Public Sector Accounting & Finance By: Yusuff Kabiru Aremu ACA; 08169069670 @APEX Professional Associates

Public Sector Accounting and Finance

Introduction to the paper
Let me Try and Give a Brief Introduction of the Paper itself. Though, what we already Know. But, as A
Forward Statement. It's a Combination of 2 Courses, Public Sector Accounting & Public Finance.
Comprises of 37 Chapters, Both Theoretical and Calculation 50/50, and that is what some Students do
not Observe that made them fall Victim of the Course. It is also one of the Most Voluminous Paper in
Skills Level, if not the Most. The Course is Classified into 4 Major Parts (Like most of The ICAN
Courses). But Sincerely. It is one of the Easy Papers to Pass @ Skills Level.

Another Hint is that it is possible for Someone to read only the Theoretical Aspects of this Paper and Pass!
Is it not only 50%? but it is so POSSIBLE for someone to Focus only on the Calculation, neglecting the
Written Aspects and FAIL. The Reason is because Most Calculations in it could be Simple and, some of
them are being done in other Courses like FR and PM. So, using Acquired knowledge from other Courses,
one can Get the Calculations.

Breakdown of the Syllabus

Like other ICAN Papers as well, this also has Sections.

• Section A - Regulatory Frameworks of PSA 20% ➖From Chapter 1-9.

• Section B - Planning and Budgeting 20% ➖Chapter 10 Only.

• Section C - Reports and Audit 30% ➖ From Chapter 11 - 30.

• Section D - Public Finance 30% ➖ Chapter 31 - 37.

Course Outline

1. Introduction to Public Sector Accounting and Finance 2

2. Towards National Fiscal Responsibility 9

3. Ethical Issues in Public Sector 12

4. Government Construction Contracts and Procurement 18

5. Professional Pronouncements on PSA 23

6. Pension and Gratuity 25

8. Emerging Issues in the Nigerian Public Sector 29

10. Budget and Budgetary Controls 32

11. Transparency & Accountability in Public Sector 41

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Public Sector Accounting & Finance By: Yusuff Kabiru Aremu ACA; 08169069670 @APEX Professional Associates

12. Financial Responsibilities of the Public Sector Officers 43

13. Sources of Government Revenue 47

14. Authorization of Government Expenditure & Financial Control of Government Revenue 53

15. Preparation of Vouchers 56

16. Functions of the Cash Office 59

17. Preparation of Monthly Transcripts of a Self-Accounting Unit 60

18. Store Accounting & Loss of Government Funds 64

20. Public Sector Audit 71

22. Accounting for Local Governments 75

23. Preparation of Financial Statements in Government in accordance with Accrual Basis 80

25. Accounting for Public Sector Organizations & Government Business Entities (GBEs) 81

26. Interpretation of Public Sector Financial Statements 84

31. Introduction to Public Finance 86

32. Public Revenue 91

33. Public Expenditure 93

34. Public Debt 96

35. Fiscal Federalism 109

36. Project Appraisal in Public Sector 113

37. Emerging issues in the Public Finance 119

Chapter 1

Introduction to Public Sector Accounting and Finance

Introduction

When we talk about Public Sector Accounting and Finance, we are referring to how Accounts are
reported in Various Public Sectors and Offices, Ministries, Departments and Agencies. (MDAs). These
are entities or organizations owned and financed by the government for the benefit of the
common citizens. They include the Federal Government, the state government, the local
government, government and state ministries, extra-ministerial departments, agencies,
corporations, and parastatals. They are referred to as public because they are owned by the public

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Public Sector Accounting & Finance By: Yusuff Kabiru Aremu ACA; 08169069670 @APEX Professional Associates

(Myself and you), for the betterment of the public, funded by the money generated from the
public and managed by the government as agent of the public. Unlike private sectors
organizations, which are owned by a citizen or group of citizens. It means the entity will be
registered by the government through its agency called Corporate Affairs Commission (CAC).
Definition

Public Sector Accounting has been defined as a process of recording, analyzing summarizing,
reporting, communicating, and interpreting of financial information about government in
aggregate and in detail, reflecting all transactions involving the receipt, transfer and
disbursement of government funds and property.
Because they have different Set up from the Private Companies, they have objectives different from that
of private companies.

Objectives of Public Sector are:

1. Legitimacy of Transactions.

2. Compliance with the Relevant Statutes

3. Assisting in Planning and Control – Planning for the future and control expenditure at present.

4. Evaluating Cost and Benefits of projects

5. Providing Evidence of Stewardship and accountability

The Objectives are plenty in Our Pack Anyway. But, the points below will assist:

• Legitimacy

• Compliance

• Planning and Control

• Cost and Benefits

• Stewardship

Users of Public Sector Accounting Information

We have 2 Categories.

1. Internal Users

a. The Executive arm of government – President, Governors, local government chairmen.

b. Federal Ministers and Commissioners at state level.

c. Top Government Administrators like Permanent secretaries in those MDAs.

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d. Head of Government Parastatals like NPA, PHCN, etc.

e. Their Subordinates whose tasks are delegated to – Like Tax and revenue collectors.

f. Government Employees and their Labour Union.

2. External Users

a. The National Assembly

b. The General Public

c. Researchers

d. Government Creditors

e. Foreign Countries.

f. Political Parties

Each of them has their Needs. They do not just need the Financial Information, but for specific Purpose.

Regulatory Framework
Like we have in Private Sector Accounting (FR), There's Regulatory and Conceptual Framework. Both
Are Dealing with different Aspects. The Regulatory Framework is Dealing with LAWS, STATUTES,
that Requires PUBLIC SECTOR ACCOUNTING to come into Existence. While Conceptual
Frameworks deal with Many Concepts underlying the Preparation of Public Sector Accounting.

Let us Take them One after Another

1. The Nigerian Constitution: This is the Apex of all the Laws in a State. Some Sections Of the
Constitution Requires Public Sector Accounting Activities. Eg. S80 - Establishment of the CRF, S81
- Authorisation to spend from the Fund, Etc. Read More from the Pack.

2. Audit Ordinance of 1956

3. Finance (Control & Management) Act of 1958

4. Financial Regulations: These are Manuals Used in Various MDAs to treat Transactions.

5. Finance Circulars: To Amend the Provisions in the Financial Regulations.

6. The Public Procurement Act of 2007: A law which deals with Government Contracts and Buying of
Goods for Government. To be Treated in Details Later.

7. Fiscal Responsibility Act of 2007: A law that deals with Budgeting, allocation of Revenue and
Assignment of Government Expenditure. Also, to be treated in Details Later.

8. Allocation of Revenue Act (Federation Account) 1982

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9. Other Laws. Such as: EFCC, ICPC, Code of Conduct, Money Laundring Act, Pension Reform Act,
Etc.

We are Done with Regulatory Frameworks

Conceptual Framework

Accounting concepts
These are fundamental assumptions which underlie the preparation of financial statements of an
enterprise. Public Sector Accounting is an integral but separate branch of accounting sharing in
common many concepts and principles applicable to the private sector e.g. consistency,
materiality, periodicity, money measurement, double entry or duality, historical cost, going
concern, matching concept etc.
Accounting Policies
These are specific accounting methods adopted by the management of the organisation as being
best suited for use for a particular business, which must be applied consistently in the preparation
of financial statement. If we choose straight line method to calculate depreciation out of the
above basis then this straight-line method becomes the accounting policy.

Basis of Accounting

In Government Accounting, the following basis are relevant:

✓ Cash Basis

✓ Modified Cash Basis

✓ Accrual Basis,

✓ Modified Accrual Basis

✓ Commitment Basis.

Let us Take them One after Another.

✔ The Cash Basis

The One Applicable in Most Government Offices. Income and expenses are recognized when Received
and paid for Respectively, no matter the Period they belong to. The focus here is receipts and payments,
not income and expenses.

Advantages

1. It is simple to understand.

2. It is easy to operate.

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3. Its saves Time.

4. Work can be delegated to non-accountants.

5. It eliminates debtors and creditors.

6. We can Easily identify those authorizing payments.

7. Cost of fixed assets is written off in the year of purchase, resulting in fewer accounting
entries.

8. We can easily compare amounts authorized in the budget and those actually spent.

Disadvantages

1. It does not show the true Picture of Accounts at the end of each period since no adjustment has
been made for such transactions as debtors, creditors, accruals and prepayment.

2. It takes unrealistic view of Accounts.

3. No provision is made for depreciation.

4. It Does not allow Matching Concept.

✔ Accrual Basis

This is mostly used in Private Sectors, but some Because Government Enterprises and Parastals use it as
well. It tends to be Relevant in the The Public Sector. The opposite of The Cash Basis. Where Income
And Expenses Relate to the Actual Period They Belong To. Whether Recieved or spent that time or not.
Sit down, Study it and Read More on It.

Note: The Advantages of Cash Basis is the Disadvantages of Accrual Basis and Vice Versa.

✔ Modified Cash Basis

Under this basis, the book of accounts are left open for a maximum of 3 Months after the year end so as to
capture the substantial amount of income and expenditure relating to the year just ended.

✔ Modified Accrual Basis

As the name implies, what this is advocating is that an MDA should:

• Use Cash Basis for Revenue, and

• Use Accrual Basis for Expenses.

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Public Sector Accounting & Finance By: Yusuff Kabiru Aremu ACA; 08169069670 @APEX Professional Associates

✔ Commitment Basis

This is Only Used in the Public Sector. It's a basis which allows expenditure to be recorded in advance
once they are included in the budget, with the Evidence of a Purchase Order or a Letter of Award of
Contract. This basis is suitable for most government capital projects which span over a number of
years. However, the commitment basis is not used in isolation; it has to be supported either with
the cash basis or accrual basis.

Note that before such expenditure is recorded, 2 conditions are key:

• Such Expenditure must be Included in the Budget.

• There should be a Document Authorising it, eg. LPO, Contract award letter.

Note: The Advantages of Accrual Basis are its Advantages, but the Disadvantages need to be Carefully
Looked At.

Disadvantages of Commitment Basis

1. It involves extra work because at the end of each year, all unfulfilled commitments have to be
written back to reflect the exact picture of transactions which took place during the year.

2. It cannot be used in isolation but must be supported by either cash basis or accrual basis.

3. It is futuristic in nature and may not account for possible variations and fluctuations in costs. This
could lead to difference between what is budgeted for and what actually occurred.

4. It leads to overspending – with the expectation that government may release money in future.

Funding Principles
Fund is term used to represent a separate fiscal and accounting entity in which resources are held,
governed by special regulations, separated from other funds and established for specific purposes. Fund
accounting is one of the fundamental principles which underlies government or public sector accounting.
Government income is categorised into series of funds where by each of them caters for a specific welfare
activity of the government, for stewardship purposes.

Classification of funds

Funds can be classified into 3 Categories:

1. Government Funds - These are used to keep resources which are derived from general tax and
revenue streams of the government. Examples are Consolidated Relief Funds (CRF), Development
Fund, debt service fund, special fund, contingency fund.

2. Proprietary Funds - They are funds used to account for resources derived from government business
activities carried out by agencies and parastatals. Examples are various recurrent and capital funds
released to government business entities to carry out their operations.

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3. Fiduciary Funds - These are funds used to warehouse and account for resources held and managed by
government on behalf of its citizens in the capacity of a mere trustee or custodian. Examples are
Petroleum trust development fund (PTDF), Pension Trust Fund (PTF), Tertiary Education Trust Fund
(TETF).

Types of funds

• General Funds - like CRF for general administration of government recurrent activities
• Capital Project Fund like the Development fund for capital Projects.
• Special Funds - Funds created for specific purpose.
• Contingency Funds - For Unforeseen activities like natural disasters or outbreak.

Comparison between Government owned organizations and Profit oriented Organisations

Government owned entities are Ministeries, extra-ministerial departments and agencies (MDAs),
parastatals, etc. They differ in the following areas:

1. Profit Oriented - Government enterprises main objective is to provide adequate welfare to the public
at reasonable costs and not to make profit. While private entities’ main objective is to make profits.

2. Revenue - Government enterprises derives its revenue from public funds derived from taxation, fees
and fines. While private organisations obtain their income principally from sales of goods or
provision of services.

3. Legal Formation - They are created an act of the National Assembly and thereby regulated by the act.
While private organisations are registered by the Corporate Affairs Commission (CAC) thereby
regulated by CAMA 2020.

4. Budget - The major concerns of the public regarding government enterprises is the Annual Budget
and how they are able to achieve the targets. While the major concerns of the public concerning profit
oriented organizations is their annual reports.

5. Accounting - Government Entities operates substantially on fund accounting and comply with IPSAS
cash or Accrual Basis. While profit oriented entities operate on IFRSs in their reporting.

6. Annual General Meetings - In government enterprises or MDAs, they do not hold annual general
meetings. All they do is public briefing on specific issues. While profit oriented entities hold AGMS
or Extra ordinary general meetings (EGMS) of shareholders to discuss the performance of the entity.

Similarities between Government Accounting and Commercial Accounting

a) Both the government and commercial enterprises follow the principles of double entry.
b) They are both used as a basis for future planning.
c) The two systems are measured in financial terms.
d) Both prepare budgets.
e) The two systems work towards measurement and evaluation of performance.

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Public Sector Accounting & Finance By: Yusuff Kabiru Aremu ACA; 08169069670 @APEX Professional Associates

Chapter 2

Towards National Fiscal Responsibility

The Concept of Fiscal Responsibility

This is the Act of performing all responsibilities relating to the management of the economic resources,
Government Revenue and expenditure as it is provided for in the Budget, in an Accountable and
transparent manner.

The Fiscal Responsibility Act of 2007

The Act Which is Promulgated alongside other Laws as well in promoting the Fiscal Responsibility of the
Government. The Act Brought into law a Commission known as the Fiscal Responsibility Commission.

The Fiscal Responsibility Commission

This is the Operating Arm of the Act itself.

Its Functions

1. Enforce the Provision of the Act.

2. Monitoring the Fiscal Activities of the Government.

Composition

✓ A Chairman.

✓ A Representative from the Federal Ministry of Finance.

✓ One member each, from the six Geo-Political Zones.

Aggregate Expenditure Ceiling

The Concept is saying that the estimated aggregate expenditure for each financial year shall not be more
than the aggregate revenue, and even if it will be above, the Deficit must not be more than 3% of the GDP,
or any percentage as determined by the National Assembly. But, expenditure in a financial year can
exceed the ceiling if, in the opinion of the President, there’s a Threat to the National Security of the
Nation.

The Medium-Term Expenditure Framework (MTEF)

The Federal Government, in conjunction with the states, shall prepare this before the End of every
Financial Year, A Medium-Term framework which will Cover a period of 3Years. That is why it is called
"Medium".

Content:

➢ A Macro-Economic framework setting out Medium term financial objectives for 3Years.

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Public Sector Accounting & Finance By: Yusuff Kabiru Aremu ACA; 08169069670 @APEX Professional Associates

➢ Fiscal Strategy Document. Setting out the Fiscal Policies for the Next 3Years. Eg. Taxation,
borrowing, investment.

➢ Estimates of aggregate Revenue and Expenditure.

➢ A Consolidated Debt Statement.

➢ A Statement of Contingent Liabilities.

The Annual Budget Vs the Medium-Term Expenditure Framework (MTEF)

The MTEF shall be the basis of the Annual Budget to be Submitted to the NASS. The Annual Budget
shall be Accompanied by the Following:

➢ A Copy of The Underlying Revenue and Expenditure for the Next 2Years.

➢ Target inflation rate.

➢ Target Breakdown of Collections.

Budgetary Execution and Achievements of Targets

For the budget to be executed, the following actions must take place:

1. Annual Cash Plan: To be prepared by the AGF, broken down into monthly inflows and outflows
and shall be reviewed periodically.

2. Disbursement Schedule: To be prepared and published by the Minister, within 30 days of the
budget approval.

3. Appropriation Act: Funds appropriated for specific purposes shall be used for that Purpose.

4. Virement approval: Submitted by the Minister of Finance to the National Assembly (NASS).

Who is responsible for the preparation?

The Honorable minister of Finance shall do so with the consultation of the Populace concerning these
matters. The Consultation should be open to the public, the press, the citizens, etc.

He shall seek Inputs from the Following Bodies:

➢ Bureau of Statistics

➢ National Assembly

➢ CBN

➢ Etc.

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Monitoring Budget Implementation

This is the Main Aim of Fiscal Responsibility. That is, the Government is fiscally responsible to the
Citizens. The minister should make sure that monies appropriated for are spent as approved. Any issues
should be reported to the Fiscal Responsibility Commission and the Joint Finance Committee of the
NASS.

Public Revenue

This is the estimated revenue streams of the government and shall be broken down by the executive arm
of Government into monthly collection targets.

Public Expenditure

It is Required that Public expenditure must be kept below the Public revenue or at par. So that there will
not be Budget Deficit. But there are conditions which warrant increase in Government Expenditure. These
may lead to Public Debt (Public Debt is a separate topic on its own, we will treat it later).

Debt and Indebtedness

• All the 3 tiers of government shall borrow only for capital expenditure or human development
purpose.
• The Proportion of the debt to national income (DTI Ratio) shall be held at a sustainable level or
as may be prescribed by the NASS.
• Government can borrow nationally (from the capital market) or internationally from other
countries or the world bank.

Interpretation of Borrowing

Borrowing means any financial obligations arising from:

✓ Loans, including principal, interest and fees attached.

✓ Deferred payment (What government owes contractors or suppliers ) for property, goods and
services.
✓ Letters of credit issued to individuals or bodies
✓ Guarantees
✓ Conditional sales agreement
✓ Trade or bankers acceptance.
✓ Capitalised amounts of obligation under leases.

Savings and asset management

• The savings of each tiers of government in the federation shall be deposited in a separate account
which shall form part of the respective governments CRF to be maintained at the CBN by each
government.
• The CBN shall invest those savings in a consolidated manner clearly identifying the main savings
and income thereof.

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• The CBN in discharge of its obligations on investing those savings, observe the limits and
conditions agreed upon with the Minister of Finance and state commissioners of finance and the
local government treasurers.

Chapter 3

Ethical Issues in PSAF

Introduction

In this Chapter, We Are Gonna look at some of the Ethical Enforcement Agencies in the Nigerian Public
Sector, some of which we are aware of.

Bodies Like:

1. The EFCC

2. The ICPC

3. Code of Conduct in Public Offices

4. Nigeria Extractive Industries Transparency Initiative (NEITI)

5. Public Accounts Committee

6. The General Rule

1. The EFCC - 2002

Economic & Financial Crimes Commission (EFCC), established in 2002, during Baba Obasanjo regime.
The main objective is to prevent, investigate, prosecute, sanction any Economic & Financial Related
Crimes in Nigeria.

They Also enforce laws & other financial related commissions as well, like:

• Money Laundering Act.

• Bank & Other Financial Institutions Act (BOFIA), etc.

Their Jurisdiction transcends beyond 2002 and they have power to investigate both Private & Public
Officials.

Composition

1. The Chairman - A Serving or Retired Member of any Law Enforcement Agency.

2. A Director General.

3. The CBN Governor or His Representative.

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4. A Representative From each of the following Ministries (Not below the rank of a Director)

-Foreign Affairs.

-Finance

-Justice

5. The Chairman, NDLEA & National Communications Commission.

6. The Director General, National Intelligence Agency, DSS, SEC.

7. Comptroller General of Nigeria Custom Services.

Duties

1. Enforcement of provision of the Act.

2. Investigation of all Financial Crimes.

3. Enforcement of all other Economic Offences.

4. Adopting Measures to eradicate the Commission of Financial Crimes.

5. Adopting Measures to identify, trace, freeze & Confiscate any proceeds from any fraudulent Activities
& terrorism.

(Read More from the Pack)

2. The ICPC - 2000

Full Meaning: Independent Corrupt Practices & Other Related Offences Commission. Formed in 2000,
during Obasanjo Regime as well.

Composition

The Body Consist of 12 Members, 2 Each from the 6 Geo-Political Zones of the Country.

1. A Retired Police Officer (Not below the rank of a Commissioner).

2. A Legal Practitioner With at least 10Years Post Call Experience.

3. A Retired Judge of a Supreme Court Record.

4. A Retired Civil Servant.

5. A Woman.

6. A Youth within 21 - 30Years of Age.

7. A Chartered Accountant.

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They are appointed by the President, approved by the Senate & Must Declare their Assets & liabilities.

Tenure of Office

✔ Chairman - 5Years of 2 Terms Each.

✔ Other Members - 4 Years of 2 Terms Each.

Immunity: An Officer of ICPC, when prosecuting a case shall possess the Immunity of A Police Officer,
when discharging his Duties.

Duties

Their own Jurisdiction is on Public Officers Only. And Any Cases Below Year 2000 when they were
enacted, they cannot Dig it.

Offences & Penalties

1. Accepting Gratification Directly.

2. Giving or accepting Gratification through Agent.

3. Fraudulent Acquisition of Property.

4. Fraudulent Receipt of Property.

5. Making False Statements of Returns.

6. Bribery of a Public Officer.

7. Using A Position for Gratification.

8. Inflation of Price beyond the Prevailing Market Price.

Penalties

Most Of these offences attract 7Years Imprisonment, except for Few (Study your Text for Further Details)

3. Code of Conduct in Public Offices

The 5th Schedule, Part 1 of the 1999 Constitution listed some Codes of Conduct for Public Officers. The
conducts include but not limited to the following:

1. A Public Officer shall not put himself in a Position where his Personal Interest conflicts with His
Duties.

2. A public officer shall not hold 2 Public Positions he receives salaries from, except its a Part Time
Job. However, no Public Officer is prevented from Farming.

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3. Public Officers like the president, the vice president, governors, vice governors, ministers, state
commissioners, members of the national or state assembly are prohibited from maintaining or
operating foreign Accounts.

4. No public officer after retirement from public service, while taking pension from public funds,
accept more than one remuneration position as a chairman or Director of a government controlled
company.

5. Bribery or benefits in kind is not allowed

6. They shall not Abuse Power.

7. Every Public Officer shall Declare His Assets and Liabilities.

Declaration of Assets & Liabilities

Paragraph 11 of the 5th Schedule of the Nigerian Constitution requires any Public Officer to Declare
Assets & liabilities 3Months from the Start of His Office, and at the end of His Tenure. Not only his own
Property, also the property of his Unmarried Children below the Age of 18.

Note: Any False Declaration is An Offence.

Code of Conduct Bureau (CCB)

This is the Body Put in Place to monitor and Implement the Code of Conduct in Public Practices. Ie.
They Monitor:

• Declaration of Property.

• Confirm whether its True or not.

• Enforce the Provision of the Law if Violated.

Their Offices are established in all States of the Federation.

Composition

➢ A Chairman.

➢ Nine (9) Other Members.

Each of them must have reached 50 Years of Age Upon Appointment and Vacate Office At the Age of 70.

Code of Conduct Tribunal (CCT)

Like most of all those Laws, this is the Operating Arm of The Act. Put in place to prosecute any Violators
of the Code. They impose Punishment on Violators by:

✔ Prosecuting them in The Court of Law.

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✔ Seizing Any Property Acquired in breach of the Law.

