ABSTRACT

The research work was to investigate the impact of cash management on the state public sector of Nigeria. The stated hypothesis is to determine the effect of money supply and fiscal deficit on the gross domestic product of Nigeria. On the literature review we were able to determine the advantages of cash management on the public sector of Nigeria. The method used for the purpose of analysis was the ordinary least square regression analysis.

From the analysis, we were able to find out that the value of that the value of the R² is 0.781 which shows the explanatory variable was able to explain 78.1% of the dependent variable while the value of the adjusted R² is 0.776 which also shows that the explanatory variable was able to explain 77.6% of the dependent variable.

From the table of ANOVA above we found out that the p-value is 0.008; which is less than

(0.05) level of significance so we concluded that there is a significant effect of money supply and fiscal deficit on the gross domestic product of Nigeria.

We found also that the value of d is 2.223 and we concluded that Since d_U {1.654} < d*{2.239} < {4-d_U}{2.346}, we accept the null hypothesis of autocorrelation.

We concluded that there is significant effect of money supply, fiscal deficit on the GDP.

INTRODUCTION

1.1       BACKGROUND TO STUDY

As many as 17 states in Nigeria were reported to have challenges in meeting cash payment obligations across the country, as at June 23, 2015 (City News 2015). The states owed their workers for different number of months, ranging from one month to seven months. Among these states, Osun State owed the highest number of months at eight months in total as at that date. The table below gives a breakdown of the states and their arrears as at the June 2015 date.

The is a table showing 17 states in Nigeria owing different arrears in cash obligations as at June 2015.

Source: City News, June 23, 2015.

The magnitude of states indebtedness was such that the Federal Government had to organize a bail out for all the states.

Using Osun State as a case study, this study seeks to examine the origin, causes, implications and solutions to this cash management crisis. It will examine the impact of cash management on public sector accounts, with particular focus on Osun State, Nigeria, as a representation of the overall public sector in Nigeria.

Public sector organisations must have a solid cash management system. Liquidity could mean cash or near cash assets. Cash management refers to a broad aspect of finance relating to the assortment, behaviour, and usage of cash. It involves assessing market liquidity, cash flow, and investments.

One of the functions of public sector cash management is to manage the cash balances of a public sector organisation in such a way as to maximize the availability of cash not invested in fixed assets or inventories and to do so in such a way as to avoid the risk of insolvency.

In some ways, managing cash flow is the most important job of public officers. If at any time a public sector organisation fails to pay an obligation when it is due because of the lack of cash, the organisation is insolvent. For instance, Osun State received bail out from the Federal Government. The key to successful cash management, therefore, lies in tabulating practical projections, monitoring collections and disbursements, establishing valuable billing and collection measures, and adhering to budgetary limitations. Kinnery (2012:808) indicated that cash flow was the receipt or disbursement of cash; when related to capital budgeting, cash flows arise from the purchase, operation, and disposition of a capital asset.

1.2       STATEMENT OF THE PROBLEM

Eighteen (18) states in Nigeria have experienced crisis over inability to meet up with due obligations particularly salaries of civil servants in the states in the period under study, that is, between August 2014 and July 2015. The problem was not limited to the 18 states only, but to virtually all 36 states in Nigeria. This created a national challenge with short and long term implications, worthy of examination and solution. This study seeks to examine the impact of cash management in public sector in Nigeria, in light of the foregoing experience.

1.3       PURPOSE

The purpose of the study is to contribute to public sector cash management accounting in Nigeria, to proffer possible solution to a national challenge and to promote scholarship in the area of public sector accounting.

1.4       OBEJECTIVES OF STUDY

The objectives of this study are as follows:

1.      To examine state government cash payment obligations in Nigeria, with Osun State as case study.

2.      To examine sources of cash for state public sector operations in Nigeria.

3.      To examine the application of cash in state public sector in Nigeria.

4.      To examine the relationship between cash management and public sector in Nigeria.

The above objectives could further be explained and detailed out as below;

1.      Cash obligation of government in Nigeria must necessarily be multi-various. The obligations would have to be to individuals, groups, societies and institutions across the public of the respective tiers of government. In other words, these obligations would cover all the strata of the society who have elected the functionaries of government to their offices.

2.      By its nature, government controls vast income earning resources which may vary from government to government and from country to country. This study would identify the sources of income in the Nigerian public sector with particular reference to Osun state.

