Local Government Financial Reporting System Procedures in Nigeria


Local governments form the third tier of government. The aim of creating local government is to decentralized government activities so that local governments which are nearest to the people will enable the people to participate in development process of their area.

In other to ensure their constant existence local governments need to ensure that adequate controls exist over the transactions that funds are promptly and properly accounted for and all documents and records relating to the financial transactions are accurate and complete. There are increasing demands on and expectations of the local government councils in Nigeria, while their revenue continues to be mismanaged.

To prevent this trend and for significant objectives to be achieved in the new millennium there is need for proper harnessing, management, control and accountability of funds available to the councils.

In addition constitutional mechanisms to autonomy, abolition joint accounts and development countries. In this analysis Igbo-Etit local government is our case study. Obviously we have been compelled by limited resource to confine this review to one out of the 774 local government in Nigeria and this forms the fulcrum of this review.

Moreover the fact that this work is an academic project with its peculiar characteristics and scope make this choice quite germane.

Furthermore, the finance available to the local government is very low and if specified objectives are to be achieved there must be proper harnessing of this resources, therefore must be proper control of revenue generated and proper accountability of funds available to them. I equally looked at local government sources of revenue, the manner and effective collection and disbursement of funds.

The main targets of this study is to determine the followings:
i)    Whether the financial management procedures carried out in local government are adequate and effective in meeting the objective of the local government.
ii)    Whether laid down control procedures are complied with.
iii)    To identify the major problems methodology in the implementation of financial administration procedures.
iv)    Sources of council revenues and expenditure and most importantly the control and accountability of council revenues among others.
v)    To identify measures which could assist Igbo-Etiti local government to achieve its results.

The objectives of the study are as follows:
i)    To examine the procedure for local government finances

ii)    To determine the adequacy of these procedures in relation to the objectives of the local government administration.

iii)    To determine whether these procedures have been effectively and efficiently applied in practice.

iv)    To review the performance of local government with respect to revenue generation and expenditure.

v)    To find out the effect the audit and inspection of financial management has in the local government level.

vi)    To find out factors that may constrain the local council from performing its responsibilities.

vii)    To establish that there is a relationship between effective use of financial accounting information and the quality of the decisions made by management of an organisation.
viii)    To identify specific problems militating against implementation and to make recommendation on how they could be overcome.

This study is important because of the very important role the local government plays in national development. The study will be useful in eliminating some of the major problems encountered in local financial management. The study will be useful:

i)    To the policy makers who need policy analysis to enable them decide the effectiveness and efficiency of policies. An improvement in the efficiency of financial function will be of great assistance to local governments.

ii)    To the government and local government functionaries who need to understand that flexibility in management is of great importance in achieving the objectives of the policy.

iii)    To the researcher as a partial fulfilment of the requirement for the award of Higher National Diploma (HND)

iv)    To other researchers who may carryout further research on the subject matter or other related topics as a source of literature review.

v)    To the students who may seek an understanding of local government as part of their academic studies.

vi)    To the general public in the inform of increase in the standard of living arising from improvement in local council administration.

An over-view of local government finance in the third millennium is an elaborate task. There are 774 local government councils in Nigeria an adequate study of which is rather un-imaginable. This research is therefore confined to Igbo-Etiti local government councils. The choice of this case study is made with a view to rendering the work less expensive, less tedious and less firms-consuming while at the same time giving went to indepth study.

With respect to the case study the major limitations and constraints are:
i)    FINANCE: A Study of scope contemplated in this work and the length of distance between my school and Igbo-Etiti local government council headquaters (Ogbede requires commitment of resources for the research (transportation cost to and from Ogbede in order to meet or set appointment with the council functionaries/staff). This will cuntail the scope and quality of work necessary for the study while this may be so, it is hoped that the work will still prove to be of immense value within in the restricted scope.

ii)    INADEQUATE LITERATURE : An over-view of local finance in the new of local government finance in the new millennium” is a new terrain in research studies especially as it affects Igbo-Etiti local government councils. There is therefore a famine of relievant literature  on the subject matter. This poses a serious constraint. However, the research is relatively rescored by the existence of fundamental materials such as the GRAND NORM (the constitutions) financial statements budget drafts, etc.

iii)    The reluctance of local government officials to disclose enough or correct information about their operations or to make data available because of fears or ignorance. Etc and their tendency not to disclose the information at all posed another constraint to this work.

iv)    The insufficiency of time also limits the scope of the work. all this notwithstanding, the researcher will optimize the finance and time a in order to put up a work of invaluable significance.

