Local government finance is the way and manner local government consolidate funds, manage the funds and control the funds. It involves getting to know the accounting system of the local government, types and methods of book keeping available to them.
Local government authority being the government at the grassroots levels represents the basic unit through which the federal and state government administers the people in the grassroots.
Local government finance is the financial activities of the local government, their source of revenue, how they manage funds, control and consolidate it for the purpose of having a perfect delivery. Local government cannot function without the availability of funds. It is funds that provide the energy to carry out the activities in the local government.
It is the act of raising and spending money in the local government in other to assist them to carry out their statutory functions. All the funds are managed by the financial department known as the treasury department.
In the local government, fund administration and management is the basic function of the treasury department headed by a financial officer known as the treasurer.
The council is the legislative arm of the local government and it is headed by the councilor. The audit department oversees the financial activities of both the treasury department and the council itself.
Sources of Revenue (External Source)
This is mainly grants from state and federal government which are: federal allocation and state allocation, Project grant and non statutory receipts from federal government and agencies, special grants and non receipts.
Sources of Revenue (Internal Source)
- Rent and rates.
Reasons for Allocation of Grants:
- To enable them carry out their developmental project.
- Extension of existing project.
- To carry out new project.
- Also it is given because the fund is now an obligation of the federal government to provide essential services to the people.
Types of Grants
Percentage Grant: this is more common than any type of grant. From the local authority point of view, the advantage is that the expenditure on service increases, this is due to expansion of service or high cost or money inflation, the central government contribution increases proportionally, since it is based on percentage of the expenditure incurred.
From the government point of view, the percentage grant system suffer the disadvantage by increased expenditure by the local authority, maybe due to excessive and unreasonable high rate of percentage and increase.
Unit Grant: this type of grant is normally used where it is possible to identify the unit cost of such services, like building of clinic or child schools. The unit grant is a fixed amount per unit or it might be a fixed amount for a specified number of units.
Like the percentage grant, the unit grant can be promotional. The local authorities know that they can expect a government payment of a fixed amount for every additional unit which is provided under the unit grant.
From the local authority point of view, the unit grant has serious disadvantage unlike percentage grant, it does not automatically allow for increase when the expenditure arises.
Other strategy whereby local government get their revenue
- By entering into small scale business with the hope that the local government will get more money from it.
- Communalization strategy – this is the process whereby the community come together for the purpose of generation of revenue and other things like washing of places and sweeping etc. it is just a self help for the community instead of waiting for the government. It helps the local government to develop.
- They may reduce the actual expenses through cut back by a special approach and go for the essential ones to make sure that their pressing needs are provided.
- Through implementing strategies designed for organizational productivity. To ensure that workers are doing their duty and there are no wastages.
- Local government | Characteristics | Problems
- Sources of revenue for local government
- Reasons for the creation of local government
- How central government controls local government
- Factors affecting local government performance in Nigeria