Efficiency of Resource-use in Accounting Data Processing in
Selected Development Projects in Nigeria
View From Practice
Taiwo Toluyemi
Agricultural and Rural Management Training Institute. (ARMTI), Ilorin. Nigeria. E-mail:
armti @ armti.org
J. O. Olujide
Department of Business Administration, University of Ilorin. Nigeria. E-mail:
Ifeyori I. Ihimodu
Agricultural and Rural Management Training Institute, Ilorin, Nigeria. E-mail:
1.
INTRODUCTION
Like most developing nations of the world, successive Nigerian governments and donor
agencies such us United Nations Development Programrne (UNDP) spent a colossal amount
of money on establishment and management of Development Projects (DPs. However, these
projects hardly achieve their objectives because o! poor appraisal. funding, and management,
including management of accounting., information. Accounting Information problems arc
manifested partly through lack of accurate and timely accounting information as well as
rudimentary communication of accounting information. Deficiencies that often highlighted
the poor performance of DRs include lack of comprehensive, accurate, and timely accounting
information to be used as feedback to managers, inefficient resource-use in processing
accounting data, too large accounting departments, and pour responsibility accounting.
From the foregoing discussion, management of accounting information has been deficient in the DPs, This has significant influence on the performance and the eventual
sustainability of development projects. If (he accounting information system (MS) is good
but its management is pool, performance could be hindered. It is against this background and
the drive for a departure that this study examines the efficiency of resource use "n accounting
data processing. Precisely, the study examines
• the capacity utilization of accounting department of DPs.
•
the rate of technical substitution of equipment for labor in accounting
departments, and
• the contributions of accounting data processing inputs to output.
Information Technology for Development
Published online in Wiley InterScience (www.interscience wiley.com).
• wn.tV
interScience
© 2008 Wiley Periodical Inc.
DOI: 10.1002/itci] 20077
Been a longstanding one, therefore researchers in the third world countries give some
attention to efficiency in resource use in the public sector. Whatever the resources type and
volume available In any entity the ability to derive value from the resource will depend on skill,
dexterity, and judgment to efficiently apply them in productive use. Hence, managers, economists,
accountants, and Policymakers in the world are concerned with efficiency of resource use in
economic production.
Perhaps it is necessary lo observe that efficiency studies are focused on assessing
performance of a segment of or a whole organization, department, and an industry. Such studies
are usually approached by studying persons, groups of persons, processes, or products. This study
focuses on efficiency of process and persons involved in generating ;Accounting information in
DPs in Nigeria.
Studies Midi as Biorn, Hagen, Iversen, and Magnussen (2002 and Estache and Rossi (
1999) examined efficiency in health, water, and energy industries, respectively Ihimodu 1986
examined financial returns of public commercial enterprises. Fox anil Hallers (1986) examined
effects of ownership on of efficiency enterprises, while Biorn el al. (2002) looked at efficiency of
a strategy on hospital efficiency. The results of the above-mentioned studies indicate that most
public enterprises operate at a lower efficiency level that expected. In addition, most studies
isolate the effects of either labor or equipment on efficiency of an organization. However, this
study, in addition to input-output efficiency, examines the rate of technical substitution of
equipment for labor. Similarly, most of the studies cited above are focused on efficiency of
financial returns. This study examines the efficiency of a product or service line or a subsystem
within the 01 "animation. This approach is premised on the assumption that if all the subsystems
are efficient, the whole organization will he efficient. Therefore, this study will assist managers of
the DPs policymakers to monitor and run then accounting data processing units more efficiently. h
will also assist managers of Dps in emerging economics, such as Nigerian, to identify problems
associated with managing accounting daia processing with a view to formulate practical .solutions
to alleviate them. The literature such as Ebhomelene Adeyemi and Ogundele revealed that most
works and efforts on MIS have been about increasing its capacity in terms of the technological
advancement and very little studies in resource management of AIS. It is further revealed that too
much attention has been focused on computers and hardware and too little on developing
economic model for it or its management. In light of this information, this study will contribute to
improvement in management of accounting data processing in the selected organizations.
2.
