Tag Archives: Revenue

ACCOUNTING SYSTEM IN THE PUBLIC SECTOR

APPRAISAL OF ACCOUNTING SYSTEM IN THE PUBLIC SECTOR

ABSTRACT

This research aims at providing an insight of the accounting system in the public sector, a study of Board of Internal Revenue of Enugu state. The purpose of this research is to examine the Board whether it is efficient and effective. The method employed for data collection in this study is survey method which include: questionnaires direct interview and the methodology used to determining the sample size is sample percentage. The statistics were employed to analyze method employed for data collection in which 34 questionnaires were distributed among the accounting personnel of the board of internal revenue of Enugu state. And all were returned the major finding were that out of the total population of 37, the sample related was 34 accounting staff, the researcher found out that accounting system in the public sector is not effective and dose not provide for proper financial control and accountability. The study recommend that the Board Of Internal Revenue of Enugu State should set up efficient financial control system and organize in-service training programmers for its staff in order to make them familiar with the accounting system or procedure of the Board. Based on this employment of staff who have prior knowledge of Government accounting will no doubt help to ascertain the adequacy and effectiveness of the accounting system in the public sector.

CHAPTER ONE

INTRODUCTION

1.1     Background of the study

The practice accountability for public funds dates back to the history of the ancient Greece. As old as theory is, it would not be erroneous to say that the idea has been equally lost to antiquity although not much is known about it, this makes the subject, government accounting to remain a myth.

However, there is general awareness all over the world of the need to pay greater attention to the development of government accounting and financial control. The reason is obvious, government, in most , if not all nations constitute the economy. Government in any society is basically for maintaining law and order. With changes and the complete nature of the society, government responsibility has automatically changed from the role of maintaining law and order to business like nature in the modern era. The enormous activities of government, equally call for enlarged government accounting in order to accommodate the innense task. As a result of this development, the traditional cash procedures of accounting can hardly meet the demands of reasonable accounting for modern government in providing necessary for information. Therefore there is need for government accounting to be dynamic in order to accommodate both the fundamental roles and the developments.

Government accounting is the process of recording, analyzing, classifying, summering, communicating and interpreting financial information about government in aggregate and in detail, reflecting all transactions involving the receipts, transfer and disposition of government funds and property. The purpose are to demonstrate the propriety of transactions and their conformity with established rules to give evidence of accountability for the stewardship of government resources and to provide useful information for the good control and efficient management of government operation.

Financial management in public services as can be observed has failed to encourage and promote the efficient utilization of public funds or serve as effective basis for planning and decision making as well as to ensure proper accountability. Besides, it does not mean that financial irregularities being detected in public sector at large is basically based on traditional cash procedure of accounting but it dose arouse a question whether the modern system of accounting will make both modern management and financial management viable. 

1.2     Statement of the Problem

 The problem of this research is to identify these weaknesses and limitations inherent in the cash accounting system of the public sector ( in relation to the accounting system of the sample ministry).

This is with a view to propose means of eliminating them completely or at least reducing them to the barest minimum. Put in question from, what are those weaknesses and limitation that militates against adequate and efficient accounting system and financial reporting in the public sector and how can they be eliminated?

Some of these problem witnessed in the public sector includes: the lack of accountability and abuse of delegated authority by the officers in authority, fraud and misappropriation of governmentfunds, as well as lack of expertise and business acumen on the part of those officers. Due to the fact that government operation have been termed “Non-profit oriented operations”, there is no pressure on the part of these government officers to preformup to optimum expectation, accounts are kept in messy shape while the officers get away with lack of proper accountability.

This research is carried out in order to examine the extent to which proper accounts are being kept in the public sector and to offer solution to the inherent problem discovered. The Enugu State Board Of Internal Revenue has been used as a sample ministry for this research for this work.

1.3     Objectives Of The Study

This cardinal objective of this study is to determine strength of the accounting system existing in the public sector.

The specific objective include the following.

  1. To determine the extent to which the sample ministry has installed an accounting system.
  2. To determine the factors that promotes or constrain the accounting system of the sample ministry.
  3. To determine the impact of the accounting procedures of the sample ministry upon its financial reporting.