✔ Disqualifying from Office.

Composition:

• A Chairman, and

• Any Other 2 Members.

4. Nigeria Extractive Industries Transparency Initiative (NEITI) Act No 17, 2007

As The Name Implies, they have the Following Objectives:

✓ ️ To Ensure Due Process and transparency in the payments made by all Extractive industry
companies to the Federal Government through statutory recipients.

✓ ️ To monitor and ensure accountability in the revenue receipts of the federal government from
Extractive Companies.

✓ ️ To eliminate all forms of corrupt practices in determination, payments, receipts, and posting of
revenue to the Federal Government Purse.

✓ ️ To also ensure accountability and transparency in the use of resource received by the
Government.

Appointment of the External Auditors for the Extractive Industry Companies

According to Section 4 (1) of NEITI Act 2007, in each financial year, an Independent Auditor shall be
appointed to audit the total revenue accrued to the Federal Government for that year.

The Independent Auditors shall undertake a physical process and financial audit in such terms and
conditions as may be approved by the National Stakeholders Working Group (NSWG). Upon the
completion of the independent Exercise, the independent auditors shall submit reports together with
comments to NEITI, which shall be disseminated to the National Assembly and the Auditor General for
the Federation. NEITI shall also submit a bi-annual report of its activities to the President and National
Assembly.

National Stakeholders Working Group (NSWG)

According to the act, this is the governing body of the NEITI.

They have the Following Functions:

1. Be responsible for formulation of policies, programmes, and strategies for implementing

Objectives and discharging functions of NEITI.

2. Have power to recommend the annual budget and work plan of the NEITI.

Penalty and Offences committed by Extractive Industry Companies:

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️ Giving false information regarding volume of production, sales and income: Conviction to a
fine not less than #30Million.

️ Not only that, such company shall be compelled to pay the actual amount in addition to the
penalty.

️ Delaying Information or not submitting reports: #30Million Fine.

️ Failure to perform obligations under the act: The President may seize its operating licence.

Composition of the NSWG

This shall be constituted by the President and shall consist of a Chairman and no more than 14 other
members, one of whom shall be an Executive Secretary.

The composition shall include:

️ A Representative of the Extractive Industry.

️ Representative of civil society.

️ Representative of labour union in the Extractive Industry.

️ Experts in the Extractive industry.

️ One member from each of the 6 Geo political zones of the Federation.

The Chairman and other members of NSWG, shall serve on Part time basis, Except the Executive
Secretary.

Their tenure covers 4 years and no more.

The Appointment of the Executive Secretary shall be for 5 Years and no more. He is on full time
basis as said earlier and shall be responsible for the day to day administration of the NEITI.

The NSWG shall meet on quarterly basis, or as deem fit by them, but not less than 4 times in a year. At
every meeting, the Chairman shall preside. Quorum at meetings shall be formed by 8 Members.

There was a Diet ICAN Tested it as A Compulsory Question, Nov 2018.

5. The Public Account Committee (PAC)

This is the Committee that plays important role within the overall financial control mechanism of the
government. The National or state assembly Approves the disbursement of funds through the
appropriation act. These are huge amounts of money and should be effectively controlled by an oversight
committee on public accounts.

This is an arm of the Legislative Control. Established by 89 Constitution with the following Functions:

➢ Examining the Audited Accounts of the Federation Submitted to them by the AuGF.

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➢ To ensure that ministries and parastatals spend money in accordance with the approval of the
Legislative approval.

Roles of PAC

• Examine accounts as it ties to the appropriation in meeting the public expenditure.

• They do not only ensure that ministries spend money in accordance with state House of
assembly approval, it also bring to the notice of the NASS instances of extravagance, loss,
and lack of financial integrity in public service.
• To Enquire Into the report of the Auditor General with respect to prepayment audit queries
which have been overruled by the Chief Executive of the MDA and report to the House.
• In recent years, they have extended its scope to cover examination of policy and accounts that
are not part of appropriation accounts.
• The PAC has no executive power, but has gained high reputation in recent years through
active role in Questioning public officials, and proposing relevant recommendations to the
house.

Weaknesses of PAC

• The difficulty in distinguishing between the issues of policy and of administration.

• Lack of understanding on why public servants appear before PAC.
• They rely heavily on the office of the Auditor General investigative resources, to the extent
that it has little capacity to conduct its own independent investigations.
• The Heavy allowance of the PAC Membership.

Chapter 4

Government Construction Contracts and Procurement

Introduction

Like Private Entity, Government also embark on Purchase of Goods, maybe for Store Purposes or Capital
Projects. Also, this is where the Codes of Due Process will be Treated Extensively, known as The Public
Procurement Act, 2007.

IPSAS11 defines Construction Contract as the Execution of:

Building and Civil Engineering Project,

Mechanical and Electrical Projects,

Installation and other Fabrications,

Which are normally evidenced by agreement between 2 or more parties. In the public sector, construction
contracts are Capital Projects financed by appropriations from the Capital Development Fund.

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Content of a Contract Payment Voucher

In an ideal Government Office, no payment without a Payment Voucher, so Contents include:

1. Names and Address of the Contractor

2. Contract Number

3. Gross Amounts and Retention Fees

4. If it’s partly paid, a statement of Outstanding Balance

5. The Authority for payment

6. Certificate number being paid

7. Description of the Project

8. The Votes of Charge

Attached Documents to the Payment Voucher are:

➢ A copy of the Minutes of the Tenders Board where the Contract is awarded.

➢ A Copy of The Letter of Award of the Contract.

➢ If its capital project, a completion certificate of work done (Signed by an engineer).

➢ If its Supply of Goods, a Copy of Delivery notes and Store Receipt Voucher.

➢ A Bill or Invoice Submitted by the firm requesting for Payment.

The Tender's Board

A Tender is a Proposal or bill for Supply of Goods, rendering of services or Execution of Capital Project,
Usually submitted on Invitation by Different Suppliers or contractors for further consideration. When they
are now submitted, a Board will be constituted to consider the one that will minimize the cost of
Government and Maximize the benefits of the Public.

Types of Tender Board

1. Tenders Board at Various MDAs

2. Federal Tenders Board

3. Ministerial Tenders Board

Kindly Read the Explanation from the Pack.

Competitive Tenders

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If the tenders are not much, its still not competitive. But, where its competitive in nature, the following
procedures are followed:

❖ Advert.

❖ Open Bid.

❖ Bid Evaluation Criteria.

❖ Award of Contract.

More explanation

❖ Contracts Above 10 Million should be Advertised in at least 2National Dailies 6months before
the Deadline.

❖ Then, open the bid at a date, where the Bidders themselves appear and the Press.

❖ The Criteria for awarding contracts should be made known.

❖ The Committee should be made up of professionals.

❖ Any contract Award above #20Million should be published in at least 2Dailies stating the
description, the price and the contractor himself.

❖ The Board should avoid contract Variations but if it occurs, it extends the contract up to 18
Months.

Not all Tenders are Competitive in Nature. It depends on the Amount involved, How Huge It is. Where it
is just Small Amount, they can go into Selective Tenders. Subject to the View of the CEO or The Head of
the MDA.

Procedures for Submitting Tenders

o Tenders are Submitted in a Sealed Envelope to the Secretariat at the Tender Board.

o After the Submission date, the Secretary of the board opens the Tenders under close
supervision of the Chairman or his Representative.

o Then, they will be numbered, duplicated, authenticated, and kept in a Safe Places.

o Then, a meeting of tender hold to select the best.

o Selection is made based on past records, experience, qualifications, and quality if service.

o It is not necessarily the lowest bid have to be the best. Other things are considered.

o If per adventure, all the tenders are rejected by them, they call for another fresh application.

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o However, if one is recommended, all the bids shall be forwarded to the approving authority
with explanations as to why each of them is being selected and one recommended.

Awarding a contract

It is not the Responsibility of the Board to approve, just to recommend. So, after the Authority approved it,
they will communicate their position back to the tender board.

▪ After the approving authority approves the Contract

▪ His Position will then be communicated to the Tender’s Board.
▪ Then, the Secretary to the board writes a Letter of Award to the successful tenderer/bidder and
invite him for signing of the agreement.

▪ Where necessary, a bond has to be Signed.

▪ Then, publication should be made in the Dailies and Gazette.

▪ Certified Copies are sent to the Accountant General of the Federation and The Auditor General
for the Federation.

Note: Not only Procurement, Disposals of Government Properties is also by tender as well.

The Public Procurement Act, 2007

This is the Law that Guides all of the Things we have Being saying Since. Together with Fiscal
Responsibility Act, Finance (Mgt & Control) Act, Allocation of Revenue, they are Regarded as DUE
Process in the Public Sector.

As Peculiar to most of these Acts, the Act Established 2 Bodies:

▪ The National Council on Public Procurement (NCPP).

▪ The Bureau of Public Procurement (BPP).

The National Council on Public Procurement (NCPP)

This is the Governing Body

Composition:

o The minister of Finance as the Chairman.

o Attorney General and the minister of Justice.

o Secretary to the Federal Government.

o Head of Service.

o Adviser to the President on Economic Matters.

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o DG of the Bureau as the Secretary.

o Six Part-time Members representing:

1. Nigeria Institute of Purchasing and Supplies.

2. NBA.

3. Nigeria Society of Engineers.

4. The Civil Society.

5. The Media.

6. Nigeria Association of Chambers of Commerce, industry, mines and Agriculture.

Their Functions:

They:

✓ Considers and approves policies on Public Procurement.

✓ Consider, approve and amend the Monetary Thresholds for PP.

✓ Approves the appointment of Directors of the BPP.

✓ Approves the Audited Accounts of BPP.

✓ Approves any Changes in Procurement Process as a result to of changes in Technological

advancement.

Due Process and Fundamental Principles of Public Procurement

o The Procurement process undergoes an Open Competitive Bidding.

o Where Bidders will be invited both nationally or internationally.

o The Best Evaluated bidder will be awarded the contract.

o It must be with in the stipulated threshold.

The Bureau of Public Procurement (BPP)

This is the Operating Arm of the Act

Their Objectives.

• They establish Pricing Standards.

• Ensure Value for money Standards.

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• Ensure Transparency and cost effectiveness.

• Ensure Probity and Accountability.

• Ensure Competitiveness in Public Procuremnet.

Chapter 5

Professional Pronouncements on PSA

Introduction
Despite the Importance of the public sector in the economy, Little attention was given to it by Standard
Setters. This made the Gap Between the Private and the Public Sector. To bridge the Gap, Several
International Pronouncements were Issued.

The International Federation of Accountants - IFAC

This is a global organisation for the accountancy profession and dedicated to serving the public interest by
strengthening the profession and contributing to the development of strong international economies. IFAC
has 167 Members and associates in 127 countries around the world including Nigeria, representing
approximately 2.5 Million Accountants in public practice, education, government service, industry and
commerce.

IFAC provides structures and processes that supports the development, adoption and implementation of
high-quality international standards and supports the development of Accountancy profession in emerging
economies, speaks out on public interest issues where profession's voice is most relevant. ICAN is a
member of IFAC.

IFAC issues standards on:

1. Financial Reporting - IASs/IFRSs

2. Auditing and assurance - ISAs

3. Public Sector Accounting - IPSASs

4. Ethics - International Ethics Standards (IES)

The International Public Sector Accounting Standards Board (IPSASB)

The IPSASB is a board under IFAC formed to develop and issue International Public Sector Accounting
Standards (IPSASs) which are high quality global reporting standards for application by public sector
entities other than Government Business Entities (GBEs). The adoption of IPSASs by government
organisations will improve the quality and comparability of financial information reported by public
sector entities around the world.

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Objectives of Professional Pronouncements

1. To Develop and harmonise Public Sector Accounting, reporting and Auditing.

2. To have Same Standards throughout the World, so that comparison can be made.

3. To make Guidelines Available for Practitioners.

The Professional Pronouncements:

1. The United Nation: They conducted a Survey and recommended Improvements in PSA Systems
of Developing Countries should be made, most especially in the area of Budgeting.

2. The National Committee on Government Accounting, USA: They Issued a Report titled The
Blue Book which addresses “Government Accounting, Auditing and Financial Reporting
(GAAFR)”.

They gave Principles on:

▪ Basis of Accounting,

▪ Budgeting, Planning and Control,

▪ Funds and fund Accounting,

▪ Financial Reporting in the public sector,

▪ Depreciation of Non Current Asset in the Public Sector.

Recommendation:

o Accrual Basis Should be Adopted in Government Enterprises and Parastals and for Capital
Projects.

o Modified Accrual Basis for Debt Servicing.

o No Depreciation on Non Current Asset.

Those 2 are the most Important ones out of the Pronouncements. However, Read The Remaining Ones
from the Pack. "The idea is just to Expose us a little to the General Scope of the Topic."

Observations of the UN on PSA system of the Developing Countries (3rd World)

1. Little has being given to Social Government Accounting.

2. Paper work is too Much.

3. Delay of Financial Reports.

4. Inaccurate and incomplete Data.

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5. Old method of Book-Keeping Still Persists.

6. PSA is only seen as a tool for Public Expenditure and Receipt. Neglecting the 3Es of the
Operation. Economy, Efficiency and Effectiveness.

Comparing Government Accounting in Nigeria with That of Other Countries

In the Developed Countries like the USA and The UK, they keep making research on how to Improve the
System of PSA, but in Nigeria, we are Static. And that’s what made us to remain where we are up till now.

Chapter 6

Pension and Gratuity

Introduction

This is an interesting and important topic as far as public sector is concerned, most especially in this Our
Country, where laws Guiding it has being changing over time.

Several Persons have being cheated over and over because they are deprived of their entitlements.

The Mgt of pensions has being less effective in Nigeria, until Obasanjo Regime, in 2004 who changed the
scheme and the phase of Pension and Gratuity Is Renewed Totally.

The Constitution and Pension

1. Section 173(3) of the Nigerian Constitution States that pension shall be reviewed every
5Years or whenever salary review is done (Whichever is earlier).

2. Section 173(4) States that Pension Allowance shall not be Pensionable.

3. Section 85 (5) States that the President and the Vice President of the Federal Republic of
Nigeria Shall Receive Pension For Life, at the rate of the Annual Salary of the Incumbent
President, provided that Both of Them Are not Impeached.

Kinds of Pension Scheme

Old Pension Scheme (Otherwise Known as Defined Scheme.)

This Old one has 2Phases:

- Before 1st June 1992

- With Effect From (Wef) 1st June 1992.

(For those who Retired Before 2004)

New Pension Scheme (Contributory) - Wef July 2004. This is what your New Pack Incorporate.

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The New Pension Reform Act of 2014 (As Amended)

It's Regarded as Fully Funded Contributory Pension Scheme. By the Virtue of the Act, both Private and
Public Sector are Required to Adopt the New System.

Objectives of The Act

▪ To Ensure every retiree receives his benefit as and when due.

▪ To Assist Improvident individuals save in order to cater for their livelihood in old-age.
Improvident People are those Guys who Doesn't have the Culture of Saving. They Just Spend
money once it Comes and that's All..

▪ To Create Employment.

▪ To Develop A Uniform sets of rules for Pension Administration in both public and private sectors.

▪ To stem the Growth of Outstanding pension liabilities.

The Contribution

Before the new amendment, it was 7.5% of the Salary of the employee, contributed from Employer, and
Same from the Employee making a total of 15% on a monthly basis, Kept into the Retirement Savings
Account (RSA). But, the new Amendment is 18%, 10 from the Employer and 8 from the Employee.

Fully Funded

The New scheme is fully funded in the sense that immediately the deductions are made, they are
transferred into the Employee's RSA.

The Retirement Savings Account (RSA)

This is an Account which Employer must open for every employee, by Pension Fund Administrators.
Employee will have a Pin No allocated to his RSA. Withdrawal from the Account can only be made on
the Attainment of 50Years or Upon Retirement.

The Pension Fund Administrators (PFA)

They are limited liability companies, registered under CAMA with the Minimum Share Capital of
#150Million, Licensed by The National Pension Commission (Pencom).

They Have the Following Functions:

✓ Invest and Manage Pension Fund as Prescribed by Pencom.

✓ Provide Regular Information To Employees On their Retirement Savings.

✓ Giving Professional Advice on how to settle down for the Future.

✓ Maintain Books of Accounts for All Transactions involving Pension.

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✓ They pay retirement benefits to employees in Accordance with the Provision of the Act.

The Pension Fund Custodians (PFC)

These are Licensed Financial Institutions (Commercial Banks), registered Under CAMA with a Minimum
Share capital of 5 Billion Naira. As their Name implies, they are the One Whom The Pension Funds are in
their Custody, the Middlemen btw the Company and The PFAs. They are the ones to open RSA, a Bank
Accounts for the Employee.

They Have the Following Functions:

1. They Warehouse The Pension Fund.

2. They Receive Contribution Directly from Employers.

3. Then, They notify the relevant PFA of the receipts of credit into the RSA Account of the
Employee.

4. They Execute Transactions and investment instructions issued by PFAs.

The National Pension Commission (Pencom)

This is the body established by the new Pension Reform Act, 2014 as amended to carry out the Provisions
of the Act. In the language of the Act, section 14 says refers to PENCOM as the ‘Commission’ as a body
corporate with perpetual succession and a common seal.

The Commission has its own composition, terms of office of its members, their duties, functions and
powers.

Functions of the Commission – Section 20

▪ Regulate and Supervise the Scheme under the Act.

▪ Issues Guidelines for Investment of the pension Funds.

▪ Establish Guidelines for the Mgt of the Pension Funds.

▪ Carry out public awareness and education on the establishment and management of the scheme.

Composition of the Commission – Section 16

The Commission shall consist of 6 members from the six geo political zones of the federation. They shall
be appointed by the President, ratified by the senate.

▪ Chairman – Part Time

▪ Director General – Full Time

▪ 4 other full time commissioners

Terms of office – Section 17

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They shall serve for 4 years per term and possible maximum of 2 terms.

Vacation of office – Section 17

Each member leaving office shall do so by virtue of:

▪ Voluntary Resignation

▪ Incapability

▪ Bankruptcy

▪ Conviction of any public offence.

The categories of persons exempted from the contributory pension scheme in accordance with
Section 5 (1) of Pension Reform Act 2014, are:

a. The categories of persons mentioned in Section 291 of the Constitution of the Federal Republic of
Nigeria 1999 (as amended) including the members of Armed Forces, the intelligence and Secret
Services of the Federation;
b. An employee who is entitled to retirement benefits under any pension scheme existing before 25th
day of June 2004 and has three (3 )or fewer years to retire; and
c. Fully funded pension scheme.

Deficiencies of Pension Reform Act, 2014

a. Scope and coverage: The scheme applies to employees in both the public and private sectors.
Mandatory contribution is applicable to organisations in which there are fifteen (15) or more
employees (previously five (5) employees). This effectively reduces the number of employers and
employees that are likely to benefit from the scheme. Given the low level of contributors under the
scheme, this change is counter productive.

b. 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.

c. 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.

d. Commencement date: The Pension Reform Act 2014 (Act) was signed into law by the President on
July 1, 2014 with the same date as commencement date, does not give room for transition
arrangement and proper planning by affected employers.

e. Gaps in coverage: Only employers with a minimum of fifteen (15) employees are required to
contribute to the new Scheme. The Act provides that in the case of private organisations with less
than three (3) employees participation in the Scheme would be governed by guidelines issued by the

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National Pension Commission (PenCom). However, the Act is silent on the applicability of the
Scheme to private organisations with more than three (3) but less than fifteen (15) employees. Also
what happens to employers with five (5) to fourteen (14) employees regarding their past contributions
under the old Act?

f. 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.

Group Life Insurance (GLI)

Under the new Scheme, every employer is required to Insure all his Employees' life against Sudden Death.
The policy is done on yearly Basis and the claim thereon shouldn't be less than 3 Times of the Employee's
Annual Emoluments. Note: This is what Replaced the Death Gratuity under the Old Scheme.

There are Number of Information in that Chapter. But, the Most Important Thing is Offences & Penalties.
Kindly Read It Up.

Chapter 8

Emerging Issues in the Nigerian Public Sector

1. Treasury Single Account (TSA)

Introduction

This is one of the Financial Policies Implemented by the Nigerian Government to consolidate all the
Inflows from all the MDAs in the Country Into a Single Account, situated with the CBN and Operated
through all the Commercial Banks of the Nation.

Objective: According to IMF, the primary Objective of this Forum is to ensure effective aggregate control
over Government Cash Balances. Since all the Treasury of the Nation is into One Pool, where Revenue
goes into and Expenditure flows out from.

Mode of Operation

✓ The CBN opens and activats the TSA in form of CRF where all Government Revenues accrue
into.

✓ All MDAs Remit their Daily Collections into this Account through the Commercial Banks.

✓ All Commercial Banks in the Country must make Sure they Transfer all Receipts to the TSA at
the end of every Working Day. The banks must make sure the accounts are empty.

Roles of MDAs concerning TSA

1. They Should Guide Payers on E-payment Procedures.

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2. Monitor them so that they come back for Receipt

3. Issuing Receipts to them.

4. Keep Proper Books.

5. Monitoring the Banks as well.

6. Sending Returns (Transcripts) to the Treasury.

Benefits/Rationale of TSA

✓ Efficient Cash Mgt.

✓ Complete Information on Government Cash

✓ Improve Budget Control.

✓ Improve Accountability.

✓ Improve Transparency.

✓ Detecting and preventing Actual and potential Fraud.

✓ Improve Government Liquidity.

How TSA can help the Use of Government Funds:

1. Government can have Enough Cash to Execute projects.

2. All Leakages in the Revenue Generation can be Blocked.

3. Government can avoid Borrowing.

4. It supports Monetary Policy.

Challenges Faced So Far:

1. The Time Lag of Implementation.

2. Poor Internet Facilities.

3. Lack of awareness on the side of the users.

4. Internet Fraud.

5. Natural Resistance to change.

6. Lack of Skilled Staff.

Recommendations are:

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1. All states and Local Government should also Be persuaded to Adopt it. Not only the Federal
Government.

2. Good Internet Facilities.

(Convert those Challenges to Recommendations)

2. Integrated Payroll And personnel Information System (IPPIS)

Introduction

An initiative introduced by the FG to enhance the effective Mgt of the Human Resources and Personnel
system. Like the name implies, a computer information system which Captures all information about the
Employees working for Government so that they can know what to pay in a month. With it, Nigeria can
Curb the menace of GHOST Workers. Which made Nigeria to save a Huge Millions of Naira since its
Implementation.

Mode of Operation

Operated by all MDAs. With the Help of the Following Bodies:

1. The Treasury.

2. The CBN,

3. Head of Service.

4. Federal Civil Service Commission.

Benefits

1. Eliminate Ghost Workers Syndrome.

2. Reduction in Payroll Bill,

3. Easy Storage and Retrieval of personnel Records.

4. Monitoring Monthly Staff Emoluments.

3. Government Integrated Financial Mgt Information System (GIFMIS)

Introduction

This is the Reform Adopted to maintain the optimal mgt of Government Finances, as the name implies.
The fiscal processes are now Technologically Developed in a way to Reduce Corrupt Practices. With the
use of an integrated System, ALLOCATION, UTILISATION, ACQUISITION of Government Financial
Resources is Now Effectively Monitored.

