Page 1 of 14

Archives of Business Research – Vol. 10, No. 3

Publication Date: March 25, 2022

DOI:10.14738/abr.103.11932. Odewole, P. O., Ololade, B. M., & Akande, A. A. (2022). Overhead Grants’ Usage and Educational Institutions in Nigeria: Data

Envelopment Analysis Perspective. Archives of Business Research, 10(03). 64-77.

Services for Science and Education – United Kingdom

Overhead Grants’ Usage and Educational Institutions in Nigeria:

Data Envelopment Analysis Perspective

Philip Olawale Odewole

Department of Accounting and Finance, Faculty of Humanities

Social and Management Sciences, Elizade University

Ilara-Mokin, Ondo State, Nigeria. Corre

Babatunde Moses Ololade

Department of Accounting and Finance, Faculty of Humanities

Social and Management Sciences, Elizade University

Ilara-Mokin, Ondo State, Nigeria. Corre

Adesola Adebayo Akande

Department of Accounting and Finance, Faculty of Humanities

Social and Management Sciences, Elizade University

Ilara-Mokin, Ondo State, Nigeria. Corre

ABSTRACT

This study appraised the utilization of overhead grants’ efficiency among federal

educational institutions in Nigeria between2011-2019. Data for the study were

sourced from the Annual Audited Financial Statements of the public sector entities.

The sampled size for the study comprised (25) federal educational institutions out

of 69 federal educational institutions drawn across the country among four (4) geo- political zones. Data were analyzed using Data Envelopment Analysis. The results of

the average efficiency scores from both CCR and BBC models showed that the

entities were averagely efficient in overhead grants’ utilization. Overall results

showed that federal educational institutions have high capacity to absorb sufficient

overhead grants from the center. The study therefore concluded that there is need

for an improved overhead grants releases to the federal educational institutions to

achieve effective service deliveries of their core mandates. The study recommended

a continuous assessment and periodic appraisal of the overhead grants’ utilization

among the institutions by their supervising ministry to achieve full efficiency.

Keywords: Decision Making Units, Federal Educational Institutions, Data Envelopment

Analysis, Overhead Grants’ Utilization

INTRODUCTION

Overhead fund release is one of the statutory responsibilities of the central authority to

Decision-Making Units (DMUs). Federal educational institutions are parts of the major

recipients of this fund. Educational institutions as DMUs are a set of organizations saddled with

the responsibilities of carrying out functions of teaching, research, and extension for

sustainable development of entire human life (Odewole &Salawu,2021). They are the channels

or links of central organized systems through which educational programs, ideas and

innovations are communicated to the seekers of various forms of knowledge to accentuate their

Page 2 of 14

65

Odewole, P. O., Ololade, B. M., & Akande, A. A. (2022). Overhead Grants’ Usage and Educational Institutions in Nigeria: Data Envelopment Analysis

Perspective. Archives of Business Research, 10(03). 64-77.

URL: http://dx.doi.org/10.14738/abr.103.11932

dreams and attain the heights of academic standards. Generally, federal educational institutions

rely solely on the central authority for funding to cushion the effects of insufficient internally

generated revenue by the DMUs. These entities therefore, fall under the category of not-for- profit making organizations whose main objective is to provide affordable services to the entire

citizenry. Basically, statutory allocations such as overhead fund allocations are released on

monthly basis which are meant for routine running overhead expenses of the DMUs. The central

overhead cost expenses among the federal educational institutions are the payment of utilities

like electricity charges, telephone charges, building repairs, maintenance of equipment,

training, and other non-personnel services etc. The efficient utilization of the overhead fund

allocations to these entities therefore becomes a matter of concern for all the stakeholders for

effective service deliveries and efficient public financial management (Enofe, Afiangbe &

Agba,2017, Cvetkoska & Savic,2021). Different approaches have been adopted by authors to

analyze the efficient overhead fund utilization to present the overhead cost estimations and

usage of both private and public sector entities to a wide audience in both academic and

professional circles. Elsawy, Hosny and Razek (2011) applied Neutral Network model in

estimating site overhead costs for construction projects in the middle East. Also, Juszezyk and

Lesniak (2016) adopted ABC technique in measuring overhead costs utilization of a going

concern to determine the effective usage. Globerson (2017) engaged Earned Value Approach

for controlling overhead costs in public projects. The focus of the present study however is the

assessment of the efficiency of overhead grants’ utilization by the central treasury to federal

educational institutions in Nigeria. Data Envelopment Analysis (DEA) model – CCR and BCC was

adopted in the determination of the efficient overhead cost usage in the entities. The study is

driven by the public sector entity’s allocative efficiency theory and public choice theory as

major frameworks for the study.

