INTRODUCTION TO PUBLIC SECTOR ACCOUNTING

WHAT IS PUBLIC SECTOR ACCOUNTING:

• The simplest definition of 'Public Sector' is "all organisations which are not privately owned and
operated, but which are established, run and financed by government on behalf of the public. He
objective of the public sector is the provision of goods and services.
• Government accounting, on the other hand, is composite activities of analysing, recording,
summarizing, reporting and interpreting the financial transactions of government ministries,
departments and agencies.
• public finance is the study of the role of government in the economy

Objectives of public sector accounting

- Determining the legitimacy of transactions and their compliance with the statutes and accepted
norms - Providing evidence of stewardship
- Assisting planning and control - Ensuring objective and timely reporting
- Evaluating the costs incurred and the benefits derivable
- Highlighting the various sources of revenue receivable and expenditure incurred.
- Identifying the sources of funding for capital projects.
- Providing the basis for decision-making.
- Evaluating the economy, efficiency and effectiveness of the public sector.

Users of public sector accounting information

a) Internal Users
- The Executive Arm of Government: To ensure accountability through efficient and effective
record keeping and performance evaluation and control.
- The organized labour unions in the public service: To form part of their basis of negotiation for
improved condition of employment.
- Top Admins of Government departments: To monitor performance and ensure effective control
of funds.

b) External Users
- The National Assembly: Used for budget process and for carrying out their oversight function
- The Public: To have knowledge of budget and expenditure in order to evaluate government
performance
- Foreign countries: To have idea of government finances towards foreign direct investment,
- Foreign financial institutions such as International Monetary Fund (IMF): They assist them to
evaluate the credit ratinmemorg of a borrowing nation
- Creditors. both local and foreign; To ascertain the level of loan capability of the country
- Researchers: To investigate certain areas of public sector that can help them develop new ideas
and for future planning
- Media: To know and to inform the public.

THE CONSTITUTIONAL AND REGULATORY FRAMEWORKS OF PUBLIC SECTOR ACCOUNTING

1) Nigerian Constitution
2) Finance (Control and Management) Act of 1958
3) Allocation of Revenue Act, 1982
4) The Financial Regulations I
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5) Finance/treasury circulars
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6) Public Procurement Act

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7) Fiscal Responsibility Act, 2007
8) Revised Financial Memoranda for Local Government, 1991

Nigerian Constitution: The 1999 Constitution of the Federal Republic of Nigeria (as amended) is
one of the legal frameworks that regulate the receipts and disbursements of public funds. The
constitution gives power for:
- Establishment of the Consolidated Revenue Account
- Establishment of the Contingencies Fund.
- Remuneration of statutory officers.
- Comprehensive list of statutory officers.
- Audit of public accounts
- Appointment of the Auditor General
- Tenure of office of the Auditor General
- Power to conduct investigation by the legislatures.
- Declaration of assets and liabilities, and oaths of office.
- Establishment of the federation accounts

Finance Act: This governs the management and operation of government funds. It regulates the
accounting system, the books of accounts to be kept and the procedures to be followed in the
preparation of accounts and financial statements. Some of it’s provisions include;
- Legislative control and management of the public finances
- Management of Consolidated Revenue Fund
- Authorised issues from the Consolidated Revenue Fund
- Authorisation of investments
- Annual estimates in appropriation bill

Revenue Allocation Act: The Act prescribes the basis for distribution of revenue accruing to
Federation Account between the Federal, States and Local Government; the formula for
distribution amongst the States; the proportion of the total revenue of each State to be
contributed to the State Joint Local Government Account. Some provisions include;
- Formula for revenue distribution
- Allocations under special funds
- Establishment of Federation Account Allocation Committee and functions
-Report by Accountants General of the Federation
- Limit on power of state governments for borrowing money
- Limit on power of state governments for borrowing money

The Financial Regulations: They are the accounting manuals of the three tiers of government
designed to guide the management of public funds. The rules spell out the system concerning
receipts and disbursements of funds and the procedures to ensure good accountability,
prevention and early detection of frauds, errors and other financial malpractices. They set out the
procedures and steps to be followed in treating most of government transactions.

Finance/treasury circulars: These are administrative tools which are used to amend the existing
provisions of Financial Regulations, public service rules and the introduction of new policy
guidelines.

Public Procurement Act, 2007: This is an Act which established the National Council on Public
Procurement (NCPP) and the Bureau of Public Procurement (BPP) as the regulatory authorities
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responsible for monitoring and oversight of public procurement, harmonizing existing

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government polices by regulating, setting standards and developing the legal framework and
professional capacity for public procurement in Nigeria.

Fiscal Responsibility Act, 2007: This Act provides for prudent management of the nation's
resources and ensures long-term macro-economic stability of the national economy. It secures
greater accountably and transparency in fiscal operations within a medium-term fiscal policy
framework. The Act also established the Fiscal Responsibility Commission to ensure the promotion
and enforcement of the nation's economic objectives.

Revised Financial Memoranda for Local Government, 1991: The Financial Memoranda for Local
Government is a publication by the Federal Government which contains the administrative
guidelines, the existing systems of checks and balances, as well as the roles of all the officers from
the chief accounting officer, the chairman, to the officer at the lowest cadre.

The objectives of the financial memoranda as follows

(i) To expressly highlight the implications of disbursing government fund and property without
proper authority and approval;
(ii) To serve as administrative guidelines which facilitate day-to-day running of local governments;
(iii) To facilitate recording of local government financial transactions using the appropriate
accounting method;
(iv) To serve as a learning tool for officers on first appointment or on transfer to a new section.

The contents of Local Government Financial Memoranda

(i) The format of budget and budgetary control;
(ii) The financial responsibilities of the Chairman and other accounting officers of a local
government; (iii) The responsibilities of the local government Secretary, Treasurer and Heads of
Departments;
(iv) The powers and functions of the Auditor General for Local Government;
(v) The various financial offences and their respective sanctions;
(vi) The means of revenue collection and control;
(vii) Main books of accounts kept in the local government;
(viii) The custody, accounting and control of stores.

Bases of public sector accounting

(a) cash basis;
(b) accrual basis;
(c) commitment basis;
(d) Modified cash basis; and
(e) Modified accrual basis.

Cash basis: It is the basis of accounting under which revenue is recorded only when cash is
received, and expenditure recognized only when cash is paid, irrespective of the fact that the
transactions might have occurred in the previous accounting period.

Advantages of cash basis

(a) It is simple to understand;
(b) It eliminates the existence of debtors and creditors;
(c) It permits easy identification of those who authorise payments and collect revenue;
(d) It allows for comparison between the amount provided in the budget and that actually spent;
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(e) It saves time and is easy to operate;

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(f) It permits the delegation of work in certain circumstances;

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(g) The cost of tangible assets is written off in the year of purchase, resulting in fewer accounting
entries.

Disadvantages of cash basis

(i) Management decision to spend money;
(ii) Issue of order or contract for the supply of goods or services;
(iii) Supply of goods or services - acknowledgment of liability;
(iv) Settlement of the amount of the good or service received;
(v) Consumption of value.

Accrual basis Under this basis, revenue is recorded wen earned and expenditure acknowledged
as liabilities when know or benefits received, notwithstanding the fact that the receipts or payment
of cash have taken place wholly or partly in other accounting periods.

Advantages of accrual basis

(a) It takes a realistic view of financial transactions;
(b) It reveals an accurate picture of the state of financial affairs at the end of the period;
(c) It could be used for both economic and investment decision-making as all parameters for
performance appraisal are available;
(d) It aligns with the ‘matching concept; and (e) It makes allowances for the diminution in the value
of assets used to generate the revenue of the enterprise

Disadvantages of accrual basis

(a) It is very difficult to understand, especially by non-accountants.
(b) It does not permit easy delegation of work in certain circumstances.

Modified cash basis Under this basis, the books of accounts are left open for a maximum of three
months after the end of the year, so as to capture substantial amount of income or expenses
relating to the year just ended.

Modified accrual basis This is the basis under which revenue is recorded wen received and not
earned while expenditure is recorded once it liability is incurred. It means that cash basis is used
for recording revenue while accrual basis is used for expenditure.

Commitment basis It is a basis that records anticipated expenditure evidenced by a contract or

a purchase order.

Advantages of commitment basis

(a) A separate payment tabulation is available when required;
(b) Adjustments occurring when actual expenditure has been obtained does not affect the final
accounts;
(c) It is an aid to financial control. A commitment is regarded as a charge which has been made on
a budget provision;
(d) It takes a realistic view of financial transactions;
(e) It reveals an accurate picture of the state of financial affairs at the end of the period;
(f) It is used for both economic and investment decision-making, since all parameters for
performance appraisals are available;
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(g) It aligns with the ‘matching concept; and

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(h) It makes allowance for the diminution in the value of assets employed to generate revenue.

PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

Disadvantages of commitment basis
(a) The system involves extra work. Actual figures have to be substituted for the commitment
provisions to finally determine the running balances under the sub-heads of expenditure;
(b) There is over-expenditure under commitment basis in the expectation that government may
finally release fund to settle the legal obligations;
(c) At the year end, all commitments that are the subject of unfulfilled orders will have to be written
back to reflect the exact picture of the transactions which took place during the year;
(d) Balances, which ought to have lapsed in the Vote Book at the end of the year, may be spent by
issuing local purchase orders to exhaust the votes

FUNDING PRINCIPLES
Fund accounting is one of the fundamental principles underlying government accounting.
Government income is categorized into series of funds for stewardship purposes and each fund
caters for a specific welfare activity of government. The word 'fund' has been defined as "a
separate fiscal and accounting entity in which resources are held, governed by special regulations,
separated from other funds and established for specific purposes.

CLASSIFICATION OF FUNDS
(a) Government funds: They are used to accrue for resources which are derived from the general
tax and revenue powers of government.
(b) Proprietary funds: These are funds used to account for the resources derived from the business
activities of government and its agencies such as parastatals. Examples are various recurrent and
capital funds released to government business entities to carry out their operations.
(c) Fiduciary funds: Those are used to account for resources hold and managed by government in
the capacity of a custodian or trustee.

TYPES OF FUNDS
(a) General fund: It is a fund established for resources. which are devoted to financing the general
administration or services of government.
(b) Capital project fund: This is a fund created to accommodate resources meant for the acquisition
of capital assets or facilities.
(c) Special fund: It is a fund created for specific purposes,
(d) Trust fund: It is a fund whose resources are held by government as a trustee.
(e) Contingency fund: lt is a fund whose resources are meant for expenditure or anticipated
expenditure of uncertain amounts.
(I) Inter-governmental service fund: This is established to provide service to other funds, e.g.
Government Clearance Fund which helps to maintain (transitionally) the balance between the
Federal Government and State Governments in respect of transactions.
(g) Revolving fund: Revolving Fund is also known as Working Capital Fund. It was created to finance
services provided by a designated unit to other departments within a single governmental set-up

(h) Self Liquidating fund: This is a fund into which resources are transferred periodically and out
of which any money or amount left has to be transferred to a current fund.
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Comparison between non-profit oriented organisation and profit oriented organisation

Basis Non- profit oriented Profit oriented

Profit The main objective is to provide Profit maximization
adequate welfare to the people at
reasonable costs
Revenue Revenue is derived from the public in Obtain their income principally
the form of taxation, fines, fees, etc. from sales of goods and services
Legal formation They are created by Acts of the Registered with Corporate Affairs
Legislatures i.e National/State Commission
Assemblies
Budget The public is more interested in the The public is more interested in
annual budget than the annual the annual reports than the
report. annual budgets.
Budgetary Public entities are rigid on the Budgets are internal affairs of
approach budgetary approach these organisations
Accounting They majorly operate on hey strictly operate on
International public sector international financial reporting
accounting standards (IPSAS) cash or standards (IFRS).
accrual.

PAST QUESTIONS: Q3 MAY 2023, Q4 MAY 2023, Q1MAY 2017, Q2 MAY 2023

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TOWARDS NATIONAL FISCAL RESPONSIBILITY

In order to strengthen the Nigerian economy, fast track the term of socio-economic development
and ensure value for all resources deployed into physical and intrinsic development, the Nigerian
Government has been enacting various laws and setting up various legally backed commissions.
Such laws include FAAC, ICIPC, Public Procurement etc. The nation has gone a step further by
enacting the Fiscal Responsibility Act, 2007. The Act is aimed at providing prudent management of
the nation’s resources and ensure long-term macro-economic stability of the national economy
and secure greater accountability and transparency

Fiscal Responsibility Commission

The Fiscal Responsibility Act, 2007 (as amended by Fiscal Responsibility Act, 2010) established the
Commission to carry out the following functions, among others:

Functions of the Commission

• Monitoring and enforcing the provisions of the Act, thereby promoting the economic objectives
of the nation.
• Disseminating standard national and international practices that will ensure greater efficiency
in the allocation and management of public expenditure.
• Undertaking fiscal and financial studies. analysis and diagnosis and disseminating the result to
the general public.
• Make rules under the act
• Perform functions consistent with the promotion of its objectives Powers of the Fiscal
Responsibility Commission

The Act empowers the commission to, among other matters,

• Formulate and provide general policy guidelines for the discharge of the Commission's functions:
• Superintend implementation of policy
• Appoint employees to ensure proper and efficient performance of functions.
• Determine the terms and conditions of service of employees and fix their remuneration.

Composition of the Commission

(l) A Chairman One member from and representing
(ii) The organized private sector
(iv) Civil society (v) The organized labour.
(vi) Federal Ministry of Finance
(vii) Each geo political zones of the country

MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF) is a medium-term high level strategic plan
of the government. usually, three years in Nigeria and which forms the basis of annual budgeting
taking into consideration the law requirement that spending should not exceed revenue by more
than 3% of GDP. It shifts the psychology of budgeting from "needs" to an "availability of resources•
It is also enshrined in the Fiscal Responsibility Act (FRA). The FG will consult with the state
government, prepare and submit to the National Assembly a MTEF for three years. The Medium-
term Expenditure framework constitutes the basis for the preparation of the annual estimates of
revenue and expenditure to be presented to the National Assembly.
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Requirement of the Fiscal Responsibility Act as it affects the time lag for preparation of
MTEF and notifying the National Assembly

Section 11 of the Fiscal Responsibility Act 2007 (Fiscal Responsibility Act was signed into law on
July 27 2007); • Requires that MTEF should be prepared for 3 financial years and submitted to the
National Assembly for deliberation. This would have to be done not later than six months from
the commencement of this (2007) Act and
• Subsequently not later than four months before the next financial year commences, a medium-
term expenditure framework for the next 3 financial years will be prepared for the National
Assembly’s consideration.

Objectives of MTEF
• To improve macroeconomic balance
• To improve inter- and intra-sectoral resource allocation by priority
• To increase greater budget predictability
• To increase greater political accountability for expenditure
• To make public expenditure more efficient and effective

Content of the medium-term expenditure framework- These documents should accompany

the he estimates of revenue and expenditure of the Nigeria’s annual budget;
1. A macroeconomic framework
2. Fiscal Strategy Document
3. An expenditure and revenue framework
4. A consolidated Debt statement
5. Statement of contingent liabilities

A macro-economic framework setting out the three financial years, the underlying assumptions
and an evaluation and analysis of the macro-economic projection for the preceding three financial
years.

Fiscal strategy document setting out:

• Federal Government’s medium term financial objectives;

• The policies of the Federal Government for the medium term relating to taxation, recurrent
expenditure borrowings, lending and investment
• The strategies, economic social and developmental priorities of government for the next
three financial years;
• An explanation of the financial objectives, strategic, economic, social and developmental
priorities and fiscal measures;

An expenditure and revenue framework which set out: Estimates of Revenue, Aggregate
expenditure, Minimum capital expenditure, Aggregate tax expenditure.

A consolidated debt statement indicating and describing the fiscal significance of the debt
liability and measures to reduce the liability;

A statement on the nature and fiscal significance of contingent liabilities and quasi-fiscal
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activities and measures to offset the crystallization of such liabilities.

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Risks of Medium-Term Expenditure Framework (MTEF)

i. Global development risk has led to fragile economic recovery and the emergence of new political
risks, which can be mitigated through diplomatic engagements.

ii. Persistent oil price decline risk which is expected to remain in the medium term, can be
mitigated through diplomatic engagements for oil cuts by producing countries and diversification
of the revenue base.

iii. Oil production and oil sector management risk which have bedevilled by crude oil theft and oil
pipeline vandalism, can be mitigated through engagements with host communities, improved
technology in pipeline surveillance, etc.

iv. Non-oil revenue risks which are traceable to low remittance into the treasury by government’s
owned enterprises for lack of transparency. This can be mitigated through improved non-oil
revenue drive and capturing of more taxpayers into the tax net

Fiscal Transparency

This is the aspect of accountability which requires government to carry out all aspects of budgeting
responsibilities with openness, trust, basic values and ethical standards.

IMF Code of Good Practices and Fiscal Transparency

(i) Clarity of Roles and Responsibilities: The government sector should be separated from the
rest of the public sector and from the rest of the economy.

(ii) Open Budget Process; There should be a clear procedure for budget execution,
monitoring and reporting.

(iii) Public Availability of Information; The public should be provided with comprehensive
information on past, current and projected fiscal activity.

(iv) Assurances of Integrity: These should include that fiscal data should meet accepted data
quality standards and budget forecast and update should reflect recent revenue &
expenditure trends.

PAST QUESTIONS- Q1 NOV 2021, Q3 NOV 2022, Q4 MAY 2023

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ETHICAL ISSUES IN PUBLIC SECTOR ACCOUNTING

In order to stamp out the rising cases of corruption. fraud greed and avarice which are pervasive
in the society and in view of the need to overhaul the image of the country before 'accountability
organs' such as Transparency international, the Federal Government of Nigeria introduced various
regulatory law and measures.

