CURRENT GOVERNMENT FINANCIAL REFORMS IN NIGERIA A paper Presented by Torough Ternenge.

1.1        E-PAYMENT SYSTEM IN NIGERIA

1.2        What is Payment System?

A payment system can be defined as the mechanisms, rules, laws, institutions, markets and agreements that facilitate the exchange of value.

 

A national payment system is therefore a set of interactive elements, operational mechanisms and institutional arrangements for domestic currency payments in an economy.

 

The core elements of a national payment system consists of payment instruments, payment infrastructures, institutional arrangements, co-related systems and markets, such as banking system, securities system and IT service markets, among other.

 

1.3        E-payment System

  • Electronic payment system involves the arrangements for automated processing of transactions, through information technology, for finality of payment without recourse to physical evidencing in the first instance.
  • It is faster and swifter than the traditional mode as well as the paper based mode of payment.
  • Funds are transferred electronically and value is immediately given.
  • It enables large value transactions to be undertaken and payments effected within seconds, thus facilitating business transactions and commerce in general as well as reducing payment system risks.

 

1.4        Objectives of E-payment System

The migration from cheque and cash payment system to electronic payment (e-payment) system for all financial transactions of the Federal Government covering Ministries, Departments and Agencies (MDAs) is meant to achieve a number of objectives, among which are:

  • To eliminate delays and bottlenecks in effecting payments for transactions and settlement of financial obligations.
  • To eliminate corruption associated with the previous payment system through cheque and cash.
  • To eliminate excessive paperwork and incentive for gratification which breed’s corruption.
  • To enhance quality of services and there will be better value for money spent.

 

1.5        Stakeholders in the E-payment System

The stakeholders in the e-payment for government services include the following:

  • The Government as promoter
  • The MDAs as implementers, facilitators and beneficiaries
  • The Civil Servants that are paid their salaries and wages electronically
  • The Central Bank of Nigeria (CBN) superintends over the national payment system
  • The Deposit Money Banks (Commercial Banks), all payments made under the system are transmitted to the banks for delivery to the final beneficiaries.

 

1.6        E-payment Tools

  • Plastic Cards (Debits Cards, Credit Cards, etc)
  • Personal Computers
  • Telephones (for IVR)
  • Mobile Phones
  • Internet
  • Automated Teller Machine (ATM)
  • Point of Interaction Terminals
  • Point of Sales Terminals, etc

 

1.7        Features of E-payment System

  • A web-based electronic solution
  • It runs on a multi-bank platform integrating various banking applications
  • Transactions are online, real-time
  • E-payment provides a single payment and reporting source for payment types
  • It monitors collection, sweeping & funds remittance by all lead & collecting banks.

 

1.8        Development of E-payment System in Nigeria

  • In 1993, the Banks and the Discount Houses in collaboration with the CBN developed a private clearing system, the Nigerian Inter Banks Settlement System (NIBSS).
  • In 2004, the CBN introduced a private sector-led cheque clearing and settlement arrangement comprising selected banks as participants.
  • The inauguration of The National Payments System Committee in 2005.
  • The consolidation of the Nigerian Banking System in 2005 heightened competition and deployment of advanced automated systems.
  • The cheques standardization coupled with introduction of the Real Time Gross Settlement System (RTGS) in December 2006 capped the various initiatives by the CBN in modernizing the payment system.

 

1.9        Introduction of E-payment System in MDAs

  • President directed in September, 2008 that payments from all funds of the Federal Government of Nigeria should be made electronically effective from 1st January, 2009 and this was again emphasized by the president while presenting the 2009 Budget to the National Assembly.
  • Consequently, Treasury Circular No. TRY/A8&B8/2008 dated 22nd October, 2008 was issued by the Accountant General of the Federation to this effect.
  • The implications of this are:
  • There will be a new payment regime;
  • There will be no more cheques or cash payments to beneficiaries
  • No physical contact between accounts officials and beneficiaries in the MDAs
  • Effective use of Information Technology i.e. the use of computer and computer software applications
  • However, normal book-keeping will continue to be effected in all MDAs

 

1.10      Procedures in E-payment System in Nigeria

  • Since 1st January, 2009, all forms of payment from all Government funds are paid through the banks (Central Bank or Commercial Banks).
  • All organs of government stopped using cheques to make payments to contractors since January 1st, 2009.
  • Commencing from January 1, 2009, all Bank Accounts in respect of all Government Funds becomes non-cheque accounts.
  • Contractors of Government must indicate particulars of their current accounts with commercial banks on the invoice submitted for payment under their corporate seal.
  • Mandates containing details of payment are to be issued to banks (Commercial and Central Bank of Nigeria) authorizing them to pay the proceeds of executed contracts into the contractor’s designated bank accounts.
  • In addition to existing monthly financial returns, every organisation of government (MDAs) must forward copies of mandates issued to banks to the Office of the Accountant General of the Federation.
  • All employees of the Federal Government must open an account with a commercial bank into which they must make all payments due.
  • Central Pay Officers must not collect cash from the bank for purpose of disbursement to any government official.
  • This procedure is applied to all payments including payments from recurrent funds, capital funds and in respect of all transactions.

 

1.11      Services Offered by E-payment System

  • Banks statement download
  • Electronic bill payments
  • Funds transfer
  • Loans application and processing
  • Investments
  • Account aggregation
  • The automatic generation of an electronic file for transfer to the bank
  • Securely transfer payment to vendors, Contractors and employees or across accounts by transmitting such payables to the banks
  • Automated bank reconciliation process
  • Manage exceptions for transactions that are not in the MDAs records.
  • Easily reconcile transactions and adjustments with electronic account information that integrates with the Bank Reconciliation module.
  • Communicate with your bank over any communication link with transaction downloading for later viewing and auditing.
  • Automated confirmation of mandates from remote locations in the MDAs.