Hypothesis is defined by the Encyclopedia Americana as a proposition assumed to be true merely for the purpose of argument; or a proposition or theory put forward to account for and order a body of facts. A more relevant definition was given by Konler (1963: 225). According to him, Hypothesis is a proposition involving relation between sets of events which is to be rejected or tentatively accepted on the basis of sample evidence in accordance with stipulated rule of statistical inference.

In accordance with the above definition the following assumptions will be subjected to testing.
i)    Mismanagement is the bane of local government finance.
ii)    Laid down control procedures are not complied with in council administration.
iii)    The improvement of the development of the local government in the new millennium lies on the adherence to laid down control procedures and management.

Below is the operational Definition of terms of the basic concepts used in this study. The aim is to ensure that ambiguity is removed giving room to clearer understanding of the basic issues and concepts.

i)    Overview: This is an indepth analysis (of the fate of Igbo-Etiti local government) and an assortment of its future.
ii)    Finance: This represents funds, revenues and expenditures.
iii)    Financial memoranda; This is a book of guidelines on local government financial managements.
iv)    Accounting: this is the preparation and communication of financial and economic information (partier 1984 p 3)
v)    Local government: Government is generally the administrative agency of the state. While local government is its third or lowest tier basically responsible for grassroot development.
vi)    Mismanagement: This is the out landish aspect of the concept of management which is the act of effective and efficient enforcement and control of operation of economic unit an organisation. (Kohler 1963 p 33) such as a local government.
vii)    Nigeria constitution (1999): The constitution of any state such as Nigeria’s any state such as Nigeria is the highest body of rules through which it is administered. It defines, among other things, the powers and functions of three tiers of government namely federal, states and local government. Our current constitution is the constitution of Nigeria (1999).
viii)    New millennium: A millennium is one thousand years period. The third millennium range from 2000 – 3000 A.D. It is new as the period has just started five years ago. The research is concerned with this era but with knowledge of hindsight.

Local government is the localized unit of the control or federal government whose function is to ensure, that government policies are carried down to all parts of the communities. Encyclopedia Britannica (1970) defines local government as an “authority to determine and execute measures with a restricted area inside and smaller than the whole state”.

Local government may take the cabinet or parliamentary model in which there is fusion of powers (i.e the chairman of the local government holds councils meetings with ward councilors).

Hence there is chairman-in-council or there may be separation of powers between the executive and the legislature. The executive forms the government and the council (make up of ward councilors) form the legislature. The units of administration of local government are the departments. These are: works welfare, youths and sports. However, there could be variation.
Elsewhere in the study we shall consider in details the functions of local government. Suffice if to mention that need for local government includes:

a)    There are amenities which can be best provided on a local basis and local government is the organ to do it.
b)    The state and federal government are rather far removed from grassroots and very often are unable to appreciate the problems of the local people.
c)    Local governments are better suited to pressure the divergent cultures of the localities.
d)    People from one locality are more committed in getting their problems solved if they are allowed to find solution to such problems.

Organized local administration in Nigeria dates back to the country’s colonial era-when native authorities were established in their rudimentary forms.

They represented a system of indirect rule which aimed at establishing a form of local administration through traditional authorities. The traditional authorities were the Emirs and Oba’s in the North and West respectively whereas warrant chiefs were appointed in the East for the same purpose since the Igbo traditional system up till then was based on sedimentary democracy.

From the period of its inception to date local council administration has undergone series of structural and functional changes. Evidently there have been constitutional changes and there have been local government reforms which were rather incorporated in amended or future constitutions. Form the period of the native authority to 1991 there was fusion of powers in the local council which reflected the cabinet/parliamentary system of government be quartered to us by the British colonial administration.