Economic and Financial Crimes Commission (EFCC)

The Commission is empowered to prevent, investigate, prosecute and sanction economic and
financial crimes and is charged with the responsibility of enforcing the provisions of other law and
regulations relating to economic and financial crimes These crimes include Money Laundering Act
1995, the Advance Fee Fraud and Other Related Offences Act 1995, the Failed Banks (Financial
Malpractices in Banks) Act 1994; the Banks and Other Financial Institutions Act 1991, and
Miscellaneous Offences Act.

Duties of the Economic and Financial Crimes Commission

• Enforcement of the Act
• Investigation of all financial crimes
• Enforcement of all economic and financial crimes laws
• Adoption of measures to eradicate the commission of crimes
• Adoption of measures to trace, identify, freeze, confiscate and impound all properties from
terrorist or economic and financial crimes
• Joint operations and rapid exchange of technical information
• Collaboration with bodies internally or internationally to carry out its functions • Undertaking
research and advising on policy intervention
• Compiling data and statistics

Powers of the Economic and Financial Crimes Commission

• Cause investigations to be carried out
• Cause investigation into persons with extravagant lifestyle
• Enforce the provisions of the Money laundering act, advance fee fraud act, failed banks act etc.

Offences & Conviction under Economic and Financial Crimes Commission

(a) Offences which relate to financial malpractices: 5 years imprisonment or a fine of fifty thousand
naira (N50,000) or both imprisonment and fine;
(b) Offences associated with terrorism attract imprisonment for life;
(c) Offences committed by public officers attract between 15 and 25-years imprisonment;
(d) Retaining the proceeds of a criminal conduct attract not less than 5 years imprisonment or to
a fine equivalent to 5 times the value of the proceeds of the criminal conduct or to both fine and
imprisonment;
(e) Offences in relation to economic and financial crime attract imprisonment for a term not less
than 15 years and not exceeding 25 years.
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The Corrupt Practices and Other Related Offences Act, 2000
The Corrupt Practices and other Related Offences Act, 2000, gave birth to the Independent
Corrupt Practices and other Related Offences Commission.

Duties of the Independent Corrupt Practices and other Related Offences Commission.
• Where reasonable evidence exists for offences under the act, to carry out investigation.
• To examine the practices, systems and procedures of public bodies to check if they facilitate
fraud and corruption
• To instruct and advise officers, agencies and parastatals on ways to eliminate fraud
• To advise heads of public bodies of changes in public practices • To enlist the public support in
fighting corruption.

Offences & Conviction under Independent Corrupt Practices and other Related Offences
Commission.
Act
• Accepting gratification: 7years imprisonment on conviction
• Accepting gratification through agent: 7years imprisonment on conviction
• Giver or Acceptor of gratification: 7years imprisonment on conviction
• Fraudulent acquisition of property: 7years imprisonment on conviction
• Fraudulent receipt of property: 7years imprisonment on conviction
• Frustration of investigation: 7years imprisonment on conviction
• Making false statements or returns: 7years imprisonment on conviction
• Bribery of public officers: 5years imprisonment on conviction
• Using office or position for gratification: 5years imprisonment on conviction
• Inflation of price of goods and services by public officials: 7years imprisonment and a fine on
One Million Naira on conviction

Code of conduct for public officers

The Fifth schedule, Part 1, of the 1999 Constitution states that "a public officer shall not put
himself in a position where his personal interest conflict with his duties and responsibilities." Some
of these codes include:
• Prohibition of foreign accounts
• Gifts or benefits in kind
• Receiving pension after retirement and holding public office
• Receiving bribes by public officials
• Abuse of powers
• Holding two full time public positions
• Membership of conflict-of-interest societies
• Declaration of Assets; False declarations

Powers of the Code of Conduct Bureau

• Receive declarations of public officers

• Examine declarations
• Retain custody of declarations
• Ensure compliance with provisions of the code of conduct act
• Receive complaints about breach
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• Carry out functions conferred on it by the national assembly

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Punishment by the Code of Conduct Tribunal on any Public Officer guilty of any of the
Provisions of the Code of Conduct Bureau;

(i) vacation of office seat in any legislative house;

(ii) prosecution of the public officer in a court of law;
(iii) disqualification from membership of a Legislative House and from holding any public office
for a period not exceeding ten years;
(iv} serve penalties imposed by any law where the conduct is a criminal offence; and
(v) seizure and forfeiture to the state any property acquired through the abuse or corruption or
fraud.

Public Accounts Committee

The Committee is a body established by law to study and examine the reports submitted by the
Auditor General, especially in the areas of fraud or misappropriation of public funds. The body is
to also make appropriate recommendations to the National/ State Assembly.

Roles of the Public Accounts Committee (PAC)

• Examine accounts showing appropriation by the State house of assembly • Examine the Auditor-
General’s report
• Power to send for persons, papers and records
• Examine the accounts or report of statutory corporations and boards
• Examination of policy issues and accounts not part of the appropriation account

Nigeria Extractive Industries Transparency Initiative, (NEITI) Act, 2007

The governing body of the NEITI sha11 be the National Stakeholders Working Group (NSWG)

Membership of National Stakeholders Working Group (NSWG)

The NSWG shall be constituted by the President and shall consist of a Chairman and not more
than 14 other members, one of whom shall be an Executive Secretary.

In making appointment into the NSWG, the President shall include:

(i) Representative of extractive industry companies;

(ii) Representative of Civil Society;
(iii) Representative of Labour Unions in the extractive industries;
(iv) Experts in the extractive industry;
(v) One member from each of the six geopolitical zone

Objectives of the Nigeria Extractive Industries Transparency Initiative (NEITI) are to:

• ensure due process and transparency in the payments made by all extractive industry
companies to the FG
• Monitor and ensure accountability in revenue receipts
• Eliminate all forms of corrupt practices in determination of payments and receipts.
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• Ensure transparency and accountability

• ensure conformity with the principles of Extractive Industries Transparency initiative
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Functions of Nigeria Extractive Industries Transparency Initiative (NEITI)

• Develop a framework for transparency and accountability in reporting and disclosure by

extractive companies
• Evaluate contractual obligations of all extractive companies
• Ensure accountability in the investment of the FG in extractive companies
• Obtain records of cost of production, volume and sales from extractive industry companies
• Monitor and ensure all payments to the FG are duly made.
• Identify lapses and undertake measure to enhance capacity of bodies to monitor revenue
payments • Disseminate by way of publications records and reports on revenue

Procedures for the appointment of independent auditors and publication of reports in

accordance with Section 4 (1) of NEITI Act 2007.

i. NEITI shall, in each financial year, appoint independent auditors to audit the total revenue which
accrued to the Federal Government for that year from extractive industry companies, in order to
determine the accuracy of payments and receipts.
ii. The independent auditors appointed under (i) above shall undertake a physical process and
financial audit on such terms and conditions as may be approved by the National Stakeholders
Working Group (NSWG).
iii. Upon the completion of an audit, the independent auditors shall submit the reports together
with comments of the extractive industry companies to the NEITI, which shall cause same to be
disseminated to the National Assembly and the Auditor-General for the Federation and also
ensure their publication.
iv. NEITI shall submit a bi-annual report of its activities to the President and National Assembly.

PAST QUESTIONS- Q4 MARCH 2020, Q3 NOV 2021, Q1 NOV 2018

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EMERGING ISSUES IN NIGERIAN PUBLIC SECTOR / PUBLIC
FINANCIAL MANAGEMENT REFORMED

In July 2003, the Federal Government commenced the implementation of deliberate policies,
programs and projects aimed at strengthening the economy. governance and fight corruption.
This led to the first Economic Reform and Governance Project (ERGP) initiative which was approved
in December 2004, in line with FGN goal to strengthen governance, accountability, reduce
corruption and deliver services more effectively, this brought about the reforms in Public Sector
of the economy.

Treasury Single Accounting (TSA)

(a) The Treasury Single Account (TSA) is part of the Public Financial Management (PFM) Reforms
approved in 2004.
(b) The TSA is a bank account or set of linked accounts through which government transacts
financial operations.
(c) It is a unified structure that gives consolidated view of government cash resources with a view
to strengthening effective budget implementation, check idle cash balances, make planning easy
and allow for effective decision making.

Objectives of TSA
• Ensure sufficient cash flow at all times
• Help invest excess or idle cash
• Ensure greater accountability in public expenditure
• Enhance operating efficiency
• Consolidate cash assets and know position at all times

Reasons for the introduction of TSA

(i) Inability of government to determine cash position at any point in time.
(ii) Unlimited commercial bank accounts maintained by MDA.
(iii) Growing domestic debt and borrowing not aligned to need.
(iv) Idle Cash balances/unspent balances in MDA accounts.
(v) Excessive use of Ways and Means in financing budget expenditure.
(vi) Inability to undertake effective cash planning and management as required by the Fiscal
Responsibility Act.
(vii) No reliable basis to prepare Warrants to MDA, delays in budget execution and perennial
existence of unspent balances by the year end
(vii)Over N100 billion lost in failed commercial banks.

TSA MODE OF OPERATION

1 CBN opened and activate the Consolidated Revenue Fund or TSA to receive all government
revenue and make payment through it
2. All MDAs remit their revenue collections into this account through their individual commercial
bank who now act as collecting agents for a fee.
3. Remittance are made into the TSA at end of every banking day.
4. The Revenue accounts of those commercial bank should be zero at the end of every working
day.
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Benefits of Treasury Single Account (TSA)
(i) Helps the government to unify banking arrangements.
(ii) Assists the government in the efficient utilisation of government funds for approved projects.
(iii) Promotes transparency and accountability in government operations.
(iv) Reduces the amount, and cost of government borrowing by maximising the use of available
government resources to deliver projects.
(v) Ensures centralised control over revenue through effective cash management.
(vi) Enhances accountability and enables government to know how much is accruing to it on a daily
basis.
(v) Reduces fiscal criminality and help tame the tide of corruption.

Components of TSA
E-Payment- The Federal Government of Nigeria commenced the implementation of Treasury
Single Account (TSA) in April 2012, with the e-payment component. It is a direct payment through
electronic transfer to an individual or an organisation using the medium of information.

Objectives of E-Payment
i. To avoid borrowing and paying additional charges to finance the expenditure of MDA while some
MDA keep idle funds in their respective bank accounts;
ii. To ensure effective aggregate control of cash in monetary and budgetary management;
iii. Minimising transaction costs;
iv. Making rapid payments of expenses;
v. Facilitating reconciliation;
vi. Efficient control and monitoring of funds allocated to MDA

E- Collection: It is a comprehensive electronic solution for the remittance, management and

reporting of all Federal Government receipts (revenues, donations, transfers, refunds, grants, fees,
taxes, duties, tariffs, etc.) into the TSA and sub-accounts maintained and operated at the CBN.

Objectives of E- Collection
I. To ensure total compliance with the relevant provision of the 1999 Constitution of the FRN
(Section 162 and 80);
i. To collect and remit all revenue due to the Federation Account and Consolidated Revenue Fund
(CRF);
iii. To block all leakages in government revenue generation, collection and remittance;
iv. To enthrone a new regime of transparency and accountability in the management of
government receipts;
v. To improve on availability of funds for the developmental programmes and projects;
vi. To align with the CBN cashless policy;

Role of Office of Accountant General of the Federation

(i) Ensures effective implementation of e-collection reform.
(ii) Ensures proper monitoring of the e-collection gateway.
(iii) Ensures prompt reconciliation of all collections.
(iv) Provides MDAs with periodic report of collection.
(v) Supports MDAs, banks and payers on the operation of e-collection.
(vi) Ensures regular monitoring of all collections to ensure prompt remittance and accounting for
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collection.
(vii) Ensures continuous update of e-collection guidelines and processes.
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(vi) Abides by the provisions of the MoU with Stakeholders.

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Role of Directors of Finance and Accounts of the Ministries, Departments and Agencies
(MDAs)
(i) Ensures that proper books of Revenue Accounts are maintained.
(ii) Ensures prompt issuance of receipts for remittances paid through the e-collection.
(iii) Ensures that Internally Generated Revenue is not diverted
(iv) Ensure that returns on revenue performance are rendered promptly.
(v) Ensures sharp practices emanating from collusion among dishonest revenue officers are
discouraged and stopped.
(vi) Ensures that idle funds are invested and accrued interests there from are transferred into the
CRF promptly in line with the extant laws. (vii) Ensures revenue monitoring visits to all MDAs, FPOs,
Government Companies and Parastatals

Roles of Central Bank of Nigeria (CBN)

(i) Deployment of gateway for use by other stakeholders.
(ii) Ensures that Remit platform facilitates the transmission of all instructions.
(iii) Designs the payment and collection process across all banks based on operational standards.
(iv) Maintains the Treasury Single Account (TSA) of the FGN.
(v) Ensures maintenance, security and optimum performance of the gateway to meet its
obligations. (vi) Issues guidelines (circular) to DMBs on the operation of the TSA.
(vii) Abides by all terms and conditions for the operation of TSA.

Roles of the Deposit Money Banks (DMBS)

(i) Ensures that payments to government are given prompt attention.
(ii) Ensures that all collections in favour of FGN are promptly remitted
(iii) Liaises regularly with OAGF to ensure smooth operation of the TSA.
(iv) Liaises with relevant Departments of OAGF and CBN on the operations of TSA.
(v) Ensures that terms and conditions enshrined in the MoU are effectively discharged.

Role of service provider

(i) Works with CBN, OAGF and other stakeholders to articulate system requirements.
(ii) Provides a robust stable and effective integrated processing platform.
(iii) Ensures the optimal availability of all relevant systems and platforms.
(iv) Provides effective and efficient support to users of the platform.
(v) Provides users with relevant reports.
(vi) Training of users on the use of the payment gateway.

Automated Accounting Transaction Recording and Reporting System (ATRRS.)

It is an ICT based accounting software application, which facilitates the input of accounting
transactions, reconciliations and generation of standard accounting reports that meet the required
standard of the Treasury.

Benefits of the ATRRS Accounting software

(i) Familiarises the workforce with the use of IT equipment at an early stage of Government
integrated Financial Management Information System (GIFMIS) implementation, which would
enable a smoother transition to the GIFMIS software.
(ii) Potentially reduces training period and requirement for GIFMIS.
(iii) Potentially reduces GIFMIS implementation costs.
(iv) Shortens Business Process re-engineering period (i.e., it is faster to transit from a semi-
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automated process than a manual process.

(v) Facilitates ease of reconciliation of the various bank accounts.
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(vi) Ensures that clean and accurate data will be available for migration into GIFMIS.

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Integrated Personnel and Payroll Information System (IPPIS)
IPPIS was conceived by the Federal Government (FGN) to improve the effectiveness and efficiency
in the storage of personnel records and administration of monthly payroll In such a way as to
enhance confidence in staff emolument costs and budgeting.

Objectives of IPPIS
• Aids planning for decision making
• Pulls data and statistics of all civil servants
• Aids Budgeting for recurrent expenditure
• Eliminates payroll fraud such as ghost worker
• Facilitates easy storage, update and retrieval of records

IPPIS MODE OF OPERATION

IPPIS operation is handled by Office of Accountant General, Head of Service, Federal Civil Service
Commission, Federal Budget office and Central Bank of Nigeria (CBN).

Government Integrated Financial Management Information System (GIFMIS)

The Government Integrated Financial Management Information System (GIFMIS) is an IT based
system for budget management and accounting that is being implemented by the Federal
Government of Nigeria to improve Public Expenditure Management processes, enhance greater
accountability and transparency across Ministries and Agencies.

GIFMIS is designed to make use of modem information and communication technologies to help
the Government of Nigeria to plan and use its financial resources more efficiently and effectively.

Purpose of GIFMIS
(i) Failure to enact the budget before the start of the financial year;
(ii) Budget not based on realistic forecasts of cash availability;
(iii) Lack of effective cash management – multiple bank accounts within Treasury and MDAs that
make effective control impossible and when combined with lack of cash forecasting leads to
inefficient and unplanned borrowings;
(iv) Lack of integration between different financial management functions and processes, e.g.
budget is prepared in a way that makes it difficult to manage budget execution through the chart
of accounts

Objectives of GIFMIS
• central control and monitoring of expenditure and receipts
• Access financial information and operational performance
• Improve MTEF
• Act as internal control to prevent fraud
• Increases internal control system to prevent and detect potential and actual fraud
• Help accountability and transparency
• Access asset and liability position easily

GIFMIS MODE OF OPERATION

GIFMIS operation is being handled by Ministry of Finance, Office of Accountant General and by all
MDAs
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PAST QUESTIONS: Q1 MAY 2016, Q4 MAY 2017, Q1NOV 2017, Q6 NOV 2020
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GOVERNMENT CONSTRUCTION CONTRACTS AND
PROCUREMENTS
The chapter discusses the procedures for awarding contracts and making procurements in the
public sector. It highlights the requirements of the Public Procurement Act, 2007 and the
implementation of the electronic payment system.

Tender splitting
Government's Financial Regulation regards it as "an offence for any public officer to deliberately
split tenders, contracts of works. purchases procurement or services so as to circumvent the
provisions of this chapter and the circular earlier referred to.

Stages for Public Procurement

1. Notice of invitation
2. Deposit for Tender
3. Award of contract

The Board orders a notice of invitation to tender for the contract to be put up. Such notice will
include all necessary details in respect of the jobs/services to be awarded. The media through
which such notice shall be published includes one official gazette and/or the national newspapers
and magazines.

Tenders are usually submitted in sealed envelopes to the Secretariat of the Tenders Bard. At the
close of the notice of invitation to tender, the Secretary under the close supervision of the
Chairman or a member deputizing for him will open the Tenders.

The approving authority will communicate his position to the Tenders Board. The Secretary will
subsequently write a letter of award to the successful tenderer and or invite him for the signing
of the contract. Where necessary, a bond will have to be signed and/or sureties provided. In
principle, the award of the contract has to be published in the newspapers and gazette and
unsuccessful tenderers informed as such. As earlier stated, certified true copies of the contracts
are to be forwarded to the Auditor General as well as the Accountant General.

