Introduction To Public Finance Management DES213 PDF

NATIONAL OPEN UNIVERSITY OF NIGERIA FACULTY OF SOCIAL SCIENCES INTRODUCTION TO PUBLIC FINANCE MANAGEMENT DES213 COURSE GUIDE Course Developer: Dr. Godwin Ohiokha ACA Department of Accounting, Edo University, Iyamho, Edo State. and Dr. Friday Izien Ohiokha FCA Department of Accounting, Samuel Adegboyega University, Ogwa, Edo State. Course Editor: Dr. Lawal Saleh Department of Public Administration, Ahmadu Bello University, Zaria Kaduna State. 1 © 2019 by NOUN Press National Open University of Nigeria, Headquarters, University Village, Plot 91, Cadastral Zone, Nnamdi Azikiwe Expressway, Jabi, Abuja. Lagos Office 14/16 Ahmadu Bello Way, Victoria Island, Lagos. e-mail: [email protected] URL: www.nou.edu.ng All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed: 2018 ISBN: 978-058-023-X. Printed: ISBN: 2 CONTENT Introduction Course Content Course Aims Course Objectives Working through This Course Course Materials Study Units Textbooks and References Assignment File Presentation Schedule Assessment Tutor-Marked Assignment (TMAs) Final Examination and Grading Course Marking Scheme Course Overview How to Get the Most from This Course Tutors and Tutorials Summary 3 Introduction Welcome to Introduction to Public Finance Management. DES213 DES213: Introduction to Public Finance Management is a two-credit and one-semester undergraduate course for Public financial management student. The course is made up of twelve units spread across fifteen lectures weeks. This course guide gives you an insight to public financial management in a broader way and how to apply such in Administration. It tells you about the course materials and how you can work your way through these materials. It suggests some general guidelines for the amount of time required of you on each unit in order to achieve the course aims and objectives successfully. Answers to your tutor marked assignments (TMAs) are there. Course Content This course is basically on Public Financial Management because as you are aspiring to become an Administrator, you must be able to apply such on a real life situation. The topics covered include Introduction to Public Financial Management, Macro Economic Framework for Managing Public Financial Management, Legal and Regulatory Framework for Managing Public Financial Management, Success Factors of good Public Financial Management, Financial Reporting, Analyzing Financial Report, Accounting Practice and Financial Management Cycle, Financial Misconduct, Introduction to Budgeting, Revenue Management, Supply Chain Management and Public Asset Management and Fraud Prevention. You will be taken through the meaning of public finance management principles, concepts importance and their application to practical problems. Course Aim The aim of this course is to give you in-depth understanding of public financial management as regard the Principles, approaches and processes. Some of the other aims are to,  Acquaint students with the basic concepts and principles of public finance management 4  Express public finance management terms in a more precise manner  Show the difference between the Budget process, Budget application and Budget cycle as it relates to the private and public sector.  Help train the students‟ mind to be analytical and theoretical.  Practically measure the value for money (costs, benefits and effects of competing) options when faced with the issue of scarcity and choice. Course Objectives To achieve the above aims, there are some overall objectives which the course aims at achieving. Although there are set out objectives for each unit, included at the beginning of the unit- you should read them before you start working through the unit. You may want to refer to them during your study of the unit to check on your progress. You should always look at the unit objectives after completing a unit. This is to assist the students in accomplishing the tasks entailed in this course. This way, you can be sure you have done what is required of you by the unit. At the end of the course period, the students are expected to be able to:  Identify the principles, concepts of public finance management as it relates to real life situation.  Discuss the fundamentals or elements of public finance management as it relates to the public sector.  Analyse the success factors of public finance management.  Explain the Legal and Regulatory Framework for Managing Public Financial Management.  Explain Budget, Budget process, Methods of Budgeting system and Budget principles as it relates to the Nigeria system.  Explain Financial Reporting and its importance to the users of accounting information (example of users; Government, The public at large, Investors, Management, Creditors, etc)  Explain Accounting practices as it cut across various aspect in accounting, for example, Audit practices, Tax practices, Forensic practices, Book-keeping, etc  Discuss the functions of public procurement management or supply chain management for public and private sector.  Explain public Asset Management and Fraud Prevention and how it can help to curb corruption in the public sector.  Apply financial management cycle in a real life situation. 5 Working through the Course To successfully complete this course, you are required to read the study units, referenced books and other materials on the course. Each unit contains self-assessment exercises called Student Assessment Exercises (SAE). At some points in the course, you will be required to submit assignments for assessment purposes. At the end of the course there is a final examination. This course should take about 15 weeks to complete and some components of the course are outlined under the course material subsection. Course Material The major component of the course, what you have to do and how you should allocate your time to each unit in order to complete the course successfully on time are listed follows: 1. Course guide 2. Study units 3. Textbook 4. Assignment file 5. Presentation schedule STUDY UNITS There are 12 units in this course which should be studied carefully and diligently. MODULE ONE: INTRODUCTION TO PUBLIC FINANCIAL MANAGEMENT Unit One: Introduction to Public Financial Management Unit Two: Macro Economic Framework for Managing Public Financial Management Unit Three: Legal and Regulatory Framework for Managing Public Financial Management Unit Four: Success Factors of good Public Financial Management 6 MODULE TWO: FINANCIAL REPORTING AND AUDITING Unit One: Financial Reporting Unit Two: Analyzing Financial Report and Audit Unit Three: Accounting Practice and Financial Management Cycle Unit Four: Financial Misconduct MODULE THREE: BUDGETING Unit One: Introduction to Budgeting Unit Two: Revenue Management Unit Three: Supply Chain Management Unit Four: Public Asset Management and Fraud Prevention. Each study unit will take at least two hours, and it includes the introduction, objective, main content, self-assessment exercise, conclusion, summary and reference. Other areas border on the Tutor-Marked Assessment (TMA) questions. Some of the self-assessment exercise will necessitate discussion, brainstorming and argument with some of your colleges. You are advised to do so in order to understand and get acquainted with the application of public finance management to solve economic problem. There are also textbooks under the reference and other (on-line and off-line) resources for further reading. They are meant to give you additional information if only you can lay your hands on any of them. You are required to study the materials; practice the self- assessment exercise and tutor-marked assignment (TMA) questions for greater and in- depth understanding of the course. By doing so, the stated learning objectives of the course would have been achieved. Textbooks and References Abba, E.G & Osakwe, A.A (2007).Fundamentals of government budgeting in Nigeria. Onitsha: Abbol books Adams, R.A.(2014). Public Sector Accounting and Finance Made Simple 6thedn. 7 Allen, R; Hemming, R., & Potter, H.B. (2013).The international handbook of public financial management.New York (N Y): Palgrave Macmillan. https://www.palgrave.com/gp/book/9780230300248 American Institute of Certified Public Accountants. National Commission on Fraudulent Financial Reporting (AICPA), (1988). Report of the National Commission on Fraudulent Financial Reporting. New York: NY. AICPA Arsalan, S and Nida, N.(2012). An Introduction to Public Financial Management. ACCA Research and insights and providing technical advisory on issues affecting the finance profession particularly in the public sector in Pakistan." Black, H. C (1893). Black‟s Law Dictionary. (9thed) UK: West Publishing Company. Chartered Institute of Public Finance and Accountancy (CIPFA) (2009). http://www.cipfa.org Cressey, D. (1973). Other people’s money. Montclair: Patterson Smith Dabor, E.L. (2008). Basic Business Accounting.Benin City: DanDiamond Publisher. Deloitte Touche Tohmatsu.(2018). Public Financial Management. For further reading and more detailed information about the course, the following materials are recommended: Human Resource Management Reader (2013).Human Resource Management Course. Ethiopian Civil Service University. ICAN (2014).Public Sector Accounting and Finance Study Text.(1sted.) United Kingdom, Berkshire: Emile Woolf International International Accounting Standards Board (2010). The conceptual framework for financial reporting(1stedn). London. IASB International Federation of Accountants (2011). Handbook of international Public Sector Pronouncements. NY: IFAC Izedonmi, F.O.I (2000).Introduction to Auditing, 1stedn. Benin City: Ambik Press, 8 Kwok, B. K.B. (2005).Accounting irregularities in financial statements: A definitive guide for litigators, auditors and fraud investigators. Gower, Aldershot, Hants, England: Burlington, VT. Lawson, A.(2015). Public financial management GSDRC professional development reading pack No.6. Birmingham, UK: University of Birmingham http://www.cipfa.org Okoye, E.I., Maimako, S.S.,Jugu, Y.G and Jat, R.B (2017). Principles of Fraud Investigation and Forensic Accounting.Anambra, SCOA Heritage Nigeria Ltd. Oracle (2011).Oracle revenue management for local government.Oracle and Java. Available at www.Oracle com/goto/tax.Accessed at October 18-2019. Pimenta,C., & Pessoa, M. (2015). Public financial management in Latin America. New York (NY): Rightslink. Schiavo-Campo, S and Tommasi, D. (1999).Managing Government Expenditure. Manila: ADB. www.adb.org/documents/manuals/govt.expenditure Soltani, B. (2008). A closer look at financial reporting: Understanding the fraud risks associated with corporate reporting is vital to maintain organizational well-being, available on http://www.thefreelibrary.com Technical Competency Explanatory,(2016). A Framework for Federal Authority for Government Human Resources. United Arab Emirates. The Case of Halaba Special Woreda Town Administration Ethiopia (SNNPR). IRA International Journal of Management & Social Sciences 6(2),188-234. Tiwari, P. (2017). Assessing Factors Affecting Revenue Management in Public Sector: Wang ,X.