THE NEED FOR EFFECTIVE RECORD KEEPING AND ACCOUNTING SYSTEM AT LOCAL GOVERNMENT LEVEL

THE NEED FOR  EFFECTIVE RECORD KEEPING AND ACCOUNTING SYSTEM AT LOCAL GOVERNMENT LEVEL

By

Dr. Muktar Mustapha Kurawa

(mmuktar75@yahoo.com)

Department of Economics

Bayero University, Kano-Nigeria

Introduction

Book keeping is the act of recording transactions in a set of books, while accounting is the summary of all the book keeping entries such that a complete record keeping system is established. Accounting is also considered as the process in which the financial transactions and events of an organization are recorded for the purpose of accumulating and providing financial information. Accounting thus involves; measuring, recording, classifying, summarizing and communicating financial information that is used in making informed judgement and decisions by users of the information.

The information provided by accounting system is useful as tool for making decisions on how to allocate resources effectively among alternative needs. For example local government chairmen, treasurers, financial secretaries and other staff need the information provided by the accounting system in order to plan and organize their activities. Similarly the information is needed to make budgets and forecasts.

Legal Framework of Government Accounting

Government accounting is governed by the constitution of the federal republic of Nigeria 1979 as amended (1989 and 1999), the finance (control and management) act of 1958, the audit ordinance of 1956 and the Financial Regulation and Revenue Allocation Laws. By implication therefore, the management of Local Governments shall be in a way charged with the general control and management of policies, finances and properties of its council. It is therefore desirable for each local government to produce annual financial reports (a statement of the income and expenditure and assets/liabilities as at the year ended for the consumption and usage of various stake holders.

Records Keeping and Accounting System

Financial transactions are events that involve inflow and outflow of economic resources; and therefore require recognition by way of measuring and recording in a set of books of accounts. Transactions are external when an organization gives and receives something in return, for example purchase of a material by a local government in cash requires the giving of cash in exchange of the material in question. On the other hand internal transactions are said to occur when the transaction takes place within an organization itself. For example the use of materials by a department in the discharge of its duties within a particular local government.

The Accounting System

Accounting consists of two main components; records keeping and reporting. Record keeping entails recording every activity/transaction in a book of account, as soon as the transaction takes place. It includes recording financial transactions on handwritten records, or records produced by mechanical and electronic devices (Computer machines etc). Reporting function on the other hand consists of classifying and summarizing accounting data into statements as well as preparing any other interpretive disclosures necessary to make the data comprehensive.  

Accounting system therefore, is the sum of all techniques and procedures for accumulating and recording information in an organization. Before the effects of financial transaction can be recorded, they must be measured and expressed in monetary terms, so that they can be combined and recorded in proper books of accounts, classified and summarized into reports and financial statements, which are then provided for use to both internal and external users of accounting information. Reports prepared by accounting records are thus called financial statements. It should be noted that financial reports usually cover a year though it may be interim (if it is prepared before the end of the annual period).

Accounting Documents to be Maintained at Local Governments        

The followings are some of the accounting documents that are to be maintained by local governments, while they may not be exhaustive; it is believed that they are among the basic ones which need to be properly maintained;

1.      Voucher: A voucher is a document showing evidence of receipt and payment of money. Vouches are classified into;

a.       Payment Voucher: this shows particulars of all payments made.

b.      Receipt Voucher: this shows particulars of all payments received.

c.       Stores Receipt Voucher: this is used to document all stock of items received.

d.      Stores Issue Voucher: this is used to document all stock of items issued out.

e.        Stores Receipt Note: this is issued to the supplier by central stores to enable the supplier make claim for payment.

f.       Adjustment Voucher: this is used in making amendment by way of transfer of funds from one account of another without actual receipt of cash.

2.       Main Cash Book: Cash book records all receipts and payments of money (in cash and by cheque).

3.      Petty Cash Book: this record all small cash payments from a given sum of money set aside for that purpose.

4.      Receipt Analysis Book: this is a memorandum book used to analyze all cash receipts according to appropriate codes.

5.      Payment Analysis Book: this is another memorandum book used to analyze all cash payments according to appropriate codes.

6.      Store Ledger Accounts: this is used to record the quantity of materials received in and issued out of store.

7.      General Ledger: this is the main book of accounts which record the summary of all transactions contained in subsidiary books. It is used for the extraction of trial balance.

8.      Subsidiary Ledgers: these record detailed transactions of each account code, summary of which is posted into the general ledger periodically.

9.      Memorandum Books: these books do not form part of the double entry system, they are maintained for effective internal controls. They includes;

a.       Journal Books

b.      Local Purchase Order Register

c.       Cheques Register

d.      Cheques Sent for Collection Register

e.       Fixed Asset Register

f.       Staff Arrival/left Register    

The Accounting Cycle

During each fiscal period, an accounting cycle is completed; this involves a sequence of accounting procedures. The occurrence of financial transaction is the initial stage in the accounting cycle. An accounting cycle is expected to consist of four steps as below;

Step 1: Transaction occurred and information collected through invoices, receipts, vouchers, bills and etc.

Step 2: Transactions are analyzed and recorded either through the journal to the ledger accounts or directly in the ledger.

Step 3: A trial balance is prepared from the account balances in the ledger to test the accuracy of the entries.

Step 4: Adjusting and preparing financial statements such as income statements, statements of assets/liabilities and etc.

Functions of Effective Accounting Records Keeping 

At this point it is crucial to highlight some of the functions of maintaining proper accounting books and records at local government level. The followings functions are identified;

a.       To provide financial information to all users (both internal and external)

b.      To ensure effective internal control

c.       To prevent and detect fraud.

d.      To ensure proper accountability, transparency and probity

e.       To bestow credibility and confidence on the officials of local governments.

Conclusion

The paper has discussed the justification for an effective and efficient records keeping and accounting system at local government level. The various ways in which records are to be kept and maintained have also been highlighted. Thus there is the need for maintenance of adequate books and records for effective functioning of an accounting system of local governments.

The success of an accounting system at local government is therefore partly dependent on the skill and experience of those operating the system and partly their ability to comply with the appropriate procedures of managing records.  It is therefore recommended that; there is the need for adequate training and re-training of personnel at Local government level on the records management so that the accounting system can be professionally and effectively managed and that periodic financial reports can be prepared.