Terms on contract

Contingencies clause: This is one of the clauses in contact agreements which states that if the
contractor had taken reasonable care in executing the job and he is still faced with unexpected
situation. the contractee or the owner of the project shall bail out the contractor by making more
money available, or review upward the contract sum, or otherwise, the contractor will bear the
cost.

Retention fee: It is a clause in a contract agreement, which states that after the completion of the
project, government shall withhold about 5% of the contract sum, for six (6) months. The amount
withheld will be paid to the contractor thereafter if the project is properly executed and
constructional error is not noticed.

Mobilization fee: Where necessary and appropriate, shall not exceed 15% of the contract sum.
However, payment of such mobilization fee shall be effected upon written application and an
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unconditional bank guarantee for equivalent amount valid until the goods are supplied or until
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the mobilization fee has been repaid, in the case of works contracts.

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PAYMENTS FOR CONTRACTS AND PROCUREMENTS

The Federal Government’s policy from January 2009 is that public fund would henceforth be made
electronically; payments are henceforth to be effected to the contractors by electronic transfers to
their bank accounts. The objective of the new system is to eliminate delay in effecting payments
to the creditors, contractors, etc. of government and minimize undue interaction between the
agents of government and third parties. The ultimate objective is to reduce, if not completely put
a stop to, corruption and other vices.

Operation of the Public Procurement Act, 2007

The Public Procurement Act, 2007, established the National Council on Public Procurement.
(NCPP).

Membership of National Council on Public Procurement (NCPP)

(a) Minister of Finance, as Chairman.
(b) Attorney-General and Minister of Justice of the Federation.
(c) Secretary to the Government of the Federation.
(d) Head of Service of the Federation.
(e) Economic Adviser to the President.
(f) Six part-time members representing:
(i) Nigerian Institute of Purchasing and Supply Management;
(ii) Nigerian Bar Association;
(iii) Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture;
(iv) Nigerian Society of Engineers;
(v) Civil Society;
(vi) The media;
(vii) Director- General of the Bureau who shall serve as the Secretary to the Council.

Objectives of Bureau of Public Procurement (BPP)

• Ensure accountability in the procurement process.
• Establishment of pricing standards and benchmarks
• Attaining transparency, competitiveness, cost effectiveness and professionalism in the public
sector.
• Ensuring Value for money

Functions of Bureau
(a) Formulating the general policies and guidelines relating to public sector procurement for the
approval of NCPP:
(b) Publicizing and explaining the provisions of the Act;
(c) Supervising the implementation of established procurement policies;
(d) Monitoring the prices of tendered items and keeping a national database of standard prices:
(e) Publishing the detail of major contracts in the procurement journal;
(f) Publishing paper and electronic editions. of the journal
(g) Maintaining a national database of the particulars of contract and service providers.
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(h) Collating and maintaining in an archival system, all federal procurement plans and Information;
(i) Undertaking procurement research and surveys:
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(k) Preparing and updating standard bidding and contract documents;

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(l) Preventing fraudulent and unfair procurement and where necessary to apply administrative
sanctions;
(m) Performing procurement audits and submits reports to the National Assembly bi-annually;
Fundamental principles of public procurement

All public procurements must be conducted:

(a) Subject to prior review of thresholds set by the Bureau.
(b) Based only on procurement plans supported by prior budgetary provisions
(c) By open competitive biding;
(d) In a transparent, timely and equitable manner which will ensure accountability and conformity
with the Act;
(e) With the aim of achieving value-tor-money and fitness for purpose;
(f) In a manner which promotes competition, economy and efficiency;
(g) In accordance with the procedures laid down in this Act and as may be specified by the Bureau
from time to time

Procurement plan
A procuring entity shall plan its procurement by:
(a) Preparing the needs assessment and evaluation;
(b) Identifying the goods, works or services required;
(c) Carrying appropriate market and statistical surveys and on that basis prepare an analysis of the
cost implications of the proposed procurement;
(d) Aggregating its requirements whenever possible, both within the procuring entity and between
procuring entities, to obtain economy of scale and reduce procurement cost;
(e) Integrating its procurement expenditure into its yearly budget;
(f) Prescribing any method for effecting the procurement subject to the necessary approval under
this Act; and (g) Ensuring that the procurement entity functions stipulated in this Section shall be
carried out by the Procurement Planning Committee

Procurement implementation
A procuring entity shall, in implementing its procurement plans:
(a) Advertise and solicit forbids in adherence to this Act and guidelines as may be issued by the
Bureau from time to time;
(b) To invite two credible persons as observers in every procurement process, one person each
representing a recognised;
(i) private sector professional organisation whose expertise is relevant to the particular goods or
service being procured, and
(ii) non-governmental organisation working in transparency, accountability and anti-corruption
areas, and the observers shall not intervene in the procurement process but shall have right to
submit their observation report to any relevant agency or body including their own organisations
or associations; (c) Receive, evaluate and make a selection of the bids received in adherence to
this Act and guidelines as may be issued by the Bureau from time to time;
(d) Obtain approval of the approving authority before making an award;
(e) Debrief the bid losers on request;
(f) Resolve complaints and disputes if any;
(g) Obtain and confirm the validity of any performance guarantee;
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Special and restricted methods of procurement

Two Stage Tendering: is a procurement process that involves two distinct stages:

Stage 1: Pre-qualification stage

- Potential bidders submit their credentials, experience, and capacity to perform the contract.
- Evaluation criteria are used to shortlist bidders who meet the requirements.

Stage 2: Tender stage

- Shortlisted bidders from Stage 1 are invited to submit their technical and financial proposals.
- Evaluation criteria are used to select the best bidder.

Two-stage tendering is often used for complex or high-value projects, where the goods or services
are subject to rapid technology or for research, allowing contracting authorities to assess bidders'
capabilities before evaluating their proposals. This approach helps ensure that only qualified
bidders participate in the tender process, saving time and resources.

Restricted Tendering
Subject to the approval by the Bureau, a procuring entity my for reasons of economy and efficiency
engage in procurement by means of restricted tendering on the following conditions;

(a) Goods. works or services are available only from a limited number of suppliers or contractors:
(b) Time and cost required to examine and evaluate a large number of tenders is disproportionate
to the value of the goods.
(c) Procedure is used as an exception rather than norm; and
(d) Procuring entity shall cause a notice of the selected tendering proceedings to be published in
the procurement journal.

Direct Procurement
An entity may carry out any direct procurement where: taking into account the effectiveness •
Where:
(a) Goods, works or services are only available from a particular supplier or contractor.
(b) There is an urgent need for the goods and engaging In tender proceedings or any other method
of procurement is impractical due to unforeseeable circumstances
(c) Owing to a catastrophic event, there is an urgent need for the goods
(d) An entity which has procured goods, equipment, technology or services from a supplier or
contractor, determines that
• Additional supplies need to be procured from that supplier or contractor because of
standardization;
• There is a need for compatibility with existing goods, equipment, technology or services, taking
into account the effectiveness

Emergency procurement
An entity may, carry out an emergency procurement on the following conditions:
• The country is confronted with a disaster, catastrophe, war, insurrection or Act of God
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• Where a public project may be delayed for want of an item of meager value
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• Where the condition of infrastructure may deteriorate

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Public Property
Public property is defined as resources in the form of tangible and non-tangible assets (ranging
from serviceable to the unserviceable):
(i) Created through public expenditure;
(ii) Acquired as a gift or through deeds;
(iii) Acquired in respect of intellectual or proprietary rights;
(iv) Acquired on financial instruments (including shares, stocks, bonds, etc.); and
(vii) Acquired by good will and any other gifts of the Federal government.

The means of the disposal of public assets shall include:

(a) Sale and rental
(b) Lease and hire purchase;
(c) Licenses and tenanciess
(d) Franchise and auction;
(e) Transfers from one government department to another with or without financial
adjustments; and
(f) Offer to the public at an authorized variation.

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PENSIONS AND GRATUITY

Pension Reform Act 2014

This Act repeals the Pension Reform Act 2004 and the Act continues to govern and regulate the
administration of uniform contributory pension scheme for both the public and private sectors in
Nigeria.

Objectives of the new Pension Reform Act, 2014

(a) Establish a uniform set of rules. regulations and standard for the administration and payments
of retirement benefits for the public service of the Federation.
(b) Make provision for smooth operation of the contributory pension scheme
(c) Ensure persons receive pension as and when due
(d) Assist spendthrift persons to save for livelihood during old age

The rates of contributions to the scheme·

• A minimum of 10 percent by the employer.
• A minimum of 8 percent by the employee.
• The rates of contribution my, upon agreement between any employer and employee, be revised
upwards.
• Voluntary payments may be made by employees
• An employer can elect to bear the full responsibility which shall not be less than 20% of monthly
emoluments.

Exemption from new Pension Reform Act

• Members of the armed forces
• Employees with less than 3years until retirement.
• Those who retire before age of 60.

Difference between Pension and Gratuity

Pension is a scheme where the employer and employee contribute towards a fund to ensure that
employees save for their retirement.

Gratuity is usually contributed by an employer to the employee to appreciate their length of

service. It's often contractual or dependent on policies that vary from one employer to another

Retirement Savings Account

Every employee to whom this Act applies shall maintain an account, (in this Act referred to as
•Retirement Savings Account') in his name with any Pension Fund Administrator of his choice. The
employer shall Deduct at source the monthly contribution of the employee; and Not later than 7
working days from the day the employee is paid his salary remit an amount comprising the
employee's contribution to the Pension Fund Custodian specified by the Pension Fund
Administrator of the employee.

Upon receipt of the contributions remitted to the Pension Fund Custodian shall notify the Pension
Fund Administrator who shall cause to be credited the retirement savings account of the employee
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for whom the employer had made the payment.

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National Pension Commission

The principal objective of the Commission, according to the Pension Reforms Act, 2014, is "to
regulate, supervise and ensure the effective, administration of pension matters in Nigeria.

Powers of the Commission

(a) formulate, direct and oversee the overall policy on pension maters in Nigeria;
(b) oversee remuneration of the employees of the Commission;
(c) request or call for information from any employer or pension administrator or custodian
{d) charge and collect such fees, levies or penalties, as may be specify by the Commission;
(e) establish and acquire offices and other premises for the use of the Commission
(f) establish standards, rules and regulations for the management of the pension funds;
(g) investigate any Pension Fund Administrator, custodian or other par involved in the
management of pension funds
(h) do such other things, which in its opinion are necessary to ensure the efficient performance of
the functions of the Commission.

Functions of the Commission

(a) regulate and superv1se the scheme established under this Act;
(b) issue guidelines for the investment of pension funds;
(c) approve. license, regulate and supervise Pension Fund Administrators, Custodians and other
institutions
(d) establish standards, rules and guidelines for the management of the pension funds under this
Act; (e) ensure the maintenance of a National Data Bank on all pension matters;
(f) carry out public awareness and education
(g) promote capacity building and institutional strengthening of pension fund administrators and
custodians;

Pension Fund Administration

Only Pension Fund Administrators licensed by the Commission shall manage pension funds. The
Pension Fund Administrators shall carry out the following functions:
(a) open retirement savings accounts for aII employees with personal identity numbers (PIN)
(b) invest and manage pension funds and asset;
(c) maintain books of accounts on all transactions;
(d) provide regular information on investment strategy,
(e) provide customers' service support to employees
(f) process the calculations and payment of retirement benefits; and
(g) carry out other functions as National Pension Funds Commission my assign from time to time.

Pension Fund Custodians

Is a limited liability company incorporated under the Company’s and Allied Matters Act by a
licensed financial institution with paid up share capital of 25 billion naira.

Functions of Pension Fund Custodian

(a) Receive the total contributions remitted by employers on behalf of the pension fund
administrators;
(b) Notify the pension fund administrators within 24 hours of the receipt of contribution from any
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employer;
(c) Hold pension funds and asset in safe custody on trust for the employees and beneficiaries of
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the retirement savings account

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(d) Settle transactions and undertake activities related to pension fund investments. including the
collection of dividends and related activities;
(e) Provide data and information on investment to the Pension Fund Administration and the
Commission;
(f) Undertake statistical analysis on the investments and returns on investments with respect to
pension funds in its custody and provide data and information to the Pension Fund Administrator
and the Commission;
(g) Execute in favor of the Pension Fund Administrator relevant proxy for the purpose of voting in
relating to the investments; and
(h) Carry out other functions as may be prescribed by regulations

Documents required for proper documentation of a retiring office

1. Letter of first appointment
2. Letter of confirmation of appointment
3. Certified true copy of record of service
4. Letter of the last promotion
5. Current identity card
6. Birth certificate or age declaration affidavit
7. Evidence of registration with a PFA
8. Other relevant documents as may be required by the commission.

Micro pension plan: In accordance with the provisions of section 2(3), a "Micro Pension Plan
which refers to an arrangement for the provision of pensions to the self- employed and persons
operating in the informal sector.

Operational modalities for micro pension plan

The following persons not below 18years of age with source of income shall be eligible for
participation in micro pension plan under Section 2(3) of the Pension Reform Act. 2014:
(a) Self-employed persons that belong to a trade, profession, cooperative or business association.
(b) Self-employed persons with a business registration as a company, partnership or enterprise.
(c) Employees operating in the informal sector who work with or without formal written
employment contract.
(d) Other self-employed individuals.
(e) Micro Pension Contributors shall be resident in Nigeria.

Retirement benefits withdrawal

(i) The micro pension contributor shall be eligible to access pensions upon retirement
and attaining the age of 50 years or on health grounds in accordance with the
regulation for the administration of retirement and terminal benefits.
(ii) The micro pension contributor shall be required to fill a standard retirement
notification format retirement.
(iii) The PFA shall inform micro pension retiree on the various options of accessing
retirement benefits.
(iv) The micro pension retiree shall decide on the mode of accessing retirement benefits
either through the programmed withdrawal or the life annuity.
(v) The commission shall approve all programmed withdrawals, life annuity and exit
payouts under micro pension plan.
(vi) In the case of programmed withdrawal, the PFA and the retiree shall jointly execute a
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programmed withdrawal agreement, stating the terms and conditions of the contract.
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 (vii) In the case of the life annuity, the insurance company and the retiree shall jointly
execute the annuity contract, stating the terms and conditions of the contract.
(viii) All payments for contingent and payments of pensions shall be made only to the
contributor’s/retiree’s designated bank account through channels approved by the
CBN.

Conversion from micro pension plan to mandatory contribution

(a) The micro pension contributor shall be eligible to participate under Section 2(1) of the Pension
Reform Act, 2014 where he/she secures employment in the formal sector with an organisation
that has three (3) or more employees.
(b) The micro pension contributor shall formally request for conversion, attaching all necessary
documents specified in the guidelines for the registration of contributors/members issued by the
commission.
(c) The micro pension contributor shall retain his/her existing RSA.
(d) Micro pension contributor may withdraw the total balance of the contingent portion of his/her
RSA prior to conversion.
(e) Where the Micro pension contributor chooses not to withdraw the contingent portion, the
balance of his/her contingent portion shall be merged with the retirement benefits portion of
his/her RSA prior to conversion.
(f) At conversion, the PFA shall move the micro pension contributor’s RSA balance to the
appropriate fund under the multi-fund structure.
(g) Where an eligible contributor fails/refuses to request for conversion to the mandatory
contribution after one (1) month of receiving remittance from his/her new employer, the PFA shall
automatically change the status of the contributor upon receiving the second remittance.
(h) The PFA shall notify the employer of the status of the RSA of the contributor.
(i) The PFA shall forward monthly returns on conversion to the Commission.

Deficiencies of Pension Reform Act, 2014

(i) Scope and coverage: The Scheme apply to employees in both the public and private sectors.
Mandatory contribution is applicable to organisations in which there are 15 or more employees
(previously 5 employees). This effectively reduces the number of employer and employees that
are likely to benefit from the scheme.

(ii) Basis of contribution: Contributions are now to be based on ‘monthly emoluments’ being the
total emolument as defined in the employee’s contract of employment provided it is not less than
the total of the employee’s basic salary, housing and transport allowance. This definition is vague
and could be interpreted to mean that all items that are paid on a monthly basis (in addition to
basic, housing and transport) would form part of the base on which the pension rates are applied.
This potentially larger base could well mean that many employers will see an increase of over
100% in their pension contribution obligations while employees’ net pay will reduce unless their
employers chose to increase their salaries to accommodate the additional contribution.

(iii) Rates of contribution: The rates of contributions to be made under the new Scheme by both
the employer and employee are a minimum of 10% and 8% respectively (7.5% of the employee’s
monthly basic, housing and transport allowances by both parties under the repealed Act). Again,
this will increase the cost of employment and may force many employers to take drastic measures
such as rationalisation of staff strength.
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(iv) Commencement date: The Pension Reform Act 2014 (Act) was signed into law by the President
on 1 July 2014 with the same date as commencement date, does not give room for transition
arrangement and proper planning.
v) Gaps in coverage: Only employers with a minimum of 15 employees are required to contribute
to the new Scheme. The Act provides that in the case of private organisations with less than 3
employees participation in the Scheme would be governed by guidelines issued by the National
Pension Commission (PENCOM). However, the Act is silent on the applicability of the Scheme to
private organisations with more than 3 but less than 15 employees. Also, what happens to
employers with 5 to 14 employees regarding their past contributions under the old Act?

(vi) Sole contribution by employers: The Act provides that an employer can take full responsibility
of the contribution but in that case, the contribution shall not be less than 20% of the employee’s
monthly emolument. This provision contradicts the combined contribution by both parties of 18%.
Employers will therefore be discouraged from taking full responsibility.

Pension Transitional Arrangements Directorate (PTAD)

Pension Transitional Arrangement Directorate (PTAD) was established to address the numerous
pensioners’ complaints that border on issues such as non-payments of monthly pension, short
payment of pension and gratuity, removal of name on pension payment voucher, non-payment
of harmonised pension arrears, irregular payment of federal pensions and non receipt of pension
after retirement, etc.