 

1.12      The Role of CBN in the E-payment System

  • The CBN as a government agency is also affected by the directive of the Federal Government. However, the CBN has an important role to play in the arrangement as banker to government and banks as well as the manager and regulator of the National Payment System.
  • The CBN is responsible for the development of the National Payment System through the provision of the backbone infrastructure as well as rules and regulations for the system.
  • With the bank consolidation and the rapid deployment of ICT infrastructure by banks, they are well equipped to handle the challenges that may arise from the electronic payment from government funds.

 

1.13      The Role of Commercial Banks in the E-payment System

  • The Deposit Money Banks (DMBs) execute payment instructions whether electronic or through other payment modes.
  • As account holders for the suppliers of government services, the banks are expected to credit such accounts as soon as payment instructions are received. Their failure to credit the accounts promptly will compromise the gains expected from the e-payment system.
  • The banks are to ensure that all necessary controls for enforcing adequate authorization and authentication are applied before the release of funds from customer’s account.
  • The finality of payment could be delayed if customers are not alerted on time in respect of funds credited to their accounts. As soon as payment instructions are processed, the beneficiaries should be contacted either through telephone, e-mail or other media.
  • The banks will be required to observe e-payment system rules and regulations from the CBN. They will also be required to adopt systems recommended by the CBN. The non-observance of the e-payment rules and regulations from the CBN will attract appropriate sanctions.

 

1.14      E-payment Pros and Cons

1.14.1  Pros

  • Enhance tracking of payments to accounts of beneficiaries and thus assist audit trail.
  • Ensures remittance of taxes to government.
  • Will reduce fraud, corruption and financial irregularities.
  • Has positive effect on fiscal and monetary policy management as it reduces the amount of cash in circulation and thus enables monitoring by regulators.
  • Will assist investigations by agencies such as Economic and Financial Crime Commission (EFCC) and the Independent Corrupt Practices and Other Related Offences Commission (ICPC).
  • Reduce cost of minting, circulating, processing and replacing currency notes.
  • Minimises socio-economic risks associated with movement of large amounts of cash from place to place.
  • Enhances real time accounting and reporting in the public sector thus leading to e-governance.

1.14.2  Cons

  • Risk of identity theft, switching and interception of mandates as well as other forms of online fraud.
  • Infrastructure constraints limit full implementation.
  • Lack of adequate manpower for system implementation.

 

 

2.0        AUTOMATED ACCOUNTING TRANSACTION RECORDING AND REPORTING SYSTEM (ATRRS)

It is an ICT based Accounting Software application which facilitates the input of Accounting Transactions, its reconciliation and the generation of Standard Accounting Reports that meet the required Standard of the Treasury. The software is developed by the Treasury (OAGF). It provides a leverage solution to automate the manual recording of the accounting transactions in the Line Ministries, Agencies and Parastatals of government.

 

At the point of its conception, It was envisaged that the full deployment and development of the GIFMIS will not be possible within a short time hence the need to have a bridge which will link up with the ultimate objectives of the GIFMIS. This will thus be a stop gap solution to GIFMIS.

 

The solution helps in the prompt rendition of financial and accounting returns; accurate presentation of financial reports; enhanced capacity to generate complex analytical reports; enhanced ability to cope with large volume of transactions; automatic mode of processing transactions and ability to eventually operate on-line real time processing. With this package, solution is provided to most of the challenges posed by the manual accounting process.

 

The implementation of the Accounting Transaction Recording and Reporting System (ATRRS) has opened the doors widely for the Treasury to appreciate the essence and benefits derivable from the computerization of Government Accounting System.

2.1        Implementation strategy

  • The software development started with version 1.1 way back in January, 2005.There has been rapid updates and upgrades since then in the system. From this initial version, it was upgraded to versions 2.1, 2.2, 2.3 and 2.4 all on access based platform.
  • Due to the need to have a more robust and reliable database platform to run the system, an SQL version of the software was developed which allows for a multiuser facility. The LAN version 3.0 then came on board. Presently, due to the need to incorporate the multidimensional Chart of Accounts of GIFMIS, an upgrade was again made to ATRRS LAN version 3.1 which is presently being rolled over to the MDAs. This new version is expected to ensure seamless capturing of accounting transactions thus facilitating ease of reconciliation of the Account leading to timely production and submission of reports from Line Ministries, departments and Agencies (MDAs) and Federal Pay Offices (FPOs) for OAGF for consolidation and production of Annual Consolidated Financial Statement of the Federal Government.

 

2.2      Benefits of the ATRRS Accounting Software

  • Familiarize the workforce with the use of IT equipment at an early stage of Government integrated Financial Management Information System (GIFMIS) implementation, which would enable a smoother transition to the GIFMIS Software.
  • Potentially reduce training period and requirement for GIFMIS.
  • Potentially reduce GIFMIS implementation cost.
  • Shorten Business Process re-engineering period (i.e. it is faster to transit from a semi automated process than a manual process.
  • Facilitates ease of reconciliation of the various bank Accounts.
  • Ensures clean and accurate data will be available for migration in to GIFMIS.

