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.

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© 2019 by NOUN Press
National Open University of Nigeria,
Headquarters,
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Lagos Office
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e-mail: centralinfo@nou.edu.ng
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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:

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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

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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

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  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.

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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

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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.

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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,

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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

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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
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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).

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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
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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.

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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.

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 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
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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

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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
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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)?

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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.

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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 users of accounting information.

2.0 OBJECTIVES

At the end of this unit student should be able to

 Define and know the meaning of financial reporting

 Discuss the challenges and importance of financial reporting
 Explain the importance of financial reporting to the users such as the government

53
3.0 MAIN CONTENT

3.1 WHAT IS FINANCIAL REPORTING?

Financial Reporting refers to the communication of financial information,

like financial statements, to the financial statement users, like potential investors,
employee, creditors and the public at large. Financial reporting is typically viewed as
public and private companies issuing financial statements. The accounting and financial
aspects of each and every department are recorded and are reported to various
stakeholders. Schiavo-Campo and Tommasi (1999) viewed financial reporting as an aim
to improve budget compliance. They provide a means for internal or external stakeholders
to assess government performance. Financial reporting entails extracting and presenting
data from the accounting system in ways that facilitates analysis. Governments produce a
range of reports for internal and external consumption. Financial Reporting is a very
important and critical task of an organization.

A typical report include daily flash reports on cash flows, monthly reports on budget
execution, revenue reports, mid-year reports and annual financial statements or fiscal
reports. Financial reports form a basis for the audit review of government performance.

SELF ASSESSMENT EXERCISE

1. What is Financial Reporting?

3.2 OBJECTIVES OF FINANCIAL REPORTING

According to International Accounting Standard Board (IASB), the objective of financial

reporting is “to provide information about the financial position, performance and
changes in financial position of an enterprise that is useful to a wide range of users in
making economic decisions.”

The following are the objectives of financial reporting:

1. Providing information to the management of an organization which is used for the

purpose of planning, analysis, benchmarking and decision making.

54
 2. Providing information to investors, promoters, debt provider and creditors which is
used to enable them to male rational and prudent decisions regarding investment,
credit etc.

3. Providing information to shareholders and public at large in case of listed

companies about various aspects of an organization.

4. Providing information about the economic resources of an organization claims to

those resources (liabilities and owner‟s equity) and how these resources and claims
have undergone change over a period of time.

5. Providing information as to how an organization is procuring and using various

resources.

6. Providing information to various stakeholders regarding performance management

of an organization as to how diligently and ethically they are discharging their
fiduciary duties and responsibilities.

7. Providing information to the statutory auditors which in turn facilitates audit.

8. Enhancing social welfare by looking into the interest of employees, trade union and
Government.

3.3 CHALLENGES OF PUBLIC FINANCIAL REPORT

Deloitte, (2018) Identified some challenges as follows:

1. Statutory deadlines for government financial reporting are decreasing as the

legislature demands information to support policy decisions.
2. Orderly and controlled business processes through budget execution are required to
ensure accurate accounting data is generated real-time.
3. Public Sector Accountants with excellent professional training are being hired but
finds public sector workplaces do not live up to their training.
4. It also lack integration and in many cases still being largely paper-based and
inefficient.
5. Whole-of-government financial reporting is generally the largest accounts
consolidation exercise in any economy.

55
SELF ASSESSMENT EXERCISE

1. What are the challenges of financial reporting?

3.4 BENEFITS OF PUBLIC FINANCIAL REPORT

1. Faster close strategies and implementation: It improves the usefulness of financial

statements through earlier release while achieving efficiency in the financial
reporting function.
2. Outsourced reporting services: Government can outsourced accounting and
financial reporting services to an audit firm e.g Deloitte, KPMG,PWC, etc for a
better and good financial report.
3. Government can hire expert who are knowledgeable in International Public Sector
Accounting Standards(IPSAS)/ International Financial Reporting Standards(IFRS)
to review compliance to international standards and to develop strategies for
improving disclosures
4. Financial Management Information Systems: Strategies; Requirements Definition;
project Management; Quality Assurance; Human Resource Development.
5. Audit firm can assist government entities to go beyond compliance and deliver
financial statements as part of an Annual Report providing enhanced transparency
to her citizens.
6. For the purpose of bidding, labor contract, government supplies etc., organizations
are required to furnish their financial reports & statements.

SELF ASSESSMENT EXERCISE

1. Discuss the Challenges and Benefits of Financial Reporting?

2. Discuss Financial Reporting in accordance with International Accounting Standard
Board (IASB).

56
4.0 CONCLUSION

In conclusion, from the above definition and objectives of financial reporting it shows that
financial reporting is very important from various stakeholders point of view. At times for
large organizations, it becomes very complex but the benefits are far more than such
complexities. Financial reporting contains reliable and relevant information which are
used by stakeholders such as the Public, Potential Investors, Employees, etc for various
purposes. A good financial reporting that is prepared in line with the rules and principles
helps in economic development. The conclusion of this unit will lead to next unit titled
“Analyzing Financial Report and Audit”.

5.0 SUMMARY

In this unit, we have defined and discussed financial reporting, benefits and challenges of
financial reporting and how it corrected for better or good governance to the public at
large.

6.0 TUTOR-MARKED ASSESSMENTS

1. What is Financial Reporting?

2. What are the Objectives of Financial Reporting?
3. Discuss the challenges and Benefits of Financial Reporting?

7.0 REFERENCES AND FURTHER READING.

Deloitte Touche Tohmatsu.(2018). Public Financial Management.

Schiavo-Campo, S and Tommasi, D. (1999).Managing Government Expenditure.Manila:

ADB. www.adb.org/documents/manuals/govt.expenditure

International Accounting Standards Board (2010). The conceptual framework for financial
reporting(1stedn). London. IASB

57
International Federation of Accountants (2011). Handbook of international Public Sector
Pronouncements. NY: IFAC

58
UNIT TWO: ANALYZING FINANCIAL REPORT AND AUDIT:

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Analysing Financial Reporting
3.2 Ratio Analysis
3.3 Audit
3.4 Objectives of Auditing
3.5 Advantages
3.6 Disadvantages
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION:

This unit is to analyze financial reporting using ratio analysis and to discuss Audit, the
advantages and disadvantages. Financial reporting has to be analysed or interpreted in
order to measure the quality of management and how solid the capital base of the sector is.

2.0 OBJECTIVES

At the end of this unit student should be able to:

 Analyse Financial Reporting using ratio analysis.

 Explain the importance and limitation of using ratio to analyse financial
reporting.
 Discuss Audit, its advantages and disadvantages

3.0 MAIN CONTENT

3.1 ANALYSING FINANCIAL REPORTING

This can be defined as the art and science of translating the figures shown in the financial
statements in such a way as to reveal the strengths and weaknesses of a business and the

59
attributable causes. Any financial statement can be interpreted; consequently, management
accounts, final accounts and interim account lend themselves to critical analysis.

Financial reporting analysis is also defined as the judgment process, which aims at
evaluating the current and past financial positions and the results of an entity with the
primary objectives of determining the best possible estimates about future conditions and
performances. In analysing, financial reporting using ratio analysis in single or number of
variables to compute for a given ratio and compare it with a given standard to determine
whether performance is good or bad. In other words, for the purpose of this lecture, we
will restrict our analysis of financial reporting to ratio analysis.

SELF ASSESSMENT EXERCISE

1. Define Financial Reporting

3.2 Ratio Analysis

Ratio analysis involves expressing one figure as a ratio or percentage of another, to bring
out the weakness or strength in an organisation‟s day to day affairs. In public sector,
looking at the financial statement of Government department, Ministry or Corporation, the
various figures disclosed would not be sufficiently revealing in terms of the strength or
otherwise of the establishment, for well informed judgment to be made.

Ratios can be grouped into four categories such as:

 Profitability ratios
 Gearing ratios
 Liquidity ratios and
 Shareholders‟ investment ratios

The Federal, State and Local Government councils use mostly liquidity ratios to measure
the ease with which obligations due in the year can be met. The three tiers of
Administration operate the cash basis of accounting. Government parastatals, Agencies,
Ministries and Extra-Ministerial department while some commercial or quasi-commercial
makes use of accrual basis.

60
In line with the aforementioned ratios above, public sector activities considers them
relevant.

3.2:1 Current Ratio

This is the ratio of current asset to current liabilities and can be obtained from statement of
financial position and this is the formula:

An organisation should have enough current assets that give a promise of cash to meet
short-term commitments of paying off current liabilities. However, as a general rule, the
ideal ratio for Government parastatals, Agencies and Departments is 2:1.

3.2:2 Quick Ratio or Acid Test

This is the ratio which is more revealing of the solid liquidity position, It is also obtained
from the statement of financial position and this is the formula:

Public Sector or Private Organisations are not able to convert all their current assets into
cash quickly. For Government parastatals, Agencies and Departments with a fast stock
turnover, a quick assets ratio can be computed. The ideal ratio is 1:1. And it is important
in improving the liquidity.