(2006). Financial management in the public sector: tools, applications and cases, NewYork (NY): M.E. Sharpe Armonk Yasin, N. (2012). Problem of tax revenue administration in Somali land Harergeisa Municipality. ECSU institute of tax and customs Administration 9 Assignment File Assignment files and marking scheme will be made available to you. This file presents you with details of the work you must submit to your tutor for marking. The marks you obtain from these assignments shall form part of your final mark for this course. Additional information on assignments will be found in the assignment file and later in this Course Guide in the section on assessment. There are four assignments in this course. The four course assignments will cover: Assignment 1 - All TMAs‟ question in Units 1 – 4 (Module 1) Assignment 2 - All TMAs' question in Units 5 – 8 (Module 2) Assignment 3 - All TMAs' question in Units 9– 12 (Module 3) Presentation Schedule The presentation schedule included in your course materials gives you the important dates of the year for the completion of tutor-marking assignments and attending tutorials. Remember, you are required to submit all your assignments by due dates. You should guide against falling behind in your work. Assessment There are two types of the assessment for this course. First are the tutor-marked assignments; second, the written examination. In attempting the assignments, you are expected to apply information, knowledge and techniques gathered during the course. The assignments must be submitted to your tutor for formal Assessment in accordance with the deadlines stated in the Presentation Schedule and the Assignments File. The work you submit to your tutor for assessment will count for 30 % of your total course mark. At the end of the course, you will need to sit for a final written examination of two hours' duration. This examination will also count for 70% of your total course mark. Tutor-Marked Assignments (TMAs) There are three tutor-marked assignments in this course. You will submit all the assignments. You are encouraged to work on all the questions thoroughly. The TMAs constitute 30% of the total score. Assignment questions for the units in this course are contained in the Assignment File. You will be able to complete your assignments from the information and materials contained in your textbooks, reading and study units. However, it is desirable that you demonstrate that you have read and researched more widely than the required minimum. You should use other references to have a broad viewpoint of the subject and also to give you a deeper understanding of the subject. When you have completed each assignment, send it, together with a TMA form, to your tutor. Make sure that each assignment reaches your tutor on or before the deadline given 10 in the Presentation File. If for any reason, you cannot complete your work on time, contact your tutor before the assignment is due to discuss the possibility of an extension. Extensions will not be granted after the due date unless there are exceptional circumstances. Final Examination and Grading The final examination will be of two hours' duration and have a value of 70% of the total course grade. The examination will consist of questions which reflect the types of self- assessment practice exercises and tutor-marked problems you have previously encountered. All areas of the course will be assessed Revise the entire course material using the time between finishing the last unit in the module and that of sitting for the final examination. You might find it useful to review your self-assessment exercises, tutor-marked assignments and comments on them before the examination. The final examination covers information from all parts of the course. Course Marking Scheme The Table presented below indicates the total marks (100%) allocation. Assignment Marks Assignments (three assignments) 30% Final Examination 70% Total 100% Course Overview The Table presented below indicates the units, number of weeks and assignments to be taken by you to successfully complete the course, Public Finance Management (DES 213). 11 Units Title of Work Week’s Assessment Activities (end of unit) Course Guide MODULE 1 INTRODUCTION TO PUBLIC FINANCIAL MANAGEMENT 1 Introduction to Public Financial Week 1 Assignment 1 Management 2 Macroeconomic Framework for Managing Week 2 Assignment 1 Public Financial Management 3 Legal and Regulatory Framework for Week 3 Assignment 1 Managing Public Financial Management 4 Success Factors of good Public Financial Week 4 Assignment 1 Management MODULE 2 FINANCIAL REPORTING AND AUDITING 1 Financial Reporting Week 5 Assignment 2 2 Analyzing Financial Report and Audit Week 6 & 7 Assignment 2 3 Accounting Practice and Financial Week 8 Assignment 2 Management Cycle 4 Financial Misconduct Week 9 Assignment 2 MODULE 3 BUDGETING 1 Introduction to Budgeting Week Assignment 3 10&11 2 Revenue Management Week 12 & Assignment 3 13 3 Supply Chain Management Week 14 Assignment 3 4 Public Asset Management and Fraud Week 15 Assignment 3 Prevention. Total 15 Weeks How to Get the Most from This Course In distance learning the study units replace the University Lecturer. This is one of the greatest advantages of distance learning, you can read and work through specially designed study materials at your own pace and at a time and place that suit you best. Think of it as reading the lecture instead of listening to a Lecturer. In the same way that a Lecturer might set you some reading to do, the study units tell you when to read your books or other material, and when to embark on discussion with your colleagues. Just as a Lecturer might give you an in-class exercise, your study units provides exercises for you to do at appropriate points. 12 Each of the study units follows a common format. The first item is an introduction to the subject matter of the unit and how a particular unit is integrated with the other units and the course as a whole. Next is a set of learning objectives. These objectives let you know what you should be able to do by the time you have completed the unit. You should use these objectives to guide your study. When you have finished the unit, you must go back and check whether you have achieved the objectives. If you make a habit of doing this you will significantly improve your chances of passing the course and getting the best grade. The main body of the unit guides you through the required reading from other sources. This will usually be either from your textbooks or reading sections. Some units may require for you to have a discussion and practical problem solving sections. You will be directed when you need to embark on these and you will also be guided through what you must do. The purpose of the discussion and practical problem solving sections of some certain public financial problems are in two fold. First, it will enhance your understanding of the material in the unit. Second, it will give you analytical skills to evaluate economics and practical problems. In any event, most of the practical problems solving skills you will develop during studying are applicable in normal working situations, so it is important that you encounter them during your studies. Self-assessments are interspersed throughout the units. Working through these tests will help you to achieve the objectives of the unit and prepare you for the assignments and the examination. You should do each self-assessment exercises as you come to it in the study units. The following is a practical strategy for working through the course. If you run into any trouble, consult your tutor. Remember that your tutor's job is to help you. When you need help, do not hesitate to call and ask your tutor to provide it. 1. Read this Course Guide thoroughly. 2. Organize a study schedule. Refer to the `Course overview' for more details. Note the time you are expected to spend on each unit and how the assignments relate to the units. Important information, e.g. details of your tutorials, and the date of the first day of the semester is available from study centre. You need to gather together all this information in one place, such as your dairy or a wall calendar. Whatever method you choose to use, you should decide on and write in your own dates for working breach unit. 3. Once you have created your own study schedule, do everything you can to stick to it. The major reason that students fail is that they get behind with their course work. If you get into difficulties with your schedule, please let your tutor know before it is too late for help. 4. Turn to Unit 1 and read the introduction and the objectives for the unit. 5. Assemble the study materials. Information about what you need for a unit is given in the `Overview' at the beginning of each unit. You will also need both the study unit you are working on and one of your textbooks on your desk at the same time. 13 6. Work through the unit. The content of the unit itself has been arranged to provide a sequence for you to follow. As you work through the unit you will be instructed to read sections from your textbooks or other articles. Use the unit to guide your reading. 7. Up-to-date course information will be continuously delivered to you at the study centre. 8. Work before the relevant due date (about 4 weeks before due dates), get the Assignment File for the next required assignment. Keep in mind that you will learn a lot by doing the assignments carefully. They have been designed to help you meet the objectives of the course and, therefore, will help you pass the exam. Submit all assignments no later than the due date. 9. Review the objectives for each study unit to confirm that you have achieved them. If you feel unsure about any of the objectives, review the study material or consult your tutor. 10. When you are confident that you have achieved a unit's objectives, you can then start on the next unit. Proceed unit by unit through the course and try to pace your study so that you keep yourself on schedule. 11. When you have submitted an assignment to your tutor for marking do not wait for its return before starting on the next units. Keep to your schedule. When the assignment is returned, pay particular attention to your tutor's comments, both on the tutor-marked assignment form and also written on the assignment. Consult your tutor as soon as possible if you have any questions or problems. 12. After completing the last unit, review the course and prepare yourself for the final examination. Check that you have achieved the unit objectives (listed at the beginning of each unit) and the course objectives (listed in this Course Guide). Tutors and Tutorials There are some hours of tutorials (2-hours sessions) provided in support of this course. You will be notified of the dates, time and locations of these tutorials. Together with the name and phone number of your tutor, as soon as you are allocated a tutorial group. Your tutor will mark and comment on your assignments, keep a close watch on your progress and on any difficulties you might encounter, and provide assistance to you during the course. You must mail your tutor-marked assignments to your tutor well before the due date (at least two working days are required). They will be marked by your tutor and returned to you as soon as possible. Do not hesitate to contact your tutor by telephone, e-mail, or discussion board if you need help. The following might be circumstances in which you would find help necessary. Contact your tutor if. You do not understand any part of the study units or the assigned readings You have difficulty with the self-assessment exercises You have a question or problem with an assignment, with your tutor's comments on an assignment or with the grading of an assignment. You should try your best to attend the tutorials. This is the only chance to have face to face contact with your tutor and to ask questions which are answered instantly. You can 14 raise any problem encountered in the course of your study. To gain the maximum benefit from course tutorials, prepare a question list before attending them. You will learn a lot from participating in discussions actively. Summary The course, Public Finance Management (DES 213), will expose you to basic concepts and principles in Public Finance Management. This course will give you an insight into the use of public finance management in solving economics problems in the private and public sector. On successful completion of the course, you would have developed critical and practical thinking skills necessary for efficient and effective discussion and problem solving in public finance management issues and Budgeting system in Nigeria. However, to gain a lot from the course please try to apply everything you learnt in the course in order to improve efficiency. TABLE OF CONTENTS 15 MODULE 1 ……………………………………………………………..