 

2.3        Status of Implementation

  • The software has been successfully deployed to over 104 Ministries, Departments and Agencies in the country.
  • Training programme for the new ATRRS LAN version 3.1 software which will facilitate the use of the new multidimensional GIFMIS Chart of Account was successfully held in April, 2011 with over 620 staff from the MDAs participating.
  • The Installation of the new version in the MDAs and the on the site training of the staff in the MDAs have commenced in earnest.
  • The year ended 31st December, 2010 Consolidated Financial Statement of the Federal Government is presently being finalized before submission to the Auditor-General for the Federation for his Audit examination.

 

3.0        INTEGRATED PAYROLL AND PERSONNEL INFORMATION SYSTEM (IPPIS)

IPPIS stands for “Integrated Payroll and Personnel Information System”. The system covers the administration of FGN’s human resource i.e. recruitment, promotion, discipline, transfers, career movements, training and development, performance management, disengagement and all the financial transactions related to personnel emoluments. It aims to promote the effectiveness and efficiency in storage of personnel records and administration of monthly payroll in such a way to enhance confidence in staff emolument costs and budgeting.

 

IPPIS is a web-based Human Resources Management System (HRMS) that has Personnel records and Payroll administration modules. The HRMS runs on an internet that connects the data centres of the MDAs including Nigeria Police Formations to the main server at the Office of the Accountant General of the Federation (OAGF), who are the custodian of the system.

 

3.1        Objectives of IPPIS

The process aims to:

  • Centralize payment and payroll system.
  • Ascertain actual personnel emoluments and workforce of Federal Government.
  • Facilitate planning.
  • Aid Budgeting.
  • Monitor the monthly payment of staff emoluments.
  • Ensure Database integrity so that personnel information are correct and intact.
  • Eliminate payroll fraud.
  • Facilitate easy storage, updating and retrieval of personnel records for administrative and pension processes.
  • Provide a good working environment that is innovative and technologically driven

 

3.3        IPPIS Impacts and Benefits

Since the roll out of the first phase of IPPIS, the impact of its implementation have felt and some of the benefits recorded are:

  • Collection of existing personnel records.
  • Capture of new personnel records including photograph & biometric data (fingerprints).
  • Update of records in the centralized personnel database.
  • Timely processing of staff emoluments on a monthly basis.
  • Easy retrieval of personnel information.
  • Salaries are now paid directly into the bank accounts of civil servants whose records exist in the personnel database no later than 20th day of the month.
  • Adequate monitoring of unutilized funds derived from unpaid staff salaries.
  • Savings on overhead cost, running into several billions on naira.
  • Third party agencies like FIRS, BIRS, PenCom and Cooperative societies receive their payments directly without any delay.
  • Every minute details about payment of staff monthly emoluments from the individual civil servant, the MDAs and the amount paid monthly to third party agencies are being documented electronically and Government is not able to know:
  • How much is paid to each employee.
  • How much is each of the MDAs paying to all their employees, the taxes and other deductions paid to third party agencies.
  • A running total of how much have been paid to civil servants scattered across the MDAs, how much has been taken out and for whatever reasons and other amount deducted for staff bulk loans and advances.

 

3.3        IPPIS Control Agencies

There are government departments that examine carefully the information generated from IPPIS and they exert some measures of control as a way of putting checks and balances into the system. They look for consistency in the information flow from IPPIS and raise timely alarm immediately something unusual happens to distort the established/expected pattern of reporting.

 

With a comprehensive database of personnel records at their disposal, they plan, monitor and control the performance of IPPIS to bring about the desired gains for which it was implemented. Such offices and organs that fall into this category are:

  • FCSC:             Federal Civil Service Commission
  • PSC:             Police Service Commission
  • OHCSF: Office of Head Civil Service of the Federation
  • NPF:             Nigerian Police Force
  • BOF:             Budget Office of the Federation
  • OauGF: Office of Auditor General for the Federation
  • CBN:             Central Bank of Nigeria
  • OAGF:             Office of Accountant General of the Federation

 

3.4        Phase 1 – Pilot MDAs

  • Federal Ministry of Education
  • Federal Ministry of Works
  • Federal Ministry of Finance
  • Budget Office of the Federation
  • Federal Ministry of Information
  • Ministry of Foreign Affairs and
  • National Planning Commission

 

3.5        Phase 2 – All MDAs

All core ministries and Parastatals drawing Personnel Cost from the Consolidated Revenue Funds (CRF).

 

3.6        The Personnel Records and Payroll Processes in IPPIS

IPPIS has two major modules:

  • Personnel Records
  • Payroll Administration

 

3.6.1    Personnel Records Processes

The major personnel processes of IPPIS are:

  • Establishment Control
  • Cadre Management
  • Employee Bio data Capture
  • Personnel Transactions Capture
  • Administrative Verification of Submitted Employee Documents
  • Biometric Enrolment
  • Provision of comprehensive personnel records that will be required for payroll processing

 

3.6.2    Completeness of IPPIS Database

The following must be captured into the personnel database for completeness:

  • Comprehensive record on individual civil servants verified by OHCSF and Force Headquarters.
  • Personnel Transaction Tracking
  • Speciality
  • Promotion
  • Deployment
  • Transfers/Postings
  • In-service trainings and effects on employee’s qualifications

 

3.6.3    The Payroll Administration

The second module of IPPIS is payroll Administration. Every month, each of the MDAs/Police Formations goes through a cycle that culminates into the payment of officer’s salaries. The first step is the enrolment of new officers, followed by updates of monthly variations like collection and confirmation of officer’s salary bank and account numbers before Payroll is processed and closed until salaries are paid into the respective banks.