However, from 1992 till date the local government system in Nigeria has been patterned to reflect our federal structure. Thus Decree 23 of 1992 introduced the principle of separations of powers which was later incorporated into our present constitution, the constitution of the federal republic of Nigeria (1999).

This principle defines separate functions for separate organs (structures). Hence the ward councilors (or simply the council) make the bye-laws for peace law and order in the local government area. The chairman is the chief executive of the local government with his appointed supervisors and the secretary of the local government a second arm (organ) is formed whose duty is to implement the policies and decisions of the council. Strictly speaking this organ forms the government. It should be noted that the constitution stipulated areas in which the council can make bye laws.

It should also be noted that the constitution confers on the local government services commission with the authority to handle the recruitment, promotion discipline and welfare of local government staff.

The local government administration structure is divide into departments in charge of specific functions. These departments are: personnel, finances, works, agriculture, health, education, social welfare youths and culture.
Suffice it to mention that the department of finance is in charge of local government financial and monetary matters and the guidelines for the operation of the department is the operation of the department is the financial memoranda.

Each head of department is responsible for ensuring that there is satisfactory overall control of the finances of his department and he is to ensure compliance with the relevant law as regards accounting books records. he also ensures that procedures are strictly complied with. The local government accountant is the head of the finance department. However another impartment unit of the local government is the internal audit. This unit is specifically provided for a duty of monitoring the us of local government resources (finances) in purist of the defined objectives of the local government.

However, the external audit form the local government services commission tends to confirm financial compliance from impartial angle.

Local government system in Nigeria has undergone historical evolutions. Here we shall follow this path of history to unable us not only to understand the past and the present but to have a glimpse of the future.

As we stated earlier what is now known as a local government system just state as a form of indirect rule system whereby the British colonial authorities ruled the subject peoples of Nigeria through the traditional authorities  or the native authority (as it was apthy called). For easier mobilization of the indigenous people for payment of taxes, obedient to colonial laws, etc the native authority system of indirect rule was introduced. It was excellently successful in the North because of he existence of the Emirate system and the Islamic culture it was partially successful in the west through the instrumentality of the Oba’s and traditional chiefs. However, it was a failure in the East where the warrant chief system was introduce as used in absence of the traditional authority but segmentary institution.

However between 1950 and 1955 emerged the type of local government based on the British model. But there were disparities on characteristics and functions of local government up till 1976 when DASUK commission on local government reform came up fundamental changes and harmonization of the local government system in Nigeria. as a matter of fact, Igbo-Etiti local government was created this period, 1976.

All its innovations notwithstanding there was fusion of powers of the executive and the legislature as handed down by the British colonialists.

By 1991 this feature was changed by Ibranim Babangida administration. Thus the principle of separation of powers was introduced. Local governments became autonomous. However the latter ahs been thinkered and confused with local government – state joint accounts that has been encoded into our current constitution, the 1999 constitution.

However, there is an on –going debate on a new local reforms to rid the system of imperfections and abuse.

Another way of looking at the functions of local government is by considering the need for local government.
1.    Provision and maintenance of public conveniences, sewages, and refuse disposal.
2.    Making and implementation of bye-laws
3.    For mutations of economic planning and development schemes for the local government areas.
4.    Establishment and maintenance of destitute home, chestire homes, and cometries/burial grounds.
5.    Construction and maintenance of roads, streets, street lighting, drains park gardens, open spaces or such public facilities as may be prescribed from time to time by the legislature.
6.    Local governments are better suited to pressure the divergent culture of the localities.
7.    There are amenities which can be best provided on a local basis and so local governments are best suited for doing this.
8.    This state and federal government are rather far-removed from grassroots and very of then are unable to appreciate the problems of the people in different localities.
9.    Development of agriculture and natural resources. However, the constitution precludes local government from exploitation of minerals.
10.    It is also the duty of local government to provide primary health services, health, centies and dispensaries.
11.    Collection of taxes and ratios tenement rates, licensees etc. (see constitution 1999).
These functions are not exhaustive and rates could be given to the council (if there is need) by the legislature.


