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THE IMPACT OF FINANCIAL MANAGEMENT IN CONTROLLING FRAUD IN THE LOCAL GOVERNMENT SYSTEM IN KADUNA STATE

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Apr 10, 2020 No Comments ›› Sunday

THE IMPACT OF FINANCIAL MANAGEMENT IN CONTROLLING FRAUD IN THE LOCAL GOVERNMENT SYSTEM IN KADUNA STATE

ABSTRACT

This study examined “The Impact of Financial Management in Controlling Fraud in the Local Government System”. Purposefully, the study assessed the techniques that can be employed in the public financial management and the factors that can affect the impact of public financial management in controlling fraud in the local government system in Kaduna State. The researcher used descriptive and survey designs to carry out the study. The sample size of the population was 80. So 80 questionnaires of nineteen (19) items each were administered to 80 respondents comprising of 31 senior staff and 49 junior staff, who were local government accountants, councilors, key officers of the ministry of finance, Accountant-General and Auditor-General staff in Kaduna State. But, sixty-six (66) usable questionnaires provided the database (given an 82.5% response rate) in this study The data obtained was analysed using SPSS statistical program version 17. The data was reliable because of the high coefficient value of 0.797 obtained. In the analysis, the two null hypotheses which state that (i) “there are no specific techniques to be employed in the public financial management in controlling fraud in the local government system” and (ii) “there are no specific factors that will enhance the impact of public financial management in controlling fraud in the local government system” respectively are rejected. Based on the findings, conclusion was drawn and recommendations given.

 

Chapter One

INTRODUCTION

1.0       Introduction

1.1       Background of the Study

A well-functioning local government administration must establish a sound public financial management and delivers quality public services consistent with citizen preferences and fosters private market-led growth while managing fiscal resources prudently to alleviate poverty and the achievement of the Millennium Development Goals. This important new series aims to advance those objectives by disseminating conceptual guidance and lessons from practices and by facilitating learning from one another’s experiences on ideas and practices that promote responsive public governance.

Fundamentally, this chapter covers the introductory part that provides the background of the study for better understanding of local government financial management. The problem of the study is clearly stated as well as the objective of the study is defined, followed by the main research questions that guide the study. As a matter of arriving at conclusive end of the study, this chapter also proposes hypotheses for verification. The significance and scope of the study is also disclosed. The terminologies used are well defined for clarity purpose and to have insight of the study. However, the study is organized according to the prescribed procedures of administrative sciences.

Financial management in local government administrative setting is a public financial management. Unlike financial management in the private sector, public sector financial management is geared towards non-profit oriented services to the public. Therefore, financial management and control in local government perspective is a public financial management (PFM). Public financial management is an essential part of public administration. Hence, effective delivery of public services in the local government level can only be achieved if there is sound public financial management system to ensure accountability and efficiency in the management of public resources. In fact, public resources are critical to the achievement of public policy objectives, including achievement of the Millennium development goals, such as, the 7-points agenda in Nigeria.

Public financial management is that aspect of administrative function that concerns planning and controlling of public financial resources. Thus, the main focus on public financial management is how to efficiently and effectively utilize public resources to meet the needs of the people in an equitable manner. Therefore, to carry out effective delivery of public services in the local government areas, the key issues to be examined, inter alia,involve the quality of the budget process which include degree of discipline, efficiency in revenue mobilization and extent of transparency, accountability and control in the local government administrative system.

In a situation that proper public financial management is not observed, there is always poor implementation of development projects in the rural areas which jeopardize the effort of government good intentions to reach the rural dwellers in various local government areas. Hence, good functioning of public financial management in location government administration requires patriotic governance, so as to move in the right direction of development goals. This implies that the public financial management system should be designed in such a way as to deliver quality services to the rural dwellers in local government areas, most especially in Kaduna State. Besides, public financial management requires that available financial resources should be used for intended purposes that have been decided upon through policy formulation which are to be delivered at acceptable quality.

Consequently, reasonable governance is required to establish a sound public financial management system that is responsible for planning, budgeting, implementation and follow-up of government financed projects in the rural areas so as to create better conditions for sustainable development (Hallgerd, D. et.al. 2005:8). In reality, development authorities always use public financial management system to channel budget support, based on the policy guidelines. This goes a long way to enhance even-distribution of sustainable development extended to rural areas.