…………..1- 36 INTRODUCTION TO PUBLIC FINANCIAL MANAGEMENT Unit 1 Introduction to public financial management Unit 2 Macro Economic Framework for Managing Public Financial Management Unit 3 Legal and Regulatory Framework for Managing Public Financial Management Unit 4 Success Factors of good Public Financial Management MODULE 2 ……………………………………………………………..……….. 37-62 FINANCIAL REPORTING AND AUDITING Unit 1 Financial Reporting Unit 2 Analyzing Financial Report and Audit Unit 3 Accounting Practice and Financial Management Cycle Unit 4 Financial Misconduct MODULE 3 …………………………………………………………………. 63-102 BUDGETING Unit 1 Introduction to Budgeting Unit 2 Revenue Management Unit 3 Supply Chain Management Unit 4 Public Asset Management and Fraud Prevention. MODULE 1: INTRODUCTION TO PUBLIC FINANCIAL MANAGEMENT Unit 1 Introduction to public financial management Unit 2 Macro Economic Framework for Managing Public Financial Management Unit 3 Legal and Regulatory Framework for Managing Public Financial Management Unit 4 Success Factors of good Public Financial Management UNIT 1: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 What is the public finance management? 3.2 Objectives of Public Finance Management 3.3 The „P‟ in public finance management 4.0 Conclusion 5.0 Summary 16 6.0 Tutor-Marked Assignment 7.0 References/Further Readings 1.0 INTRODUCTION Governments all over the world have a responsibility to provide goods and services for their citizens in an efficient and effective manner despite having differing ideologies and value systems. The environment in which economic activity takes place, therefore, depends upon the people, the resources available within the nation, the system in place to provide welfare for her citizens. It is widely understood that Public Finance Management (PFM) is fundamental to attaining sustainable development objectives, reducing unemployment and poverty. PFM is a branch of financial management concerning the mobilization of revenue, allocation of nations (public) funds in a way that will achieve reduction in wastage and poverty. It includes the study of government and how funds are been managed. It enables the government spent efficiently and with integrity, provides confidences to the donors, help to build trust for donors and investors. PFM is a lever to nation development, to raising funds effectively, planning and executing budget decisions and transparently. The current agenda of the United Nation (UN) vision2030 on sustainable development that will be led by countries if it is to have lasting transformative effect required greater reliance on PFM systems. It is universally accepted that good PFM is a necessary for achieving sustainable development. PFM is at the center of any nation‟s system. 2.0 OBJECTIVES At the end of this unit, student should be able to:  Define and explain the term Public Finance Management (PFM)  Explain the objectives of PFM.  Identify the P in PFM. 3.0 MAIN CONTENT 3.1 What is The Public Finance Management (PFM)? 17 Public finance management refers to the set of laws, rules, systems and processes used by sovereign nations to mobilize revenues, allocate public funds, and undertake public spending account for funds and credit results (Lawson, 2015). According to Potter and Diamond (1999), PFM refers to the procedures established by law or regulation for the management of public monies. Through the budget process, this includes formulation, execution, reporting and is concerned with aspects of resource mobilization and expenditure management in the public sector (ACCA‟s policy document, 2012). Some of the private sector lacks the moral sentiment and incentives of a responsible government to provide for various segment or the economy, including the underprivileged, the public sectors role in relevant. In Nigeria, government expenditure on public services account for more than 40% of the nation‟s Gross Domestic Product, and this is almost same in most countries, hence interest and expectations of this service is high and management of public monies need to be able to withstand scrutiny from all spheres of the economy. The PFM system involves several stakeholders that include states and non-state actors such as the academies, civil societies and political parties. These stakeholders are engaged in the PFM cycle to ensure that the system operates effectively and transparently while preserving accountability. The cycle explained that some interest groups are critical of spending public monies to avoid increasing the tax burden, others are clamoring for more spending even if that will result into increase in tax burden. It is also clear that with reference to civil society, this category embraces a variety of interest groups with different mission and views on public spending. However, in achieving success in the public financial management, the following key variables are considered as a major player; Policy Formulation; Budget Formulation; Budget Authorization; Budget Execution; Budget Accountability and External Audit and Evaluation. Budget is a special tool in analyzing Public Financial Management. Therefore, understanding the elements that makes up public financial management is germane. 18 Policy Formulation: Policy formulation as it relates to public financial management regard budget as one of the government‟s most important policy documents. The budget process should facilitate this policy role in all phases of the budget cycle. For a state to develop a more advanced PFM approach their budget systems, should evolved away from this traditional model to make them more policy relevant. Budget should be more comprehensive in its coverage and better integrating recurrent and capital components of budgets; procedurally forcing budget participants to think interns of policy delivery rather than input use; and backing up these new budget procedures with various enforcement mechanisms. For example, ministry of finance and ministry of budget and planning should be merged as a single ministry like the current merging in Nigeria by the Buhari administration Budget Formulation:This another budgetary process that covers the estimation of government revenues, the determination of budgetary priorities and activities within the constraints imposed by available revenues and by borrowing limits, and the translation of approved priorities and activities into expenditure levels. This will in turn result to more transparent and effective public financial management. Budget Authorization: The budget authorisation constitutes the phase of the budgetary process. The legislature reviews and modifies the budget proposal of the President and formulates an appropriate bill following the process established by the Constitution, which specifies that no money may be paid from the treasury except in accordance with an appropriation made by law. This window is used to view budgets that have been processed for a selected budget. The basic forms of budget authority are: appropriations, authority to borrow, contract authority and authority to obligate and expend, offsetting receipts and collections. Budget Execution: The process by which the financial resources made available to a state are directed and controlled towards achieving the purpose and objects for which such 19 budgets were approved. The process involves compliance with legal, institutional, macroeconomic requirement in order to attain an effective financial management of public resources to achieve the objectives of development programme. Budget Accountability: The act or requirement to record the reasoning behind all recommendations or decisions when a preparing a budget. This includes both estimates of revenues and desired expenditures. This is to help ensure the budget is prepared in the most responsible way possible so that sustainable development can achieve in the state. External Audit and Evaluation: Adequate mechanism of external control is an integral part of any sound PFM system. External audit institutions (outside the control of the executive, but in most cases reporting to the legislative exist in virtually every country, but their effectiveness varies significantly. External audit institutions can vet a government‟s compliance with legally binding fiscal rules, including through the analysis iscuof the reliability of the relevant accounting information and of the possible materialisation accounting risks. Hence, the adoption of a fiscal value with the creation of independent watch dog responsible for the evaluating the likelihood of compliance of a proposed budget. SELF ASSESSMENT EXERCISE 1. Discuss the Elements of Public Finance Management? 3.2 OBJECTIVES OF PUBLIC FINANCE MANAGEMENT (PFM) The main objectives of PFM are to achieve overall fiscal discipline allocation of the nation‟s resources to priority needs, and efficient and effective public service delivery. Arsalan and Nida (2012),identified four specific objectives that effective public finance management should entail: a. Aggregate Finance (Fiscal) Management: Is a known fact that state sources for revenues from natural resources available to the state such as collection of taxes from the public, 20 borrowings, disposal of owned corporation‟s etc. annual budgets are used to allocate these resources to various public departments according to the priorities that have been identified and agreed upon by the stakeholders. PFM ensures that revenue collections and public spending are consistent with targets for the fiscal sustainability and maximizing revenues mobilization, resource allocations in accordance with policy priorities. b. Operational Management: Some operational aspects are directly affected through financial managements. These are: i. Assets Acquisition and Disposal: Capital assets financing is a key decision required in financial management resources, since it involves huge outflow of resources. In a good governance structure, authorization is requiring consent from all the stakeholders before execution of material contracts. ii. Treasury Management: In public finance, sound treasury management balances the value maximization objective of the government with the need to maintain liquidity for the discharge of institutional liabilities. Investment opportunities with medium risks are preferred to that with low risk since public monies are at stake. iii. Review and Performance Evaluation: This is a critical process to identify and