| Content | CHAPTER ONE
INTRODUCTION
1.0 Background of Study
A financial statement refers to a summary explaining or providing a picture of the financial position/business performance (Atrill & Mclaney 2015) and or activities of a business during a certain period. Generally accepted accounting principles (GAAP) require a company to prepare a full set of financial statements that conform to regulatory guidelines and should be accurate. A full set of financial reports include statements of retained earnings, cash flows and the statement of a financial position (balance sheet). A good financial statement should document information such that it is easy to read and understandable.
Presenting a financial statement clearly and professionally helps companies interpret results and thus plan for a more profitable future. Growth in a business refers to a company expanding its business using its own resources and assets. This growth also depends on the financial statement of the organization.
Similarly, a financial statement is a summarized report (Benedict & Elliott 2011) that indicates cooperation?s operating data during a period or its economic standing at a giving period. Financial statement preparations in a company are usually done by internal accountants, who are directly influenced by the management of the company. Companies make certain decisions based on information from financial statements. Thus, a fraudulent or an erroneous financial statement implies a risk possibility which can cause wrong investment decisions making in an organization. Financial statements of companies are prepared either using generally accepted accounting principles (GAAP), defined by the law on accounting and the law on financial statements, or using international financial reporting standards (IFRS) and international accounting standards (IAS), issued by the international accounting standards board. These standards are not enforceable together; therefore, companies choose one of them for reporting purposes.
Investment decisions can be explained as the determination made by directors or management body as to when and how much capital can be spent on investment opportunities. The decision often follows research on financial statements.
1.2 Statement of Problem
As a current situation in most Micro finance in Nigeria, investment decisions in Excel Micro Finance have been very slow due to the negligence on the use of financial statement and other important financial records. Most organizations are still ignorant of the benefits of financial statement, thereby limiting their knowledge about their financial position and above all their ability to use financial statements to make important investment decisions. For this reason, it was very important for the researcher to carry out a proper study and research on this issue, to point out the alarming signal on the impact of the financial statement in investment decisions in an organization. Incidentally, bookkeeping as a practice is a necessary pointer of strength and weakness in a business entity, however, the level of business management expertise and financial reporting skills necessary for sound decision making has been way below the conventional standards expected. Also, most Micro finance institutes(MFI) complying with the bookkeeping principles have fallen short of living up to the laid down standards, but to satisfy the mandatory and statutory requirement. Subsequently, this has further raised the urgency to provide technical support and management training needs, to the operators in this sector to cope with the ever-growing demand for new and existing players in the industry because of competition, creativity and innovation. Financial statements hold the potential of unraveling the future of MFIs as an integral driver of economic growth and development in low income economies. Despite the use of financial statements in Excel Micro Finance, the institution is still unaware of the importance in the frequency and manner of presentation of these statements as far as investments are concerned. Having in mind the fact that financial viability is quite important, what therefore is the role of financial statements in investment decisions of micro financial institutions?
1.3 Research Questions
To attain the objectives of this study, the researcher had the main research question,
i. what role does financial statement play in helping managers make investment decisions in an organization?
ii. what is the importance of financial statement to an organization?
iii. to what extent do investors make use of financial statements in investment decision making?
iv. how reliable is financial statement as a tool in making investment decisions
v. how many types of financial statements are there?
vi. what are the various tools used for the presentation of the financial statements?
1.4 Objectives of Study
The objectives of this research are:
i. to find out the contribution of financial statement in investment decisions of an organization.
ii. to determine the types of financial statements, used by different organizations
iii. to determine the reliability of financial statement in investment decision making
iv. to determine the various tools, used for the presentation of the financial statements and its importance to an organization.
1.5 Research Hypothesis
H0: Financial statements do not have any impact on investment decision making in organization.
H1: Financial statements have an impact on investment decision making in organization.
1.6 Scope of the Study
The scope of the study involves the financial statement in the investment decision of Micro Finance Bank, Eruwa. The study was extended to the financial department in particular and for the confiner to Micro Finance Bank.
1.7 Significance of Study
A financial statement is a significant tool/document because investors and regulators rely on accounting information to make managerial decisions. Consequently, financial data's that are inaccurate or misleading can cause readers and users to make wrong investment or regulatory calls. This study will help create awareness with respect to the great impact account reporting has on investment decisions. It will reveal how finance has been raised and how it has been deployed in finance organisations, Furthermore, it will show the relationships between wealth generated and wealth invested and how they can be important and helpful indicators of business effectiveness.
Finally, it will serve as a reference document for future researchers interested in this subject of study.
1.8 Limitation of the Study
i. The analysis was made with the help of the secondary data collected from the company.
ii. All the limitations of ratio analysis, financial statement, common-size statement, comparative statement and interpret are applicable to the study.
1.9 Operational Definition of Terms
Financial statements: Are written records that convey the financial activities and conditions of a business or entity and consist of four major components
Investment: Is using money to purchase assets in the hope that the asset will generate income over time or appreciate over time.
Decision: process is described as a series of steps, starting with information output and analysis and culminating in resolution, namely a selection from several available alternatives.
Microfinance Institution: Is an organization that offers financial services to low income populations. Almost all give loans to their members, and many offer insurance, deposit and other services.
Income Statement: is a financial statement that reports a company's financial performance over a specific accounting period.
Equity: A stock or any other security representing an ownership interest. This may be in a private company.
Balance Sheet: is a statement of the financial position of a business which states the assets, liabilities, and owners' equity at a particular point in time.
Asset: is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit. | The Role of Auditors in the Nigerian Banking Crisis
CHARPTER ONE
- Introduction
In societies marked by divisions of expert labour, external auditing is promoted as a trust engendering technology with the capacity to promote a certain kind of social order (Power, 1999). Accountants, as auditors, have cemented their status and privileges on the basis of claims that their expertise enables them to mediate uncertainty and construct independent, objective, true and fair accounts of corporate affairs (Sikka, 2009). It has been argued, however, that such claims are not good indicators of corporate performance, because capitalist economies are inherently prone to crises (O’Connor, 1987; Sikka, 2009). Furthermore, the claims of expertise are frequently affected by unexpected corporate collapses, fraud, financial crime and the general crisis of capitalism (Baker, 2007; Sikka, 2009; Sikka et al, 2009)
Since 2007, major Western economies have been experiencing a deepening banking and financial crisis arising from subprime lending practices by banks, which in turn has restricted the availability of credit and has led to what has been described as the ‘credit crunch’ (Sikka et al, 2009). Some commentators have attributed this economic crisis to the unethical practices of corporate bank managers and to the inability of auditors to expose such anti-social practices from previous audits (Broad Street Journal, 21 October 2009; Sikka, 2009). Some auditors may have failed to comply with expected standards. If a company fails shortly after being audited, the auditors may be blamed for conducting an inferior audit (Dopuch, 1988). Thus, whenever there is a financial scandal, it must be questioned whether the auditors carried out their duties and obligations with due care and diligence.