3.2:3 Debtors’ Payment Period

This measures the average length of time it takes a Corporation‟s debtors to pay; it is only
an estimated average payment period. The formula for computing the payment period is:

The immediate payment of cash by the debtors put the Government parastatals, Agency
and Departments in a better cash position.
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3.2:4 Creditors’ Payment Period
This measures the average length of time it takes Government parastatals, Agency and
Departments under focus to pay its creditors. The formula is as follows:

3.2:5 Stock Turnover Period

This indicates the average number of days that items of stock are held for sale or in the
store. The stock turnover is calculated as:

Average stock is the average of the opening and closing stock figures. The shorter the
period, the healthy the situation is in making the best use of funds.

SELF ASSESSMENT EXERCISE

1. Use a hypothetical figure to analyze the Financial Reporting using Liquidity ratio.

3.3 AUDIT

Public audit is the examination of the records and reports of an enterprise or governmental
department by experts or persons other than those responsible for their preparation.
Although every transaction cannot be verified by an independent authority, external audits
can nonetheless provide reasonable assurance about the governance and discharge of the
financial management responsibility by the organisation and that it represents value for
money. It can also highlight any shortcomings for management action. (Arsalan & Nida,
2012)

Auditing is a process carried out by qualified Auditors during which the accounting
records and the financial statements of an enterprise are subjected to examination by
independent Auditors with the main purpose of expressing an opinion in accordance with
his terms of appointment. (Adams, 2014).

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SELF ASSESSMENT EXERCISE
1. Define Auditing.

3.4 Objectives of Auditing

The objectives of auditing could be divided into two:
a. The primary objectives and
b. The secondary objectives

a. The primary objectives is to enable the Auditor to report as to whether the financial
statement present „a true and fair view‟ of the financial affairs of the organisation
during the period under review and as at the end date.
The secondary objectives of an audit are to detect and prevent Errors and Frauds. Errors
are omission or mistakes made by an accountant that are not intentional while Fraud is a
deliberate omission or mistake made by an accountant in order to enrich himself/herself.

SELF ASSESSMENT EXERCISE

1. What are the primary and secondary objectives of auditing?

3.5 Advantages of Audit

1. Auditing helps to assure the shareholders that their business enterprise is been run
or managed in their interest.
2. Audited accounts could be more easily acceptable by the Inland Revenue for Tax
purposes.
3. Audited accounts can be very useful for investigating bank loan or overdraft.
4. Audited accounts can be used as a basis for business combination such as merger
and acquisition.
5. Auditing helps to prevent or detect fraud or errors within an enterprise.
6. Strengthen the internal country system of the enterprise.

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3.6 Disadvantages

1. When the financial statements are not properly prepared, it can lead to poor
financial report
2. Auditing attracts extra cost
3. Auditing could also lead to delay in the presentation of the audited financial
statement.

SELF ASSESSMENT EXERCISE

1. What are the advantages and disadvantages of Audit?

4.0 CONCLUSION
In conclusion, financial reports are subject to internal audits to ensure that the rules and
regulations at the department or ministerial level, in terms of procurement processes,
contract management and other basic requirement, have been enforced. In order to ensure
transparency in the public sector and to also avoid cosmetic accounting or window
dressing in the financial report. The conclusion of this unit will lead to the next unit titled
“Accounting Practice and Financial Management Cycle”.
5.0 SUMMARY
In this unit, we have analysed financial reporting using ratio analysis and also defined
Audit, advantages and disadvantages as it relates to the public sector.

6.0 TUTOR-MARKED ASSESSMENTS

1. Define Ratio Analysis
2. Explain the analysis of Financial Reporting
3. Explain the following ratios and state their mode of computation:
i. Current ratio.
ii. Quick ratio or Acid Test ratio.
iii. Debtors payment period.
iv. Creditors payment.
v. Stock turnover period.
4. Define Audit.

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7.0 REFERENCES/FURTHER READING

Adams, R.A.(2014). Public Sector Accounting and Finance Made Simple 6th edn.
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."

Dabor, E.L. (2008). Basic Business Accounting.Benin City: DanDiamond Publisher.

ICAN (2014).Public Sector Accounting and Finance Study Text.(1sted.) United Kingdom
Berkshire: Emile Woolf International

Izedonmi, F.O.I (2000). Introduction to Auditing, 1stedn. Benin City: Ambik Press,

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.

65
 UNIT THREE: ACCOUNTING PRACTICE AND FINANCIAL MANAGEMENT
CYCLE

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Accounting Practice
3.2 Financial Management Cycle
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
This unit is to define, discuss Accounting practice and financial management cycle for a
better and transparent public sector.
2.0 OBJECTIVES

At the end of this unit student should be able to:

 Explain Accounting practice

 Discuss the Financial Management Cycle
 Explain the meaning and importance of Accounting and Management cycle.

3.0 MAIN CONTENT

3.1 ACCOUNTING PRACTICE
Accounting practice is the system of procedures and controls that an accounting
department uses to create and record daily/weekly/monthly transactions. Accounting
practice should ideally be extremely consistent, since there are a large number of
business transactions that must be dealt with in exactly the same manner in order to
produce consistently reliable financial statements. (Bragg, 2018).
The importance of accounting practice cannot be overemphasized and that will lead us
to the type of accounting practice. The types of accounting practice include the following:
i. Public Sector Accounting practices
ii. Audit practices
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 iii. Tax practices
iv. Forensic Accounting practices
v. Management Information System practices
vi. Management Accounting practices
vii. Financial Management practices
viii. Book Keeping/ Accounting operation practices
The above listed types of accounting practices can further be explained below:

i. Public Sector accounting practices: Is the presentation, measurement and

budgeting and interpretation of public funds to the users. The basis of accounting is
divided into two:
a. Cash basis and
b. Accrual basis

a. Cash basis: This is the basis of accounting under which revenue is recorded only
when cash received, and expenditure recognized only when cash is paid, irrespective of
the fact that the transactions might have occurred in the previous accounting period.

b. Accrual basis: Under this basis, revenue is recorded when earned and expenditure
acknowledged as liabilities when known or benefits received, notwithstanding the fact that
the receipts or payments of cash have taken place wholly or partly in other accounting
periods.

However, prior to this date, the public sector accounting was based on cash basis but as at
today, the public sector accounting is based on accrual basis.

However, in the public sector, there is a shift in the budgeting system from the
conventional budgeting system to Activity base budgeting and Zero base budgeting.
While, the financial measurement is based on value for money, the non financial
measurement is based on Balanced score card and key performance indicator.

ii. Audit practices: This is the independent examination of financial statement

by an independent person called the auditor in order to ensure that the financial

67
 statement presents a true and fair view in his professional opinion. There are other
services that can be rendered by the auditor and these services include;
a. Accounting
b. Taxation
c. Secretarial services
d. Management Advisory
e. Investigation
f. Liquidation and Receivership.
iii. Tax Practices: A tax preparation practice specializes in preparing
individual, partnership and corporate income tax returns. In this type of practice,
tax returns are generally assigned to accountants by their specific area of
specialization. Tax practice is a different aspect on its own and it require an
accounting knowledge and that is why Chartered Accountant practices tax also.
iv. Forensic Accounting Practices: Forensic accounting is a special type of
auditing that is most often discussed in the legal arena. Forensic Accounting
provides an accounting analysis that is suitable to the court which will form the
basis for discussion, debate and ultimately dispute resolution. The integration of
accounting, auditing skills yields the specialty known as Forensic Accounting.
v. Management Information System practices: This is the processing of data
to information in specialized accounting software. More companies are realizing
the benefits of specialized accounting software, specifically management
information systems, but many companies do not have personnel with the
education or knowledge needed to perform a complicated software setup or
conversion.
vi. Management Accounting Practices: Chartered Institute Management
Accountant (CIMA) defines Management accounting as the application of the
principles of accounting and financial management to create, protect, preserves and
increase value for the stakeholders of for-profit and non-profit enterprises in the
public and private sectors. Management accounting is essentially necessary for an
organization in reacting positively to the rising changes and developments affecting
business profitability. Management Accounting Practice areas are: Cost
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 transformation and Management; External Reporting; Financial strategy; Internal
control; Investment Appraisal Management and Budgetary control. And based on
the definition of Management accounting provided in earlier. The major purposes
of management accounting are:

a. Provision of financial and non-financial information for taking decisions on how to

efficiently utilize an organization's resources through proper planning.

b. Establishing of an effective control system.

c. Providing better means of measuring performance of different segments in the

organization.

d. Examining the competitive strength of an organisation.

e. Assisting the organisation in the areas of product and technological innovations.

f. Motivating managers and subordinates in improving productivity.

g. Assisting the organisation to identify and eliminate non value-added activities.

h. Focusing on continuous improvement towards cost and quality.

i. Safeguard an organisation‟s resources.

vii. Financial Management practices:

Financial management entails planning, organising, controlling, monitoring and
evaluating the financial resources of an organisation to achieve its overall objectives. And
it is concerned with making decisions about the provisions and use of a firm‟s finances.
Financial management is the life wire of every business organization. The objective of
financial management practices is to gain a better understanding of the financial
management best practices and the areas are:
 Working Capital Management
 Budgeting process, roles and the responsibilities
 Investment Appraisal system
 Financial Statements

