Accounting Systems In A Local Government In Nigeria

Accounting Systems In Local Government (A Case Study Of Obingwa Local Government Area Abia State)

Accounting Systems In Local Government (A Case Study Of Obingwa Local Government Area Abia State)



This chapter deals on the analysis of other existing literary work that was done by other scholars on the accounting system of local governments and related area of study. The theoretical framework of this study was formed based on their analysis.

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Furthermore, comparisons of this study and other related studies carried out in the past are made in this chapter to show the gap, which this study tends to breach.


Accounting can be seen as the process by which an operational environment transaction and events are being recorded and classified for the purpose of accumulating and providing financial information that is good to the conduct of the activities of the entity which a system is an environment of inter related elements working together in order to achieve the same objective/objectives.

Therefore an accounting system is a system that is made up of elements that seek to record, classify, analyze, and interpret the report and operations of an entity in term of financial information for the purpose of demonstrating proper accounting and stewardship to the owner of the resources being managed by the entity.


The reason why Oshimami and Dean defined government accounting as the process of recording, classifying, summarizing, communicating and interpreting financial information about government in aggregate and in detail, reflecting all transactions involving the receipt, transfer and disposition of government find and property is because accounting in the government tend to satisfy and demonstrate the propriety of transactions and their uniformity with established rules to give evidence of accountability for the stewardship of government resources in providing useful information for good control and efficient management of government operations.

The local government accounting system aims at providing evidence of compliance to government regulations while demonstrating accountability for the stewardship of government resources.

Moreover, Biegwu words regarding commercial accounting system is to capably, completely, and accurately capture the business transactions, analyze and summarize transaction, strike account balances and form the bases of drawing financial accounting for management, Local government accounting system seeks, according to Oshisami to help

a) Provide primary data, which can be used to develop analytical devices for purpose of preparing economic development plan.

b) In analysis and assessing the viability and reasonableness of proposed projects.

c) Provide information with respect to the various entities as a way to measure the growth.

However, the difference between local government and commercial accounting system are at best marginalized and usually the two main difference pointed out are:

a) The absence of a profit motive in government and

b) What managers in government primarily aim at complying with legislative prescription, nonetheless, when differences in concept and approach which affect their objective do not in any way repute or dismiss the fact that they play similar roles.

This is why Langenderfer emphasized that accounting is “a measurement and commutation system which seeks to provide economic and social information about an identifiable entity to permit users to make informed judgments and decision” in both government and commercial sector.


The local government accounting places emphasis on providing an analysis of the revenue and takes raised by the local government and analyzing the extent to which such revenue has been used in providing each separate services and sin-services for which the local government is responsible.

In ensuring full public accountability, the memoranda issued by the federal government of Nigeria should aim at revealing,

i) The prompt and systematic collection of revenues due to local government are where appropriate any short falls in collection as compared with clearly established gargets

ii) The expenditure of local revenues on providing various services and undertaking functions according to pre concerned plan (the annual estimates)

iii) That the services, etc have been provided at an acceptable cost.

iv) Through the preparation of the monthly are end of year statement of accounts that the finances of the local government are being maintained in a sound state.

v) That the physical and other assets of the local government are properly controlled.

vi) That the notice of checks and balance be maintained net profit or net returns as in commercial accounting, its purpose is to ensure that welfare of the masses through distribution of public resources is maintained.

Government accounting seeks to achieve this objective by developing its own specialized financial control procedure. This financial control procedure follows the same procedure and financial management cycle.

Planning are programming attempts to establish economic and social welfare goals for development and further entails the conversion of the goals into objectives, the setting out of these objectives into policies, programmes that will achieve the objective over – time and within the limits of long- term plans of government and it’s strategy in nature.

The second phase deals with budgeting which involves the quantification in monetary terms of the overall objectives which the government has set to itself and for affecting and controlling the numerous activities resulting from its operations. It determines the level of resources needed to achieve planned objectives, displays their resources and sets the policy for conducting the programme and activities. As an annual event, its influence is short – term hence it is tactical in nature.

Budget execution and control is the third phase. This is the phase in which we plans, long – term or short – term are expected to be executed. It involves the implementation of the various plans, directing activity towards achievement and monitoring compliance of actual achievement with pre – determined expectation. Its nature is of action and internally imposed control. The aspect of auditing attempts to assure discipline to the probity or otherwise of the various custodians and users of public resources. Review, however provides further attestations on the amount of operation in executive performance and given a critical appraisal of some executive policies, programmer project and activities.