In Nigeria the spate of corporate failures witnessed in the financial sector in the early 1990s brought auditors into sharp focus and caused the Nigerian public to question the role of accountants and auditors (Okike, 2004; Bakre, 2007; Ajibolade, 2008). Furthermore, the investigations launched by the regulators and other stakeholders into the cases of distress and disclosure revealed that accountants and auditors were implicated (NDIC, 1995). With the recent banking crisis in Nigeria members of the auditing profession in Nigeria are once again in the limelight, as the banking crisis and the revelation of unethical practices by bank executives and board members has raised many questions about the ethical standards of the accounting profession and about the integrity of financial reports issued by professional accountants (ThisDay, 9 December 2009). The question has been raised as a result of the failure on the part of accountants and auditors to alert regulators when they have discovered fraud and other irregularities in company records (Bakre, 2007; Ajibolade, 2008; Okike, 2009; Neu et al, 2010).
In respect of the banking crisis, attention has focused on the role of accountants and auditors who have been involved. Accountants and auditors may be expected to report financial irregularities in company accounts by enhancing transparency and accountability and by developing techniques for fraud detection. However, an emerging body of literature argues that accounting professionals have increasingly used their expertise to conceal and promote anti-social practices (Sikka, 2008a; US Senate Permanent SubCommittee on Investigations, 2005; Bakre 2007). For example, Akintola Williams and Deloitte (AWD) was indicted for facilitating the falsification of the accounts of Afribank Plc and for deliberately overstating the profits of Cadbury Nigeria Plc. It has been reported that between 1990 and 1994 the Nigerian economy lost more than N6 billion ($42.9 million) to fraud within the banking sector alone (Bakre, 2007).
The social cost of the banking crisis is difficult to estimate, but huge amounts of public money are being used to bail out distressed banks (Sikka, 2009). In 2008, almost every Reserve Bank across the globe, in collaboration with finance ministries, was forced to adopt extraordinary measures to stave off the collapse of the financial institutions and to restore confidence in the banking system. Some countries, such as the UK, took direct stakes in their banks as a temporary measure in order to ensure that they kept lending. The German and French governments offered to guarantee inter-bank deposits to achieve the same purpose, while the US government rolled out the Emergency Economic stabilization Act authorizing the US Treasury
Department to spend up to $700 billion to purchase distressed assets from sick banks and to make a direct capital injection into those institutions (The Guardian, 30 August 2009).
While the global recession was biting hard on advanced economies, the governors of the Central Bank of Nigeria (CBN) had stated that ‘what the rest of the world is now trying to do as the bailout option was what Nigeria did about four years ago, through a pro-active initiative, the result of which we are celebrating today’ (ThisDay, 16 October 2008). Less than a year later, however, Nigerians were awoken to the reality that the Nigerian banks were not so stable after all (The Guardian, 21 August 2009). The audit conducted by the CBN into the activities of the 24 registered banks in 2009 revealed that they were experiencing huge financial difficulties in their operations. As a consequence, in August 2009, CBN injected N420 billion ($2.8 billion) into the first five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) which had failed the CBN audit. Two months later, an additional N200 billion ($1.33 billion) was injected to stimulate the liquidity of four other banks (Bank PHB, Equitorial Trust Bank, Spring Bank and Wema Bank) (Nigerian Tribune, 8 December 2009; ThisDay, 12 December 2009). This injection of money was done in order to stabilize the banks and to ensure that they remained going concerns after their former managers had been sacked for reckless lending and for lax corporate governance which had rendered the institutions undercapitalized (Nigerian Tribune, 17 August 2009; ThisDay, 12 December 2009).
Although the global financial and banking crises have attracted the attention of policy-makers (TI, 2009) and scholars (Njanike et al, 2009; Sikka, 2009; Sikka et al, 2009), comparatively little scholarly attention has focussed on the role of auditing firms in facilitating the mismanagement of bank assets, liabilities and depositors’ funds in developing countries. This paper therefore provides evidence on the inadequacy of audit reports for disclosing nonperforming loans and the mismanagement of banking assets. Such evidence can help understand the auditing practices which have been adopted, but which are in direct conflict with the express claims of auditors and accountants to be acting in an ethical and socially responsible way. This paper contributes to the on-going debate on the usefulness of auditing and the need for accounting professionals to ensure that they continue to play a leading role in providing credibility to published financial statements and in maintaining the confidence of depositors in banks and investors in the capital market.
The paper is organized as follows. Part II examines the literature on the role of auditing in corporate collapse, particularly in respect of banking failures. Part III considers the theoretical framework of professionalism and the pursuit of profits. It is argued that, despite the regulatory framework governing the professional activities of auditors and accountants, the pursuit of profits and systemic pressure to increase corporate performance have been prioritized. Part IV describes the auditing environment in Nigeria in order to provide an understanding of the socio-political and economic contexts within which such accounting and auditing practices are embedded. Part V provides empirical evidence on the role of auditors in bank failures and the recent banking crisis in Nigeria by way of case-studies. Part VI concludes the paper by providing a summary and discussion of the issues raised and offers suggestions for reform. | CHAPTER ONE INTRODUCTION Background of the Study Business education is a type of education that gives skills for business rated occupations. Business education trains learners or provides learners with information or competencies needed by all in the management of personal business affairs. However, Business Education according to the American Vocational Association in Osuala (2004) is a programme of instruction which consists of two parts: the first part is office education; a programme for office careers through initial refresher and upgrading education, leading to employment and advancement in office occupation. The second part is general business education; a programme to provides students with information and competencies which are needed by all in managing personal business affairs and in using the services of the business world. Business education is the sum total of human activities directed towards providing and acquiring specialist knowledge, skills and attitude that are required for successful promotion of business enterprise (Osuala, 2004). Anao (2006) defined business education as an educational process or content which has its primary aim as the preparation of people for roles in business enterprise. Two major specific objectives of business education are the preparation of learners 1 for vocational experience and development of skills, activities and personal habits which forms the basis for further development of employable skills (Nolan, Hayden and Masbary in MounyJoy, 2007). In essence business education apart from equipping one with such vocational skills as secretarial, marketing, administrative and management skills for business success, also equips its graduates with accounting skills, which enables the graduates succeed in entrepreneurship. Accounting is one of the major occupation areas of Business Teacher Education that prepares students for job or employment within a wide range of business careers. Accounting is generally viewed as information system about the financial affairs and the operation of a business. It is a statement of money held in trust, expressed in credit and debits. Accounting may also be defined as a statement proffering the use of assets and management of liabilities of a business venture, expresses in a book-keeping form (Clarke, 2002). Accounting is generally useful for effective management of business ventures through the accurate recording, analyses and interpretation of business transactions (Osuala, 2004). American Institute of Certified Public Accountants (AICPA) in Anao (2002) defines accounting as an art of reading, classifying and summarizing in a significant manner and in terms of money, transactions and events of a financial character and interpreting the result thereof. According to Anao (2002), this definition identifies the major activities found in accounting which include, recording and summarizing of data, usually expressed in monetary terms and the subsequent interpretation of the resultant accounting information. This definition also emphasizes that accounting has to do with only transactions and events which have financial implications. In the context of this study, accounting is one of the areas of business education that prepare graduates for a job or employment within a wide range of business careers due to the inherent skills the beneficiaries acquired. | CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE OF BANKS: A STUDY OF LISTED BANKS IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.0 Background to the Study
This project is on Corporate governance and financial performance of banks: a study of listed banks in Nigeria. Globalization and technology have continuing speed which makes the financial arena to become more open to new products and services invented. However, financial regulators everywhere are scrambling to assess the changes and master the turbulence (Sandeep, Patel and Lilicare, 2002:9). An international wave of mergers and acquisitions has also swept the banking industry. In line with these changes, the fact remains unchanged that there is the need for countries to have sound resilient banking systems with good corporate governance. This will strengthen and upgrade the institution to survive in an increasingly open environment (Qi, Wu and Zhang, 2000; Köke and Renneboog, 2002 and Kashif, 2008).
