Department of Economics, Management, and Industrial Engineering Doctoral program in Accounting School year 2020/2021 Curricular Unit of Public Accounting TOPIC Determinants of Public Sector Financial Irregularities: The case of Metropolitan, Municipal and District Assemblies (MMDAs) in Pre and Post Adoption of IPSAS – Evidence from Ghana By: Eric Kwaku Attefah (101342) Submitted to: Professor Maria José Fernandez 1 ABSTRACT This piece of work aims to investigate the determinants of financial irregularities and internally generated funds on the total revenues of Metropolitan, Municipal and District Assemblies (MMDAs) in Ghana. Secondary data in the form of annual auditor general’s reports of financial statements of the Metropolitan, Municipal and District Assemblies (MMDAs) of Ghana were used. The study analyzed the collected data using descriptive statistics. Using STATA, this study used 2014 to 2019 auditor general’s reports on MMDAs in Ghana to examine the determinants of financial irregularities. The pooled OLS was used as the estimation technique with the multiple regression extension. The ultimate objective of the research was to examine the correlation between the dependent variable of total revenues and the independent variables of cash, procurement and stores, contract, statutory tax and deduction, and payroll irregularities respectively as well as internally generated funds. The findings depict that both independent variables experienced a positive correlation with the dependent variable. Under regression observation, the model representation is statistically significant at all confidence levels tested. Moreover, the regression output showed that the variables are statistically significant with respect to their p-values. The conclusions drawn were that the model was significant in explaining the performance in relation to the independent variables. 2 TABLE OF CONTENTS PAGE 1.0 Introduction 4 1.1 Problem Statement 4 1.2 Objectives / Purpose 6 1.3 Research Questions 6 2.0 Literature Review 6 2.1 Public Financial Management in Ghana 9 2.2Financial Controls 11 2.3 Institutional Theory 13 2.4 Hypotheses 14 3.0 Methodology 14 3.1 Research Design 14 3.2 Population and Sample Size 14 3.3 Data Analysis 14 3.4 Model Specification 15 3.5 Estimation Technique 15 4.0 Results of the Study 15 5.0 Conclusion 18 LIST OF TABLES Table 1. Descriptive Statistics for Regions in Ghana 15 Table 2. Descriptive Statistics for Study Variables 16 Table 3. Ordinary Least Squares (OLS) Regression Results 17 Table 4. Correlation Matrix Results 18 3 1.0 Introduction In recent years, the lack of clarity, objectivity, and consistency in financial reporting has necessitated the creation of a standardized framework capable of addressing the insecurity of financial systems and reporting accounting data to users (Feiveson, 2015). Even though the discipline has gained a lot of attention in management and financial literature, due to the complex nature of the financial sector and to deal with the diverse nature of challenges faced by most public institutions, numerous scholars highly recommend comprehensive research in this discipline (Yapa, 2014). Because of the famous Enron case in the United States, which was considered one of the biggest financial scandals that caught the entire company and financial sector off guard in 2001, the idea of financial irregularities gained a lot of traction among finance and corporate governance scholars (Ofoegbu, 2014). Efforts been made to ensure transparency and accountability in the management of public funds, physical assets, and sensitive data. For these purposes, Ghana's government has established a strong decentralized financial management system to organize all revenue-generating departments and ensure that those charged with disbursing funds do so in compliance with the law. According to Edmonds et al. (2017), the level of success of any organization, whether public or private, is largely determined by how prudently capital, assets, and finances are created, then handled and regulated according to budget, legislative guidelines, and stakeholders' interests. According to (ter Bogt & Tillema, 2016), attempts must be made to uphold the laws regulating the establishment of these public bodies, with a deliberate attempt to properly sanction these laws. Evaluating the presence of standard systems in every public institution necessitates an independent assessment and monitoring mechanism to ensure compliance with accounting standards, asset safeguarding, and maintaining an orderly working environment that encourages performance in accordance with the organization's mission and vision (Acheampong, 2016). 