3.      How does government in Nigeria apply its income and revenue across its different level of responsibilities? This study will also find out how government in Nigeria uses public fund.

4.      This study will also examine what manner of relationship exists between cash management and the public sector in Nigeria. Is the relationship direct, indirect or inverse? Is there an efficient use or an inefficient of cash in the public sector in Nigeria.

1.5       RESEARCH QUESTIONS

1.      Does cash management and performance in public sector organizations have significant relationship?

2.      Does effectiveness have impact in public sector cash management?

3.      Can cash management be effective in public sector?

1.6       HYPOTHESES

1.      H0: there is no significant effect of money supply, fiscal deficit on the GDP.

H1: there is significant effect of money supply, fiscal deficit on the GDP.

1.7       SIGNIFICANCE OF STUDY

1.      Cash is significant in public sector operations. Perhaps without cash there may be no public sector. In other words, public sector activities may be grounded in the absence of cash. Cash could be described as the life wire of government operations. Its impact on public sector therefore deserves to be examined from time to time in critical areas and at varying times. It must be under regular study and analysis.

2.      Public sector contributes more than 20% of Nigeria’s economy. This contribution is significant to deserve constant examination.

3.      Public sector cash management is topical in view of the number of states in Nigeria which experienced cash management crisis. The issue of public sector in Nigeria meeting its obligations especially in the areas of salary payments to civil servants became a national issue in recent times, becoming a constant subject of news reports and analyses. This makes the issue current and topical deserving research work. Hardly would a week pass without commentators including state governors making remarks and taking actions on the issue of meeting cash obligations.

4.      Public sector operations affect Nigeria’s total population of about 170 million people.

5.      The study hopes to contribute to improved cash management policy in state operations in Nigeria.

1.8       SCOPE OF STUDY

The study examined cash management in the Osun State Government over a year period (August 2014- July 2015), to gain insight into cash management efficiency in state public sector in Nigeria. The study focused on Osun State as a representation of public sector in Nigeria.

1.9       DEFINITION OF TERMS

Critical concepts in the study include: Impact; Cash; Cash Management; Public Sector; Accounts; Nigeria; and Osun State. The concepts are hereby defined as below:

1.9.1    CASH:

Cash in the context of this study refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately as in the case of money market instruments. Money market instruments include bank notes, pass-books, cheques, treasury bills and deposit certificates, among others. Cash comprises of cash on hand and demand deposits. Demand deposits have the same level of liquidity as cash, as these deposits can be withdrawn at any time (Wingerard, Well, Pretotius, Ferreira, Badenhost,and Van Der Merwe 2013:62).

1.9.2    CASH MANAGEMENT:

Cash management in the context of this study refers to finance activities involving the collection, handling, and usage of cash in public sector in Nigeria. Cash management is a very broad subject and there are a lot of factors to consider when trying becoming more efficient (Ekanem. 2010).

The goal is to manage the cash balances of a public sector organisation in such a way as to maximize the availability of cash and to do so in such a way as to avoid the risk of insolvency.

Factors monitored as a part of cash management include a public sector organisation’s level of liquidity, its management of cash balances, and its short-term investment strategies.

1.9.3    IMPACT:

Impact in the context of the study refers to the effect of cash management on public accounts in Nigeria. Effect could be positive, negative or neutral. Neutrality implies no effect.

In other words, impact would be determined by answering the question: is cash management of positive on effect on public sector? Is cash management of negative effect on cash management? Is cash management of no effect on public sector? Impact will also be determined in term of the size of the effect. Is the effect of cash management little? Is the effect big?

Also, how is the impact on the public? How is the impact on government?

1.9.4    NIGERIA

Nigeria in the context of this study refers to a country in West Africa with 36 states and the Federal Capital Territory, Abuja. By its constitution, the country operates three tiers of government which comprises of the federal government, state government, and local government.

1.9.5    OSUN STATE

Osun State in the context of this study is one of the 36 states in the Federal Republic of Nigeria. Osun state is an internal state in south-western Nigeria. The modern Osun State was created in 1991 from part of the old Oyo State. The state's name is derived from the River Osun, the venerated natural spring that is the manifestation of the Yoruba goddess of the same name.

The state's current governor is Rauf Aregbesola, who was declared as the winner of 2007 election by Appeal Court in Ibadan on 26 November 2010. Its capital is Osogbo. It is bounded in the north by Kwara State, in the east partly by Ekiti State and partly by Ondo State, in the south by Ogun State and in the west by Oyo State.