To carry out its statutory obligations in the new millennium Igbo-Etit local government council uses funds. Some of these funds come from the gross national revenue and are refered to as the ed allocation, while others are generated internally, the internally generated revenue. Let us consider these categories in details.

The local government share of the federal statutory revenue has grown from 10% to 15% and from 15% to its present status at 20%. However, this revenue formula still needs to be changed to reflect the growing demands on the council and as the present federal allocation to the council is too negligible to the considering the huge national revenue.

Table I and II below shows the summary of Grass revenue allocation by federation account allocation by federation account allocation committee for the month of May, 2004 shared in June 2004.

Apart from this shares of the federal revenue Igbo-Etiti is until led to grants from the federal government to carry out special projects and services like construction of modern markets, health and educational institutions, health care delivery services such as immunization etc. It should be noted that the federal allocation revenue includes value added tax (VAT) petroleum profit tax (PPT). funds from th federal government borrowing, capitalization which refers to the investment of equity capital by federal government in local government council.

Local governments are expected to use the funds to embark on income generating project. Projects that come under this source of revenue are fees charged from public utilities such as water suppliers, electricity, public transportation. This system enhances development as it increases the revenue base of the council. Besides, the state government has 10% financial obligation to local government councils. But this is continuously defaulted.

It should be noted that the constitution of Nigeria (1999) has however worsened the fate of the local government councils by providing for state-local  government joint accounts committee. Thus the state governor no shares and misappropriates council revenue from the federal account. In addition the Enugu state governor has created new local governments in the state outside the constitution and has continued to allocate funds from the so-called joint account.

The internally generated revenue of Igbo-Etiti local government is in tender with the sources of revenue of the local government councils spelt in the constitution (1999).

These include:
Rates, licences on wheel barrows, bicycles, radios t.v.s, fees on business premises, market stalls fees on registration of births and deaths, certificate of origin, tenement rates, fees for the maintenance of motor parks, sanitation or environmental fees, etc. In general the internally generated revenue is very negligible compared with federal allocation category. The reasons for this scenario abound Igbo-Etit local government is made up rural dwellers whose major occupation is either peasant farming or petty trading.

This situation is worsened by the fact that therefore is near absence of developed infrastures such as markets, industries etc. To cap it off, the council allocation is mismanaged or wasted which reflects on the quality and integrity of the local government functionaries.

The political office holders back legitimacy since they were appointed through fake election. They are incapable of mobilizing the people, they have neither the knowledge nor the will. The local government staff are rather poor and weak because of low education and poverty. Hence, they fall pricy to the easy manipulation of the politicians.

Be that as it may, the local government council revenue will improve considerably if the constitution is amended to purge the harmful clauses such as the state local government joint accounts restoring local council autonomy, increasing. The federal allocation to local government abolition fake local governments or development centre and realizing the potentials of the local government area.


The problems of igbo-Etiti local government finance are rather numerous and complex which ranges from poor state of accruable revenue to lack of control and accountability of available resources.

Let us consider these problems in a relatively detailed fashion.
We have seen from the distribution details of revenue allocation to local government councils by federation account allocation committee for the month of May 2004 shared in June 2004 that out of a total federal revenue of about N232.033 a ridiculous sum of less than N43.83 went to all the 774 local government councils in the country.

Out of this amount however Igbo-Etiti local government council received a more ridiculous sum of about N57.97 for the period under revenue. It is seen that this pattern has been the trend, both before and after, in spite of mounting recurrent expenditures and other statutory expectations. Daily sun (June 28, 2004 p 18).

This scenario is further vitrated by negligible amount that constitutes the internally generated revenue. The poverty of the internally generated revenue is informed by a number of factors which includes: lack of viable markets and business premises, lack of industries tourists centres etc.