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  Cash Flow system
 Auditor‟ report

viii. Book- Keeping Practices

Bookkeeping is the term used to describe everyday accounting such as processing
accounts payable and accounts receivable, making bank deposits, processing payroll and
preparing month-end financial statements. This is also another type of accounting
practice but does not require the professional interpretation aspect to the users of
accounting information. This type of practice is common among small businesses. For
example, a sole proprietor business, partnership business, joint venture business etc.
Bookkeeping helps in maintaining and providing the latest financial position of the
business and, therefore, assumes great significance. It is advisable to maintain books of
account for the following reasons:
 They provide up-to-date information about the business
 They reflect the outcome of transaction made during the period under review.
 They give information about the state of affairs of the business at regular
intervals.
 They help government, individuals and other authorities to decide about the
incidence of various Taxes.
 Their books help to analyse the performance of the business and
 It also help to compare the performance of several businesses

SELF ASSESSMENT EXERCISE

1. Discuss six types of Account practices.
2. Explain Forensic Accounting.
3.2 Financial Management Cycle can be defined as the monitoring of finance involving
receiving income and reporting income and expenditure to organizational policy makers
(such as the Board) and to donors. The financial management cycle has to do with the
planning and control of financial spending for effective and efficient purposes. Effective
public sector financial management and service delivery is a continuous process of

70
planning, implementation, evaluation, audit and improvement based on the outcomes.
Financial management cycle can be represented diagrammatically. Thus:

Budgeting

Financial Monitoring
Reporting / Financial Cash flow
Control

Procurement
Goods/Servi
ces

Figure 1: Financial Management Cycle:

Source: Financial Planning Management Development. Winter (2000)

The key factors of the cycle are:

 Budgeting is all about what the organisation plans to do and how it allocates the
necessary resources to make goods/service delivery possible.
 Cash flow is the total amount of money being transferred into and out of a business
especially as its affecting liquidity.
 Monitoring/Financial Control is confirming that planned service outcomes are
achieved within allocated budget and controls are been put in place.
 Financial Reporting is all about the strength and weakness of the financial statement
and how it can be improved upon.
However, in conclusion, FMC stands for Financial Management Cycle and relates to the
way governments manage public resources (both revenue and expenditure) and the
immediate and medium to-long-term impact of such resources on the economy or society.

71
As such, FMC has to do with both process (how governments manage) and results (short,
medium, and long term implications of financial flows).

SELF ASSESSMENT EXERCISE

1. With the aid of a diagram discuss Financial Management Cycle?

4.0 CONCLUSION
In this unit, we conclude that Accounting practices and Financial Management Cycle
relates to the way government manage her pubic resources effectively and efficiently in
order to ensure that medium and long term financial flows are in line with the set standard,
principles and rules of the practice. The conclusion of this unit will lead to the next unit
titled “Financial Misconduct”.

5.0 SUMMARY
In this unit, we have discussed extensively on accounting practices and Financial
Management Cycle. The type of accounting practices was discussed in details and the way
government manages her public resources.

6.0 TUTOR-MARKED ASSIGNMENTS

1. What do you understand by the term accounting practice?
2. Discuss Financial Management Cycle?
3. Write short notes on Audit and Tax practices?

7.0 REFERENCES/FURTHER READING

Bragg, S. M. (2018). Accounting Best Practices.(5thed), John Wiley & Sons. Inc

Winter (2000).The Manager series “Understanding and Using Financial Management

Systems to Make Decisions” Boston MA.FPMD.

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UNIT FOUR: FINANCIAL MISCONDUCT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Financial Misconduct
3.2 Types of Fraud
3.3 Solutions on how to curb financial misconduct
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

This unit is to define financial misconduct, reasons for financial misconduct, effects and
solution to curb the financial misconduct. Financial misconduct is aspect that needs to be
checked by providing and the necessary checks and controls for better governance.

2.0 OBJECTIVES

At the end of this unit student should be able to:

i. Explain the meaning of financial misconduct.

ii. What are the effects of financial misconduct on our economic development?
iii. Explain the suggested solution to curb the financial misconduct
iv. Identify the types of fraud and how they are been perpetuated

3.0 MAIN CONTENT

3.1 Financial Misconduct

Financial Misconduct should be taken to cover „fraud, corruption, theft, dishonesty or

deceit by an employee, whether at the expense of institution, other employees or any other
body or organisation‟, as well as actions or inactions which fall below the standards of
probity expected in public. That is to say any intentional act is regarded or termed as
fraud. However, it is the responsibility of every employees working in the public sector or
private sector to ensure or be aware that:
 Public Asset are protected
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  Ensure that management and other practices accord with the standards of probity
expected of public sector bodies
 Ensure that the resources available to it are used only for the organizational
objectives as allocated.
 Fraud, corruption or any other kind of financial misconduct cannot be tolerated.

3.1.1 Financial misconduct is seen as fraud. And Fraud is a false representation of a

matter of fact, whether by words or by conduct, by false or by concealment of that which
should have been disclosed that deceives and is intended to deceive another, so that the
individual will act upon it to her or his legal injury(Black Law Dictionary,2004). Fraud is
commonly understood as dishonesty calculated for advantage. A person who is dishonest
may called a fraudster.

SELF ASSESSMENT EXERCISE

1. Discuss Financial Misconduct?

3.2 Types of Fraud

The types of fraud include:
 Misappropriation of assets;
 Bribery and corruption;
 Financial statement Fraud.

3.2.1 Misappropriation of assets fraud: Misappropriation of asset is often accompanied

by false or misleading records or documents in order to conceal the fact that the assets are
missing, indirectly causing accounting irregularities in financial statements (Kwok, 2005).
Misappropriation of assets can be accomplished in a variety of ways including:

a. Embezzling receipts( for example, misappropriating collections on accounts

receivables or diverting receipts in respect of written-off accounts to personal bank
accounts);

74
 b. Stealing physical assets or intellectual property (for example, stealing inventory, for
personal use or for sale, stealing scrap for resale, colluding with a competitor by
disclosing technological data in return for payment)
c. Causing an entity to pay for goods and services not received (for example payment
to fictitious vendors, kickbacks paid by vendors to the entity‟s purchasing agents in
return for inflating process, payments to fictitious employees);
d. Using and entity‟s asset for personal use (for example, using the entity‟s assets as
collateral for personal loan or a loan to a related party)

3.2.2 Bribery and Corruption Fraud: Corruption is defined as bribery, that is , payment
in money or in kind that is given or taken in a corrupt relationship. It can also involve the
abuse of entrusted power for private gain, or an inducement to show favour. The
perversion or destruction of integrity in the discharge of public duties by bribery, favour
and the use or existence of corrupt practices especially in a state or public corporation
(Black Law Dictionary, 2004)

3.2.3 Financial Statement Fraud: According to the American Institute of Certified

Public Accounts (AICPA,1988), Financial statement fraud is intentional or reckless
conduct, whether intentional act or omission that results in materially misleading financial
statements. It also entails gross and deliberate distortion of corporate records such as
inventory manipulation or fraudulent transactions such as fictitious sales or orders.
Fraudulent financial reporting may also entails the misapplication of accounting
principles.

3.2.4. Factors that Enhanced Financial Statement Fraud

Association of Certified Fraud Examiners (2015) investigated a study and found that
fraudulent financial reporting usually occurs as a result of certain environmental factors
and opportunities, institutional or individual. These forces and opportunities add pressures
and incentives that encourage individuals and companies to engage in fraudulent financial
reporting. Where the right mix of forces and opportunities is reached, it can produce
fraudulent financial reporting. The reason people commit fraud was first examined by
Cressey Donale, a criminologist in 1950s. He wanted to find out what made people to
75
commit fraud. According to him, there are three major factors that push people to commit
fraud. They include pressure, opportunity and rationalization. In an attempt at explaining
fraud in accounting, Cressey (1973) proposed the following function:

FRAUD = f (Pressure, Opportunity, Rationalisation)

Pressure

Opportunity Rationalisation

Fig. 2: The Triangle of Fraud

Source: Cressey (1973)

a. Pressure is the first factor that influences individuals to commit fraud and it refers to
excessive force to achieve financial targets (for corporate entities and for individuals
receives force from friends and relatives in order to measure up with the current trend or
material things), to induce optimistic and unrealistic messages in annual reports. In
addition, a firm may be threatened and pressured also by intense competition, by market
saturation of sudden changes, acquisitions (merger) the financing need or cash flow
problems.

b. Opportunity refers to those factors that enable fraud to be more easily committed and
detection less probable. Therefore, ineffective controls or absence of control favours fraud
intensions. These factors can be related directly to inadequate monitoring by management
or the ineffectiveness of the board of directors or of the audit committee to oversee the
reporting and the internal control.

76
c. Rationalisation is the trigger factor of the fraud act and refers to the fact that the
perpetrator must have a mindset that would justify or rationalize the act of fraud.
Detection of risk factors that push board members, management, employees to be
predisposed to such intent may be quite difficult. Thus, when a company monitors people
and processes to discourage and detect fraud, it must follow the three aspects, because
fraud involves incentives or pressure to commit a fraudulent act, a perceived to do so, and
some reasoning.
SELF ASSESSMENT EXERCISE
1. Discuss the fraud triangle.