Given the fury of activities that have affected the efforts of banks to comply with the various consolidation policies and the antecedents of some operators in the system, there are concerns on the need to strengthen corporate governance in banks. This will boost public confidence and ensure efficient and effective functioning of the banking system (Soludo, 2004a). According to Heidi and Marleen (2003:4), banking supervision cannot function well if sound corporate governance is not in place. Consequently, banking supervisors have strong interest in ensuring that there is effective corporate governance at every banking organization. As opined by Mayes, Halme and Aarno (2001), changes in bank ownership during the 1990s and early 2000s substantially altered governance of the world’s banking organization. These changes in the corporate governance of banks raised very important policy research questions. The fundamental question is how do these changes affect bank performance?
It is therefore necessary to point out that the concept of corporate governance of banks and very large firms have been a priority on the policy agenda in developed market economies for over a decade. Further to that, the concept is gradually warming itself as a priority in the African continent. Indeed, it is believed that the Asian crisis and the relative poor performance of the corporate sector in Africa have made the issue of corporate governance a catchphrase in the development debate (Berglof and Von -Thadden, 1999).
Several events are therefore responsible for the heightened interest in corporate governance especially in both developed and developing countries. The subject of corporate governance leapt to global business limelight from relative obscurity after a string of collapses of high profile companies. Enron, the Houston, Texas based energy giant and WorldCom the telecom behemoth, shocked the business world with both the scale and age of their unethical and illegal operations. These organizations seemed to indicate only the tip of a dangerous iceberg. While corporate practices in the US companies came under attack, it appeared that the problem was far more widespread. Large and trusted companies from Parmalat in Italy to the multinational newspaper group Hollinger Inc., Adephia Communications Company, Global Crossing Limited and Tyco International Limited, revealed significant and deep-rooted problems in their corporate governance. Even the prestigious New York Stock Exchange had to remove its director (Dick Grasso) amidst public outcry over excessive compensation (La Porta, Lopez and Shleifer 1999).
In developing economies, the banking sector among other sectors has also witnessed several cases of collapses, some of which include the Alpha Merchant Bank Ltd, Savannah Bank Plc, Societe Generale Bank Ltd (all in Nigeria), The Continental Bank of Kenya Ltd, Capital Finance Ltd, Consolidated Bank of Kenya Ltd and Trust Bank of Kenya among others (Akpan, 2007).
In Nigeria, the issue of corporate governance has been given the front burner status by all sectors of the economy. For instance, the Securities and Exchange Commission (SEC) set up the Peterside Committee on corporate governance in public companies. The Bankers’ Committee also set up a sub-committee on corporate governance for banks and other financial institutions in Nigeria. This is in recognition of the critical role of corporate governance in the success or failure of companies (Ogbechie, 2006:6). Corporate governance therefore refers to the processes and structures by which the business and affairs of institutions are directed and managed, in order to improve long term share holders’ value by enhancing corporate performance and accountability, while taking into account the interest of other stakeholders (Jenkinson and Mayer, 1992). Corporate governance is therefore, about building credibility, ensuring transparency and accountability as well as maintaining an effective channel of information disclosure that will foster good corporate performance.
Jensen and Meckling (1976) acknowledged that the principal-agent theory which was also adopted in this study is generally considered as the starting point for any debate on the issue of corporate governance. A number of corporate governance mechanisms have been proposed to ameliorate the principal-agent problem between managers and their shareholders. These governance mechanisms as identified in agency theory include board size, board composition, CEO pay performance sensitivity, directors’ ownership and share holder right (Gomper, Ishii and Metrick, 2003). They further suggest that changing these governance mechanisms would cause managers to better align their interests with that of the shareholders thereby resulting in higher firm value.
Although corporate governance in developing economies has recently received a lot of attention in the literature (Lin (2000); Goswami (2001); Oman (2001); Malherbe and Segal (2001); Carter, Colin and Lorsch (2004); Staikouras, Maria-Eleni, Agoraki, Manthos and Panagiotis (2007); McConnell, Servaes and Lins (2008) and Bebchuk, Cohen and Ferrell (2009), yet corporate governance of banks in developing economies as it relates to their financial performance has almost been ignored by researchers (Caprio and Levine (2002); Ntim (2009). Even in developed economies, the corporate governance of banks and their financial performance has only been discussed recently in the literature (Macey and O’Hara, 2001).
The few studies on bank corporate governance narrowly focused on a single aspect of governance, such as the role of directors or that of stock holders, while omitting other factors and interactions that may be important within the governance framework. Feasible among these few studies is the one by Adams and Mehran (2002) for a sample of US companies, where they examined the effects of board size and composition on value. Another weakness is that such research is often limited to the largest, actively traded organizations- many of which show little variation in their ownership, management and board structure and also measure performance as market value.