At the centre of the problems of financial administration in Igbo-Etiti local government is lack of financial contol and problem of accountability. control is the management function that aims at keeping activities directed in such a way that desired results are achieed Kowntz et al (1980) defined control as “the managerial function of measuring and correcting the performance of the activities of subordinates in order to ensure that the enterprises objectives and the plans desired o attain them are being accomplished. To this end they saw control as the function of every officer from the chief executive officer to the supervisor revenue clerk. Here many agents of the local government do not render adequate and proper accounts of monies collected since thee is no control measures to check amounts actually collected.
Sometimes there is collusion of accounting officers such as the treasurer, the internal auditor, the revenue officers, the cashier, etc to defraud the local government.
Igbo-Etiti revenue standing and financial and is worsened by the harmful effect of the state local governments joint accounts principles that is currently in vique in Enugu state and some other states in the federation.

Using the harmful instrument of joint account, the state governor underlay delay, diverts and misappropriates council revenues continually.

This has created so many problems such as poverty of capital development or rather absence of it. This is further worsened by creation of new local government areas outside the constitution and without regard to demographic arithmetic. For example, the state governor has created up to three new local government areas out of a local government with sixteen wards (eg Uzo Uwani) while giving only two to a more populated and qualified local government like Igbo-Etiti with its twenty wards. Even though, his creation is frowned at by the National Assembly and the presidency the new local governments have continued to attract allocation from the joint account as “development centres”.

This is so called to hoodwink the masses and to continues to rape the constitution and democracy.

Other problems militating proper financial administration of Igbo-Etiti local government include the Enugu state; failure to meet up with its statutory obligation to the local governments lack of skilled financial personnel, tax evtion by the citizenry who are basically percentile and poor, inadequate infrastructural facilities such as operational vehicles and access roads for revenue drive, collusion of accounting offices etc. All this have seriously affected the local government in discharging its statutory functions.

The third millennium cannot afford to suffer the negative dispositions of the old order by tree ceding on the obnoxious paths trodden in the past. Hence there is need for constitutional overhaul if our local governments shall be resurrected to render unhindered their onerous obligations.

Now let us present, analyze and interpret data which form the primary source of our research.

Our analysis has revealed the following:
1.     Igbo – Etiti local government council depends mainly on federal allocation.
2.    The constitution of Nigeria (1999) vitiates local government autonomy through the provision of state – local government joint accounts, thereby giving room for state governors to misappropriate council revenues.
3.    There is proliferation of creation of states which state governors use to whittle down council revenues.
4.    There is mismanagement of local government finance by council functionaries whose legitimacies are questionable.
5.     Local government staff are intimidated to collude with the politicians to misappropriate council revenue through spurious styles such as printing of fake receipts, over and under-invoicing, etc.
The above findings are outrageous but the panacea for their corrections are highlighted in our recommendations.

A study of this nature will be incompletes if no attempt is made to suggest ways of improving the lost of local government finance in the new millennium. The following are some of the recommendations.

There should a review of the constitution of Nigeria (1999) to purge out the harmful principle of state local government joint account as a way of ensuring that council revenues are not embezzled by state governors or their agents. Hence the autonomy of the council will be guaranteed.

Proliferation of local governments by states should be abolished. Qualified personnel should be employed who should be research-trained from time to time so as to fully understand skilled information on finance and government decisions generally such as financial control.

The treasurer, the auditors the revenue officers should be educated to realize their impersonal roles who should no connive political functionaries. But an attempt should be made to pay them promptly and well. Moreover, a mechanism should be put in place so that all corrupt officers, both political and civil on the council employment should be probed by the anti-graft commission. The independent corrupt practices commission.

The council revenues should be improved by ensuring that 10% state statutory obligation is methodology without default, that the federal allocation for mela is reviewed to increase those of the local and state governments, etc. efforts should be made to harness the untapped tourist, mineral and other economic potentials of the local government in the new millennium.

It is the researcher’s belief that this study has achieved its predetermined objects by carefully identifying various ways of improving the financial profile of the council.

The research has shown that the local government council would be able to perform its statutory duties if its revenue base be improved through institutional mechanisms as well as ensuring that skilled personnel are employed.

We have been able to achieve this through our literature  review and unbiased research design.