1.1 Problem Statement Ghana's public sector is marked by financial irregularities beyond comprehension; according to the Auditor General's annual report on the procurement and use of public funds, the country has performed below average in terms of transparency and compliance with ethical standards since December 2009 (Banyen & Nasamu, 2015). The country requires immediate action to resolve the threat, as efforts by the government and international partners have failed to produce significant 4 results. The public and stakeholders have expressed their dissatisfaction with the government's control mechanisms, as well as noncompliance with traditional accounting and reporting standards, despite the government's attempts to mobilize resources to ensure that training and education are provided to promote compliance and strict implementation. Despite Section 404 of the SarbanesOxley Act, which orders organizations to strictly adhere to objective reporting and periodic review of their financial statements by independent evaluators for monitoring purposes, millions of Ghana cedis go unaccounted for every year (Aziz, Rahman, Alam, & Said, 2015). In the past, successive governments have been chastised for failing to demonstrate commitment to protecting the consolidated fund and ensuring that state resources in some forms are used wisely; however, a recent joint exercise between the government and the IMF to combat irregularities resulted in the implementation of the mechanized payroll system, which led to the identification and subsequent prosecution of irregularities. Given that it is mandatory for public employees to be adequately informed about the laws governing the establishments in which they work, disregarding and failing to follow the policy recommendations of institutions such as the Auditor General and the Parliamentary Accounts Committee would not go unpunished, as it implies the cause of grave concerns and must be addressed. According to the Auditor General's estimate, cash and other properties not accounted for in 2016 totaled GHc118, 820,175.66, USD$246,744.24 and GHC136, 084.22 as part of funds allocated for various projects but later not reported (Appiah & Abdulai, 2017). The implementation of IPSAS is justified by presumed deficiencies in accounting information under national accounting standards, as well as the necessity to narrow and address variations in accounting policies and procedures. However, the problems that IPSAS was designed to address appear to still exist, as issues of accounting irregularities are routinely observed (Owusu et al., 2016). The researcher asks the following inquiry, based on the alleged flaws in these standards: Is IPSAS capable of improving transparency and accountability in the Ghanaian public sector? The issue is that Ghana's National Accounting Standards and IPSAS have failed to eliminate misapplication, misappropriation, and financial irregularities of public funds that it entails (Auditor General´s Report, 2019). This study aims to examine the extent of persistent financial irregularities in the MMDAs of Ghana before and after the adoption of IPSAS and make recommendations for future reforms. Financial irregularities, for this study, have been consistent from 2014 to 2019. The question is to what extent has these irregularities affected the internally generated funds and the total revenue of the MMDAs in Ghana? 5 1.2 Objectives / Purpose 1. To analyze the impact of financial irregularities on the total revenue of the MMDAs in Ghana from 2014 to 2019. 2. To examine the effects internally generated funds on the total revenue of MMDAs in Ghana from 2014 to 2019. 1.3 Research Questions 1. What is the impact of financial irregularities on the revenues of MMDAs in Ghana? 2. To what extent has financial irregularities affected the internally generated funds of MMDAs in Ghana? 2.0 Literature Review The rules regulating the use of public resources are clearly stipulated in Ghana's constitutions and other laws relating to the public sector, and those entrusted with these resources are subject to annual review by the Auditor General, who performs a comprehensive and impartial evaluation of government agencies and departments (H. Chang, Chang, Choy, & Choy, 2016). The fundamental principles for basic financial management and accountability require that, first and foremost, an organization's assets be used in the organization's best interests and in strict accordance with the policies and procedures established by the organization (Balabonien & Veerskien, 2015). According to Edmonds et al. (2017), the level of success of any organization, whether public or private, is largely determined by how prudently capital, assets, and finances are created, then handled and regulated according to budget, legislative guidelines, and stakeholders' interests. Efforts have recently been made to ensure transparency and accountability in the management of public funds, physical assets, and sensitive data. For these purposes, Ghana's government has established a strong decentralized financial