 

3.6.4    The Major Processes in the Monthly Payroll Cycle

  • Variation capture at the MDAs/Police Formations
  • Payroll run at MDA’s/Police Formations
  • Payroll closure by MDAs/Police Formations
  • Payroll Audit
  • Payslip generation at MDAs/Police Formations
  • Rollover to a new month
  • Payroll warrant generation by BOF
  • Payroll mandate generation by OAGF
  • Send Payroll warrants to CBN

 

3.7        Unique Features of IPPIS

As soon as salary is paid to individuals, his other third party payment are effected simultaneously i.e. Pension, tax (to FIRS for FCT staff and State Board of Inland Revenue for Staff in the State); Union Dues, Cooperative Societies (if a member), NHF, etc as long a it is reflected in the completed form. The new scheme would allow for some level of self service whereby individual would be able to print his/her payslip. Individual MDA would continue to carry out their duties, but would be connected to OAGF.

 

3.8        Achievements

  • Streamlined payroll and personnel process
  • Personnel budget is now based on actual and not on estimates
  • Confidence in payroll cost and actual nominal roll data
  • Payment of staff salaries before the 20th day of the month
  • Prompt deductions and remittances to all third party funds (PFAs, NHIS, NHF, State Board of Inland Revenue, etc)
  • Savings to Government from “the ghost workers” syndrome
  • Improvement in management reporting and information, etc

 

3.9        Challenges

  1. Insufficiency of trained staff in some Ministries couples with in-depth training.
  2. Constant movement/posting of trained IPPIS officers, some trainees lack IT skills.

iii.   Supply of in-accurate data by officers when filling IPPIS forms.

  1. Lack of adequate sensitization and publicity, etc.

 

4.0        GOVERNMENT INTEGRATED FINANCIAL MANAGEMENT INFORMATION SYSTEM (GIFMIS)

GIFMIS is a sub component of the ERGP (Economic Reform and Governance Project) which will support the public resource management and targeted anti-corruption initiatives area through modernising fiscal processes using better methods, techniques and information technology.The Government Integrated Financial Management Information System (GIFMIS) is an IT based system for budget management and accounting that is being implemented by the Federal Government of Nigeria to improve Public Expenditure Management processes, enhance greater accountability and transparency across Ministries and Agencies.

 

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

 

The Government recognizes nevertheless that additional challenges remain and that Public expenditure management needs to be further strengthened to (i) build an integrated budget based on programs that are clearly linked to key development objectives; (ii) ensure greater accountability from budget holders; (iii) allow greater emphasis on budget outcomes and impact; and (iv) identify and address remaining sources of leakage in budget execution in order to strengthen efficiency of public expenditures. 
This will require in addition to changes in policies and regulations, considerable modernization and automation of current budget and financial management and procurement practices.

 

4.1        Purpose of GIFMIS

The purpose of introducing GIFMIS is to assist the FGN in improving the management, performance and outcomes of Public Financial Management (PFM). The immediate purpose of this project is to enable an executable budget, i.e. a budget which can be implemented as planned by addressing the critical public financial management weaknesses including:

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

 

It must be underscored that whereas GIFMIS is part of the solution to the above problems, it (GIFMIS) cannot be a driver of change to better public financial management – rather it is a tool to facilitate change. To this end, the introduction of a GIFMIS will be combined with major changes to business processes.  As a matter of fact GIFMIS provides an opportunity to move to Treasury Single Account and to reduce the number of stages in transaction processing. In addition it will provide better access to information which can be used to improve fiscal and operational management. GIFMIS will also reduce fiduciary risk by enabling greater transparency and by reducing the opportunities for manual intervention in financial transactions.

 

4.2        Objectives of GIFMIS

The overall objective is to implement a computerized financial management information system for the FGN, which is efficient, effective, and user friendly and which:

  • Increases the ability of FGN to undertake central control and monitoring of expenditure and receipts in the MDAs.
  • Increases the ability to access information on financial and operational performance.
  • Increases internal controls to prevent and detect potential and actual fraud.
  • Increases the ability to access information on Government’s cash position and economic performance.
  • Improves medium term planning through a Medium Term Expenditure Framework (MTEF).
  • Provides the ability to understand the costs of groups of activities and tasks.
  • Increases the ability to demonstrate accountability and transparency to the public and cooperating partners.

4.3        Scope of GIFMIS

  • The GIFMIS will be used to support the government in all aspects of budget preparation, execution and management of government financial resources.
  • The system will cover all spending units financed from the government’s budget, and will process and manage all expenditure transactions (including interfaces) pertaining to these units.
  • All steps in the expenditure cycle including, budget appropriations, financing limits, commitments, verification and payment transactions will be recorded by and managed through the system.
  • In other words, the system will be a modern, efficient and user-friendly facility, providing comprehensive information on all the financial affairs of the Government.
  • This will act as a reliable basis for multi-year budgeting, annual budgeting, commitment control, payment control, financial and cash management and economic planning.
  • The financial management functions of the GIFMIS will cover the entire financial management cycle including:
  • Budget preparation
  • Budget maintenance and management
  • Budget execution and treasury management
  • General ledger
  • Procurement, including commitments of purchase orders, maintenance of a central supplier register and support for e-procurement.
  • Receipting, Accounts Receivable and Revenue Management
  • Payments and Accounts Payable
  • Inventory and Stock Control
  • Asset Management
  • Budget Execution reporting
  • Financial reporting
  • Project accounting
  • Loans and Advances

 

4.4        Interfaces with Third Parties

Interfaces with third party systems to be provided by the GIFMIS include:

