Analysis of the Effectiveness of Capital Expenditure Budgeting in the Local Government System of Ondo State, Nigeria
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Journal of Accounting and Taxation Vol. 4(1), pp. 1-6, February 2012 Available online at http://www.academicjournals.org/JAT DOI: 10.5897/JAT11.038 ISSN 2141-6664 ©2012 Academic Journals Full Length Research Paper Analysis of the effectiveness of capital expenditure budgeting in the local government system of Ondo State, Nigeria Olurankinse Felix Department of Accounting, Adekunle Ajasin University, Akungba – Akoko, Ondo State, Nigeria. E-mail: [email protected]. Tel: 08033818613. Accepted 13 February, 2012 Year in year out, Nigerians always hear of billions and trillions of naira budgeted as capital expenditure in our annual budget. This amount undoubtedly continues to increase with each passing year, but the society is always at a loss as to where the money was invested. There seems to be wide disparity between budget proposal and accomplishment. The government at all levels are accused of disregard for budgetary provisions, late passage of budget, involvement in extra-budgetary activities, late release of capital vote and selective implementation of budget. This paper therefore investigates whether or not there is a significant difference between the mean of budgeted capital and expended capital using some infrastructures in some selected local government. The paper adopts a basic research approach where data were obtained from secondary sources, mainly from published materials which include annual financial statements and publication of approved budget estimates covering the period of study. A stratified random sampling was adopted in selecting the sample. A method of descriptive analysis was used in analyzing the data. The method includes measures of central tendencies and test of equality among the means of budgeted capital and expended expenditure on each project per local government. This test uses the student t-test of differences of means. The outcome of the paper shows that there was a positive and significant relationship between budgeted capital and actual expenditure. The implication of this is that an increase in budgeted capital will lead to an increase in capital expenditure on that infrastructure. Key words: Infrastructures, budgeted capital, expended capital, disparity, local government areas. INTRODUCTION One of the reasons why government engage in budgeting individuals within and outside government. The desire is scarcity of resources which always leads to claims and and expectations of the citizens from their government is demands outweighing the resources to satisfy them. that available resources be used efficiently and effectively There are different types of resource scarcity that the to provide the highest level of public services possible. By government can face, however, irrespective of the type of measuring its level, efficiency and outcomes of a scarcity facing the government; choice must still be made programme’s effort, performance indicators can guide about what constitutes government priorities at any government resource allocation and communicate to the particular period (Olurankinse, 2010). people, the goods, objectives and effectiveness of public Onimode (1999) was of the opinion that the choice programmes. should be made through democratic budgeting which The effectiveness of capital expenditure is measured in allows the participation of the people in the determination terms of what proportion of the budget was actually spent of government priorities. However, in practice, the choice and these calls for comparison between the amount set that is made is not of the people but of the dominant aside for a particular project in the annual budget and the 2 J. Account. Taxation actual amount of the physical infrastructures on ground. resources; procurement methods generating value for The need for this comparison is very crucial as it helps to money and government accountable for its managements measure deviation so as to take necessary control and to of public funds (Ola and Effiong, 1999). forestall further wastages and extravagant spending. An effective mechanism to make progress on this front (Adubi, 2002) would be to develop financial reporting information which will be useful for all managers in the government. Making budget process more responsive to priorities required the CONCEPTUAL FRAMEWORK establishment of priorities across expenditure. This according to Asiodu (2000) is based on three policy There have been views that the experience of public elements namely: sector failure in Nigeria is not an indictment of fiscal management theory, but a reflection of the political and (a) Fiscal rules applying variously to limits on budget economic environment resulting from the absence of deficit, expenditures, taxes, debts etc. fiscal transparency and probity in the management of (b) Strengthening the medium term perspectives of the government finances. Kopts and Craig (1998) defined budget process by identifying both the current and future fiscal transparency as openness toward the public at a impact and cost associated with spending programme. large about government structure and function, fiscal (c) Aligning budget allocation with policy priorities to policy intentions, public sector accounts and projections.” reduce budget fragmentation. According to Akintoye (2008), It involves ready access to reliable comprehensive, timely, understandable and Having identified the different entities responsible and internationally comparable information on government involve in the budgetary process, the following are re- activities. Today, because of scarce resources, the cipes for bringing about effective execution of the budget: management of money is more important than ever for public and private entities, budgeting plays an enormous (i) There must be competent and dedicated expert who role in controlling operations efficiently and effectively. should collect, process, analyses and apply data Effectiveness can be explained in terms of what is adequately to the budgetary process; achieved and the number of goods and services (ii) There must be effective and strong communication produced. It is about whether targets are met or not. network in the entire budgetary process. Performing effectively means that the right work is being (iii) All involve in the planning in budgetary process completed. If a team is working really hard but not should have regard for law and order, laid-down rules delivering what is needed, then they are not effective. and regulations; Effectiveness is measured by setting out clear (iv) There should be honesty of purpose, respect for each objectives before work starts and then evaluating whether view points and less suspicious of each other view point the objectives have been met or not (Olofin, 2003). and action; There are constitutional provisions spelling out the (v) Datelines, conditions and standards set for each of financial power of each arm of government. For instance, the units involves in the budgetary process should be the 1999 Nigerian constitution section 81 (1) rests all exe- standardized and not having double or triple standards; cutive powers in the chairman requiring him to prepare (vi) The critical role of the legislature in the budget estimate of the revenue and expenditures of local process is the authorization of expenditure proposed by government for the next financial year and lay them the chief executive and legislature of fiscal measure to before the councilors for authorization before spending generate revenue. Therefore, debates and final can take place. Under the same constitution, only the consideration by the legislature should be objective and legislative arm has the power to authorize expenditure of less partisan. It should be noted however, that political public funds (Bamori, 2004). consideration cannot be completely removed from In order to ensure financial prudence and budgetary process. accountability, the constitution provides for the annual (vii) Since the legislature have the power of the purse, it auditing of the public accounts. The audited accounts of should not take advantage of such powers to unduly the local government councils are submitted to the public delay the authorization of the proposed expenditure by account committee of the state assembly for consi- the chief executive of any of the three tiers of deration. It is important that the priorities of government government. are established as this will drive the most appropriate (viii) The budgetary personnel must have the capability measures to be used and lead to the best effectiveness. through some built- in mechanism to check certain uncer- If institutions lead to a well conceived budget, the quality tainties in the economy, particularly, in view of the of expenditures depends on four conditions: Delivery prevailing economic conditions. Political will is sometimes units receiving budgeted funds on time; adequate lacking to do this. processes and controls with respect to the use of these (ix) There must be an up- to –date knowledge of the Olurankinse 3 progress and weaknesses of implementation processes. Model specification If up- to- date reports are not available, it becomes difficult to maintain effectiveness in the economy. The broad objective of this study is to find out if there is a significant difference between budgeted capital expenditure and the actual (x) The chief executive should bear in mind always his expenditure on some infrastructures with a view to determining their constituency that is, the entire local government area. level of effectiveness.