management system to organize all revenue-generating departments and ensure that those charged with disbursing funds do so in compliance with the law. Financial controls are said to be productive when cautious and conscious efforts are placed in place prior to procuring and appropriating capital, whether long or short term, through laid down mechanisms recognized by law and approved by authorized bodies, according to leading scholars such as (Thompson, Ravindran, & Nicosia, 2015). Unfortunately, the control of funds and 6 transparency have become the most significant problems facing MMDAs and, to a large extent, the Ghanaian public sector (Edmonds et al., 2017). On December 31, 2015, The Auditor General of Ghana attended an annual general conference attended by Chief Directors, Senior Officials from various government Ministries, Departments, and Agencies (MMDA's) where it was discussed, among other things, the concern of total disregard for financial regulations, internal control machineries, and rampant financial irregularities resulting in unwarranted expenditure. According to the Auditor General's Report, another troubling figure reflecting cash irregularities was USD$912 million as of December 2016. (Akotia, 2016). According to the Auditor General's office, a total of USD912 million reflecting the country's total foreign debt was misappropriated, embezzled, unverified payments, and unaccredited bank deposits, owing to a weak control environment and inadequate internal audit procedures at different public boards (Ajao et al., 2013; ter Bogt & Tillema, 2016). Further disclosures have it that, a total of six public entities and statutory agencies were unable to account for GHc1,975,054,681 in cash, while a recent study claims that only 26 of the 365 official vehicles allocated to the seat of government were obtained from the previous officials (Boateng, 2016). This brings the cumulative number of financial violations discovered by the Auditor General in the financial activities of various public boards and organizations tasked with protecting state resources to 95.5 percent. The estimated loss includes US$50,309,512 in cedis exchanged at the current exchange rate of Gh1.5467 per US$1 as of December 31, 2011. In the year, outstanding debts amounted to 4.8 percent of the anomalies, or GH 99,170,464 (Akotia, 2016). Government financial management is a matter of a comprehensive economic agenda on the part of the government to carefully manage the scarce resources and taxes that go into the consolidated fund at the Central bank to meet budgeted capital projects and other expenditures aimed at providing basic services to the citizenry without irregularities (Othman, Aris, Mardziyah, Zainan, & Amin, 2015). According to (Kromidha & Córdoba-Pachón, 2017), every public worker requires statutory guidance to carry out their functions and must be properly briefed on the sanctions for breaking the laws pertaining to their office, for example (Babatunde & Dandago, 2014) argue that any public employee needs legislative guidelines to carry out their duties and should be adequately briefed on the consequences of breaking the laws that apply to their role, such as when funds intended for a specific project are instead used to finance a conference or a foreign trip that was not budgeted for and had 7 no supporting documentation to show authorization for such expenditure. As stated in the code of ethics for all public employees, integrity and ethical principles are fundamental criteria for holding a public office. The law requires those performing duties on behalf of the state to do so in the best interests of the state and to spend any resources entrusted to them in accordance with regulatory and approval procedures (Oppong, Arora, Sachs, & Seidu, 2016). According to the literature, transparency advocates often criticize public-sector control structures, claiming that the problems are not caused by a lack of control mechanisms, but rather by a lack of discipline and a general attitude toward government property among Ghanaians. People are generally more concerned with private investments than public capital, which is unfortunate. There is ample evidence suggesting the joint effort between the Auditor-General and the Bank of Ghana to ensure all Receipts and Payments are properly accounted for in compliance with Article 187(2) (5) of the 1992 (Aveh, Awunyo-Vitor, & Afriyie, 2016). The Auditor-General is mandated by the Constitution of the Republic of Ghana to audit the public accounts of Ghana, as well as all public offices, including the courts, central and local government administration, universities and public institutions of similar nature, and any public corporation or other body or organization formed by an Act of Parliament, and to report to Parliament (Akotia, 2016). In general, the Ghanaian Audit Service and other law