Due to the forth step nature, the finance control system instituted in local government accounting system is designed to record, classify, summarize, interpret and report financial event at each stage of the control system.


There are three basic of accounting but one adopted traditionally by the local government is the cash basis. This basis is employed in most local government in Nigeria. The advantage emanating from its adoption could be the reason, cheap to administer and likely to yield end year result relatively quickly. However Oshismai did not hesitate to point out that even though it is short falls listed below.

i) It does not capture data on the various stages of financial transaction.

ii) It does not reveal an accurate picture of the state of affairs at a point end.

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iii) It is bad for decision making concerning costs efficiency and resources useage.

iv) It makes no allowance for stock held at period end.

v) It provides a very imperfect measure of economic cost.

vi) It makes no allowance for the usage of fixed asset i.e. depreciation not recognized because it does not represent physical cash out flow.

vii) It often distorts current years cost because of consumption paid for previous or subsequent years.

Moreover, it is a common defense among supporters of cash basis of accounting claim that attempting to record assets value and calculation amounts committed to be paid out in future involves uncertainties so massive that estimates are highly speculative at best. But however, data should not be ignored simply because it is different to estimate.

Due to the needs for some adjustment to be carried out on some accounting balances in the accrual basis of accounting is rarely employed in local government accounting. The commitment basis is an accounting basis in which entries are made in accounts when decision to make expenditure is taken. This basis of accounting is not adopted in most transaction of local government.

Furthermore, each of these accounting bases as discussed above captures different stages of expenditure and revenue transaction as captured by each basis could be shown in the chart below.

a) Financial information and accounting basis expenditure transaction

Commitment basis Accrual basis Cash basis

1st stage 2nd stage 3rd stage 4th stage 5th stage

When the finding is approved i.e. When the order is placed i.e. obligation incurred When the material are dithered i.e. inventory receipt When the bill in paid i.e. cash out – lay When the materials are used i.e. consumption.

The above chart of typical expenditure basis transaction in government settings, the commitment basis captures stage 1,2,& 4 of both transactions. Accounting entries made at first stage and second stage control with the accounting convention of revenue in anticipation. The cash basis records, both expenditure and revenue, transaction at the forth stage only. This record only the physical inflow and out flow of cash irrespective of the period such in flow and out flow ought to be made. Finally accrual basis is considered the most rational and conventional basis of accounting because it captures both transaction at their last three stages (i.e. stage 3, 4 and 5).

According to oshisami, these stage are the most crucial stages of financial transactions capable of securing complete and accurate records. In order to enhance efficient and effective resources management.

Many accounting experts have criticized the cash basis and Oshisami has identify it as the major cause of procurement transaction and process payment such side tracking of normal administrative procedures is aimed at exhausting budgetary allocations or reducing the level of unspent, balance which would otherwise lapse at the period mostly. This widely uses of cash basis could be regarded as an attestation of the fact tat is satisfy the reporting requirements in local government.

However, it should not be forgotten that such reports lack validity and rationality without accrual account. This is why Aborisacle warned that for proper accounting to be kept in the local government some accounting balance must be adjusted to reflect balance of cash that ought to be received or paid in the period under consideration irrespective of whether such cash was actually received or not paid or not.


The local government arrangement and plan of books of accounts and accounting records is similar to that employed in commercial or business enterprises with little modification to suit the nature of transactions and purpose of accounting in the government settings. The provisions of financial memoranda chapter 18.3 stipulate that the following books of accounts be kept.

i) The cash books

ii) The journal

iii) The daily and monthly abstracts and mondly summaries of revenue and expenditure prepared from payment, receipt and journal vouchers.

iv) The main ledger which includes a number of control account the general revenue balance of surplus deficiency accounts and reserve fund account.

The detailed records of a local government financial transaction as Aborisade put it, should for the sake of completeness of records and proper monitoring of each transaction, be kept in subsidiary books and the entries posted to the ledger accounts summarized there from. In order to back up this statement, financial membranes 23.1 states that subsidiary ledger account should be kept and consist of the following:

i. Treasury subsidiary ledgers

ii. Other financial records kept in the treasury

iii. Accounting records kept by authorized officials in other departments.

As in above, other financial records accounting to financial memoranda 18.5 states that the following should be kept in the local government treasury.