1.4     Research Questions

Three dominant questions being reviewed by this research include;

  1.  Is the accounting system in the public sector effective and adequate?
  2. Does the accounting system in the public sector provide for proper financial control and accountability of stewardship?
  3. Does the accounting system in the public sector provide useful information for the effective control and management of government operations?

1.5     Research Hypothesis

H0 The accounting system in the public sector is not effective and adequate.

H1 The accounting system in the public is effective and adequate

Ho The accounting system in the public sector does not provide proper financial control and      accountability of stewardship.

H1 The accounting system in the public sector porvied proper financial control and stewardship

Ho The accounting system in the public sector does not provide useful information for the effective control and management of government operation.

H1 The accounting system in the public sector provide uesfu information for the effective control and management of government operation.

1.6     Significance of the Study

This research paper is intended to examine the accounting system common in public sector with a view to exposing and highlighting the inherent limitation in the system. Therefore the research paper will be of interest and useful to the general public the government as well as the governed.

Government entrust public funds in the hands of its officials hence government reporting has traditionally stressed stewardship. Original accounting emphasis has been directed towards measuring the public funds generated and expended by the government programmer or activities. The traditional reporting approach is filled with many weaknesses of what it is hope that this study will make useful recommendation on how to improve upon the accountability and financial reporting system of the government.

The duty to report all its financial activities to the general public is a debt that government must pay. Such report will enable the people know how public funds entrusted in the hands of the government have been utilized, this type of report is very sensitive and useful to the public but very few of them ( the public) can understand it. This study will serve as a useful medium to such member of the public who find government financial reporting very ambiguous and hard to understand.

In many institution of higher learning the accounting curriculum offered is tailored specifically to provide students with an understanding of financial reporting as it relates to profit oriented enterprises. For the purpose. Students are frequently surprised to discover that the basic framework of financial accounting is significantly altered when the profit motive is removed. Though the accounting terminology may initially appear to resemble foreign language to all students of accountancy, and related professions who always depraved of knowledge of accounting system of the public sector this study will be very useful.

Moreover, potential researcher in this aspect of accounting will fine this research paper a very reliable reference base.

1.7     Scope and Limitation of the Study

As the research topic would suggest at a glance, the scope of this is essentially focused on the accounting system of the sample department as a general overview sample study of the accounting in the public sector. Therefore, this study will look into the nature of the accounting system of the sample ministry; how the system operates, the relevance of the system to the environment problems and prospects of the system.

Limitations

This aspect of accountancy ( as pointed out above ) has received very little attention from scholars despite its long historical age. Consequently, there is few literary publication on the student; the researcher was therefore limited to reviewing few literature which are mostly in origin, through relevant to the study.

Government establishment are well known for maintaining utmost screening as regard their operations, more so, where its is a study that concerns their financial operation the researcher found it difficult to obtain material relating to the study (that is literature) and some officials who have been very elusive and uncooperative. More so the bureaucracy and protocol the research went through to obtain material and an appointment has been very discouraging.

Due to all this constrains, the researcher cannot say for certain whether the study has covered very rutty gritty of the sample ministry as regards its accounting systems and procedures, but one thing is certain, enough materials have been gathered to help express an opinion as to the operation of the sample ministry.

Apart from the above listed limitations witnessed by this researcher is time constraint. This is a major limiting factor as the time between approval of the study and the deadline for submission was very short. The researcher relied heavily on the good will of the research supervisor because he understand my plight. Again lack of sufficient funds to conduct an extensive study was another handicap.

This was part of the reason why I had to limit my work to fewer staffs then was earlier planned.

1.8     Definition Of Terms

Every field, discipline or profession has its terminology. Therefore, government accounting can never be an exception. In order to ensure easy understanding by the users of this work in relation to government accounting which are extensively applicable in public sector and or which have different meaning from private sector interpretation and usage are here by define below:

(1)     Accounting Entity: clearly defined economic unit which

  1. Engages in identifiable economic activities
  2. Control economic resources (for which accounting records are maintained and periodic financial statement is prepared.
  3. Is distinct from the personal dealings of its owners or employees. To ensure that the fundamental accounting equation always refers to the same distinct entity the boundaries of the unit, once established must not be managed arbitrarily also called reporting entity.