enforcement agencies apply section 404 of the Sarbanes Oxley Act of 2002 (Sarbanes, 2002) while dealing with such apparent limitations associated with any control mechanism. Evidently, Section 41(1)(b) of the Financial Administration Act, 2003 (Act 654) (FAA) and Regulation 191 of the Financial Administration Regulations, 2004, (LI 1802) (FAR) require the Controller and Accountant-General to provide financial statements of the government to the Auditor-General and the Minister of Finance (MoF), as well as details of transactions it carried out on the MoF's orders (Ayee, 2003). Several scholars, including Babatunde and Dandago (2014), have argued that control systems are effective when an organization makes a deliberate effort to reduce and control wrongful payments while still sticking to conventional budgeting systems. If the above scenario is accurate, it appears that the public sector deserves credit for significantly reducing payments of GHC 360.24 million budgeted in the Goods & Services category in 2016. Despite this positive effort, there were Ghc431.30 million in debts, showing massive discrepancies and unaccounted for payments (William Jr, Glover, & Prawitt, 2016). 8 It is common knowledge that the government spends close to 70% of the public sector budget on procurement at the end of each accounting year, indicating that greater structural changes and control mechanisms within the public sector are needed to protect the state's interests in this regard (William Jr et al., 2016). Major stakeholders have expressed concerns about public sector reforms, especially regarding employee attitudes, state resource management to avoid waste, and theft to instill a collective commitment toward revenue generation and preventing revenue leakage (Owusu, Owusu, Weir, & Weir, 2016). Other authorities have raised the question of public sector workers' wages being determined by an hourly assessment rather than a fixed monthly salary (Aveh et al., 2016). Over-under budgeting, according to a well-known expert and leading author in the Finance and Auditing literature, is also a sign of management inefficiency. Given that the principle of internal control did not set a cap on the amount of money spent in the public sector per year, Kaiser and Streatfeild (2016) agree that a fair ratio should be set by law to benchmark spending of public resources, including in emergency situations, and that due process should not be skipped. The Public Accounts Committee of Parliament is a sign of openness, which they often demonstrate through a public interview with invited state agencies, in which they frequently provide detailed accounts of their operations relating to accounting periods, and in which they frequently raise red flags on certain acts of irregularity (Owusu et al., 2016). There is enough evidence to show that the institutions are in place with a legal structure in place; however, regulation is quickly becoming an impossible task, given the magnitude of irregularities that have plagued Ghana's public service in the past and recent years, especially with the basic elements of controls to ensure discipline and a positive culture (Wynne & Mear, 2016). 2.1 Public Financial Management in Ghana When it comes to public financial management matters, the Auditor-General is the first port of call. At the end of each accounting year, all statutory agencies, public boards, corporations, and MDAs are subjected to strict review under the provisions of the Financial Regulation Act of 2004 (Legislative Instrument 1802), which is closely aligned with the Financial Regulation Act (FAR) of 2003 and other international accounting principles (Oppong et al., 2016). Several interventions have been made to protect the public purse from further leakage; the aim is to promote a sound financial management system free of irregularities that are causing inflation and 9 inefficiency throughout the sector. The implementation of the "Ghana Integrated Financial Management System (GIFMIS)" in 2009, a project initiated and launched by the Government of Ghana, through the Controller and Accountant General, Ministry of Finance (MoFeP), with support from the World Bank, the European Commission, DFID, and the British Government as part of the Public Sector Reform Initiative, is a classic example of a strong financial control initiative. (PFMRA) (Akotia, 2016). By default, the Controller and Accountant-General (CAGD) is the department in charge of overseeing the implementation of any kind of financial reform, but under the oversight of the Auditor-General and the Ministry of Finance and Economic Planning. The implementation of Enterprise Resource Planning (ERP), which was also deployed to streamline public financial management at a central control unit and managed by the Controller and AccountantGeneral (CAGD), is an example of the numerous financial control