understand the mistake of the past. This will help to formulate and implement insightful strategy in the future. Insightful performance evaluation may result to new discoveries and revolutionary solutions to problems. For instance, the government of the day can phase out activities that do not add value for the optimal use of limited public funds. iv. Reporting to Stakeholders: Stewardship accounting and financial accountability obligation can be achieved through the preparation and publication of annual audited financial statements in entities annual reports. This is an important means to show how the public sector discharges its financial management responsibilities and to account for public funds as it increases transparency and accountability. c. Governance: Good governance assigns the decision making structure to persons that can be relied upon for the effective discharge of their responsibilities and this will only be possible when people with the right set of technical skills and proven capabilities of managing their roles have been employed. Sound PFM is inextricably link with anti-fraud 21 and corruption cultures. An independent internal audit function within a public entity has an integral role towards its good governance. d. Fiduciary Risk Management: Flexible fiduciary risk management is needed to mitigate anticipated and unanticipated risk that public entity face while pursuing their objectives. Auditing of public financial statements by the external auditor is a way through which the risk that may deter the achievement of desired objectives of public entity can be address. SELF ASSESSMENT EXERCISE 1. Discuss some operational management aspects that are directly affected through financial managements? 3.3 The ‘P’ In Public Finance Management According to the Chartered Institute of Public Finance and Accountancy (2009),observed distinction between the features of PFM with other financial management environments are as follows: a. A taxpayer relationship with citizens and customers, rather than one defined principally by consumer interests and choice. This relationship calls for high standards of governance, probity, sound financial administration, steward of public resources and overt compliance with regulatory standards. b. A heightened expectation of integrity, transparency and accountability to the public. c. A culture of cost centers rather than profit centers. Efficiency and value for money drivers may need to be internally generated, rather than result from market force. d. Inelastic resources – there is competition for resources between service demands that can always consume more funds, and that may be beyond direct control, such a demographic change. Funding envelopes may be determined independently of expenditure pressures, or the relationship may be inverse, for example, when a recession increases demand whilst reducing tax base and income sources. e. Dependency on external funding sources of variable reliability, that can create instability in planning and implementing expenditure program f. Management of demand levels that are constrained not by other techniques that may involve difficult choices like queuing and rationing. 22 g. A political environment that imposes pressures and risks that may be calibrated differently from business risks. For example, the risks of ceasing a service feel much greater for a politically driven organization. Electoral timetables can influence the timing of decisions. Prioritizations and resolution of the competing demands for resources is essentially a 'political' and value driven process rather than a technocratic solution. h. There is an endemic risk that policy and financial planning take place independently. i. Service delivery may take place in a system of devolved financial responsibility that increases the complexity and risks to understanding financial implications. j. A balance to be continuously negotiated between the objectives of founders, whether government or external donors, and more locally driven priorities. k. A set of administrative processes that is characteristics of the public sector, such as tax administration or concessionary charging. These typically involve a political judged tension between social outcomes (e.g. antipoverty policies) and administrative efficiency (e.g maximizing income collection). SELF ASSESSMENT EXERCISE 1. Define Public Finance Management. 2. Discuss some operational management aspects that are directly affected through financial management. 4.0 CONCLUSION In this unit, we can conclude that public finance management is the study of government. Financial management is the process of planning, practices, and evolution after the organisation public entities require money to operate, money pays for personnel costs, service debts, events and facilities. Understanding how we spend money will help the state we support succeed, regardless of our role in the state? This unit conclusion will lead us to the next unit titled “Macroeconomic Framework for Managing Public Finance Management”. 5.0 SUMMARY In this unit, we have discussed extensively on introduction to public finance management (PFM) such as meaning of public finance management (PFM), objectives of PFM while the P in public finance management ( i.e the distinct features of PFM ) was also examined. 6.0 TUTOR-MARKED ASSIGNMENT 23 1. In your own words give workable meaning of public finance management 2. What are the objectives of public finance management? 3. Mention any four (4) actors/stakeholders of public finance management 6.0 REFERENCES /FURTHER READINGS Abba, E.G &Osakwe, A.A (2007).Fundamentals of government budgeting in Nigeria. Onitsha: Abbol books Allen, R; Hemming, R.,&Potter, H.B. (2013).The international handbook of public financial management.New York (N Y): Palgrave Macmillan. Arsalan, S and Nida, N.(2012). An Introduction to Public Financial Management. ACCA research& insights and providing technical advisory on issues affecting the finance profession particularly in the public sector in Pakistan." Chartered Institute of Public Finance and Accountancy (CIPFA) (2009). http://www.cipfa.org Lawson, A.(2015). Public financial management GSDRC professional development reading pack No.6. Birmingham, UK: University of Birmingham UNIT TWO: MACROECONOMIC FRAMEWORK FOR MANAGING PUBLIC FINANCE MANAGEMENT 1.0 Introduction 2.0 Objectives 3.0 Main Contents 3.1 Meaning of Macroeconomic framework 3.2 Fiscal Policy and Public Finance Management 3.3 Macroeconomic consequences of fiscal deficits 4.0 Conclusion 5.0 Summary 6.0 Tutor – marked assignment 7.0 References/Further Readings 1.0 INTRODUCTION 24 Macroeconomic framework is concerned with the analysis of fiscal policy or macro fiscal analysis which deals with how fiscal policy affects macroeconomic outcomes and how macroeconomic considerations influence fiscal policy choices. However, the macroeconomic consequences of fiscal deficits such as debt sustainability, fiscal targeting, and adjustment countercyclical fiscal policy are to be discussed. 2.0 OBJECTIVES At the end of this unit, you should be able to:  Explain the meaning of macroeconomic framework  Know the traditional and modern approaches to public finance management  Identify macroeconomic consequences of fiscal policy 3.0 MAIN CONTENT 3.1 Macroeconomic Framework – A definition. Macroeconomic framework “is a set of sectorial projections (for the real external, fiscal and monetary sectors), consistent with each other, consistent with the policy framework and consistent with the macroeconomic goals” (Allen, Hemming & Potter, 2013). However, macroeconomic framework is an aggregate indicators such as GDP, unemployment rates, national income, price indices, and the interrelations among the different sectors of the economy to better understand how the whole economy functions. SELF ASSESSMENT EXERCISE 25 1. Explain Macroeconomic Framework. 3.2 Fiscal Policy and Public Finance Management. The traditional approach to public finance highlights three main fiscal policy functions of government- allocation, distribution and stabilization. The primary microeconomic function is the allocation and distribution of public resources redirected by government to provide economic social and administrative infrastructure and services that support growth and economic and development and to transfer revenue and purchasing power from the advantaged to the disadvantaged to improve social outcomes. Macroeconomic functions after results into efficiency and equality improvements that will contribute to sustainable growth stability. PFM is concerned more with expenditure than it is with taxation. It is more about the practical capacity that has to be developing to ensure that fiscal instruments are used to their full advantage. In order to achieve an effective macroeconomic outcome there should exist the chain that links PFM, fiscal management instruments, fiscal policy objectives, this will enable PFM to influence macroeconomic developments and that, by implication can be compromised by inadequate PFM arrangements and capacity. However, it is clear that spending efficiency (allocative efficiency) that focused on the most valued programs and (technical efficiency) which is concerned with meeting programs and projects at least cost – is the key to governments achieving the most key can with a given level of public resources. This is where PFM can play a central role through reasonable taxation and responsible borrowing and then focus on how the government budget and off-budget resources allocation mechanisms can be used to maximise efficiency in the use of public funds. SELF ASSESSMENT EXERCISE 1. The traditional approach to public finance highlighted three main fiscal policy, Discuss them? 26 3.3 Macroeconomic Consequences of Fiscal Deficits. The following are macroeconomic consequences of fiscal deficits: (a) The government‟s financial balance: is concerned on how government finances her deficit that reflects in the government financial balance. Expenditure – Revenue = Fiscal Deficit = Domestic Borrowing + Monetary financing + Foreign Borrowing. The equation above highlights the components of deficit financing – borrowing from the domestic private sector (individuals, Firms, Financial Institutions and the rest of the public sector (public financial institutions, state- owned enterprises), having the Central bank expand the money supply and borrowing from foreign government, overseas private investors and lenders, and international agencies. However, the manner fiscal deficit is financed by government is always a policy choice, and the choice that is made should take into account the macroeconomic consequences of different financing alternatives. (b) The economy‟s saving- investment balance spending and revenue levels; the structure of taxes and spending are relevant when assessing macroeconomic impact of fiscal policy but when attention turns to the impact of fiscal policy on macroeconomic aggregates, it is the fiscal deficit that is usually most relevant. One way to observe that is fiscal deficit as a component of the economy‟s saving-investment balance, which is an identity of Government savings + private savings + Foreign savings = Government investment + Private investment. The equation above explains that there must be enough aggregate savings to finance aggregate investment. In practice, saving is ascertained by many current and future considerations, and the sized of any private savings response to fiscal deficits. The impact of fiscal policy on private investment and the presumption is that fiscal policy deficit for any change in the fiscal balance feeding through to the current account balance although circumstances could result in much smaller or much larger offsets. 