local, state and federal governments. These tiers or levels also have distinct functions, powers and statutory allocation of public funds for their management. Local government is the lowest of the tiers. It is the grassroots government. The government that is nearer to the people, having daily and constant touch with the grassroots populace. Iwundu, (1997) defines local government in the words of Awa (1980) as a political authority for the purpose of dispensing or decentralizing political powers. This act of decentralization of powers may take the form of deconcentralisation or devolution.
REVENUE: refers to the revenue of the government finance by means of participating in the distribution of the social products, which are the financial resources for ensuring the government to function. The contents of government revenue have been changed several times. Now it includes the following main items:
(1) Various tax revenues, including value added tax, business tax, consumption tax, land value added tax, tax on city maintenance and construction, resources tax, tax on use of urban land, enterprise income tax, personal income tax, tariff, stamp tax on security transactions, tax on purchase of motor vehicles, tax on agriculture and animal husbandry and tax on occupancy of cultivated land, etc.
(2) Special revenues, including revenues from the fee on sewage treatment, fee on urban water resources, fee for the compensation of mineral resources and extra-charges for education, etc.
(3) Other revenues, including revenue from interest, revenue from the repayment of capital construction loan, revenue from capital construction projects, and donations and grants.
(4) Subsidies for the losses of the state-owned enterprises. This is an item of negative revenue, consisting of subsidies to industrial, commercial and grain purchasing and supply enterprises.
ALLOCATION: Is a specified amount given or allocated to various local government in the country by the federal and state government to carry out their day to day.
MANAGEMENT: The achievement of organization and goals through an effective and efficient utilization of human and material resources.
COUNCIL: This means an area defined to carryout government functions.
DUE PROCESS: Due process is the means by which ethical constraints are placed on administrative decision-making, (Alan 2008). It refers to the procedures and safeguards that constrain administrative decision-making, and a means by which we ensure the ethical use of power by administrative and judicial bodies. The constrain stands against inhuman treatment, intoxication and abuse of powers, out-lawism and excesses.
Adam, R. A. (2001). Public Sector Accounting and Finance. Yaba, Lagos. Corporate Publishers Ventures.
Alan, J.R. (2008). Due Process and Standard – Setting: An Analysis of Due Process in three Canadian Accounting and Auditing Standard – Setting Bodies”. Journal of Business Ethics. 81: 679-696.
Iwundu, I. E. (1997). The Autonomy of Local Government s in Nigeria: An Illusion. Seminar resented to the Department of Public Administration and Local Government, University of Nigeria, Nsukka on August 21,1997.
Geilerova M (2001). Summary Report the Roundtable on Good Governance and Africa. Canadian Centre for Foreign Policy Development. Unpublished
Obadan MI (2003). Transparency and Accountability in Fiscal Management and Public procurement. A paper presented to the Forum for Directors of Administration, 23-25 September, NCEMA, Ibadan.
Obadan MI, Ayodele FO (1999). Savings, Investment and Growth Connections in Nigeria: Empirical Evidence and Policy Implications: NCEMA Policy Analysis Series, Vol. No. 2.
Olowu D (1993). The African Economic Crisis and the Governance Question in Politics for Growth and Development in Africa. San Francesco, ICS Press.
World Bank (1996). Nigeria, Poverty in the Midst of Plenty: The Challenge of Growth with Inclusion. Population and human Resources Division, Western Africa Department, Africa Region.
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