Transcript The Nigerian Public Financial Management System and Rules

Public Financial
Management in Nigeria
Chinedum Nwoko & Kelechi Anyanwu
Policy Associates
Outline
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Introduction
Course Objectives
What is Financial Management?
Concept and Scope of the PFM System
Legal and Institutional Framework for PFM and PFM Reform
in FGN
Basic Features & Rules of PFM
Assessing Performance of the PFM System - PEFA PFM
Measurement Framework
Critical Dimensions of the Assessment Framework
The Status of PEFA Assessments in Nigeria and Worldwide
The Nigerian Public Financial
Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Introduction
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What is public financial management (PFM)?
What are the main functions of public financial management?
Why is PFM important in economic governance and development?
What common principles govern public financial management
worldwide?
• What are the institutions for public financial management in
Nigeria?
• What is the PEFA PFM Performance Assessment Framework; what
role does it place in anticorruption work?
• How many Nigerian governments have applied (are applying) the
PEFA framework and how did they fare (are they faring)?
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Course Objectives
• Define public financial management and explain
its three primary objectives
• Identify the various institutions for PFM in Nigeria
and their various roles
• Discuss 10 basic rules of financial management
• Explain the legal and regulatory framework for
PFM in the government you serve
• Relate findings of PEFA PFM Performance
assessment to corruption risks and vulnerabilities
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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What is Financial Management?
• Planning, organizing, directing, and controlling the financial
activities of an entity, including its procurement and
utilization of funds
• Basic objective - to manage the resources of the
organization prudently to maximize returns for its owners
(or stakeholders)
• Concerned with 3 types of decisions
– Investment – how to create wealth or enhance future earning
capacity for the owners/stakeholders
– Financing – how to source or raise finances to fund the
investment and other decisions
– Dividend - how to distribute the ‘net profit/gain’ to the
stakeholders
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Management System & Rules
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Concept and Scope
of the PFM System
The Concept of PFM
Objectives & Relevance of PFM
What is the PFM System?
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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The Concept of PFM
• PFM - the generation and administration of
funds used to deliver public services
• PFM system – system for raising/controlling
use of PF resources for effective and efficient
public service delivery
• PFM process - planning and budgeting,
accounting and reporting, internal controls,
audit and external oversight, etc.
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Management System & Rules
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Objectives & Relevance of PFM
• Supports responsible management to promote
availability of benefits to the greatest number of
citizens possible
• Supports good governance
• Facilitate attainment of the 3 budgetary goals of
– Aggregate fiscal discipline
– Effective allocation of resource allocation to priorities
– Efficient service delivery services
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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What is the PFM System? …
• Comprises the legal and organizational framework for
supervising all phases of the budget cycle
– Planning
• Preparation of plans and strategies
• Fiscal projections and costing
– Budget preparation - conception and formulation
– Budget execution and implementation, including procurement
– Budget monitoring and reporting, including recording and
reporting
– Internal controls, including internal audit
– External scrutiny and oversight, including external audit
– Legislative follow up on audit findings
– Post implementation project evaluation
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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… What is the PFM System?
• PFM legal framework - binding and
enforceable legislations and quasi/subsidiary
legislations on all aspects of the budget cycle
• PFM Organizational framework administrative structure, processes,
workflows, and other arrangements in place
to facilitate the budget process
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Legal and Institutional
Framework for PFM
and PFM Reform in
FGN
The Budget - ss 80 – 89 of the Constitution
Audit - ss. 85 – 87 of the Constitution
The PAC – ss. 88 – 89
Other PFM Laws and Regulations
Relevant PFM Regulations
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Management System & Rules
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The Budget - ss 80 – 89 of the
Constitution
• The NASS must authorize withdrawals from the CRF or any
other public fund
• The annual budget or appropriation process is the process
for withdrawing funds from the CRF
• President prepares and lays expenditure proposals for the
coming financial year before the NASS – Appropriation Bill
• NASS approves by enacting Bill into an Appropriation Act,
i.e., the budget law, authorizing the to withdraw and
expend appropriated amount for purposes specified
• Note: Constitution does not specifically require
presentation of revenue projections to the Legislature, but
the Fiscal Responsibility Act does
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Audit - ss. 85 – 87 of the Constitution …
• Auditor General for the Federation
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Audits all public accounts, offices, courts, etc.
Nominated by President , confirmed by Senate
Appointment to retirement age
Removal from office is also subject to legislative control - must be for
specific reasons of infirmity of mind or body, misconduct, and inability
to discharge functions of the office
Not subject to direction or control of any authority or person in
exercise of constitutional functions.