modalities instituted with the aim of rescuing and mounting a permanent closure to the iniquities surrounding the public financial system. The ERP is jointly controlled for monitoring and oversight by three public agencies that are proponents of change and accountability (Haruna & Kannae, 2016). Following the endorsement and constant review of Public Financial Management laws (PFM) and regulations in recent years, the World Bank's country director praised Ghana for a well-built legislative structure to improve public financial management in an address. Wynne and Mear (Wynne & Mear, 2016). When properly implemented, these and other control measures will prevent the country from incurring unjustified public debts and gross irregularities in the public sector. The obligations of each arm of government, namely the Executive, Legislature, and Judiciary, towards the implementation of all laws relating to the use of public resources are enshrined in the 1992 Constitution of Ghana in plain terms (Edmonds et al., 2017). Any person acting in the interest of the state is required to follow these laws. Other constitutional frameworks, such as the Financial Administration Act of 2003 (FAA) and the Audit Service Act (2000), also emphasize this. The Financial Administration Regulation is a complement to these (FAR). The basic budget and accountability frameworks are laid out in the legislative and regulatory system (Aziz et al., 2015). With the establishment of all these legislative provisions and frameworks, it is virtually impossible for persons employed in the public sector to violate the control systems intentionally or erroneously without being subjected to the full force of these rules. The aim of this study was to see if the control elements are successful in the public sector, as well as to see if government employees are aware of 10 the controls and follow the regulations. According to (Rahman et al., 2015), many device failures are caused by a failure to recognize the system's usage and potential. 2.2 Financial Controls Financial regulation, according to Balabonien and Veerskien (2015), is a carefully orchestrated attempt by management to spend and stay within a specific budget over an accounting period. In this regard, instead of using a beyond budgeting model that allows spending officers to incur those costs at their discretion in the interest of the organization effectively, judiciously, and within the legal frameworks, management should use a static or conventional budget structure. Financial control, according to Gitman, Joehnk, and Billingsley (2015), refers to procedures designed to ensure financial appropriations follow established accounting practices, such as ensuring receipts and payments are properly recorded and approved based on management policy on budgetary allocations in accordance with regulatory instruments, resulting in financial statements free of errors and omissions. Domingues et al., (2017). In theory, a well-functioning financial management system should encourage consistency in allocating funds to projects and investments in the order of priority, while keeping in mind the normal procedures for having the transaction authorized. According to one school of thinking, the primary goals of financial management are strict adherence to precision and transparency (Sarbanes, 2002). A comprehensive policy package to improve the public sector's system of controls was introduced in a document titled "Public Financial Management and Private Sector Competitive Support Program Phase" (PFMPSCSP). For the sake of transparency, the policy was set to include simple controls such as a basic clear letter of authority from all Chief Executives of MDAs who are by statute the spending officers to append signatures approving payments and originators of such payments (Akotia, 2016). Financial monitoring is thought to include not only the safeguarding of properties and the quality of books, but also the process of surveillance using rigorous technology (William Jr et al., 2016). The (PFMPSCSP) fiscal control and monetary policy to be implemented under the IMF-World Bank sponsored project will aim to strengthen and widen the domestic revenue generating base to prevent the local currency from depreciating against other major currencies, with the goal of raising sufficient funds for pressing capital projects with a long-term horizon (Appiah & Abdulai, 2017). 