Accounting entity is in the accounting and auditing, banking commerce and finance and corporate, commercial and general law subjects.

Accounting entity appears in the definition of the following terms; accounting change, reporting    entity, combination fund and accounting policies.

(2) Accrual Accounts: The principles of “accruals” makes a distinction between the receipt of the cash and the right to receive it, and the payment of cash and the liability to pay it, stressing the importance of the right to the assets or the legal obligation in favors of the movement of the cash.

(3) Annual Appropriations: These are issues required to meet the expenditure of the state other than those covered by direct issues from the consolidated Revenue Fund

(4) Capital: is a plan of action quantified usually in monetary unit to serve as a guild for the achievement of government objectives.

(5) Cash Accounting the recording of the transaction in which revenue and expense are reported ( cash inflow and outflow ) in the period in which the related cash receipts and payment occur. The wide spread use of cash accounting in public sector result from the governments historically based requirement for financial information that shows fiscal compliance.

(6) Capital Budget: this is the budget that sets out the proposed acquisition of fixed (long term) assests or project and their finance.

(7) Depreciation: a non-cash expense that reduces the value of an asset as a result of wear and tear, age or obsolescence. Most asset lose their value over time (in other words, the depreciated), and must be replaced once the end of their useful life is reached. There are several accounting methods that are used in order to write off an assets depreciation cost over the period of its useful life. Because it is a non-cash expense depreciation lowers the company’s reported earning while increase free cash flow. Although, government accounting does not recognize depreciation and this is one of the criticisms of the system.

(8) Encumbrance: is an expanse, which is both contingent and estimated. Obligation in the from of purchase order contact or salary commitments which are chargeable to an appropriating and for which a part of the appropriation is reserved. These obligations ceases to be encumbrance when paid or when paid or when the actual liability is recorded. This term no equivalent in the private sector accounting since unperformed protions of executing contracts are not recognized in the accounts

(9) Estimated Revenue (Budget) if the accounts are kept on the accrual basis this term designates the amount of revenue estimated to accrue during a given period regardless of whether or not it is all to be collection during the period.

(10) Expenditure (Actual Expenses): this is expenditure chargeable to an appropriation.

(11) Fixed Assets: A long- term tangible assets held for business ues and not expected to be converted to cash in the current or upcoming fiscal year, such as manufacturing equipment real estate and furniture (also called plant)

(12) Functional Budget/Programme Budget: a budget that allocates costs (or inputs) to particular functions or activities.

(13) Fun Accounting: this is basically operated on cash basis it si an accounting arrangement whwereby self-balancing set of accounts are provided for specific purpose. This system accounting is usually used by non-profit organization and by the public sector.

(14) Fund Balance: the excess of assets of a fund over its liabilities are reserves, except in the case of funds subject to budgetary accounting where prior to the end of a fiscal period. It thus represents the excess of the funds assets and revenuesfor the period over its liabilities reserves, and appropriatios for the prriod.

(15) Historical Cost Accounting: the traditional system of accounting that is based on valuations made in terms of the price ruling when transactions take place. In practice this is modified by the concept of prudence and the possible revaluation of fixed assets.

(16) Revenue (Actual Revenue): is that revenue which are recorded on accrual basis, this term designates additions to assets which. Do not represent the recovery of the expenditure. Do not represent the cancejjaton of certain liabilities or without a corresponding increase in other liabilities or decrease in assets.

(17) Warrant: Authority for expenditure from the consolidated Revenue fund covered by the appropriation law in respect of recurrent budget or from the capital development fund is the case of a capital budget.