Auditor general’s salary and emoluments guaranteed, paid from the
CRF, i.e., with prior appropriation by either the executive or the
legislature
but the budget (O & M expenditures) of Office not guaranteed – is
subject to the annual budget approval and control process
Audit staff are civil servants, recruited and posted by the FCSC capacity to weaken independence of the Office
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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.. Audit - ss. 85 – 87 of the Constitution
• Auditor General for the Federation
– Should submit audit to the NASS within 90 days of
receipt of financial statement from the accountant
general
– Does not directly audit the accounts of government
statutory corporations, commissions, authorities,
agencies, etc., established by Law, but
• Provides them with list of qualified external auditors from
which to choose
• Provides them with guidelines on fees to pay
• Comments on their accounts and auditor’s report thereon
• Conducting periodic checks of them
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Management System & Rules
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The PAC – ss. 88 – 89
• National Assembly has power to
• Conduct investigations into the public accounts of the
federal government
– Review audit reports
– Hold hearings on them
– Direct restitution and recovery of lost public funds
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Other PFM Laws and Regulations
• Finance (Control & Management), Act 1958 – the organic finance
law
– Outdated, but attempts at replacement not materialized yet
• Fiscal Responsibility Act, (FRA) 2007, aiming to instill discipline into
fiscal planning and management
• Public Procurement Act, (PPA) 2007 – regulates procurement with
federal government funds
• Statistics Act, 2007 - seeks “to effectively advise all levels of
government on matters related to statistical development, promote
the use of statistical standards and methodologies as well as
maintain a comprehensive national statistical databank” (s. 6)
• Freedom of Information Act (FoI), 2011 - aims to improve
transparency and public accountability by providing for public
access to non-sensitive official data
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Relevant PFM Regulations ..
• The Financial Regulations (2009/e) - operational
rules and guidelines for day-to-day management
of financial activities
– Delineate functions and responsibilities of
government officers
– Organize treasury functions
– Explain authorities to incur expenditure
– Provide guidance on budget preparation
– Provide guidance on expenditure control, payments,
collection and receipt of monies, remittances,
advances and loans, custody of public funds, etc.
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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.. Relevant PFM Regulations
• The Federal Treasury Accounting Manual - a policy and procedure
companion to the Financial Regulations and extant circular
• Federal Treasury Circulars (Dec. 2010) issued by the Office of the
Accountant General over the years and compiled into a single
volume
• The Procurement Procedures Manual issued by the Bureau of Public
Procurement (BPP) to guide public procurement and amplify the
PPA, 2007
– BPP has also issued several other guidelines on public procurement
• The Public Service Manual, 2008 - regulates procedures for conduct
of public administration and FM, including codes of behaviour and
disciplinary procedure
• The Civil Service Handbook explaining the structure and functioning
of government
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Institutional Framework for PFM ..
• Federal Ministry of Finance (FMF) and its agencies
– Budget Office of the Federation (BoF) - provides the
budget function and implements the budget and fiscal
policies of the Federal Government of Nigeria
– Office of the Accountant General of the Federation (OAGF)
provides treasury and accounting services, including
preparation of annual accounts and financial statements
– Debt Management Office (DMO) coordinates the
management of Nigeria’s debt
– Federal Inland Revenue Service (FIRS) controls and
administers the different federal and joint taxes
– Nigeria Customs Service (NCS) - responsibility for border
revenue collection and accounting for the same
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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.. Institutional Framework for PFM
• National Planning Commission (NPC)
• The Revenue Mobilization, Allocation, and Fiscal
Commission
• Bureau of Public Procurement (BPP)
• The Office of the Auditor-General for the
Federation
• The National Assembly
• Others – CBN, NNPC, DPR, National Petroleum
Investment Management Services (NAPIMS),
NEC, EMT, FEC (EXCoF), FAAC
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Basic Features &
Rules of PFM
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Management System & Rules
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Basic Features & Rules of PFM
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Integrity
Professional staffing
Clear delineation of functions
Authorization of transactions
Adequate recording
Efficient procedures
Physical security
Effective internal audit
External audit
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Assessing Performance
of the PFM System –
the PEFA PFM
Measurement
Framework
Brief Background of the PEFA Framework
Overview of the PEFA Framework
Embedding the PEFA Framework in the Government’s M & E
System
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Brief Background of the PEFA
Framework
• PEFA Program founded in 2001 as a partnership between 7 donor
agencies: EC, French Ministry of Foreign and European Affairs, IMF,
the Norwegian Ministry of Foreign Affairs, Swiss State Secretariat
for Economic Affairs, DFID, and WB
• Objectives of PEFA Framework
– Provide reliable information on the performance of PFM systems,
processes and institutions over time
– Contribute to government reform process by
• Determining extent to which reforms are yielding improved performance and
• Increasing ability to identify and learn from reform success
– Facilitate harmonization of the dialogue on PFM performance, reform
needs and donor support between government and donors around a
common PFM performance assessment
• Contribute to reduction of transaction costs for country governments
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Overview of the PEFA Framework
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A. PFM system out-turns
– Capture immediate results or outputs of the PFM system – revenues and expenditures
– Comparing them to the original approved budget
– Budget variances and deviations provide good indication of how well the PFM system supports
attainment of the three budgetary objectives, especially aggregate fiscal discipline
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B. Cross-cutting features of the PFM system
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Capture comprehensiveness & transparency of the PFM system across the entire budget cycle
PFM system must be complete - capture all government transactions and activities
Transparency - disclose all necessary information to stakeholders
Completeness and transparency good governance
C. Budget cycle
– Capture the performance of the key systems, processes, and institutions within the budget
cycle of the central government
– They are the routine systems for budgeting, accounting, and scrutiny
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D. Donor practices capture elements of donor practices that affect the
performance of country PFM system
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Overview of the PEFA Framework ..