10 A trial balance record in which shall be listed each month the balance of all account kept in main ledger in order to prove the accuracy of the posting made under the double entry system book-keeping

ii) A monthly reconciliation of accounts,

iii) An annual financial statement according to financial memoranda 32.3 consists of the following:

i) The revenue and expenditure account summary

ii) A statement of assets and liabilities (i.e the balance sheet)

iii) A comparative revenue statement showing actual revenue under each head and sub head as compared with the estimated figures

iv) A comparative revenue statement showing actual revenue under each head and sub head as compared with the estimated figures

v) A comparative expenditure statement showing actual expenditure under each head and head as compared with the estimated figure.

From the foregoing therefore, it is pertinent that certain book be kept permanently in the local government in order to ensure public accountability.

There books as provided by financial memoranda are:

i. Treasury cash book

ii. Journal

iii. Main ledger

iv. Monthly reconciliation of accounts

v. Annual financial statement

vi. Personnel enrollment register

vii. Capital expenditure register.

The treasury cash book is used to record daily transactions in form of receipts and payments of cash or cheque.

At the end of the month a balance is struck in the cash book which may call for reconciliation with the statements as presented by the banker of the local government accounts.

The journals is used as a book of prime entry among others.

a) The correction of wrong allocations on vouchers which have already been recorded in local government accounting records.

b) Making of adjustment where losses are incurred debiting and advance account in the name of the responsible official and crediting the appropriate sub-head.

c) Writing of cash, stores or advances amounts, more as irrecoverable subject to the appropriate authority being obtained.

d) Where suspense accounts are kept for unallocated stones or vehicles used, adjust in the account by debiting, the relevant subhead and crediting the suspense account.

The summaries under various classifications are made into the ledger from where the final accounts and the other registrars after detailed recording of transaction in the subsidiary books.


The expenses that are expected to last more than one financial year such as construction of roads, bridges, building, purchase of plant and equipment act are referred to as capital expenditure.

Taking down accurate record of capital expenditure, Olademeji Aborisade with reference to financial memoranda stressed that the capital expenditure record will show on a separate page for each physical assets.

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i) Description of project/capital assets/its location

ii) Estimated cost of project or other capital assets.

iii) The date of project commencement (for construction project only)

iv) Estimated date of computer (for construction project only)

v) Name of contractor where the work is undertaken by works department.

vi) Expenditure incurred: (a) Progress certificate number (construction projects only). (b) Cumulative total expenditure

vii) Total project completed or assets received and taken over.

viii) Retention money due (for construction project only)

ix) Release of retention money (for construction project only)

a. Certificate number

b. Date

c. Amount

x) Capital asset disposed such asset (e.g. asset has reached its useful life, destroyed by fire etc).

In addition to the above, financial memoranda 26.3 provided that the total payments recorded in the capital expenditure register in respect of release of retention money which must be reconciled with the amount debited to individual deposit accounts opened in the contractors name. Whereby, the local government receives loan, project, it will be identified to the capital development project concerned by debiting capital expenditure not yet charged to revenue account” with the same amount received.

Moreover, where the money received is by of grant, the accounting entries are debiting capital expenditure not yet charged to revenue account and crediting capital revenue head (grants) on expenditure of some amount on the project debiting capital revenue head and crediting capital expenditure not yet change to revenue account.

According to financial memoranda 27.22 it should be noted that any capital monies which are not spent by the end of the financial year are to be transferred to a special grant deposit account in the name of the project concerned such that when the grant is needed in the following years, but deposit account will be closed by re – crediting the amount for capital project.


The income that is expected to be generated through the available sources of the local government is the recurrent revenue and they are:


(i) Community tax/community rates

(ii) General rates (a) property (tenant) rates

(b) capitalization rates.

iii) License fees and rents (a) General (b) Ground rents.

iv) Investment revenue

v) Government general allocation to local government

a) Federal government

b) State government


vi) Specific departmental revenue (listed under services)

vii) Government grants (listed under government and services)

ix.) Commercial services.

X) Contribution from other local government

In accordance with financial memoranda, appropriate revenue subsidiary records in addition to other subsidiary books are kept in respect of revenue accurate or due to the local government. Some of these records are:-

a) Community tax register

b) Nominal roll and register of community rate payers

c) Tenant rate payer

d) Register of recurring revenue

e) Revenue collectors cash book.


“Store” is a general term for describing goods which are held in storehouse and stock yards. The back of these goods are usually intended for use in connection with operating activities.