 

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REVENUE GENERATION AND DEVELOPMENT OF LOCAL GOVERNMENT AREAS

REVENUE GENERATION AND DEVELOPMENT OF LOCAL GOVERNMENT AREAS

ABSTRACT

The study examined Revenue Generation and the Development of Local Government Areas with reference to Umuahia North Local Government Area as a Case Study. Objectively, three research questions and hypotheses were formulated. The survey design was used in the study. The sample size was 133 out of 200 staffs of Umuahia North Local Government Area of Abia State. 133 questionnaires were administered to the respondents. The data gathered were analyzed using SPSS Package Version 17. The findings revealed that there is a significant relationship between statutory allocation to local government and the government developmental effort; Revenue from Value Added Tax has significant impact on government capital projects … . Based on the findings, conclusion was drawn and recommendations given that machinery should be set to draft bye – laws with expediency for possibly legislation; the local government chairman should ensure that machinery be in place to generate more revenue internally to enable them do more development projects; the local government authorities should not be over dependent on statutory allocation from the federal government; training and re-training programmes for the revenue officials should be organized to enable them meets the challenge of the new millennium … . 

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

Revenue generation in Nigeria local governments is principally derived from tax. Tax is a compulsory levy imposed by government on individuals and companies for the various legitimate function of the state (Olaoye, 2008).

Tax is a necessary ingredient for civilization. The history of man has shown that man has to pay tax in one form or the other that is either in cash or in kind, initially to his chieftain and later on a form of organized government (Ojo, 2003).

No system or rules can be effective whether foreign or nature unless it enjoys some measures of financial independence. Local governments in Nigeria have developed over a number of years. Historically, the development of direct taxation in local government in Nigeria can be traced to the British pre-colonial period under this period, community taxes were levied on communities (Rabiu, 2004).

Recently the revenue that accrues to local government is derived from two broad sources, via the external sources and the internal source.

An effective Local Government system rests majorly on the availability of human and material resources which the nation could mobilize and harness for local governments development. In 1976, the Federal Military Government then issued guidelines on local governments reforms. The reforms which gave recognition to local governments as the third tier of government whereby government activities at the local level were taken care of. In 1988, another reform of local government was established. This gave a substantial and unprecedented reform of autonomy to the local governments in the country. With this autonomy, greater responsibilities devolved on the local government therefore, became a common knowledge that most of the local government are finding it difficult to cope with the present level of responsibilities.

The principal aims of creating local governments were as follows:

  1. To serve as the third tier of government through which appropriate services and development are made in response to the wishes of local community through their representatives.
  2. To serve as an intermediary between government at the center and local communities.
  3. To mobilize and utilize both human and material resources by engaging the people at the local level in the government activities.
  4. To facilitate the exercise of democratic self – government closer to the grass root of the society and to exchange initiative and leadership potential.

Mostly, all local governments in Nigeria do no longer perform their responsibilities simply because of poor finances arising from adequate revenue generation drive. The bad financial situation is further aggravated by the prevailing inflationary situation in this country which erodes the value of funds available to render essential social services to the people. Development is highly associated with fund, much revenue is needed to plan, execute and maintain infrastructures and facilities at the local government level. The needed revenue generated for such developmental projects like construction of accessible roads, building of public schools, health care centers, construction of bridges among others are sources generated from taxes, royalties, haulages, fines and grants from states, national and international governments. Thus, the Local government cannot embark, execute and possibly carryout the maintenance of these projects and other responsibilities without adequate revenue generation.

This is the basic reason why development is skeletal at some Local Government councils in Nigeria. The revenue generation is not exceptional to Umuahia North Local Government area in Abia state

1.2     Statement of the Problem

The local government is faced with myriads of problems ranging from corruption and embezzlement, poor financing, mismanagement of funds to poor leadership. This has deterred the development of local government in Nigeria.

The major issues are; what has contributed to the non-performance; is it because of total dependence on federal and state statutory allocation? Is it as a result of poor internally generated revenue drive? Is it because of ineffective utilization of available scarce resources or mismanagement by public office holder? Among others, certain percentage of the statutory allocation has always been deducted by the state government thereby causing the local government to underperform which includes; Dilapidated infrastructural facilities, Unavailability of social services to rural populace and Underdevelopment of local communities.

Based on the above stated problems, it has become necessary to conduct an analysis on revenue generation in Umuahia North Local Government area of Abia state.

1.3     Objectives of the Study

The broad objective of this research is to evaluate revenue generation and development of Local Government Areas with particular reference in Umuahia North Local Government Area of Abia State.