3.3 Solutions on how to Curb Financial Misconduct.

The following are some of the solutions on how to curb Financial Misconduct:
1. There should be Principles, rules and laws on the conduct of every staff or
employees of the organization as it relates to financial misconduct.
2. Reporting Suspected Financial Misconduct is also a major impact in curbing
financial misconduct in the public and private sector.
3. Immediate investigation of allegation on financial misconduct could also serve as a
means of curbing fraud.
4. There should be encouragement in the aspect of employee emolument i.e staff
should be paid good pay in line with their performance. Thus, it will reduce or
minimize theft and fraud.
5. There should be reward for hard work such as bonus, Gifts, Promotion, etc it will
curb financial misconduct.

SELF ASSESSMENT EXERCISE

1. What are the Factors that Enhanced Financial Statement Fraud?

4.0 CONCLUSION
In this unit, we conclude that financial misconduct is a major area that needs attention so
as to minimize the practices and such suggested solutions were provided in order to reduce
further occurrence. The fraud triangle syndrome should be checked by the public sector
77
most especially in the aspect of staff emolument and good working conditions as it is
necessary. The conclusion of this unit will lead to the next unit titled “Introduction to
Budgeting”

5.0 SUMMARY
In this unit, we have discuss extensively on financial misconduct, factors that enhanced
fraud, types of fraud, reasons for committing fraud and proffer solution to curb financial
misconduct.

6.0 TUTOR-MARKED ASSIGNMENTS

1. Define Financial Misconduct.
2. What are the reasons for one to engage in financial misconduct use fraud triangle
to explain?
3. State the solution curbing financial misconduct.

7.0 REFERENCES/FURTHER READING

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

Black, H. C (1893). Black‟s Law Dictionary. (9thed) UK: West Publishing Company.

Cressey, D. (1973). Other people’s money. Montclair: Patterson Smith

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.

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

78
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

UNIT ONE: INTRODUCTION TO BUDGETING

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 What is Budget
3.2 Methods of Preparing Budgets by Government in Nigeria.
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

Budget is a financial and/or quantitative statement prepared and approved prior to a given
period of time for the purpose of attaining a given objective. It is a tool used for planning
in the public sector or the private sector for effective and efficient result and for corrective
measures if any. However, budget and it processes is vital in every country.

2.0 OBJECTIVES

At the end of this unit, students should be able to:

 Define Budget?
 Discuss the budget process
 Explain the purpose of a budget
 Examine the Nigeria budget system
 Discuss the methods of budgeting system in Nigeria
 Explain the challenges of budget system in Nigeria.
 State the Advantages and disadvantages of budget.
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3.0 MAIN CONTENT

3.1 What is Budget?

Budget can be defined as an estimate of income and expenditure for a given period of time
usually a year. However, in its contemporary sense, budget means the plan of expenditure
and revenue to balance that expenditure, of usually a public authority.

Oshisami (1992) sees a budget as a plan expressed in quantitative and usually monetary
terms, covering a specified period of time. Normally the period covered is one year and
this makes it a short-term plan.

A budget is a financial and/or quantitative statement prepared and approved prior to a

defined period of time for the purpose of attaining a given objective. A budget is normally
for a year

A government budget shows authorized appropriations and estimated revenue. In Nigeria,

government budgeting can be seen as a plan for financing the activities of the government
during a fixed future period. Usually one year, prepared and submitted by the executive to
the legislature whose approval is absolutely essential before the plan can be executed. The
federal budget can be defined as a document from the government that sums up its
revenue and expenditure for a fiscal year, which runs from January, 1 to December 31. It
is a financial plan which spells out governments estimated revenue and proposed
expenditure for a fiscal year.

3.1.2 Uses of Government Budgeting

Government is non-profit making entity based on that budgets are used:

a. As a guide for the present and future.

b. To plan, control and estimate the amount to be received and spent during a
specified period
c. To distribute limited resources.

80
 d. To motivate: Government motivates the staff through promotion and improved
condition of services.
e. As a means of evaluating performance: Budget is a target, it is a measure of
performance.
f. To inform managers about the results and operations of their responsibility
domains.
g. To evaluate economic and social policy.
h. As a standard of measurement for the purpose of controlling on-going economic
endeavors.

3.1.3 The Purpose of Budget

There are four main purposes which a government budget serves. These are as follows:

 A budget is an economic and financial document. It highlights government's

policies which are designed to promote economic growth, full employment and
enhance the quality of life of the citizen.
 It is a useful guide for allocation of available resources.
 Through the legislature, the Executive arm uses the budget as a means of
accountability for the money earlier entrusted and the appropriations newly
approved.
 The budget stands for the request of the Executive arm of Government for the
legislature to collect and disburse funds.

3.1.4 The Nigerian Budget Process

The budget process in Nigeria has to go through four critical processes which are:

a) Drafting
This is the first stage of the budget process, at this stage Mr. President is mandated
by law to produce and submit projections of earnings and disbursements for the
fiscal year to National Assembly (NASS). The Budget office of the Federation
(BoF) then produces the Fiscal strategy paper (FSP) that summates government‟s
complete budgetary policy. The FSP details the strategy objectives of Mr. President

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 and is produced in conjunction with other Ministries, Department and Agencies
(MDAs). The Federal Ministry of Finance (FMOF) submits an outline of the
budget to Mr. President, who will then present same to Federal Executive Council
(FEC) for their consideration and approval.

b) Legislative approval
In a joint sitting of the Senate and the House of Representatives the Appropriation
Bill is presented by Mr. President. The Appropriation committee in the Senate and
the House of Representative will then examine and suggest revisions to the
different sections of the budget. The parameters used to draft the budget are
considered throughout the stakeholder discussions during which, the Executive and
the Legislature are engaged in extended debates as it relates to :gas joint venture
agreements and reimbursement for the Fiscal year, the review of the internal
allocation of resources, oil and gas funding etc.
At this stage, civil society groups are opportune to get involved and influence the
budget process. The modifications are then merged and concluded to become the
Appropriation Bill for the Fiscal year after approval by the NASS. After this Bill is
signed by the President and then, it becomes the Appropriation Act.

c) Implementation stage
The third stage involves federal government MDAs, which receive funds for their
capital projects every quarter. MDAs spend these funds based on the share of the
budget from the Consolidated Revenue Fund (CRF) of the federation. The FMOF
introduced a cash management committee to make sure that funds are made
accessible to allow for the easy funding of the budget and ensure that it reduces
borrowing.

d) Monitoring and Evaluation stage

The stage involves monitoring and evaluation of the budget. The FMOF prepares
an annual budget implement ion report that reviews the level of execution of
project implementation from various locations in the country, and the quality of
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 each year‟s budget: MDAs involved on the monitoring process include: FMOF,
NPC, NEIA (National Economic Intelligence Agency) PBMC (President Budget
Monitoring Committee), OAGF (Office of Auditor-General of the Federation),
NASS and office of the Accountant General for the Federation. The BOF, NPC;
spending ministries, and agencies conduct physical inspection of the on-going and
completed projects.

3.1.5 Challenges with Budgeting Process in Nigeria

The budget process in Nigeria is characterized by some challenges such as:

a) Over bloated nature of the budget

The partial funding of projects across the country and the high risk of these projects
being abandoned in their partial state. In Nigeria, where some projects are ongoing
and poorly funded, new projects are introduced, thereby increasing the risk of
neglect, while some projects are poorly maintained through the various stages of
completion; some are approved without detailed costing and engineering design.

b) Weak reporting culture of MDAs

The MDAs reports do not adequately reflect projects that are ongoing as various
stages of implementation are not stated. The MDAs do not adhere to proper
monitoring and evaluation technique on their projects and the large number of
MDAs projects makes it difficult to individually visit each project.

c) Unplanned Size of the recurrent expenditure

Increases in the wage bill and in allocation to certain MDAs have resulted in
bloated budget. This has made the budget skewed towards the recurrent spending
white capital expenditure remained inadequate.

d) The nature of the budget process

The budget is required to be reviewed at different stages with the possibilities of
delays, like the drafting stage, legislative approval stage, implementation stage, and
monitoring and evaluation stage.
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3.1.6 Importance of Government Budget

a) Proper resource pool allocation

Budgeting helps the government to allocate resource in a useful and sustainable
manner. Government uses past data to identify sections of the society in need of
economic welfare policy and implementation. These policies help the government
claim on share efficient governance and achieve economic stability.

b) Ensuring economic growth

Budget permits the government to regulate the imposition of taxes in various
sectors, investment and expenditure are some of the most prominent factors
contributing to the growth of a nation‟s economy.

c) Growth of business and trading

Businesses and enterprises look forward to the government budget as resources
being allocated to various sectors are revealed. The government can encourage
business owners to revise their policies accordingly and contribute to the country‟s
economy prosperity.

d) Mitigating economic divide

The government addresses economic disparity and inequality which is imminent
threat to the country‟s economy by the introduction of public and economic welfare
policies for the underprivileged sections of the society though the budget.

e) Administering operation of public sector units

Industries operating in the public sector contribute immensely to the country‟s
economy by providing employment to a lot of people and generating revenues. A
budget helps the government focus appropriately on corporation (enterprises) in the
public sector by introducing policies to aid their growth.

f) Prevention of waste

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 A good budgetary system does not allow for abandoning projects as enough studies
would have been carried out before subsequent approval.