  • Human Manager – Payroll – OAGF – Payroll costs/Loan repayments
  • ASYCUDA – Customs – NCS – Revenue
  • SAP – Taxation – FIRS – Revenue
  • CD-DRMS – Debt Management – DMO – Debt payments
  • Oracle ERP – Banking interface – CBN – Bank Statements
  • Oracle 9i – Medium Term Budget – BOF – Annual Budgets and ceilings

 

4.5        GIFMIS Critical Success Factors

The following factors have been identified as critical to the success of GIFMIS implementation;

  • Sustained Management Support
  • Effective Organizational change
  • Good Project Scope Management
  • Adequate Project Team Composition
  • Comprehensive Business Process Re-engineering
  • Adequate Project Sponsor and Champion Role
  • User Involvement and Participation
  • Trust between partners
  • Dedicated staff and consultants
  • Strong Internal & external communication
  • Formalised Training Program
  • Adequate Training Program
  • Data Conversion Management
  • Empowerment of Project Management Team & Sponsor
  • Adequate GIFMIS implementation strategy
  • Avoidance of Extensive Customisation.

 

5.0        TREASURY SINGLE ACCOUNT (TSA)

5.1        What is Treasury Single Account (TSA)

It is a unified structure of government bank accounts that provide a consolidated view of government cash resources and position at any point in time. Is an essential tool for consolidating and managing governments’ cash resources, thus minimizing borrowing costs.

 

5.2        Objectives of TSA

  • Ensure availability of cash for MDAs
  • Remove delays in budget execution arising from artificial cash shortages
  • Reduce the government debt servicing costs
  • Lower liquidity reserve needs
  • Maximise the return on investment of surplus cash
  • Remove idle cash in commercial banks

 

5.3        Stakeholders

  • MDAs –           Ministries, Departments and Agencies
  • BOF –           Budget Office of the Federation           
  • OAGF –           Office of Accountant General of the Federation
  • OAuGF –           Office of Auditor General for the Federation
  • MOF –           Ministry of Finance
  • CBN –           Central Bank of Nigeria
  • Commercial Banks
  • Contractors
  • Public Servants

 

5.4        TSA Processes

MOF (BOF)                                                              

 

OAGF                                                            

 

MDA                                                             

 

CBN                                                               

 

Commercial Banks                                                            

 

 

 

Contractors  Public Servants                                                                  

 

5.5        Relationship Between the TSA and GIFMIS

  • GIFMIS is an IT based system that drives the TSA and all other Financial Management System.
  • GIFMIS centralises all government transactions including payments and receipts into a single bank accounts.

 

5.6        The Implementation of TSA

The implementation strategy is in three phases, namely;

  1. Phase 1 –           Linking of Capital Accounts within CBN (Undertaken                                in 2011)
  2. Phase 2 –           Consolidation of all accounts including overhead                                      accounts of all Abuja-based MDAs. (Undertaken in                                    2012)
  • Phase 3 –           Consolidation of all accounts including overhead                                      accounts of all MDAs based out of Abuja as well as                                     donor funds. (To be implemented after completion                                  of phase 2).

 

5.7        Advantages of Implementing TSA in Nigeria

  • It reduces corruption in the management of government resources.
  • It reduces idle cash balances in bank accounts which often fails to earn market-related remuneration.
  • It reduces unnecessary borrowing costs on raising funds to cover a perceived cash shortage.
  • Helps consolidate government cash balances, gives the Ministry of Finance/OAGF oversight of all government cash flows, and brings improvements in budget control and monitoring.

 

5.8        Challenges

  • IT infrastructure
  • Lack of well trained Manpower
  • Lack of Legislation

 

5.9        Conclusion

The coverage of the TSA should be comprehensive, encompassing all government cash, both budgetary and extra budgetary, which will ensure that no other MDAs will be allowed to operate bank accounts. This will ensure effective aggregate control over government funds.

 

 

6.0        NEW CLASSIFICATION SYSTEM AND PUBLIC ACCOUNTABILITY – NATIONAL CHART OF ACCOUNT (NCOA)

In preparation for the introduction of GIFMIS, a new multi-dimensional Chart of Accounts (COA) has been designed. The new classification system is made up of 6 segments, namely: Administrative, Economic, Functional, Fund, Program and Geographic segments. The COA provides a robust mechanism for the classification of public resources under the budget as well as tracking receipts and payments during budget execution. In particular, the new classification system seeks to support one of the key deliverables of the government’s Economic Reform and Governance Project (ERGP) which is the “adoption of more transparent and modern economic and financial management systems and processes that are less prone to corruption”.

 

6.1        Introduction        

The Federal  Executive Council (FEC) at its meeting on 28th July, 2010 approved that Nigeria should adopt the provisions of the International Financial Reporting Standards (IFRS) and International Public Sector Accounting Standards (IPSAS) for Private and Public Sectors respectively.

 

In light of the above, Federation Account Allocation Committee (FAAC) held a meeting on the 13th June, 2011 and a Sub-Committee was set up to provide a roadmap for the implementation of IPSAS among the three tiers of government in Nigeria.

 

The FAAC Sub-Committee has developed a comprehensive and standardized National Chart of Accounts hereafter refers to as NCOA.This NCOA is an integrated budget and accounting classification system which has been prepared primarily for the implementation of the uniform accounting system that is IPSAS compliant.

 

The Chart of Accounts (COA) may be defined as a complete list of budget and accounting items where each item is uniquely represented by a code and grouped into tables of related data for the purposes of tracking, managing and reporting budgetary and accounting items in an orderly, efficient and transparent manner.

 

It is also a created list of codes which can be represented by numeric, alphabetic, or alpha-numeric symbols. This is to enable the entity to define each item of revenue, expenditure, asset, liability, location and other parameters in order to give interested parties a better understanding of the entity.