27 (c ) Debt Sustainability It has been observed that prolonged deficits lead to an accumulation of debt that can create macroeconomic problems over the medium term as rising interest payments contribute to higher deficits macroeconomic effects of debt are the following definitions. Primary deficits /gross domestic product (GDP) Fiscal deficits/GDP-Interest payments/GDP and Interest payments/GDP =Interest Rate ×Debt/GDP The rate of interest is the effective interest rate on the debt (i.e it is determined as interest payments/debts). Debt/GDP is the debt ratio with typically being measured in gross terms. It then follows that: Change in (Debt/GDP) = Primary deficits/GDP + (Interest Rate – Growth rate) Debt/GDP The equation above provides the basis for debt sustainability analysis (DSA).The DSA is an assessment of the government‟s ability to make the fiscal policy adjustments needed to achieve solvency. Debt sustainability analysis produces debt projection over a time span when macroeconomic projections are more reliable and fiscal policies are predictable which in practice more than a few years is. However, debt sustainability analysis compares uncertain outcomes with arbitrary debt limits. It provides useful impact into fiscal policy discussions, and can serve to focus attention on the implications of alternatives policy choices, but it has been used with care. (d) Fiscal targeting and adjustment. Debt sustainability analysis suffer some limitations that provides the basis for fiscal targeting and by implication, for fiscal adjustment and this shows that must directly links fiscal deficits and debt with PFM, since PFM is both constrained by and must be consistent with whatever fiscal targets are in place. While the fiscal balance is the most 28 commonly used headline fiscal indicator. This is useful where debt is a clear constraint such as is so high in the markets and is a significant risk premium in the interest rates but where debt where debt is less of constraint, fiscal targeting should be guided more by the short-term macroeconomic consequences of fiscal imbalances. However, even where debt is a constraint, such considerations could call for a more ambitious fiscal balance target than debt sustainability concerned along world demand. (e ) Countercyclical Fiscal Policy. The government can use both spending and taxations to respond to variations in economic activity. It can employ spending increases and tax costs to provide a fiscal expansion or stimulus, in an economy where aggregate demand is weak, growth is low and a recession is looming or has hit. Government can also use spending cut and tax increases to apply a fiscal contraction to an economy that is growing too fast, there is a risk of inflation, and balance of payments problems as domestic supply constraints begin to bind. SELF ASSESSMENT EXERCISE 1. Discuss the macroeconomic consequences of fiscal deficits? 4.0 CONCLUSION In this unit, we can conclude that macroeconomic framework of fiscal policy is concerned with how fiscal policy affects macroeconomic outcomes and how macroeconomic considerations influence fiscal policy choices, public financial management responsibility, how macroeconomic consequences can be showed and how it can be resolved by having a shift from the traditional approach of allocation, distribution and stabilization to the modern approach of concentrating more on expenditure than tax. The conclusion of this unit will lead to the next unit which is titled “Legal and Regulatory Framework for Managing Public Finance Management”. 5.0 SUMMARY 29 In the unit, we have discussed extensively on the meaning of macroeconomic framework; the impact of fiscal policy on public finance management and macroeconomic consequences of fiscal deficits. 6.0 TUTOR MARKED ASSIGNMENTS 1. List and briefly explain any consequences of fiscal deficit known to you. 2. Explain briefly the impact of fiscal policy on public finance management. 7.0 REFERENCES /FURTHER READINGS Allen, R., Hemming, R. and Potter, B (2013).The International Handbook of Public Financial Management. London: Palgrave MacMillan. https://www.palgrave.com/gp/book/9780230300248 Pimenta,C., & Pessoa, M. (2015). Public financial management in Latin America.New York (NY): Rightslink. UNIT THREE: LEGALAND REGULATORY FRAMEWORK FOR MANAGING PUBLIC FINANCE MANAGEMENT. 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Legal Framework that Governs Public Finance Management in Nigeria 3.2 Public Finance Management is governed By the Nigerian Constitution 3.3 Some Reforms in the Nigerian Public Finance Management 4.0 Conclusion 5.0 Summary 6.0 Tutor-Marked Assignment 7.0 References/Further Readings 1.0 INTRODUCTION The legal and regulatory framework that underlies the Public Financial Management system includes tax laws, budget system laws and country‟s constitution besides laws, there are regulations relating to public finance management. Laws, budgets and 30 regulations are essential to the task of public finance management. An appropriate legal and regulatory framework for a public financial management system should reflect an awareness of the link/between the strategic policy objectives of the government and the system and process relating to public financial management with referred to expenditure, so as to conform to the constitution principles and legislative responsibility and good governance, apart from the legal and regulatory framework that help to govern public finance management in Nigeria. The country also embarked in Economic Reforms and Governance Project (ERGP)sponsored by the world Bank to address the challenges of transparency, accountability, corruption and poor public service delivery this lead to the introduction of integrated personnel payroll and information system, Government integrated financial management information system, E- payment, Treasury Single Account etc. 2.0 OBJECTIVES At the end of the unit, student should be able to:  Explain the legal framework that governs public finance Management in Nigeria.  Discuss the regulatory framework that governs public finance management in Nigeria 3.0 MAIN CONTENT 3.1 LEGAL FRAMEWORK THAT GOVERNS PUBLIC FINANCE MANAGEMENT IN NIGERIA Public finance is the study of the role of the government in the economy. It is the branch of economics that deals with the revenue and expenditure of government or public institutions to achieve desirable objectives. Public financial management is the administration of funds used to deliver or provide public services such as education, health care, infrastructure among others. However, public finance management is concerned with public accountability and it is therefore governed by various statutory act or laws. 31 3.1.2 What Is Legal Framework? Legal framework is a broad system of rules that governs and regulates decision making, agreements, laws, etc. It includes procedures regulations, guidelines, codes of conduct and other regulatory documents. SELF ASSESSMENT EXERCISE 1. What is Legal Framework? 3.2 Public Finance Management is governed By the Nigerian Constitution i. Nigeria Constitution: Public finance management is governed by the constitution of the Federal Republic of Nigeria, 1979 as amended 1989 and 1999 is one of the legal frameworks that regulate the mobilization of revenues, allocation of public funds, undertakes public spending account for funds and audit results. It also defines the expenditure and revenue collection responsibilities that are under their review ii. Audit Ordinance of 1956 Or Act Of 1956: These Act section 13 sub-sections 1-3 mandates the Accountant-General of the Federation to furnish the Auditor-General for the Federation with the nation‟s financial statement. This will enable the results obtain on how the financial resources of the public to be audited to ensure public accountability and transparency. iii. Finance (Control and Management) Act of 1958, cap 144, 1990: The Act governs the management and operation of public funds. It regulates the accounting system, the books to be kept and the procedure to be followed in the preparation of accounts and financial statements. iv. Public Procurement Act 2007 This act established the National Council on Public Procurement (NCPP) and the Bureau of Public Procurement (BPP) as the regulating authorities responsible for monitoring and over sight of public procurement, harmonising the existing government policies by regulating setting standards and developing the legal framework and professional capacity for public procurement in Nigeria. The Act sets standard for organization procurements, methods of procurements of works, goods, consultancy and non-consultancy service as 32 well as the procurement approval threshold for the Bureau of Public Procurement, Tenders Boards and Accounting officers for all Ministries, Department and Agencies. v. Fiscal Responsibility Act 2007 This Act provides for the prudent management of the country resources, ensures long term macro-economic stability of the national economy, and secures greater accountability and transparency in fiscal operation in within a medium term fiscal policy framework the establishment of the fiscal responsibility and commission to ensure the promotion and to enforcement of the country‟s economic objectives. The Act emphasises the preparation of Medium Term Expenditure Framework Annual Budget, Budgetary Execution and Achievement Targets, collection of public revenue, Public Expenditure, Debt and indebtedness, borrowing, transparency and accountability. vi. Other Laws Guiding Public Finance Management: Other laws guiding public frame management include the Independent Corrupt Practices and Other Related Offences Commission (ICPC) Act of 2000, Economic and Financial Crime Commission Establishment Act,2002, Nigeria Extractive Industries Transparency Initiative (NEITI) Act,2007 Appropriation Acts, Code of Conduct Bureau and Tribunal Act, 1991 and Money Laundering Act,1995. 3.2.1 Regulatory Framework That Governs PFM in Nigeria. Regulatory framework is an accountability mechanism, a method by which the regulator accounts for the responsibilities conferred upon it. Regulatory framework for public financial management is essential to ensure that the needs of the public (stakeholders) are met and to regulate the behaviour of government towards their citizens in order to achieve sustainable development. International Financial Reporting Standards (IFRS) argued that regulatory framework includes procedures, regulations, guidelines, codes of conduct, and other regulatory documents- complements financial and budget laws by clarifying or filling in gaps and should be regulatory reviewed. 