METHODOLOGY FOR THE STUDY
Ten UPs in Nigeria were selected for this study. The criteria for the selection are as
follows:
•
live of the organizations are public oriented (i.e. their performances are not determined
by financial returns but levels of service to the populate):
•
live of the organizations are enterprise oriented (i.e.. their performances are largely
measured by financial returns or cost recovery):
•
live of the organizations have foreign support while the re.-,t have only local support;
and
•
the organizations have been in existence (or more than 10 years and have at least 50
employees.
Information Technology for Development DOI: 10.1002/itdj
Donglas production function to construct efficiency minces for accounting data
processing. Basically, the idea is to investigate the effects of the combination of labor and machines/equipment, on accounting information produced. The information volume produced will
depend on the method of data processing (I.e manual and automation). To investigate
the identified relationships, a genera! Cobb Do us his production function can be applied. Tills
function is given as
Y = AL “Q”
Where
Y ~ Total information produced
A — Positive constant
Q = Equipment Input
L — Labor Input
a and \\ are regression coefficients to be estimated
while other variables are as estimated below.
Device of homogeneity is K
K = x and ft
2.1
Justification for the Use of Cobb Douglas Production Function
The multidisciplinary nature of accounting research further encourages the use of
models developed in related and relevant disciplines, such as management sciences, computer
sciences economics, information sciences, etc. Ola (2002) however, prescribed four criteria for
the use of any model in accounting research, as follows:
•
the extent to which it addresses the research problems or objectives.
•
the relevance of its assumptions in the particular environment.
•
its superiority to other competing models in the category, and
•
the data needed for its estimation are available and the computation cost is
economical.
Therefore, the use of the Cobb Douglas model—an economic analytical tool.....will
provide an insight to resource-use efficiency in accounting data processing because the inputs and
outputs can be identified in-line with the theory of production.
Many economic studies used the Cobb Douglas production function to estimate
resource-use efficiency. Mijindadi and Nornian (1984) and Oladunni (I9')4i preferred the Cobb
Puuulas model to others because, according to them, its use have reasonable and logical results in
an average production function analysis of (lie same sample. Though the model has been applied
to physical output problems, it has useful applications in the analysis of service (intangible or
nonphysical) output. All that is required is that the inputs and output are scientifically identified.
2.2
Data Estimation
The following variables, volume of informal ion. accounting data equipment, and labor
were estimated, as slated below.
Information'Technology fur Development DOI- i0.1002/'iicJ;
cross sectional data of me number of times the journals, vouchers, ledgers. statements. And
reports, such as income statements, management accounting reports, and balance sheets are
annually prepared The COM of producing the different accounting reports based on labor.
2.2.2
Accounting data processing equipment. Accounting data processing equipment
includes computer systems, table calculators, accounting machines, and typewriters. Weights
allocated to each of the equipment were based on their depreciation costs. Specifically,
equipment is measured in calculator equivalent based on their depreciation costs.
2.2.3. Labor requirement in processing of accounting data. The labor required in
accounting data processing include account clerks or bookkeepers, account supervisors.
accountants, and executive accountants. The average annual basic salary of each category
Was used as a basis for weighting. Specifically labor is measured in account clerks equivalent
based on their average wage per annum.
The information described above was elicited mainly from records of such
organizations and complemented with discussions and interviews with managers. The
records used were from 2000-2002.
'.
3.
THE OPERATIONS OF ACCOUNTING
DEVELOPMENT PROJECTS
DATA
PROCESSING
IN
The efficiency of resource-use by financial managers in processing and
communication of financial information is an important issue because A1S constitutes a
reasonable proportion of the management information system (MIS) in many organizations.
In addition. Decision making is largely hinged on information in organizations and the role
that information plays in decision making cannot be overemphasized. Similarly, efficiency of
accounting resource-use impacts the overall efficiency of organizations and consequently
their profitability and sustainability.
Like in most organizations, Accounting data processing activities are carried out by
both the accounting department and the internal audit unit. The actual processing (5f
accounting data is done by the accounting department, while the internal audit unit validates
the data to ensure integrity. The accounting departments in the DPs are saddled with the
responsibilities of processing accounting data, disbursing funds alter due authorization and
advising management on financial matters.
