NNPCL Finance and Accounts_Budget.pdf

NNPC Limited Finance and Accounts Process and Procedures 1.0 Budgeting and Planning 1.1 Policy Objectives This policy section covers all activities involved in planning, developing, implementing, and monitoring of the capital and operating budgets of the NNPC Limited and its subsidiaries. The pr...

NNPC Limited Finance and Accounts Process and Procedures 1.0 Budgeting and Planning 1.1 Policy Objectives This policy section covers all activities involved in planning, developing, implementing, and monitoring of the capital and operating budgets of the NNPC Limited and its subsidiaries. The processes under Budgeting are designed to ensure:  Alignment of annual budgets to the financial and strategic objectives of NNPC Limited and its Subsidiaries;  Standardised procedures for budget preparation, review and update;  Adequate review of budget assumptions prior to the preparation of the budget;  Adequate approval of budgets in line with the DOA/DFA authority limits;  Adequate procedures for monitoring and evaluating budget performance. 1.2 Scope/Applicability The sub-processes covered under this section include: 1.3  Budget planning, preparation, and approval  Budget monitoring and reporting  Budget revision Policy Statements  The annual budget of NNPC Limited and its Subsidiaries shall be prepared to reflect the approved strategic plans of NNPC Limited. 11 NNPC Limited Finance and Accounts Process and Procedures  The annual budget period for NNPC Limited and its Subsidiaries shall run from the period 1st January to 31st December of every year.  The budget cycle for a financial year shall be implemented in line with NNPC Limited’s approved budget timetable.  Approvals for Budget Commitments shall be made in line with the NNPC Delegation of Authority DOA/DFA Guidelines. 1.4 Procedural Guidelines for Budgeting 1.4.1 Budget Planning, Preparation and Approval  NNPC Limited and its subsidiaries budget shall be prepared on an annual basis and derived from the three to five-year strategic business plan of the Company.  The annual budget shall be divided into three sections: revenue budget, capital expenditure (CAPEX) budget, and operating expenditure (OPEX) budget.  NNPC’s revenue streams are mainly classified into:  Core revenue: sales of crude oil and gas, refined products and rendering of technical services  Finance income: Fixed income investments, dividend income and rental income  Miscellaneous income: Disposal of asset, Registration fees, Bulk Purchase Agreement (BPA) and other third-party fees.  CAPEX shall consist of acquisition of movable and non-movable fixed assets, and execution of capital projects, while OPEX primarily consists of all operational expenses for the day to day running of the business – 12 NNPC Limited Finance and Accounts Process and Procedures both direct and indirect expenditures (salaries, benefits, and overheads).  Each budget base shall be based on the budget driver(s) driving such base, and each budget center/business unit/department shall be responsible for the budget.  The annual budget shall:  Identify each capital activity in sufficient detail to provide easy identification of the nature, scope, duration, and impact of the activity, together with appropriate justification.  Include such reasonable information regarding personnel and estimated manpower costs.  Include an estimate of expenditure by calendar month.  Include projected cash flows and net profit projections by month; and  Be accompanied by other information necessary for an informed board decision.  The process of preparing the annual budget shall commence not later than the first week in August of the preceding year of the budget and shall be completed latest by the last week in November every year. All units and Budget Centres must align their budget work program to fit into the overall budget timetable in order to ensure timely completion of the budget process. (See budget timetable in Appendix 1).  Each Departmental Head shall be responsible for the preparation of the budget for their respective budget center, including any proposed projects within the budget centre. The Departmental Heads shall be 13 NNPC Limited Finance and Accounts Process and Procedures responsible for presenting their budget to the Senior Management Team for deliberations.  All Budget Centre Managers/Head of Departments shall be expected to have sufficient level of financial literacy and will ensure they develop and maintain their financial competency. This includes understanding the fundamental financial concepts of accruals, commitments, income, operating expenditure, capital expenditure, delegations, and the impact of their actions on the financial statements.  The Budget Department shall be responsible for consolidating all budgets from the various budget centers into a single budget for each subsidiary/business units or its equivalent.  The Budget Department shall conduct budget review sessions with the members of each of the business units to challenge and agree the departmental expenditure estimates, assumptions, and alignment with the NNPC Limited’s corporate objectives.  