Functions of Pension Transitional Arrangements Directorate for public service of the

Federation and Federal Capital Territory
(a) Implementation of policies, rules and regulations relating to pension matters under the Defined
Benefit Scheme (DBS).
(b) Ensure accurate payments are made to authentic Pensioners under the Civil Service
jurisdiction.
(c) Facilitate the maintenance of an accurate and comprehensive database of pensioners under its
jurisdiction.
(d) Management and maintenance of pensioners’ records and files.
(e) Prepare budgetary estimates for existing pensioners as well as outstanding liabilities and
benefits of pensioners with genuine complaints.
(f) Prepare and submit the Monthly Payroll of Civil Service Pensioners and issue payment
instructions to the Office of the Accountant General of the Federation.
(g) Carry out prepayment audit for all payment vouchers.
(h) Review financial statement-transcript, bank reconciliation, pensioners statement of claims.
(i) Safeguarding the assets of the departments
(j) Production of monthly audit reports.

Powers of the Commission over Pension Transitional Arrangements Directorate for public
service of the Federation and Federal Capital Territory
The Commission shall have power to:
(a) Regulate and supervise the activities of the Federal Government Pension Transitional
Arrangements Directorate and the Federal Capital Territory Pension Transitional Arrangements
Directorate to ensure compliance with the provisions of this Act;
(b) Intervene to administer and render technical support and advice on the management of the
various Pension Transition Administration Directorates as per the directive of the President of the
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Federal Republic; and

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PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

(c) Ensure that the Federal Government Pension Transitional Arrangements Directorate and the
Federal Capital Territory Pension Transitional Arrangements Directorate operate under the rules,
regulations and directives issued by the Commission from time to time.

PAST QUESTIONS- Q2 MAY 2019, Q3 NOV 2019, Q3 MAY 2023

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PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

PUBLIC SECTOR AUDIT
Public sector auditing can be described as a systematic process of objectively obtaining and
evaluating evidence to determine whether information or actual conditions conform to
established criteria

Types of audits
. • Financial Audit
• Compliance Audit
• Performance Audit (Value for Money Audit)

compliance audit builds on the definition of public sector audits with a specific focus on assessing
compliance with criteria derived from authorities. Authorities are the parliamentary decisions, law,
legislative acts, established codes or norms, and agreed-upon term that a public sector entity is
expected to comply with in the execution of its roles and responsibilities.

Financial audit is determining whether an entity's financial information is presented in

accordance with an applicable financial reporting and regulatory framework. While doing financial
audit, auditors should look for misstatements and errors that can have material impact on the
information presented in the financial statement.

Performance audit is an independent, objective and reliable examination of whether the

government undertakings, system, operations. programs, activities or organisations are operating
in accordance with the principles of economy, efficiency and effectiveness and whether there is
room for improvement.
‘Value for money’ (VFM) means using resources in the best way in order to achieve intended
objectives. There are three aspects to achieving value for money, often known as the ‘3Es’.
(i) Economy. This means spending money carefully, and not paying more than necessary for
resources - materials, labour and other expenses.
(ii) Efficiency. Efficiency means using resources in such a way that they produce the greatest
possible amount of ‘output’. It means getting more from the use of available resources. For
example, efficiency in the use of an employee means getting a high rate of output for every hour
or day worked.
(iii) Effectiveness. Effectiveness means using resources in such a way as to achieve the desired
objectives. Efficiency is of little value unless the output from the system is what the entity wishes
to achieve

Other types of audit

• Annual/ Statutory Audit
• Special Audit
• Pre-payment audit (audit before payments are made to contractors)
• Post-payment audit
• Interim Audit
• Final audit
• Management Audit
• Systems audit

Objectives of audit
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• Completeness: All transactions relevant to the year of account have been recorded
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• Occurrence- All recorded transactions properly occurred and were relevant to the year of
account
• Existence: That the assets or items physically exist.
• Measurement- The recorded transactions have been correctly valued, properly calculated, or
measured in accordance with established accounting policies, on an acceptable and consistent
basis.
• Disclosure: The recorded transactions have been properly classified and disclosed where
appropriate.
• Regularity- The recorded transactions are in accordance with primary and secondary legislation
and other specific authorities required by them.

Factors contributing to an effective audit

- Independence of the auditor: He should be given free hand to do a good job
- Adequacy and scope of auditor power: The auditor must be given adequate authority to
discharge his responsibilities
- Expertise and professionalism of the auditor: The Auditor should be adequately trained, versatile
and skilful at his job
- Resources at the auditor’s disposal: There should be enough funds at the disposal of the auditor
to carry out his assignment
- Unrestricted Access: Audits should be conducted with complete and unrestricted access to
employees, property and records
- Stakeholder support: The legitimacy of the audit activity and its mission should be understood
and supported by a broad range of elected and appointed government officials, as well as the
media and the involved citizens

Steps taken in auditing financial statements

(1) Scheduling and planning the audit: At the planning stage the objective of the audit guides
the planning. Whenever appropriate, the timing of an audit is discussed and agreed with
management. The nature of the audit, the independence of the members of the team, the
audit programme.
(2) (b) Engagement letter: The engagement letter serves to notify management of a pending
audit. Notification occurs via letters to the auditee, and usually includes a request for
preliminary documentation needed for review, such as written policies, procedures, the
books of accounts as well as documents and records. Engagement letter should also
contain terms of reference (TOR) of the audit and the scope of the audit.
(3) Entrance conference: An entrance conference may be scheduled with the department to
discuss the purpose and scope of the audit. This may be accomplished through scheduled
meeting between the audit office and the auditee.
(4) Regularity (financial) audit: At this stage the financial audit is carried out. This includes
attestation of financial accountability, audit of financial statement, audit of internal control
etc.
(5) Field work: Much work on statutory audit in the public sector is done at the site of the
Auditee for ease of access to necessary records and information.
(6) Draft audit report: Throughout the audit, potential issues and recommendations will be
discussed with departmental management. After completion of work, a draft report is
prepared and presented to departmental management for review and commentary.
(7) Exit conference: A formal exit conference may be held at the option of the auditee.
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Sometimes, this process can be completed on an informal basis via e-mail, telephone or
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other forms of communication.

PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

 (8) Report distribution: Finally, auditors prepare an audit report setting out their opinion, for
the organisation’s shareholders or members. Final audit reports are addressed to the
Legislative body and the Accountant General. The final audit report of the government is
to be published for user’s consumption.

Relationship between the Auditor General and the Public Accounts Committee (PAC)

During the PAC session the Auditor General should:

(i) Guide members of the PAC in improper direction of its session
(ii) Throw further light on issues raised;
(iii) Assist the committee with the correct approach to problems;
(iv) Offer his expert, independent and professional advice to make the deliberations of the
Committee lively, effective and meaningful;
(v) Assist to select areas that need less attention and those that need to be probed deep;
(vi) Identify the weaknesses the financial administration;
(vii) Interrogate the officials in the course of deliberation of the committee if permitted by the
chairman;
(viii) Assess and evaluate the answers given by the officials who are examined by the
committee;
(ix) Express his professional assessment of the acceptability or relevance of such evidence;
(ix) Assist the Committee if allow, in compiling its final report based on minutes of evidence.

Internal audit
An internal audit is an independent appraisal activity within an organisation for the review of
accounting, financial and other operations as basis for services to management.

Objectives of internal auditing

(a) Determining the adequacy of the system of internal control which is in existence.
(b) Investigating compliance with the existing financial memorandum, laws and financial
regulations
(c) Checking the adequacy of monthly returns of activities. (d) Verification of the physical existence
of assets and liabilities.

Scope of internal audit functions

The duties and responsibilities of internal auditors are at the discretion of management. However,
from empirical studies, the following are the areas of interest to an internal auditor:
(a) Pre-audit;
(b) Vouching of payroll and third-party claims;
(c) Auditing of store movements and records;
(d) Conducting internal investigations and evaluation for management; and
(e) Constant review and appraisal of the existing internal control measures.

Areas where the internal auditors can assist the external auditors
(a) Attendance at stock taking and cash counts of an organisation where external auditor is not
able to do them himself.
(b) Conducting pay parade of the staff of the organisation;
(c) Where they have internal auditors who have relevant expertise in particular areas;
(d) Strengthened relationship between the external and internal auditors through a more effective
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dialogue thereby resulting to bring accounting and auditing issues identified during the audit to
the attention of the external auditors;
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(e) Checking the underlying audit evidence for some of the work performed by the internal
auditors; (f) With the knowledge of the internal auditors, the external auditor can gain additional
insights into the entity;
(g) Conducting compliance tests on accounting controls, on a continuous basis to provide
assurance that such controls have operated satisfactorily throughout the period under review;
(h) Testing transactions and balances such as payables, receivables, non-current assets, etc.;
(i) Documentation of the accounting and internal control systems; and
(j) Assisting by making his work plans, programmes, working papers

Reliance of the Auditor General on the internal auditor’s work

Before an external auditor could rely on the work of the internal auditor, the former would have
made the following assessments:
(a) The degree of independence of the internal auditor;
(b) The scope and objectives of the internal audit functions as defined by the management;
(c) Due professional care, that is, whether or not the internal audit work is properly planned,
recorded and reviewed;
(d) The technical competence of the internal auditor. This raises the question as to whether the
internal auditor belongs to any reputable professional accounting body or has relevant practical
experience in internal audit work;
(e) The quality and quantity of the internal audit reports and to what extent they are being acted
upon by the management are of interest to the external auditor;
(f) The quality and standard of internal audit working papers are of significance, showing the extent
of work done.

Areas where the specialists can assist the external auditors

In some cases, the external auditor may have to rely on the work of specialists to form his audit
opinion. Examples of such situations are:
(i) Valuations of type of assets, for example, lands, buildings, machinery, minerals, etc.;
(ii) Measurement of work completed, in progress or to be completed on long term contracts,
architects, engineers, etc.;
(iii) Legal interpretation of agreement or statutes;
(iv) Physical stock taking of specialised stores e.g., drugs or chemicals
(v) Determination of amounts using specialised techniques or methods, for example, an actuarial
valuation.

Code of ethics
Integrity: A professional accountant should be straightforward and honest in all professional and
business relationships.

Objectivity: A professional accountant should not allow bias, conflict of interest or undue
influence of others to override his or her professional or business judgements.

Professional competence and due care: A professional accountant has a continuing duty to
maintain professional knowledge and skill at the level required to ensure that a client or employer
receives competent professional service based on current developments in practice, legislation
and techniques.

Confidentiality: A professional accountant should respect the confidentiality of information

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acquired as a result of professional or business relationships and should not disclose any such
information to third parties without proper and specific authority unless there is a legal or
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professional right or duty to disclose.

PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

Technically standards: A professional accountant should comply with relevant laws and
regulations and should avoid any action which discredits the profession.

PAST QUESTIONS: Q4 MAY 2018, Q2 NOV 2017, Q3 NOV 2021

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SOURCES OF GOVERNMENT REVENUE

Government revenue and sources:

1. Taxation: is a compulsory levy imposed by the government, for which citizens receive no direct
benefit. The levy is usually payable at different rates depending on the nature of economic activity
conducted by an individual or firm.

2. Fees: these are payments made by users of public services on a cost-sharing basis

3. Fine: refer to the penalties imposed by government against law breaches

4. Grant: refer to non-repayable money received by the government from another government
with the aim of helping such government either to improve or to start a project which is of great
importance to the society of such government

5. Borrowing: becomes an important source of receipt to the Government when revenue

collected from taxes and other sources is not adequate to cover government expenditure.

6. Foreign Investment: sometimes government may decide to invest beyond its boundary
provided there is a proof for sustainable and profitability cash flow. The amount obtained from
such investment constitutes revenue to the particular government.

7. Sale of National Asset: selling national assets through privatisation programmes has
constituted a significant source of government revenue across the globe.

Revenue collection agencies in Nigeria :

• NNPC: NNPC has sole responsibility for upstream and downstream developments, and is also
charged with regulation and supervision of the oil industry on behalf of the government.

Its specific functions and roles include:

(a) exploration and production, refining, purchasing and marketing of petroleum and its by-
products;
(b) providing and operating pipelines, tanker-ships and other facilities for the conveyance of crude
oil;
(c) constructing, equipping and maintaining tank farms;
(d) research and development; and
(e) doing anything for the purpose of giving effect to agreements entered into by the federal
government with a view to seeking participation by the government or the corporation in activities
connected with petroleum

• Federal Inland Revenue Service : The FIRS is to control and administer the different taxes
(Companies Income Tax Act, Petroleum Profits Tax Act, and Value Added Tax Act; Personal Income
Tax Act in respect of residents of the Federal Capital Territory, members of Nigeria Police Force,
members of Armed Forces of Nigeria as well as staff of ministry of foreign affairs and non-
residents; and Capital Gains Tax Act and Stamp Duty Act in respect of residents of the Federal
capital territory, corporate bodies and non-residents).

Its specific functions and roles include:

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1. Tax Collection: FIRS collects taxes from individuals, businesses, and organizations, including
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PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

2. Tax Policy Formulation: FIRS helps develop and implement tax policies and regulations to
ensure a fair and efficient tax system.

3. Taxpayer Registration: FIRS registers taxpayers, issues Taxpayer Identification Numbers (TINs),
and maintains a database of taxpayers.

4. Tax Compliance Enforcement: FIRS ensures taxpayers comply with tax laws and regulations,
conducts audits and investigations, and imposes penalties for non-compliance.

5. Tax Refunds and Appeals: FIRS processes tax refunds and handles appeals from taxpayers
disputing tax assessments or seeking relief.

• State Board Internal Revenue Service: At the state level, the Personal Income TaxAct, 1993
established the States Board of Internal Revenue Service (SBIRS) with responsibility for personal
income taxes of individuals and non-corporate bodies except residents of the Federal Capital
Territory, members of Nigeria Police Force, members of Armed Forces of Nigeria as well as staff
of Ministry of Foreign Affairs and non-residents.

Its specific functions and roles include:

(a) assessing, collecting and accounting for all taxes, fees, and levies in the State.
(b) supervising the collection of all revenues due to the State Government with other ministries,
extra Ministerial Department, Parastatals and government companies;
(c) Revising all obsolete rates collectable by the Board and initiate review and advise the governor
on it;
(d) Liaising on tax and revenue matters with the Federal governments directly through the Joint
Tax Board and make recommendations where appropriate to the Joint Tax Board on tax policy,
tax reform, tax registration, tax treaties and exemption as may be required from time to time;
(e) administering the provisions of the Personal Income Tax Act 1993 as amended and relevant tax
laws in the State; and
(f) general control of the management of the service on matters of policy subject to the provisions
of the edicts and imposing discipline on employees of the State Internal Revenue Service.

• Department of Petroleum Resources (DPR): DPR has the statutory responsibility of ensuring
compliance with petroleum laws, regulations and guidelines in the Oil and Gas Industry

Its specific functions and roles include:

(i) supervising all Petroleum Industry operations being carried out under licences and leases in the
country;
(ii) monitoring the Petroleum Industry operations to ensure that they are in line with national goals
and aspirations including those relating to flaring and Domestic Gas Supply Obligations;
(iii) ensuring that Health Safety and Environment regulations conform to national and international
best oil field practice;
(iv) maintaining records on petroleum industry operations, particularly on matters relating to
petroleum reserves, production/exports, licences and leases;
(v) advising government and relevant agencies on technical matters and public policies that may
have impact on the administration and petroleum activities;
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(vi) processing industry applications for leases, licences and permits;

(vii) ensuring timely and accurate payments of rents, royalties and other revenues due to
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PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

Federation Accounts Allocation Committee (FAAC)
The committee is to deliberate upon and allocate funds from the Federation Account to the tree
tiers of government (federal, state and local government). The Federation Accounts Allocation
Committee (FAAC) meeting Is normally divided into two sessions. namely:

(a) Technical session;

(b) Plenary session;

Membership of Federation Accounts Allocation Committee (FAAC) technical session):

(a) Accountant General of the Federation-Chairman
(b) States’ Accountant General
(c) Representatives of the following Agencies:
(i) Nigeria National Petroleum Corporation (NNPC)
(ii) Federal Inland Revenue Service (FIRS)
(iii) Nigeria Custom Service (NCS)
(iv) Department of Petroleum Resources (DPR)
(v) Revenue Mobilization, Allocation and Fiscal Commission
(vi) Federal Ministry of Finance
(vii) Central Bank of Nigeria (CBN)
(viii) National Planning Commission
(ix) Office of States and Local Government Affairs
(x) Office of the Vice President
(xi) Directorate of Military Pension
(xii) Office of Head of Service of the Federation
(xiii) Department of Civil Pension

Functions of FAAC
(a) To ensure that allocations made to the states from the Federation account are promptly and
fully paid into the treasury of each component, on such bases and terms prescribed by law.
(b) To submit annual report of its performance/activities to the National Assembly.

Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC)

The Commission shall consist of a chairman and one member from each State of the Federation
and the Federal Capital Territory, Abuja, who are persons of unquestionable integrity with
requisite qualifications and experience, to be appointed by the Presidentt.

Powers of the Commission

• Monitor the accruals to and disbursement of revenue from the Federation Account;
• Review. from time to time the revenue allocation formulae and principles in operation to ensure
conform with changing realities;
• Advise the federal, state and local governments on fiscal efficiency and methods by which their
revenue is to be increased;
• Determine the remuneration appropriate to the holders of the offices
• Make recommendations and submit its finding by a report thereto to the government of the
Federation or of the State, as the case may be, regarding the formula for the distribution of the
Federation Accounts and the Local Government Accounts;
• Discharge such other functions as maybe conferred on the Commission by the Constitution of
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the Federal Republic of Nigeria, this Act, or any other Act of the National Assembly.
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Federation account revenue heads
Section 162 of the 1999 Constitution of the Federal Republic of Nigeria established the Federation
Account. The Federation account is one into which shall be paid all revenue collected by the
Government of the Federation, except the proceeds from the PAYE of the personnel of the Armed
Forces of the Federation, the Nigeria Police Force, Foreign Service Officers and Residents of the
Federal Capital Territory, Abuja.
Notes:
• 13% of revenue from natural sources goes to the state from whence it was obtained
• 7% and 4% of gross revenue of FA is allocated to NCS and FIRS
• The rates above are the first line charge
• Abuja is considered a state to make 37 states

Sources of revenue payable to the federation account

(i) Head 1- Direct taxes: These are payable by the individuals and firms such as Companies
income tax, petroleum profits tax, capital gains tax, back duty assessment, and personal income
tax of foreigners residing in Nigeria.

