THE ACCOUNTING SYSTEM AND METHOD OF INTERNAL CONTROL
1.0 BACKGROUND TO THE STUDY
The essence of public accountability in the present dispensation demands a great attention of which the promptitude of producing accurate and comprehensive financial statement cannot be dispensed with.Government accounting system particularly those found in ministries have been designed primarily to achieve accountability and control, for instance, to ensure that expenditure conforms with authorization and that financial transactions are conducted in accordance with established rules, such arrangement satisfy some of the basic control needs of the executives and the legislature, but they do not themselves guarantee efficient operation.
In 1988, the civil service reform was undertaken to bring about standard result by putting life into professionalism of the service such government undertaking are normally concerned with how, efficient a local government makes use of its available means in pursuit of its innumerable ends. Obviously, the aim of creating local government is to make sure that grass root development (villages) are properly taking care off with their available financial and material and support from federal. The objective of the 1976 reforms was to create a local government system with complete and self-contained budget that would be effective and effectual. Before the reforms, Nigeria local government councils from their inception had suffered serious problem of improper accounting and internal control system (Wawhoop, 1979 : 16).
One of the commonest methods of measuring performance and result in organization is accounting system. If local government account is not properly checked through internal control, grass root development will be hindered. This is because it provides information to the management to enhance proper administration. The America Association of Accountants, defines accounting as the process of identifying, measuring and communicating of economic information to permit information judgment and decision by users of the information the American Institute of Certified Public Association (AICPA) (1961), defines accounting as the art of recording, classifying and summarizing in a significant manner and in terms of money, transaction and events which are in part at least of a financial character, and interpreting the result thereto. The author of the project defines accounting as the art of recording, classifying and summarizing, analyzing, interpreting and reporting on financial transactions and position of an organization to the interested persons or bodies. This last definition by the author, is because whenever two or more persons come together to form a union or an organization, the next thing is that money must be involved, local governments, administration and many organization desiring more effective use of causes means are at great advantage in the use of information made available by accounting system. Such information includes costs analysis in relation to output and objective and control which involves setting of budget. Analysis variance between actual and budgeted. There is also anticipation managing liquidity and making forecast of each flow and strategic decision making which involves appraising investment proposal and allocation of resource between task-cost benefit analysis.
Smith defines local government account as the art of systematically recording in money transactions undertaken by a person or body. The local government accounting has been restricted to a “process of recording, analysis, classifying, communicating, summarizing and interpreting the financial information or transaction about government in aggregate and in details reflecting all transaction of government funds and properties. The day to day conduct of a local government financial activities is guided by the financial memorandum which provides detailed instruction and guidance on the financial memoranda is charged with among other thing” the prescription of certain financial arrangement of local government and procedures in collection and accounting for revenue and controlling and accounting for expenditure. Finally, there can be a local government where there is an affective accounting system without an efficient and effective internal control instituted to check the excess of the accounting officials in local governments. In Enugu south local government, internal control system helps in prevention of frauds among the executive and account officers. Majority of the staff that is working under treasury department, tax department, revenue department has at least two cars. They enjoy government cars and buy first class cars for they personal use. This is because many of them embark on fraudulent act coupled with embezzlement and this brought about late payment of staff salaries. In order to stop this, Enugu south introduced proper internal control, which help them to trace down those executives who have criminal mind. Their bad character causes a lot of problems. The accounting system and method of internal control is very important in local governments and because of its important.
Luttleton (1953) defines accounting system as the control purpose of accounting to make possible the periodic matching of costs and revenues. Also internal control is define as the whole system of controls, financial or otherwise, established by management n order to secure as far as possible, the accuracy and reliability f the records, run the business in an orderly manner and safeguard the company’s asset this definition is by Osita Aguolu in his book fundamentals of auditing (1998).
1.1 STATEMENT OF PROBLEMS
PROBLEMS OF LOCAL GOVERNMENT ACCOUNTING SYSTEM
The local government accounting system is being complicated by several problems. These problems hinder the effective accounting system. Some of these problems are discussed below.
1. The local government accounting does not allow the publication of local government account. This is a problem to the local government accounting system because there will be no object of comparison between two local governments and thus see how it stands. There is a lack of competition between local governments (especially Enugu South) as provision of services and revenue generation. This prevents local government indigenes of improved services, and the state and local government lack sound criteria for allocating funds to local government.
2. The record keeping are seriously limited to mere clerical staff. Even the senior staff of the local government are being restricted from the records of the local government the clerical staff find it difficult to pint out the areas, that need adequate attention. The implication of this is that the strategic aspect of managing local government such as alternative source or revenue, performance appraisal, future development project, staff straining do not get the adequate managerial attention they deserve.
3. A few information is being provided for decision and planning. For example comparable information on ratio of capital to recurrent expenditure, or revenue and various analysis of such cost revenue over many years is not usually available in Enugu south local government this is why it is difficult to set down criteria evaluating the effectiveness of a particular course of action or for that matter for the effectiveness of the local government.
4. Staff are frequently accused of mismanagement of funds. Due to lack of published account by the local government, staffs are being accused of living above their means. The indigenes of local government lack proper information as to the local government spend, and this will give rise to rumour managing and trouble within the local government.
5. Inadequate care over control and record keeping. This may mean that fraud, theft, over invoicing and other irregularities may not be detected since accordingly. This may also head to a tendency for ignoring the implication of such, records for the effective utilization of resource. In Enugu south local government.
1.2 PURPOSE OR OBJECTIVES OF THE STUDY
To bring to focus the objective of internal control
It examines the accounting system in the local government and the method of internal control obtainable in it.
It examines the difficulties an problems encountered in carrying out basic accounting system in a local government.
It examines the different boos of accounts and principle adopted in the records.
It provides information needed by the management for sound decision.
1.3 SCOPE OR DELIMITATION OF THE STUDY
The scope mainly cover the accounting system and method of internal control in local government with particular reference to Enugu south local government area in Enugu state.Due to financial and time constraints, this study has been limited to a particular government that is Enugu south local government in Enugu state.
1.4 SIGNIFICANCE OR RATIONALE OF THE STUDY
At the end of the study, we will be able to explain the benefits to be gained by the local government from the findings of the study and also whether accounting system is important to local government.There appears to be a large gap between the public expectation that accounting system and internal control should be implemented in local government. It is hoped that the study will solve the issues of the completion of this study.
DEFINITION OF TERMS
SYSTEM: This is defined by advanced learner dictionary as a set of ideas, theories, principles or as a group of thing or parts working together in a regular basis.
ACCOUNTING: This is defined by the American Association of Accountant as the process of identifying, summarizing, communicating economic information to permit informed judgment and decisions by users of the information.
CONTROL: This is the power or authority to direct information or activities over people.
INTERNAL CONTROL: This involve the whole system of controls, financial or otherwise established by management in order to secure, as far as possible, the accuracy and reliability of the records, run the business in an orderly manner and safeguard the organization or company assets.
ACCOUNTING SYSTEM IN LOCAL GOVERNMENT: Is a process of recoding, analyzing, classifying, summarizing, communicating and interpreting all financial information about government in aggregate and in detail reflecting a transaction involving receipt, transfer and disposition of government funds and properties of the local government.