NNPC Limited’s budget shall be approved by the Board of Directors while respective subsidiaries budgets shall be pre-approved by NNPC Limited’s Board of Directors and subsequently approved by the Subsidiary Board in line with the provisions of the approved Delegation of Authority (DOA) and Delegation of Financial Authority (DFA) limits.  All entities shall upload their approved Budget into the financial system at Budget owners’ level (Departments Budget for CHQ & Divisional Budgets for SBUs/CSUs) not later than two (2) weeks after the release of the Budget.  For self-funding entities, budgeted funds shall be released by the Finance and Accounts Departments of such entities. For NNPC Limited funded entities, the budgeted funds shall be released by NNPC Limited 14 NNPC Limited Finance and Accounts Process and Procedures to the respective entities at the beginning of the budget period. The Finance and Accounts Departments of such entities shall be responsible for the subsequent release of funds with strict compliance with the approved budget.  The heads of the budgeting and planning department of each business unit shall be responsible for monitoring to ensure that revenue targets are met and there are no expenditure overruns.  In event of unavoidable delay in budget approval, the CEO may approve an interim budget which may be a percentage of the previous year budget (CAPEX and OPEX).  Budget Owners (N to N-4 level) shall set the work plan and provide the resources and budget to execute the activities.  Budget Holders at divisional/departmental levels shall manage the performance of all activities as agreed, to realize the intended strategic plan including the realization of opportunities and risk mitigation.  Activity Owners/Primary Spenders shall be responsible to the Budget Holders for managing the budget within assigned spending limits and ensuring the realisation of opportunities and mitigation of risk. 1.4.2 Budget Monitoring and Reporting  All commitments (e.g., purchase orders, expenditure request) shall be budget cleared before they are initiated to ensure costs are effectively monitored in line with the approved budget. The relevant budget balance shall be reduced by the amount of expenditure item about to be incurred.  Budget Center Managers are responsible for reporting actual performance against their approved budgets on a monthly basis. They 15 NNPC Limited Finance and Accounts Process and Procedures shall be responsible for the periodic review of their functional budgets to ensure budget overruns are minimized and avoided.  A Budget Variance Analysis Report (BVAR) shall be prepared monthly by each budget center manager and forwarded to the Budgeting and Planning Department. The report shall contain an analysis of actual to budgeted spend and provide explanations for significant variances.  Budget performance shall be assessed on a quarterly basis with consideration to all monthly BVAR in each quarter.  A budget overrun may arise in the unlikely event of a contingency. This may be charged to the contingency fund. Requests to charge unbudgeted expenditure to the Contingency Fund shall be accommodated only for critical reasons and this shall be made through the Budget Department and approved in line with the DOA/DFA limits.  Unutilised budgeted funds for a specified period shall not be rolled over to the next financial year. Consequently, approved budgetary items with valid documentations shall be budget cleared and accrued for before the end of the financial year. 1.4.3 Budget Revision  Budget revisions shall be performed twice a year (May and October). A budget reforecast session shall be held between the Budget Department and management of the respective department/business units to reappraise budget estimates based on the analysis of the actual to budget spend for preceding months.  Other situations may arise where the budget would be revised. The related unit (championed by the Head, Budget Department) shall 16 NNPC Limited Finance and Accounts Process and Procedures establish justification for the budget revision in light of actual year-todate performances and future budget estimates.  All budget revisions shall be approved in line with the DOA/DFA limits for budget approval.  NNPC Limited and its Subsidiaries budgets shall not be revised on the following grounds:  Reallocation from CAPEX to OPEX and vice versa  Reallocation from direct OPEX to indirect OPEX and vice versa  Reallocation of OPEX or CAPEX budget from one business unit/department to another.  Approved revised budgets shall be uploaded into the ERP by the respective entities. 1.5 Compliance The Governance, Risk and Compliance (“GRC”) team shall perform a biennial review of the execution of this Policy for compliance and report any infringement to the Board of Directors. Where the need arises, the GCEO is authorized to grant exceptions to the application of this policy, and thereafter seek ratification from the NNPC Limited Board. 1.6 References The approved strategic plan and the DOA/DFA guidelines for NNPC Limited and its Subsidiaries are integral to this policy document. 17