3.2.2 Public Finance Management is regulated by the following Regulations: 33 i. Financial Regulations: these are the accounting manual of government ministries, extra-ministerial departments that deals with financial and accounting matters. They set out the procedures and steps to be followed in treating most of government transactions. ii. Finance/ Treasury Circulars: these are admin -tools that are used to amend the existing provision of financial regulations, public services rules and the introduction of new policy guidelines. iii. The Financial Regulations (2009 Edition): The financial regulations are powerful control tools used in the public sector funds management. They are the accounting manuals of the three tiers of government of public frauds. The rules spelt out the system concerning the receipts and disbursements of funds and the procedures to ensure good accountability, prevention and early detection of frauds and errors and other financial malpractices. SELF ASSESSMENT EXERCISE 1. Write short note on the following: a. Treasury Single Account (TSA). b. Government Integrated Financial Management Information System (GIFMIS). c. Integrated Personnel Payroll and Information System (IPPIS). 3.3 Some Reforms in the Nigerian Public Finance Management In 2004, the country embarked on economic reform and government project (ERGP) sponsored by the world bank to address the challenges of transparency, accountability, corruption and poor service delivery faced by the Federal Government of Nigeria. Some reforms in the Nigeria public finance management are as follows: 2. Treasury Single Account (TSA): This unified structure of government bank accounts gives a consideration view of government cash resources. The primary objective of this TSA is to ensure effective aggregate control over government cash balances, thus, 34 facilitates government cash management by minimising borrowing costs and effective aggregate control of cash as a key element in monetary and budget management. It also permits complete and timely information in government cash resources. TSA enhance greater transparency in public finance management; facilitate more reliable and accurate accounting and improved reporting. 3. Government Integrated Financial Management Information System (GIFMIS) GIFMIS is a sub component of the ERGP that will support the public resource management and targeted anti-corruption initiatives area through modernising fiscal processes using better methods, techniques and information technology. The GIFMIS aid strategic management of public financial resources for enhanced accountability, transparency, cost effective, public service delivery, and economic growth and poverty reduction efforts. The broad objective of GIFIMIS is to implement a computerised financial management information system for the government, which is efficient, effective, and users friendly and which increases the ability to demonstrate accountability and transparency to the public and cooperating partners. However, GIFMIS can only be successful if these are present: sustained management support, effective organization change; good project scope management; adequate project team composition etc. iii) National Chart Of Account (NCOA): the chart of accounts (COA) also called national chart of account provides a robust mechanism and form the classification of public resource under the budget as well as tracking public resources under the budget executive and seeks to support the adoption of more transparent and modern economic and financial management systems and process that are less prone to corruption. iv) Integrated Personnel Payroll and Information System (IPPIS) IPPIS is one of the transformation agenda of the Federal Government of Nigeria with the aim of creating a centralised data base system for Nigerian public service with single accurate source of employee information that provides integration with other business application. The objective of IPPIS is to provide a centralised data base to aid 35 government‟s manpower planning and decision making; greatly improve management reporting and information and enhance the confidence in payroll costs and budgeting. v) Excess Crude Account (ECA): ECA is the name of Nigerian government account that is creating to save revenues- in excess of budgeting benchmark price -that were generated from the sales of oil. The primary objective of ECA was to protect Nigeria planned budgets against shortfall caused by the volatility of crude oil prices. By detaching go averment expenditures from oil revenues, the ECA aimed to insulate the Nigerian economy form external shocks. It sought to protect public expenditure from being pattered on the boom- and bust cycles of the international oil market vi)Sovereign Wealth Fund (SWF): SWF was approved in 2011, by Nigeria‟s National Economic Council a plan to replace (ECA), primarily to ameliorate the controversies surrounding the ECA‟S legality. SWF consisted of three sub-funds i.e the stabilization to support the budget in times of economic stress including to hedge against volatile crude oil prices, the future generations fund – to save for future generations of Nigerians; and the Nigeria infrastructure fund – to invest in domestic infrastructure. The objective of SWF was structured to ensure more productivity and transparency by statute. vii) Debt Management Office (DMO): DMO was established to harmonize the monitoring of Nigeria‟s debt profile which was hitherto done by a great number of government units without any form of coordination. The DMO shrewd sourcing of fund to finance government deficit at affordable costs and manageable risks, mindful avoidance of debt crisis and achievement of steady growth and economic development- improvement of the nation borrowing capacity and other debt related functions viii) E-Payment System: This is a set of interactive elements, operational mechanisms and institutional arrangement for domestic currency payments in an economy. The objectives of e-payment among others are to enhance quality of service and there will be better value or money spent, to eliminate corruption associated with the previous payment system through cheque and cash.E-payment system provides positive effects on fiscal and monetary policy management as it reduces the amount of cash in circulation and this 36 enables monitoring by regulators; and will reduce fraud, corruption; and financial irregularities. ix) Other Reforms of Nigerian Public Finance Management: The other reforms include adoption of International Public Sector Accounting Standard (IPSAS): These are set of accounting standards issued by IPSAS Board for use by the public sector entities around the world in the preparation of financial statements. It major objectives is to improve the quality of general purpose financial reporting by public entities, leading to better informed assessments of the resource allocation decisions made by governments, thereby increasing transparency and accountability. Automated Accounting Transactions Reading Reporting System (ATRRS): This is an ICT based Accounting Software application which facilitates the input of Accounting Transactions, reconciliation and the generation of Standard Accounting Reports that meet required Standard of the Treasury. 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. Medium Term Expenditure Framework (MTEF): is a medium term high level strategic plan of the government, usually three years in Nigeria and which form the basis of annual budgeting taking into consideration the law requirement that spending should not exceed revenue by more than 3% of GDP. It shifts the psychology of budgeting from “needs” to an “availability of resources”. The objectives includes; 1. To improve macroeconomic balance, including fiscal discipline through good estimates of the available resource envelop, which are then to make budget that fit squarely within the envelop; to increase greater budget predictability as a result of commitment to more credible sectoral budget ceilings; etc. and Fiscal Strategy Paper (FSP): This is a 3- year transparent planning and budget formulation tool used for linking policy, planning and budgeting over a medium term. The FSP consists of the macroeconomic model that indicates estimates of revenue and expenditure, fiscal targets, risks as well as government financial obligations. SELF ASSESSMENT EXERCISE 37 1. Discuss Other Reforms of Nigerian Public Finance Management? 4.0 CONCLUSION In this unit, we can conclude that legal and regulatory framework is a broad system of rules that governs and regulates decision-making; agreements; laws etc. This is essential as it enables stakeholder‟s needs to be met. The introduction of some economic reforms have helped to address challenges such corruption, transparently, poor public service delivery, accountability etc and the implementation of these reforms is beginning to yield results such as sustained political will, commitment, capacity enhancement, etc. The conclusion of this unit will led to the next unit titled “Success Factors of Good Public Financial Management and Institutional Framework” 5.0 SUMMARY In this unit, we discussed extensively on economic reforms that guides public finance management such as the legal framework (constitution, audit ordinance, fiscal responsibility, public procurement, etc.) and some economic reforms that were introduced when the country embarked on Economic Reforms and Governance Project (ERGP) sponsored by the World Bank to address the challenges of transparency, poor services delivery, accountability, corruption, etc. 6.0 TUTOR-MARKED ASSIGNMENTS 1(a) Define legal and regulatory framework. (b) List and briefly explain any five (5) regulatory frameworks that govern public finance management in Nigeria know to you. 2. In 2004, the Nigerian Government embarked on Economic Reforms and Governance Project sponsored by the World Bank to address corruption and poor public service delivery. Required: Itemise any Ten (10) Economic reforms introduced by Government to curb such challenges in Nigeria. 7.0 REFERENCES /FURTHER READINGS 38 Lawson, A. (2015) Public financial management.GSDRC professional development reading pack No.6. Birmingham, UK: University of Birmingham. UNIT FOUR: SUCCESS FACTORS OF GOOD PUBLIC FINANCIAL MANAGEMENT AND INSTITUTIONAL FRAMEWORK 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Importance of Sound Public Financial Management 3.2 Why Public Financial Management (PFM)? 3.3 The Key Elements For Public Financial Management Success 3.4 Key Principles of PFM System 3.5 Institutional Framework for Managing PFM 4.0 Conclusion 5.0 Summary 39 6.0 Tutor-Marked Assignment 7.0 References/Further Readings 1.0 INTRODUCTION Public financial management (PFM) is about ensuring that public fund is use effectively and efficiently. It provides with information to make decisions and to know if they are using resources effectively. Managing finances in the public sector is an integral part of bringing services to the people.For all these to be achieved there must be an effective PFM system in the country which depends on a network of interlocking processes, within a framework of institutions at global, regional, national level and sit in a wider global context of governance and accountability, consultation and citizen involvement, performance management and leadership. The quality of PFM depends on how well the individual institutions work, the quality of inputs provided to the system, the feedback and control mechanisms that ensure a focus on objectives. 2.0 OBJECTIVES At the end of this unit you should be able to:  Explain the importance of PFM  Discuss the reasons why you preferred PFM  Identify key elements for PFM success  Discuss the key principles on which PFM system should be built upon  Explain the institutional framework for managing PFM. 3.0 MAIN CONTENT 3.1 A sound public financial management system is important for democratic governance, macro-economic stability, effective use of resources available and poverty reduction. Sound public financial management system can also help to prevent corruption and foster aid effectiveness. A situation where a government of a country is able to make use of her resources effectively and efficiently in order to achieve the economy purpose of the country. 