In Nigeria, among the few empirically feasible studies on corporate governance are the studies by Sanda and Mukailu and Garba (2005) and Ogbechie (2006) that studied the corporate governance mechanisms and firms’ performance. In order to address these deficiencies, this study examined the role of corporate governance in the financial performance of Nigerian banks. Unlike other prior studies, this study is not restricted to the framework of the Organization for Economic Cooperation and Development principles, which is based primarily on shareholder sovereignty. It analyzed the level of compliance of code of corporate governance in Nigerian banks with the Central Bank’s post consolidated code of corporate governance. Finally, while other studies on corporate governance neglected the operating performance variable as proxies for performance, this study employed the accounting operating performance variables to investigate the relationship if any, that exists between corporate governance and performance of banks in Nigeria.
1.1 Statement of Research Problem
Banks and other financial intermediaries are at the heart of the world’s recent financial crisis. The deterioration of their asset portfolios, largely due to distorted credit management, was one of the main structural sources of the crisis (Fries, Neven and Seabright, 2002; Kashif, 2008 and Sanusi, 2010). To a large extent, this problem was the result of poor corporate governance in countries’ banking institutions and industrial groups. Schjoedt (2000) observed that this poor corporate governance, in turn, was very much attributable to the relationships among the government, banks and big businesses as well as the organizational structure of businesses.
In some countries (for example Iran and Kuwait), banks were part of larger family-controlled business groups and are abused as a tool of maximizing the family interests rather than the interests of all shareholders and other stakeholders. In other cases where private ownership concentration was not allowed, the banks were heavily interfered with and controlled by the government even without any ownership share (Williamson, 1970; Zahra, 1996 and Yeung, 2000). Understandably in either case, corporate governance was very poor. The symbiotic relationships between the government or political circle, banks and big businesses also contributed to the maintenance of lax prudential regulation, weak bankruptcy codes and poor corporate governance rules and regulations (Das and Ghosh, 2004; Bai, Liu, Lu, Song and Zhang, 2003).
In Nigeria, before the consolidation exercise, the banking industry had about 89 active players whose overall performance led to sagging of customers’ confidence. There was lingering distress in the industry, the supervisory structures were inadequate and there were cases of official recklessness amongst the managers and directors, while the industry was notorious for ethical abuses (Akpan, 2007). Poor corporate governance was identified as one of the major factors in virtually all known instances of bank distress in the country. Weak corporate governance was seen manifesting in form of weak internal control systems, excessive risk taking, override of internal control measures, absence of or non-adherence to limits of authority, disregard for cannons of prudent lending, absence of risk management processes, insider abuses and fraudulent practices remain a worrisome feature of the banking system (Soludo, 2004b). This view is supported by the Nigeria Security and Exchange Commission (SEC) survey in April 2004, which shows that corporate governance was at a rudimentary stage, as only about 40% of quoted companies including banks had recognized codes of corporate governance in place. This, as suggested by the study may hinder the public trust particularly in the Nigerian banks if proper measures are not put in place by regulatory bodies.
The Central Bank of Nigeria (CBN) in July 2004 unveiled new banking guidelines designed to consolidate and restructure the industry through mergers and acquisition. This was to make Nigerian banks more competitive and be able to play in the global market. However, the successful operation in the global market requires accountability, transparency and respect for the rule of law. In section one of the Code of Corporate Governance for banks in Nigerian post consolidation (2006), it was stated that the industry consolidation poses additional corporate governance challenges arising from integration processes, Information Technology and culture. The code further indicate that two-thirds of mergers world-wide failed due to inability to integrate personnel and systems and also as a result of the irreconcilable differences in corporate culture and management, resulting in Board of Management squabbles.
Despite all these measures, the problem of corporate governance still remains un-resolved among consolidated Nigerian banks, thereby increasing the level of fraud (Akpan, 2007) see Appendix 2. Akpan (2007) further disclosed that data from the National Deposit Insurance Commission report (2006) shows 741 cases of attempted fraud and forgery involving N5.4 billion. Soludo (2004b) also opined that a good corporate governance practice in the banking industry is imperative, if the industry is to effectively play a key role in the overall development of Nigeria.
The causes of the recent global financial crises have been traced to global imbalances in trade and financial sector as well as wealth and income inequalities (Goddard, 2008). More importantly, Caprio, Laeven & Levine (2008) opined that there should be a revision of bank supervision and corporate governance reforms to ensure that deliberate transparency reductions and risk mispricing are acted upon.
Furthermore, according to Sanusi (2010), the current banking crises in Nigeria, has been linked with governance malpractice within the consolidated banks which has therefore become a way of life in large parts of the sector. He further opined that corporate governance in many banks failed because boards ignored these practices for reasons including being misled by executive management, participating themselves in obtaining un-secured loans at the expense of depositors and not having the qualifications to enforce good governance on bank management.
The boards of directors were further criticized for the decline in shareholders’ wealth and corporate failure. They were said to have been in the spotlight for the fraud cases that had resulted in the failure of major corporations, such as Enron, WorldCom and Global Crossing.
The series of widely publicized cases of accounting improprieties recorded in the Nigerian banking industry in 2009 (for example, Oceanic Bank, Intercontinental Bank, Union Bank, Afri Bank, Fin Bank and Spring Bank) were related to the lack of vigilant oversight functions by the boards of directors, the board relinquishing control to corporate managers who pursue their own self-interests and the board being remiss in its accountability to stakeholders (Uadiale, 2010). Inan (2009) also confirmed that in some cases, these bank directors’ equity ownership is low in other to avoid signing blank share transfer forms to transfer share ownership to the bank for debts owed banks. He further opined that the relevance of non- executive directors may be watered down if they are bought over, since, in any case, they are been paid by the banks they are expected to oversee.
As a result, various corporate governance reforms have been specifically emphasized on appropriate changes to be made to the board of directors in terms of its composition, size and structure (Abidin, Kamal and Jusoff, 2009).
It is in the light of the above problems, that this research work studied the effects of corporate governance mechanisms on the financial performance of banks in Nigeria and also reviewed the annual reports of the listed banks in Nigeria to find out their level of compliance with the CBN (2006) post consolidation code of corporate governance. The study also finds out if there is any statistically significant difference between the profitability of the healthy and the rescued banks in Nigeria as listed by CBN in 2009. Finally, it went further to investigate if the banks with foreign directors perform better than those without foreign directors.
1.2 Objectives of Study
Generally, this study seeks to explore the relationship between internal corporate governance structures and firm financial performance in the Nigerian banking industry. However, it is set to achieve the following specific objectives:
- To examine the relationship between board size and financial performance of banks in Nigeria.