Mode of Operation:

Handled by the Federal ministry of finance and the Office of The Accountant General.

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Operated by all MDAs.

Benefits:

1. It reduces the incidence of Money Laundering.

2. Reduces Theft and Loss of Government Fund.

3. Reduces Paper Work.

4. Increases Accountability.

5. Assisting in Preventing and Detecting Fraud.

Note: You will Discover something from The Benefits of the 2 Policies, There are some Like Terms Like
Reduction of Fraud, Accountability, Abolishment of Paper Work

It has same Challenges and Recommendations with TSA.

Chapter 10

Budget and Budgetary Controls

Introduction: A budget is a Financial Estimate, prepared and approved ahead of time for the purpose of
attaining a Given Objective.

Purpose of Government Budget

1. A means of Accountability.

2. It is an Economic and Financial Document.

3. Allocation of Available Resources.

4. A Means of Assessing Executive's Performance.

Uses of Budgets to Government:

1. As a Guide for Present And Future.

2. As Performance Evaluator.

3. As Planning Tool.

4. Motivational Tool.

5. Communication Tool to the Citizens.

6. Cost Reduction Techniques.

7. To Distribute Economic Resources.

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Methods of Preparing Budgets

Traditional/Incremental System

Under this Method, Next Year's Figures are derived by adding a percentage to the current year own.
Based on Factors Like Inflation, Trends of Economic Events, Available Funds.

Advantages

1. Simple to Understand.

2. Cheaper to produce.

3. Suits our country's Level of Development.

4. Past projects can be continued.

Disadvantages

1. Past Errors can be Carried forward.

2. It does not fund new programmes.

Zero-Based Budgeting (ZBB)

A method introduced by Peter Phyrr of Texas, Popularized by the former president of the USA Jimmy
Carter in 1976. Under this technique, resources are not allocated based on previous figures. All
Government expenditures are assumed to kick-start from the Beginning, From Zero. It is usually Used by
the Executive, legislative members, Government Ministries and Parastatals.

Process of ZBB

1. Identifying the Decision Units.

2. Analysing the Whole Budgets into Decision Packages.

3. Ranking those Decision Packages into Priorities.

4. Determining the Cut-off Points, to know the ones to be included or excluded.

5. Choosing the Packages that fit with the Available Resources.

Note this Summary:

Decision Packages ️ Decision Units ️ Ranking️ Cut off Points️ Choose

Those Points are the ones you Memorise, once you are able to Remember those points, developing them
into Sentences is not a problem.

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Advantages

OPPCRI.

1. Allows Optimum Allocation of Resources.

2. Good For Profit Oriented Projects.

3. Measures Performance.

4. Reduces Wastages.

5. Change is Allowed.

6. Important Projects can continue to be funded.

Disadvantages

1. It is not Good for Recurrent Expenditure, Therefore, it is not being successful in the Public Sector.

2. Sometimes, lack of unreliable Data.

3. Bureaucrats do not Like it.

Planning Programming and Budgeting System (PPBS)

As the name implies, a technique in Government Come up with A Plan, Set up Different Activities to
Achieve the plan, and Provide for resources in Carrying out those Activities. The idea behind this system
is that the resources available are limited. So, Government do not just spend without a clear vision. There
should be a proper plan from the Onset. Of course, this also has a process to follow, like that of ZBB.

In the Pack, the Process of PPBS is Lengthy. But, I have Summarised below:

1. Identify Goals and Objectives of Government to be achieved.

2. Set out the Programs that are necessary to achieve them.

3. Evaluate the Alternative Ways of achieving the Programs.

4. Select the Most Appropriate One by comparing its COST to its BENEFITS.

Note: From the name of the Technique self, u can define it and even come up with the Processes to follow.

Advantages of PPBS

1. Emphasises Longterm Effects.

2. Leads to Rapid Growth.

3. Rational Decision making.

4. Effective Use of Economic Resources.

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5. Match Benefits with Cost.

Disadvantages of PPBS

1. Natural Resistance to change.

2. Paucity of Data.

3. Data collection problem.

4. Old Accounting System still persist.

5. Difficult to install.

Performance Budgeting System (PBS)

A Budgeting System where the focus is more on the Outcome to be derived from it and not the Cost itself.

Features:

1. It compares the project Costs to its benefits.

2. It measures output provided by each activity.

3. Actual Costs are monitored against the Budgeted results.

Continuous Budget/Rolling Plan

It's a continuous updating of a Mediumterm plan, designed for a specified PERIOD of time. If constraints
or Circumstances do not permit the projects to be completed, a FRESH plan will Emerge to accomplish
the Project. Until the project Completed. Example, Ajaokuta Steel Factory, has being continuous since
its inception. When new Government Emerge, he will bring it up back.

Under this System of Budgeting, we treat:

➖ Rolling Budget: Any Budget prepared within that Rolling Plan. Its a yearly provision of funds to
Supplement the Project.

➖Perspective Planning: This one is on long term basis, like 15years or so. For the DEVELOPMENT
purposes, and long term objectives. Periodic Budget: A FIXED type of budget which allows no
revision till the end of the year.

Flexible Budget: It CHANGES with the level of Activities and circumstances in the
Economy.

Capital Expenditure Budget: prepared for capital projects in the Public sector.

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Procedures for Preparing Budget

This one is another Confusing Area of this Syllabus. But, I have Tried to make it Simple to remember.
Because, out of this Particular Chapter, ICAN have not Tested this Part

There are 3-4 Phases.

Ministerial Phase

Executive Phase

Legislative Phase

Presidential Assent.

In the Pack, they presented each phase in A Paragraph Format, but I have come turned it to A Model for
Easy Understanding.

The Ministerial Phase/Pretreasury Board

The Procedure includes:

The Board is headed by the Perm. Sec. Ministry of Budget and planning, to appraise each
proposals.

The President Sends Policy Pronouncements to the Ministry of Budget.

The Ministry of Budget sends Call Circulars to Various Ministries.

The MDAs Submits their Draft Estimates.

Then, a committee sits on it.

In Summary:

➖ President (Policy Pronouncements)

➖ Ministry of Budget and Planning (Call Circulars).

➖ Various MDAs (Advance Proposals/Draft Estimates)

➖ Committee (Pretreasury Board) for Appraisal of Estimates.

The Executive Council Phase

This is also known as the Treasury Board, Executive Council, The Cabinet or Council of Ministers. Their
Aim is to Consider the Draft Estimates forwarded from the Pretreasury Board.

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Composition of the Board

1. The President Himself.

2. The Vice President.

3. The Ministers.

4. The Perm Sec., Ministry of Finance

5. The Perm Sec, Ministry of Works.

6. The Head of Service.

7. The Accountant General of the Federation, and

8. The Auditor General For the Federation

The legislative Phase

The President read out the Budget in the National assembly, on a meeting known as Budget
Session.

The 2 Houses set up a standing Committee to consider the Estimates.

They (Each of them) now approve it.

Where there is a CONFLICT, concerning some items, the 2Houses appoint a FINANCE
committee to harmonise.

The resolution of The Finance Committee is final.

Then, they approve the budget at a JOINT session of the 2Houses.

Summary to this:

Reading out ️ Standing Committee ️ Temporary Approval ️ Finance Committee (Where it

Conflicts) Resolution ️ Final Approval.

Presidential Assent

The budget is sent back to the president for his assent and that became an appropriation bill/act. (ie, must
be applied for the Coming year). Then, 2copies will now be sent across to all MDAs in the Country.

Factors Affecting Budgeting in Nigeria - H I P C D F T U L

1. Human element

2. Inflation

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3. Political and socio-cultural Element.

4. Changes in Government.

5. Debt Mgt Problem.

6. Fiscal Indiscipline.

7. Type of the Project.

8. Uncertainty of Data.

9. Low Agricultural Outputs.

Explanation

1. Human Element - This includes the integrity and acceptability of the government functionaries that
are involved. The accountability, probity and reputation of the operative of the system will also affect
the success or otherwise of the budgets.

2. The Capability of the Nation - Logistics-wise, does the nation have the funds, quality human
resources, etc. to execute the projects? Efficiency-wise, are the functionaries efficient with the
nation’s resources?

3. Types of Projects - How successful a budget is depends on the type of project it relates to. Some
projects are popular while others are not. Those which are not popular may face stiff implementation
problem.

4. Inflation - Inflation reduces the purchasing power. When the value of money reduces,
implementation of the budget will be difficult since the revenues available will not be able to cover
the expenditure. Inflation will then make the budget to be poorly implemented for the fiscal year.

5. Political, Social and Cultural Elements - Problems do occur from cultural, social or political
activities since each segment of the nation has its own cultural beliefs and taboos which may take
longer time to ease out. Introducing innovations may be met with stiff opposition. Such a
development affects the budget implementation. As an example, some regions of the country
may not be willing to provide land for development purposes. Where there is political instability,
budget implementation is at risk.

6. External Factors - Nigeria as Nation does not operate in a vacuum. What happens in the global
economy of the world affects Nigeria directly or indirectly. For example, a fall in the price of crude
oil products will affect the economy of Nigeria, once Nigeria is unable to obtain its anticipated
incomes from oil sale such development will affect the budget implementation.

7. Government policy - To implement the budget, a lot depends on the Government. For effective
budget implementation, Government policy has to be harmonized and systematic. Frequent
changes of government policies affect budget implementation.

8. Lack of Proper Co-Ordination - The public sector budget implementation is hardly coordinated.
Therefore, Goals and objectives as planned may not be achieved.

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9. The problem of Debt Management and Optimal Use of Limited Resources - There is the problem
of what percentage of the nation’s income will be used to repay external and internal debts and
as well as for economic development.

10. Low Agricultural Output - Nigeria as an agrarian community ought to produce sufficient food for
her citizens but the following has reduced the nations agricultural output:

a. Obsolete methods of farming;

b. Non vibrancy of farming in the nation;
c. Farming is mainly carried out by the aged ones.

Therefore, funds which could have been used for economic development are diverted for the importation
of food items.

10. The Pattern of Consumption or attitude of the citizens- Most citizens prefer imported products to
the locally made ones, hence low patronage and the resultant effect is the closure of factories. Budget
implementation becomes a mirage.

11. Delay in the Release of Funds - Government sometimes delay the release of funds, especially for
capital projects. Money meant for capital projects are not released as at when due. This action leads to
delay in the development of the economy.

12. Fiscal Indiscipline - Most functionaries are budget maximizers. They tend to expend to the last kobo
available for the fear that smaller amounts may be approved in the subsequent year or years.

Other Forms of Budget

️ Overhead Cost Budget

This is the Estimates of the other expenses in the State. It aligns with The Principle of Incremental
Budgeting where Current year estimates are increased based on Inflation Rate.

️ Revenue Budget

Aggregate of incomes to be Received each year. The main purpose of preparing it is to know how to plan
and what is to be spent. The objectives of this Budget are many. But the main one I can think of is to
Ascertain the Aggregate Income of the Government.

️ Cash Budget

Estimates of Cash inflows and outflows of the Government for a given period of time.

Advantages

1. To maintain Liquidity position of the Government.

2. To Ascertain when there is Overdraft.

3. To invest the idle funds elsewhere when there's excess.

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️ Personal cost budget

This is the Estimate of total basic salaries and allowances of staffs working in a government office.

Identify the following:

1. The levels of Personnel.

2. Number of Staffs for each Position.

3. Whether there is any promotion, demotion, transfer, appointment or dismissal.

4. Identify the basic salary and annual incremental rate.

Budgetary control

A System of control, making sure that incomes and expenses are in line with Budget provision and
Wastages are reduced to the barest minimum. This is done by Comparing Actual Results with the
Budgeted Results, resulting into Adverse or Favorable.

Other Issues regarding Budget

Budget Surplus and Deficit:

Surplus: when the expected income of the Government is higher than the estimated expenses. Which
is not Common.

Deficit: When the expenses exceed the Inflows of the Government. The Government should be able
to finance the 2cases.

Supplementary Estimates:

Budget is a mere estimate. No one knows what will happen in the incoming year. Money Budgeted to
each MDAs might not be enough as the year goes on. Circumstances might arise for extra funds. The
Estimates will be submitted by all MDAs to the Ministry of Finance and the minister lay them before the
national assembly for approval.

Conditions for supplementary Budget:

1. It must be of Public interest.

2. The need for it is Urgent that it cannot be delayed till the next Financial Year.

3. The need for it could not be foreseen when current budget is being prepared.

4. Virement is not Possible.

Virement: Transferring fund from an excess subhead to a Deficit Subhead of the same Head.

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Functions of the Ministry of Budget and planning:

1. Compiling Total Revenues and Expenditure of the Nation.

2. Issuing the budget guidelines to the Ministries.

3. Drafting budget speech.

4. Monitoring implementation of budget.

5. Evaluate performance of projects.

6. Assessing impacts of budgets on the economy.

Chapter 11

Transparency & Accountability in Public Sector

Introduction

In anything someone carries out in life, for it to be so effective, we should be accountable and answerable
to another person. Or else, we do anyhow. This is especially important in Government Settings. Public
officers are Put in Several Offices, to cater for the Public Funds and Spend for Public Purposes. But,
without Accountability, there will not be Orderliness.

There are 2 Components:

1. Rendering of Accounts: This one says Government Officers must Show Accounts on how Our
Monie is Being Spent.

2. Holding to Account: If they Give Account of Their Actions, there should be a way we can assess
them and hold them Responsible if they are found Wanting. They cannot just Give Us What they
like.

IMF Code of Fiscal Transparency

1. Clarity of Roles and Responsibilities

2. Open Budget System

3. Public Availability of Information

4. Assurance of Integrity.

The Concept of FISCAL TRANSPARENCY

When we talk About the Word Fiscal in Public Sector, we are referring to the general principles of
Budgeting, Spending and Collection of Revenue. This Concept is now Saying, in carrying out those
Critical Governmental Functions, there should be Transparency and Openness. No Hiding of Things.

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Conditions that Promotes Public Accountability

The Acronym is DLAPA.

1. Existence of Democratic Party.

2. Existence of Commited leadership.

3. Active Investigative Media

4. Well planned Poverty Alleviation Program.

5. Anti Embezzlement Culture in our Society.

Explanation

1. Our Democratic System should be okay that if any officer Fucks Up, we will just Vote him out of
Power. With that, they will behave Well.

2. Our Leaders Should also be Committed within themselves.

3. The media should be independent and active that they expose their wrong doings if necessary.

4. Poverty itself is a Disaster in our Society. A lot of people knows what is Right, but because they
are impoverished, because of the stipends they collect from all these politicians, they keep
Supporting them as of they are doing what's right.

5. The way we regard the Corrupt Leaders in our Society self is not helping the Situation. We Give
them Good Names and Celebrate them knowing they Embezzled our money to survive.

Measures Put in Place by Nigeria Government to Enhance Public Accountability:

1. Fiscal Responsibility Act, 2007

2. Public Procurement Act, 2007.

3. Freedom of information Act of 2011,

4. The EFCC, 2002

5. The ICPC, 2000.

6. Code of Conduct Bureau and Tribunal.

Upon all these Codes, Conditions, Measures, we still observe that in Nigeria, the Public Accountability
has not still being effective. WHY?

These are the Reasons:

1. Immunity Clause of the Executive.

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2. No Penalty for Breach of Fiscal Responsibility Act.

3. Existence of Special Funds.

4. Corruption.

Chapter 12

Financial Responsibilities of the Public Sector Officers

The Following are the Finance Officers:

▪ The Accountant General of the Federation (AGF)

▪ The Auditor General for the Federation (AUGF)

▪ The Accounting OFFICER (AO)

▪ The Sub-Accounting Officer (SAO)

▪ The Revenue Collector.

▪ Officer Controlling Expenditures.

▪ Federal Pay Officers in Each State.

▪ The Imprest Holder.

1. The Accountant General of the Federation (AGF): This Guy is the Chief Accounting officer of the
Federation, the one in charge of receipts, payments, custody of government resources. He is responsible
for supervising all accounts of ministries, extra-ministerial departments and agencies. At every year end,
he is expected by the laws of the federation prepares the Final Accounts of the Federation and Submit it to
the Auditor General for the federation for Audit.

Functions

a) He is the Chief Accounting officer for the receipts and payment of the government of the
federation.

b) Supervises the accounts of all federal MDAs and all arms of government.

c) manages fereal government investments.

d) Maintain and operates the federation account and federal government account (CRF).

e) Establishes and Supervises federal pay offices in each state capital of the federation.

f) Investigates cases of fraud, loss of funds, assets and store items and other financial malpractices
in MDAs and other arms of the government.

g) Formulates the accounting policy of the federal government.

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2. The Auditor General for the Federation (AUGF): He is responsible for auditing and examining all
government accounts and records as supervised by the Accountant General. He is s Statutory Officer,
Meaning that He's Established by the Nigerian Constitution itself. Even the Accountant General of the
Federation is not established by the Constitution. But, Before we Move on, I will like to Give the
Relevance of the Word “For" attached to that name. The word For the Federation is very important
because it displays the Independent Nature of the Auditor General. That is, after he carried out his
independent examination on the financial statements of all MDAs prepared by the AGF, known as Audit,
he submits his report to the National Assembly, not to the President or Governor. Even the Internal
Auditors in Each MDAs do not submit their reports to the Head of the each MDA. They Submit to The
Auditor General.

Functions

a. He carries out financial audit in accordance with extant laws to determine whether records have
been faithfully kept.
b. Appropriation Audit – To ensure that funds are expended as appropriated by the national
assembly.
c. Financial Control Audit – To ensure that the laid down procedures are observed in tendering,
procurement of stores and assets.
d. Value for money audit – To ascertain the level of economy, efficiency and effectiveness derived
from government projects and programs.

3. The Accounting Officer: Every MDA or Government Office is an Accounting Unit, of which they
must account for all their activities within a year. So, the HEAD of all these MDAs are the Accounting
Officers. Though, the Position of the Accounting Officer keeps changing over time. Before now, they
were the Political Heads of MDAs, like the, Ministers in the Core Ministries, Managing Directors in
Extra Ministerial Depts and Agencies, Chairmen of Governing Council in Polytechnics, Pro-Chancellors
of Senate House in Universities. Those Ones are just the Political Heads, Ceremonial Heads appointed by
the Governor or President and they report to him. But, As soon as the Tenure for the president appointing
them lapse, their own tenure lapses as well. But now, The Accounting Officers are the Permanent
Secretaries in Various MDAs, who is a Career Person in that Ministry, who rose within the Civil Service
System from Lower level up to Level 17. He handles any technical matters in the ministry and account for
all resources in terms of Money, man, materials, machines etc.

In Universities - VCs.

In Polytechnics - Rectors.

In Colleges of Education - Provost.

Functions of the Accounting Officer

a. He is responsible for safeguarding the public funds and expenditure under his control.

b. Observe and ensure compliance with checks and balances spelt out in the existing financial
regulations in public offices.

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c. He should note that his accountability does not terminate by leaving office and that he may be
called upon at any time to account for his tenure as the accounting officer.

d. Ensure that proper budgetary and accountability systems are established to enhance internal
control systems.

e. Ensure that essential management control tools are put in place to minimize waste and fraud.

f. Ensure safety and proper maintenance of all government assets under his care.

g. Renders monthly transcripts and other financial returns to the accountant general of the federation.

4. The Sub-Accounting Officer: The Head of Accounts Unit. Every MDA has functional Depts which
Account Dept is Among. So this Guy is the main person performing the Actual Accounting function in
that Ministry. They also have Different Names in different MDAs as well. Directors of finance in the
Core Ministries, Bursars in Higher Institutions. He maintains the Treasury Cashbook.

Functions

a. Ensures that the proper systems of accounts as prepared by the Accountant General is established.

b. Exercises supervision over the receipts and prompt collection of public funds.

c. He promptly brings into account, under proper heads and subheads, all receipts and payments.

d. Supervises all expenditure of government and ensure that no payment is made without proper
authorization.

e. Ensure supervision over all officers under his authority who are entrusted with the receipts and
expenditure of public funds.

5. Revenues Collector: He is the Guy in charge of receiving Revenue on behalf of Government. He

accounts for what he collects to his direct Boss, the Sub-Accounting Officer, so that he can incorporate it
into the Treasury Cashbook. He maintains a book known as the Revenue Collector Book.

Functions

a. Ensure Proper receipts of public revenue and prompt lodgment into banks.

b. Seeing that proper provision is made for the custody of public funds and securities.

6. Officer Controlling Expenditures: The former Guy up there receives monies for the Government,
but ministries will also carry out Expenditure as well. The issue of expenditure is very critical to the
Government and so needs critical care and control. This Guy is another person in account department as
well which makes sure they do not spend beyond the budgetary provision. Any Major Expenditure to be
carried out passes before his table so that he can verify and authorize it. Recall, In Chapter one, we learnt
Commitment Basis of Accounting, which is Peculiar to Government Accounts only. What the basis is
Saying is That Look, once an item of expenditure is provided for in the budget, we can issue out LPO or
letter of award to Suppliers or Contractors and Activities will be Carried out with out payment being
made. In that case, that shows we are committed to spend an expense even if we have not yet spent it.

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This Guy makes sure that all such expenses are recorded in advance in form of Liabilities in his own
Book known as The Vote Book. A very important Tool indeed. A Vote is a money provided for in a
particular Head (Expense) in the Budget.

Functions

a. Ensure that there are no extra budgetary spending

b. Ensure that no payment is made without proper authority.

c. Monitoring of vote book.

d. Ensure adequate security over custody of public funds.

7. Imprest Holder: Some Expenses are so Minute in nature, but are so frequent and Necessary at the
same time. They come to play often, in the day to day activities of the MDA. Such expenses, if to be
maintained through the Main Cashbook, will make it too Voluminous and Unnecessary as well. We keep
them through a separate Book in the Dept, maintained by another Guy as well in the Account Section.
The reason for this is because their is no payment Voucher for them. Their Vouchers cannot be presented
immediately to the Sub-Accounting Officer. Under this, we need to look at What Imprest Entails.

An Imprest

Imprest is a small amount of cash, set aside to meet petty cash payments whose Vouchers cannot be
presented immediately to the Sub-Accounting Officer.

In Practice, the Sub-Accounting Officer approves a certain amount of money to the Guy in charge from
the main treasury which he disburses for a month and retire the remainder for it to be reimbursed at the
end of the month.

Types of Imprest

• Standing Imprest: Operated till the End of the Year.

• Special Imprest: Operated for a given objective. Once the object is achieved, the account is closed.

Conditions for operating an Imprest

1. Application: It's subject to the application of the intending ministry from the AGF.

2. Then, it will be approved by the AGF, issued by The AO on the Authority of the Finance Minister.
(Annual General Imprest Warrant).

8. The Federal Pay Officers in Each States: This is the Eye of the AGF in every state. Every state
possess an Office known as the Federal Pay office where transaction btw the state and the federal
Government is settled without getting to the Federal Capital Territory. This reduces the Stretch of
Communication and Delay Tactics.

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Note: All those Officers more functions that listed above. In order not to defeat the purpose of this work
being a summarized note, I have brought out the most important ones out for you.