The information generated includes financial accounting, management, and cost
accounting information. Financial accounting information is basically stewardship rendering
and score-keeping activities. On the other hand, the management and cost accounting
information is essentially control and product or service conversion information. The DPs
prepare financial information mainly for funding agencies, such as international agencies and
the supervisory ministries.
Accounting data processing activities utilize equipments such as compute! s\stems.
calculator, accounting machines, typewriters, and photocopiers. Though some of the equipment perform similar functions at different degrees of efficiency, they are commonly used
together in organizations. The computer system is, of course, the most efficient. However.
60% of the selected DPs have computer systems. In fact, most of the DPs depend on
Information Technology for Development DOI: 10,1002/itdj
.
As in any production system. the a priori expectation is that there is ;in inverse
relationship between the use equipment input, especially computer system's and labor inputs.
However, the observations the DPs in Nigeria show that there is a direct relationship between
labor and equipment. This is because the acquisition of computer systems is sometimes
followed by the employment of new hands or training old hands usually to operate the
system rather than a reduction in labor inputs. In other words, acquisition of computer
systems is not followed by corresponding decrease in labor inputs. the labor inputs are made
up of 30% to 35% accountants and executive accountants. Therefore, many of these highly
experienced people are used to doing routine and less challenging jobs. In most cases, the
numbers of employees in accounting departments are higher than that of the line or
operational departments.
It is very interesting to note that the accounting information generated In DPs is
only tailored towards the requirements of donor agencies arid that of the supervisory
ministries. Hence, all the DPs prepared financial statements and reports that are mainly for
stewardship rendering. On the other hand, the management accounting reports are hardly
ever prepared for management and control of the DPs.
3.1
Efficiency of Resource Use in Accounting Data Processing
The efficiency of resource-use in accounting data processing can be measured as
follows:
 the productivity of inputs (labor and equipment, i.e.. the relative contributions of the
last input employed lo volume of information venerated):
 the capacity utilization of the accounting departments in the DPs; and
 the rate at which equipment can be substituted for labor (i.e., rate of technical
substitution).
The data collected are filled into both the ordinary least square (OLS) and the Cobb
Douglas models. The OLS model estimated the equation as follows:
Y = 1 16.669 - 2.504Q + 5.064L while the Cobb Douglas linear model estimated the
equation as Y = 2.831 -. 1.0710 + 2.024l
Therefore, the Cobb Douglas model is
Where
Y = 2.831 Q -1869 L 2024
V := Volume of Information produced
Q = Equipment
L = Labor
The negative sign in the coefficient for equipment confirms the a priori expectation that
equipment used per unit reduces with increases in volume of data processed or information
generated. For instance, labor increases with volume of information, i.e. direct relationship
Information technology for Development DOt 10 i002'i!o;
Relationship). The observation of positive value for labor also indicate that labor per unit increases with
the volume of data processed or information generated by the accounting information system.
The Cobb-Douglas model indicated that labor was statistically significant at the 5%
level, while equipment was statistically .significant at the 10% level. The fact that labor was
found to be statistically significant at the 5% level of significance underscores its relative
importance in accounting data processing in the DPs. The R- figures in Cobb- Douglas and
linear models show that about 82% and 84% . respectively, of the variation in the dependent
variable (information generated) is explained by equipment and labor. However. the models
(i.e., Cobb Douglas and OLS) are statistically significant at the 10% level of confidence.
Hence, the two models can be relied upon to explain the relationships between labor,
equipment on one hand and accounting information on the other.
3.2
Allocative Efficiency in the Accounting Data Processing
Resources are usually allocated based on the capacity of the organization of
effectively utilize them and the capacity of such resources/inputs to contribute to the goal of
the organization. However, when sociopolitical factors, which are not economic, are allowed
to distort the processes of resource allocation, then allocative efficiency will be greatly
impaired. The place of sociopolitical influence has been given prime of place in resource
allocative in the DPs. Ihimodu !19S6) observed that appointment and employment into
managerial position in Kwara State commercial parastatal is largely based on political favor
or patronage.