11 A robust monitory regulation, according to leading authors such as (Lindgren & Jansson, 2013), would boost the Government of Ghana's credit rating on the capital markets, both domestically and internationally, allowing it to access external funding in the form of grants, aids, and loans. Major economic growth initiatives, such as diversification into non-traditional export commodities, are expected to boost Ghana's competitiveness and market access in Europe. Only when funds are used wisely and professionally administered can benefits such as job growth and poverty alleviation be realized (Tricker & Tricker, 2015). During implementation, a major emphasis would be on commitment to controls and oversight of spending appropriations to improve the authorization processes and procedures, with approval vested in agencies rather than individuals holding roles. In a speech given during his visit to Ghana on March 8, 2012, former President of the United States of America, Barack Obama, stressed the importance of openness and accountable governance. He advised the entire citizenry that it was more important to reinforce institutions than it was to cultivate powerful personalities (Pitt, 2014). This assertion was met with a practical response from the government in the form of programs and reforms (Aziz et al., 2015). According to renowned management scholars Gitman and Zutter (2012), an institution's financial control system plays a critical role in the governance and management of risks that are critical to the achievement of its organizational goals. A sound financial management structure also helps to protect stakeholders' investments and the institution's properties from fraud, waste, and unaccountable appropriations. Ghana as a country can develop and improving the current system to the level of stringent financial regulation needed in the future to ensure the effectiveness and efficiency of operations. People's dependability, faith, and trust must be used to show the nature of internal control and compliance with laws and regulations, among other things. Internal control includes effective financial controls, as well as the management of accurate accounting records. They assist with ensuring that the organization is not unnecessarily subjected to the avoidable danger of records being taken into the possession of unauthorized individuals or lost documents. In this regard, the PRAAD, which is an independent entity required by statute to take care of state-owned valuable records, must strengthen its control and security mechanisms to help combat weakening internal control systems. Gitman et al., (2015). Other authorities believe that to make the entire process complete and robust, financial information detailing special government contracts with other countries and partner institutions, but in the form 12 of computerized and electronic systems sealed and protected by security codes, should be included in document security within the public sector (Ajao et al., 2013). With time, Ghana will be able to erase statements such as (causing financial loss to the state and willfully misappropriating public resources), which were specific legal charges brought against top government officials in 2005 who oversaw various institutions where Ghana lost scarce resources due to negligence (Speklé & Verbeeten, 2014). However, are the various activities of the institutions meeting their objectives? Are state-owned properties, such as Official Bungalows, as well as vehicles and logistics, being used effectively? To address these questions, the government auditor must properly carry out the duties entrusted to him by the 1992 Ghanaian Constitution and the Public Administrative Act of 2003 in assessing performance and identifying flaws in the public sector's control structures (William Jr et al., 2016). If Ghana is to catch up to Rwanda and Tanzania in terms of economic recovery and set a regional standard, revenue leakages and prudent use of state facilities such as cars, power, and salary packages for public sector employees must be linked to performance and required qualifications (William Jr et al., 2016). According to experts, appointees to such sensitive control and special installations should have adequate knowledge of internal controls and be willing to support the reform strategy to obtain the best results from the reforms. 2.3 Institutional Theory John Meyer and associates Brian Rowan and Richard Scolt produced institutional arguments in 1977 and 1983, respectively, and Lynne Zucker in 1977. Meyer and Rowan (Meyer & Rowan, 1977). According to the idea, structural forces, as well as technology needs and resource dependencies, shaped formal organizational frameworks (Palthe, 2014). The core premise is that organizational structures and procedures are either reflections or responses to the wider environment's laws, ideas, and customs. Standardized things, administrations, procedures, techniques, and programs serve as useful myths, and many organizations adopt them ritualistically, yet institutionalized rules can clash with efficiency. Meyer and Rowan (Meyer & Rowan, 1977). Institutional theory has been used in previous research to understand why some countries have embraced IPSAS (Adhikari & Mellemvik, 2010; Christiaens, Vanhee, Manes-Rossi, Aversano, & van Cauwenberge, 2015; Nagalinagm, Mangala, & Kumudinie, 2015; Stan & Sven, 2000). Similarly, the Ghana government has implemented accrual accounting and reporting to meet external expectations and portray a sense of logic and productivity to achieve credibility, but the framework will not be used to improve internal performance and, as a result, financial reporting quality. The purpose of this study was to see if the 13 introduction of IPSAS in the public sector has resulted in a significant increase in the quality of financial reporting among semi-autonomous government agencies. 