Ideally, the creation of local government authorities is to extend government functional objectives to the grass root level so that the people in the rural areas will also feel being governed. It is international broad view that many countries in the world, established sound public financial management system to ensure good governance by providing basic amenities for people in rural areas just as what people enjoy in the urban cities. Thus, rural areas are being considered in making decisions on development proposals based on sustainable development principles, ensuring an integrated approach to: recognizing the needs of the people; effective protection and enhancement of the environment; prudent use of natural resources; and maintaining high and stable levels of economic growth and employment. All of these boil down to good public financial management system not only applicable to local government administration alone but also to state and federal governments’ administration. As far as local government authorities receive monthly allocations, collect revenue and incur expenditures, there is need to practice sound public financial management to plan and control available fund for carrying out development goals among other things. Thus, it will go a long way to eradicate poverty in the rural areas. Poverty in the rural areas is not news in Nigerian environment. In order to cope with the challenges facing rural poverty reduction, local government administration must practice an effective financial planning and control so as to make good use of available resources for the benefit of the people. This could be done only if the government of the day looks into: (1) policy and strategy development; (2) rural and agricultural business development; and (3) livelihoods development. In these modern times, things had tremendously changed by rapid growth of technological development all over the world. This has exposed even the rural dwellers to what is known as good standard of living. Today, rural dwellers are also sensitive to basic needs like clean drinking water, electricity, good food, good shelter, healthy environment to live, good health care delivery system, good roads, etc. In other words, rural dwellers are also humans who have the same feelings like those in the urban areas. And most especially, due to creation of new states, some of the state capitals are located very close to some of the rural areas of which the dwellers have the reflexion of city life style.

Reasonably, the practice of good public financial management system by local government administration will enhance speedy development in any rural area of Kaduna State. To allow sustainable development to take place, there must be a proper public financial management system to ensure rightful decision-making, budgeting, implementing, controlling and follow-up. Thus, rural areas would be opportune to have sustainable development for its dwellers to enjoy social amenities.

Auditing is originally a financial management concerned with assessing practice for the internal financial status of the organization and the evaluations of the financial performance of the organization (Manal, 1999). Auditing practices have evolved over the years and developed into the broader aspects to become a field of fraud detection and financial accountability. It also provides feedback on organization financial information and reporting. It also becomes a tool for an analysis of any fraudulent activity, potential and actual within the organization.

Audit is one of the mechanisms to the fight corruption. Most of the standard setting in the auditing profession has taken place in the private sector and corruption has not been a serious issue in the private sector because the auditing profession, as it has evolved, has its roots in the private sector where audit against corruption is not a serious concern of the stakeholders who are more interested in fraud or theft of their assets (Okafor&Ibadin, 2009). This, no doubt is responsible for the very little discussion in the literature on corruption auditing and probably the lack of standards for auditing corruption. Almost all professional bodies of auditors across the globe have published standards and techniques about fraud auditing.

Fraud is an intentional misrepresentation, concealment, or omission of the truth for the purpose of deception/manipulation to the financial detriment of an individual or an organization which also includes embezzlement, theft or any attempt to steal or unlawfully obtain, misuse or harm the asset of the organization.

Aderibigbe and Dada (2007) see fraud as a deliberate deceit, planned and executed with the intent to deprive another person of his property or rights directly or indirectly, regardless of whether the perpetrator benefits from his/her actions. Bostley and Dover (1972) and Adeduro (1998) noted that fraud has increased considerably over the recent years and professionals believe this trend is likely to continue. On the other hand, financial irregularities refer to intentional mistake or distortions of financial statement such as misrepresentation or misappropriation of assets. In simple term it refers to forgery or alteration of cheques, drafts, promissory notes and securities. This can be curtailed in any organization through the provision of an internal audit which is a part of the internal control system.

1.2       Statement of the Problem

The essence of any financial management in controlling fraud in the local government system is to safeguard available resources and make rational use of them to achieve desired goals. The most targeted goal of local government administration as allegiance to the people is to develop the area in order to provide public services for the rural dwellers. In view of this fact, it is a compelling concern about what system of financial management is being practiced in the local government authorities of Kaduna State. The reason why the compelling concern arose is that many local government areas are poorly developed and lack social amenities such as motorable roads; pipe born water; good communication system; transport system; health care delivery system; and to mention but few. Basically, it should have been the responsibility of each and every local government authority to develop its area of jurisdiction, only if there is a sound public financial management set in place as a strategy of local government administration as government channel to reach the grass root level.

The doubt is that in many local government areas, there is no visible progress of development. Then, one may ask of what happen to the monthly allocations, grants and other sources of revenue collection? Sometimes too, salaries of local government staff are hardly paid. Does it mean there is no genuine practice of planning and control of public financial resources in local government administration? Or is local government fund diverted into wrongful use as a matter of attitudinal factor of our political administrators to neglect sound financial management for selfish political ambitions? What then, will be the faith of rural dwellers in the face of challenging environmental degradation and increasing hardship? The attempt to find answers to these questions would be a stimulant to this study.