The specific objectives are;

  1. To examine the relationship between statutory allocation to the local government and government developed effort.
  2. To ascertain the extent which value added tax has contributed to government developmental effort.
  3. To evaluate the extent to which internally generated revenue has contributed to Local government development and it various sources.

1.4     Research Questions

The following research questions were formulated for this study.

  1. What is the relationship between statutory allocation to Local Government and Government developed effort?
  2. How has value added tax (VAT) contributed to Government developmental effort?
  3. To what extent has internal generated revenue contributed to Local Government development and its sources?

1.5     Research Hypothesis

A hypothesis is a theoretical conceptualization or an idea or guest regarding how the researcher thinks the result of his study will look. It consists of a set of assumptions accepted previously as a basis of investigation. It is a proposition that is yet to be tested for its validity.

For the purpose of this research study, three null hypotheses were formulated.

H01:There is no relationship between statutory allocation to Local Government and Government developed effort.

H02: Value added tax has not contributed to Government developmental effort

H03: Internal Generated revenue has not contributed to Local Government development and its sources.

1.6     Significance of the Study

From the outlook, there is need for the local government to improve their performance. However, the research is significantly considering the closeness of local government to the grassroots’ people and the need to utilize substantial revenue for its various sources in addition to federal and state statutory allocation for developmental purpose.

The study will help to identify some means of generating revenue that has been neglected over years.

It will also be beneficial to the grassroots because improved revenue generation means improved standard of living in form of provision of social amenities such as road, hospital, park, drinkable water, rural electrification etc.

The study will be educative as it will be a reference point for researchers.

1.7     Scope and Limitation of the Study

The study would appraise the revenue generation for the period of five years (2006-2010) in Umuahia North Local Government Area.

This study has some limitations most especially in the area of data collection which is to be covered and has time duration of five years (i.e. 2006–2010).

Financial constraints as well as time available for the completion of the study are among other factors that would limit the scope of the study.

1.8     Definition of Terms

Local Government: is a form of public administration which in a majority of contexts, exists as the lowest tier of administration within a given state. The term is used to contrast with offices at state level, which are referred to as the central government, national government, or (where appropriate) federal government and also to supranational government which deals with governing institutions between states. Local governments generally act within powers delegated to them by legislation or directives of the higher level of government. In federal states, local government generally comprises the third (or sometimes fourth) tier of government, whereas in unitary states, local government usually occupies the second or third tier of government, often with greater powers than higher-level administrative divisions.

Revenue: The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the “top line” or “gross income” figure from which costs are subtracted to determine net income. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Revenue is the amount of money that is brought into a company by its business activities. In the case of government, revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral rights and resource rights, as well as any sales that are made.

Income Generation: Money that an individual or business receives in exchange for providing a good or service or through investing capital. Income is consumed to fuel day-to-day expenditures. Most people age 65 and under receive the majority of their income from a salary or wages earned from a job. Investments, pensions and Social Security are primary sources of income for retirees. In businesses, income can refer to a company’s remaining revenues after all expenses and taxes have been paid. In this case, it is also known as “earnings”. Most forms of income are subject to taxation.

Expenditure: Payment of cash or cash-equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or other such document. See also revenue expenditure, capital expenditure.

Tax: An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities. In the investing world, this is one of the most important types of taxes and, therefore, one of the most highly debated types of tax is capital gains tax. Capital gains tax represents the tax paid on the increase in value made on an investment.

Tax Evasion: An illegal practice where a person, organization or corporation intentionally avoids paying his/her/it’s true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties. There is a difference between tax minimization/avoidance and tax evasion. All citizens have the right to reduce the amount of taxes they pay as long as it is by legal means.

Tax Avoidance: The use of legal methods to modify an individual’s financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal. Most taxpayers use some forms of tax avoidance. For example, individuals who contribute to employer-sponsored retirement plans with pre-tax funds are engaging in tax avoidance because the amount of taxes paid on the funds when they are withdrawn is usually less than the amount that the individual would owe today. Furthermore, retirement plans allow taxpayers to defer paying taxes until a much later date, which allows their savings to grow at a faster rate.

Development: The process by which people create and recreate themselves and their life circumstances to realize higher level of civilization in accordance with their own choice and values.

 

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