Topic: PUBLIC EXPENDITURE CONTROL IN NIGERIA ACCOUNTING (A CASE STUDY OF DIAMOND BANK OF NIGERIA)

Chapter One

INTRODUCTION

1.1 Background of the Study

Public expenditure is the spending made by the government of a country on the collective needs and wants of her citizenries such as spending on; the provision of infrastructures, pension provision etc. Until the 19th century, Public expenditure was limited as Laissez faire philosophies which believed that money left in private could bring better returns. In the 20th Century John Maynard Keyness argued the role of Public Expenditure in determining levels of income and distribution in the economy. Since then government expenditures has shown an increasing trend. In the 17th and the 18th Century Public Expenditure was considered as wastage of money. Thinkers are of the view that Government should stay with their traditional functions of spending on defense and maintaining law and other. Public Expenditures are incurred through budget implementation. The macro-economic goals of the state budget are administered in specific and complex systems which were developed in the managerial information unit of the General Accounting department under the name of “Budget Implementation macro system” The role of accounting in the control of public expenditures relates mostly on setting of standards via budgeting and ensuring that the standard set are adhered to. The accounting controls also ensure the actualization of the macro-economic goals which are viz: - Maintaining the total framework of the planned expenses. - Adjustment of expenditure rate to the rate of the reception of incomes. - Regular follow-up of compliance with deficit goals. - Planning of the financing of the deficit in order to reduce the national debt-product ratio etc. In Nigeria, public enterprises are engaged in a wide spectrum of economic activities including agriculture, mining, construction, manufacturing commerce and services. The classification of public enterprises in Nigeria has been made according to varieties of criteria by different authorities. The Public Service review commission (1975:101) classified public sector into: - Public Utilities - Regulatory of Service body - Financial Institutions - Commercial and Industrial Enterprises. Nigeria being a mixed enterprises. Eze (2013) opined that a firm is classified as private enterprises when it is funded, owned and managed by an individual or group of individuals. xi These firms are expected to be registered in the state within which they operate. The activities of the public enterprises have been on the increase in recent times which necessitated the introduction of the accounting to check and monitor the financial activities of these enterprises. According to Onyekwelu (2010:2) Accounting is defined as the process by which data relating to the economic activities of an organization are measured, recorded and communicated to interested parties for making informed decision. The earliest methods of accounting records were kept in physical quantities. These records came from Eastern early civilization which involved countries around the Mediterranean sea such as Mesopotamia, Egypt, Greece Italy etc. Money was recorded as soon as it was received. Money took the place of barter as a medium of exchange and unit of account. This practice has been closely related to economic development of countries. If the operation of Public enterprise grow in size and complexity, management and other stakeholders will like to be informed on the enterprise’s operation. Accounting is the only means via which such information which are financial in nature can be communicated to the stakeholders. The role of accounting in enterprises in Nigeria is primary to ensure accurate accountability in these sectors and true and fair financial position of the enterprise. This role is of utmost importance in any organization. An organization can only grow or profit when the resources at its disposal are well managed. The role of accounting seems to be more pronounced public enterprises. In recent times, there are cases of mis-appropriation of funds in the public enterprises and improper accountability. In summary, the role of accounting in the control of public expenditure deals with the process of setting cost standards and ensuring that the standard set are maintained, However, if the already set standards appear to be in realistic such standard can be reviewed and adjusted for it to be more realistic. Control of public expenditure can be done through adequate budget implementation.

1.2 Statement of Problem

The amount of public expenditure to be incurred by the government in any fiscal year is contained in the annual budget. It is the goal of government to maintain balanced budget, but many countries especially the developing ones have rather witnessed budget deficit this implies excess of expenditure over revenue. The resources to finance this deficit are always unavailable and most government has failed to acknowledge the need for adequate forecasting and adjustment of forecast to ensure that a balanced budget is attained. There are increasing cases of financial mismanagement and misappropriation in virtually all public enterprises in Nigeria, this is occasioned by non-existence of proper accounting system that will ensure accountability and transparency in the execution of public expenditures. Furthermore, non-application of standard costing during forecasting by public administrators has made the control of public expenditures a difficult task. Standard costing, which is a good accounting technique for cost forecasting and control has not been adopted by public administrator hence, there are numerous cases or incidents of unfavorable or adverse variance between the budgeted or standard amount of public expenditure and the actual amount of public expenditure. Thus, there is need to evaluate the role of accounting in the control of public expenditure in Nigeria.

1.3 Aim and Objectives of the Study

The aim of this research work in general is to vividly evaluate the role of accounting in the control of public expenditures in Nigeria. The specific objectives for this research work are: i - To ascertain whether adequate government budgeting can regulate public expenditures and improve the productivity of public expenditures. ii - To ascertain whether an effective and efficient accounting system in public institutions can ensure accountability and transparency in the execution of public expenditures. iii - To evaluate the impact of standard costing on the control of public expenditures and also on the productivity of public expenditures when adopted by public institution administrators.

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