3.1.7 Factors which Militate Against the Government Budgeting System

The following are key factors that militate against effective and efficient implementation
of government budget:

a) Human element
Top government officials in MDAs see budgeting as restraining and challenging.
They tend to develop a lot of apathy towards its implementation. The lack of
probity and accountability of some operatives affect successful budgeting.

b) Uncertainties underlying data inputs

In Nigeria, there are a lot of uncertainties in the data used for the preparation
government budgets. The projections in revenue accruing from oil may not be
forthcoming in view of the vagaries in the world market. Lack of efficient data base
also hamstrings reliable forecasts.

c) The type of project for which budget is prepared

How successful a budget will be depends on the type of projects to which it relates.
Some projects are popular while others are not. Those which are not popular may
face stiff implementation problems.

d) The problem of inflation

Inflation tends to reduce the purchasing power of money when the value of money
is falling, budget implementation may run into problems. The revenue available
will not be able to cover the expenditure.

e) Political social and cultural element

85
 Introducing innovation may be met with stiff opposition. Since a section of the
country may not be willing to provide land for development purposes and there
may be political instability, budget implementation is at risk.

f) Changing government policies

To implement a budget a lot depends on the policy of government. Government
policies have to be harmonized and be consistent for effective budget
implementation. Frequent changes of government policies affect budget
implementation.

g) The problems of debt management and optimal use of limited resources

There is the challenge of striking a balance between what part of the nations
resources should be used for servicing debts and the amount that should be utilized
for economic development.

h) Fiscal indiscipline
Under the incremental budgeting system spending officers tend to expend the last
naira available in a year‟s budget in order to justify the demand for increased
allocation in the subsequent year, with little or nothing to show under the current
dispensation.

SELF ASSESSMENT EXERCISE

1. Discuss the Budget process?

3.2 Methods of Preparing Budgets by Government in Nigeria.

The budgeting approach used by government to allocate funds for a succeeding year is the
line-item incremental method. The approach is oriented to expenditure itemizing proposed
disbursements under different Heads and sub-heads of the various Ministries and Extra-

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ministerial Departments. The expenditure side of the line item or incremental budgets is
made up of personal emoluments, other changes and capital or development items.

a. Line - items (incremental)budgeting

This method involves picking last year‟s figures and adding a percentage to arrive at this
year's budget. The percentage added is based essentially on: trend of economic level;
inflation; and the available of funds.

Advantages of line-item budgeting method

a) It is simple to understand and operate.

b) It suits the country's level of development where there is paucity of data.
c) It is cheaper to produce.
d) It encourages the continuity of projects.
e) It ensures that budget is translated in monetary language and relates to the relevant
activity operations.
f) Allocations into Heads and sub-heads facilitate the monitoring of performance.

Disadvantages of the line-item budgeting methods.

a) It allows past errors to be carried forward.

b) Detailed scrutiny is not contained in the budget. The budget preparation is
consequently not well researched.
c) It fails to clarify the cost of alternative method of achieving programmed
objectives.
d) It results in continual growth budget totals leaving to inflation, as opposed to
serious economic needs.
e) It fails to fund new programmes of high priority on a sufficiently reasonable scale.
f) It does not clearly spell out the relationship between capital and recurrent
expenditure.

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b. Zero- based Budgeting Method

This is a programme budgeting reform that requires every item of expenditure to be

justified as if the particular programme is taking off for the first time.

Advantages of Zero-based Budgeting

i. It acts a tool for charge from which benefits are likely to accrue.
ii. Low priority programmes can be eliminated.
iii. Programme effectiveness can be dramatically improved.
iv. It focus attention on the future rather than the past, old and new projects are
therefore appraised on the same basis.
v. It provides a better yardstick for the measurement of performance.
vi. It allows for optimum allocation of resources.

Disadvantages of ZBB budgeting

i. Problems of identifying suitable decision units.

ii. It is not so good for recurrent expenditure. It has not been successful in the public
sector.
iii. It may cause a major shift in resources allocation.
iv. Problems of producing suitable decision package which are self contained and
understood by managers.
v. Bureaucrats often do not trust the approach and hence frustrate its effectiveness.
vi. It involves the task of analysing and ranking a lot of data and information which a
number of civil servants find difficult to manage.

c. Planning, Programming and Budgeting System (PPBS)

This is a budgeting approach which is based on systems theory, and objectives orientation
with substantial emphasis on resources allocation on the principle of economic analysis .

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The main steps in Planning, Programming and Budgeting System

i. Identification and enumeration of goals and objectives of the organization.

ii. Defining the total system in detail, including objectives, environment, available
resources, the programmes and their objectives, etc.
iii. Planning and analysis: These involve continuous process of developing, comparing
and analyzing alternative programmes, so as to evolve the most appropriate
package for the organization.
iv. Development of the appropriate measures of performance for the programmes of
the organization.
v. Programming and budgeting: the agreed package of "programmes" complete with
resource requirements and expected results are expressed in the form of
"programmed budget".
vi. Reporting and controlling: Planning, Programming and Budgeting system requires
sophisticated information service which is able to monitor the progress made
towards meeting the organizational objectives. Performance evaluation, therefore,
emphasizes the attainment or non-attainment of the desired objectives, rather than
the amount spent which is the focus in traditional budgeting system.
vii. Development, each year, of a multi-year programme and financial plan.

Advantages of Planning, Programming and Budgeting system

The technique:

i. Provides information on the objectives of the organization;

ii. Lays emphasis on long-term effects;
iii. Achieves effective use of budgeted resources and anticipated performance;
iv. Ensures rational decision-making and forces those seeking budgetary allocations to
consider alternatives;
v. Leads to rapid economic development.

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Disadvantages of Planning, Programming and Budgeting System

The system is associated with the following disadvantages/problems:

i. Natural resistance to change, particularly among the very Senior Officers in the
Governmental hierarchy.
ii. Transitional problems at the introductory stage.
iii. Problem of staff shortage.
iv. Paucity of data.
v. Re-orientation of the old accounting system to cater for the requirements of the new
concept.
vi. Problem of data collection and physical monitoring.
vii. It is difficult to install.
viii. It makes heavy demand on resources.
ix. The uncertainty of the future makes long term planning difficult.

d. Performance Budgeting

Performance budgeting can be defined as a technique used for presenting public

expenditure in form of functions or projects to be undertaken, highlighting the cost
involvements. The anticipated costs are compared with the expected income. The focus of
the technique is on results or output achieved, rather than how much has been expended.

The essential features of a Performance Budgeting System are as follows:

a) Classification of budgets in terms of functions and activities.

b) Measurement of work done or output provided by each activity.
c) Expression of the budget in a way which allows direct comparison between a
project's cost and the anticipated income or benefit.
d) Monitoring of actual cost and performance against the budgeted results or
expectations.

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e. Periodic Budgeting:

This is the operation of a fixed budget over a certain period of time, usually a year. The
budget becomes fixed for the duration of the period concerned and revisions are not
allowed till the end of the period.

f. Flexible Budget:

This is a budget that recognizes the difference between the fixed and variable costs and
gives room for result determination and evaluation under the varying levels of activities.
Thus, it accommodates changing levels of production and facilitates the production of
control reports for the prevailing levels of activities. It is a budget which takes cognizance
of cost behaviour and adjusts according to the level of activities attained. It is used for
control purposes.

g. Capital Expenditure Budget

It is the budget prepared in the public sector for capital projects such as the construction of
bridges and major road projects. The expenditure on the projects is financed from the
Development Fund:

i. Base Estimate

The base estimate for the current year is obtained by taking last year's budget and
deducting the value of 'one off' transactions. Transactions that are 'one off' are those which
do not recur year-in-year-out.

ii. Rolling Plan or Continuous Budget

This can be defined as the continuous updating of a medium term plan spanning a
specified period of time. For instance, In Nigeria, between the period of 1998 to 2000
within which special and core capital projects such as the completion of Ajaokuta Steel
Rolling Mill which be accomplished. The time horizon in a challenge or target date within
which the capital project is expected to be completed.

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SELF ASSESSMENT EXERCISE

1. State the Advantages and Disadvantages of Zero Based Budgeting.

2. Write short note on the following:
 Capital Expenditure Budget.
 Flexible Budget.
 Periodic Budget.
 Performance Budget.
4.0 CONCLUSION

In this unit, we conclude that Budgeting is so important that it cannot be over emphasized
and knowing the stages or processes of budgeting system in the public sector is germane.
The methods of budget system in the public sector discusses all types of budget,
advantages and disadvantages, how important a budget is to any given country.The
conclusion of this unit will lead to next unit titled “Revenue Management”.

5.0 SUMMARY

In this unit, we discussed the meaning of Budget, purpose of a budget, types of budget,
advantages and disadvantages of budget methods in Nigeria and how budget are been
prepared in Nigeria and we also discuss the stages or processes of budgeting system in
Nigeria.

6.0 TUTOR-MARKED ASSESSMENTS

1. What is Budget?
2. State the stages of Budgeting?
3. Discuss types of Budget in line with the public sector?

7.0 REFERENCES/FURTHER READINGS

Abba, E.U ,& Osakwe, A.A (2007). Fundamentals of government budgeting in Nigeria,
Onitsha: Abbol books.