2.4 Hypotheses H1. There is a positive relationship between financial irregularities and revenues of MMDAs in Ghana. H2. The impact of internally generated funds is high on the revenues of MMDAs in Ghana? 3.0 Methodology 3.1 Research Design The design lays out the researcher's method for collecting and analyzing data related to finding answers and solutions to the research issue, as well as hypothesis testing. The aim of the research design was to demonstrate the study's validity and reliability. The aim of the research design was to organize the data collection, review, and establish a consistent relationship with the research questions so that rational conclusions could be drawn (Block, Miller, & Wagner, 2014). The rationale for the data sources and procedures used is also included in the study design. A well-structured research design ensures that relevant knowledge about the research issue is used, and that the research goals are met (Block et al., 2014). This piece of work adopted trend analysis and descriptive study to look at the specifics of financial irregularities in terms of Cash, Procurement, Payroll, Contract and Statutory Tax and Deduction respectively in MMDAs in Ghana. 3.2 Population and Sample Size Due to the growing existence of irregularities associated with managing public funds, the public sector of Ghana, specifically Two Hundred and Sixty (260) Metropolitan, Municipal and District Assemblies (MMDAs) annual Auditor General´s Reports were sampled for the study. A sample of six (6) year’s annual statements comprising two (2) years pre-adoption and four (4) years postadoption of IPSAS in Ghana from 2014 to 2019. 3.3 Data Analysis The study adopted STATA to analyze the data. Cash Irregularities, Procurement Irregularities, Payroll Irregularities, Contract Irregularities and Statutory Tax and Deduction Irregularities respectively as well as Internally Generated Funds (IGF) enshrined in the annual Auditor General´s 14 Reports of MMDAs in Ghana were used as independent variables while Total Revenues as dependent variables for the analysis. Regression was used to determine the effects of independent variables on the dependent variables. 3.4 Model specification The empirical model of financial irregularities and IGF is specified in a panel data framework as follows: REVENUEi t = ȹ + ΩCASH i t + ΨPROCUREMENT AND STORESit + ϢCONTRACTi t + βSTATUTORY TAX AND DEDUCTIONit + µPAYROLLit + αIGFit + εit … … … … … … … … … … .1 Where i, t, ȹ and ε represent the individual variable, time (year), intercept of the regression and disturbance term, respectively. The notations Ω, Ψ, Ϣ, β, µ, and α are coefficients of their respective variables. All other notations/variables are as already defined. 3.5 Estimation Technique The study used the pooled Ordinary Least Square (OLS) regression as the empirical estimation technique. Standard errors were employed to deal with any possible heteroscedasticity and serial correlation (autocorrelation). All analyses in this study were done using STATA 16.0. 4.0 Results of the Study Table 1: Descriptive Statistics for Regions in Ghana Source: Annual Auditor General’s Report for MMDAs from 2014 to 2019 15 The descriptive statistics for regions in Table 1 reveals the utilization of Annual Auditor General´s Report encompassing all the ten (10) regions of Ghana for a six-year period spanning from 2014 to 2019. In 2019, four regions were split into new regions: Brong Ahafo (Bono Region, Ahafo Region and Bono East Region), Northern (North East Region, Northern Region and Savannah Region), Volta (Oti Region and Volta Region) as well as Western (Western Region and Western North Region) making a total of sixteen (16) regions. However, for the sake of uniformity in regions for the purpose of this study, all the new regions´ figures were added to their respective original regions’ figures to maintain ten (10) regions in respect of 2019. Table 2: Descriptive Statistics for Study Variables Source: Annual Auditor General’s Report for MMDAs from 2014 to 2019 The descriptive statistics in Table 2 shows that Cash irregularities has a mean value of 2663136 while Procurement and Stores, Contracts, Statutory tax Deduction, Payroll, Revenue and IGF have average values of 58675.91, 119134.7, 31318.04, 32254.74, 1.33e+08 and 2.69e+07, respectively. The