Chapter one

Introduction

1.1     Background to the study

  According to Basil (2021)  the area of business operations that deals with profitability, costs, cash, and credit is financial management. These are frequently combined under the heading of increasing the company's value for investors. Next, in order to guarantee that the enterprise's goals are met, the discipline is charged with the "efficient acquisition and deployment" of both short- and long-term financial resources. Planning, arranging, leading, and regulating an organization's financial operations are all part of financial management. It seeks to ensure that financial risks are adequately handled while optimising the value of the company or individual wealth (Sikander 2015). Long-term financial success and stability can be attained by effective money management, whether one is an individual or a firm.

        According to Hassan (2020), Finances are like a thread that circles a cloth; if one end of the thread is tugged incorrectly, the design of the cloth will be affected, and its beauty will be destroyed. As a result, managing finances in any organisation requires caution and allocating funds in accordance with established guidelines. The cornerstone of good efficiency, effectiveness, and equity—the three guiding principles of financial management—is competent financial administration. While effectiveness addresses the relevance of expenditure in achieving management objectives, equity guarantees justice and fair play in all management actions. Efficiency is the capacity to maximise results at the lowest possible cost.. The fundamental ability of financial services to operate in a competitive, effective, and economical manner is the determining element in local government financial management. Furthermore, state governors' political impunity hinders local governments' ability to handle their budgets effectively, undermining grassroots advancements (Otinche, 2022). The core of financial management is financial administration, which is the art and science of financial planning, coordinating, organising, and assessing local government financial resources to meet the most effective performance targets, goals, and objectives.. Tolu (2022) defined Financial management is the administration of company funds with the goal of achieving organisational or corporate goals. The planning, coordinating, managing, and monitoring of organisational financial resources are implied by the word management

According to Tolu (2022) Local government in Nigeria plays a crucial role in the administration and governance of the country. It operates at the grassroots level, bridging the gap between the central government and the local population. Nigeria is divided into 774 Local Government Areas (LGAs). Each Local government functions as the smallest administrative unit and is responsible for local administration and development (Tolu 2022). Each Local government is governed by a Local Government Council, which consists of an elected Chairman, Vice Chairman, and Councilors. The Council is responsible for overseeing local administration and implementing policies at the grassroots level. There have been various reform efforts aimed at strengthening local governments in Nigeria, including initiatives to improve financial management, enhance accountability, and promote better service delivery. However, ongoing challenges mean that continuous efforts are needed to ensure local governments can effectively fulfill their roles.

           According to Sikander (2015) Governments all throughout the world use a variety of tactics and approaches to promote good governance at the local level. Local government refers to the government at the local level. Local governments are made possible by the democratic process and the full involvement of local residents in decision-making. It was established with two goals in mind: first, to act as an administrative entity responsible for supplying the community's needs for goods and services. Second, as a democratic framework that ensures community people are fully represented in local government decision-making. In both rural and urban settings, local governance is essential to the socioeconomic growth of the grassroots. Since it provides citizens with community-based governance and service delivery, it is the government that is closest to the people. It also aid the development of the grassroots administratively and politically. According to Sikander (2015), When social, political, or economic progress originates at the lowest level of society—the grassroots—it takes on significance and materiality. Mbieli (2018) stated that a country cannot be considered developed if its metropolis are becoming ultra-modern and its rural are falling behind. Through development initiatives, local government strikes a balance between the needs of cities and villages in order to carry out public programmes.

            In Kogi state, government have implemented a range of public finance management reforms to improve local government performance in areas such as accountability, transparency, adherence to legal requirements, and provision of services to the community's general populace. Any type of administration, whether private or public, depends on finance. It serves as the lubricant for the wheel of sound administration at the local government level.

 According to Wada and Aminu (2022) Financial management at the local government level refers to the necessary actions taken to guarantee suitable income creation and continued use of such financial resources in accordance with the aims, objectives, and expectations of the local government and the public. Money is the main obstacle facing local government administration in Nigeria. This has been getting harder over time as a result of the global COVID-19 pandemic and economic downturn, and it has gotten worse recently. The financial crisis has played a role in the limited room for growth and development in local government, particularly in the areas of socioeconomic advancement and the provision of financially feasible development initiatives. The well-being of the local population is put at risk by the large number of local government initiatives that are abandoned owing to a lack of funding as a result of poor management, misallocation, and inefficient use of funds. In recent times, this has led to a lack of trust, faith, and confidence in local government administration. This bad financial management strategy has also contributed to the fundamental failure and inefficiency of some local governments in attaining significant growth of their territory. Additionally, certain state governors' ongoing appropriation and manipulation of local governments' financial resources and statutory allocations has a detrimental impact on how well these local governments execute their constitutional duties. The ability to advance sustainable development at the local level has been weakened by the implementation of the state joint local government account. Sometimes, the usage of joint accounts forces local governments to undertake joint initiatives that are either outside the immediate needs of the community or have little to do with the citizens inside the local government.