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ICAN (2014) Public sector accounting and finance (study text) : Victoria Island (VI): The
ICAN press.

Okogu, B. (2011) .Budget process implementation and challenges, presentation to service

Institute of Nigeria Abuja.

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UNIT TWO: REVENUE MANAGEMENT

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 What is Revenue Management?
3.2 Importance of Public Sector Revenue Management
3.3 Principles of Public Sector Revenue Management
3.4 Challenges of Public Sector Revenue Management
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

In this unit, we shall discuss the importance of Revenue Management and how important
it is for revenue management in the public sector in Nigeria. Revenue management is
major aspect in the public sector that needs to be addressed in order to prevent mal
administration of public funds.

2.0 OBJECTIVES

At the end of this unit, students should be able to:

 Explain the meaning of Revenue Management

 Discuss the importance of Revenue Management in the public sector
 Analyse the Procedures and processes in Revenue Management in Nigeria.
 Explain the challenges of public sector revenue management.

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3.0 MAIN CONTENT

3.1 What is Revenue Management?

According to Technical Competency Dictionary, (2016) defined Revenue management as

process that involves all the procedures necessary to ensure that the income of government
departments is properly planned and fully accounted for, and that cash, once received is
safeguarded and banked promptly or immediately. However, the revenue management
reflects the planning and controlling of resources to achieve the desired or set objectives
as designed by the management. However, it also reflects the fact that the ownership of
the tasks is shared with the departments which financial managers‟ serve.
The role of the revenue management specialist is to provide advice, support and technical
and professional expertise to assist line managers in fulfilling their responsibilities.

Revenue management plays a vital role in achieving the national objective of any country
in order to enhance the economic development and social wellbeing of the society at large
(Yasin, 2012). Revenue management assists the scarce resources of a country to be spent
in efficient and effective manner, by enabling the wise utilization of both the available and
the forecasted revenue so that exhaustive extraction and proper utilization of the revenue
potential will be ensured (Tiwari,2017). Revenue Management enables Local government,
State government and Federal government authorities to optimize the revenue collection
process and efficiently manage ever changing tax law and legislative changes associated
with revenue (Oracle, 2011). However, the effective, efficient and economy of
government revenue will help in the good governance of a country.

SELF ASSESSMENT EXERCISE

1. Define Revenue Management?

3.2 Importance of Public Sector Revenue Management: The importance of public

sector management cannot be over emphasized. The importance includes the followings:

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1. There should be an effective and efficient monitoring of government revenue as against
its expenditure (i.e for proper accountability or matching concept.)

2. The government should be ready to deal with any bottleneck as it relates to revenue
management.

3. Revenue management is so vital that the government needs it for financial solvency so
as to remedy capital project that are been purchased.

4. Revenue management will help the government to face some challenges that must be
overcome so as to make progress in social, economic and political development.

5. Revenue management can increase the financial life wire of government.

SELF ASSESSMENT EXERCISE

1. Explain the importance of public sector revenue management.

3.3 Principles of Public Sector Revenue Management: The principles of revenue

management include the followings:

a) There should be public revenue management regulation for accountability purpose.

b) National and international standard and guidance on best practice should be

applied.

c) There should be fair and equitable distribution of tax burden; applying ability to
pay.

d) There should be proper tools and techniques set by government to mobilize

revenue.

e) Revenue neutrality. An important economic principle in the design of taxes is that

taxation should be” neutral". "Neutral" (in the economic sense) means that the tax
does not alter the decisions about investment, production, consumption and trade
96
 that would be made in the absence of the tax unless the tax is deliberately intended
to do so.

f) Revenue management should ensure revenue productivity. And the main functions
performed by revenue management cover the following areas:-

i. Planning for future income levels including the determination of income

sources and tariffs

ii. The physical collection of revenue through the cashier system.

iii. There should be accounting for revenue collected in the government accounting
system.
Ensuring safe and secure arrangements for handling cash and transferring it to
government bank accounts (Technical Competence Explanatory Note, 2016).

iv. Efficient and effective revenue management skill should be employed. And this
can be achieved through the following:

i. Recruitment and Selection; this is a process of attracting a qualified job applicant

with a sufficient (good pay) amount and choosing the one among the applicants who
best fit to the given job as required by the management of the organisation (HRM
reader,2013)

ii. Performance Management; performance management helps a manager to measure

whether the set objective is achieved or not so that managers motivate employees
according to their performance based on the needs of employees.

iii. Career Planning; is a sequence of attitudes and behavior associated with the
services of job and work related activities. It will help for the organization to retain
qualified personnel.

ii. Succession Management; is the process for identifying and developing employees
with the potential to fill key roles within the organization. Through the succession
planning process, an organization recruits superior employees, develops their

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 knowledge, skills, and abilities, and prepares them for advancement or promotion
into ever more challenging roles. Succession planning increases the availability of
experienced and capable employees that are prepared to assume key roles as they
become available.

SELF ASSESSMENT EXERCISE

1. What are the Principles of Public Sector Revenue Management?

3.4 Challenges of Public Sector Revenue Management:

The increasing complexity of the public administration environment and the

continuous need to align the needs of society with limited resources require that funds
are made available for a specific purpose and used for that purpose. However, in
developing countries, specially, in Nigeria, there are many problems regarding
utilization of the available resource for the intended purpose. As a result, the following
weaknesses are frequently observed as:

1. Poor planning having no links between policy makings, Planning and budgeting:

2. Poor expenditure control

3. Inadequate funding of operations and maintenance

4. Little relationship between budget as formulated and budget as executed

5. Inadequate accounting system

6. Unreliability in the flow of budgeted funds to agencies and lower levels of

government

7. Poor management of external aid.

8. Poor cash management

9. Inadequate reporting of financial performance and poorly motivated staff (the World
Bank, 1998).
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SELF ASSESSMENT EXERCISE

1. Discuss the challenges of Public Sector Revenue Management?

2. Explain the means of achieving efficient and effective Revenue Management in

Nigeria.

4.0 CONCLUSION
In this unit, we conclude that revenue management plays a vital role in the public sector
and as a result of that the effectiveness and efficiency of government in revenue
management helps in good governance. Prior to this date revenue management in the
public sector has been a major challenge that needed attention because a lot of fraud have
been perpetuated. The conclusion of this unit will lead to the next unit titled “Supply
Chain Management”.

5.0 SUMMARY
In this unit, revenue management was discussed extensively and the importance,
principles and the challenges faced by government. Revenue management plays a vital
role in both private and public sector in Nigeria at any given period.

6.0 TUTOR-MARKED ASSESSMENTS

 What is Revenue Management?
 What are the principles of Revenue Management?
 State Five importance of Revenue Management?
 What are the challenges of public sector management?

7.0 REFERENCES/FURTHER READINGS

Human Resource Management Reader (2013).Human Resource Management Course.

Ethiopian Civil Service University.

Oracle (2011).Oracle revenue management for local government.Oracle and Java.

Available at www.Oracle com/goto/tax.Accessed at October 18-2019.
99
Technical Competency Explanatory,(2016). A Framework for Federal Authority for

Government Human Resources. United Arab Emirates.

Tiwari, P. (2017). Assessing Factors Affecting Revenue Management in Public Sector:

The Case of Halaba Special Woreda Town Administration Ethiopia (SNNPR). IRA-
International Journal of Management & Social Sciences 6(2),188-234.

Yasin, N. (2012). Problem of tax revenue administration in Somali land Harergeisa

Municipality. ECSU institute of tax and customs Administration

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UNIT THREE: SUPPLY CHAIN MANAGEMENT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 What is Supply Chain Management?
3.2 Supply Chain Management Process/Procurement Management Process
3.3 Challenges in Public Procurement
3.4 Ways of Improving Supply Chain Management
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION

Supply Chain Management is a network of facilities that help in the distribution of goods
and services. It also performs the functions of procurement of materials, transformation of
these materials into immediate finished products. However, there are processes and
principles of supply chain management and how it works in the public sector.

2.0 OBJECTIVES
At the end of this unit, students should be able to:
 Explain the meaning of Supply chain management
 Discuss the processes and principles of supply chain management
 Evaluate supply chain management and how it works in the public sector.
 Explain the challenges of supply chain management and how to improve on it.

3.0 MAIN CONTENT

3.1 What is Supply Chain Management? Supply chain management is also known as
public procurement management in public sector. And it can be seen as the things we do
to influence the behaviour of the supply chain and get the results we want. Supply chain or
procurement must ensure that goods and services are delivered efficiently and on-time for
programmes operations. Open and competitive procurement drives private sector
innovation to deliver savings to government. According to Nagumey, (2013), defined
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supply chain as a flow that consist of products and services from; Raw materials
suppliers –to- Component and intermediate manufacturers/producers –to- Final
product manufacturers/assemblies –to-Wholesalers and distributors –to- Retailers –
to- The consumer connected by transportation and storage activities, and integrated
through information, planning and integrated activities. He also viewed that supply chain
management is concerned with the efficient integration of suppliers, factories, warehouses
and stores so that merchandised is produced and distributed:
 In the right quantities
 To the right location
 At the right time
In order to:
 Minimize total system cost
 Satisfy customers service requirements
In the public sector, failures in the supply chain can risk human life and well-being and
the security of the nation. Public sector supply chains must reach citizens in the most
remote location as well as having international reach to acquire technologies, expertise
and commodities not otherwise available nationally (Deloitte, 2018).
Public sector procurement operates in the markets where state-owned enterprises operate,
and there is clear separation between governments‟ ownership function and shareholding.
Public sector procurement also operates in monopolistic markets (for example, military
equipment and supplies where government is often the only customer) and in the market
where there are a small number of large customers.