results further show a standard deviation of 9157752 with a minimum of 11808 and a maximum of 6.78e+07 for Cash Irregularities, a standard deviation of 95794.68 with a minimum of 0 and a maximum of 583934.7 for Procurement and Stores Irregularities, a standard deviation of 430750.4 with a minimum of 0 and a maximum of 2822472 for Contract Irregularities, a standard deviation of 68734.95 with a minimum of 0 and a maximum of 440288 for Statutory Tax and Deduction Irregularities, a standard deviation of 37257.8 with a minimum of 0 and a maximum of 154814.3 for Payroll Irregularities, a standard deviation of 6.87e+07 with a minimum of 3.67e+07 and a maximum of 3.63e+08 for Revenue, and a standard deviation of 3.20e+07 with a minimum of 2465447 and a maximum of 1.56e+08 for Internally Generated Funds (IGF), all corresponding to 60 observations. 16 Table 3: Ordinary Least Squares (OLS) Regression Results Source: Annual Auditor General’s Report for MMDAs from 2014 to 2019 The results show that payroll, statutory tax and deduction, procurement and stores, cash and internally generated funds have positive significant effects on revenues of MMDAs in Ghana (Table 3). Specifically, a unit increase in all the independent variables apart from contracts affect revenue performance by positive level of significance. This outcome is not surprising since MMDAs with higher irregularities are more capable of affecting revenue performance. Similarly, a unit increase in internally generated funds is found to positively affect revenue performance at a significant level. The p-value, Prob>F = 0.0000, for the F-test is significant because it captures the data of the probability greater than F being less than 0.1, 0.05, and 0.01 which is 90%, 95%, and 99% respectively. The F-test has shown that this regression model has explanatory power, and it is a good regression model. This can be explained by looking at the p-value for this regression. As the p-value for F is 0.0000, it means that as this value is less than 0.1, 0.05, and 0.01, the variable is statistically significant. Overall, the model representation is statistically significant at all these levels because the 99% is the strongest and being 99% confident in something is stronger than 90% or 95% confident level. It is a 99% confident that the null hypothesis can be rejected, and the null hypothesis is that the R-squared is equal to zero. The regression output shows that the variables are statistically significant because their p-values equal 0.0000. The p-value of the overall regression is highly significant (p>0.00), which indicates the higher fitness of the results. Also, the R2 of 0.8514 indicates that, the 17 variables in the model jointly explain about 85% of the variations which is particularly good. Moreover, because of the use of robust standard errors, the estimates are robust to any serial correlation and heteroscedasticity. Table 4: Correlation Marix Results Source: Annual Auditor General’s Report for MMDAs from 2014 to 2019 This section presents results of correlation matrix as well as determinants of financial irregularities in the MMDAs of Ghana. The correlations among independent variables are generally low which may indicate the absence of multicollinearity (Table 4). Nonetheless, STATA normally omits variables that are highly correlated. 5.0 Conclusion This study was set out to investigate the effects of financial irregularities and internally generated funds on the total revenues of Metropolitan, Municipal and District Assemblies (MMDAs) in Ghana using cross-sectional data from the auditor general’s annual reports. While financial irregularities have persisted in the reports before and after adoption and implementation of International Public Sector Accounting Standards (IPSAS), little is known about the drivers of these irregularities. However, for these MMDAs to continue to prepare and present transparent and accountable financial reports credible enough devoid of any financial irregularities, the determinants of these irregularities should be known. Using STATA, this study used 2014 to 2019 auditor generals reports on MMDAs in Ghana to examine the determinants of financial irregularities. The pooled OLS was used as the estimation technique with the multiple regression extension. The ultimate objective of the research was to examine the correlation between the dependent variable of total revenues and the independent variables of cash, procurement and stores, contract, statutory tax and deduction, and payroll 18 irregularities respectively as well as internally generated funds. The findings depict that both independent variables experienced a positive correlation with the dependent variable. Under regression observation, the model representation is statistically significant at all confidence levels tested. 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