             Wada and Aminu (2022) opinedThe financial autonomy of local government is now a mirage due to the state and local government joint account allocation committee and extensive oversight by numerous ministries and agencies. The majority of local governments currently struggle with the large disparity between the requirements and demands of the local populace and the available funding. Population growth, improper use of funds, high standards of service in the health, education, and water infrastructure sectors, among other areas, leaks in internally generated revenue due to theft, corruption, and a lack of desire on the part of revenue officers, and ineffective equipment for producing and providing quality public goods and services were some of the factors that contributed to this gap at different points in time. Due to the effects of more frequent natural disasters brought on by climate change, most local governments in developing nations—which are essential to the delivery of basic public services—are experiencing rapid and chaotic urbanization (UN-Habitat, 2015). Additionally, a lot of people have a bad impression of the financial management of local governments. There have occasionally been losses and leakages of funds intended to combat mismanagement and corruption involving local government administrations as a result of an inadequate internal control system to checkmate the excessive fraudulent activities on revenue collections and the insertion of the names of ghost employees in the local government payroll system. Due to this, the local government has failed to fulfil its obligation to provide the public goods and services that the people have demanded. To fulfil the demands of the Local Government expenditure in accomplishing the established goals and objectives, Local Government must make plans to guarantee that sufficient financial resources are available at all times. Effective financial management improves the administration and operation of local government. When financial resources are carefully allocated and managed in the citizens' best interests, financial management benefits local government. Any organisation, whether it be public or private, needs to have a strong financial position because all departmental expenditures, whether capital or ongoing, depend on having the necessary funds available. Accounting is not the same as finance; finance is an applied subject of management. Accounting uses double entry principles and controls to maintain organisational financial data and measures, records, and reports social and economic activity at the local government level. Although accounting data are historical in nature, they may provide more accurate future guidance. Accounting is all about timely, relevant, and high-quality financial data, and finance uses this data to make decisions about social and economic development that will lead to the achievement of its intended goals and objectives

According to Basil (2021) Academics, financial managers, and policy makers at the local government level are becoming interested in financial management, which is known as grassroots governance. Academicians are primarily concerned with how financial management practices might improve the planning and control of financial resources at the local government level. Since financial resources are a major factor in most local government decisions, financial managers and policy makers need to have a deeper understanding of financial management theory as well as its conceptual and analytical expertise in order to make informed decisions.. Today's approach to financial management goes beyond just collecting money and paying bills; it also involves making solid financial decisions in areas like capital budgeting, project management, investment, and sound financial control..

1.2 Statement of Problem

        The amount and calibre of services provided to rural residents determine the local government councils' significance as the grassroots government. Undoubtedly, money is needed for the council to provide significant services, such as basic facilities, road building and maintenance, creating job opportunities for locals, and paying staff wages on time. A local government council will surely disintegrate and be unable to serve the people without any source of income. Thus, in order for the local government to properly carry out its mandate, it must have sufficient funding as well as apply that funding effectively. Mismanagement of funds is one of the main issues with local government financial administration. The Local Government  council can have certain challenges that hinder its ability to manage finances effectively, the issue of local authorities not effectively manage funds  from the federal or state governments on time,  the accountability issues inside the local government council. Ineffective financial management and control, both internally and externally, is another issue. The fifth issue is the local government council's financial mismanagement and theft of available monies. Lastly, the corruption issue works against the use of local government funds. It is to this the study centres on Examination of Financial Management Challenges in Local Government Councils.

1.3 OBJECTIVES OF THE STUDY

          The objectives of this research are to examine financial management challenges in local government councils. Other specific objective includes:

i) To outline the steps for financial management in local government in Lokoja Local Government Area of Kogi State

ii) To examine the impact of inadequate financial management on local government development in Lokoja Local Government of  Kogi State

iii)  To outline the challenges of financial management in local government in Lokoja Local Government Area of Kogi State

iv) To examine the roles of local government council in Lokoja Local Government Area of Kogi State

1.4 RESEARCH QUESTIONS

i) What are the steps for adequate and efficient financial management in Lokoja Local Government Area of Kogi State?

ii) What is the impact of inadequate financial management on local government development in Lokoja Local Government Area of Kogi State?

iii)  What are the challenges of financial management in Lokoja Local Government Area of Kogi State?

iv) What are the roles of local government council in Lokoja Local Government Area of Kogi State?

1.5 SCOPE OF THE STUDY

The study is delimited to An In-Depth Examination of Financial Management Challenges in Local Government Councils: A Case Study of Lokoja Local Government in Kogi State

1.6 SIGNIFICANCE OF THE STUDY

 The significance of any human endeavour is measured by its relevance to solving human problems. Therefore, the significance of the study is measure by its relevance to solving the problems of effective utilization of revenue available to local governments in Nigeria. The study will be of benefit, first and foremost to the Lokoja Local Government administration, as it will expose to them potential sources of generating of revenue internally and effective management of revenue. Secondarily, it will help the council to strengthen its financial bases as this study would highlight some identified problem hampering the utilization of revenue in the council.

                     Thirdly, it will also be useful to the indigenes of Lokoja local government to co-operate with local council administrators to  enable them build a viable local government by paying their taxes and rates promptly. Fourthly, the study will be useful to various institutions, for gaining greater knowledge and understanding of the problems of effective financial management of funds available to local government. Finally, the project will be useful to the general public, organizations, companies, other  researches in this field of study among others.

1.7 Definition of terms

Finance management is the strategic planning and managing of an individual or organization's finances to better align their financial status to their goals and objectives

Financial planning enables a business to determine how it will afford to achieve its objectives and strategic goals. A business typically sets a vision and objectives, and then immediately creates a financial plan to support those goals.

A budget will show estimated income (money coming in) and expenditures (money going out) for future periods. A small business is likely to have one overall operating budget which sets out how much money is needed to run the business over the coming period

Revenue allocation can be described as a method of. sharing the centrally generated revenue among different tiers. of government and how the amount allocated to a particular. tier is shared among its components for economic

A challenge is something new and difficult which requires great effort and determination

Local government is a generic term for the lowest tiers of governance or public administration within a particular sovereign state. Local governments typically constitute a subdivision of a higher-level political and/or administrative unit, such as a nation or state