THE ROLE OF ACCOUNTING IN
THE CONTROL OF PUBLIC EXPENDITURE IN NIGERIA
(A CASE STUDY OF CENTRAL
BANK OF NIGERIA (CBN)
recent times some of the public organizations in Nigeria have been faced with
cases of financial crisis. Those of them
that survived more in a snail pace.
Obviously the causes of financial crisis in our public sector have been
attributed to total negligence of the roles of accounting in our public
This research work will look into the role of accounting in
the control public expenditure in Nigeria.
It will try to analyze the implications of applying the accounting
principles in our public organizations and then look at how these principles
controls the operations of the public sector organizations in Nigeria.
In a bid to achieve a meaningful research study work, this
research will review related literatures on the role of accounting in the
control of public sector in Nigeria.
Oral interview will also be conducted with the managers of the selected
public organization in Nigeria.
supplementary instrument will be data that will be collected from periodicals
and existing literature. The data that
will be collected will defines descriptively, with tables in these research
the course of writing this project study, there are factors which should be
considered like finance, Access to library facilities and limited time and
difficulties in obtaining required information.
finance, our project used to be joint
project but now it has to be an individual student. Atimes there is difficulties in obtaining the
required information from the respondents of the company because of the current
problem some of the company is going through.
upon this, recommendations will be made in how or the steps that will be taken
to eradicate these set backs and deficiency in the system.
TABLE OF CONTENTS
Historical Development of CBU (A
Statement of problem
Purpose of study
Significance of study
Scope and limitations of the study
Definition of term
Historical development of
Accounting in Nigeria
The nature of accounting principles
Types of accounting principles
Factors affecting accounting
Budgeting and budgetary control
Standard costing as a tool for
Determination of sample
Area of study
Sample of study
Method of investigation
Method of data analysis
Development of research instrument
Presentation of data & Analysis
Presentation of data
Analysis of data
Summary of findings
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
the colonial era, especially after independence in 1960, Nigerian public
enterprises have witnessed a steady growth unit recently. Its Olisa (1988:133) 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.
of service body
ad industrial enterprises
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.
rationale for the establishment of private enterprises are numerous just like
establishment of public enterprises. T hey 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
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.
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.
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.
DEVELOPMENT OF CBN (A PUBLIC COMPANY)
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 apese 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 mored 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
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.
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
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:
The establishment of a federal
institution to perform appropriate central banking functions.
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.
The relationship of the federal
institution to the federal and regional government, to government institutions,
to the commercial Bank and to the public and
The role of such an institution in
the development of a local
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.
OWNERSHIP AND CONTROL OF CBN
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.
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.
ii. 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.
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
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
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
ORGANIZATIONAL CHART OF THE CBN