40 3.1.1 IMPORTANCE OF SOUND PUBLIC FINANCIAL MANAGEMENT i. Sound PFM is fundamental to achieving development objectives sand reducing poverty. ii. It enables public funds to be managed and spent efficiently and with integrity iii. It helps to give donors necessary confidence against their own fiduciary risk. iv. It is a lever to broader country development. v. To raise revenues effectively vi Planning and executing budget decisions reliably and To build trust for the donors and investors SELF ASSESSMENT EXERCISE 1. Explain the importance of Sound Public Finance Management. 3.2 Why Public Financial Management (PFM)? The followings are reasons for public finance management in a nation. 1. Governments are responsible to their citizens and taxpayers for implementing effective systems of public financial management and for utilising those resources, to safeguard, and ultimately enhance, a country‟s sovereignty. 2. Taxpayers of any nation expect their public finances to be well- managed. They expect them to be allocated effectively, used to deliver quality services, and to provide a secure and stable environment in which society may exist and prosper. They also expect finances to be collected and expended fairly and according to the laws, with surpluses, deficits and debt levels understood and in control. 3. Private and public sectors are closely independent and must have confidence in each other if they are to work together to grow nation.. This kind of confidence requires public accountability and transparency in decision- making and reporting from the government of the day. 41 4. PFM is so essential such that when expectations are not met, confidence is lost which can lead to significant consequences like foreign investment difficult to attain, the cost of public debt may rise; donors funds difficult to attract, increase in unemployment rate, reduction in economic growth, and poor living standards of the public, increase in poverty level. SELF ASSESSMENT EXERCISE 1. What are the reasons for public finance management in a nation? 3.3 The Key Elements of Public Financial Management Success The eight key elements for PFM success are as follows: 1) Climate for Reform-This is essential for PFM success because widespread recognition and acknowledgement show that change is fundamental along with a commitment from key stakeholders to affect the necessary reforms. 2) Governance-The Legal and Institutional Framework: A well-defined legal and regulatory framework helps to facilities the implementation of efficient and effective public service arrangements. Appropriate institutions must be in place, as well as a set of recognised codes, standards and practices. 3) Governance-The Value System- The public entrust tax-paying citizen funds to the government and expects them to be used appropriately. Yet the appropriate attitudes and behaviours are not always out rally embedded. An open, honest and responsible approach to the manner services are planned executed and reported that signifies a strong intent to work in the public interest. 4) Capacity and Capability: This key element of PFM success ensures that the appropriate resource resources are available to support the application of each aspect of PFM particularly interims of people and systems. PFM reforms process cannot be successful without putting necessary systems in place, engaging the right skilled personnel to implement them. 5) Fiscal and Policy Framework: Budget is the main output of PFM systems through which public funds are financed. A credible budget is essential reflecting the expected financial impact of the government‟s policies and its use of resources. As a result this 42 element of PFM success is that of a clear defined and comprehensive fiscal and policy framework. 6) Performance Management: Successful implementation of the budget both in macro terms and at the organisational level. The budget must be well managed, monitored and reported to achieve the anticipated outcomes, with-value for money, the efficient and effective services delivery, and financial compliance acting as overriding principles. 7) Reporting: Prior researchers have shown that there is positive relationship between the level of fiscal transparency and measures of fiscal sustainability. Therefore, appropriate transparent reporting against planned outcomes is a key element of PFM success helping governments to be accountable for their fiscal actions. 8) Scrutiny and Assurance: Reported information must be reliable and relevant whether for decision- making, accountability, or transparency purposes. It must also be capable of withstanding scrutiny from different levels and forms of reviews. Information should be subjected to effective scrutiny and assurance, thus generating confidence in its verity. Subjecting such information to further scrutiny by an independent (external) and it enhances the confidence of the information. SELF ASSESSMENT EXERCISE 1. What are the key elements of public finance management? 3.4 Key Principles of PFM System According to Simson, Sharma and Aziz (2011), good PFM system is build on a set of key principles, such as: (i) Comprehensive and clear legislature framework, rules, and procedures. (ii) Effective institutions with clear mandates. (iii) Transparency and accountability in government operations. (iv) Effective coordination of national planning and budgeting functions and processes. (v) Credible budgeting processes and budgets. (vi) Broad non-governmental involvement throughout the planning and budgets (vii) Planning and budgeting cycle, and 43 (viii) Effective legislature oversight. SELF ASSESSMENT EXERCISE 1. What are the key principles of public financial management success? 3.5 Institutional Framework for Managing PFM The institutional framework is the structure, processes and systems for managing of public finances such as the financial management system in the public sector. The management of public funds in most cases is measured in terms of budget formulation, budget execution, accountability and reporting and budget evaluation. 3.5.1 Institutional framework The institution framework depicts the structure of agencies and organisations that are directly involved in promulgating, operating, developing and overseeing PFM standards and practices. 3.5.2 Level of institution Three levels have been identified in this text:  International: institutions whose ambit and influence is intended to apply across the world. This includes worldwide organisations, such as the World Bank, and other organisations whose ambit and influence extends across a number of countries, responding to the organisation‟s priorities and particular interests.  Regional: institutions whose ambit and influence extend beyond a single country within a defined, usually geographical, region of the world. The key types are financial institutions funding development, associations of finance accountancy and audit professionals, the Supreme Audit Institution‟s regional working groups, and several important topic based initiatives.  National: institutions whose ambit and influence apply within the boundaries of a single country. 3.5.3 Types of institutions 44 The following are PFM institutions: A. International sponsors i. World Bank The Bank provides finance and advice to developing countries for the purposes of economic development and eliminating poverty, through a family of five international organisations: International Bank for Reconstruction and Development (IBRD); International Development Association (IDA); International Finance Corporation (IFC); Multilateral Investment Guarantee Agency (MIGA); International Centre for Settlement of Investment Disputes (ICSID). The World Bank Institute (WBI) is the capacity development arm of the World Bank, and helps countries share and applies global and local knowledge to meet development challenges. WBI builds capacity for development by providing learning programmes and policy advice on economic management, financial and private sector development and governance. ii. International Monetary Fund (IMF): The International Monetary Fund (IMF) was establish to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. iii. Donors: Individual countries may maintain programmes of assistance that express their own government‟s priorities. Within broad aims such as the Millennium Development Goals they may focus on defined regions or substantive priorities, for example, water and sanitation or supporting small businesses, and they may be involved in multilateral programmes. Regional emphases may reflect historical cultural ties. Countries may differ in the balance they strike between relief and tackling the causes of poverty and their commitment to building global partnerships for those working on development. iv. OECF-DAC (Development Assistance Committee):The Paris Declaration (2005) asserted that a robust public financial management (PFM) system is vital to the effectiveness of aid funds. Since the Declaration, the OECD-DAC was working, through a Joint Venture on Public Financial Management, to help 45 partners and donors alike fulfil their commitments and to share PFM knowledge among donors and partner countries. A new PFM Task Force have recently been established to support the Working Party on Aid Effectiveness. v. Others: Other bodies with global reach may mobilise funds from sources different to those of the government-subscribed institution described above. They may also complement regionally based donor institutions, such as Multilateral Development Banks (MDBs) or the European Commission (EC). The United Nations arms, and bodies such as international charities and emergency relief organisations have targeted or self selected objectives. These may be general, such as the relief of poverty; sect oral, for example focussing on children, health or refugees; or may relate to more specific activities such as providing medical assistance. These bodies form part of the institutional architecture because they inject very large amounts of funding, and in countries where governments are seen as having weak capacity to implement assistance effectively, they may be chosen conduit for action. They are therefore part of landscape in addressing donor coordination. 