 

6.2        National Chart of Accounts (NCOA)

The National COA has harmonised all the various COA of Federal, States and Local Government Councils to a standardized COA that will enhance the attainment of minimum reporting requirement that is in line with international best practices.

 

NCOA comprises the coding of items used for classification, budgeting, accounting and reporting within the financial year. It serves to facilitate and systematise the recording of all transactions and is directly linked to General Purpose Financial Statements (GPFS).

 

6.3        Structure of the National COA

S/No

Segment

No of Digits

Description

1

Administrative

12

Entity Responsible/Cost or Revenue Centre/Who? e.g. Min. of Health

2

Economic

8

What Transaction?  e.g. Expenditure on Local Travel & Transport

3

Functional

5

Purpose?  e.g. General Medical Services

4

Programme

14

Why? e.g. Primary Health Care

5

Fund

5

Source/Financed by? Main Envelope- CRF, Domestic Aid & Grants

6

Geo Codes

8

Where? (Location of Transaction) e.g. Benue State

TOTAL

52

 

Below is the structure of the National Chart of Accounts at a glance.

S/No

Segment

Digits

Remarks

1

Administrative Segment:

12

Responsibility Code  ( Cost /Revenue Centre)  e.g. Min of Health

1.1

Sector

2

 

1.2

Organization

2

 

1.3

Sub-Organization

3

 

1.4

Sub-Sub Org

3

 

1.5

Sub-Sub-Sub Org

2

 

2

Economic Segment

8

What?  e.g. Expenditures on Local travel & Travel

2.1

Account Type

1

 

2.2

Sub-Account Types

1

 

2.3

Account Class

2

 

2.4

Sub-Class

2

 

2.5

Economic Code (Line Item)

2

 

3

Functional Segment

5

Purpose?  e.g. General Medical Services

3.1

Main Function or Divisions

3

 

3.2

Function or Groups

1

 

3.3

Secondary Function or Classes

1

 

4

Programme Segment

14

Why? e.g. Primary Health Care

4.1

Policy

2

 

4.2

Programme

2

 

4.3

Project

6

 

4.4

Objective

2

 

4.4

Activity

2

 

5

Fund Segment

5

Financed by? E.G. Finances from CRF or Aid & Grants

5.1

Main Funds

2

 

5.2

Sub-Funds

1

 

5.3

Fund Sources

2

 

6

Geo Code Segment

8

Where? ( location of transactions) e.g. Benue State

6.1

Zone

1

 

6.2

State

2

 

6.3

Senatorial

1

 

6.4

LGA

2

 

6.5

Wards

2

 
 

           Total

52

 

 

7.0        ADOPTION OF INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS – IPSAS

A decision was taken to adopt IPSAS for financial reporting for the Federal Government of Nigeria. As a first step, a gap analysis was undertaken.

7.1        Objectives of Undertaking IPSAS Gap analysis

  • The conduct of the IPSAS gap analysis is with a view of enhancing the quality and transparency of public sector Financial Reporting and strengthening public confidence in Public sector Financial Management. The adoption of IPSAS by Governments will also improve the quality and comparability of Financial information reported by Public sector entities around the world
  • The conduct of the gap analysis considerably helped in improving our Financial Reporting System, which helped in identifying the existing gaps between our existing Financial Reporting System and the international Standard. Hence facilitating our efforts to bridge the identified gaps, accordingly.
  • The gap analysis study that was undertaken by the Federal Government of Nigeria is an attempt to benchmark Government Accounting in Nigeria with Cash IPSAS to identify the gaps.  It is intended to identify the specific departure of Government Accounting system from cash basis IPSAS and chart a transition path for adoption of Accrual based IPSAS.
  • The study attempted to assess whether the country should adopt a limited version of the standards, as the processes of developing the standards have already considered any acceptable options that can be incorporated into the text of the standards.

7.2        Undertaking the IPSAS Gap analysis

  • Collection of background information relating to the various laws and documents relevant for the work of the committee.
  • Collection of information relating to assessment of cash basis diagnostic tool 1 and 2 which led to the designed questionnaire 1 and 2.
  • There was a review of the questionnaire and interviews with the major stakeholders.
  • The filled questionnaires and diagnostic tools were analyzed and brain storming sessions were held to discuss the findings.
  • The committee tested the application of cash IPSAS to the Federal Government Financial Statement.
  • Based on this, the committee then put up an interim draft report pending the out-country analytical work and international study tour to some countries that are fully compliant to cash basis IPSAS and have successfully migrated to Accrual based IPSAS.
  • A sensitization workshop was held with the major stakeholders like the Nigerian Accounting Standards Board, Accountants-General and Auditors-General of the states in Nigeria, members of the Finance and Public Accounts Committees of the two chambers of the National Assembly, office of the Auditor-General for the Federation, Budget office of the Federation, Fiscal Responsibility Commission, the Directors Finance and Accounts ,Heads of Account departments  and relevant designated officials in the Ministries, Departments and Agencies. The recommendations made at the end of the workshop helped to ensure a hitch free programme to bridge the identified gaps.

 

7.3        Status of Implementation

  • The office of the Accountant-General of the Federation of Nigeria (OAGF) has worked out an itemized action plan on various items as the identified gaps. The most significant issues are entity consolidation and timeliness of Account submission.
  • The Federal Government would need to consolidate the cash flows of all entities that it controls (including GBEs – Government Business Enterprises) with its financial statements. For practical convenience the consolidation of GBEs will be taken up in the long run while consolidation of all other entities is being immediately embarked upon.
  • For improving the timeliness, the time taken in Ministries, Departments and Agencies of Government including at the office of the Accountant-General of the Federation of Nigeria for finalization of financial statements has been be crashed significantly. This is being facilitated through the use of Information Technology, Accounting Packages like the ATRRS and the Excel template initiatives.

