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THE DUE
PROCESS AND MANAGEMENT OF PUBLIC FUNDS IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 INTRODUCTION
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.
1.2 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.
1.3 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.
1.4 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.
1.5 RESEARCH QUESTIONS
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?
1.6 RESEARCH HYPOTHESES
This
research work is based on the following hypotheses:
Hypothesis
One
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.
Hypothesis
Two
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.
Hypothesis
Three
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.
1.7 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.
1.8 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.
1.9 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.
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