(ii) Head 2 - Indirect taxes: These are taxes on goods and services in the form of custom and
excise duties, forfeiture penalties, VAT, etc.

(iii) Head 3 - Mining: These are oil pipeline licence fees, rents of mining rights, mining fees,
royalties on minerals, NNPC earnings from direct sales, penalties for gas flared, and rent of oil
well.

Federal Government Account or Consolidated Revenue Fund (CRF)

Section 80 of the Constitution of the Federal Republic of Nigeria, 1999, established the
Consolidated Revenue Fund (CRF). Except those revenue items which are specifically designated
to other funds, all others shall be paid into the Consolidated Revenue Fund.

Analysis of the various sources of revenue payable to CRF

(i) Head 6 - Direct allocation from the Federation account at the prevailing rate.

(ii) Head 7- Direct taxes: These include PAYE of the Armed Forces and Police Personnel, Foreign
Service Officers and Residents of the Federal Capital Territory, Abuja.

(iii) Head 8-Licence and internal revenue: These are realised from the issues of licences, e.g.
arms and ammunition licence fees, goldsmith licence fees, radio and T.V Licence fees, gold dealer’s
licence fees.

(iv) Head 9 - Mining: These include mining fees, rent of crown lands, royalties on gold, tin, iron
ore, and coal mines.

(ii) Head 10 - Fees: They are fees received on services rendered by government officials, e.g., court
fees, court fines and medical fees.

(iii) Head 11 - Earnings and sales: Earnings and sales are derived from the use and subsequent
disposal of government property, e.g. sales of stores, publications and stamps, commission on
money order and poundage on postal orders.
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(iv) Head 12 - Rent of government property: The incomes include rent on government quarters,
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land and buildings.

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(v) Head 13 - Interest and repayments (General): These are interest and repayment of loans
granted to individuals by the government, Corporations, and government companies. An example
is the repayment of motor vehicle loans.

(vi) Head 14 - Interest and repayments (State): They are interest and repayment of loans
granted to the state governments.

(vii) Head15 – Armed forces: The sales of Armed Forces ’property such as old vehicles and stores
constitute revenue.

(vii) Head 16 - Reimbursements: These are refunds for services rendered to the state and local
government councils, Public Corporations and other Statutory Bodies by the Federal Government
officers. Examples are reimbursements of audit fees and refunds of overpayments made to
government workers.

(viii) Head 17-Miscellaneous: These are other sources of revenue, apart from those stated above.
Examples are overpayments refunded, lapsed deposits

Charges lo the Consolidated Revenue Fund

• All recurrent expenditure – personnel cost, servicing of national debts

• Salaries of statutory officers – Auditor, Chief Judge, Commissioner of Police, INEC etc.
• Pension and Gratuity

Development fund:
The fund was established for the purpose of capital development project.

Sources of Money to the development fund

• Contribution from CRF
• External Grants
• External loans
• Internal loans

Charges from the Development fund

• Capital expenditure
• General Administration
• External Finance obligations – Assistance to other countries
• Loans to LGs

Contingency fund
The fund is set up to meet unforeseen expenditure urgent situations occasioned by natural
disasters. The contingency fund derives its income from the Consolidated Revenue Fund.

PAST QUESTIONS: Q1 MAY 2017, Q6 NOV 2017, Q6 NOV 2019, Q4 MAY 2021, Q1 2019 PILOT SET
2
CRF, DEVELOPMENT FUND, STATEMENT OF ASSETS & LAIBILTY: Q1 MAY 2017
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FEDERATION ACCOUNT: Q1 2019 PILOT SET 2

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FISCAL FEDERALISM

Fiscal federalism deals with the division of tax and expenditure functions among the various levels
of government in a federation.

The objectives of an ideal fiscal relation among sub-national units in a federation are to:

(i) Ensure correspondence between sub-national expenditure responsibilities and their financial
resources (including transfers from the central government) so that the functions assigned to sub-
national government can be effectively carried out;

(ii) Increase the autonomy of sub-national governments by incorporating incentives for them to
mobilise revenues of their own.

(iii) Ensure that macroeconomic management policies of the central government are not undermined
or compromised;

(iv) Give expenditure discretion to sub-national governments in appropriate areas in order to increase
the efficiency of public spending and improve the accountability of sub-national officials to their
constituents in the provision of sub-national services;

(v) Be consistent with nationally agreed income distribution goals; (vi) Support the emergence of a
governmental role that is consistent with market - oriented reforms;

(vii) Incorporate intergovernmental transfers that are administratively simple, transparent and based
on objective, stable, non-negotiated criteria;

(viii) Minimise administrative costs and thereby economise on scarce administrative resources;

(ix) Incorporate mechanisms to support public infrastructure development and its appropriate
financing; and

(x) Provide “equalisation” payments to offset differences in fiscal capacity among states and among
local governments so as to ensure that poorer sub-national governments can offer sufficient amount
of key public services.

Principles of expenditure assignment

(i) Efficient provision of public services: Public services are provided most efficiently “by the
jurisdiction having control over the minimum geographic area that would internalise benefits and
costs of such provision.”

(ii) National equity or fairness: It is commonly argued that effective redistribution of income and
wealth is possible only through national programmes, that is, progressive income taxes and
transfers to the poor.

(iii) Provision of quasi-private goods: Modern governments provide many services that, by
nature, are essentially private goods–for example, health, education, and social insurance.

(iv) Preservation of the internal common market: Preservation of an internal common market
is an important area of concern to most nations undertaking decentralisation. Sub-national
governments, in their pursuit of labour and capital, may indulge in beggar-thy-neighbour policies
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and, in the process, erect barriers to goods and factor mobility.

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(v) Economic stabilisation: It is customary to argue that the federal government should be
responsible for stabilisation policies because such policies cannot be carried out effectively by
local jurisdictions.

Centralisation and decentralisation of fiscal responsibilities

Arguments in favour of decentralisation of fiscal responsibilities

(i) Local governments have better understanding of the concerns of local residents being the
closest to the people.

(ii) Local decision making is responsive to the people for whom the services are intended, thus
encouraging fiscal responsibility and efficiency, especially if financing of services is also
decentralised.

(iii) Unnecessary layers of jurisdiction are eliminated.

(iv) Inter-jurisdictional competition and innovation are enhanced.

Arguments in favour of centralisation of fiscal responsibilities

(i) Spatial externalities: Spatial externalities arise when the benefits and costs of public services
are realised by non-residents.

(ii) Economies of scale: Certain services require areas larger than a local jurisdiction for cost-
effective provision, for example, public transportation and sewerage in metropolitan areas.

(iii) Administrative and compliance costs: Centralised administration generally leads to lower
administrative costs associated with financing public services.

Problems of expenditure assignment

(i) Lack of formal assignment: The absence of a formal assignment of responsibilities among the
multi-levels of government is a common problem with expenditure assignment.

(ii) Inefficient assignments: Another common problem in the assignment of expenditure

responsibilities is the inefficiency of the assignments.

iii) Ambiguity in certain assignments: Despite the ambiguity in assignments, there are few open
conflicts or disputes that have taken place between the central and sub-national governments in
terms of assignment of expenditure responsibilities.

(iv) Co-sharing of responsibilities: The co-sharing of responsibilities within a particular public

service is likely to cause confusion leading to in efficiencies.

Solutions to expenditure assignment problems

(i) Establishment of a formal assignment of expenditure responsibilities: Expenditure

responsibilities should be specified in the law.

(ii) Reassignment of selected expenditure responsibilities: The central government should

assume full financial responsibility for social welfare expenditure when these are assigned at the
sub-national level.
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(iii) Reassignment of capital investment responsibilities: Responsibilities for capital
infrastructure should be placed at the level of government responsible for the delivery of the
specific services including the operations and maintenance of those facilities.

(iv) Facilitating capital investment at the sub-national level: All types of sub-national
borrowing should be closely regulated by the central authorities.

(v) Sub-national development funding: There is considerable merit to the establishment of a

sub-national development fund to promote lending to subnational governments for long-term
capital investment.

(vi) The need to address minimum standards: Central governments should consider introducing
policies that guarantee desired minimum levels of provision for certain services at the local level.

Principles of tax assignment

Anwar Shah opined that four general principles require consideration in assigning taxing powers
to various governments. The principles are discussed briefly below:

(i) Economic efficiency: This criterion dictates that taxes on mobile factors and tradable goods
that have a bearing on the efficiency of the internal common market should be assigned to the
national government.

(ii) National equity: This demands that progressive redistributive taxes should be assigned to the
national government. It limits the possibility of regional and local governments’ following perverse
redistribution policies using both taxes and transfers to attract high-income people and to repel
low-income ones.

(iii) Administrative feasibility: This (lowering compliance and administration costs) is of the
opinion that taxes should be assigned to the jurisdiction with the best ability to monitor relevant
assessments.

v) Fiscal need, or revenue adequacy: criterion suggests that, to ensure accountability, revenue
means (the ability to raise revenues from own sources) should be matched as closely as possible
to expenditure needs

Inter-governmental transfers – grants

The grant system is concerned not only with the level of grants and the programme areas which
should be supported, but also the form in which the grants are to be given.

Classification of grants

(i) General-purpose grants: General-purpose grants are provided as general budget support, with
no strings or conditions attached. These transfers are typically mandated by law, but occasionally
they may be ad hoc or discretionary.

(ii) Specific-purpose grants: Specific-purpose, or conditional, grants are intended to provide

incentives for governments to undertake specific programs or activities.

Guidelines for grant design

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(i) Clarity in grant objectives: Grant objectives should be specified clearly and precisely.
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(ii) Autonomy: Sub-national governments should have complete independence and flexibility in
setting priorities.

(iii) Revenue adequacy: Sub-national governments should have adequate revenues to discharge
designated responsibilities.

(iv) Responsiveness: The grant program should be flexible enough to accommodate unforeseen
changes in the fiscal condition of the recipients.

v) Equity (fairness): Allocated funds should vary directly with fiscal-need factors and inversely
with the tax capacity of each jurisdiction.

vi) Predictability: The grant mechanism should ensure predictability of sub-national

governments’ shares by publishing five-year projections of funding availability.

vii) Transparency: Both the formula and the allocations should be disseminated widely in order
to achieve as broad a consensus as possible on the objectives and operation of the program.

(ix) Incentive: The design should provide incentives for sound fiscal management and should
discourage inefficient practices. Specific transfers should not be made to finance sub-national
government deficits.

(x) Accountability for results: The grantor must be accountable for the design and operation of
the program.

PAST QUESTION: Q4 NOV 2020, Q7 NOV 2018

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FINANCIAL RESPONSIBILITIES OF PUBLIC SECTOR

In accordance with Government Financial Regulations, the Accountant General of the Federation
is the Chief Accounting Officer of the receipts and payments of the Federation. He is saddled with
the responsibility of general supervision of the accounts of all ministries, extra-ministerial
departments and the preparation of annual financial statements of the nation as may be required
by the Honorable Minister of Finance. He or his representative shall have access at any reasonable
time to all document, information and records that are needed for the preparation of the accounts
of every ministry and extra- ministerial department.

Powers/duties of the Accountant General of the Federation

• Power to access books and records of MDA

• Power to request for information
• Power to carry out special investigations in any ministry

The functions of the Accountant General of the Federation

• Serve as chief accounting officer for receipts and payments
• Supervise the accounts of MDAs
• Collate and publish statutory financial statement of FG
• Mange government investments
• Maintain and operate the CRF, DF and CF
• Maintain and operate federation account
• Approve and ensure compliance with accounting codes
• Investigate cases of fraud and loss of assets
• Provide guile lines through issuance of treasury circulars
• Carry out revenue monitoring and controlling
• Service public debt and loans
• Organize and train accounts and internal audit personnel

Auditor General for the Federation (AuGF)

In accordance with the provisions of Government Financial Regulations, this Is the officer
responsible for the audit and reports on the public accounts of the Federation, including all
persons and bodies established by law entrusted with the receipts. custody, issue, sale, transfer
or delivery of any stamps, securities, stores or other property of the Government of the Federation
and for the certification of the annual accounts of the nation. He is given free hand to examine the
accounts in such a manner as he may deem fit. l the end of the audit, he is expected to write a
report, stating whether in his opinion:

(a) The accounts have been properly kept;

(b) All public funds have been fully accounted for. and the rules and procedures applied are
sufficient

(c) Monies have been expended for the purposes for which they were appropriated and the
expenditure have been made as authorised; and
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(d) Essential records are maintained.

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Powers of the Auditor General for the Federation
• Power to access books and records of MDA
• Power to request for information
• Power to carry out special investigations in any ministry

Function of the Auditor General for the Federation

• Prepare financial audits in accordance with the law
• Perform value for money audits
• Audit books and records of MDA
• Certifying accounts of all parastatals
• Audit AG annual financial Sstatement
• Deliberating and reporting cases of loss of funds and stores
• Revenue audit of all government intuitions

Accounting officers
In accordance with Government Financial Regulations, accounting Officers are the Permanent
Secretaries of the Ministries and Heads of extra ministerial debarments. They are saddled with the
responsibly of the day-to-day financial affairs of the ministries and extra-ministerial departments.

Functions of the Accounting officer

• Observe and comply with rules for disbursement of funds and revenue
• Safeguard funds and expenditure under his control
• Minimize waste and fraud
• Render monthly accounts to the AG
• Ensure safety and maintenance of all government assets in his care
• Constitute a procurement committee

Sub-accounting officer

This officer who is entrusted with the receipts, custody and disbursement of public funds, is
required to maintain one of the recognized cash books, together with such other books that may
be required by the Accountant General. Example includes sub - treasurer of the Federation,
Federal Pay Officer (FPO), Police Pay Officer (PPO), Custom Area Pay Office (CAP). Director of
Finance and Accounts (DFA, etc.

Functions of the Sub-accounting officer

• Ensure proper system of account as prescribed by the AG
• Supervise receipts of public funds
• Ensure proper safe keeping of funds, stamps, receipts, licenses
• Ensuring payments are not made without authorisation
• Maintenance of cash book
• Reconcile cashbook and amounts

Revenue collector: This is an officer, apart from a Sub-accounting Officer, wo keeps official
receipts and collects specified form of revenue on behalf of the Government. He is expected to
keep a cashbook. The Revenue Collector must not expend money out of his collection. He
therefore, has to account for the collections received intact.
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Imprest holder: The term lmprest-holder (' mans an officer other than a Sub-Accounting officer
who is entrusted with the disbursement of public money, for which vouchers cannot be presented
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immediately to a sub-accounting officer for payment and who is required to keep an imprest
holder's cash book.

Officer controlling expenditure: This is an officer in charge of the various vote heads of each
ministry or extra-ministerial department, saddled with the responsibility of monitoring
government expenditure and ensuring that there is no extra-budgetary spending.

Functions of officer controlling expenditure

• Supervise government expenditure
• Ensure books are kept up to date
• Effective monitoring of expenditure
• Ensure no extra budgetary expenditure
• Maintenance of vote book

Functions of a Revenue Collector

• Supervise receipt of public revenue
• Ensure custody of public funds • Supervision of officers under his authority
• Maintenance of efficient internal checks
• Account reconciliation. • Supervise government expenditure
• Ensure books are kept up to date
• Effective monitoring of expenditure • Ensure no extra budgetary expenditure
• Maintenance of vote book Vote book or departmental vote expenditure allocation book (DVEAB)

A vote book: is a memorandum accounts book used for monitoring Government expenditure and
ensuring that there is no extra-budgetary spending. It is the duty of every officer controlling
expenditure to keep a vote book. A vote book has 15 columns. Columns 1 to 7 are on the
expenditure side, while columns 8 to 15 are referred to as liabilities side.

Reasons for keeping a vote book

(a) For effective monitoring of Government expenditure.
(b) To show uncommitted balance at a glance.
(c) To highlight Government’s creditors or liabilities.
(d) To ensure that funds are available in the appropriate Heads and Sub-heads to meet payments
due.
(e) To ensure that there is no extra-budgetary spending.

REVENUE COLLECTOR’S CASH BOOK: Q4 NOV 2019

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PUBLIC FINANCE/PUBLIC SECTOR IN NIGERIA ECONOMY
Public finance can be defined as the resource generation(revenue) and allocation (expenditure)
functions of the public authorities and the consequence on the economy.

Public versus private provision

The goods and services produced in every society can be classified into two broad categories namely,
(i) Public goods;

(ii) Private goods.

Public goods can also be subdivided into the following:

(a) Pure public goods-they are goods that are perfectly non-rival in consumption and non-excludable.

(b) Quasi-public goods- these are goods that possess some characteristics of both private and public
goods.

(c) Merit goods: Merit goods are those goods and services that the government believes people will
under-consume, and which ought to be subsidised or provided free at the point of use so that
consumption does not depend primarily on the ability to pay for the goods or services.

Characteristics of public goods

i) Non-rival consumption: Generally public goods refer to those goods whose consumption is not in
rival relationship. This implies that consumption by one individual will not cause a decline in the
benefit that will accrue to other consumers of the same goods.

(ii) Non-excludability: Another remarkable feature of public goods is the non-applicability of exclusion
principle. Since every one consumes from the same source of supply, once provided for one individual
the same quantity and quality becomes available to everyone.