- To find out if there is a significant difference in the financial performance of banks with foreign directors and banks without foreign directors in Nigeria
- To appraise the effect of the proportion of non- executive directors on the financial performance of banks in Nigeria.
- To investigate if there is any significant relationship between directors’ equity interest and the financial performance of banks in Nigeria.
- To empirically determine if there is any significant relationship between the level of corporate governance disclosure and the financial performance of banks in Nigerian.
- To investigate if there is any significant difference between the profitability of the healthy banks and the rescued banks in Nigeria.
1.3 Research Questions
This study addressed issues relating to the following pertinent questions emerging within the domain of study problems:
- To what extent (if any) does board size affect and the financial performance of banks in Nigeria?
- Is there a significant difference in the financial performance of banks with foreign directors and banks without foreign directors in Nigeria?
- Is the relationship between the proportion of non-executive directors and the financial performance of listed banks in Nigeria statistically significant?
- Is there a significant relationship between directors’ equity holdings and the financial performance of banks in Nigeria?
- To what extent does the level of corporate governance disclosure affect the performance of banks in Nigeria?
- To what extent (if any) does the profitability of the healthy banks differ from that of the rescued banks in Nigeria?
1.4 Hypotheses
To proffer useful answers to the research questions and realize the study objectives, the following hypotheses stated in their null forms will be tested;
Hypothesis 1a:
H0: There is no significant relationship between board size and financial performance of banks in Nigeria
Hypothesis 1b:
H0: There is no significant difference in the financial performance of banks with foreign directors and banks without foreign directors in Nigeria
Hypothesis 2:
H0: The relationship between the proportion of non executive directors and the financial performance of Nigerian banks is statistically not significant
Hypothesis 3:
H0: There is no significant relationship between directors’ equity holding and the financial performance of banks in Nigeria
Hypothesis 4:
H0: There is no significant relationship between the governance disclosures of banks in Nigeria and their performance
Hypothesis 5:
H0: There is no significant difference between the profitability of the healthy and the rescued banks in Nigeria
1.5 Significance of the Study
This study is of immense value to bank regulators, investors, academics and other relevant stakeholders. By introducing a summary index that is better linked to firm performance than the widely used G-index, the study provides future researchers with an alternative summary measure. This study provides a picture of where banks stand in relation to the codes and principles on corporate governance introduced by the Central Bank of Nigeria. It further provides an insight into understanding the degree to which the banks that are reporting on their corporate governance have been compliant with different sections of the codes of best practice and where they are experiencing difficulties. Boards of directors will find the information of value in benchmarking the performance of their banks, against that of their peers. The result of this study will also serve as a data base for further researchers in this field of research.
1.6 Justification of Study
Generally, banks occupy an important position in the economic equation of any country such that its (good or poor) performance invariably affects the economy of the country. Poor corporate governance may contribute to bank failures, which can increase public costs significantly and consequences due to their potential impact on any applicable system. Poor corporate governance can also lead markets to lose confidence in the ability of a bank to properly manage its assets and liabilities, including deposits, which could in turn trigger liquidity crisis.
From the preceding discussions, it is evident that the question of ideal governance mechanism (board size, board composition and directors equity interest) is highly debatable. Since performance of a firm, as identified by Das and Gosh (2004), depends on the effectiveness of these mechanisms, there is a need to further explore this area. Although researchers have tried to find out the effects of board size and other variables on the performance of firms, they are mostly in context of developed markets. To the best of the researcher’s knowledge based on the literatures reviewed, only few studies were found in the context of Nigerian banks. Due to neglect of banking sector by other studies and with radical changes in Nigerian banking sector in the last few years, present study aims to fill the existing gap in corporate governance literatures.
Studies on bank governance are therefore important because banks play important monitoring and governance roles for their corporate clients to safeguard their credit against corporate financial distress and bankruptcy. An expose by Prowse (1997) shows that research on corporate governance applied to financial intermediaries especially banks, is indeed scarce. This shortage is confirmed in Oman (2001); Goswami (2001); Lin (2001); Malherbe and Segal (2001) and Arun and Turner (2002). They held a consensus that although the subject of corporate governance in developing economies has recently received a lot of attention in the literature, however, the corporate governance of banks in developing economies has been almost ignored by researchers. The idea was also shared by Caprio and Levine (2001). Macey and O’Hara (2002) shared the same opinion and noted that even in developed economies; the corporate governance of banks has only recently been discussed in the literature. To the best of the researchers knowledge, apart from the few studies by Caprio and Levine (2002), Peek and Rosengren (2000) on corporate governance and bank performance, very little or no empirical studies have been carried out specifically on this subject especially in developing economies like Nigeria. A similar study carried out in Nigeria was by Sanda, Mukailu and Garba (2005) where they looked at corporate governance and the financial performance of nonfinancial firms. This scarcity of research effort demands urgent intervention, which therefore justifies the importance of this study, which intends to provide guidance in corporate governance of banks. Furthermore, banks are very opaque, which makes the information asymmetry and the agency problem particularly serious (Biserka, 2007). This also necessitates the study on bank governance.
1.7 Scope and Limitation of Study
Considering the year 2006 as the year of initiation of post consolidation governance codes for the Nigerian banking sector, this study investigates the relationship between corporate governance and financial performance of banks. The choice of this sector is based on the fact that the banking sector’s stability has a large positive externality and banks are the key institutions maintaining the payment system of an economy that is essential for the stability of the financial sector. Financial sector stability, in turn has a profound externality on the economy as a whole. To this end, the study basically covers the 21 listed banks out of the 24 universal banks, operating in Nigeria till date that met the N25 billion capitalization dead-line of 2005. The study covers these banks’ activities during the post consolidation period i.e. 2006-2008. The choice of this period allows for a significant lag period for banks to have reviewed and implemented the recommendations by the CBN post consolidation code. However it was not possible to obtain the annual reports of 2009/2010 since they are yet to be published by many of the banks as at the time of this research.
Furthermore, we focused only on banking industry because corporate governance problems and transparency issues are important in the banking sector due to the crucial role in providing loans to non-financial firms, in transmitting the effects of monetary policy and in providing stability to the economy as a whole. The study therefore covers four key governance variables which are board size, board composition, directors’ equity interest and governance disclosure level.
1.8 Summary of Research Methodology
This study made use of secondary data in establishing the relationship between corporate governance and financial performance of the 21 banks listed in the Nigerian Stock Exchange. The secondary data is obtained basically from published annual reports of these banks. Books and other related materials especially the Central Bank of Nigeria bullions and the Nigerian Stock Exchange Fact Book for 2008 were also reviewed.