Thus, the expression “stores” covers finished goods, material components, tools, equipment and any other commodity necessary to meet operational requirement.

Stores could be classified into two main groups such as allocated and unallocated stores. According to financial memoranda 34.2, “stores changed direct votes shall be designed as allocated stores, those stores which it will not be practicable to charge direct to a particular work or services shall be designated unallocated store. Store could further be subdivided and categorized as:

i) Consumable stores which refer to stores which are used up as they are e.g. duplicating papers.

ii) Expenditure stores which refer to those stores, which have limited serviceable life but not consumed immediately they are issued. E.g. road tools (like shovel, picks etc)

iii) Non expenditure stores, which refer to such items as furniture, plant, machinery and equipment, which have a fairly long serviceable life.

Records are appropriately done in bin cards and ledger accounts when stores items are purchased except such are allocated to the necessary head or sub – head. After taken them on charge, they are issued to departments that may require them, such inflows and outflows of items from the stores are maintained through the use of stores receipt voucher (SRV), stores requisition and issue voucher (SRV).


This for the origins of different authors and writers on local government accounting system have been reviewed and compared one can easily notice from this comparison that each writer points out the weaknesses and the requirements of a good accounting system suitable for Nigerian local government in particular and other levels or tiers of government in general. However the opinions of these various authors need be adjusted for the sake of practicability.

While the writers were trying to arrive at an ideal accounting system for local government, it is worthy of note that this study is in recognition of these opinion and emphasis on the practicability and feasibility of such systems. Therefore, in considering the installation of adequate system of accounting, it is equally important to consider the possibility of installing such systems, the cost involved and benefit derived there from.

In line with the other writers’ preposition the accounting basis to be adopted in local governments should be a combination of the accrual and cash basis while depreciation is recognized as adequately treated.

However, in so far as the practicability of the accounting system is considered important, fundamental accounting principles must never be compromised for any peculiar circumstances of a local government.


This chapter is purposely for the presentation and analysis of data collected through the questionnaire administered to staff of the finance and supplies department of Obingwa local government. The presentation and analysis are strictly, restricted to data that has only significant relationship with hypothesis already stated in chapter one.


Thirty members of the finance and supplies document of the sampled local government were given questionnaire. These are staff that are directly involved in maths and statistics department of the sampled local government. The table below shows the distribution.


In view accomplish all the objectives of this study as set out in chapter one, this chapter concentrates on summarizing the findings from the study as presented in the preceding chapter. Moreover, recommendations for possible improvements in the accounting system of the local government under study was made together with recommendations for areas that requires further studies and finally conclusions.


Firstly, in the course of this study, it was noticed that the accounting system of local government (using Obi local government as a sample ) is not adequate in design.

Secondly, it was also realized that not with standing the inadequacy in design of the accounting system of the sampled local government, it is not effectively operated in other words, the accounting system as maintained in the local government is not fully and effectively operated.

Thirdly, it was realized that consequent upon the aforementioned deficiencies in the system, the final statement as prepared by the sample local government do not reflect its true financial position.

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Fourthly, during the study, several factors responsible for the ineffective operation of the system were found to include lack of owing a qualified personnel to handle different section of the department especially research section other factors include lack of adequate facilities needed to operate the system especially in supplies and purchases and expenditure that the system does not meet up with all the requirement as set out in many chapters 18 – 23 which concern books of account (both subsidiary and main) to be maintained by local government.


Following the findings made during this study by the researcher, the following recommendations are given:

i. All the local government in Nigeria including the student local government should maintain an appropriate and accurate record of their financial operation in the manner as stipulated by the athies of accounting profession guiding local government.

ii. MNE qualified personnel should be employed or arrangement be made for the training of some members of staff to enhance for the efficiency of the local government management.

iii. Adequate measures should be taken to ensure that workers adhere to procedures as laid down in the local government policy book.

iv. Also provision should be made for all the necessary facilities and equipment needed for the operation of the local government system.

v. Finally, external auditor should be regularly limited at appropriate time to review the local government accounts.


The extent of coverage of this research work was hampered by many factors as stated in chapter one. In view of this facts, the researcher makes the following recommendation for further studies:

i. A study should be carried out to find out the factor that causes the workers of the sampled local government to circumvent the accounting rules and procedures in the local government.

ii. Also, a study should be carried out to show the analysis cost – benefit of course the possibility of computerizing the accounting net – work of the studied local government.

iii. Finally, further studies should be repeated on this topic i.e., four other local government preferably, one from the north, one from the south, one from the west and one from the eastern part of Nigeria in order to promote a good and better comprehensive discovery.