(iii) Zero marginal cost: Public goods are characterised by the existence of zero or near zero marginal
cost. This means that increase in demand may not necessarily force government to increase supply at
least in the short run.

(iv) Equality of sum of marginal benefit with marginal cost: The marginal cost is usually a measure of
benefit derived by customers from consumption. In the case of public goods, it is the sum of the
marginal cost derived by each individual that should equal maginal cost.

Characteristics of private goods

(i) Rivalrous consumption. This is a major feature of private goods. It means that consumption of a
particular private good makes it unavailable for another person.

ii) Excludability. It is a peculiar characteristic of private goods. There are specific conditions that must
be satisfied before consumers can enjoy the benefit of private goods.

(iii) Positive marginal cost: The marginal cost of private goods is positive. Addition to the numbers of
consumers for a particular good will necessitate increase in output which will not be possible without
additional cost – marginal cost.
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(iv) Equality of marginal benefit with marginal cost: In the case of private goods, efficiency requires
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equality of marginal benefit derived by each consumer with marginal cost.

PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

Rationale for public sector in the economy

Government involvement in the economy can be explained by any or combinations of these factors:

(i) Political and social ideologies: The need for government can be explained by the existence of
political and social ideologies which is different from the principle of consumer’s behaviour guided by
utility satisfaction.

(ii) Allocation of resources: The claim that market mechanism leads to efficient allocation of resources
is based on the conditions of perfect competition which presupposes the existence off entry and exit,
perfect knowledge of the market, mobility of factors, lack of preferential treatment among other
factors.

(iii) Healthy competition: It is the role of government to ensure that competition exists in the
production of goods and services.

(iv) Legal structure: An important factor for effective and efficient market system is the legal structure
that guarantees punishment for violators of rules and regulations.

v) Externalities: The case of externalities may be a potent factor to explain the rationale for
government intervention. Even if the legal structure is provided and all barriers removed, certain
goods and services cannot be provided through the market system due to the presence of externalities
that cause distortion between private and public appraisal of projects. Externalities can only be tackled
through public policy.

vi)Economic objectives: The economic objectives of full employment, general price stability, optimum
growth rate, equitable distribution of income as well as soundness of foreign account cannot be
brought about automatically, even in the most highly developed financial economy.

Economic functions of government

(i) Allocation function: Allocation relates to the division of total resource use with respect to provision
of public goods and production of private goods as well as the appropriate combination of the two
goods.

ii) Redistribution function. It involves adjustment in the existing pattern of distribution to conform
with the principle to social justice and equity. In the absence of any policy to adjust the prevailing state
of distribution, distribution of income and wealth will be based first of all on the process of factor
endowment which in a competitive market sets factor returns equal to marginal product.

(iii) Stabilisation function. The economic objectives of full employment, general price stability,
equitable distribution of income, soundness of foreign accounts and acceptable rate of growth are
essential for development of any economy.

Macroeconomic objectives of Government

i) Full employment. Full employment occurs when resources especially human capital are fully
engaged in productive activities that will contribute to increase in the volume of output.

(ii) General price stability: This implies moderate fluctuations (upward and downward movement) in
the general price level of goods and services over a given period.
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(iii) Equitable distribution of income: A fair or equitable distribution of income means that the gap
between the poor and the rich is not too wide but sufficient enough to create incentive for hard work.
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(iv) Socially desired growth rate: This means a steady and non-inflationary increase in the volume of
output – goods and services of the nation. It is the primary objective of the government to pursue
policies that will enhance steady rise in national output that will not be inflationary.

Methods of Government intervention

(i) Fiscal policy: It relates to government expenditure and tax measures aimed at controlling aggregate
demand and hence the economy. It may be expansionary or contractionary depending on the
objective(s) being pursued. Its’ components include:

(a) Taxation

(b) Expenditure

(c) National budget

(d) Borrowing or public debt

(e) Subsidies

(ii) Monetary policy: This refers to the conscious and deliberate action on the part of the monetary
authorities to control money supply, the general credit availability, the direction and cost of credit
within the economy.

(iii) Price control / income policy: It deals with various regulations, rules and guidelines introduced by
government to moderate price and income movements mainly to prevent unwarranted increases.

(iv) Commercial policy: It relates to a set of rules and regulations that influence the country’s imports
and exports. It consists of tariffs, quotas and other form of trade restrictions designed to promote
exports, generate income and employment and restrict imports in order to reduce commercial
deficits.

PAST QUESTION: Q5 MARCH 2020, Q5 MAY 2023

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BUDGETING AND BUDGETARY CONTROLS

A budget is a financial and or quantitative statement prepared and approved prior to a defined period
of time for the purpose of attaining a given objective. A budget is normally prepared for one year. It
is therefore a short-term plan.

In the case of government, budgets are used:

(a) As a guide for the present and future;

(b) To plan, control a and estimate the amount of receipts and expenditure during a specified
period;
(c) To distribute limited resources;
(d) To motivate mangers towards the achievement of corporate goals;
(e) As a means of evaluating performance;
(f) To inform mangers about the operations and results of their areas of responsibility;
(g) As a standard of measurement for the purpose of controlling on-going economic endeavors.

Purposes of budget

• It highlights governments policies for growth, employment and quality of life

• A useful guide for allocation of resources
• The legislature uses the budget as a means of control and accountability for the executive

Budgeting with the national chart of accounts (COA)

The classification code forms the basis for budgeting and budgetary control mechanism.
Therefore, for a country, state or local government to achieve a reasonable level of success in
accountability, transparency, performance evaluation and adherence to Appropriation Act, the
application of unified chart of accounts is paramount

National chart of accounts structure for budgeting

(i) Administrative segment: The administrative classification identifies the entity that is responsible
for the public funds projection–such as the Ministry of Education, Health and Women Affairs or, at
a lower level, schools and hospitals.

(ii) Economic segment - The economic classification identifies the type of revenue and expenditure
budgeted in a particular period, examples are salaries, goods and services, transfer and interest
due.

(iii) Functional segment - The functional classification or classification by functions of government

is a detailed classification of the functions or socio-economic objectives, that general government
unit aims to achieve through various outlays. It therefore, organises government activities
according to their broad objectives or purposes.

(iv) Programme segment- The programme classification identifies various set of activities to meet
specific policy objectives of the government e.g. Pre-primary education, poverty alleviation and
food security.

(v) Funds segment - The fund classification identifies the sources of funding government activities.
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(vi) Geographical segment - The geographical classification is used to identify the geographical
location of an entity (MDAs) or a project so that an analysis of government budget along various
zones, states and local government areas in the country can be done.

Steps for budgeting with national chart of accounts

(i) Identify the government institutions (cost and revenue centres) from the hierarchy of
administrative list and codes provided in the chart of accounts;

(ii) Identify the economic items that would be executed during the fiscal year;

(iii) Identify the functions intended to be performed by government institutions (revenue and cost
centres);

(iv) Identify the programmes intended to be carried out by the government institutions;

(v) Determine the sources of financing the budgeted amount for each budget line; and

(vi) Identify the planned location for the economic transactions or government institution

Methods of preparing budget by government in Nigeria

1. Iincremental or 'line-item' method: Is the budgeting approach used by government to allocate

funds for a succeeding year is the. This approach is oriented to expenditure, itemizing proposed
disbursements under different heads and sub-heads of the various ministries and extra-
ministerial departments. The expenditure side of the 'line-item· or incremental budget is made up
of personnel emoluments, other charges and capital or developmental items.

The traditional budgeting method which is also called ‘incremental budgeting’ involves using last
year’s figure as a base and adding a percentage to it to arrive at this year’s budget. The percentage
added is based essentially on three factors, namely
(a) Trend of economic event;
(b) Inflation;
(c) The available funds.

Advantages of line-item budgeting method

(a) It is simple to understand and operate:

(b) It suits the country's level of development, were there is paucity of data;
(c) It is cheaper to produce:
(d) It encourages the continuity of projects:
(e) The method ensures that budget is translated in monetary language
(f) Allocations into heads and sub-heads facilitate the monitoring of performance.

Disadvantages of the 'line-item' budgeting method

(a} The method allows past errors to be carried forward.
(b} Detailed scrutiny is not contained in the budget. The budget preparation is consequently not
well researched;
(c) It fails to clarify the cost of alternative methods of achieving programs objectives;
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(d) It results in continual growth budget totals leading to inflation

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(f) The method does not clearly spell out the relationship between capital and recurrent
expenditure. '

2. Zero-based budgeting' technique (ZBB) It is a management effort, which provides for

systematic consideration of all activities and programs. The technique requires every item of
expenditure to be justified as if the particular activity or programme is taking off for the first time.
It is the preparation of operating budget from a 'zero-base' of expenditure cost. Under the
technique, resources are not necessarily allocated in accordance with the previous patterns. Each
Item of expenditure proposed has to be annually re-justified. Zero- Based' budgeting seeks to
avoid perpetuating obsolete expenditure items.

Stages/ Events of Zero-Based Budgeting

1. Identification of decision units (MDA) and formulating Operational Plan: The entire ministry or
parastatal is divided into smaller components called `decision units.

2. Analyzing decision packages for decision units (programs): based on the ‘decision-units’, to
which costs are assigned and to the alternative ways of executing the same operation. It also
involves assessing the effect of not performing the activity at all.

3. Ranking the decision packages based on competition

4. Determination of cut-off point and packages to be accepted and those to be rejected.

5. Prioritization of the packages based on available resources

Advantages of ZBB
• Optimum allocation of resources
• Yardstick for measurement of performance
• Focuses on the future rather than the past
• Important projects that are viable are sustained
• Maximizes value for money
• Errors are discovered on time

Disadvantages/problems of ZBB
• Lack of data • May cause major shift in allocation suddenly
• Bureaucrats do not like the process
• Consumes a lot of tasks
• Needs professionals to continuously execute
• It is not good for recurrent expenditure

3. Planning, programming and budgeting system (PPBS)

Planning, programming and budgeting system is a budgeting approach, which is based on systems
theory, output and objective orientation, with substantial emphasis on resource allocation based
on the principle of economic analysis. The technique is not based on the traditional organizational
structure but on programs, which involve grouping of activities with common objectives.
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Steps in PPBS

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1. Identification of goals and objectives of the organization
2. Defining total system; objective, environment, resources, programs and objectives
3. Planning and analysis
4. Development of appropriate measure of performance
5. Programming and budgeting. Agreed programs are expressed in terms of budget
6. Reporting and controlling; Performance evaluation
7. Development of financial plan

Advantages of PPBS
(a) Provides information on the objectives of the organisation;
(b) Lays emphasis on long-term effects;
(c) Achieves effective use of budgeted resources and anticipated performance;
(d) Ensures rational decision-making and forces those seeking budgetary allocations to consider
alternatives; and
(e) Leads to rapid economic development

Disadvantages of PPBS
(a) Natural resistance to change, particularly among the very senior officers in the governmental
hierarchy;
(b) Transitional problems at the introductory stage;
(c) Problem of shortage of staff;
(d) Paucity of data;
(e) Re-orientation of the old accounting system to cater for the requirements of the new concept;
(f) Problem of data collection and physical monitoring;
(g) Difficult to install;
(h) Makes heavy demand on resources;
(i) Uncertainty of the future makes long term planning difficult

4. Performance budgeting: It can be defined as a technique used for presenting public

expenditure in form of functions or projects to be undertaken highlighting the cost involvements.
The anticipated cost is compared with the expected income. The focus of the technique is on
results or output achieved. rather than how much has been expended.

5. Periodic budgeting: This is the operation of a fixed budget over a certain period of time, usually
a year. The budget becomes fixed for the duration of the period concerned and revisions are not
allowed till the end of the period.

6. Flexible budget: This is a budget that recognises the difference between the fixed and variable
costs and gives room for result determination and evaluation under the varying levels of activities.

7. Capital expenditure budget: It is the budget prepared in the public sector for capital projects
such as the construction of bridges and major road projects.

8. Base estimate: The base estimate for the current year is calculated by taking the last year’s
budget and deducting the value of ‘one off’ transactions. Transactions that are ‘one off’ are those,
which do not recur year-in-year-out.

9. Rolling plan or continuous budgets: It can be defined as the continuous updating of a

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medium- term plan spanning a specified period of time. For example, "1998 to 2000" within which
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special and core capital projects, such as the completing of Ajaokuta Steel Rolling Mill. will be
accomplished.

• Rolling budget: Any budget prepared from within the rolling plan is referred to as rolling budget.
It is the yearly provision of funds to prosecute the capital projects spelt out in the plan period.

• Perspective planning: Perspective planning is long-term in nature. It covers fifteen or more

years. It provides the broad view of a country's developmental process. Perspective planning aim
at addressing fundamental and broad issues of development. It serves as a framework for
designing and implementing rolling plans. A perspective plan is always broken into short-term
plans of four or five years, in order to achieve long-term objectives.

FACTORS WHICH MILITATE AGAINST THE BUDGETING SYSTEM IN THE PUBLIC SECTOR

(a) Human element: Top management members see budgeting as restraining and challenging.
They tend to develop a lot of apathy towards its adoption and implementation.

(b) Uncertainties underlying data inputs: There are a lot of uncertainties in the data used for
the budget preparation. The projections in revenue accruing from oil may not be forthcoming in
view of the vagaries in the world market. Lack of efficient database also hamstrings reliable
forecasts.

(c) The type of project for which budget is prepared: How successful a budget will be depends
on the type of project to which it relates. Some projects are popular while others are not. Those
which are not popular may face stiff implementation problems.

(d) The problem of inflation: Inflation tends to reduce the purchasing power. When the value of
money is falling, budget implementation may run into problems. The revenue available will not be
able to cover the expenditure.

(e) Political, social and cultural elements: Each segment of the nation has its own cultural beliefs
and taboos, which may take time to change. Introducing innovation may be met with stiff
opposition. For example, a section of the country may not be willing to provide land for
development purposes. Secondly, where there is political instability, budget implementation is at
risk.

(f) Changing government policies: To implement a budget, a lot depends on the policy of
government. For effective budget implementation, government policies have to be harmonised
and consistent. Frequent changes of government policies affect budget implementation.

(g) The problem of debt management and optimal use of limited resources: There is the
challenge of striking a balance between which parts of the nation’s resources should be used for
servicing debts and the amount that should be utilised for economic development.

(h) Low agricultural output: Agricultural output is fast dwindling because the method of farming
is outdated and the younger population is not attracted. The resources that should be used for
economic development are therefore being diverted to the importation of food items.
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(i) Fiscal indiscipline: Most government officers are always maximising their budget. Under the
incremental budgeting system, they tend to expend the last naira available in a year’s budget in
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order to justify the demand for increase allocation in the subsequent year, with little or nothing to
show as a proof of what has happened in the current year.

PROCEDURE FOR PREPARATION AND APPROVAL OF BUDGETS

1. Ministerial or pre-treasury board phase.

2. Executive council stage
3. Legislative stage
4. Presidential Assent stage

Ministerial or pre-treasury board phase: Before the issuance of the budget preparation
guidelines, the Ministry of Budget and Planning (or the Ministry of Finance at the State level)
receives policy pronouncement from the presidency (or the state governor). The guidelines are
subsequently issued by the Ministry of Budget and Planning or Finance, in form of a Budget call
circular. A budget call circular is issued by the budget department of the Ministry of Finance to all
agencies of government, requesting them to submit their revenue and expenditure estimates for
the succeeding year.

Executive council stage: The draft estimates are presented to the cabinet members known as
the council of ministers or the executive council for further consideration and approval. Members
of the executive council are usually the Nation’s President. Vice-President (governor and deputy
governor at the state level), Secretary to the government, all the ministers (commissioners at the
state level) and Head of Service., The draft estimates is then sent to the National Assembly or the
State Legislature. in the form of an Appropriation Bill.

Legislative stage: The President of Nigeria or state governor presents the budget package and
speech to the National Assembly (the joint meeting of the two Houses) or House of Assembly at
the state government level. The meeting is known as the ''budget session." in each house, there
is a standing committee, which considers the budget proposals.

Presidential Assent stage: The budget is sent back to the President or state governor for his
assent. It subsequently becomes the Appropriation Act. Copies of the approved estimates are
printed and distributed to the ministries. extra-ministerial departments and agencies of
government.

Reserves/estimates
If the estimated income is more than the estimated expenditure this will result in a‘budget surplus’.
Conversely, if the estimated income is less than the estimated expenditure there would be ‘budget
deficit’. Surplus or deficit financing is a policy of government.

Supplementary estimates
Government may request the National or State Assembly, as many times as possible for
supplementary allocation during the year. Unforeseen circumstances tend to force government
to request for such funds. However, government may vire (or transfer) money between sub-heads,
provided they belong to the same Head or title of expenditure. Currently, government requires
the approval of the National Assembly before virements can take place, notwithstanding the
stipulation in the financial regulations, which vests the authorisation in the Minister of Finance.
54

Conditions for approving supplementary funds

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(a) The supplementary request must manifestly be in the public interest;

PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

(b) The need is so urgent that the additional provision request cannot be deferred till the following
year when it will be incorporated in the new estimates
(c) The need could not be foreseen when the current estimates were being approved; and
(d) The money required cannot be sourced through virement.

USES OF BUDGET
• Planning: Budgets are used for planning. Budgets are plans to which monetary values are
assigned to what are to be achieved in a determinable future time, for example, a year.

• Communication: Budgets assist in communicating horizontally and vertically. When budgets are
being prepared, individuals, groups, communities and associations will inform government about
their areas of interests. This is ‘upward communication.’ When the budget is approved,
Government reads it to the members of the public and publishes it in the newspapers. This is
‘communicating downwards.

• Motivation: A budget is a target to be achieved. Government motivates the staff through

promotions and improved conditions of service, for assisting in the full and successful
implementation of the budget.

• Measurement of performance: Since a budget is a target, it is a measure of performance. What

is achieved is recorded and compared with the target of performance set.