So, Read your pack for that. But, sincerely, this Little Piece of Information is okay as far as this topic is
concerned. The Rest of the topic is Calculation.

Chapter 13

Sources of Government Revenue

Introduction

Government spend money for the Sake of the Citizens, but this moneis are derived from somewhere,
through one mean or another. This chapter Covers Most of sources of Finances of Government. Which is
known as revenue or receipts. As liken To Income in Private Sector.

Sources of Government Revenue

1. Tax

2. Fees

3. Fines

4. Grants

5. Foreign Investment.

6. Public Borrowing.

7. Sales of National Assets.

Revenues Collection Agencies in Nigeria

1. The Nigerian National Petroleum Corporation (NNPC): Established by an Act of Parliament,

Decree No 33 of 1977. Following the Merging together of the Former 2 Bodies then:

Nigerian National Oil Corporation.

Federal Ministry of Petroleum Resources.

They Supervise both Upstream and Downstream Activities of Oil, with its 11 Strategic Business Units
including the entire spectrum of oil operations.

They Include:

Exploration

Drilling

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Production

Gas Development

Pipeline Maintenance

Refining

Distribution

Marketing

Petrochemical

Engineering

Commercial Activities.

Those Also Formed Their Functions. (Just Reframe). Read the Pack for More Details.

2. The Federal Inland Revenue Services (FIRS): This is the Operating Arm of FIRS Board. The
board that supervises and monitor the services rendered by the FIRS. They Administer the Following
Taxes: CITA, PPTA, CGTA and WHT of Companies, VAT, PITA of the Residents of Abuja, Armed
Forces and Foreign Diplomats.

3. Department of Petroleum Resources (DPR): A department Established in the Ministry of

Petroleum, with the Statutory responsibility to ensure compliance with Laws, regulations and
Guidelines in the Oil and Gas Industry. Their Responsibilities Involve Monitoring of operations at
drilling sites, producing Wells, Producing Well stations, crude oil export terminals, refineries, storage
depots, pump stations, retail outlets, any other locations where petroleum is either stored or sold, and
all pipelines carrying crude oil and by products. They have the Following Functions:

Making Sure that their is Timely Remittance of Rents, royalties and other revenues due to the
Government.

Ensuring Health, Safety and Environmental Regulations in oil sector.

Monitoring All the activities relating to Oil.

4. The Nigeria Customs Services (NCS): It started as a paramilitary body, established under the British
Colonial Masters since 1891.

Their Core Functions are:

1. Collection of Import and Excise Duties.

2. Prevention and Subvention of Smuggling.

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Other Functions include:

• Implementation of government fiscal measures.

• Trade Facilitation
• Collection of levies and charges
• Implementing any bilateral and multilateral agreements entered into it by governments.
• Combating illegal commercial activities, money laundering, illicit drugs, etc.

The Federation Account Allocation Committee (FAAC)

It came into existence since the year 2004, in order to deliberate upon the allocation of the funds in the
Federation Account to the 3 Tiers of Government in Nigeria.

They have 2 Sessions:

1. The Technical Session

They Perform the Technical Functions as regards Distribution of Funds is Concerned.

Composition

The Accountant General of the Federation - Chairman.

All Accountant General of all the States.

A Representative from the following 13 bodies, namely: NNPC, FIRS, DPR, NCS, CBN,
Federal Ministry of Finance, Head of Service, etc.

Their Functions

to Consider the Return from the Revenue collection Agencies.

to Distribute the Funds.

to make recommendations to the Plenary Session.

to consider other issues sent from the plenary session

2. The Plenary Session

They deal with Administrative Issues.

Composition

1. The Honorable minister of Finance - Chairman.

2. The States' Commissioners of Finance.

3. The AGF. (But as Member this time around).

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4. The States Accountant Generals.

5. Representatives of the 13 Bodies mentioned earlier.

Their Functions

To ensure that allocation made to the States and Local Government are Promptly, Fully and
legally Paid to the appropriate Accounts.

to Submit annual report to the NASS.

The State Joint Local Government Accounts Allocation Committee (SJLGAAC)

This idea behind this is because Allocations to a state and all the Local Governments in that state are sent
into A Joint Account. And the reason for this is Quiet Clear. There are 774 Local Governments In Nigeria.
It will be too Complicated for The Committee Sending their allocations separately. So, what they do is to
send the the ones for all the Local Governments in a particular State, together with the state own.

That means the State Government Has Influence over that of the Local Government. Recently, there's a
bill proposed in the National Assembly which advocates that Local Governments Monie Should Be Sent
Straight Forward to all the 774 Local Governments we have In Nigeria, without Reaching the hand of the
State 1st.

Composition

The Permanent Secretary for the Local Government Affairs.

All The Local Government Chairmen.

A Representative of the Accountant General Of that State.

The Federal Pay Officer of that State.

Classification of Government Revenue

According to the 1989 Constitution, the federal Government derive its revenue through 17Heads. Study
the Pack for that.

But, in the 1994, (When VAT was Established) there was a new Classification. Thus:

A. Federation Accounts Revenue:

The Federation Account Is Established by S. 162 of the 1999 Constitution as a Distributable Pool
Account. Which means all monies remitted into it will have to be Shared Completely by the 3Tiers of
Government. And at the end of that distribution, no Kobo must remain in the Account. Their is A
Formula for the Sharing, though, keep Changing Time from time but we are going to Study that One in
Details, in a later topic. But, for Exam Purpose, the Formula will be Given.

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Sources of Funds into it:

✓ All Revenues From Liquid Minerals Ie. Oil and Gas

✓ All Companies Related Taxes.

✓ Custom Duties.

B. Value Added Tax

An indirect form of tax collection and a transaction tax as well. It is remitted on monthly basis and
managed by the FIRS. Though, to be distributed among the 3 Tiers of Government as well, but VAT is
not incorporated into the federation account, it has a separate account simply because it has a different
sharing formula as follows:

• Federal Government 15%

• State Government 35%
• Local Government 50%

C. Federal Government Account or The Consolidated Revenue Fund (CRF): A statutory Account
established by S. 80 of the Nigerian Constitution, which deals with the Day to Day Affairs Affairs of the
Federal Government only and not the whole federation as a whole. And that's what distinguishes it from
the Federation Account.

Sources of Revenue to the CRF

Direct Allocation from the Federation Account.

All Revenues From Solid Minerals.

IGR of the FG.

PAYE of the Armed Forces, etc.

Charges to the CRF

As said Earlier, this is also known as the Federal Government Account. Having considered the Sources of
Revenue to the CRF, the following are the Expenses to be made out of it:

a. All recurrent Expenditure. Eg, Personnel cost, Overhead Cost, Servicing of national debt.

b. Salaries of Statutory Officers.

c. Pension and Gratuity of both Statutory and Non Statutory Officers.

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Development fund
This is specifically For Capital development Projects. The establishment of development fund was
solidified by the 1999 constitution of the federal government of Nigeria.

Sources of Funds to the development fund

• Transfer from the CRF.

• External Grants.

• internal Loans.

• External Loan.

Charges to the development funds

• Various Development Projects.

• General Administration.

• External Financial Obligations, ie, financial Assistance to other Countries.

• Loans made to State Governments.

Contingency Funds
This is to meet unforeseen Contingencies.

Inflows into it

Transfer from the CRF

Charges against it

Any Emergency Situation

There is Calculation in this Topic. Kindly study it.

Chapter 14

Authorization of Government Expenditure & Financial

Control of Government Revenue
Authorization of Government Expenditure

This one is saying That one of the Functions of The Government is to Spend, Agreed. But, there should
be an authority. There are 2 Forms:

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• Authority to Incur Expenditure (AIE)

• Warrants.

1. Where AIE is that one Exercise by the Heads of the MDAs themselves. After Moneis are made
available to them From the Minister of the Finance. The Tool they use is The Payment Vouchers.

2. Warrant: A Document Issued by the Minister of finance to Various MDAs through the Accountant
General of the Federation.

Classes of Warrants

1. Recurrent Expenditure Warrant - CRF

2. Capital Expenditure WARRANT - Development Fund.

The Recurrent Own is that one issued for spending out from the CRF. While the Capital Own is that One
Issued to be able to Spend from the DEVELOPMENT Fund. Each of them has 7 Warrants Each. Only
that the Name differentiates them from one another. Once You know the one of Recurrent Expenditure
List, then, You apply it to Capital Expenditure. It's As Simple as that.

1. Provisional General Warrants (PGW): This one is Issued at the Beginning of the financial Year,
Before Budget is Approved. The idea behind this is that all the activities with in the state should not be
standstill until Government Approves Budget. Salaries needs to be Made, and other Activities.

But, there are 2 conditions on this.

• >The Maximum Period for it is 6 Months or until the budget is approved. Which ever is Earlier

• >Also, the Amount must not be more than the same amount spent for that same period in the
previous year.

2. Annual General Warrant (AGW): Issued When the Budget is approved, to the Accountant General
of the Federation, instructing all Officer Controlling Expenditures in each MDAs to start spending.

3. Reserve Expenditure Warrant: Some Moneies are excluded from the Annual General Warrant AGW,
ie, Reserved. So that the Minister can Exercise Control over them. When Expenses are to be made out of
those Reserves, this warrant serves that purpose.

4. Supplementary General Warrants: This One is Used to Back up spending from a Supplementary
Budget of Governments.

5. Supplementary (Contingency) Warrant: When a contingency Situation is Recurrent in Nature,

Funds will First be moved back from the Contingency fund to the CRF, and for it to be spent, the Minister
issues this Warrant.

6. Supplementary (Statutory) Expenditure Warrant: Some Funds are created by A Separate Statute.
Eg. TETFUND, PTF.... Any Expenditure relating to those Kind of Purposes, (eg, Education) is
Supplementary to the main Fund Already Provided.

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7. Virement Warrant: Virement is the Act of Moving Money from One Surplus Fund to Another
Deficit Fund of The Same Ministry/Head.

Provided that:

• >New Subhead will not be Created, and

• >The Surplus one will not go deficit.

Note that all warrants are issued in 2 copies. Th Original copies to be forwarded to the Accountant
General of the Federation while duplicate will be forwarded to the Auditor General.

Control of Government Revenue

This connotes the various checks put in place to ensure that all money received are accounted for as
appropriate. The following will assist:

a. Periodic Monitoring of all public cash.

b. Timely issuance of demand notices.
c. Timely issuance of all revenue documents.
d. Prompt lodgment into the bank all monies received.
e. Establishment of functional internal control system (ICS).

Expenditure Control
They are strings of coordinated actions which have to be taken into consideration in government offices in
order to ensure that all expenditure are wholly reasonably exclusively and necessarily incurred for the
purpose for which they are meant for.

The following are some of the controls:

1. Executive Control
2. Legislative Control
3. Ministry of finance control
4. The Treasury Control
5. Departmental Control
6. Office of the Auditor General for the Federation

1. Executive Control

This Comprises of the President himself and his cabinet members. They are responsible for both
economic and political administration of the economy of the country.
• According to S.81(i) of the constitution, the president shall prepare and lay down before the
National Assembly the budget of the following financial year.
• In order for him to satisfy this responsibility, he also appoints a cabinet committee on estimates to
advise him on contemplated policy measures.
• The Policy measures contemplated are then transmitted to the budget department in the
presidency.

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• The will lead to the issuance of the issuance of guidelines for budget preparation.
• As a result, effective supervision is exercised on all agencies involved in the budget preparation.
• Any unit of government whose requirements are higher than the control figures already issued, is
invited to defend the excess request.
President – Cabinet committee – Budget Preparation – Policy Measures.

2. Legislative Control

The National Assembly is the supreme authority on matters of the nation’s finance. All actions carried out
by the president are checkmated by the legislative arm. Their Control is in 2 forms:
a. Ante-Natal – Approval of the budget submitted by the president.
b. Post-Natal – Review of the transaction after payment.

No amount can be spent from the public fund without the approval of the National Assembly. However,
S.82 of the 1999 constitution empowers the president to spend from the CRF in order to run the
administration of the government pending the time the budget will be approved or within the period of 6
months, whichever is earlier.

3. Ministry of Finance Control

Every MDAs present their estimates to the minister of finance, he then passes them to the president. The
president present them to the federal executive council for approval, then they are now presented to the
national assembly as budgets or appropriation bill. The Minister of finance exercises his own control
through warrants.

4. The Treasury Control

This is the office of the accountant general of the federation. They are to keep necessary books of
accounts to record all receipts and transactions of the various MDAs. Some of the controls are:

a) Supervision of the records of the non-self-accounting units.

b) Inspectorate Division of the office of the accountant general – officers from the treasury visits
various MDAs to inspect and evaluate their internal control systems.
c) Internal Audit Unit.

5. Departmental Control

Every MDA as well must play their quota in controlling expenditures through the use of vote book. The
officer controlling expenditure in that MDA must make sure there us no extra budgetary spending of
government fund through vote checking.

6. The AuGF Control

The Auditor General for the Federation exercises control over all accounts and books prepared and report
any irregularity, mismanagements, fraud, wastage, extravagant to the national assembly. Though, his duty
is post-payment audit except in the case of pension and gratuity where he performs prepayment audit.

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7. The Public Account Committee (PAC)

We have treated this under chapter 3. Kindly study it.

Chapter 15

Preparation of Vouchers
A voucher is a document which evidences a Receipt or payment of money. The Financial Regulation
specifically states that no payment should be made out of Government Purse with out a Payment Voucher.

Types of Voucher

• Payment Voucher

• Receipt Voucher.

• Adjustment Voucher.

Payment Voucher
This is the most important of all. As i have being reiterating it from the last 2chapters that, in Government
Sector, Payment create more attention than Receipts. This is a document which is used as an Evidence for
the Purchase of Goods, rendering of services and carrying out of Contracts.

The Most Important Factors here are:

Authorisation and

Documentation.

Then, after the PV is raised and Authorised, Cheque will now be issued out from the Treasury Unit of
accounts department.

Features of A PV

▪ Date

▪ PV Number

▪ Amount (Both in words and figures)

▪ Cheque Number.

▪ Description of Payment.

▪ Classification Code.

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▪ Supporting Documents should be attached.

▪ Cashier's Stamp Carrying PAID should be on it to prevent Duplication of payment.

▪ Signature of Authorising Officers, like MD, Accountant, internal Auditor, Officer Controlling
that Expenditures.

Rules Guiding a PV

According to Financial Regulation, the Sub-Accounting Officer Shall not make any payment against any
voucher except:

▪ It is Certified for Payment.

▪ It is Stamped and signed.

▪ Entered into the Vote book.

▪ Must be Written in Ink pen, or Type Written.

▪ Correction Fluid is not allowed.

▪ No Erasure or Cancellation.

▪ A Thick Horizontal Line before and after the Amount in Figure and In Btw the Amount in
Words.

Loss of Payment Vouchers

It is the Responsibility of the Accounting Officer to make sure that proper Documentation is made
concerning all payment Vouchers.

Where a PV is lost, the following Procedures should be taken:

1. Prompt investigation whether payment has being made or not.

2. If payment has being issued, it should be Ascertained whether cash has been drawn or still in
hand. (To Avoid Double payment).

3. A report should be sent to the AGF by the AO of that Ministry.

Receipt Voucher

For receiving of Government Fund. This one does not have much gravity.

Adjustment Voucher

This is used for any adjustment without a visual transfer of cash receipts or payment. It's used for the
Following Circumstances:

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▪ Adjusting Wrong posting.

▪ Allocation of Unallocated Stores.

▪ Re-Classification of Accounts.

▪ Inter-Ministerial Transfers/ Transfer from one account to another.

It must be accompanied with the. Following:

• � Reasons for Transfer or Adjustment.

• � Voucher Number.

• � Month of the Transaction.

Different Kinds of Vouchers

▪ Payment Voucher.

▪ Pay in Voucher.

▪ Receipt Voucher.

▪ Adjustment Voucher.

▪ Stores Reciept Voucher.

▪ Store Payment Voucher.

▪ Store Issues Vouchers.

▪ Salary Voucher.

Chapter 16

Functions of the Cash Office

There are Several Units in Accounts Department of Every MDA.

✓ The Treasury Unit. (Cash Office).

✓ The Salary and Pension Unit.

✓ The Credit Control Unit.

✓ Others as may be necessary.

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Depending in the complexity of the Organisation and kinds of Service they render. The cash office is a
Sub-section under ACCOUNT Department of every MDA, where Issues Regarding Custody, receipts and
payments of Cash, or drawing of Cheques takes place. Otherwise known as the Treasury Unit.

Books and Documents they Keep

✓ The Cashbook.

✓ Cheque Books and Cheque stubs.

✓ Payment Vouchers.

✓ Treasury Receipt Books.

✓ Cheque Summary Register.

✓ LPO

✓ Foreign Purchase Order.

Cash Control Measures in the Cash Office

• Cash Balances must be confirmed Daily.

• Cashbook must be properly Checked in order to prevent/detect errors.

• Prompt Preparation of Bank Reconciliation Statements.

• Investment of Idle Funds.

• Establishment of Cash Limits.

• Provision of Cash Safe.

• All security Documents must be constantly checked and Kept in a safe place.

Their Functions are:

Everyone should be able to think of two or more Functions relating to Cash that this Guys perform. Even
without Cramming it.

Let's Study these simple Ones:

o Receipt and payment of Cash. Either through cheque or transfer. (Cashless policy)

o Posting of Cash Transactions into the Cashbook.

o Opening of Bank Accounts.

o Lodgement of daily Reciept into the Bank.

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o Withdrawal from the Bank.

o Investment of Excess Fund.

o Securing the Cash Vault.

o Securing and Custody of Security Documents.

o Securing and maintenance of The Account Books.

o Preparing Bank Reconciliation Statement.

o Providing info on Daily Cash Position.

Chapter 17

Preparation of Monthly Transcripts of a Self-Accounting

Unit
Introduction

An Accounting Unit is regarded as an entity of Government through which Accounts and records are
maintained. So, in each Accounting unit, there's an accounting officer who is the Head of that MDA.

Types of Accounting Unit

1. Self-Accounting Unit.

2. Sub-self-Accounting Unit.

3. Non-self-Accounting Unit.

A Self Accounting Unit

From the Word Self, An MDA that prepares its accounts and records by itself That is, From the
Beginning of the Accounting Information till the Final Account. They Sign Pv on their own, they
authorise payments and, draw cheques without referring to the Treasury. An Mda that has Full Control
over its Accounts and Records. However, they prepare Transcripts (Returns) and send it down to the
Treasury on monthly basis. Though, in practice, its not that frequent.

Conditions for Self-accounting unit

According to Fr 102, before an Mda can be self-accounting, the following conditions are very important:

1. Adequate Qualified Staff: The Unit should have adequate qualified staff.

2. Internal Control System

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3. Internal Audit Dept.

Advantages of A Self-Accounting Unit

1. Workload: It reduces the workload of the Top Mgt. Ie, the Accountant General can not prepare
the Accounts of the whole MDAs.

2. It Reduces Flexibility and reduces communication problems.

3. Faster Decision Making Process.

4. It allows for the use of Initiatives by the Accounting Staff.

5. It provides better Training for the Junior Staff.

Disadvantages of A Self Accounting Unit

1. Duplication of Certain Services.

2. Difficulty in getting adequately Qualified Staff.

3. Difficulty in Coordination.

4. Difficulty in Consistency of Decision Making.

5. Line of Communication may be Overstretched.

6. Sub-Obtimality in the System - (As opposed to Goal Congruence). When the division is going
against the goals of the Head.

7. Conflict in Interdependent Ministries - For example, Ministry of Interior, That ministry has Sub-
Departments and Agencies that are not of same activities, Like:

▪ The Nigerian Prison Services,

▪ Nigeria Civil defence commission,

▪ Nigeria Imigration Service, etc.

So, Putting accounts of those interdependent agencies together under one ministry might not be effective
enough because they have different activities they administer.

Documents to be sent Down by A Self Accounting Unit

The following Documents are to be attached to the Transcript:

1. Certificate of Bank And Cash Balances.

2. Bank Reconciliation Statement.

3. Schedule of Pvs.

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4. Schedule of Expenditure.

5. Schedule of Outstanding Outstanding Pvs.

Sub-self-Accounting Unit

They are the same with Self Accounting Unit. Only that this one sends down additional documents
together with transcript to the Treasury.

The Additional Documents are:

o Original Copy of Cashbook.

o Duplicate Copy of Pvs.

Example is the Federal Pay Offices in each State.

Non-Self-Accounting Unit

A Unit which has no Control over their Accounts. They only keep memorandum accounts and records of
their Reciept and payments.

o No Cashbook

o No Transcript.

The Question is How do they make payment?

They do so by raising PV, but could not approve the PV by themselves. Except they send it down to the
Treasury for Payment. The Reason for that is because they lack those 3 Conditions earlier stated for A
Self Accounting Unit.

Example: The Code of Conduct Bureau in each States, the bursars in Government Secondary and Primary
schools.

Transcript
It is the Summary of total receipts and payments as posted in the Cashbook. A means by which
information of Cash transactions reach the Office of the Accountant General.

To be sent down on monthly basis. Though, not frequent in Practice.

Steps in Preparing Transcript.

The Accountant in charge must do the following:

CSASG

❖ Cashbook Verification.

❖ Sorting of Pvs.

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❖ Analysis Book.

❖ Scheduling (ie, listing of PVs).

❖ Generating Transcript.

Explanation on it:

✓ The 1st Step is for the officer to compare both the receipts and Pvs with the Cashbook whether they
are Correct.

✓ Then, he Sort the Vouchers into head and Subheads.

✓ Then, the total of each head and Subheads posted in the Analysis Book on columnar basis. The
Balance must Jive with that of the Cashbook.

✓ Then, the Pvs should be listed out according to their classification, whether its below the Line or
above the line. Scheduling

✓ The final Step is to now prepare Transcript out of those PV Schedules. Generating transcript.

Types of Transcript

1. Main Or Cash Transcript: The Particular transcript prepared by a Sub accounting Unit and
Submitted to the Treasury. Its called Cash Transcript because the other 2 are not for Cash
Movement. They are just for Adjustment Purposes.

2. Supplementary Transcript: This is Prepared to carry out a major adjustment to the MAIN
transcript. Prepared in double entry form, adjustments in the sense of may be Over statements or
Understatement of Figures

3. Subsidiary Transcript: In order to correct errors and omissions from the main Transcript.

Note: The last 2 Arise from Adjustment Voucher.

Above the Line Accounts.

Transactions that can be easily estimated from the Beginning of the Year and so, included in the Budget
for the Year. They are Expenses per se.

Below the line items:

Items that cannot be Duly estimated as at the Beginning of the Year, and because of that, not provided for
in the annual Budget. The Question is If they are not provided for in the budget, where do they surface?
They are provided for in the Supplementary Budget. They are not Expenses in Nature but surface in the
cashbook, because there is a Movement of Cash. Example are Advances, Deposits, Loans, remittances,
cash transfers, etc.

Note: Study the calculations of transcript in the pack, for more understanding.

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Chapter 18

Store Accounting & Loss of Government Funds

Introduction

Stores are all movable items purchased with Public funds or otherwise acquired by Government. No
Much Discussion on that. Lets move to the nitty gritty of the topic.