1.3       Objectives of the Study

The main purpose of this study is to examine the impact of public financial management in controlling fraud in the local government system. The sub objectives are the following:

  1. To determine techniques employed in the public financial management in controlling fraud in the local government system
  2. To examine factors affecting the impact of public financial management in controlling fraud in the local government system

1.4       Research Questions

The research questions for the research work are:

  1. What are the techniques to be employed in the public financial management in controlling fraud in the local government system?
  2. What are the factors affecting the impact of public financial management in controlling fraud in the local government system?

1.5       Research Hypotheses

Research hypothesis is a tentative and predictive answer to a question which is subjected to the power of verification and its formulation can be expressed in:

  1. Null Hypothesis (Ho)
  2. Alternative Hypothesis (H1)

Since hypothesis is statistical method of testing the attributes of predictive condition, we can test the study under the following hypotheses:

H01: There are no specific techniques to be employed in the public financial management in controlling fraud in the local government system.

H02: There are no specific factors that will enhance the impact of public financial management in controlling fraud in the local government system.

1.6       Significance of the Study

It is timely to carry out this study in view of the prevailing poor living conditions of rural dwellers in Kaduna State. Many people are doll founded about what is happening to local government administrative authorities, if at all they practice public financial management with regards to rural development. People are dissatisfied with urban immigration from rural areas, congesting the cities with rapid increase in population. Do these issues associate with local government public financial management that concerns quality delivery of public services? Does local government administration in Kaduna State observe effective and judicious use of public resources available? These aspects are outstanding areas of study yet to have coverage in form of documentation.

Nevertheless, the significance of this study derived from the effort to contribute to existing literature on the matter of local government public financial management in Kaduna State. In addition, it proffers suggestions to improve on public financial management system with regards to providing quality public services for rural dwellers. Thus, local government caretaker committees/councils will find this study useful to setup a sound public financial management system to address the prevailing problems of poverty situation nationwide. Hence, the study draw the attention of local government administrators on good financial planning and control to extend sustainable development projects to the rural areas as the only way to show good governance.

1.7       Scope and Limitation of the Study

This study is limited to the examination of the impact of public financial management of local government administration on effective and judicious use of public financial resources in Kaduna State. The research study therefore covers a cross-section of local government administrators, local government Accountants/Auditors in Kaduna State. Basically, the study focused attention on selected individuals of reputable personalities of State and local government officials who are vast about local government financial management in Kaduna State. This limitation is due to time and cost constraint to conduct the research by administering a questionnaire and face-to-face interviews to obtain valid and reliable information.

1.8       Operational Definitions of Terms

Terminologies used in this study are defined for clarity purpose to have insight of the subject matter. Hence, the key terms used in this study are conceptually defined as follows:

Accountability: This is the responsibility of rendering an account of what must have transpired in the implementation of budget proposals including administration, development programmes and projects.

Budget: A budget is a quantitative plan for a forthcoming accounting period. Its purpose is multifaceted and intended to: (1) help with planning; (2) co-ordinate activities of the state; (3) communicate objectives to the relevant people; (4) monitor the performance against the plan; (5) control activities; and (6) evaluate performance (Hughes, 2003).

Development: This means the improvement of people’s life styles through improved education, incomes, skill development. It also means that people should have decent housing, and that they should have security within those houses and people should be able to read and write.

Financial Management: Is that managerial activity which is concerned with the planning and controlling of the firms’ financial resources (Pandy, 2005:3).

Financial Planning and Control: According to Weston and Copeland (1989:211), financial planning and control involve the use of projective based on standards and the development of a feedback and adjustment process to improve performance.

Fiscal Policy: Fiscal policy is the use of government tax (revenue) and spending powers to alter economic outcomes. In other words, it refers to public tax (revenue) and expenditure activities. This can be used to pursue any economic goals of a nation (Schiller, 1986:112,207).

Project: Project is a one-time activity with well-defined set of desired results (Hellriegel and Slocum, 1996:189).

Public Financial Management: This is a system that involves the budget and budgeting process, the payment system, procurement, the accounting system, auditing and taxation. Hence, well functioning systems for public financial management are pre-requisites for improved effectiveness of development cooperation in general.

Sustainable Development: Sustainable Development is the development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.

Transparency: The quality of showing the true picture of a situation for easy understanding. This means that the revenue and expenditure of public finance should be disclosed of the true position of what has transpired.

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