• Evaluation of socio-economic policy: Budgets are used to solve the social problems of inflation
and unemployment

• Cost reduction technique Personnel cost budget: Evaluation of operations and procedures may
result in cost savings.

Personnel cost budget (PCB) is the total of the basic salaries and allowances of the various
categories of staff in each ministry/extra-ministerial department. `

Revenue budget: This is computed by aggregating all the various incomes accruing to a particular
ministry, state or local government. The revenue of the government is derived from oil and non-
oil sources. It refers to all government revenue, which accrues into the Federation account,
Consolidated revenue fund, contingency fund and development fund.

Overhead cost budget: Overhead cost budget is prepared using the principle of incremental or
traditional budgeting approach, by increasing the previous year’s budgeted expenditure by
inflation rate

Cash budgeting: The preparation of cash budget is part of the budgetary control exorcise. It
forecasts the cash inflow (receipts) and outflow (payments) of a ministry or parastatal, usually over
three to six months at a time Cash budgeting is designed principally to stave off liquidity problem.
NOTE: The Actual estimates were used not provisions See question 5, page 302

Functions of the ministry of budget and planning

(a) Developing reasoned economic assumptions and forecasts;
(b) Issuing budget guidelines to the ministries and extra-ministerial departments;
55

(c) Acting as the liaison between the Presidency, ministries and extra-ministerial departments
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during the budget preparation;

PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

(d) Compiling total revenue and expenditure estimates;
(e) Drafting the budget speech;
(f) Supervising and controlling the implementation of the budget;
(g) Monitoring and evaluating the performance of programmes funded through the government
budget;
(h) Assessing the impact of the budget on the economy;
(i) Developing formats of returns aimed at ensuring cost effectiveness in the use of government
resources; and
(j) Carrying out research on budget utilisation and the attainment of National or State objectives.

Budgetary control
It is the whole system of controls - financial or otherwise - to ensure that income and expenditure
are in line with the budget and that wastage is reduced to the barest minimum.

Objectives of budgetary control

(a) To combine the ideas of all levels of management in the preparation of budgets;
(b) To co-ordinate all the activities of a business or organisation;
(c) To centralise control;
(d) To decentralise responsibility to each manager;
(e) To act as a guide for management decision when unforeseeable conditions affect the budgets;
(f) To plan and control income and expenditure so that maximum benefit is achieved;
(g) To channel capital expenditure in the most profitable manner;
(h) To ensure that sufficient working capital or cash is available for the efficient operation of the
business or organisation;
(i) To provide a yard stick against which actual results can be compared; and
(j) To show management where action is needed to remedy a situation

Cash budgeting: The preparation of cash budget is part of the budgetary control exercise. It
forecasts the cash inflows (receipts) and outflows (payments) of a ministry or parastatal, usually
over three to six months at a time.

PAST QUESTIONS: Q4 NOV 2022, Q5 MAY 2018, Q5 MARCH 2020, Q3 NOV 2020, Q4 NOV 2020,
Q1 NOV 2022, Q6 MAY 2019

REVENUE & OVERHEAD BUDGET: Q4 NOV 2022, Q5 MARCH 2020, Q1 NOV 2022.

CASH BUDGET: Q4 NOV 2020

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PUBLIC DEBT AND ITS MANAGEMENT

Public debt is the total amount of money raised by government directly or through any of the
authorised agencies is known as.

Types of public debt

(a) Trade arrears. A trade debt arises when a country trades with other countries and is unable
to pay, either partly or wholly, for the goods and services supplied. For example, in the early 1980s
Nigeria’s inability to settle her import bills resulted in the accumulation of trade arrears amounting
to US$9.8 billion between 1983 and 1988.

(b) Balance of payments support loans: The overall economic transactions between a country
and the rest of the world, classified into current, financial and capital accounts, constitute the
balance of payments position which may be favourable when surpluses are recorded or
unfavourable if otherwise.

(c) Project-tied loans: Sometimes, there are investment opportunities which have good potentials
and prospects of accelerating economic growth and development and such may lead government
into contracting project-tied loans.

(d) Loans for socio-economic needs: The provisions of the socio-economic needs of the people
such as water supply, flood control, health and education facilities as well as other social amenities
may necessitate borrowing by government to finance them.

(e) Marketable and non-marketable debt: Marketable debts are those which can be bought and
sold in the financial market. In Nigeria, marketable debt includes Treasury Bills, FGN Savings
Bonds, FGN Bonds, FGN Development Stocks, Revenue Bonds, etc.

(f) Funded and unfunded debt.: Funded debt is a long-term debt for a definite period. The interest
rate to be paid, with terms and conditions of repayment are clearly spelt out in the debt certificate.
An Unfunded Debt, on the other hand, is for a short period of less than a year. No separate fund
is created by the government to affect its repayment, rather, the debt is repaid out of government
current receipts, often by floating new bonds in the money market.

(g) Reproductive and deadweight debts: A debt is productive or reproductive when it is applied
to finance a project which has the capacity to generate revenue to the government that would be
sufficient to service or repay the debt.

(h) Internal debt and external debt: Internal or domestic debt is that which the country owes to
its citizens. In other words, it is a claim against the government by its citizens, such as individuals,
associations and institutions with in the country.

Domestic borrowing instruments

(i) Treasury bills: These are highly liquid financial obligations of the federal government issued on
its behalf by the Central Bank. They are issued in multiples of N1,000 for 91 days maturity. With a
minimum investment N10,000 treasury bills are issued and traded on discount basis. The income
is the difference between the purchase price and the maturity value.

(ii) Treasury certificates: They are interest earnings obligations of the Federal Government issued
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by the Central Bank for maturities ranging from one to two years.
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(iii) FGN bonds: These are debt securities (liabilities) issued by the Debt Management Office (DMO)
for and on behalf of the Federal Government of Nigeria (FGN). The FGN has an obligation to pay
the bondholder the principal and agreed interest as and when due.

iv) FGN savings bond (FGNSB): is issued by the Debt Management Office (DMO), on behalf of the
Federal Government of Nigeria (FGN).

The bonds are issued for the following objectives:

• To deepen the national savings culture;

• To provide opportunity to all citizens irrespective of income level to contribute to national

development; and

• To enable all citizens participate in and benefit from the favourable returns available in the capital
market.

(v) Government development stocks: Development stocks are either medium or long-term
securities usually issued to finance development projects or for lending to lower levels of
government.

vi) FGN sovereign sukuk: This is an Islamic investment certificate that represents ownership
interest of the holder in an asset or pool of assets. It entitles the holder to receive income from
the use of the assets.

The Federal Government of Nigeria issues Sukuk bond for the purpose of:

(i) Funding the construction/rehabilitation of key critical infrastructure projects like roads;

(ii) Diversifying the sources of government funding;

(iii) Offering ethical investors an opportunity to invest in government issued securities.

vii) General obligation bonds: These types of bonds are backed by the full faith and credit of the
issuer, in addition to the power of the issuer to introduce tax and take any other steps necessary
to repay the bond holders.

(viii) Revenue bonds: They are municipal bonds issued on the premise that both principal and
interest will be repaid from the revenue generated from the facilities to be constructed with the
proceeds of the issue.

(ix) Special assessment bonds: They are types of bonds for which the payment of interest and
principal will be made from a special tax assessed upon the beneficiaries of the facility to be
constructed.

State or local government borrowing through the capital market

The sub-national governments can access the capital market to raise fund to finance investment
opportunities that have potentials to accelerate growth and development in their jurisdictions.
However, such sub-national (state or local) government must satisfy the requirements stipulated
by regulatory authorities of the capital market.

Below are some of the requirements that must be satisfied before issuance of bond by a
58

state or local government;

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(a) Profile of the state, showing its population, major industries, their locations and other major
projects embarked upon. The information has to be submitted with an application to the Securities
and Exchange Commission as well as the Nigerian Stock Exchange.

(b) A profile of the assets and liabilities of the State in the last five years in addition to a 5-year
projection.

(c) Sources of revenue for the past 5 years, indicating the percentage contribution of each to the
total revenue.

(d) The law of the State authorising it or its agency to borrow from the capital market.

(e) A feasibility report of the project to be financed.

(f) A draft of the Trust Deed in respect of the proposed issue.

(g) The consent of the Federal Ministry of Finance to the State’s request to borrow from the capital
market.

(h) Letter of authority from the State Government to the Central Bank of Nigeria or the Accountant-
General of the Federation, to seek direct recovery of loans and interest from the affected
Government’s statutory allocations, in case of default.

(i) Letter of consent from the Central Bank/Accountant General to deduct (quarterly) adequate
funds from the State’s allocations for the redemption of the loan in case of default.

Problems facing state governments in financing projects through capital market

(a) Poor accounting system on the part of a state government;

(b) Lack of qualified personnel to effectively evaluate, appraise and monitor projects;

(c) Poor performance of existing state government projects which act as disincentive to potential
investors;

(d) Inability of government to package and market viable projects to the investing public;

(e) Lack of awareness of the potential investment by the investing public; and

(f) Preference for short-term investments by the public.

Special requirements for revenue bonds

(a) Identification of government’s authority to borrow and the types of activities to which the
enabling legislation applies.

(b) General grant of power to acquire, construct, improve, extend or provide special improvement
and to issue revenue bonds and pledge same for the payment of these bonds;

(c) Requirement that the issuing body should establish sufficient charges or rates to operate and
maintain the projects and meet principal and interest payments as scheduled;

(d) Guarantee that their venue bonds have all the qualities of a negotiable instrument under the
appropriate law of the state; (e) Provisional design to secure the successful operation of the
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project; and
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(f) Remedies to be initiated where there is default.

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Sources of external debt

(i) Paris Club of Creditors: it is a common forum where the debtor nations and creditor countries
meet to discuss debt repayment problems. The club actually represents only government
guaranteed creditors.

(ii) London club of creditors - These are mainly uninsured and unguaranteed debts extended by
commercial banks to nationals of debtor countries.

(iii) Multilateral creditors- These are international institutions funded by member nations. They
include the World Bank and its affiliates such as International Monetary Fund (IMF), African
Development Bank (AfDB), European Investment Bank (EIB), International Development
Assistance (IDA), International Fund for Agricultural Development (IFAD), that provide credit for
development purposes, balance of payment support, as well as private ventures.

(iv) Promissory note creditors: These are uninsured trade credits, arising mainly from trade arrears
accumulated between1982 and [Link] debts were refinanced by the issuance of promissory
notes to the creditors.

(v) Bilateral creditors- A bilateral credit is provided by a government to another government. Such
credits are intended for development purposes in the recipient countries. Examples are Official
Development Assistance (ODA), sometimes provided on bilateral basis with a minimum grant
element of 25 percent and export credits guaranteed by export credit agencies of exporting
countries.

(vi) Private sector creditors- These are usually short-term credits extended by commercial banks,
institutional investors and individual foreign suppliers in form of suppliers or buyers’ credits.

Indicators of external debt burden

(i) External debt service to export ratio: This relates total external debt service to export of goods
and services. It reflects the level of export earnings committed to servicing external debts.

(ii) External debt stock to export ratio: The ratio relates to the availability of foreign exchange
earnings in the economy.

(iii) External debt stock to nominal gross domestic product ratio: This ratio measures the extent to
which total domestic output can be deployed to wipe out total outstanding external debt
obligations.

(iv) External debt service to nominal gross domestic product ratio: This ratio relates to the
proportion of total domestic output set aside for servicing externa debt.

General reasons for borrowing/Factors responsible for accumulation of public debt

(a) Huge and persistent budget deficit: The government borrows when its expenditure is greater
than its revenue (budget deficit), especially after its taxing capacity has been stretched to the limit.

(b) Balance of payments disequilibrium: Excessive reliance on foreign resources to sustain

domestic production processes, and on foreign goods and services beyond the nation’s foreign
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exchange earning capacity may lead government into contracting debt obligations.
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(c) Rapidly increasing population: In most developing countries, population is growing faster
than the level of national output. The need arises for government borrowing to expand public
enterprises and public utilities to cater for the welfare of the people.

(d) Implementation of development programmes: To promote economic development usually

requires provision of new and upgrading of existing social and economic infrastructural facilities
like roads, railways, electricity, schools and hospitals.

(e) Economic instability: A stable economy naturally provides an enabling environment for
economic growth and development. Public debt of the internal type may be contracted to control
inflation, while both internal and external borrowings may be used to stimulate economic activities
during economic depression.

(f) Natural disasters: Government has the responsibility to provide relief to victims of
earthquakes, floods and fire disasters, famines, sectarian violence and other natural calamities.
Government borrowing may be justified because such occurrences are never expected nor
budgeted for.

(g) War-time borrowing: Financial resources needed to prosecute wars are usually beyond the
capacity of government. Hence, the need to borrow arises to avoid devastating consequences of
defeat.

(h) Debt servicing: New debt with favourable terms and conditions may be undertaken to service
old debts thereby reducing the burden of debt on the economy.

Advantages of borrowing

(a) Rapid economic growth and welfare improvement would be achieved if borrowed funds are
utilised to finance economically and socially viable projects.

(b) The confidence of local and foreign investors in the economy would be boosted, if public debt
is used to control inflation. New and additional investment would lead to creation of new jobs and
greater output of welfare-enhancing goods and services.

(c) If borrowed funds are spent on public works, standards of living will improve, especially via
creation of new jobs and the transformation of the environment.

(d) Public debt reduces income inequalities if it is spent on social, security and projects that are of
more benefit to the lower income groups.

(e) Those who lend money to government by purchasing government securities, instead of keeping
idle savings, will become richer as they acquire additional assets to boost their wealth portfolio.

Disadvantages of borrowing

(a) Excessive government borrowing within the economy tends to crowd out private investments.
That is, government competes with private companies in the financial market and deprive them
loanable funds they need to grow their activities.
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(b) Tax burden on future generation: Public debt imposes unfair tax obligation on future
generation especially when borrowed funds are deployed to fund consumption rather than
investment programmes or when such funds are diverted to non-self- liquidating projects or
projects that are poorly designed, thereby making execution impossible.

(c) Funding excessive interest rate on public debt in hard currency deprives the nation of foreign
exchange needed to procure critical inputs, especially in a country like Nigeria that is highly
dependent on import with respect to raw materials required in the industrial sector.

(d) Borrowing comes with conditionalities that may become too stringent for the debtor nation(s),
like trade liberalisation, withdrawal of subsidies on essential products, expenditure reduction,
non-increase of salary of public servants and other stiff conditions that might have great
consequence on living standards of the people.

(e) It is an ineffective way of controlling inflation. As a matter of fact, debt servicing may create
inflationary effects at a time of full-employment.

(f) Debt-servicing problem is aggravated when short and medium-term loans are committed to
long-term projects with amortisation becoming due before projects are completed.

(g) Borrowing tends to widen the level of income inequalities since it is the rich only that can invest
in government securities or lend to government and hence benefit from high interest payment.

Methods of debt burden transfer

(i) Transfer through reduced capital formation: The decision of government to withdraw money
from the economy will cause a reduction in the level of disposable income, which invariably may
affect consumption, or capital formation.

(ii) Transfer through generation overlap: Capital formation is the only way through which burden
transfer between generations can occur. Assume the existence of two generations with generation
one living from years 1 to 50 and generation two lives from 25 to 75. If generation one is requested
to pay N1.0 million needed to finance a public project with a useful life of 50 years, generation one
will do so at the cost of reducing its own consumption by this amount. Only in years 25 to 50 will
it be possible to collect taxes of N0.5 million from generation two in order to refund generation
one. In this way, generation one while initially assuming the entire burden can transfer part onto
generation two.

(iii) Transfer with external debt: In this case, there is no need for generation one to reduce its
expenditure. Both consumption and capital formation in the private sector can remain intact as
there sources needed for the public outlay are obtained abroad. Loan finances now impose a
burden on generation two not only with reduced capital formation but with responsibility to
servicing the foreign debts. Taxes must be paid to finance interest paid to foreigners rather than
to domestic holders of the debt.

Borrowing policy
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i) The comparative rates of interest: In using comparative interest rates to decide between loan
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offers, the nominal rate of interest is rarely used. Instead, comparison of loans from different

PUBLIC SECTOR ACCOUNTING & FINANCE: AJAYI SAMUEL 08169342359 ANUOLUWAPOSAMUEL20@[Link]

countries or market sources is based on the real rate of interest which takes into consideration
the rate of inflation in the creditor countries.

(ii) The possibility of the loan being project-tied: Where loans are applied for the execution of
specific projects, a further consideration of interest rate charges may focus on there turns or
benefits from the project to be financed by the loans.

(iii) Degree of concessionality: Another criterion for loan selection where several sources of
external loans are being considered is the degree of concessionality of such a loan, that is, the
extent of “softness” or otherwise of the loan.

(iv) Repaymentability One of the underlying principles on which loan terms and conditions are
considered before selection is the repaymentability of the borrowing country.

Public debt management and strategies

Debt management refers to policy measures designed primarily to curtail debt ratios and ensure
effective control on the volume of debt.

Debt management strategies

1. Refinancing: It is the procurement of new loans by a debtor to pay off an existing debt. The
new loan may be procured from the same creditor or new set of creditors as the case may be.
Another variant of debt refinancing occurs when the original creditor government or an export
agency decides to pay off a debt there by becoming the new creditor.

2. Rescheduling is the rearrangement of payment terms of debt with respect to new maturities,
grace period and readjustment of the interest rate. The essence is to facilitate convenience indebt
repayment.

Principles of debt rescheduling process:

(a) Imminent default This principle applies to the debtor country and requires the debt or nation
to prove that it will not be able to meet its external debt service obligations unless it is granted a
relief.

(b) Burden sharing: The principle of burden sharing applies to the creditor countries. It requires
the creditors to be prepared to share fairly and equitably the burden of the rescheduling in the
proportion of their individual exposure to the debtor countries.