Relationship of Stores with Accounting Officer

As the Chief Accounting Officer of the MDA, he is responsible for any Loss of store and other
Government Property in his care. Because of that, he should put Adequate stock Control and accounting
procedures over the Receipt, Custody, Issues and Disposal of Store items.

Classes of Stores
A. By Allocation

1. Allocated Stores: From the word Allocation, right from purchase, we already knew where they are
going to. As they are not acquired for general use. They are specifically for the USER Dpt that requested
for it.

2. Unallocated Store: The Name will always reveal the meaning. These ones are for General Usage,
Kept in large quantities for periodic requisition from the Depts in the MDA.

They are kept for the following purposes:

➢ To avoid stock out.

➢ To gain Discounts of Buying in large Quantities.

➢ Useful for ordinary Activities of day to day running of the Biz.

➢ Because of Constant Demand.

B. By Useful Life

1. Non Expendable: These are Stores of Non Current Assets which last a good Number of Years. Eg. Mv,
P&M.

2. Expendable Stores: They are Semi Permanent in nature and last a shorter period of years. These are
not Kept in Government Custody, rather in the users custody. Eg. Shovel, Kits, Brushes, Apparatus.

3. Consumables: They cease to be store items once Issued to the User Dept. Because they are put into
Immediate Use and for usual day to day activities. Eg. Stationery, soap.

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Sources of Store

Acquisition through LPO.

Acquisition Through Contract.

Manufactured Or Converted internally.

Transferred from another store.

Returned Store.

Excess taken on Charge.

Payment for Store

Before Payment can be made on stores, the following actions must be taken into consideration. The Store
Keeper must certify that Stores items meet all Specifications included in the purchase order. Then, he
suppose to send some sets of Documents for raising of PV.

The Documents àre:

➢ -A Copy of LPO or Letter of Award.

➢ -The Invoice that Accompanied the supply of the store.

➢ -A copy of store receipts voucher issued to him which must be authorised by the store officer.

Issues of Store Items

▪ It Starts with Store Requisition Voucher (SRV) duly signed by the Officer authorised to incur
expenditure.

▪ Taken to the Store Officer for approval.

▪ Then, taken to the Store Keeper for Collection.

Procedures for Store Procurement

The Process starts with the Submission of Purchase Requisitions by the User Dept or Storekeeper, as the
case may be, to the Purchase Manager. Ie. If Its Allocated Store, It will be the User Department. If its
Unallocated Store, it will be Storekeeper.

The following will now be carried out:

▪ He will 1st obtain approval for the Purchase of Such Items from the Officer Controlling Votes of
Such Item.

▪ Then, carry out Market Survey or Obtain Quotations from suppliers.

▪ Indicate a Closing Date for the submission of Tenders.

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▪ Then, constitute a Tender Board for the consideration of such tenders. (We will do this Much
better in the Next Chapter, Public Procurement)

▪ After one person is then approved, issue him LPO or letter of Award for supply of Goods within
the time frame.

In Summary.

✓ Purchase Requisition

✓ Approval

✓ Market survey/Quotation.

✓ Tender Board

✓ Approval of LPO or letter of Award.

Note: The duty of the tender board is to recommend but not to approve. Its the Head of that MDA that
approves.

Records kept in Store

❖ Bin Cards: Kept by Every Store Keeper. Its only Units of What Enters in and Goes Out recorded
Here.

❖ Store Ledgers: Kept by the Store Officer, the higher boss who is in charge of various categories
of Stores. Separate ledgers for each category. Its in here that Values and Units Appear.

Reporting a loss of store

When there is a loss in the Government store, it should be ascertained whether its material or not. Loss
can be written off on the authority of the Accounting Officer provided that:

❖ The Original Cost is within the stipulated Threshold.

❖ Not theft.

❖ No Weakness in ICS.

❖ Where the officer is negligent, he's disciplined.

Functions of the Store Keeper

✓ Arrangement of store items.

✓ Cleaning.

✓ Securing.

✓ Maintaining proper records.

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✓ Updating the bin cards.

✓ Issuing items to Depts.

✓ Receiving Store Items.

Action to be taken concerning loss of Government Store

By the Store keeper

By The Head of Department.

By Accounting Officer

By the AGF/AUGF

By the Storekeeper

1. Report to the Hod.

2. Report to the Nearest Police Station(In Case of Fraud).

3. Fill his own portion of Treasury Form 146.

4. Block the leakage in ICS.

By the Head of the Department

1. Report to the Accounting Officer.

2. Obtain the Copy of that Police Report Up there and forward it to the A. O as well.

3. Fill his own portion of Treasury form 146 (Part 2&3).

4. The source of leakages must be Blocked.

5. Investigate to the Loss.

6. Recommend to the AO action to be carried out.

(Note: Actions 1 – 4 are same with That of The Store Keeper). If u know, u know.

By the Accounting Officer

1. Forward the report up to the AGF and AUGF.

2. Convene a board of Survey.

3. Recommend the suspension of the offending officer, where needed.

4. Review the internal control system.

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5. Recoup the loss.

That one self Follows Same Trend. �

Actions by the Accountant General of the Federation (AGF)

1. Ensures that AO has followed full procedures.

2. Correct the Internal Control.

3. Recoup the loss.

4. Makes sure that an account officer or an internal Auditor is a member of the Board of Survey.

Stock Taking
It is the Physical Count of items in the Government Stocks by a body set up to do so. Also known as
Stock Survey. Every Accounting Officer must ensure that periodic stock taking is carried out at least,
once in a year. The officers carrying this out are called Stock Verifiers. However, in the absence of stock
verifiers, a board of survey must be constituted by the ministry of finance on the application of the AO.
They are required to carry out a minimum of 40% Stock Takings if there is no Infraction. But, in a
suspicious Situation, they carry out 100%.

Procedures for Stock Takings

1. Closure of the Store.

2. The Store Keeper Update his Bin Cards up to Date.

3. Physical Counts must be carried out.

4. Compare The Stock Counts with the Bin Card Balance.

5. A report will be written after the exercise.

We need to ask ourselves a Question?

The 1st Condition is for the Store to be Closed Down. What if There's is a Requisition during the Period?

Answer: Any requisition during the exercise will be issued with the approval of the Board President.

The Board of Survey

Constituted Purposely to look at Sth Critically. But, in case of stock taking, they came into play when
there is no Stock Verifiers.

Types of Board of Survey

1. Board of Survey over Cash and Bank Balance. (We did this Under Chapter 16, loss of
Government Funds).

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2. Board of Survey Over Stamps Balance.

3. Board of Survey Over Stores, plants and Equipments.

Composition of Board of Survey.

▪ A President, who is not lower than a level 8 Officer.

▪ 2 Other Members (Not Below Level 6).

Board of Enquiry
This is Set up only when there is Stock Loss in order to take investigation. Not in all circumstances. Note
the Differences between the 2 Boards. Board of Survey, whether there's a loss, or not. But, this One is
Strictly for Stock Loss.

Circumstances that warrant for board of enquiry

▪ If there is a Loss or theft.

▪ If the loss is significant.

▪ If it involves a syndicate.

▪ If the loss has taken place Systematically.

▪ If the responsibility of the officer is not well spelt out.

Where Board of enquiry is not needed

▪ Where the loss is not significant.

▪ Where the officer responsible for it can be easily identified.(There's no point in setting a Board
Naaa ♂. Just pick the Guy and throw him where be belongs).

▪ Where it involves a "One Off" item.

Report of the Board

Their Report must contain the following:

• The EXACT Amount involved.

• All lapses in the Accounting System must be made Known.

• Recommendation to rectify the loopholes.

• Recommendations for future Use.

Let's Take the 2nd Leg of the Chapter

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Loss of Government Fund

Any form where Government is Losing Money is Terms this loss of government fund. The Following Are
numbers of ways Government Can Lose Funds :

✓ Misappropriation of fund

✓ Conversion of funds to personal use.

✓ Theft.

✓ loss of cash.

✓ negligence

✓ Abandonment of Revenue receivable.

✓ Abandonment of Advances granted from recurrent Expenditure.

✓ Fraudulent Payment.

✓ Falsification of Age.

Responsibility of the Accounting Officer on loss of funds

Where the loss is with in #50, 000 or lower:

The Accounting Officer can surcharge the officer in Charge to the full amount.

Where its above #50'000,

He should report to:

1. The AGF,

2. The AUGF,

3. The Finance Minister.

Such Loss shall be charged as Personal Advance Pending the time Action is Taken on it with the decision
of the Federal Loss Committee.

The Federal Loss Committee

This is the Committee in Charge of all cases involving loss of cash, stores and vehicles.

Composition

Representative from each of The Following Offices:

✓ The AUGF - Chairman.

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✓ AGF.

✓ Inspector General of Police.

✓ EFCC.

✓ The Admin Dpt of that MDA itself.

✓ The Inspectorate Dept of the OAGF.

✓ Also, the Board of Enquiry might also be set if the conditions are met.

Chapter 20

Public Sector Audit

Since the System of Accounting in the Public Sector is Different, the audit approach is also Different. Is
there any point in defining what Audit is? There's no Need. So, Let's Jump to the Nitty Gritty of the
Chapter.

Types of Audit.

️ External Audit:

An Independent Examination Process carried out on the Financial Statements, by a Qualified Person and
Established by Statute. Although, its provided in the Nigerian Constitution that the AUGF has power to
Vouch the financial Statements of The MDAs and Public Parastals. But, by laws creating those Parastals
they also have the Authority to appoint an Audit Firm to Examine their records as well, whose tenure lasts
for 4Years, subject to renewal.

️ Internal Audit:

An Independent appraisal of the activities within the organisation, for the review of Accounting and other
operations as a service to the Organisation.

Functions of An External Auditor.

The External Auditor is to Ascertain whether:

• Government is carrying Activities as authorised by the NASS.

• The Activities are Conducted in an Economic, effective and efficient Manner. EEE.

• The Accounts and Records are in Compliance with Ethical Standards.

• All monies collected are properly Accounted for.

• Funds, properties and personnel are adequately controlled.

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Objectives of Internal Auditing.

1. To Determine the adequacy of the Internal Control System.

2. To Verify the Financial Assets.

3. To check the Adequacy of Monthly returns.

4. To investigate Compliance with Laws.

Scope of Internal Auditors.

i. Prepayment Audit.

ii. Vouching of payroll and 3rd Party Claims.

iii. Audit of Store Movement and its records.

iv. Constant Review and appraisal of ICS.

v. Internal Investigation.

Reliance of the External Auditor on the Work of the Internal Auditor

The following factors will be considered:

✓ The Degree of Independence of the Internal Auditor.

✓ Technical Competence of his.

✓ Scope and objectives of his Work.

✓ Due Professional Care.

✓ Quality of his Report.

✓ Quality of his Working Papers.

Other Forms of Audit

1. Annual/Statutory Audit: Carried out once in a year, by an external Auditor and required by Law.

2. Adhoc/Special Audit: A "One off" assignment arising from a special Request and not statutorily
backed up.

3. Prepayment Audit: Carried Out be An Internal Auditor of the organisation before payment is
made.

4. Post Payment Audit: This is carried out by both Internal and External Auditors, after payment has
being made to ensure whether what is paid for is being performed or not.

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5. Interim Audit: As the name implies, carried out by an external auditor during the year, in order to
reduce the workload of the year End.

6. Final Audit: Carried out to finalise the part work done during the year.

7. Vouching Audit: Checking the adequacy of the Supporting Documents of a transaction. Eg,
receipts are traced back to ledgers.

8. Verification Audit: To Confirm whether Public Assets exist in the Accounts and not converted to
private own.

9. Mgt Audit: To Ascertain the Performance of the Mgt.

10. Operational/System Audit: To Evaluate the Operational Activities of the Management and the
service rendered to the Public.

Value for Money Audit (VFM)

As the name implies, It's a review if financial transaction to make sure that's adequate benefits are
received for the money spent on a particular project. Whether Resources have being Utilised
Economically, Efficiently and Effectively (3 Es). This is Very important to the Public Sector As most of
the Projects are not for Profit Derivation.

Steps for VFM audit - IRPCS

1. Initial Analysis of the Financial Statements.

2. Review of the Mgt System.

3. Plan and Control.

4. Compliance Test.

5. Substantive Test.

Then, to carry out the Substantive Test, 3Things are considered :

1. Economy Test: Whether Resource are obtained at cheaper Price.

2. Efficiency Assessment: Whether Wastages Are Reduced to the barest Minimum.

3. Effectiveness Review: Whether objective is achieved.

4. Report Writing – At the end of the exercise.

Factors Contributing to an Effective Audit - IPSASRF.

✓ Independence of the Auditor

✓ Professionalism of him and his Staff

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✓ Scope of his work

✓ Unrestricted Access to the Financial Information

✓ Support of the Stakeholders

✓ Resources at his Disposal

✓ Freedom of reporting and Qualitative Nature of His Report

The Office of the Auditor General For the Federation

The Guy is an External Auditor to the the MDAs on behalf of the public. The Only Statutory Officer
amongst the list of Finance Officers. What that means is that his establishment, appointment, scope of
work, tenure, terms of office and removal is Spelt out in the Constitution. He Examines the Records and
Accounts Submitted by the AGF and his report is Laid before the NASS.

His Duties:

• Financial Audit - On Records

• Finance Control Audit - On Public Procurement.

• Value For money Audit - Performance Audit.

• Appropriation Bill Audit - Whether money are spent according to the Budget.

His Appointment

• Appointed by the President.

• Recommended by the Civil Service Commission.

• And Approved by the Senate.

His Removal

➢ Due to Gross Misconduct: Even with that, the President who appointed the Guy can not just
remove him at his own will. It has to be backed up with 2/3 Resolution of the Senate, since upon
appointment, they had hand there.

➢ Ill health.

➢ Terms of Office Expired. (Whether 60years of Age or 35Years in Service).

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Chapter 22

Accounting for Local Governments

Introduction

Although, the Local Government is the 3rd tier of Government, but their accounting pattern is slightly
different from that of federal and state Governments, because of some activities they engage in.

Functions of Local Governments

1. Construction of cemeteries, Burial ground and homes of disabled Persons

2. Construction of motor vehicle pass and Market

3. Construction of Public Conveniences and refuse Disposals

4. Construction of Roads, Streets and Drainage System

5. Registration of Birth, Deaths and marriages

6. Naming of streets and Numbering of Houses

7. Provision of licenses regulations and control of liquor

8. Licensing of Motor Cars, trucks and Tricycles

9. In conjunction with the State Government, they provide:

✓ -Primary Education,

✓ -Primary Health Care,

✓ -Rural Water Supply,

✓ -Rural Feeder Road.

Sources of Local Governments Revenue

o Statutory Sources,

o Permissive Sources,

o Incidental Sources.

Statutory

1. 20% Federation Account Allocation.

2. 10% Allocation from The State IGR.

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Permissive

1. Tenement Rate.

2. Shops And Kiosk Rates.

3. Fees from Markets.

4. Fees from motor parks.

5. Revenue from registration of Birth and marriages.

6. Any other Activity up there attracts one fee or another.

Incidental

1. Revenue from Biz Venture, eg, farming and restaurants.

2. Grants from Higher Governments.

3. Investment income, eg, interest and Dividend.

4. Donations

5. Sale of seized Goods

Administration of Local Government

As it is in the upper Tiers, local Government as well has their administrative structure with which they are
run.

There are Executive Arm and Legislative Arm.

The Executive Arm consists of:

1. The Chairman

2. The Vice Chairman,

3. Supervisors.

4. Treasurer.

5. Secretary.

6. Head of Personnel Mgt (Director of General Services)

The Chairman

He is the chief accounting officer of the local Government. As stated in the Civil service and local
Government reform.

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He has the following Functions :

He initiates all decisions relating to Finance and Accounts.

He Preside over the Council Meeting.

He Prepares and execute Local Government Budget.

The Vice Chairman

He acts in behalf of the Chairman. The chairman assigns duties to him as he deems fit. He may even be
appointed as supervisor in certain functions.

The Secretary to the Local Government

He liaises with the secretary to the State on matters relating to the Local Government.

He is the secretary to the Executive arm of the Local Government and maintains minutes of
meetings.

Head of Personnel Management

As the Director of General Services, he shall:

Sign all Pvs and Cheques for the Local Government.

Sign all contractual Agreements, eg. LPO and other Related Documents as approved by the
chairman.

He is the Clerk to the Legislative Arm.

He is the Chief ADMIN officer of the LG.

He is the 2nd Signatory to all disbursements.

The Treasurer

This is like The Accountant General to the Local Government.

Empowered to control and manage the Council's Finances. According to the Civil Service and
Local Government Reform, he has the following Functions:

Receives and Disburses Funds.

Keeps proper Books of Accounts.

Ensure Compliance with Financial Instructions.

Ensure Pvs are Raised before any payment.

He serves as the Secretary to the Budget Committee.

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Gives Statutory Returns to the State Government.

He's the 1st Signatory to the Bank Accounts.

Ensure Monies are in the Votes of Expenses.

Now, relate the Guy's functions with that of the AGF.

The Legislative Arm

This Comprises of chancellors from Each Wards and Regions.

1. The Leader of the House.

2. The Deputy Leader.

3. The Council Clerk.

4. Other Councillors as floor members.

5. Supervisors

The Supervisors are Like the Ministers and Commissioners @ Federal and State Level. Each local
government has Several Departmental Functions as well. So, these Guys are The Political Heads of those
Departments. They are not the Administrative Heads and are not allowable to Internal/technical Affairs
because they are not Groomed in those Affairs. Same way the Ministers and commissioners form the
Cabinet/Executive Council with the President/Governor as the Case may be, in the higher level, they also
form the Local Council Cabinets together with the Chairman, (Their Boss that Appointed them.)

Their Functions include:

➢ They are accountable to the Chairman.

➢ Members of Local Government Cabinet.

➢ They Are the Vote Controller in those Dept.

➢ They are automatic members of the finance and general purpose Committee.

➢ They assist the chairman in executing local Government budgets.

Some of the Depts are:

-Finance Dept

-Personnel Mgt

-Works and Housing.

-Health and Environmental.

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-Agricultural and Rural Development.

Note: Those Departments have their Administrative Heads who are The Permanent Secretaries in the
Local Government. Their Own Tenure Grows Longer there until they Retire.

Functions of the Legislative Arm

• They perform same functions as that of Higher Governments but in a smaller scope.

• Passing of Local Governments Legislation.

• Approval of LG Budgets.

• Monitoring and Implementation of Budgets.

• Perform Other Functions as designated to them by the State House.

• They meet once in a Month.

• The Leader is the Speaker and presides over the Sitting.

Limitations of Local Governments Councils

➢ They have limited Revenue.

➢ They cannot raise loans in their Own.

➢ They cannot tax their own.

➢ Delay from the Upper Governments.

➢ Because of all these Constraints, they find it difficult to execute projects.

Accounting Procedures in the Local Government

1. Amounts are classified under Heads and Subheads.

2. Capital expenditure are written off immediately.

3. No interest on loan.

4. There's Cashbook as Well.

5. We Prepare a statement of Assets and Liabilities.

6. We also prepare Income and Expenditure Accounts

7. Cash Basis is used.

8. There is Internal Control and External Control by the Legislator.

9. There is also an Auditor General for the Local Governemnt.

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Chapter 23

Preparation of Financial Statements in Government in

accordance with Accrual Basis
Introduction

What is common with Government Accounting is that it is usually prepared using Cash Basis of
Accounting. But, in recent times, there is a shift from Cash to Accrual Basis, which has made Most
Governments in the World to adopt Accrual Basis and set aside the Usual Cash Basis.

I could remember in the Year 2015, Ogun State Government of Nigeria, under the leadership of His
Excellency Governor Ibikunle Amosun, was the first to adopt same, being A Chartered Accountant by
Profession. So, this shift has made most Accounting Treatment of transactions in the Public Sector to look
like that of Private sector and some new IPSAS have been issued to promote this Practices.

This brought about some IPSAS like:

• IPSAS 1 - Presentation of Financial Statements - Same as IAS 1

• IPSAS 2 - Cash flows Statements - Same as IAS 7

• IPSAS 3 - Accounting Policies, changes in Accounting Estimates and Errors - Same as IAS 8

In That Topic, we also have Provisions like:

➖ Notes to the Financial Statements

➖ Qualitative Characteristics of The Financial Information

Same As there were in Your FINANCIAL REPORTING Studies. Nothing Significantly Different. The
Only Different Idea in That Topic is IPSAS 24 - Presentation of Budget Information in The Financial
Statements. A Statement that is comparing Budgeted Figures with Actual Amounts.

According to IPSAS 1, The following are the Components of The Financial Statements

1. Statement of Financial Position

2. Statement of Financial Performance (Like an Income Statement)

3. Statement of Changes in Equity or Net assets

4. Statements of Cash flows

5. Statement of accounting policies and Notes to the Account.

6. Lastly, Statement of Comparison of Budget and actual Amount. (This makes the difference
between IAS 1 And IPSAS 1).

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So, the same Items you have in these Statements as you have them in your Financial Reporting Studies.
Though, terminologies and Arrangement may be different, but that's not a big deal.

Kindly study the format of each account from the pack and calculations thereon.

Chapter 25

Accounting for Public Sector Organizations & Government

Business Entities (GBEs)
Introduction

These are public agencies established by Government for the purpose of rendering services, carrying out
projects for the citizens. Though, these sets of organisations are not primarily for making profits, however,
they charge citizens for services provided at a very durable prices in order to cover the operating cost.
They have Managing Directors, executive Directors and general managers as their head. Eg. PHCN, NRC,
NEMASA.

Their Features

Each Parastatal or corporation has its enabling Act. Ie, the Law that brought them into being, which states
the Following :

o -Name, functions and objectives.

o -Principal Officers.

o -Supervising Ministry.

o -Head office and branches.

o -Source of funds.

o -Organogram

o -Types of Accounts to be kept.

All corporation has its own supervising Ministry. (eg, Ministry of power supervising PHCN, ministry of
transport supervising NRC). Any corporation/Parastatal has its sources of fund, with which they fall back
on. Though, they charge Costs, but they also receive Grants and Subventions from the Government. They
Use Accrual Basis of Accounting and Allows for Depreciation. They Recognise Non Current Assets in
their Book.

Note: They are not limited liability companies, they are not Guided by CAMA. Because their names does
not end with Plc or Ltd.

They keep the Following General Accounts:

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▪ -Statement of financial position.

▪ -Statement of Financial Performance.

▪ -Cash flows Statement.

▪ -Statement of Changes in Equity.

▪ -Statement of Accounting policies.

▪ -Notes to the Account.

Also, Their Accounts are Audited.

Objectives of Setting them up

1. To improve the standard of living of the Citizens.

2. To provide Quality Services at durable prices.

3. To Ensure survival of industries.

4. To Avoid hike prices or exploitation from the Private Organisation.

5. To bring Business Activities into public ownership.

Classes of Government Enterprises

1. Public Utilities: They are Parastals providing Services to Citizens at Low prices. Eg. PHCN, NRC,
NEMASA.

2. Regulatory Bodies: Government Agencies or commissions that Execute Government Policies in a

particular sector of the economy. Eg. National Communication Commission, Nigeria Copy Right
Commission.