In Nigeria, there is a legislative law on procurement; it is called the 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 well as the procurement approval thresholdfor the Bureau of
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 Public Procurement, Tenders Boards and Accounting officers for all Ministries,
Department and Agencies.

However, research have proven that most jurisdiction have move beyond the days of
inefficient controls where civil servants would bring old item to be issued with a new item
from the stores.

Procurement is also a high risk area for corrupt activities and must be transparent and
controlled to mitigate risks. Information technology can support transparency and controls
but change management for implementation of these systems is key to ensure coverage of
all procurements and all suppliers.
The public procurement Act, 2007, established the national council on public
procurement.
i. Membership of National Council on Public Procurement (NCPP):
 Minister of Finance, as Chairman
 Attorney-General and the Minister of Justice of the Federation
 Secretary to the Government of the Federation
 Head of service of the Federation
 Economic adviser to the President
 Six part-time members representing:
 Nigeria Institute of Purchasing And Supply Management
 Nigeria Bar Association
 Nigeria Association of Chambers of Commerce, Industry, Mines
and Agriculture
 Nigeria Society of Engineers
 Civil Society
 The Media
 Director-General of the Bureau who shall serve as the secretary
to the council.
ii. Objectives of Bureau of Public Procurement (BPP): The public procurement
Act, 2007, established the bureau, its objectives include:

103
 a. Harmonization of existing government policies and practices on public
procurement and ensuring probity, accountability and transparency in the
procurement process;
b. Establishment of pricing standards and benchmarks;
c. Ensuring the application of fair, competitive, transparent, value for money
standards and practices for the procurement and disposal of public assets and
services;
d. Attainment of transparency, competitiveness, cost effectiveness and
professionalism in the public sector procurement system.

iii. Functions of Bureau of public procurement (BPP): The functions of the Act
includes:
a. Formulating the general polices and guidelines relating to public sector
for procurement for approval of National Council on Public Procurement
(NCPP)
b. Publishing and explaining the provisions of the Act;
c. Certifying Federal Government procurement prior to the award of the
contract;
d. Supervising the implementation of established procurement policies;
e. Monitoring the prices of tendered items and keeping a national database
of standard prices;
f. Publishing the details of major contracts in the procurement journal;
g. Publishing paper and electronic editions of the journal and maintaining an
archival system for the procurement journal;
h. Maintaining a national database of the particulars and classification and
categorization of Federal contracts and service providers;
i. Collating and maintaining in an archival system, all federal procurement
plans and information;
j. Undertaking procurement research and surveys;
k. Organizing training and development programmes for procurement
professional;
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 l. Periodically reviewing the socio-economic effect of the policies on
procurement and advise National Council on Public Procurement
accordingly;
m. Preparing and updating standard bidding and contract documents;
n. Preventing fraudulent and unfair procurements and where necessary to
apply administrative sanctions;
o. Reviewing the procurement and award of contract procedures of every
entity to which the act applies;
p. Performing procurement audits and submits report to the National
Assembly bi-Annually;
q. Introducing , developing, updating and maintain related database and
technology;
r. Establishing a single internet portal that shall serve as a primary and
definitive source of all information on government procurement
containing and displaying all public sector procurement information at all
times;
s. Coordinating relevant training programmes to build institutional capacity;

SELF ASSESSMENT EXERCISE

1. Explain the functions of public procurement management.

3.2 Supply Chain Management Process/Procurement Management Process:

The supply chain management principles include the following:
 Transparency - This principle requires that information about the public
procurement process is accessible to all bidders and stakeholders except for
confidential information.
 Integrity - This refers to the reliability of bidding information provided by the
procuring entity to all bidders and other stakeholders. It is all about public
confidence.

105
  Economy - This principle is about efficiency, value for money, fair price and
managing public resources with due care and diligence so that money spent
represents good value.
 Openness - Public procurement requirements must not be kept in secret but should
be open to all those qualified to participate in the bidding and the public, except for
confidential information.
 Fairness - It means treating all bidders in the same way and without bias. For
instance, no preferential treatment should be given to certain bidders compared to
the rest.
 Competition - There should be no hindrance to participation in procurement and
all tender requirements must be proportionate to the subject of the contract.
 Accountability - This requires that individuals are responsible for their actions and
decisions. Everyone involved must be accountable and must be sanctioned when
they err against the rules.

SELF ASSESSMENT EXERCISE

1. Explain the principles of supply chain management.

3.3 Challenges in Public Procurement

Supply chain management or public procurement management has the following
challenges and they include:
 Political expediency: There can be pressure to undertake procurements not
planned for and undue influence to change tender awards.
 Lack of confidentiality: Leakages of information on the tendering process for
personal gain to third parties have been reported and this is contrary to the law.
 Lack of capacity or expertise: A number of procurements have been handled
poorly, and wrong procurement decisions have been made. Some tenders have
ended up being awarded to unqualified bidders, leading to poor outcome. This
reflects the inadequate capacity of the decision-makers in assessing the
qualifications of the bidders. This can be overcome by use of outside expertise.
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  Lack of robust procedures: Procurement manuals or handbooks may not be
available in procuring entities to help staff in acquainting themselves with
procurement rules and guidelines.
 Lack of procurement planning: Most procuring entities fail to prepare
procurement plans. Hence, they end up making emergency procurements and using
wrong procurement methods.
 Poor records management: There is a need to invest in training of staff, and to
provide a conducive office environment, etc.
 Negative perception of procurement: Because of the tedious procedures, public
procurement is seen as a hindrance to programme implementation, while many see
it as a source of corruption.
 Poor management of contracts: There is lack of proper supervision in the
implementation of projects and less qualified members of staff usually manage
contracts.
 Poor staff retention: Procuring entities find it difficult to retain qualified and
experienced staffs, which usually leave for greener pastures.

SELF ASSESSMENT EXERCISE

1. Explain the challenges of supply chain management.

3.4 Ways of Improving Supply Chain Management

 Assisting governments to develop procurement policies, procedures and system
that mitigate risks.
 Design procurement plans and strategies for programmes that are based on high
quality market research to understand supply chain and enhance transparency.
 There should reviews of price and market intelligence to achieve value- for-
money.
 There should be a good store management system for basic supplies management
to warehousing for health and defense.

107
  Supporting government‟s anti-corruption efforts through procurement audit
service, forensic audits to support investigation, etc
 Electronic government procurement system.

SELF ASSESSMENT EXERCISE

1. Discuss the functions of Bureau of Public Procurement (BPP)?
2. Explain the process of supply chain management as it relates to the private sector.
3. List the Membership of National Council on Public Procurement (NCPP)?

4.0 CONCLUSION
In this unit, we conclude that supply chain management is the same as public procurement
management in the public sector, the challenges and way forward in curbing the bottle
neck of supply chain management is a key to successful governance. However, we also
looked at the law regulating public procurement in Nigeria. The conclusion of this unit
will lead to next unit titled “Public Asset Management and Fraud Prevention”.

5.0 SUMMARY
In this unit, we have discussed extensively on supply chain management, the principles,
processes, challenges and remedies in solving procurement management bureaucratic
hurdles. The legislative law regulating public procurement was also discussed.

6.0 TUTOR-MARKED ASSIGNMENTS

a. What do you understand by the term supply chain management?
b. What are the challenges of supply chain management?
c. Suggest the ways in curbing supply chain management?
d. Discuss supply chain management?

7.0 REFERENCES/FURTHER READING

Deloitte Touche Tohmatsu.(2018). Public Financial Management.

108
ICAN (2014) Public sector accounting and finance (study text) : Victoria Island (VI): The
ICAN press.

Nagumey, L. S. (2013).What is Supply Chain Management. Department of Electrical and

Computer Engineering. University of Hartford

National Assembly of Zambia (2017).Public Financial Management Hand Book for

Members of Parliament and Staff: Component of the European Union Support to
Public Financial Management, Accountability and Statistics Programme

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UNIT FOUR: PUBLIC ASSET MANAGEMENT AND FRAUD PREVENTION
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 What is Asset Management?
3.2 Objectives of Public Asset Management
3.3 Driving forces for efficient and effective public asset management
3.4 Factors that hinders the efficient and effective public asset management
3.5 Fraud
3.6 Fraud Prevention
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

This unit is to define Public Asset Management and Fraud Prevention, discuss the
importance as it relates to the government and the society at large.

2.0 OBJECTIVES

At the end of this unit, students should be able to:

 Explain the meaning of Public Asset Management

 Explain the meaning of fraud and its prevention
 What are the factors that hinder public asset management?
 What is fraud?
 Explain the importance of fraud prevention to the government and the society at
large.
 List and explain the objectives of public asset management.
3.0 MAIN CONTENT

3.1 What is Asset Management?

Kaganova, McKellar and Peterson (2006) defined asset management as the process of
decision-making and implementation relating to the acquisition, use, and disposition of
real property. This definition applies to both the private sector and the public sector.