In analyzing the relationship that exists between corporate governance and the financial performance of the studied banks, a panel data regression analysis method was adopted. The Pearson correlation was used to measure the degree of association between variables under consideration. However, the proxies that were used for corporate governance are: board size, the proportion of non executive directors, directors’ equity interest and corporate governance disclosure index. Proxies for the financial performance of the banks also include the accounting measure of performance; return on equity (ROE) and return on asset (ROA) as identified by First Rand Banking Group (2006). To examine the level of corporate governance disclosures of the sampled banks, the content analysis method was used. Using the content analysis, a disclosure index is developed for each bank using the Nigerian post consolidation code and the Organization for Economic Cooperation and Development (OECD) code of corporate governance as a guide. This was used alongside with the papers prepared by the UN Secretariat for the nineteenth and the twentieth session of International Standards of Accounting and Reporting (ISAR), entitled “Transparency and Disclosure Requirements for Corporate Governance” and “Guidance on Good Practices in Corporate Governance Disclosure” respectively.
The student t- test was used in analyzing the difference in the performances of the healthy banks and the rescued banks. It was also used to determine if there is any significant difference in the performance of banks with foreign directors and that of banks without foreign directors.
1.9 Sources of Data
This study employed only the secondary data derived from the audited financial statements of the listed banks on the Nigerian Stock Exchange (NSE) in analyzing the relationship between our dependent and independent variables. The secondary data covers a period of three years i.e. 2006 and 2008. This study also made use of books and other related materials especially the Central Bank of Nigeria bullions and the Nigerian Stock Exchange Fact Book (2008). Some of the annual reports that were not available at the NSE were collected from the head offices of the concerned banks in addition to the downloaded materials from the banks’ websites.
The data that was used in analyzing the disclosure index was derived using the content analysis method to score the banks based on their disclosure level. This was done using the disclosure items developed through the use of the CBN and the OECD codes of corporate governance.
| This project looks at The impact of development finance institutions (DFIS) in economic development of Nigeria. The need to stimulate the economy led to the establishment of Development finance institutions (DFIS) to contribute to the development of specific sectors of the economy especially agriculture and industry. The objective of the study is to find out the impact of the Nigerian agriculture credit and rural development bank (NACRDB) and the bank of industry (BOI) to economic development of Nigeria and in particular in Owerri. It will look at the contributions i.e. loan disbursement to agriculture and industry in Owerri between 2002 and 2011 (a period of ten years). The result of the analysis showed that Development finance institutions made significant contribution to economic development.
| THE ROLE OF FINANCIAL CONTROL INSTITUTIONS IN PROMOTING FINANCIAL ACCOUNTABILITY IN THE PUBLIC SECTOR: A STUDY OF PLATEAU STATE NIGERIA UNDER DEMOCRATIC REGIMES
CHAPTER ONE
INTRODUCTION
This project focuses on the role of financial control on selected institutions in promoting financial accountability in the public sector with a study of plateau state under democratic regimes. Nigeria, a federation of thirty-six States and Seven Hundred and seventy-four local governments, was a colony of Britain but became an independent State in 1960. It has a population of nearly one hundred and twenty million people and the dominant source of income is oil (Oladosu and Oyelakin 2003:1).
Nigeria has been divided into six geo-political zones - South-South, South-West, South- East, North- East, North -West and North- Central. Plateau State falls within the geo-political zone of North-Central. The State was first created as Benue-Plateau in 1967. It later became Plateau State with the creation of Benue State in 1976. Nassarawa State was also created out of Plateau State in 1996.
The Nigerian public sector consists of the governments at the Federal, States, Federal Capital Territory, Local Governments and all government parastatals. The public sector plays an important role in economic development. It provides services which the private sector may not be willing or able to provide. Chan (1988:15) argues that
the public sector provides many essential services to society. It plays an essentially compensatory function; that is, it performs those functions that the market economy does not do efficiently or lacks the incentive to do at all.
Musgrave and Musgrave (1976) classify these functions as
- Resource Allocation - the provision of public goods and services.
- Income Distribution - the adjustment of the distribution of wealth or income in the society to conform to some principle of fairness.
- Stabilization - the use of fiscal policies to achieve high employment, price stability and economic growth.
In a Federal system like Nigeria, the different tiers of government perform these functions in varying degrees. Governments at all levels desire to deliver good governance to all their citizens. This is because “good governance is central to creating and sustaining an enabling environment for development” (Asselin, 1995:3). A strong link exists between economic development and good governance, and between good governance and fiscal transparency.
The importance of good financial management in achieving the objectives of government has not lost its relevance. Because of this, the financial accountability of most countries is enshrined in the Constitution to facilitate the discharge of financial accountability. Oshisami and Dean (1984:36) remark that in recognition of the importance of finance as a basis for political power, and the opportunities which absolute control offers for its abuse, power over finance is divided, the division being formally recognized Constitutionally in virtually all countries.
Global practice shows that power over finance is shared between the Executive and the legislature and in some cases with an independent body - the Supreme Audit Institution. Has this Constitutional sharing of power over finance achieved the desired result?
In view of the enormous responsibilities placed on government for the welfare of its citizens, the public sector needs a lot of resources. In pursuit of this, the government needs to put up a framework for the management and control of the public purse. The formalities established in relation to accounting and financial control support the process of governance
The term ‘control’ has long been recognized as one of the principles of management. Control exists in most human endeavors. Most authorities agree on what constitutes control. Lucey (1996:137) states that control is concerned ‘with the efficient use of resources to achieve a previously determined objective, or set of objectives, contained within a plan’. Similarly, Koontz, Donnel and Wiehrick (1980:81) define control as the measurement and correcting of activities of subordinates to assure that events conform to plans. Ekwonu (1996:35) states that control ‘is the measurement of the performance of the activities of subordinates in order to make sure that objectives and plans devised to attain them are being accomplished’. All these definitions point to the fact that control exists to ensure that organizational objectives are met through measurement of performance. The control process according to (Koontz et al 1980:722) involves three steps:
- Establishing standards
- Measuring performance against these standards and
- Correcting deviations from standards and plans
Finance occupies a special place in the conduct of government business. Public finance has been defined by Buhari (1993:66) as ‘a branch of economics concerned with the finance and economic activities of the public sector’.
From these definitions, we can state that public finance not just deal with the ways government raises money, but also the manner such money is expended with the aim of achieving economic growth.
In Nigeria, the Federal government raises money through the following major sources: Petroleum profit tax, Mining, Company income tax, Import duties, Export duties, Excise duties, Interest and repayment of loans granted by the government (Buhari, 1993:169).