LITERATURE REVIEW

Public sector entities are grouped in order of dependence on central Treasury for funding

(Abdulkareem & Oyeniran, 2011, Odewole & Salawu, 2020). In the categorization of public

entities according to types, there exist fully funded, partly funded and self -funded public sector

entities. In the fully funded public sector entities, the provision of adequate funding to finance

core expenditure profile such as capital physical expenditure, personnel emolument costs and

overhead cost expenditure comprising sundry repairs, maintenance of equipment, payments

for utility charges like electricity charges, telephone charges etc, is the sole responsibility of the

central authority (Odewole & Oladejo, 2020). The DMUs are fully funded when all financial

allocations needed to finance statutory spending such as personnel emolument costs, physical

capital development costs and overhead costs are wholly appropriated and made available by

the central treasury. The fully funded entities are therefore expected to remit all internally

generated revenue and inflows accrued to the entities. They are not allowed to keep such

inflows within their coffers. The self-funded entities largely differ in the sense that they are

expected to generate own funding to cover all its operating expenses and statutory expenses

(Odewole, Salawu & Salawu, 2020). These DMUs are self-financing, self -sustaining and self -

reliant. The entities provide all the financial resources needed within their operations to cover

all statutory commitments. They neither receive allocations, bailouts nor financial assistants

from the central. All expenses in both short -term and long-term nature are financed fully by

the internally generated revenue from the operation within the entities. The last categorization

are the partly funded entities which accommodates all the federal educational institutions. The

bulk of their allocations are received from the central authority in addition to the meager

Page 3 of 14

66

Archives of Business Research (ABR) Vol. 10, Issue 3, March-2022

Services for Science and Education – United Kingdom

inflows accrued to the entities through the internally generated revenue. The last category is

the focus of this study in relation to the efficient usage of their allocated overhead cost releases.

Overhead costs are crucial in effective service delivery of the public sector entities. They are

parts of relevant costs that are outside the major components of the direct cost structure in an

organization. The costs are needed in the day-to-day running of an entity to support the

organization’s main activities to achieve their desired short- term and long -term objectives.

Therefore, allocating overhead costs in federal educational institutions remains a challenging

exercise in the organization cost structure (Huijben, Geurtsen, &Van Helden, 2014, Juszezyk &

Lesniak, 2016).The profile of overhead cost in federal educational institutions entails

supporting the entity’s core processes, financing all administrative functions such as secretarial

supports, legal affairs and facility services, finance and control matters, providing security

services, general maintenance and repairs etc., (Verbeeten, 2011, Carvalho, Gomes &

Fernandes, 2012, Banker & Park, 2021).Therefore, the measurement of the efficiency of

overhead grants’ utilization among federal educational entities is crucial to the various

stakeholders. Data Envelopment Analysis (DEA) models was adopted as against the traditional

accounting ratios. The preference of DEA over traditional ratios is precipitated on the fact that

univariate nature of financial ratios analysis is restricted in appraising the performance of firms

and corporate entities. The limited usage has necessitated the overwhelming adoption of the

potentials of DEA in assessing entities’ efficiency in resource utilization for a robust outcome

(Yilmaz and Yurdusev, 2011, Yu, Barros, Tsac & Liao, 2014, Odewole, 2020). DEA, a linear

programming technique, is commonly used in economics and finance research to appraise the

relative, allocative, or service efficiencies of a going concern in both service centers and

production processes. It is a non-parametric method with emphasis on the measurement of the

entity’s efficiency from a single input/out efficiency analysis. DEA also assesses multi- inputs/output interactions in production and service deliveries (Odewole ,2020, Odewole &

Oladejo, 2020, Abdulkareem & Oyeniran 2011). Charnes, Cooper, and Rhodes (CCR) (1978)

proposed original DEA which assumes no random mistakes. The introduction of both technical

efficiency and allocative efficiency in the determination of efficient frontiers of an entity

backdated to Farrel (1957). The model has been used in many fields of finance and economics

ranging from schools, hospitals, finance houses etc., (Tao, Liu, & Chen, 2013, Kwon & Lee, 2015,

Tsolas and Charles, 2015, Cvetkoska, & Fotova Cikovic, 2020). The focus of DEA is entities’

efficiency measurements (Bogetoft & Otto, 2011; Cyrek, 2017; Stanickova, 2017).The

usefulness of its adoption is popular among the healthcare and educational institutions in

assessing the efficiencies of operations. Many scholars have employed DEA analysis in the

assessment of operational efficiencies of the hospitals and educational institutions (Kazley and

Ozcan, 2008, Ahn, Charnes & Cooper, 1988, Agasisti & Johnes, 2009, Jia and Yuan, 2017). Its

advantage over the traditional ratios and the simultaneous use of multiple inputs and outputs

for the determination of entity’s efficiency occasioned the preference of DEA among

researchers (Zypionka, Kraus, Mayer & Rohrling, 2014, Cheng, Cai, Tao, He, Lin & Zuo 2016). It

has been frequently adopted in public sector entities to advance the determination of efficiency

in resource usage in both educational institutions and healthcare efficiency outcomes (Samut

& Cafri, 2016, Hernandez & San, 2014, Samut & Cafri, 2016, Sendek, Svital kova & Angelovicova,

2015, Rezaee & Karimdadi, 2015). The adoption of DEA is, therefore, a popular method in

appraising the efficiency of all economic units in both private and public institutions. However,

there is a caveat. Numerous studies on DMUs’ efficiencies center largely on productive

efficiency after Farrel’s propositions (Farrel,1957). The tripod of this study is the public sector’s

allocative efficiency as a complete departure from previous works.