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Public Assets Management: According to Builta, (1994) defines asset management as
the process of maximizing value to a property or portfolio of properties from acquisition
describes the functions of managing property assets either as investment assets or as
operational assets. In addition, the definition identifies the objective of non-current asset
management that is, maximizing value to a property or portfolio of properties

Public asset management involves a variety of components that work together for efficient
service delivery and low cost. These components involve every internal element of public
asset management including response to relevant external environmental factors.
Conjointly, components of non-current asset management constitute a public asset
management system that determines challenges of asset management in the public sector
(Lu, 2011). However, developing an appropriate system is an essential issue for effective
and efficient management of public assets. In other words, Asset can be classified into
current asset and non-current asset, and non-current asset can be further classified into
tangible asset (these are asset that can be seen and it is movable) and intangible asset
(these are asset that cannot be seen and it is immovable). Asset can further be classified
using diagram below:

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 Assets

Current Assets Non-current Asset

Tangible Intangible
Assets Assets

Assets that can be Assets that cannot be seen

seen and movable and is immovable

Figure 1 Public Asset Classification

Source: Researchers compilation, (2019).

Government is responsible for the handling and maintaining of public asset. Government
obtains assets in different ways from private businesses. Government revenue is mainly
obtained through statutory authority while private businesses receive revenue from the
sale of goods and services. On this basis, in the public sector, an asset is a public
economic resource that is obtained or controlled by government as a result of past
transactions and events, including legal obligations. Generally, public assets are
indispensable means by which government operates to provide public services and
produce public goods. There are three tiers of government (Federal Government, State
Government and Local Government) and they have the same statutory rules and laws in
asset management.
In the public sector, non-current assets are not purchased or constructed for commercial
investment except in government-owned enterprises. Conversely, non-current assets are
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usually considered as an economic resource and as a means by which government fulfills
its goals and objectives of service delivery to her/his citizens. However, Government
major responsibility of managing public non-current assets is providing services for
fulfilling government functions rather than having cash flow or selling non-current asset
for profits (Builta, 1994).

SELF ASSESSMENT EXERCISE

1. Explain Asset Management.

3.2 Objectives of Public Asset Management

In the public sector, the objectives of public asset management include:
 to establish responsibility for public assets
 to provide for better utilization of property or assets
 to facilitate the physical inventory and
 to comply with the laws of the country

SELF ASSESSMENT EXERCISE

1. What are the Objectives of Public Asset Management?

3.3 Driving forces for efficient and effective public asset management
In public sector, there are issues and requirements that drive public asset management to
update its goals and objectives in order to maximize the value of properties at the least
cost in the process of providing appropriate services for government agencies.
The driving forces of public asset management include:
 New public management movement or control
 Where there is demands of financial payoff from real asset management
 Accounting reforms and
 An application of private sector practices to government non-current asset
management
SELF ASSESSMENT EXERCISE
1. Explain the driving forces for efficient and effective public asset management?
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3.4 Factors that hinder the efficient and effective public asset management
In the public sector, there are so many factors that hinder effective public asset
management but for this study, we are going to restrict the hindrances to the following:
 Lack of proper maintenance of public asset
 Lack of centralized property management authority.
 Government turns to leasing real properties rather than constructing or acquiring
new non-current assets.
 Lack of a well-established management information system (MIS) associated with
property portfolios.
 Lack of accountability for stewardship and transparency in management process.
SELF ASSESSMENT EXERCISE
1. What are the factors that hinder the efficient and effective public asset
management?

3.5 Fraud
3.5.1 What is fraud?
Fraud is a generic category of criminal conduct that involves the use of dishonest or
deceitful means in order to obtain some unjust advantage or gain over another.

Fraud is an intentional deception made for personal gain in order to obtain unauthorized
benefits (money, property etc.). In simple terms, it is defined as the use of one‟s
occupation for personal enrichment through the deliberate misuse or application of the
employing organisation‟s resources or assets. This act of fraud can be classified as either
as a civil wrong or a criminal offence. (Okoye, Maimako, Jugu& Jat,2017)

3.5.2 Frauds as Civil and Criminal Wrongs

Civil Wrong: The court system views fraud as a civil wrong otherwise it is known as
“tort.” Each jurisdiction has a specific definition of fraud, but it is generally considered to
be the intentional misrepresentation of important facts. A victim under this category may
sue the fraud perpetrators to avoid subsequent occurrence and recover monetary
compensation.

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The circumstances where a civil wrong is considered, certain condition must be in place.
And these include:
a. Proving the state of mind of both the perpetrator and the victim at the time
of the crime.
b. Proving the fraud which has occurred with clear and convincing evidence.

In other words, civil fraud is an intentional, but not willful act. It is monetary and with
non-criminal penalty.
Criminal Wrong: This type of fraud is classified as criminal offence especially where the
perpetrator is involved in the theft under false pretense. In this category, a fraud
perpetrator may be prosecuted and imprisoned by relevant governmental authorities or
regulatory agencies.

3.5.3 Benefit of Fraud Prevention Check Up: Association of Certified Fraud Examiners
(2016), viewed the benefits of fraud prevention check-up as follows:
 Fraud is a common risk that should not be ignored. Fraud is now so common that
its occurrence is no longer remarkable, only its scale. Any organization that fails to
protect itself appropriately faces increased vulnerability to fraud.
 It is a great opportunity for your organization to establish a relationship with a
Certified Fraud Examiner (CFE) because CFEs are experts in detecting fraud and
helping organizations prevent it in the future.
 Strong fraud prevention processes help increase the investors‟ confidence.
 With the introduction of fraud prevention check-ups although organizations score
very poorly in initial fraud prevention check-ups because they don‟t have
appropriate anti-fraud controls in place. By finding this out early, they have a
chance to fix the problem before becoming a victim of a major fraud. It‟s like
finding out you have seriously high blood pressure. It may be bad news, but not
finding out can be a lot worse.
 ACFE (2016) viewed that Fraud Prevention Check-Up can save your company
from disaster. If you do not proactively identify and manage your fraud risks, they
could put you out of business almost overnight. Even if you survive a major fraud,
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 it can damage your reputation so badly that you can no longer succeed
independently.
 It is profitable to prevent losses, and fraud prevention activities can help to ensure
the stability and continued existence of a business.

SELF ASSESSMENT EXERCISE

1. Distinguish Between Criminal Wrong and Civil Wrong.
2. Fraud is criminal. Discuss?
3. Discuss the benefits of fraud prevention check-up?

3.6 Fraud Prevention: Fraud can be prevented in many ways, such as follows:
1. One of the most effective ways to deal with the problem of fraud is to adopt methods
that will decrease motive, restrict opportunity and limit the ability for potential fraudsters
to rationalize their actions
2. There should be regular training and creating awareness on how to stop fraud from
reoccurring.
3. Companies policies, procedures and controls should be set as it relates to fraud.
4. There should be a formal approach to fraud prevention
5. Only authorized people or employees should be allowed to have access to a particular
unit or centre.
6. There should be an introduction of continuous audit as this will prevent fraud from
occurring and reoccurring.
7. Whistle-blowing policy of the organization should be able to protect the whistle-blower.
8. There should be commensurate reward system for whistle-blowing.
9. Good working condition of the employees.
10. There should be creation of strong internal control system.
3.6 SELF ASSESSMENT EXERCISE
1. Discuss the fraud prevention method

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4.0 CONCLUSION
In this unit, we conclude that Public asset management involves a variety of
components that work together for efficient service delivery and low cost. These
components involve every internal element of public asset management including
response to relevant external environmental factors such as Political, Economic,
Social, Technology, etc. And the benefits of fraud prevention as viewed by the
Association of Certified Fraud Examiners. The conclusion of this unit ends the module
three.

5.0 SUMMARY

In this unit, we have discussed extensively on Public asset management, fraud, and fraud
prevention and how important they are to the public sector and private sector. Emphasis
was on government to provide a good working condition for the employees and there
should be commensurate reward system for whistle-blowing and further protection or
security for the whistle-blower.

6.0 TUTOR-MARKED ASSIGNMENTS

a. Define Public Asset Management?
b. State the possibilities of preventing fraud in the public sector. (if any)?
c. What do you understand by the term Fraud?
d. What are the factors that hinder the effective and efficient public asset
management?

7.0 REFERENCES/FURTHER READINGS

Builta, H.C. (1994). Asset management. In BOMI Institute, Fundamentals of real

property administration . Arnold, Maryland: Building Owners and Managers
Institute International.
Lu, Y. (2011). Public Asset Management: Empirical Evidence from the State
Governments in the United States: A Dissertation to the Faculty of the College for
Design and Social Inquiry in Partial Fulfillment of the Requirements for the Degree

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 of Doctor of Philosophy Florida Atlantic University Boca Raton, Florida.
Kaganova, O., McKellar, J., & Peterson, G. (2006).Introduction.In O. Kaganova& J.
McKellar (Eds.), Managing government property assets: International
Experiences.Washington, D.C.: The Urban Institute Press. 1-23
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.

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