3. Commercial Enterprises: Government Owned Companies, established to create competitive

environment to Companies, they are in different sectors of the economy and expect to make profits from
their Operations. They are incorporated and must also comply with existing laws of CAMA and the
Industrial laws like BOFIA, NAICOM, Etc.

3. Government Business Enterprises: These are government entities that carry out normal business
activities like private entities. They sell goods and provide services at a profit or full cost recovery. They
have the power to contract in its own name and not reliant on continuing government funding to be a
going concern.

Hospital Accounting

Features:

1. Fund Accounting System is Operated.

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2. The Financial Activities are covered by Budgeting.

3. Subsidiary Books and principal books are kept.

4. Other Final Accounts like statement of financial performance, statement of financial position, and
cashflows statements are prepared for Stewardship Purpose.

5. Their Sources of Fund include:

❖ Capital Subvention.

❖ Recurrent Subvention.

❖ Charges.

❖ Miscellaneous Revenues.

Development and Property Corporations

These are Parastals established for the following objectives:

✓ Constructing Buildings for sale.

✓ Property Ownership.

✓ Maintaining Industrial Estates.

✓ Upgrading land for sale.

An example is Lagos State Property and Development Corporation.

Sources of Funds:

✓ Grants and Subvention.

✓ Gifts and Donation.

✓ Sale and Rent of Houses.

✓ Sales of Land.

✓ Professional Services.

✓ Miscellaneous Income.

They have expenses and Prepare Published Financial Statements as well.

Note - Kindly study the format of each account from the pack and calculations thereon.

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Chapter 26

Interpretation of Public Sector Financial Statements

Introduction

The Figures in the Financial Statements of an organization will be useless to a layman if not interpreted
and analysed. The Language of accounting must be broken down to a wide range number of persons who
need information about the organisation’s performance to make decision. Users should be able to draw
conclusion, following the interpretation, on the following areas:

• Profitability

• Solvency

• Financial strength

• Gearing

• Trend of economic development

• Liquidity

Techniques in interpreting Public Sector Financial Statements

1. Straightforward criticism or analytical review

2. Performance Reports
3. Cashflow Statements.
4. Ratio Analysis.

Straightforward criticism or analytical review

This is done in a simple percentage way by comparing previous year’s figures with this year’s. We may
also express a percentage of an expense over total expense or figures of one quarter compared to another.

Performance Reports

According to IPSAS 24, entities are required to present a comparison of the budgeted amount for which is
held publicly accountable with actual results. This comoarison should be prepared separately for each
level of legislative oversight.

Cashflow Statements

Neither the statement of financial performance nor the statement financial position gives a satisfactory
explanation of how business obtains and uses its cash. This can only be revealed through cashflow
statements under 3 heads known as:
a. Operating Activities
b. Investing Activities
c. Financing Activities

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Ratios Analysis

This is a measure of entity's performance and it is a relationship between two or more items to present
financial information in a more understandable form.

`Ways of comparison

• Comparison with different company

• Comparing with previous years (Trend)

• Comparison with industry average

Categories of financial ratios

1. Probability Ratios

✓ ROCE
✓ ROA
✓ ROE
✓ Gross Profit Margin
✓ Net Profit Margin
✓ Overhead percentage
✓ Net cost plus

2. Short term Liquidity

4. Current ratio
5. Quick or acid test ratio

3. Efficiency Ratios

❖ Inventory Turnover or Average Inventory Days

❖ Receivables Turnover or receivables days
❖ Payable turnover or payable days
❖ Asset turnover

4. Long term solvency

Gearing ratio
Interest Cover

Limitation of interpretation techniques

1. Differences in accounting policies

2. Ratios are calculated from historical costs and can be misleading.

3. Differences in calculation of Ratios.

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4. Difference in industry of operation.

5. Use of creative accounting

Chapter 31

Introduction to Public Finance

Introduction

It is not possible that every citizen in the country involves in decision-making process. What is necessary
is to appoint some representatives who will be responsible for that, on behalf of the masses, either through
election or recommendation. It is this group of representatives that is referred to as Government which
operates through an institution known as the Public Sector. The degree of government involvement in
economic activities in terms of total outputs produced or income generated varies from one country to
another depending on the political philosophy and economic practice of that country. In some country,
public sector dominance is prevalent, while in some countries, public sector is less noticeable. However,
some countries operate a mixed economy where both public and private sectors Interact in an integral
fashion for the growth and development of the economy, example is Nigeria.

In Nigeria, the public sector covers both Public Services and Public Undertakings.

Public Services include:

• Defence
• Maintenance of law and order
• Provision of in infrastructure such as roads, railways, and water supply, electricity, education, health
facilities, etc.

Public Undertaking includes, but not limited to:

• Nigerian Port Authority (NPA)

• Nigerian Railway Corporation (NRC)
• Nigerian National Petroleum Corporation (NNPC)
• Standards Organisation of Nigeria (SON)
• National Agency for food and drug administration control (NAFDAC)
• Central Bank of Nigeria (CBN)
• Bank of Industry (BOI)
• Securities and Exchange Commission
• Etc.

However, the public sector does not exist and cannot succeed on isolation especially in a mixed economy
like Nigeria because the private also plays significant roles in a successful economy. Private sectors are
characterised by nongovernmental organisations and corporations, individuals and companies. In this
sector, resources are privately owned and used for profit maximisation.

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Micro-Economics

An aspect of Economics that deals with the behaviour of consumers, suppliers, and industries. This
Studies the Factors influencing:

✓ The Consumption of an Individual,

✓ Production of the Supplier.

✓ Competition in the Market.

✓ Issues relating to Pricing Theory, Production Theory, Market, etc.

Macro-Economic

This is the study of the economy as a whole. It deals with aggregate Factors such as: National Income,
Inflation, Growth and Development, Unemployment, BOP. This 2 Categories of Economics Divided any
Country's Economy into Private and Public Sectors. The Micro Economic Deals with the Private Sector,
while the Macro deals with the Public Sector.

Nigeria as a mixed and mono cultural economy

Nigeria presents an illuminating example of a developing mixed economy. The economy is mono-cultural
and almost entirely dependent on the extraction and exportation of crude petroleum. Nigeria has operated
a multi-level system of government for over five decades. The fiscal structure involves the allocation of
expenditure responsibilities and taxing powers among the Federal, State and Local Governments as
embodied in the Nigeria 1999 Constitution.

The public sector plays a significant role in the management of the economy at all levels of development.
The Nigerian experience in fiscal federalism, however, reveals that revenue allocation has always been a
subject of controversy and various revenue Commissions have been set up to look into the allocation
formula. Specifically, there have been discordant voices from different parts of the country on what to
give priority; derivation, population or absorptive capacity.

Unfortunately, revenue - diversification capacity is low at all levels of government and statutory
allocations from the Federation Account remain the most important source of revenue to the lower levels
of government. Adoption of deficit budgets is widespread and fiscal operations of governments have
resulted in overall deficits in the attempt to provide many social goods and services simultaneously.

In a nutshell, the Nigerian economy is characterised as a mixed economy because both the private and the
public sectors are involved in the ownership, control and allocation of production resources. Also, the
economy is mono-cultural in the sense that the oil sector alone contributes over 90% of the foreign
exchange earnings annually since 1970s till date.

Nigeria as a developing economy

Nigeria is a nation endowed with abundant human resources, by reason of its size of population and
growth rate of population. Perhaps much more, it has in abundance natural resources, notably vast land,
crude oil deposits, bitumen, iron ore etc. Except for crude oil, these resources have remained largely
unexploited, a situation which has kept or consigned Nigeria to be so classified as a developing nation. a)

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Features of a Developing Economy

a) Low levels of living standard, characterized by low incomes inequality and widespread poverty
incidence.
b) Low levels of productivity of factor inputs, especially of the labour and capital resources.
c) High rates of population growth and dependency burdens.
d) Low levels of literacy, significant school dropout rates and inadequate and often irrelevant
educational curricula and facilities.
e) Inadequate investment in human capital development and skill acquisition.
f) High and rising levels of unemployment and underemployment.
g) Technological dependence and low technological capability to harness sufficiently available
resources.
h) Heavy dependence on primary-product exports especially crude oil

Allocation roles of Government

A developing economy is generally characterized by the prevalence of imperfect markets and limited
information. Hence, in some cases the market mechanism fails entirely, while in others it can function
only in an inefficient way. This provides a fundamental basis for governmental intervention and role,
especially in developing countries.

• The allocation function relates to the provision of social goods, or the process by which total resource
use is divided between private and social goods and by which the mix of social goods is chosen.

• Government has to provide for public goods such as national defence, basic infrastructure (roads,
bridges, rail lines etc) and government administration. These goods cannot be provided through
market mechanism but are essential for consumers. Government has to provide them by allocating
resources to these public goods accordingly.

• Human capital investment, by way of substantial government expenditure in education and health,
offers much the most important part of public capital formation. Allocation roles of government are
particularly justified in view of positive externalities and quite promising social rate of returns
derivable from these investments.

• Some development projects are of strategic importance to the economy e.g. iron and steel
development projects, dams and irrigation projects, power supply etc. These projects have high
prospects of promoting growth, employment generation and poverty alleviation, rapid
industrialization and sustainable growth and development. Private sector investment may not be
forthcoming and inadequate for these projects, requiring heavy capital outlay and involving long
gestation period. In this type of investment, it makes economic sense for government to intervene by
allocating public resources to the sector.

Rationale for public sector in the economy

Government involvement in the economy can be explained by any or a combination of the factors
highlighted below:

a. Political and social ideologies

b. Allocation of resources
c. Healthy consumption

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d. Legal Structure
e. Externalities
f. Economic Objectives

Please read up the explanation from the pack.

Public vs Private Provision

The Goods and services produced in every society can be classified into 2 broad categories:

1. Public Goods: These are goods and services whose consumption is not in rival relationship or
competitive in nature. Everyone must benefit from it whether you are a taxpayer or not, or whether
you are wealthy or not.

2. Private Goods: These are goods and services whose consumption is competitive and specific
conditions must be satisfied before consumers can enjoy the benefit.

Characteristics of Public Goods

• 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. For example, government policy of providing
street lightings on roads, defence and adequate policing to make the society crime-free will become
beneficial to everyone. It does not matter whether or not everybody is a tax payer. Therefore consumption
of public goods is not competitive.

• Non-excludability - Another remarkable feature of public goods is the non-applicability of exclusion

principle. Since everyone consumes from the same source of supply, once provided for one individual the
same quantity and quality becomes available to everyone. The non-excludability condition makes
provision of public goods through the market mechanism impossible.

• 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. Hence there is no extra cost incurred by the additional demand. For example, increase in the
number of vehicles plying a road may not necessitate immediate expansion of the road.

• Equality of marginal benefits with marginal cost - The marginal cost is usually a measure of benefit
(utility/satisfaction) derived by consumers from consumption. In the case of public goods it is the sum of
the marginal benefits derived by each individual that should equal marginal cost. This is so since all
consumers consume from the same source of supply.

Note that characteristics of public goods is the exact opposite of that of private goods.

Types of Public Goods

Public Goods can be subdivided into the following:

a. Pure Public Goods – These are goods that are perfectly non-rival consumption and non-
excludable. What it means is that they are pure responsibilities of the Government to provide
them for her citizen. National Defence and street lightings are a very good example of these.

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b. Quasi-Public Goods – These are goods that possess characteristics of both private and public
goods. What it means is that they can be provided by both private and public enterprises.
Examples include roads, bridges, tunnels, etc.

c. Merit Goods – These are goods and services that are of immense value to every individual and
society of a country and should be provided on the basis of need rather than ability to pay. So, the
government should make sure that these goods and services are subsidized or if possible free of
charge. Examples are education and healthcare.

Government Economic Policy

In order for them to achieve The Above Macro Economic Objectives, they put in the Following Policies :

1. Monetary Policy - This has to do Supply of Money in Circulation and its managed by the CBN on
behalf of the federal government.

2. Fiscal Policy - This one deals with Taxation and Government Expenditure.

3. Commercial Policy - This one has to do with External Trade.

4. Price and Income Policy - This has to do Inflation and Workforce of the Economy.

The Economic Roles of Public Sector

1. Allocation Function: Any Activity of The Government which Affects the Supply of Goods and
Services. Functions here include Provision of Education, health care, Contracting Roads, Rural Water,
etc.

2. Redistribution Function: In the Economy, there are Rich and there are Poor People, in order to
bridge the gap a little, Government have the responsibility of Zooming Excess Monie from The
Wealthy through Tax, so that Basic Amenities can be provided for the less privileged ones as well.
From there, they can Have Access to Free Education, free Water. That means Government is
Redistributing the incomes in the hand of the People.

3. Regulation of Private Businesses: They Make sure that Private Goods do not harm the People and
their Community. They Set Governmental Agencies like SON, Std Organisation of Nigeria, Nafdac,
etc.

4. Economic Stabilisation: functions in promoting the macro economic Growth of the Country. Eg.
Regulating Interest Rate in the Monie Market, Exchange Rate.

5. Administration of Justice: With the help of Police and other agents, Human Lives and property
Must be protected.

Macro-Economic Objectives (FPEFF)

1. Full Employment

2. Price Stability

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3. Economic Growth

4. Favorable BOP

5. Favorable Standard of living

Those Points are Self Explanatory. Just Read the Pack or Pathfinder. You are good to Go

Chapter 32

Public Revenue
Introduction

We have treated the different source of revenue at which government derives its revenue in a previous
chapter, chapter 13. In this chapter, we shall treat how those revenues are allocated and the principles
through which they are allocated.

Challenges of Revenue Allocation

1. Over-Dependence on Oil Revenue – In the past, the Nigerian economy depended on agriculture and
other viable sectors such as mining, textile, etc. The discovery and subsequent exploration of oil has
undermined the development of those previous economy. Consequently, oil revenue has become
major source on which the country critically depends.

2. Conflicts over the Sharing Formula – Revenue sharing amongst the component units of the Nigerian
Federation has been from onset a controversial issue. Sharing has been influenced by a number of
political inclinations rather than economic considerations.

3. Agitation for Resource control – Due to perceived injustice in the sharing criteria, which brought
about the principle of derivation, some regions have argued further that each state should control the
resource it has and only pays royalties to the central government for general upkeep. A very good
example is the Niger Delta region of the country who have agitated on controlling their oil.

4. Lack of will – The absence sincerity of the government and the concerned stakeholders to address this
issue has been a major delay in addressing the challenges it poses.

5. Unstable constitutional framework – The absence of a generally acceptable legal structure on how to
amend some outdated provisions in the constitution is another factor. The states and local
governments do not really have the statutory power to raise taxes and collect the proceeds. The
expenditure and tax revenue is drafted with a lot of ambiguity and uncertainty.

Types of Sharing Formula

o Vertical Revenue Allocation: The Formula Used To Share Revenue amongst the 3Tiers of
Governments.(Federal, State, Local Governments.)

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o Horizontal Revenue Allocation: After Monies have reached the hands of each Tiers, they will now
Share among various units using Different Formula based on Some Criteria. (We witnessed this in the
1st Calculation we did in the Class).

Principles of Revenue Allocation

1. Principle of Diversity: This principle is Based on the Fact that revenue must be supplied to Variety of
Different People.

2. Principle of Derivation: This Principle advocates that Larger Portion should go to the Region that the
bulk of the revenue is generated.

3. Principle of Need: This Advocate that Revenue should be shared based on what some Geographic
region need.

4. Principle of Population: That It should be on the basis of Population Each State Has.

5. Principle of Equality: That it should be on Equal Basis, irrespective of whether you have Land or
Population.

6. Landmass Principle: The More the land mass, the more your Revenue.

7. Even Development: This Advocates that Each States should be developed equally.

8. Principle of efficiency: It states that Each State should also maximise its internally generated revenue.

Chapter 33

Public Expenditure
Introduction

In budgetary activities, this is very important as it determines expenses to be incurred by government in

the course of its administration. The resources available to the government are limited and in order to
achieve specific objectives, they need to carry out the following:

• Correcting distortions and market failures in the economy.

• Regulating private activity which might be harmful to the society.

• Provide public goods and services and carry out other productive activities.

Reasons for Increase in Public Expenditure

A number of factors have been responsible for the phenomena increase in the size of government
spending especially in Nigeria and the reasons for this can be listed as follows:

a. Population growth: As population increases, the government requires higher provision of social
amenities; hence, government spending tends to increase more and more. This is the case of Nigeria

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where population grows rapidly which calls for the increase in government spending on social
amenities like pipe-borne water, electricity etc. in the country.

b. Economic development goal: Nigerian government has the desire to achieve rapid economic
development for the country. The channel through which this goal can be achieved is to increase
government spending which will stimulate higher level of productivity in all sectors of the economy.

c. Defence and security: There is the need on the part of the government to increase its spending on
equipment required by the armed forces in order to provide strong defence and security for the entire
citizenry against internal or external aggression.

d. Increase in the general price level: The general prices of goods and services have risen persistently
and cost government more to provide the same amenities than before. This implies that the level of
inflation is moving up in the country and is responsible for increase in government spending in recent
times.
e. Urbanization: The shift of the population from the rural to urban areas is also responsible for
increase in government spending in Nigeria. For instance, the movement of federal capital from
Lagos to Abuja has raised government spending on construction and other projects on annual basis
from inception till date.

f. Costly political arrangement: Since Nigeria is practicing democracy, the government spends more
on yearly basis in maintaining democratic institutions. Huge amounts are allocated to electoral
agencies during election into local, state and federal offices, many of which are duplicated.

g. National crisis or war: National crisis or war always calls for a lot of funds to be allocated to the
provision of arms and ammunition. For instance, the case of militancy in the Niger Delta and Boko
Haram insurgency forced the Nigerian government to increase its funding of the purchase of
sophisticated weapons to fight these insurgencies.

h. Industrialization or financing developmental projects: Nigerian government is also embarking on

developmental projects and technological acquisition, which require large government spending.

Functional Classifications of Public Expenditure

1. General Government Services

2. Social and community services
3. Economic Services
4. Transfer Services

i. General government services - This category covers both civil and defence expenditure meant to
provide basic administrative structure and includes general administration, tax collection, police, currency
and mint, external affairs, defence, non-plan provision against natural calamities, etc. these are
indispensable activities performed by the state, the benefits of which cannot be allocated to specific
groups, businesses or individuals;

ii. Social and Community - Services They cover basic social amenities supplied directly to the
community, households or individuals, and include education, health care, social security and welfare,
housing, community development, recreational and cultural activities. This class of expenditure is
required to improve and maintain the living conditions of the people;

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iii. Economic services - This category covers all expenditures, which directly or indirectly promote
economic activity within the country, and incorporates expenditures on agriculture, industry, transport
and communications and other economic services. They are necessary to create stock of capital that will
generate future flow of income for growth and development of the economy; and

iv. Transfer services - It covers those items which cannot be classified under the above three heads like
interest payments, pensions, food subsidies, statutory grants-in-aid to states, special loans, aid to foreign
countries and the like. It‟s known as transfer because the benefit accrues to a third party.

Effects of Public Expenditure

The effects of public expenditure on the economy can be examined by reference to its impacts on a
number of macroeconomic and socio-political activities as discussed below:

1. Public Expenditure and economic stabilization

2. Public Expenditure and production
3. Public Expenditure and economic growth
4. Public Expenditure and distribution

i. Public expenditure and economic stabilization: The philosophy of laissez-faire does not always
guarantee automatic achievement of economic objectives of full employment, general price stability,
equitable distribution of income, socially desired growth rate as well as soundness of foreign accounts.
In fact, the more advanced and free the market economy, the greater the tendency of fluctuations in
macroeconomic variables such as income, employment and general price level. Public expenditure as
an anti-cyclical tool can be designed in such a manner as to create effective demand thereby
stimulating investment activities. Stimulation of investment will lead to increase in employment,
output and reduction in price, other things being equal. It must be emphasised however, that the total
demand should be regulated so that the demand flows would match the supply flows otherwise the
stimulating effect would result into inflationary pressure.

ii. Public expenditure and production: Public expenditure can help the economy to attain a higher
level of production. Through stimulation of investment activities, it can help to create conditions
favourable for market forces to push up production. It can be used to create human skills through
education and training and maintenance of social overheads. Expenditure on 109 education and health
promotes human capital development and also promotes physical stock of capital for growth.
Expenditure on education, health, communication, increases people’s productivity at work and hence
their incomes. With rise in income savings also increase and this in turn has a beneficial effect on
capital formation and investment. Through research and development, new and effective methods of
production can be invented whereby local resources are used.

iii. Public expenditure and economic growth: The goals of planning are growth and social welfare,
which can be realised only through government expenditure. Consequently, the government allocates
funds to various sectors like agriculture, industry, transport, communications, education, energy,
health, exports, and the likes with a view to achieve impressive growth. Government expenditure has
been very helpful in maintaining balanced economic growth in the country. In furtherance of this,
government takes keen interest in allocating more resources for development of backward regions.
Such efforts reduce regional inequality and promote balanced economic growth. The government
propels the growth in an industry by either increasing it’s spending in it or supporting it in the forms
of subsidies, lower interest rate for investments etc. For example, the government through Central
Bank of Nigeria (CBN) had created various funds with differential interest rates to be disbursed to the
perceived users with the aim of correcting market failure thereby growing the economy.

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iv. Public expenditure and distribution: An important aspect of the market mechanism is the
inequalities of income and wealth, which arise on account of nature endowment and get widened
through the institutions of private property and inheritance. Welfare consideration favours an
equitable distribution of income and wealth since the purpose of economic policy is to attain the
maximum level of social benefits possible. A shift towards equality may be achieved through various
forms of public expenditure especially those that are meant to help the poorer sector of the society.
For instance, items of common consumption may be subsidised and production of those, which are in
short supply, can be taken up by public sector. Public expenditure on social security and subsidies to
poor are aimed at increasing their real income and purchasing power. Expenditure on education,
communication, health has a positive impact on productivity of the weaker section of society, thereby
increasing their income earning capacity.

Principles of Public Expenditure

The same way with taxation, some scholars have suggested certain principles upon which public
expenditure decisions should be based. Some of them are discussed below:

1. Principle of Economy
2. Principle of Sanction
3. Principle of Benefit
4. Principle of Surplus
5. Principle of Elasticity
6. Principle of Neutrality

Justification for Public Enterprises

The need for public undertakings can be justified by a number of factors:

1. Market Failure
2. Merit Goods
3. Strategic or security Considerations
4. Promote Growth of the economy
5. Monopoly
6. Natural Resources.
Chapter 34

Public Debt
Introduction

This is one of most the Voluminous Topics on our Study pack which Comprises a reasonable number of
pages. And 2, It's a contemporary issue in our Country. So, ICAN Find It Interesting to Bring Questions
out of it. Because of those reasons. So, if someone Studies it very well, he /She will be Rewarded.

Definition

Public Debt is the Accumulated Borrowings that the National Government of a Given Country owes to its
Citizens (Individuals & Institutions), Government of Other Countries, and foreign institutions. It usually

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arises as a result of Budget Deficit, when there are projects on ground to execute and the revenue is not up
to the estimated expenditure.