Others include; Education tax, Value added tax, Pay-as-you-earn, Fees and charges, Royalties, Rent of government property, Grants, aids and loans.
The money raised through the above sources is expended on the following items: Administration, Infrastructural services, Productive services, Defense, Interest on internal and external loans, and Diplomatic missions (Buhari, 1993:168)
In connection with government finance, we can identify two basic groups of control- administrative and financial control; the former referring to those techniques which have indirect bearing upon expenditure operation while the latter denote techniques of control relating to fiscal control. The emphasis of this study is on financial control.
Financial control is a very important type of control in the management of government finance. Oshisami (1992:29) defines it as the process which ensures that financial resources are obtained at cost considered to be economical and utilized efficiently and effectively for the attainment of established objectives.
A comprehensive definition of financial or fiscal control is given by Ekwonu (1996:33) as the sum total of the work, which guides, directs and interprets the budget cycle. It covers the activities of the Executive branch, involving finance and the ministries... the audit department and the legislature...
In a democratic era, financial control may operate internally and externally.
Within the Executive arm of government control by the finance ministry is internal while audit by the Auditor-General and legislative oversight constitute external control.
- Institutions of Financial Control in the Public Sector
There are formal and informal institutions of financial control over public revenue and expenditure. The formal institutions of financial control include the Executive arm of government, Legislature and Office of the Auditor-General or Supreme Audit Institution. The informal institutions of financial control include; the media, the organised civil society and donor agencies.
With respect to the formal institutions of financial control, the Constitution of the Federal Republic of Nigeria, 1999, establishes a cycle of financial accountability for public funds. The cycle provides that:
- Legislature authorizes expenditure
- The Executive controls the collection and issue of funds. In addition, it prepares the accounts.
- The prepared accounts are audited by the Auditor-General and
- The Auditor-General submits the results of his audit to the Legislature through its Public Accounts Committee (PAC). PAC acts on the report by inviting accounting officers to appear before it where need be.
The wisdom in sharing these responsibilities is that absolute conferment of this power on one arm of government can create abuses in financial administration. In other words, financial administration requires a series of checks and balances so that public funds are not wasted or misapplied. But, is this what we find in practice? Are these checks and balances observed?
The financial accountability cycle provides that the Executive arm of government collects, disburses and prepares the accounts of government. The other formal institutions of financial control are excluded from this very vital stages. Their involvement in public sector financial control is only visible when funds have been expended. Is this not the same as calling a medical doctor to give an autopsy report? What guarantee do we have that this sharing of financial responsibilities promote sound financial management in the public sector? Haven been excluded from the critical stages of collection and disbursement of public funds, can the Legislature and State Audit significantly influence public finance?
In the cycle of financial accountability established by the Constitution, the budget is a legislative instrument of financial control over the Executive. Funds should be expended according to legislative intent as expressed in the budget. Has the Legislature been able to control public expenditure using the budget?
The Office of the Auditor-General is a creation of the Constitution. Therefore his status and duties are constitutionally determined. His basic duty is to report on the accounts prepared by the Executive. In his report to the Legislature he states whether the Executive has complied with legislative approval in its execution of the budget. For the Auditor-General to be able to play this important role he has to rely on the financial data supplied by the Executive. He also needs a strong Legislature to help implement his findings. In practice, does the Auditor-General derive the required support from the Executive and Legislature to perform his Constitutional duty? Has he been able to discharge the functions of his office as stipulated by the Constitution?
Informal institutions of financial control may promote financial accountability over public finance and these include; the mass media, the organized civil society, the World Bank and other international donors.
A vibrant media may promote financial accountability by reporting the findings of the Auditor-General. By exposing wrong doings the media may influence the behavior of public officials who may not want to be publicly exposed.
The organized civil society too, may play a significant role in promoting financial accountability in the public sector. This can be achieved by an active inter-reaction between them and the legislature. Krafchick and Wehner (2002:1) argue that inter-reaction between legislatures and civil society organizations is increasing in many countries... From the legislature’s perspective, the input of civil society can help to make the legislature’s engagement with the budget more effective.
The donor community today is an important institution that promotes financial accountability in recipient countries. They encourage borrowers to strengthen domestic institutions of financial control. Sahgal (2001:1) states that “most donors are now looking for ways to improve their performance in terms of promoting good governance and accountability.”
While these informal institutions may also promote financial accountability, however, it is the formal institutions that are the focus of this research.
Researches targeted at strengthening the institutions of financial control over public funds have ignored the influence of the link between the institutions of control, especially the influence of the Legislature on State Audit performance. For example the researches of Ball et al (1999); Bartel (1996); Asselin (1995); Premchand (1989); Hogy (2004); Dye and Stapenhurst (1998); Martinez-Soliman (2003); Krafchik (2002); Sahgal (2001) and Ahsan (1994) emphasize strengthening the institutions of financial control over public funds in isolation, without establishing the interaction between them.
These researches address the problem of public sector financial accountability arrangements on institutional basis only. They fail to identify the shortcomings of the present cycle of financial accountability over public funds in Nigeria. This research intends to address these shortcomings in the context of Plateau State of Nigeria.
Control of public finance is very important to public governance. That is why power over public finance is enshrined in the Nigerian Constitution. To promote financial accountability in Plateau State, power over finance is shared between the Executive, Legislature and the Supreme Audit Institution or the Office of the Auditor General. Have these institutions been able to play the roles assigned to them?
It is observed that there is the problem of non or partial implementation of the budget by the Executive arm of government in Plateau State. The budget is the legislative instrument of control over public finance.
Related to the issue just raised above, is the problem of spending without legislative authority. The checks and balances on public finance requires that the Executive cannot spend without legislative approval. Even where voted funds fall short of requirements, the spending agency must apply for supplementary appropriations provisions and obtain legislative approval for such additional expenditure before incurring them. It has been alleged that this requirement of the law is not usually followed.
The Executive arm of government which implements budgets is required to ensure that expenditures are properly covered in the relevant Appropriation Acts. Funds are supposed to be apportioned to spending departments in line with the approved budget. It has been noted that public expenditure are frequently made on items not budgeted for, which of course means that such expenditure have no legislative approval. Once the budget has been approved, it is alleged that funds are shifted to purposes other than those for which they were meant.
Limits of expenditure are imposed by the budget. However, spending agencies do not observe these limits when incurring expenditure. In the course of budget implementation, a vote book is maintained to ensure that approved budgetary limits are not exceeded. This aspect of expenditure control is often abused. We may ask, why should spending agencies not respect limits when incurring expenditure? With all these abuses, what has happened to the legislative oversight function?