3.5.4 Global Bodies A number of umbrella organisations have been set up at global level by finance professionals to promote specific topics, to disseminate knowledge and to uphold the professional standards and status of their dispersed membership. i. The Chartered Institute of Public Finance and Accountancy (CIPFA) CIPFA is one of the leading professional accountancy bodies in the UK and the only major specialist in the world devoted to excellence in public sector governance and financial management. It is responsible for the education and training of professional accountants and for their regulation through setting and monitoring professional standards. Uniquely among the professional accountancy bodies in the UK ,CIPFA has responsibility 46 for setting accounting standards for local government, a significant part and professional development through publications and events, and advises on public finance issues in the UK and internationally. CIPFA is a founding member of IFAC, has an increasing portfolio of advisory positions in international for a and works in partnership and collaboration on improving public financial management globally. ii. International Federation of Accountants (IFAC) IFAC is the global organisation for the accountancy profession. IFAC develops international standards on ethics, auditing and assurance, education, and public sector accounting standards. It also issues guidance to support professional accountants. It also issues guidance to support professional accountants in business, small and medium practices, and developing nations. A membership of 157 members and associates in 123 countries represents 2.5 million accountants employed in public practice, industry and commerce, government and academia. iii. Public Expenditure and Financial Accountability Initiative (PEFA) PEFA was developed to provide a shared pool of information of PFM that can facilities dialogue on reform priorities among domestic and external stakeholders. Its objectives are formulated in a manner that: encourages country ownership; reduces the transaction costs to countries; enhances donor harmonisation; allows monitoring of progress of country PFM performance over time; addresses developmental and fiduciary concerns, facilitates improved impact of reforms. iv. International Organisation of Supreme Audit Institutions (INTOSAI) INTOSAI operates as an umbrella organisation for the government external audit community. INTOSAI provides an institutionalised framework for supreme audit institutions (SAIs) to promote development and transfer of audit knowledge, improve government auditing worldwide and to enhance professional capacities, standing and influence of member SAIs in their respective countries. INTOSAI also issues the International Standards of SAIs (ISSAI). It sponsors the INTOSAI Development initiative that aims to develop institutional capacity of SAIs. INTOSAI has 188 Full Members and 2 Associated Members. 3.5.5 Regional Bodies 47 i. Multilateral Development Banks (MDBs) In addition to the funding institutions established under the aegis of the World Bank, a number of multilateral Development Banks are regionally based, with shareholders drawn from the region and from partner countries. Their purpose is to promote economic and social development through loans, very long-term loans (credits) at below market interest rates, equity investment and technical assistance, sometimes grant aided. The term Multilateral Development Bank typically refers to the four Regional Development Banks: the African Development Bank (AFDB), the Asian Development Bank (ADB) the European Bank of Reconstruction and Development (EBRD) and the Inter-American Development Bank Group (IDB). ii. Regional Associations of finance professional: Accounting The accountancy profession has established a strong network at both regional and country level. Regional bodies include the umbrella organisations for recognised national associations of accounting professionals. Their purpose is to advancement and continuous development, to exchange technical information and best practice and undertake research, and to establish a medium for closer relations, regional mutual assistance among members. These organisations do not have a distinctively public finance focus, and do not themselves confer accountancy qualifications. iii. Supreme Audit Institutions Regional Working Groups Supreme Audit institutions (SAIs) are also well represented in regional bodies. There are seven Regional Working Groups gathered under INTOSAI, that provide training to improve the quality and performance of government auditors, promoting the exchange of information and cooperation among member institutions, and bringing together a membership from different countries. These are Asia (ASOSAI), which, for example, has 43 SAI members, EUROSAI, AFROSAI (with three language-based sub-groups), ARABOSAI, CAROSAI(Latin America and Caribbean), ECOSAI and ASOSAI(Middle East and North Africa).SAIs may also be buttressed by regional organisations aimed at strengthening the institutions such as the Southern African Institute of Government Auditors. 48 iv. Internal audit: The Institute of Internal Auditors has members throughout the world who participate through their local chapters. Four regional bodies at present have formal agreements of cooperation with the IIA:  The Asia Confederation of Institutes of Internal Auditors (ACIIA)  The European Confederation of Institutes of internal Auditing (ECIIA)  FederacionLatinoamericana de AuditoresInternos (FLAI)  Union Francophone de l‟Audit Interne (UFAI) v. Learning associations: OECD-DAC recognises initiatives to promote south-south learning as one of the tools to reflect on and spread good practice. Their significance to broader PFM success will be very much dependent on the quality and capacity of individual groups. Below are some of the better known examples. vi. Collaborative Africa Budget Reform Initiative (CABRI): CABRI is a pan-African network of senior budget officials in ministries of finance and /or planning. Its aim is to contribute towards the efficacy of public finance management in Africa. CABRI was officially launched in collaboration with the AFDB in 2008. vii. Public Expenditure Management Peer Assisted Learning network (PEMPAL): PEMPAL has created a network of public expenditure management professionals in various governments in the Europe and Central Asia (ECA) region. These professionals can benchmark their PEM systems against one another and pursue opportunities for „peer‟ learning, as a means to enhance knowledge transfer. viii. Training providers: Most training providers in the field of PFM are thought to be single-country based. However, international firms offer consultancy and training at all levels. There are also some regional providers, for example, the Eastern and Southern African Management Development Centre, and the Institute of Development Management (IDM), a partnership of the public sector, private organisations and industry of Botswana, Lesotho and Swaziland. 3.5.6 National Bodies i. Ministry of Finance 49 The functions of the Ministry of Finance have been described as four business lines:  Macro fiscal condition and policy.  Budget formulation  Budget execution (including treasury, accounting policy, maintaining the public accounts, debt and cash management)  Revenue policy and management. Accompanying responsibilities may include financial sector regulation, standard setting, aid management, government personnel management, procurement, oversight of state owned enterprises, government internal audit and regional economic corporation. Because of their oversight role they may also be the champions of PFM in their countries across the whole public sector. ii. Accountancy bodies: Organizations equipped to support the professionalization of finance specialists are those that perform the functions of awarding qualifications by examination, requiring continuous professional development and maintaining a code of ethics and discipline. Other functions include interpreting and maintaining uniform standards of accounting, enabling and supporting accountability. There is a very large number of country based accountancy bodies. The primary, if not sole, focus of most of these bodies is the private sector and in many there is little if any public sector expertise. The South African Institute for Public Finance and Auditing (IPFA) is the only public sector specialist 'professional' institute outside the UK, and is being assisted by CIPFA to progress towards IFAC membership. III. Central Bank: A central bank is the entity responsible for monetary policy of a country or of a group of member states. A bank can lend to other banks in times of need. Its primary responsibility is to maintain the stability of the national currency and money supply, but more duties that are active include controlling subsidized-loan interest rates and acting as a lender of last resort to the banking sector during times of financial crisis. It may also have supervisory powers, to ensure that banks and other financial institutions do not behave recklessly or fraudulently. 50 IV. Internal audit: Institute of Internal Auditors (IIA): The Institute of Internal Auditors is an IFAC Affiliate and has its headquarters in the USA. It issues International Standards for Professional Practice of Internal Auditors, which are designed primarily for the private sector but are used in the public sector. It has 160,000 members in their country chapters. V. Local training providers There are a very large number of training providers, with some specializing in finance training although few have real centers of excellence or expertise in PFM. Included in this category are the university and similar bodies, many of which offer training and related services including consultancy to the public sector. VI. Supreme Audit Institutions (SAIs): SAIs carries out the external audit of public sector bodies and is one of the key links in the formal system of financial accountability in most countries. The strengthening of partner country SAIs is therefore often seen as a lever for improvement of the effectiveness of PFM systems as a whole. SELF ASSESSMENT EXERCISE 1. Explain Institutional Framework for Managing Public Finance Management. 2. Discuss the types of Institutions? 4.0 CONCLUSION In this unit, we can conclude that sound PFM is crucial to achieving sustainable development and reduces poverty in a country. For any nation to achieve sound PFM such country should have in place a climate for reforms, a well-defined legal/regulatory framework that helps to facilitate the implementation of efficient and effective public service arranges. Good PFM system can be built upon some key principles such as effective institutions with clear mandates broad non-governmental involvement, effective planning and budgeting cycle. 5.0 SUMMARY 51 In the unit, we discuss the importance of PFM to a nation, the principles that sound PFM system must be built upon, reasons for nations to embark on public financial management and the required critical factors of the good/PFM. 6.0 TUTOR-MARKED ASSIGNMENTS 1. Itemise the eight (8) key elements for public financial management success. 2. Why do countries embark on PFM? 3. What is the relevance of PFM? 7.0 REFERENCES/FURTHER READINGS Pimenta, C. & Pessoa, M. (2015).Public financial management in Latin America. New York (NY):Rightslink Wang ,X.(2006). Financial management in the public sector: tools, applications and cases, NewYork(NY): M.E. Sharpe Armonk 52 MODULE TWO: FINANCIAL REPORTING AND AUDITING Unit One: Financial Reporting Unit Two: Analyzing Financial Report and Audit Unit Three: Accounting Practice and Financial Management Cycle Unit Four: Financial Misconduct UNIT ONE: FINANCIAL REPORTING 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 What is Financial Reporting 3.2 Objectives of Financial Reporting 3.3 Challenges of Public Financial Report 3.4 Benefits of Public Financial Report 4.0 Conclusion 5.0 Summary 6.0 Tutor-Marked Assignment 7.0 References/Further Readings 1.0 INTRODUCTION This unit is to discuss the meaning of financial reporting, the characteristics, Benefits and challenges of financial reporting and its importance to

Introduction To Public Finance Management DES213 PDF

Document Details

Tags

Related

Summary

Full Transcript

Upgrade to continue