 

7.4        IPSASs Summarised

IPSAS

Standard

Based On

IPSAS 1

Presentation of Financial Statements

IAS 1

IPSAS 2

Cash Flow Statements

IAS 7

IPSAS 3

Accounting Policies, Changes in Accounting Estimates and Errors

IAS 8

IPSAS 4

The Effects of Changes in Foreign Exchange Rates

IAS 21

IPSAS 5

Borrowing Costs

IAS 23

IPSAS 6

Consolidated and Separate Financial Statements

IAS 27

IPSAS 7

Investments in Associates

IAS 28

IPSAS 8

Interests in Associates

IAS 31

IPSAS 9

Revenue from Exchange Transactions

IAS 18

IPSAS 10

Financial Reporting in Hyperinflationary Economies

IAS 29

IPSAS 11

Construction Contracts

IAS 11

IPSAS 12

Inventories

IAS 2

IPSAS 13

Leases

IAS 17

IPSAS 14

Events After the Reporting Date

IAS 10

IPSAS 15

Financial Instruments: Disclosure and

IAS 32

IPSAS 16

Investment Property

IAS 40

IPSAS 17

Property, Plant & Equipment

IAS 16

IPSAS 18

Segment Reporting

IAS 14

IPSAS 19

Provisions, Contingent Liabilities & Contingent Assets

IAS 37

IPSAS 20

Related Party Disclosures

IAS 24

IPSAS 21

Impairment of Non-Cash Generating Assets

IAS 36

IPSAS 22

Disclosure of Financial Information About General Government Sector

No corresponding IFRS

IPSAS 23

Revenue from Non-Exchange Transactions (Taxes and Transfers)

No corresponding IFRS

IPSAS 24

Presentation of Budget Information in Financial Statements

No corresponding IFRS

IPSAS 25

Employee Benefits

IAS 19

IPSAS 26

Impairment of Cash-Generating Assets

IAS 36

IPSAS 27

Agriculture

IAS 41

IPSAS 28

Financial Instruments: Presentation

IAS 32

IPSAS 29

Financial Instruments: Recognition and Measurement

IAS 39

IPSAS 30

Financial Instruments: Disclosures

IFRS 7

IPSAS 31

Intangible Assets

IAS 38

IPSAS 32

Service Concession Arrangements: Grantor

IFRIC 12

 

IPSAS

Standard

Summary

IPSAS 1

Presentation of Financial Statements

  • Set out the manner in which GPFS (General Purpose Financial Statements) shall be prepared.
  • A complete set of financial statements comprises:
  • Statement of financial positions;
  • Statement of financial performance;
  • Cash flow statement;
  • When the entity makes it approved budget publicly available, a comparison of budget and accrual amounts;

IPSAS 2

Cash Flow Statements

  • Requires the presentation of information about historical changes in a public sector entity’s cash and cash equivalent using a cash flow statement.
  • The Standard describes how to classify cash flows during the period to: operating, investing and financing activities.

IPSAS 3

Accounting Policies, Changes in Accounting Estimates and Errors

  • Prescribes the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates, and corrections of errors.

IPSAS 4

The Effects of Changes in Foreign Exchange Rates

  • Prescribes the accounting treatment for an entity’s foreign currency transactions and foreign operations.
  • The standard defines the functional currency and prescribes how to convert from foreign to functional currency.

IPSAS 5

Borrowing Costs

  • Prescribes the accounting treatment for borrowing costs.
  • Borrowing costs include interest, amortization of discounts or premiums on, and amortization of ancillary costs incurred in the arrangement of borrowings.

IPSAS 6

Consolidated and Separate Financial Statements

  • Identifies the requirements for preparing and presenting consolidated financial statements for an economic entity under the accrual basis of accounting.
  • Also addresses how to account for investments in controlled entities, jointly controlled entities and associates in separate financial statements.

IPSAS 7

Investments in Associates

  • Prescribes the investor’s accounting for investments in associates where the investment in the associate leads to the holding of an ownership interest in the form of a shareholding or other formal equity structure.

IPSAS 8

Interests in Associates

  • Provides the accounting treatment for interests in joint ventures, regardless of the structures or legal forms of the joint venture activities.

IPSAS 9

Revenue from Exchange Transactions

  • Applies to revenue arising from the following exchange transactions and events:
  • The rendering of services;
  • The sale of goods, and
  • The use of others of entity assets yielding interest, royalties and dividends.

IPSAS 10

Financial Reporting in Hyperinflationary Economies

  • Prescribes specific standards for entities reporting in the currency of a hyperinflationary economy, so that the financial information (including the consolidated financial information) provided is meaningful.
  • The financial statements of an entity that reports in the currency of a hyperinflationary economy shall be stated in terms of the measuring unit current at the reporting data.

IPSAS 11

Construction Contracts

  • This standards relates to the accounting treatment for revenue and costs associated with construction contracts in the financial statements of the contractor.

IPSAS 12

Inventories

  • Prescribes the accounting treatment of inventories, including cost determination and expense recognition, including any write-down to net-realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.

IPSAS 13

Leases

  • Relates to lessees and lessors, the appropriate accounting policies and disclosures to apply in relation to finance and operating leases.
  • The standard classifies leases into: finance and operating for accounting treatment purposes.

