The Role of Accounting in the Control of Public Expenditure

The Role of Accounting in the Control of Public Expenditure


The Role of Accounting in the Control of Public Expenditure


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Chapter one on The Role of Accounting in the Control of Public Expenditure



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 (2008) 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. They 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.


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 apse 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 moved 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 J.B 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 17th March, 1959, The bank officially commenced business on 1st July, 1959.


The 1959 Central bank ordinance of Nigeria established the CBN with an authorized capital of $1.5 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. 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 i.e. 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.


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 1.1 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.


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 28th 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.


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. 


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.


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?


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.


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.


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. 
FINANCIAL STATEMENT: 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.


1.  Olisa E.C. (1988) Public Enterprises and Privatization in Nigeria, Nigeria Longman publisher P.133   
2.  Ademolekun K.O (1983) The Nigeria financial system London Macmillian publisher P.43 & 61   
3.  Image E.U (1985) Principals of Accounting Enugu, Fourth Dimension Publishers   
4.  Oshisumi K.O (1984) Financial Management in Nigeria Public sector, London, Pitman Publisher.   
5.  Osumbor O.A. (1991) An Overview of Private enterprises in Nigeria” Business time (September 14   
6.  Willy N. Ugwuyi The Nigeria financial system (A Systematic approach) Johnkens & Willy Nigeria ltd 1997 P. 66-77




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