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 society. However, this depends not only on the resources endowment of such a 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 the system, a large labor force, a vibrant private sector, favorable growth indices, and competent civil service. Nigeria is 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 the 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 of today (Obadan and Ayodele, 1999). They also observed that the poverty levels in Nigeria in spite of poverty alleviation programs by successive governments remain high as the population continues to increase.
In the light of the above, Nigeria can best be described as a country with 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 over time is largely attributable to lack of transparency and accountability as well as widespread corruption”. The 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 are not lack resources but the unwillingness of their leaders to govern well. This development has thus justified the hypothesis that the abundance of resources of all types is not a sufficient condition for all-round development of any country (Obadan, 2003).
Since the 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 the 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 the 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) 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 the 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 the Obasanjo administration reformed the public procurement system in Nigeria. He introduced a new procurement system called the “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 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 the administration which is now called the “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 the 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 number of military decrees, legislature, and judicial activities, and finally, reforms from the committee’s recommendations. 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 the 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 for 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 the financial management of local government councils. Local government councils have been riddled with such problems as corruption in procurement, internal revenue collection, the award of contracts to the wrong contractors, amongst others.
The 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 is 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 the 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 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 the 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:
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 nonfinancial activities of local government councils in Nigeria.
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 the local government council have benefited from the proceeds of accountability and transparency in improvement of social amenities.
H0: The process of accountability and transparency has not affected the financial behavioral attitudes of the 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 to ascertain the possible factors which are responsible for causing improper accountability and transparency in financial management in the conduct of the public sector in Nigeria. This study will also help give a better understanding of the 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 the 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 add to his/her knowledge and insight of what due process is and its applications.
1.8 SCOPE OF THE STUDY
This study examines a 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 of 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 decentralization 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 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 the use of urban land, enterprise income tax, personal income tax, tariff, stamp tax on security transactions, tax on the purchase of motor vehicles, tax on agriculture and animal husbandry and tax on the occupancy of cultivated land, etc.
(2) Special revenues, including revenues from the fee on sewage treatment, fee on urban water resources, the 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 the 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 today.
MANAGEMENT: The achievement of organization and goals through 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-laws, and excesses..