© Conditionality This principle which is generally regarded as the “golden rule” of the Paris Club
of Creditors also applies to the debtor countries. It requires the debtor nation to put in place an
IMF structural adjustment programmes before approaching the Club for rescheduling process

3. Restructuring: It occurs when an existing debt stock is converted into various categories of
debt. The composition of Nigeria’s external debt has been restructured to provide relief.

4. Loans pooling and consolidation: Loans pooling refers to an arrangement whereby loans of
similar characteristics are acquired from different sources for a specific purpose which may
include but not limited to project financing or sale in the secondary market after securitisation.

5. Debt repudiation This involves disowning the debt completely. This approach had been
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advocated by many economists. Fidel Castro, in his own contribution, did not see any sense in
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developing countries paying back the debt in view of past colonisation and neo-colonisation
experiences.

6. Debt conversion: This is the exchange of monetary instruments e.g. promissory notes or par
bonds for tangible assets or other financial instruments.

Types of debt conversion

(i) Debt for equity conversion: This is the exchange of a country’s foreign denominated debt for
local currency which can be used either for the establishment of new enterprise or for the
purchase of equity share in an existing private sector concern.

(ii) Debt for debt conversion: This involves the exchange of foreign currency debt for domestic
currency denominated debt e.g., Government Development Stock (GDS) that can be sold or traded
in the domestic secondary market.

(iii) Debt for cash conversion: It entails the exchange of foreign currency denominated debt for
local currency which can be used for local working capital, loan repayments and local tax
payments.

(iv) Debt for export conversion: Under this arrangement, exports are paid for in a combination
of cash that is, foreign currency and debts conversion proceeds.

(v) Debt for nature: This arises when the domestic currency proceeds of debt conversion are
applied for development of conservation, promoting wildlife tourism and other natural resources.
Another variant is a situation where by the foreign currency denominated debt is exchanged for a
particular natural resource for a given period.

(vi) Debt for development: In this case, the proceeds of debt conversion are employed for
development activities of non-governmental private voluntary organisations such as foundations,
trusts and multi-national aid organisations

(vii) Relending: Under this category, the proceeds of debt conversion are given out as fresh loan(s)
to non-governmental private economic entities, mostly multinational corporations.

Objectives of debt conversion programme

(i) Reduce Nigeria’s external debt service thereby reducing the stock of outstanding foreign
currency denominated debt in order to alleviate debt service burden;

(ii) Improve and make economic environment attractive to foreign investors;

(iii) Serve as additional incentive for repatriation of flight capital;

(iv) Stimulate employment-generating investments in industries with significant dependence on

local input;

(v) Encourage the creation and development of export-oriented industries thereby diversifying the
export base of the Nigerian economy; and

(vi) Increase access to appropriate technology, external market and other benefits associated with
foreign investment.
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Problems of debt conversion programme

(i) Inflation: From the discussion on the types of debt, there is an obvious fact that debt conversion
transactions involve the release of domestic currency. As a consequence, there is the possibility of
an unplanned increase in money supply thereby leading to inflationary pressure.

(ii) Round tripping: Debt conversion offers opportunity for round tripping which involves the
conversion of redemption proceeds into foreign currency either in the official foreign exchange
market or parallel market for exportation immediately or at a later date. This problem has serious
implications not only for foreign exchange rate but also for balance of payment position.

(iii) Degree of additionality: This represents the capacity of debt equity swaps to attract foreign
equity investment and flight capital into the country which otherwise would not have come in.
Thus, the advantages associated with debt conversion depend on the degree of additionality in
the absence of which the exercise results only in minimal benefit to the economy.

(iv) Fear of foreign domination: Debt conversion programmes tend to increase fear about the
possibility of a radical change in the structure of business ownership.

v) Effective transactions exchange rate: The transactions effective exchange rate is determined
by a combination off actors such as discounted purchase price of the debt, tax or conversion
charges among other.

Minimising the problems of debt conversion

(i) Setting of limits on the amount and type of debt to be converted;

(ii) Blocking of the redemption proceeds in an account with the Central Bank from which releases
would be made overtime according to the cash requirements of the investment projects;

(iii) Minimal use of debt for cash conversion and maximum use for productive investment or uses
which do not create new money but makes use of existing liquidity such as the issue of special
long-dated domestic currency denominated debt instruments which can be traded in the domestic
secondary market; and

(iv) Domestic credit policy could be used to dampen the inflationary impact of increase in money
supply. Demand for credit by already established business would be reduced to the extent that
they benefit from redemption proceeds.

PAST QUESTION: Q5 MAY 2022, Q6 MAY 2019, Q6 MAY 2018, Q5 NOV 2018, Q4 NOV 2019, Q6
MAY 2023.
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IPSAS 2: CASH FLOW STATEMENT

Cash flow is an inflow and outflow of cash and cash equivalent.

Cash means cash in hand and cash at bank.

Cash Equivalent means short term highly liquid investment that are readily convertible into cash and
which are subject to insignificant risk of changes in value.

Classification of cash flows by activities

(1) Operating activities: They are are indicators of the extent to which such entity is financed by taxes
or sale of goods or services. Examples of such cash flows are as follows:

(i) Cash receipts from taxes, levies and fines;

(ii) Cash receipts from sale of goods and provision of services by the entity;

(iii) Cash receipts from grants or transfers and other appropriations or other budget authority made
by a central government or other public sector entities;

(iv) Cash payments to suppliers for goods and services;

(v) Cash payments to other public sector entities;

(vi) Sources of government revenue heads & charges incurred to generate the revenue

NOTE: It should be noted however, that IPSAS 2 directs that cash flows from operating activities are
reported using either the direct method recommended by IPSAS Board or the indirect method. IPSASB
recommends direct method so as to provide a reconciliation of the surplus/deficit from ordinary
activities (i.e., statement of financial performance) with the net cash flow from operating activities
(i.e. cash flow statement) either within the cash flow statement or the notes.

(2) Investing Activities: They are the receipt or payment made to acquire resources that are intended
to contribute to the entities future public service delivery. They include:

(i) Payment to acquire PPE

(ii) Receipt from sale of PPE

(iii) All capital expenditure

(iv) Cash payment to acquire equity or debt instrument of other entities and interest in joint venture
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(v) Cash receipt from equity or debt instrument of other entities and interest in joint venture
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(vi) Cash receipt from future contract and swaps.

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(3) Financing Activities shows future claims by providers of capital to the entity. They Include:

(i) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-
term borrowings;

(ii) Cash repayments of amounts borrowed;

(iii) Cash payments by a lessee for the reduction of the outstanding liability.

PAST QUESTION: Q1 NOV 2021

PUBLIC REVENUE

Public revenue refers to income generated by government from its activities/operations.

Revenue allocation and its challenges

(i) Over-dependence on oil revenue: The discovery and subsequent exploration of oil in
Nigeria and its high yielding revenue has continued to undermine the development of
the hitherto buoyant agriculture and other viable sectors such as industry, mining and
human capita development.

(ii) Conflicts over revenue sharing formula Revenue sharing among the component units
of the Nigerian federation has been, from inception, replete with agitations,
controversies and outright rejections due to elevation of political rather than economic
considerations in making decisions.

(iii) Agitation for resource control: The historical facts of the use of the principle of
derivation (emphasised earlier and de-emphasised later) have been a source of inter-
regional/states conflict, rivalry and antagonism.

(iv) Increasing fiscal units: The rapid changes in the number of fiscal units that is not
guided by economic and political philosophy led to creation of states that are fiscally
and financially unviable and consequently increased demand for increased share of
the “national cake”.

(v) Unstable constitutional framework: The absence of a permanent and generally

acceptable legal structure in the form constitution may result in chaotic tendencies.
For instance, the last constitutional conference in the United States of America was in
1787 and only 27 amendments have been made as at 1999 as opposed to Nigeria in
which several constitutional conferences had taken place since independence without
general acceptability

(vi) Lack of will. The absence of sincere desire on the part of public office holders to
address the challenges of revenue sharing is aptly reflected in the refusal to convoke
a conference of leaders of various groups and ethnic nationalities that may lead to
design of acceptable resource allocation scheme.
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Principles of revenue allocation

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 (i) Derivation: This principle was originally applied to the proceeds of export taxes on
agricultural produce. The principle asserts that the state from which the bulk of the
revenue is obtained should receive extra share over and above what other states
receive.

(ii) Even development: The objective of government is that the Federation itself should
grow and develop at an optimum rate and that each of the constituent states should
grow and develop at the optimum (not necessarily equal) rate.

(iii) Need: The rate of growth and development a state is able to achieve depends on the
revenue the state is able to generate.

(iv) National Interest: This principle is used residually by the highest level of government
to intervene and transfer funds to lower levels or units in the lower levels to serve
various considerations. It lies therefore, in the sphere of discretionary grants to be
administered by the highest tier, that is, government of the Federation.

(v) Independent Revenue: The principle is of the view that each level of government
should be able to raise and keep some revenue for its use. The bulk of the revenue of
the state revenue comes from what is raised and collected by the Federal government.

(vi) Population: This Principle asserts that since government is about people, that
development is also about people and that the essence of government should be the
welfare of the people.

(vii) Fiscal Efficiency: This principle asserts that states should minimise the cost of fiscal
administration or obtain maximum revenue from a given cost.

(viii) Tax Effort: The principle, which applies in most Federation, is designed to encourage
states to exploit their tax capacities.

(ix) Equality of States: The principle asserts that revenue sharing among the states should
be done on equal basis.

Patterns of revenue allocation

Revenue sharing in a federation involves two distinct strands, namely vertical or horizontal.

Vertical allocation refers to revenue sharing among the different tiers of government within a
Federation based on a given pattern. This implies sharing among the Federal, State and Local
governments.

Horizontal allocation on the other hand refers to revenue sharing among the component states
and local governments on the basis of acceptable principles.
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PAST QUESTION: Q5 NOV 2021, Q7 MAY 2023

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FUNCTIONS OF THE CASH OFFICE AND SUBSIDIARY ACCOUNTS

Functions of the cash office

The duties of the cash office are receiving and paying cash, posting cash transactions into the cash
book, opening a bank account on which cheques are drawn and providing information on the cash
position at a given time. Security is essential in the management of the cash office.

Maintenance of adequate cash control measures

Cash control relates to the co-coordinated actions which have to be taken in order to ensure that
all incomes due to the government are collected on a timely basis, and that fraud is prevented.
The cardinal objective is to ensure that funds are not mismanaged or misappropriated. The
following are the various cash control measures adopted in the ministries and parastatals:
(a) Establishment of cash limits;
(b) Daily banking of all takings;
(c) Periodic surprise cash count (cash survey);
(d) Provision of a safe that has to be under dual control;
(e) Installation of ‘raid alarm’;
(f) Installation of counting/sorting machines and mercury light;
(g) Ensuring that sufficient and adequate insurance cover is taken over the cash limit;
(h) Investment of idle funds;
(i) Establishment of ‘authority limit’;
(j) Balancing of cash book; and
(k) Preparation of bank reconciliation statements.

Preparation of bank reconciliation statements

Reconciliation is the process of resolving the difference between the balance as per cashbook and
the balance as per bank statement on the same date and in respect of the same items of
transactions. A bank reconciliation statement is prepared to reconcile the figures in the bank
column of the cashbook with those on the bank statements for the period under review.

Format of a typical bank reconciliation statement

Balance as per cash book X
Add: Unpresented cheques X
Receipts in Bank not in cash book X XX
XX

Less: Uncredited cheques X

Payments in bank not in cash book X XX

Balance as per bank statement X

Importance of bank reconciliation
(a) It discloses any unauthorised cheque issued and cashed
(b) It reveals any dishonoured cheques for which receipts have been issued and entered into the
cash book;
(c) It discloses fraudulent/fake pay-in-slip purported to have been obtained for paying into
government account;
(d) It reveals any lodgements not credited by the bank either by omission or commission.
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PAST QUESTION: Q1 MAY 2018, Q3 MAY 2024

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PUBLIC FINANCE MANAGEMENT AND ACCOUNTABILITY

In Nigeria, accountability and transparency have become an aberration especially by those holding
positions of responsibility in the public sector. ICAN’s response to this situation is the development
and launching of the ICAN Accountability Index (ICAN-AI).

Accountability index pillars and indicators

The ICAN Accountability Index (ICAN-AI) focuses on public finance management and assesses
performance across five key pillars:

(a) Policy-based fiscal strategy and budgeting;

(b) Budget credibility;

(c) Assets and debts management;

(d) Control in budget execution, accounting, and reporting; and

(e) External audit & legislative scrutiny.

Pillar 1: Policy-based fiscal strategy and budgeting: This pillar evaluates the quality of the fiscal
framework, including the consistency and effectiveness of fiscal policies, budget planning processes,
and the use of fiscal instruments.

Indicators

(a) Macroeconomic and fiscal forecasting: This indicator measures the ability of governments to
develop robust macroeconomic and fiscal forecasts, which are crucial to developing a sustainable
fiscal strategy and ensuring greater predictability of budget allocations.

(b) Fiscal strategy: This indicator provides an analysis of the capacity to develop and implement a clear
fiscal strategy.

(c) Medium term perspective in expenditure budgeting: This indicator examines the extent to which
expenditure budgets are developed for the medium term within explicit medium-term budget
expenditure ceilings.

(d) Budget preparation process: This indicator measures the effectiveness of participation by relevant
stakeholders in the budget preparation process, including political leadership, and whether that
participation is orderly and timely.

(e) Legislative scrutiny of budgets: This indicator assesses the nature and extent of legislative scrutiny
of the annual budget.

Pillar 2: Budget credibility: This pillar assesses the reliability and transparency of the budget process,
including the accuracy of budget forecasts, the clarity of budget documents, and the mechanisms for
monitoring and evaluating budget performance.
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Indicators:
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 (a) Total expenditure implementation: This Indicator measures the actual budget expenditure
and the originally approved budget expenditure in the last fiscal year.
(b) Revenue generation: This indicator measures budgeted revenue and actual collection, as well
as the composition of revenue types.

(c) Budget documentation: This Indicator assesses the comprehensiveness of the information
provided in the annual budget documentation, as measured against the Medium-Term
Expenditure Framework (MTEF) guidelines and Fiscal Strategy Paper. There is one dimension for
this indicator.

(d) Government operations outside the budget: This indicator measures the extent to which
government revenue and expenditure are communicated to the public outside the financial
reports.

(e) Public access to fiscal information: This indicator assesses the comprehensiveness of fiscal
information available to the public based on specified elements of information to which public
access is considered critical.

(f) Local governments aggregate budget implementation: This dimension measures the actual
total expenditure for each Local Government in the State and the originally approved budget
estimate in the last fiscal year and in subsequent years.

Pillar 3 - Assets and debts management This covers the management of public tangible and
intangible assets, as well as public debt and liabilities.

(a) Public Investment Management This indicator assesses the economic appraisal, selection,
costing, and monitoring of capital projects by the government, such as roads, bridges, schools,
hospitals, and power infrastructures.

(b) Public Asset Management This indicator assesses the management and monitoring of
government assets and the transparency of asset disposal.

(c) Debt Management This indicator assesses the management of domestic and foreign debt and
guarantees. Domestic Debt includes liabilities owed to contractors, pensions and intervention
funds.

Pillar 4: Control in Budget execution, accounting and reporting: This pillar examines the efficiency
and effectiveness of the budget implementation process, including the timely and accurate
execution of the budget, the management of cash flow, and the monitoring of expenditures.

Indicators:

(a) Salary payroll controls: This indicator is concerned with the payroll for public servants only;
how it is managed, how changes are handled, and the consistency with which personnel records
management is achieved.
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 (b) Pension controls: This indicator is concerned with the payroll of pensions of the public servants
only; how it is managed, how changes are handled, and the consistency with which pension
records management is achieved.

(c) Procurement: This indicator examines key aspects of procurement management. It focuses on
transparency of arrangements, emphasis on open and competitive procedures, monitoring of
procurement results, and access to appeal and redress arrangements.

(d) Internal audit: This indicator assesses the standards and procedures applied in internal audit.
It contains four dimensions.

(e) Accounts reconciliation: This indicator assesses the extent to which treasury bank accounts,
and advance accounts are regularly reconciled and how the processes in place support the
integrity of financial data. It contains two dimensions and uses the M1 (WL)method for
aggregating dimension scores.

(f) Year budget reports: This indicator assesses the comprehensiveness, accuracy and timeliness
of information on budget execution.

(g) Annual financial reports: This indicator assesses the extent to which annual financial
statements are complete, timely, and consistent with generally accepted accounting principles
and standards. This is crucial for accountability and transparency in the PFM system

(h) Local governments' annual financial reports: This indicator assesses the extent to which annual
financial statements of the Local Governments are complete, timely, and consistent with generally
accepted accounting principles and standards.

Pillar 5- External audit and legislative scrutiny This pillar covers the roles of the external auditor
and legislature in scrutinising the financial statements submitted and their reports on them.

(a) External audit: This indicator assesses key elements of external audit in terms of the scope and
coverage of audit, as well as adherence to auditing standards. It contains three dimensions and
uses theM1 (WL)method for aggregating dimension scores.

(b) Legislative scrutiny of audit reports: This indicator focuses on legislative scrutiny of the audited
financial reports of government.

(c) Local governments external audit: This indicator assesses key elements of external audit in
terms of the scope and coverage of audit as well as adherence to auditing standards for local
governments.

Conduct of the accountability index

(a) The assessment is always carried out under the supervision of the ICAN-AI Steering Committee.

(b) The Federal and State Governments were ranked according to their level of 11performance on
the basis of a number of indicators mentioned in paragraph 40.2 above.
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 Examination-type questions

1. The ICAN Accountability Index (ICAN-AI) focuses on public finance management and assesses
performance across five key pillars.

Required:

a. Explain the pillars of the Accountability Index of ICAN.

b. Identify the key indicators used in assessing the accountability index pillars.
c. Explain Pillar 1 on policy-based fiscal strategy and budgeting; and Pillar 4 on control in budget
execution,

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