The performance of the Auditor General in Plateau State has been called to question. It is alleged that the Auditor General is incapable of discharging the functions of his office which is constitutionally prescribed. If this is true, why?
The Plateau State Legislature is seen to be weak and unable to discharge its constitutional responsibility of exercising its power of financial oversight on the
Executive arm of government. This problem is alleged to have adverse effects on the performance of the State Auditor General.
Public financial control in Plateau State also suffers from poor financial record keeping. Where financial records are poorly maintained, can the reliance of the Auditor General on these records adversely affect his performance? In addition, if it is true that financial records are poorly maintained in Plateau State, is this a function of the qualification of those who keep these records? How do these problems listed above impact on financial accountability in Plateau State?
The questions of this research are as follows:
- Is the Budget a significant instrument of Legislative control over public finance in Plateau State?
- Are the rules and regulations governing the use of public funds being observed in Plateau State?
- Does the quality of legislative financial oversight enhance the performance of State Auditors?
- Does the reliance of the Auditor-General on financial statements prepared by the Executive enhance his performance?
- Is there any relationship between educational/professional qualification and the number of financial records kept in Plateau State?
- Do the formal institutions of financial control play their roles as spelt out by the Constitution?
This research sets out to evaluate the role of the formal institutions of financial control over public finance in Plateau State. Specifically the research has the following objectives:
- To evaluate the significance of the public budget as an instrument of legislative control over public finance in Plateau State.
- To determine whether the reliance of the Auditor-General on the financial data supplied by the Executive enhances his audit work.
- To examine the quality of legislative oversight function on State Audit performance.
- To investigate the significance of the qualification of Treasury staff on the number of financial records kept.
- To recommend measures on how to improve financial accountability in Plateau State.
Hypothesis One
Ho The public budget is not a significant instrument of Legislative control over
public finance in Plateau State.
H1 The public budget is a significant instrument of Legislative control over
public finance in Plateau State.
RATIONALE/JUSTIFICATION
The budget is an expression of legislative approval on how public funds should be disbursed. Budget implementation is used to judge the Executive’s conformance to this legislative approval.
This hypothesis is formulated to find out whether or not the Executive complies significantly with Legislative approval during budget implementation.
Hypothesis Two
Ho The performance of the Auditor-General is not significantly dependent on the
financial statements prepared by the Executive arm of government.
H1 The performance of the Auditor-General is significantly dependent on the
financial statements prepared by the Executive arm of government.
RATIONALE/JUSTIFICATION
The Auditor-General is an agent of the Legislature. The Auditor-General has the duty of overseeing the management of public funds and the quality and credibility of governments’ reported financial data. The Auditor-General ensures that the budget is implemented according to legislative approval. This hypothesis will reveal whether or not the Auditor-General is able to exercise his duties inspite of his reliance on the financial statements prepared by the Executive.
Hypothesis Three
Ho State Audit performance is not significantly dependent on the quality of
legislative financial oversight.
H1 State Audit performance is significantly dependent on the quality of
legislative financial oversight.
RATIONALE/JUSTIFICATION
This hypothesis seeks to establish whether the quality of legislative oversight (through its public accounts committee) has any influence on State Audit work. Does the quality of legislative financial oversight influence the work of State Auditors?
Hypothesis Four
Ho: There is no significant difference between the qualification of treasury
operating staff and the number of financial records kept.
H1: There is significant difference between the qualification of treasury staff and
the number of financial records kept.
RATIONALE/JUSTIFICATION
Where there is a culture of poor financial record keeping, no meaningful control can be exercised. Good financial record keeping is a necessary condition for the production of auditable financial statement. The aim of this hypothesis is to evaluate whether qualification has a significant effect on financial record keeping in Plateau State.
- SIGNIFICANCE OF THE RESEARCH
A research on the public sector, especially on financial control is very important. This research is significant in a number of ways.
The research will assist financial policy makers in Plateau State and indeed other States in Nigeria formulate policies that will promote financial accountability. The academic community will benefit tremendously from this research. Other researchers may use this research to investigate further issues on public finance control.
The three formal institutions of financial control in Plateau State, that is, the Executive, the Legislature and the Auditor General will discharge their financial responsibilities effectively if the recommendations of this research are implemented.
This research evaluates the role of the formal institutions of financial control over public finance under a democratic setting. This is because the institutions of financial control are fully operational only during democratic dispensations. The Legislature does not exist during military rule.
The role of the informal institutions of financial control such as the media, the organised civil society and international donor agencies though important are not the immediate focus of this research.
Plateau State which is chosen as the case study is an old State - first created as Benue-Plateau State in 1967. The State has witnessed flashes of democratic rule from 1979 to date.
The research period covers years under democratic regimes. These are 19791983; 1991-1992; and 1999-2003. The research period covers ten years of democratic rule. The broken periods are periods of military rule.
The research covers only ministries. Parastatals are excluded because the 1999 Constitution S. 85 (3) does not authorize the Auditor-General to audit or appoint external auditors for government parastatals. Local governments are also excluded since they are guided by a different financial rule called the financial memoranda.
A number of limitations were encountered in this research. The major ones included:
- Literature Review - Getting materials for literature review was difficult - An extensive search for literature took over one year. The cost incurred in obtaining the relevant materials was also enormous.
- Questionnaire Administration - During the main research, we had to deal with an enlarged number of participants in the research. Since the questions were randomly administered, many of the participants were seeing the questions for the first time. Many of them felt that participating in this research would amount to “leaking of government secret”. They were visibly uncomfortable - that was even in spite of assurances given by research assistants that the information required was strictly for research purposes. Some of them asked for time to make up their minds as to whether to complete the questionnaires. For this category of respondents, research assistants had to plead and make repeated visits before the questionnaires were completed and returned.
- Secondary Data Collection - Getting information on public sector activity is difficult. But it is even more difficult getting information on financial activities. Information that is supposed to be publicly available is treated as confidential. Enquiries for financial information are viewed with suspicion. A very high official must authorize the release of such financial information. But getting such an official to authorize the release of the information is pretty difficult. The research assistants were suspected to be agents of opposing political parties. They were thus to be kept at arms’ length. It took a long time to convince the custodians of the required information to release the information.
- State of Emergency - The state of emergency declared in Plateau State on the 18th of May 2004 adversely affected this research. The Plateau State House of Assembly, it will be recalled was also suspended during the period. Reaching out to the suspended members to participate in the research was difficult. Even where contacts were established eventually, completing the questionnaire was not seen to be of any immediate importance. Some of the lawmakers told me that their immediate concern was whether they would be reinstated. They eventually participated. Democratic structures were restored at the end of the state of emergency in November 2004. To God be the glory.
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