Debt Servicing

Every Borrowing attracts interest, there is also a maturity period, in accordance with predefined terms and
conditions. Debt servicing is the repayment of Both interest and capital as predetermined from the term of
the debt. This is Now Monitored by an office in the Presidency know as the Debt Mgt Office (DMO). If
You are in Abuja, You should have come across this OFFICE. Very Beautiful Building

Different Categories of Debt

Debts has been categorised into Different Ways:

❖ -Marketable and Non-Marketable Debt.

❖ -Funded and Unfunded debt.

❖ -Reproductive and Unproductive Debt.

❖ -Internal and External Debts.

✓ Productive/Reproductive Debts: These are debts which are used for the execution of a Capital
Project, which brings in return to the Government. From the revenue generated from that Project
backing the Debt, we will repay back the Debt.

Or at times, the projects might not directly bring in Revenues But Socially beneficial to the
Citizens of the State. Eg. Debts for Construction of Roads, Rails, provision of Social Amenities.

✓ Unproductive/Deadweight Debt: Debts used for something not productive. E.g, to use for
Emergency Situations like War Amunitions, Natural Disaster, or the Project used for is not Even
Useful to the Citizens of the Country. Eg. White-Elephant Projects....

✓ Internal Debt: Debts owed to individuals and Institutions within the country. Eg. Monies owed to
Local Suppliers and contractors. Don't Forget LPO & Letter of Award of Contract. Using
Commitment Basis. We shall Treat it hitherto in Section C, Chapter 1 Another Example of internal
Debt is treasury Bills and Certificates,(We shall treat in Details Later.), Overdrafts from the CBN.

✓ External Debt: Debts owed to foreign Countries and Institutions. Like London and Paris clubs,
IBRD, IMF, IDB.

✓ Funded Debt (Sinking Fund): This Kinds of debt are:

o Longterm in Nature. Ie. The Mature/repayment period is long.

o Also, they are huge Amount of Money.

Because of these 2 Factors, if the Government decides to pay it at once when the maturity period comes,
the PURSE Of the Nation will be Eroded. So, in order to avoid that, they devise a very Suitable

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Technique. By Setting aside some Money on yearly Basis in a FUND created for that purpose known as
the Sinking Fund. It's from there they will now repay the Debt.

✓ Unfunded Debt (floating charge): These is exactly the opposite.

° They are Short term.(To be repayed Within a year),

° They are relatively not Huge. So, Government do not Create a Separate Fund for its Repayment.

The Question is How do Government repay this Kinds of Debt.?

They can pay it in 2Ways:

- >Is Either they Pay it out of the Current Revenue of the Government, which may in turn have a
negative effect on Government Activities.

or

- >Through Floatation; They Raise New Bonds from the Money market to pay it. This is what's
known as Floating Charge.

➢ Marketable Debts: These are the ones that can be Traded in the Financial Market. We can either
buy or sell them there.

Financial Market in Nigeria is Classified into 2:

The Money Market: Where Short term Debts are Traded. Eg. Treasury Bill and Certificate.

The Capital Market(Stock Exchange): Where long term Debts are traded. Eg. Government
Development Stock, Revenue Bonds.

➢ Non-Marketable Debts: these ones are issued in favour of specified debt holders and Can not be
sold to others.

Maturity Pattern of Public Debt

This is the pattern and terms at which Both principal and Interests attached to a particular Debt are repaid.

Short Term: Payable with in 1 Year.

Medium Term: To be repaid back within 3-5years.

Longterm: It lasts for 5Years and Above.

The maturity pattern determines the Simplicity of the Debt. Because The Longer the term, the More
Burden we have.

Good Consequences of Public Debt

It can also be said to be the Advantages/Benefits of Borrowing

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1. Rapid Economic Growth.

2. Reduces Income Inequalities.

3. Improves Infrastructures and Social Amenities.

1. 4.. Improves the Std of Living.

4. More Foreign and Local Investors will Set into the Economy.

5. Government Lenders become richer, by purchasing Government Securities, the appreciate at

times of repayment.

Bad Consequences/Disadvantages of Public Debts

1. Debt Servicing Problem: Most Especially when Short term Loans are used to finance Longterm
Debts.

2. Unbearable Conditionalities which come with External Borrowing: Most Especially, Borrowing
from IMF, Wicked Conditions like:

✓ -Removal of Subsidy,

✓ -Devaluation of Domestic Currency,

✓ -Reduction in Public Expenditure,

✓ -No Increase in Public Servants Salary.

3. Private Investors may not perform well when Government Compete with them in the Financial
Market.

4. Tax Burden: Most Especially, borrowing money for unproductive Projects, it will have future
implication on tax payers.

5. Inflation: It's an Ineffective Way of Controlling Inflation.

6. Foreign Investment will be Relatively Low: Because Debts are to be repayed with hard currency
which supposed to be used for importing critical Inputs to the Country.

General Causes of Public Debt - H B R, N E W, C F S, I S E

This one treats the general needs to borrow money, whether internally or externally. The list is Long, but
this Acronym will assist you.

1. Huge and Persistent Budget Deficit.

2. BOP Deficit/Disequilibrium.

3. Rapidly increasing Population.

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4. For Natural Disaster.

5. Economic instability.

6. Wartime Borrowing.

7. To Finance Capital Projects, infrastructure and development Projects

8. Fluctuations in Government Revenue.

9. Servicing of existing loan.

10. To finance Domestic and International Inflation.

11. Socio-Economic Responsibility.

12. To finance Ever Increasing Government Expenditure.

All those Points are Self Explanatory. Or better yet, read the Pack for better Explanation. Because its the
explanation that's important. But, you can only explain what you are able to Put down. And that's what
am trying to do. Ability to remember the points in the Exam.

Debt Sustainability

Meaning: This is an effective way a country can manage her debts without having an adverse effect on the
Economy. When a country is able to Service its Debt liability without affecting economic growth or
without a recourse to bargain for Restructuring or accumulation of arrears.

Management of Public Debt

Body Responsible for this. Before now, this was the responsibility of The CBN, together with Ministry of
Finance Incorporated, MOFI, A Dpt under the Ministry of Finance. But, In recent times, due to the level
of debt accumulation in developing countries, like Nigeria, there is a need for Proper Mgt of Public Debt.
This led to Creating a New Body under the Presidency known as the Debt Management Office (DMO).

Internal Debts/Domestic and Its Management

Types of internal Debts:

✓ Trade-Related Debts: Monies owed to Local Suppliers and Contractors through LPO and Letter
of Awards of Contract.

✓ Debts Through Financial Instruments: These are Treasury bills, certificates, Government Stocks
and Revenue Bonds.

We are going to explain those Instruments one after another. But, before that, let's Understand how those
Instruments are being Operated.

Mode of Operation of Financial Instruments - When Government needs Money, or they feel there is
too much money in Circulation, they issue out those Instruments in form of a Paper through The CBN,

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then, interested members will buy, by Giving Money to the Government. Terms and conditions are
attached on when they will claim back their Monies, both principal and Interest. Those Papers carry a
monetary value, they will just tender it when needed and get their monies back in Multi-fold.

Now, Let’s Explain those instruments one after another

1. Treasury Bill (90 Days): This is the Most Liquid Out of those Instruments, traded in the Open
Market Operation (OMO), issued by the CBN to any interested persons.

2. Treasury Certificates (1 – 2 Years): They have Longer Maturity Period than Treasury Bill and
attracts more interests. Issued to Commercial and Merchant Banks. Those 2 Are Money Market
Instruments.

3. Federal Government Development Stocks: These ones are trade in the Capital Market, listed in the
Nigerian Stock Exchange and managed by the CBN on the Ground Supervision of Security and
Exchange Commission, SEC. They can be either medium or Longterm in nature. Issued to Finance
Development or capital projects. The higher the maturity period, the higher the interest. The principal
investors here are Insurance Companies, Commercial Banks and Mortgage Banks.

4. Revenue Bonds: Issued by State or Local Governments to Finance A Productive Project with the
Agreement that from the proceeds generated from it, it will be repaid.

Management of Domestic Debt

Domestic Debts are managed by the Following Ways:

1. Paying Interest and Principal on due date.

2. Managing Sinking Fund for Debt Redemption.

3. Supervising Issue of Certificate and Warrants to Lenders.

4. Advising Governments on Issues of Floatation of Debt Instruments.

5. Issuing Terms And Conditions of Debt.

6. Advertising To the Public to Subscribe to the Issue.

In summary - ISCTAT

Interest and Capital.

Sinking Fund,

Certificate and Warrants,

Timing of Floatation.

Advert on Subscription

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Terms and Condition.

External Debts and its Management

Types of External Debts

1. Trade Arrears: When one country trades with the other, and its unable to pay for the Goods
Supplied, either Wholly or Partly. This occurred to Nigeria in the 1980s, when we could not settle
our import Bills, this resulted into Accumulated Debt.

2. Balance of Payment Support Loans: This one is Usually Sort for from the World Bank, IMF &
IBRD.

3. Loans for Development Project: It's backed up with A Capital project. Most of them are self
liquidating.

4. Loans for Socio Economic needs - For infrastructures and social amenities.

Sources of External Debts

1. Paris Club of Creditors: Details Later.

2. London Club of Creditors: Details Later.

3. Multi-Lateral Creditors: From the World Multi, these are interactional institutions funded by the
Nations that came together to become members in them. These includes The World Bank Group,
IMF, IBRD, IDÀ, IFC ADB, etc.

4. Bilateral or Private Sector Loans: From the word Bilateral, a loan that one Country gives to
another Country or between 2 Nations.

5. Promissory Note Creditors: Debts Arising from Trade Arrears. A document issued by a debtor
nation to a creditor nation indicating that a certain amount of Debt is own by It.

Causes of Increase in External Debt

This one is talking about why External Debts Keep Increasing Overtime. So, Take Note.

1. Drastic Reduction in Export Earnings.

2. Accumulation of Interest.

3. Accumulation of Trade Arrears.

4. Substantial Growth in export

5. Instability in Exchange Rate.

6. Devaluation of Our Own Currency.

7. Depreciation of US Dollars.

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8. Borrowing from Multi Lateral and Bilateral Institutions with Harsh Conditions.

9. Financing Projects That Could not payback with External Loan.

Management of External Debt

This can be Explained in the Following Ways:

✓ Securing External Loan Strictly for Development Purposes or BOP Finance.

✓ Making Sure that the Returns From Those Projects are able to pay it back.

✓ Organising the repayment Schedule In an Effective Manner.

✓ Ability to Service Existing Loan with the desire to contract another loan.

History of Debt Management in Nigeria

In the early 80s, when Debt Crisis Became a Very Serious burden, Nigeria pronounced different
Strategies. But, in 1988, there was a better and More Pragmatic Plan. With the Following Policy
Objectives:

1. To outline Strategies on how Foreign Exchange will increase, so that the need for External
Borrowing will reduce.

2. To set out the Criteria for Borrowing externally, and the kinds of projects to finance with it.

3. To outline the mechanism for servicing external debt.

Because of the Above Objectives, the Following Policy Guidelines Were issued:

1. Infrastructural Need Projects will be Ranked according to their Cost/Benefit Ratio.

2. Project to be Financed from External Debt should be Backed up with Feasibility Study.

3. IRR of projects should be as high as the Cost of Borrowing.

4. Any State Government, Parastatals or private sector that wish to borrow externally must seek
approval from the Federal Government.

5. Also, they should submit their debt proposal to the Ministry of Finance and the CBN for
Consideration before incorporated into the Government Borrowing in the Budget.

6. All States should service their External Debts through the Foreign Exchange market and inform
the ministry of finance for record purpose. Or else, equal amount will be deducted at source from
their allocation.

7. Export oriented private sectors should service their loan through Their Export Earnings, while
others should use the Foreign Exchange market.

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Causes of Nigerian Debt Crisis

Other Countries borrow as well. But why is ours (Nigeria) different and the debt crisis has become up to
this Extent. These are some of the Identified Reasons:

1. Gross Mismanagement of Finance.

2. Lack of Proper Debt Management in the past.

3. Change in Economic Fortune of Oil.

4. Low level of Savings.

5. Nature of the Economy of which our manufacturing Sector depends much on Imported Inputs.

6. High Propensity to consume Imported Goods.

7. Problem of Satisfying IMF Conditions.

Solution to External Debt Problem - DDDDBFCE

There are 8 Methods Listed.

1. Debt Rescheduling.

2. Debt-Equity Conversion.

3. Debt Relief/Forgiveness.

4. Debt Repudiation.

5. Ban on External Loan.

6. Foreign Aid or Assistance.

7. Counter Trade

8. Economic Restructuring Program.

Explanation

1. Debt Rescheduling

Like the name Sounds, this is a rearrangement of repayment plan. With the following Activities:

- Adjusting the interest Rate.

- Adjusting the principal.

- Adjusting the Maturity Period.

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- Adjusting the Grace Period.

Although, this method relief the burden of the debt. But, does not reduce the Obligation or Amount owed
rather it postpones the evil day. Example, Nigeria did this with Paris Club in the Late 80s.

2. Counter Trade

Instead of Giving them cash, we rather give them Raw Materials or natural resources that we have.
Nigeria did this in the early 90s to develop Ajaokuta Steel Company.

3. Reliance of Foreign Aid and Assistance

When A Foreign Country Issue is a Grant. Its a better one than borrowing from them. We can seek for:

• Bilateral Assistance

• Multilateral Assistance.

4. Debt Repudiation

This is the Total Denial of the Debt. As advocated by Fidel Castro, a Cuban Economist. He said that,
some of these debts are due to Colonisation and Neo-Colonisation Experience. So, what is the burden if
we rather deny it. But, this is not practiceable. As it may attract Sanctions from the International bodies.

5. Debt Forgiveness

When a creditor nation or body decides to write off the Debt liabilities of the Debt or nation, due to some
negotiations. Eg. Paris Club Granted Nigeria A debt Forgiveness of about $18Billion During Obasanjo
Regime, with the Help of the Former Finance Minister, Okonjo Iweala.

6. Ban on External Loan

At least, for the main time, to reduce the pressure Faced from External Borrowing.

7. Economic Restructuring Program

This is a long-term Solution. It is believed than Debt Burden arose due to Poor economic performance.
This one is Carried out by:

1. Diversify into other Sectors of the economy. Rather than Oil Alone.

2. Adopt a realistic exchange policy.

3. Commercialisation and Privatisation of Public Enterprises...

8. Debt-Equity Conversion

This is an idea of Converting Foreign Debts into Equities in our local companies. By making the creditors
a part owners on our indeginous Companies.

The Benefits attached to this Are:

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❖ It will reduce the external Debt.

❖ It will attract foreign Investments.

❖ It Increases Access to Foreign Technologies.

Demerits are:

❖ it allows foreign domination.

❖ it cause increase in Money Supply.

Conditions for Borrowing

Can any Government just go ahead and borrow money anyhow they like or when they feel like.? Of
course, there should be some Conditions:

➢ Purpose for Borrowing and Cost Benefit Analysis. That is any Government in the Federation
or agency or corporation shall specify the purpose for which it intends to borrow and present
a CBA indicating the Social and economic benefits of such loan.

➢ Borrowing is for Capital Expenditure and Human Development only. (Not for Recurrent
Purposes) like paying of Salary.

➢ The Federal Government may borrow from the Capital Market.

➢ Servicing of external debt is the direct responsibility of the Government that Incurred it.

➢ The DMO of the Presidency shall maintain a comprehensive electronic data base of both
internal and External Debt.

➢ The Fiscal Responsibility Commission shall verify the compliance with the limits and
conditions for borrowing by any Government on Quaterly basis.

➢ All Banks and financial institutions shall request Proof of compliance with the Provisions of
the Fiscal Responsibility Act, before lending to them.

➢ The Cost of Financing Federal Government Guaranteed loan shall be Deducted at source
from the Allocation of the State Government that Contract the Loan.

➢ Any Violator of all these Guidelines shall be prohibited from borrowing both internally or
Externally.

Guidelines on Borrowing, as enunciated by the Fiscal Responsibility Act, 2007

The Act, as we have Taught ourselves in earlier studies, deals with any issues regarding fiscal Matters, ie.
Budgeting, Financing Government Expenditure and Collection of Revenue. The act interpreted
Borrowing as any Financial Obligation arising from any of the Following:

✓ Loan (Both Principal and Interests)

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✓ Bonds, debentures or similar Financial Liabilities.

✓ Trade or Bankers Acceptance.

✓ Letters of Credit. (eg, LPO, letter of Award).

✓ Capitalised Amount of Finance Leases.

✓ Agreements providing for Swaps, ceiling rates, floor rates and other Hedging mechanism, with
respect of payment of interest or Convertibility of Currency.

Debt conversion program

The program was introduced in July 1988, with the following objectives:

A. To reduce Nigeria's external debt by reducing foreign currency dominated debt.

B. Improve economic environment on order to attract foreign investors.

C. To create employment opportunities.

D. To encourage Creation and Development of Export oriented industries.

Forms of Debt Conversion Programme (DCP)

a. Debt for Equity: Explained Earlier.

b. Debt for Cash: Self Explanatory.

c. Debt for Debt Swap: This allows a country external Debt to be redominated in the local currency
of the Debtors Nation.

d. Debt for Export: This Is The same Explanation with Counter Trade. under Solution to External
Debt.

Categories of Transactions Eligible for DCP

➢ Conversion to cash.

➢ Conversion for Project Expansion.

➢ Conversion for Investments in Completely new Projects.

Priorities:

1. Investment in production industries, which utilises 80% of Local Raw Materials. Eg. Agricultural
and agro allied industries.

2. Investment in Extraction of Local Mineral Resources, forestry.

3. Investments in New Discoveries and Invention.

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Problems associated with DCP

1. Dominance of Foreigners in Biz Ownership.

2. It might lead to Inflation.

3. Exchange rate problem.

Minimising the Problem

➢ Setting limits for Debts to be converted.

➢ Minimising the use of debt for cash redemption and Maximising that of Investment.

The Paris Club

This is a very Current issue as regards public sector in Nigeria nowadays. Hardly will we not hear
anything about Paris Club refund on news. Firstly, let's Understand what Paris Club means itself. Full
name is Paris Club of Creditors.

A Cartel of 19 Creditors Countries, which came together in 1956, when some European countries agreed
to meet in Paris to find a mutually acceptable basis for Rescheduling their outstanding balances in their
bilateral accounts with Argentina. Ever since then, it's being a forum where countries facing Difficulties
in paying their Debts, like Nigeria, meet with their Creditors for Rescheduling of obligation. They hold
informal meetings, chaired by a senior officer in the French treasury and a secretary.

The key players to be present are :

• The IMF.

• The IBRD.

• OECD, Organisation for economic reconstruction and Development.

• The European economic community.

• The Debtor Country and With their Financial And Legal Consultants.

Impact of the Club so Far

The Club has brought a little hope in resolving the Debt Problem of the Severely 3rd World Countries,
like Nigeria.

Principles of Paris Club Rescheduling.

1. The principle of Imminent Default.

2. The Principle of Burden Sharing.

3. The principle of Conditionality.

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Explanation on those Principles

1. Imminent Default: This is a condition which requires the Debtor Nation who approached for .
Rescheduling Arrangement to prove that Truly truly she's unable to meet their External Debt
Servicing, unless relief is Granted. This is established through the BOP balance of the Country
with IMF. This is the 1st Condition, as without this, the Paris will not allow for Rescheduling.

2. Conditionality: This is the Golden rule of the Paris Club. It requires that not just come up and be
Begging for one Relief or Rescheduling. The Debtor Country should have made sure that they
have a Very Sound Economic Environment and Development programme that will make them
pay their Debt.

3. Burden Sharing: The 1st one applies to the Debtor Country, this one is for the Creditor country.
This is saying that the Creditor country as well should be willing to Share some of the Burden as
well and forego some Debts. As Half Bread is Better None.

Chapter 35

Fiscal Federalism
Introduction
Fiscal Federalism refers to the scope and structure of the tiers of governmental responsibilities and
functions and the allocation of resources among the tiers of government. It defines the allocation of tax
powers and expenditure responsibilities among the levels of government.

The Expenditure Assignment

Assignment of expenditure deals with the allocation of spending powers and responsibilities by the
Federal Government to the Lower Level Governments (State and Local Governments). That is, They
should be able to Spend on their own without expecting The Federal Government to Carry it out for them.
The Federal Government allows the Lower Governments to spend some certain categories of
expenditures, for various reasons like Location Advantages, nearness to Citizens. And Retain some
Spending powers to themselves.

Principles of Expenditure Assignment

1. Efficient provision of public services.

2. Equitable provision of public Services.

3. Efficient Provision of Quasi-Public Goods.

4. Economic Stabilization.

5. Preservation of a Single Internal Common Market.

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Centralisation and decentralization of Fiscal Responsibilities

Reasons why Government may centralize Fiscal Responsibilities

1. Economies of Scale: Resources that requires servicing a large number of people like water,
electricity, etc should be Centralised. So that The Government can achieve economies of scale.

2. Spatial Externalities: These are services that requires external attention, eg. Defence, foreign affairs,
etc. Such can only be effectively delivered when managed by the central or federal government
herself.

3. Administrative and compliance costs reduction: With centralisation of fiscal responsibilities, lower
cost will be achieved when Some Services are Centralised by the Governement.

Reasons why Government may decentralize Fiscal Responsibilities

1. Differences in the Local Need - What we need in our State will be different from what others need.

2. Responsiveness to local Issues – The speed in decision making and delivery of services to each
locality will be faster.

3. Elimination of Multiple Layers of Jurisdiction – Some government jurisdictions are unnecessary

and should therefore be elimited.

4. Inter-jurisdictional competition and innovation are enhanced – This is a very important merit of
decentralizing responsibilities whether at micro or macro level. Low level managers or governmental
officials can be innovative.

Problems of Expenditure Assignment

• 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. A formal assignment
of responsibilities contributes to the stability of the system of intergovernmental finances. From a
fiscal management perspective, a formal expenditure assignment also introduces an important
element of certainty for budget planning at all levels of government.

• Inefficient Assignment - Another common problem in the assignment of expenditure responsibilities

is the inefficiency of the assignments. First is the issue of capital expenditure responsibilities. The
problem has been the assignment of all capital expenditure responsibilities at the central level,
independently of the level of government responsible for the provision of the services associated with
the capital infrastructure.

• Ambiguity in certain assignments - Despite the ambiguity in assignments, there are few open
conflicts or disputes that have taken place between the central and state governments in terms of
assignment of expenditure responsibilities. For example, there are arguments on whose responsibility
it is to maintain internal security in Nigeria when the police is under the control of the central while
the governors have little or no control over the police.

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• Co-sharing of responsibilities - The co-sharing of responsibilities within a particular public service

is likely to cause confusion leading to inefficiencies. In the case of education, it would appear to be
for the most part a local (or state) activity, many key decisions in educational policies are carried out
at the central level in many countries. For example, the Ministry of Education may be responsible for
the construction of school buildings, curriculum design, teacher training, and design and production
of textbooks.