3.3
Contributions of Inputs to the Generation of Accounting Information
Contributions of inputs lo (he generation of accounting fn format ion is measured by
elasticity of production. Production elasticity is a measure of the responsiveness of output to
changes in inputs. With the Cobb Douglas Junction being the lead equation, the coefficients
of the variables, which are also the elasticities of various inputs (equipment and labor), are
1.07 1 and 2.02. This means that labor is relatively elastic, while equipment is unitarily
elastic (i.e., a change in inputs will lead to a little mere than proportionate change in output).
However, the rate of elasticity for labor is higher. Therefore, more efforts are needed-10
improve on the productively of each factor so as to increase their output. The efficiency of
these inputs can be enhanced by decreasing their use per unit of data processed. This can be
done in two ways: by downsizing the inputs (i.e.. labor and equipment) or increase the
information generated The rate of adjustment required is higher in labor.
3,4
Capacity Utilization
Capacity utilization can be measured by return to scale index. This measures the response of
the volume of information generated (output) to a proportionate increase in all the inputs
employed (i.e.. equipment and labor). The return to scale is 0.95241. Because this value is
less than one that is they are operating at the irrational zone or stage of decreasing returns to
scale (i.e.. the contribution to output (volume of information generated) In additional inputs
is decreasing. Hence, there is excess capacity for the accounting departments. As a
Information Technology for Development DOI: 10.1002/itdj
(i.e. downsizing or capacity) to improve capacity utilization in the accounting departments. In the
alternative increase the data to be processed or information they generated using the
same amount of inputs will help to optimize these resources.
3.5
Productivity of Factors/Inputs
The marginal productivity of equipment (2.860) is lower than that of labor (5.787)
because the equipment, especially computers where they are acquired, is grossly under
utilized. They arc used in most places like manual typewriter and calculators. This
Interpretation and explanation is appropriate because the marginal productivity measured the
actual capacity used and not the designed capacity. Toluyemi (1999) asserted that the under
capacity utilization of computers in the agricultural development projects is largely due to
frequent power failure and the use of imported software that is not tailored to the Nigerian
socio economic environments. In the same vein, the excessive employment of labor often
lead to the use of highly skilled labor for routine and unchallenging jobs.
3.6
Marginal Rate of Technical Substitution (MRTS) of Equipment and Labor
Marginal rate of technical substitution (MRFS) is defined as .he amount of labor loss
that will be just compensated for by an additional unit of equipment with no change in output
occurring.
MRTSOL = MP0
WPL
Where
MRTS QL = Marginal Rate of Technical substitution of equipment for labor MPQ ~
Marginal product of equipment MPL= Marginal product of labor
MKTSyi. is computed to be -0.494. This means that —0.494 unit of equipment will
compensate for a unit of labor loss. This result should be interpreted with caution because of
the under utilization of equipment in the sampled organization as against excessive
employment of labor. Hence, according to Leftwich (1979). additional units of labor will lust
compensate for smaller and smaller amounts of equipment given up. This principle is called
the principle of diminishing marginal rate of technical substitution of labor for equipment
(MRTSoi ). Therefore, the studied organizations are already having diminishing marginal
rate of technical substitution of labor for equipment.
4.
CONCLUSIONS
From the foregoing discussion, it is logical to conclude that the operational efficiency of
accounting data processing in the DPs falls below expectation. This become glaring from the
poor capacity utilization, existence of diminishing rate of technical substitution of labor for
equipment. The causes of this poor performance include the government's excessive control
through appointments, employments, and promotion of labor by the supervisory
Information Technology for Development DOI: I0.1002'/iicli
occurs through over employment of labour and inefficient allocation of resources. Which not only
increases cost but also reduces productivity of employee. The study also indicates that accounting
data processing in the DPs lag behind time in terms of technology as only 60% of the DPpartially computerized their accounting system. Furthermore. there is underutilization of
resources, which is the equipment in processing accounting data in the DPs. This is sometimes
due to power failure and frequent breakdown of computers. One will therefore suggest improved
capacity management of the accounting department in the DPs as well as the use of modern
technology in processing accounting data in the DPs. Similarly, the right accounting data
processing environment should be provided to facilitate cost reduction and the consequent
increase in income.
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Information Technology for Development DOl. 10.1002/itc