IPSAS 14

Events After the Reporting Date

  • Prescribes:
  1. When an entity shall adjust its financial statements for events after the reporting date.
  2. Disclosures that an entity should give about the date when the financial statements were authorized for issue, and about events after the reporting date.

IPSAS 15

Financial Instruments: Disclosure and Presentation.

  • Superseded by IPSAS 28 and IPSAS 30

IPSAS 16

Investment Property

  • Relates to accounting treatment for investment property and related disclosures.
  • Investment property is land or buildings held (whether by the owner or under a finance lease) to earn rentals or for capital appreciation or both, rather than for:
  • Use in the production or supply of goods or services or for administrative purposes;
  • Sale in the ordinary course of operations.

IPSAS 17

Property, Plant & Equipment

  • Prescribes the principles for the initial recognition and subsequent accounting (determination carrying amount and the depreciation charges and impairment losses) for property, plant and equipment so that users of financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment.

IPSAS 18

Segment Reporting

  • Establishes the principles for reporting financial information by segments to better understand the entity’s past performance and to identify the resources allocated to support the major activities of the entity, and enhance the transparency of financial reporting and enable the entity to better discharge its accountability obligations.

IPSAS 19

Provisions, Contingent Liabilities & Contingent Assets

  • Prescribes appropriate criteria and measurement bases for provisions, contingent liabilities and contingent assets, and to ensure that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount.
  • This standard aims at ensuring that only genuine obligations are dealt with in the financial statements.

IPSAS 20

Related Party Disclosures

  • Ensures that financial statements disclose the existence of related party relationships and transactions between the entity and its related parties.
  • This information is required for accountability purposes and to facilitates a better understanding of the financial position and performance of the reporting entity.

IPSAS 21

Impairment of Non-Cash Generating Assets

  • Ensure that non-cash-generating assets are carried at no more than their recoverable service amount, and to prescribe how recoverable service amount is calculated.

IPSAS 22

Disclosure of Financial Information About General Government Sector

  • Sets the disclosure requirements for governments which elect to present information about the general government sector (GGS) in their consolidated financial statements.
  • The disclosure of appropriate information about the GGS of a government can provide a better understanding of the relationship between the market and non-market activities of the government and between financial statements ad statistical bases of financial reporting.

IPSAS 23

Revenue from Non-Exchange Transactions (Taxes and Transfers)

  • Prescribes requirements for the financial reporting of revenue arising from non-exchange transactions, other than non-exchange transactions that give rise to an entity combination.
  • In a non-exchange transaction, an entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange.

IPSAS 24

Presentation of Budget Information in Financial Statements

  • Ensures that public sector entities discharge their accountability obligations and enhance the transparency of their financial statements by demonstrating compliance with the approved budget for which they are held publicly accountable and, where the budget and the financial statements are prepared on the same basis, their financial performance in achieving the budgeted results.

IPSAS 25

Employee Benefits

  • Prescribes the accounting and disclosure for employee benefits.
  • They include: short-term benefits (wages, annual leave, sick leave, bonuses, profit-sharing and non-monetary benefits); pensions; post-employment life insurance and medical benefits; termination benefits and other long term profit-sharing), except for share based transactions and employee retirement benefit plans.

IPSAS 26

Impairment of Cash-Generating Assets

  • Prescribes the procedures that an entity applies to determine whether a cash-generating asset is impaired and to ensure that impairment losses are recognized.
  • This standard also specifies when an entity shall reverse an impairment loss and prescribes disclosures.

IPSAS 27

Agriculture

  • Sets the accounting treatment and disclosures for agricultural activity.
  • Agricultural activity is the management by an entity of the biological transformation of living animals or plants (biological assets) for sale, or for distribution at no charge or for a nominal charge or for conversion into agricultural produce or into additional biological assets.

IPSAS 28

Financial Instruments: Presentation

  • This standard sets the principles for classifying and presenting financial instruments as liabilities or net assets/equity, and for offsetting financial assets and liabilities.

IPSAS 29

Financial Instruments: Recognition and Measurement

  • Establishes principles for recognizing, derecognizing and measuring financial assets and financial liabilities.
  • All financial assets and financial liabilities, including all derivatives and certain embedded derivatives, are recognized in the statement of financial position.

IPSAS 30

Financial Instruments: Disclosures

  • Prescribes disclosure that enable financial statement users to evaluate the significance of financial instruments to an entity, the nature and extent of their risks, and how the entity manages those risk.

IPSAS 31

Intangible Assets

  • Sets the accounting treatment for intangible assets that are not dealt with specifically in another IPSAS.
  • IPSAS 31 does not apply to intangible assets acquired in an entity combination from a non-exchange transaction, and to powers and rights conferred by legislation, a constitution or by equivalent means, such as the power to tax.

IPSAS 32

Service Concession Arrangements: Grantor

  • Prescribes the accounting for service concession arrangement by the grantor, a public sector entity.

 

7.5        Conclusion

IPSAS aims to improve the quality of general purpose financial reporting by public sector entities, leading to better informed assessments of the resource allocation decisions made by governments, thereby increasing transparency and accountability.

 

The introduction of private-style financial statements and changing the basis of these accounts to the accrual basis should only be introduced as part of an overall reform strategy for public sector financial management. Nigeria is in the process of adopting the cash basis IPSAS, will then move to adopt accrual basis IPSAS. This is to conform to International accounting standards.

 

Thank you

 

 

 

….

 

 

Ternenge Torough is a financial analyst and consultant. He lives and works in Makurdi and Abuja, NIGERIA.

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