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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.. Overview of the PEFA Framework
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Management System & Rules
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Embedding the PEFA Framework in the
Government’s M & E System
• The MoF can use PEFA assessments to measure PFM reform progress over
time
– Integrate the PEFA Framework into its M & E system for overall reform
program
– However, much of the PEFA Framework does not suit annual monitoring information requirements are too many, too costly, and burdensome to obtain
– Improvements in PFM performance tend to be gradual - PEFA assessments
should only happen once every few years
• Between full assessments, monitoring of PFM performance may include
– Annual monitoring of relatively easy to monitor PEFA indicators
– Typically quantitative indicators/dimensions: PIs 1-3, PI 6, PI-9 (i), PI-10, PI-11
(iii), PI-16 (iii), PI-19 (i), PI-25 (i-ii), 26 (i-ii), PI 27 (iii) PI-28 (i)
– Annual monitoring of indicators that relate to areas where
• Government focuses reform efforts where
• Progress may constitute “triggers” in the programs of development partners supporting
PFM reform
• M & E systems are currently generally weak
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Critical Dimensions of the Assessment
Framework
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Credibility of the budget
Comprehensiveness and transparency
Policy-based budgeting
Predictability and control in budget execution
Accounting, recording, and reporting
External scrutiny and audit
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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PFM Outturn - Credibility of the
Budget
• PI-1: aggregate expenditure out-turn
compared to original budget
• PI-2: composition of expenditure out-turn
compared to original approved budget
• PI-3: aggregate revenue out-turn compared to
original approved budget
• PI-4: stock and monitoring of expenditure
payment arrears
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Crosscutting Issues Comprehensiveness & Transparency
– PI-5: classification of the budget
– PI-6: comprehensiveness of information included in
budget documentation
– PI-7: extent of unreported government operations
– PI-8: transparency of inter-governmental fiscal
relations
– PI-9: oversight of aggregate fiscal risk from other
public sector entities
– PI-10: public access to key fiscal information
The Nigerian Public Financial
Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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The Budget Cycle …
• Policy based budgeting
– PI-11: orderliness and participation in annual budget
process
– PI-12: multiyear perspective in fiscal planning, expenditure
policy, and budgeting
The Nigerian Public Financial
Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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.. the Budget Cycle …
– Predictability and control in Budget Execution
– PI-13: transparency of taxpayer obligations and liabilities
– PI-14: effectiveness of measures fro taxpayer registration and tax
assessment
– PI-15: effectiveness in collection of tax payments
– PI-16: predictability in the availability of funds for commitment
expenditures
– PI-17: recording and management of cash balances, debt, and
guarantees
– PI-18: effectiveness of payroll controls
– PI-19: transparency, competition, and complaints Mechanism in
Procurement
– PI-20: effectiveness of internal controls for non-salary expenditure
– PI-21: effectiveness of internal audit
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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.. the Budget Cycle …
• Accounting, Recording, and Reporting
– PI-22: timeliness and regularity of accounts reconciliation
– PI-23: availability of information on resources received by
service delivery units
– PI-24: quality and timeliness of in year budget reports
– PI-25: quality and timeliness of annual financial statements
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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.. the Budget Cycle
• External Audit & Scrutiny
– PI-26: scope, nature, and follow up of external audit
– PI-27: legislative scrutiny of annual budget proposal
– PI-28: legislative scrutiny of external audit reports
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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The Status of PEFA
Assessments in Nigeria
and Worldwide
Status of PEFA Assessments in Nigeria, 2007 - 2012
Common Weaknesses Revealed by PEFA
Assessments in Nigeria and Their Significance
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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The Status of PEFA Assessments in
Nigeria and Worldwide
• PEFA has become the most important tool for
assessing and tracking performance of the
PFM system since 2005
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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The end
Thanks.
The Nigerian Public Financial
Management System & Rules
Chinedum Nwoko & Kelechi Anyanwu
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