• Conflict of responsibilities - The co-sharing or fragmentation of responsibilities within a particular

public service has the disadvantage that it is likely to cause confusion leading to inefficiencies.

Solution to Expenditure Assignment

1. Establishing formal assignment of expenditure responsibilities

2. Reassignment of selected expenditure Responsibilities
3. Reassignment of capital investment responsibilities
4. Facilitating capital investment at the sub-national level
5. Sub-national development funding
6. The Need to address minimum standards

• Establishing formal assignment of expenditure responsibilities – To solve the problem of

expenditure assignment between the central government and the lower tiers, expenditure
responsibilities should be clearly specified in the constitution. Though, including that in the
constitution may create more difficulty when there is need for changes most especially in this
technologically driven environment.

• Reassignment of selected expenditure Responsibilities – Depending on the desertion of the central

government, some expenditure should be reassigned and performed through state and local
governments.

• Reassignment of capital investment responsibilities - Responsibilities for capital infrastructures

and basic amenities should be placed on which level of government should deliver, operate and
maintain such services or facilities. This will encourage more efficient use of resources.

Principle of Tax Assignment

Once expenditure assignment has been agreed upon, the most critical element there on is who to collect
taxes and revenue. It is therefore worthy to note that the power to impose tax on Individuals and
Corporate Bodies is on the Exclusive List of the Nigerian Constitution (I.e. exclusive to the Federal
Government). While the collection of those taxes is on the Concurrent List (I.e split between the 3 Tiers
of Government). There have been a number of economic principles developed by economists on deciding
which taxes to assign to each level of government. Anwar Shah opined four general principles in
assigning taxing powers to various governments as discussed below:

1. Principle of Economic Efficiency

2. Principle of National Equity
3. Principle of Administrative Feasibility
4. Principle of fiscal need

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Explanation

1. Principle of Economic Efficiency – This criterion suggests that taxes on mobile factors should be
assigned to the national/federal/central government. Assigning such assignments to sub-national
governments may facilitate social wastage.

2. Principle of National Equity – This Principles suggests that progressive redistributive taxes
should be assigned to the national government.

3. Principle of fiscal need – This criterion suggests that the ability to raise revenue should be
matched as closely as possible to expenditure needs.

4. Principle of Administrative Feasibility – This is with the opinion that when taxes are assigned to
the jurisdiction with the best ability to monitor and collect them, it will lower cost of
administration and compliance.

Inter-governmental transfers - Grants

Inter-governmental transfers or grants is an important factor in the development of fiscal federalism. The
central government may decide to grant sub-national governments like state or local governments
finances to fund investment decisions. This can be broadly classified into two categories:

1. General-Purpose Grants – These are grants provided as general budget support with no strings or
condition attached. These transfers are typically mandated by law.

2. Specific-purpose Grants – These are grants with conditions attached and are intended to provide
incentives for governments to undertake specific programs. They usually specify the type of
expenditure that can be financed with them.

Guidelines for grant design

a) Clarity in grant objectives - Grant objectives should be specified clearly and precisely;

b) Revenue adequacy - Sub-national governments should have adequate revenue to discharge

designated responsibilities;

c) Responsiveness - The grant programme should be flexible enough to accommodate unforeseen

changes in the fiscal condition of the recipients;

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

e) Transparency - Both the formula and the allocations should be disseminated widely in order to
achieve as much as a broad consensus as possible on the objectives and operation of the programme;

f) Efficiency - The grant design should be neutral with respect to sub-national governments‟ choices of
resource allocation to different sectors or types of activity;

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g) 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; and

h) Predictability - The grant mechanism should ensure predictability of sub-national governments‟

shares by publishing five-year projections of funding availability. The grant formula should specify
ceilings and floors for yearly fluctuations. Hold harmless or grandfathering provisions should
accompany any major changes in the formula;

i) Autonomy - Sub-national governments should have complete independence and flexibility in setting
priorities. They should not be constrained by the categorical structure of programmes and uncertainty
associated with decision-making by national officials. Tax-base sharing allows subnational
governments to introduce their own tax rates on national bases and formula-based revenue sharing, or
block grants are also consistent with this objective;

j) Accountability For results - The grantor must be accountable for the design and operation of the
programme. The recipient must be accountable to the grantor and its citizens for financial integrity
and results (i.e., improvements in service delivery performance).

The Rationale for adopting a Federal Structure in a Country

A country does not only prefer a Federalism System of Government. The Following reasons call for it:

a. Resolution of Conflict (Switzerland)

b. To Strengthen a weak State. (Germany)

c. To Distribute Natural Resources amongst The Regions (Nigeria)

Nigeria still stick to the Federal system of Government because Resources lacked in one particular region
are possessed by the other. So, to distribute it fairly.

Objectives of Fiscal Relations

• To distribute Income Fairly.

• To Ensure that Macro Economic Policy is Achieved.

• To Ensure Sub-National Autonomy of the Different levels of Government.

• To Carry out Fair Revenue Allocation.

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Chapter 36

Project Appraisal in Public Sector

Investment Decision

Resources has to be committed today to achieve gains on it tomorrow. When there's money, it should not
be idle, money should bring in more Money. That's the idea behind INVESTMENT. Though, it's all about
taking risk, because its easy to determine what to be spent on a project, but forecasting the future Gains is
not easy. That is what brings us to "Investment Appraisal". A technique adopted on whether a particular
Project will be Viable or not. By looking at the economic benefits likely to accrue from it.

Methods of Investment Appraisal

1. Traditional Methods: PBP & ARR.

2. Discounted Cash flows Technique: NPV, IRR and Profitability Index.

Investment Decision in Government

As said earlier, Government should utilize resources in a judicious and economic way, on viable projects
and opportunities with the View of Generating Returns.

In View of this, the Following points are important:

o Sources of Finance

o Types of Decisions

o Investment Evaluation Techniques

o Investment Appraisal Methods

Sources of Finance

Governments Finance Their Projects

1. Through IGR& Statutory Allocation

2. Through Funds Raised From Financial Markets.

Decisions on Government Project

Since the objective of the Public Sector is Different from that of Private, decisions taken on Public
Projects has to be different as well. In Private Sector, they mostly consider the Financial Viability of the
Project alone. But, Government do not only consider the Profitability.

Other Factors are also considered

Factors Such as:

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• Welfare of the Citizens.

• Societal Advantages.

• Political Reason.

• Security Purpose.

Types of Decision

1. Programmable Decision: Decisions like this are:

• Tactical in nature,

• Short term,

• Uncomplicated Issues,

• Prompt Action

2. Unprogrammable Decision: They are :

• Strategic in nature,

• Long term,

• Deals with Critical Issues,

• For organisation's Survival.

Public Projects and their Priority

In order to achieve some development objectives, nations place emphasis on priority programmes like the
provision of basic infrastructure and development projects, all of which require appropriate funding.

i) Basic infrastructure – These are projects meant to satisfy human necessity to survive as citizens living
in the country. Examples are roads, railways, waterways, airways and other forms of transportation and
communication, plus water supplies, financial institutions, electricity and public services such as health
and education.

ii) Development projects – These are public project or investments executed to achieve a set of
development objectives, notably improved productivity and economic growth, employment generation
and poverty alleviation etc. Examples of such projects include dam construction and irrigation projects,
iron and steel development projects, supply of fertilisers and pesticides, small and medium scale
enterprises schemes.

Objectives of Public Projects

✓ Facilitate and integrate economic activities;

✓ Promote employment generation and for poverty alleviation;

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✓ Influence the pace and diversity of economic development;

✓ Boost productivity performance in sectors of the economy, notably agriculture and industrial sector.

Sources of funding these priority programmes

▪ Borrowing from multilateral creditors such as the World Bank and its affiliates, International
Monetary Fund, (IMF), African Development Bank (AfDB), International Fund for Agricultural
Development (IFAD), etc.

▪ Issuance of debt instruments such as Treasury Bills, Treasury Certificates and Government.

▪ Budgetary allocation and deficit financing.

▪ Foreign Aid and Foreign Direct Investment (FDI).

Characteristics of sources of funding

1. Magnitude and adequacy of funds - Each source, as identified above, varies in terms of magnitude
and adequacy of funds that could be raised. Borrowing from multilateral creditors is one source that
guarantees substantial funding once the economic and technical viability of the programmes is
assured.
2. Implications for debt burden - Each of the sources of funding has implications for debt burden over
a period of time, coming by way of debt servicing and interest payment. This constitutes a
disadvantage as far as borrowings from multilateral creditors are concerned.

3. Harsh Conditionalities for the multilateral creditors - Raising fund for such programmes is
usually tied to some conditionalities for the multilateral creditors, while for some other sources, it is a
matter of enabling environment, investment policies (for foreign direct investment), and fiscal policy
and commitment (for budgetary allocation and deficit financing) and the capability of the capital
market to raise sufficient fund from the financial instruments issued.

Investment Evaluation Techniques

1. Cost-Benefit Analysis

2. Cost-effectiveness Analysis

3. Life cycle Costing

4. Value Analysis/Engineering

Cost-Benefit Analysis (CBA)

A technique where the costs (both social and financial) of a project is compared to its perceived benefits.
A form of percentage will be derived and if its greater than 1, the project will be accepted. If the
Percentage is less than one, that means the cost is higher than its benefit. CBA is the most popular
method for evaluation of project in the public sector. This is because those in charge of project
initiation, execution and monitoring in the public sector do not appear to be qualitative enough to
make use of the Commercial Investment Appraisal Techniques like NPV, IRR, etc.

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Here, the emphasis is on Benefits.

Process includes:

1. Identify the Problem/Objectives.

2. Identify the Alternative Course of Actions to achieve the Objectives.

3. Ascertain the Cost & Benefits.

4. Evaluate them.

5. Draw Conclusions as to the economic and social effects of the Choice.

6. Re-examine the objective whether achieved or not.

Note this Model

Objective Alternative Actions Cost and Benefits Evaluate Conclude Re-examine.

Advantages of CBA

• Easy to use.

• Viable in government Settings.

• It considers both financial and social costs.

• It considers the monopolistic power of government.

• It considers favorable and unfavorable impact.

Disadvantages of CBA

• Problem of Double counting.

• Problem of uncertainty.

• Paucity of data.

• Subjectivity.

• Indirect User benefits.

Difference between CBA and commercial investment appraisal techniques

a. CBA focuses more on macro economy and public benefit whereas commercial investment appraisal
techniques focus on micro level perspective.
b. CBA considers all costs including the social and environmental costs , while commercial approaches
do not consider social costs.

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Similarities between the two techniques

(i) Both techniques apply discounting techniques;

(ii) Both techniques apply decision rules selecting investment;
(iii) Both techniques justify the present investment cost in terms of future earnings;

The following are the problems of Cost Benefit Analysis

(a) Double Counting

(b) Spill-over Effects
(c) Indirect user Benefits
(d) Rate of interest for Discounting
(e) Personal factor
(f) Uncertainty
(g) Assessing the Distributional Effects

Cost Effectiveness Analysis (CEA)

It's a technique where emphasis is not laid on Benefits, rather on the reduction of the cost. Whether the
project is being done at least cost. This is an approach for picking among alternative lines of action in
public sector organisations regarding their effectiveness in attaining specified objectives. CEA does not
supply information on the benefits of achieving goals rather the emphasis is on the least minimal cost of
achieving specified objectives of a public sector project. The decision criteria are to select projects
with the least cost.

Process of CEA

a) Define the objectives - What are the projects or goods to be produced?

b) Scoring and assessments of alternatives - What are the difficult cost alternatives that are
available? Difficult alternative costs have to be collated.
c) Selection of measure to be adopted - How cheap for us to implement the project or to
produce the goods within a reasonable period time. Determine the method or measure to be
adopted after the review of all the costs of the alternatives.
d) Development of cost estimates – Collate the costs using the agreed policy.

e) Decide in the end -

Objectives Alternatives Measures to adopt Cost Estimates Final Decision.

Life Cycle Costing

A Technique which optimise the entire costs of a Physical Asset over its entire useful life. It is a cost
minimization technique which is applicable from the Initial Stage of the Asset to the decline Stage. The
concept adopts the use of discounting cash flows technique in evaluating the project.

Factors to be considered are:

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1. Original Cost of the Physical Asset.

2. Maintenance Cost.

3. Disposal Value.

Value Analysis and Engineering

Value Engineering simply means any cost that are unnecessary should be identified and eliminated before
the project is introduced. While Value Analysis is the process of reducing the cost after the project have
being introduced.

Externalities
This are economic effects flowing from production or consumption of goods and services by one
economic unit in the utility function of another economic unit. These effects may be negative or positive.

Causes of Externalities

▪ Production Externalities – This exists when production activities result into gains or losses to the
people within a locality without any compensation paid for it. Example is oil exploration which
generate hazards (losses) and at the same time employment opportunity (gains) to the people.

▪ Consumption Externalities – This arises when there is a consumption benefit which cannot be
limited or charged to a particular consumer.

Types of Externalities

▪ Negative Externalities – Losses suffered by an economic entity because of the activities of

another entity.

▪ Positive Externalities – Benefits realized from the activities of another economic entity Without
being compensated for.

The Rests of the Topic is Calculations. Kindly Study them.

Chapter 37

Emerging issues in the Public Finance

Economic Cycle

This is also known as business or trade cycle, it refers to upward and downward movement in the
economic progress of a country as revealed in the Gross Domestic Product (GDP) during a given period.
At times, the business will rise into prosperity and sometimes, it will recess. In a nutshell, economic cycle
are recurrent fluctuations in aggregate employment, income, output and price level.

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The following are the phases of economic cycle:

(i) Expansion

In the expansion phase, there is an increase in various economic factors, such as employment, output,
wages, profits, demand and supply of products and sales. In addition, the prices of factors of production
and output increase simultaneously. In this phase, borrowers are generally in good financial condition to
repay their debts, therefore, lenders lend money at higher interest rates. This leads to an increase in the
flow of money. Due to increase in investment opportunities, idle funds of organisations or individuals are
utilised for various investment purposes. Consequently, the cash inflows and outflows of businesses are in
equilibrum. This expansion continues till the economic conditions become favourable;

(ii) Peak

This phase refers to the point at which the increase in growth rate of business activities attains its
maximum limit. In the peak phase, the economic factors, such as output, profit, sales, income and
employment, are higher but do not increase further. There is a gradual decrease in the demand of various
products due to increase in the prices of input. The increase in the prices of input leads to an increase in
the prices of final products, while the income of individuals remain constant. This causes consumers to
restructure their monthly budgets. Consequently, the demand for products such as jewelries, homes,
automobiles, refrigerators and other durables starts falling;

(iii) Recession

As discussed in the peak phase, there is a gradual decrease in the demand of various products due to
increase in the prices of input and budget adjustment by consumers. When the decline in the demand for
products becomes rapid and steady, recession phase sets in. In this phase, all the economic factors such as
output, prices, savings and investment, start declining. Generally, producers are unaware of decrease in
the demand for products and they continue to produce goods and services. In such a case, the supply of
products exceeds the demand.

(iv) Depression

Over time, producers realise the surplus of supply when the cost of manufacturing of a product is more
than revenue generated. This condition is firstly experienced by few industries, but slowly spreads to all
industries. This situation is firstly considered as a small fluctuation in the market, but as the problem
persists for a longer period, producers start noticing it. Consequently, producers cut down on further
investment in factors of production such as labour, machinery and furniture. This leads to the reduction in
the prices of factors, which results in the decline of demand of inputs as well as output;

(v) Trough

During the trough phase, economic activities of a country decline below the normal level. In this phase,
the growth rate of an economy becomes persistently negative. In addition, there is a rapid decline in
national income and expenditure, which it becomes difficult for debtors to pay off their debts. As a result,
the rate of interest decreases; therefore, banks reduce lending. Consequently, banks face the situation of
increase in their cash balances. Apart from this, the level of economic output of the country becomes low
and unemployment becomes high. In addition, in trough phase, investors do not invest in stock markets
and many weak organisations leave the industries or they liquidate. At this point, an economy reaches the
lowest level of shrinking; and

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(vi) Recovery

Once the economy touches the lowest level, it happens to be the end of negativism and beginning of
positivism. In this phase, there is a turnaround at the trough and the economy starts recovering from the
negative growth rate. Demand starts to pick up due to the lowest prices and consequently, supply starts
reacting too. The economy develops a positive attitude towards investment and employment, hence,
production starts rising. Employment also begins to rise and due to the accumulated cash balances with
bankers, lending also shows positive signals. This will also lead to new investment in production
processes and replacement of depreciated capital. Recovery continues until the economy returns to steady
growth levels. This completes one full business cycle of boom and contraction. The extreme points are the
peak and the trough.

Public Private Partnership (PPP)

A Public Private Partnership (PPP) is a cooperative arrangement between the public and private sector,
whereby the private undertakes to provide public services based on certain terms and conditions. This
involves a private entity financing, constructing, or managing a project in return for a promised stream of
payments directly from the government or indirectly from users.

Types of private finance initiatives (PFIs)

1. Operation and Maintenance – Under this contract, the Private entity operates and maintains a
publicly-owned asset while the public sector retains ownership.

2. Build-own-operate – As the name implies, the private partner builds, finance, and operates the public
infrastructure in perpetuity.

3. Build-own-operate-transfer – This is an extension of the one up there except that after a specified
period of time, ownership is transferred back to the public sector partner.

Benefits of public private partnership

• Efficiency: There is the belief that the private sector is better at managing investment projects and
achieving overall cost efficiencies than the public sector which is characterised with unnecessary
bureaucracies;

• Delivery: The private sector is not paid until the asset has been delivered, which encourages timely
delivery. PFI construction contracts are fixed price contracts with financial consequences for contractors,
if delivered late;

• Dynamic efficiency: Private sector is better placed to bring innovation and good design to projects,
higher quality of delivery and lowering of maintenance costs. The bidding process for PFI projects creates
competition at the point of tendering.

• Extra investment: Extra funding can kick-start more projects thereby bringing about economic and
social benefits. The Private Finance Initiatives (PFI) provide private sector funds for projects that might
prove difficult for government to finance through higher borrowing and taxes. Projects supporting health
or education will improve productive capacity, increase economic growth and can therefore be funded out
of future incomes that the projects help to generate;

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Adverse consequences of private partnership

• Administration: High spending on advisors, lawyers and the costs of the bidding process. The cost of
bidding for a PFI project may be unnecessarily too high for the public sector, thereby increasing the
estimated budgetary provision; and

• Addiction: Governments can become addicted to PFI, rather than using government borrowing for key
projects. The PFI have added to public sector debt but created many private sector fortunes.

• Risk: The ultimate risk with a project lies with the public sector (government). Private finance
agreements are complicated to organise and there is no guarantee that the private sector will make a better
cost benefit analysis of a project than the public sector;

• Debt costs: Private finance has always been more expensive than government borrowing, but since the
financial crisis the difference between the costs has widened significantly. The difference in finance costs
means that Public Private Partnership (PPP) projects are significantly more expensive to fund over the life
of a project. This represents a significant cost to taxpayers;

• Inflexibility and poor value for money: Long service contracts may be difficult/costly to change –
especially when the management of a project seems to have gone wrong. There have been many stories of
flawed projects for example private firms contracted out to provide car parking, cleaning and other
services in hospitals built and run as part of a PPP. Infrastructure may not be designed to last more than
the length of the contract and will need replacing or maintenance at high costs;

Commercialisation and Privatisation

Privatisation involves redefining government roles in economic management by disengaging some
activities which are best handled by the private sector with the overall objectives of achieving economic
efficiency. It involves transfer of ownership interest and control of a public enterprise to private
individuals, institutions or associations. This is usually common when the function or enterprise is not
efficient as it supposed to.

Commercialisation on the other hand, deals with the re-organisation of enterprises that are
wholly or partly by government in such a way that such enterprise operates as profit-making
commercial ventures without having to be relying on government for subvention or funding.

Forms of Commercialisation and Privatisation

1. Full Privatisation – Complete transfer of ownership of a publicly owned enterprise to private.

Examples are that of UBA Plc, Flour Mills of Nigeria, etc.

2. Partial Privatisation – Where Government only sell some parts of its equity interests to private
individuals in order to inject some profit motives into the business.

3. Full Commercialisation – In this scenario, government will cease to grant subventions since the
commercialised enterprise is allowed to charge economic tariffs for service provided. However, the
government still owns all equity holdings. Examples are Nigeria Airways Limited,

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4. Partial Commercialisation – The whole equity holdings still belong to the government and in
addition, the enterprise will still continue to enjoy some support from government towards operating
costs and future capital investment.

Challenges associated with Privatisation

1. Geopolitical Spread – It has been argued that divesting government enterprises does not by anyway
benefit the common citizen, it will only worsen the livelihood of the poor and widen income
inequalities. There is a fear of dominance and consolidation of control.

2. Inadequate loanable funds – With the unfavourable situation of the economy, there is insufficient
funds available to private sector entities with which they can purchase shares of public enterprises to
be privatised.

3. Valuation Issues – There is a serious concern about improper valuation of enterprises to be privatised
thereby depriving the public of their social benefits.

Benefits of privatisation and commercialisation

✓ Relief of federal government of growing burden of financing investment needs.

✓ Improvement in performance of the privatized enterprises.

✓ Privatisation has reduced the scope of political patronage in the form of board’s appointments.

✓ Floatation of privatised enterprise’s shares have greatly stimulated the rapid growth of the Nigerian
Market.

Bureau of Public Enterprises (BPE)

This is the body that took over from the technical committee on privatisation and commercialisation
(TCPC) after they concluded their assignment in 1988. Their main assignment is to implement the
privatisation programme.

Functions of the Bureau of Public Enterprises (BPE) in respect of commercialisation are to:

a. Implement the council's policy on commercialisation;

b. Prepare public enterprises approved by the council for commercialisation;

c. Advise the council on further public enterprises that may be commercialised; Ensure the updating of
the accounts of all commercialised enterprises to ensure financial discipline;

d. Ensure the success of the commercialisation exercise and monitor the operations of the public
enterprises after commercialisation;

e. Review the objectives for which public enterprises were established in order to ensure that they adapt
to the changing needs of the economy;

f. Ensure that public enterprises are managed in accordance with sound commercial principles and
prudent financial practices;

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g. Maintain and review on a continuous basis, any performance agreement between a public enterprise
and the government of the federation;

h. Evaluate and recommend to the council whether or not a public enterprise is eligible for funding
through grants, loans, subventions or equity; and

i. Perform such functions with respect to commercialisation as the council may, from time to time,
assign to it.

The functions of the Bureau of Public Enterprises (BPE) in respect to privatization are to:

a) Implement the council's policy on privatisation;

b) Prepare public enterprises approved by the council for privatisation;

c) Advise the council on further public enterprises that may be privatised;

d) Advise the council on the capital restructuring needs of the public enterprises to be privatised;

e) Carry out all activities required for the successful issue of shares and sale of assets of the public
enterprises to be privatised;

f) Advise the council on the allotment pattern for the sale of the shares of the public enterprises set out
for privatisation;

g) Oversee the actual sale of shares of the public enterprises to be privatised by the issuing houses, in
accordance with the guidelines approved, from time to time, by the council;

h) Perform such functions with respect to privatisation as the council may, from time to time, assign to it.

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