Both the government and business settings in account system attempt to satisfy the needs of both the internal and external uses of financial statements. The use of groups of accounting information of government units as identified by Dreblin et al (1981) include; management, legislative bodies, voters, tax payers, services recipients, over sight and guarantors. These groups need the accounting information for purpose of evaluating trends in governments operation and possibly taking decision to act or not to act. Therefore, if the accounting information produced from the accounting system of a government unit does not reflect the actual financial position of the government unit, the various interested groups are mislead in their decisions.

Local governments particularly the sampled one in this study should endeavour to keep an accounting system capable of providing accounting or financial information that approximates the actual financial position of the local government. This could be achieved when an accounting system that is adequate in design and effectively operated in installed.



1 What is your sex? a. Female ( ) b. male ( )

2 What is your age bracket

a. 15 – 30 years ( )

b. 31 – 45 years ( )

c. 46 – 60 years ( )

d. 61 and above ( )

3 Marital status: Married ( ) Single ( )

4 What is your level of education?

a) Primary education ( )

b) Secondary education ( )

c) OND ( )

d) HND

e) BSC ( )

f) Masters ( )

g) Others, specify …………

5 What is your official status?

a) Admin staff ( )

b) Senior ( )

c) Junior staff ( )

6 How many years have you worked in this local government?

a) 0 – 5 years ( )

b) 6 – 10 years ( )

c) 11 – 15 years ( )

d) 16 – 20 years ( )

e) 20 and above ( )


7 Is capital expenditure register maintained in respect of expenditures on capital assets?

a. Yes ( ) b. No ( ) b. don’t know ( )

8 Is there any provision for independent comparison and reconciliation of balances in capital expenditure register and the retention money account opened for contractors?

a. Yes ( ) b. No ( ) b. don’t know ( )

9 Is capital expenditure (total) account separately maintained in the main ledger for each main category of project undertaken by the local government?

a. Yes ( ) b. No ( ) b. don’t know ( )

10 What permanent accounting record(s) is/are key in respect of investment made by the local government? Specify ………………………………..

11 Is there any provision for depreciation made on assets lasting for more than one year?

a. Yes ( ) b. No ( ) b. don’t know ( )


12 Is community tax register kept for each community under local government?

a. Yes ( ) b. No ( ) b. don’t know ( )

13 What other registers and main ledgers are kept in respect of recurrent revenue of the local government? Specify ………………………………

14 Is it possible to predetermine the amount due to the local government in respect of taxes, licenses and fees of all kinds for a financial year?

a. Yes ( ) b. No ( ) b. don’t know ( )

15 Can recurrent expenditure (eg) salaries, wages, repairs, rents, miscellaneous expense, maintenance, rates etc be brought into accounting when due and not necessarily paid for?

a. Yes ( ) b. No ( ) b. don’t know ( )

16 Do you maintain separate records for employees?

a. Yes ( ) b. No ( ) b. don’t know ( )

17 Are accounting entires made in respect of rent and insurance paid in advance.

a. Yes ( ) b. No ( ) b. don’t know ( )


18 Are accurate accounting records kept in respect of movements of stores items in appropriate bill cards and stores ledger?

a. Yes ( ) b. No ( ) b. don’t know ( )

19 Is stock taking carried out on stores items?

a. Yes ( ) b. No ( ) b. don’t know ( )

20 Is reconciliation statement prepared in respect of stores balances and the control account kept in the treasury?

a. Yes ( ) b. No ( ) b. don’t know ( )

21 If your answer to question 20 is yes, how often is the reconciliation statement prepared?

a. Yes ( ) b. No ( ) b. don’t know ( )

22 Are expendable store (e.g. spanners and other road tools taken on charge after the day’s work?

a. Yes ( ) b. No ( ) b. don’t know ( )


23 How would you classify the design of the accounting system of the local government?

a. very adequate b. adequate c. inadequate

d. very inadequate e. Not certain

24 How effective is the operation of the accounting system of the local government?

a. Very effective b. Effective c. ineffective

d. very ineffective e. not certain

25 How does the financial statement of the local government approximate its true financial position?

Accounting Systems In Local Government (A Case Study Of Obingwa Local Government Area Abia State)

To place an order for the Complete Project Material, pay N5,000 to

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