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MPRAMunich Personal RePEc Archive

Stocktaking the Reforms in PublicFinancial Management

Freinkman, Lev and Stevens, Michael L.O.

The World Bank

2006

Online at http://mpra.ub.uni-muenchen.de/10154/

MPRA Paper No. 10154, posted 24. August 2008 / 11:48

http://mpra.ub.uni-muenchen.de/

http://mpra.ub.uni-muenchen.de/10154/

273

11Stocktak�ngtheReforms�nPubl�cF�nanc�alManagement1

Michael L.O. Stevens and Lev M. Freinkman

11.1� Introduction

In the years preceding Nigeria’s return to civilian rule in 1999, public financial managementat all t�ersofgovernmenthad reached �tsnad�r.Afteroveradecadeofm�l�tarym�srule,governancehad touchedbottomw�th the subst�tut�onofarb�-trarydec�s�onsforproperprocess,andthemass�veloot�ngofstateassetsbyGeneralAbacha. Since then, with nowhere to go but upwards, standards of public financial managementhavebeen�mprov�ngbut,asth�schapterexpla�ns,progresshasbeenuneven,w�thencourag�ngperformance�nsomeareasandslowerchange�nothers.Th�schaptersummar�zesthema�ndevelopments,andthengoesontoassessthecur-rent state of public financial management in Nigeria against rapidly establishing glo-balstandards.Inth�sway�tbenchmarkscurrentperformancesothatfutureprogresscanbemeasured,andsuggeststhecr�t�calareasforearlyattent�onbypol�cyleaders�ntheyearsahead.

At first the emphasis of the new administration was on restoring rule-bound fi-nancial management, and one of the first steps of the government was to reissue Financial Instructions,thelong-neglectedsetofregulat�onsgovern�ngtheconductof government financial transactions. The new government also set about tackling the overhangof�nher�tedproblems,suchasexternaldebtand�nternalpaymentarrears,andstarted theprocessofcatch�ngup �ncomp�lat�onandaud�t�ngofgovernmentaccounts and financial statements. However, aggregate spending at all levels of gov-ernmentrema�nedrevenuedr�ven,aso�lpr�cesbeganrecover�ngfromthe�rgloballowsattheendofm�l�taryrule,andreachedabout45percentofGDPby2001,anuncharacteristically high figure for a developing country, masking huge inefficien-cies in spending. Overall, rapid fiscal expansion in 1999–2001 had looked as if old hab�tsofwastefulspend�ngwerereturn�ng.At thefederal level therewereeffortsmade to �mprove thequal�tyof spend�ng,part�cularlyw�th theCap�talBudget, �nwh�chtherewasanearlyreal�zat�onthatthebulkofspend�ngwasgo�ngonlong-runn�ngprojectsofdoubtfulvalueandl�ttleprospectofearlycomplet�on.But�nthe

�� Stevens and Freinkman

ma�n,wh�lesome�mprovementswerelaunchedbythefederalgovernmentandsomeofthemoreprogress�ve-m�ndedstates,muchofthefundamentalweakness�npubl�cfinancial management remained unaddressed. It seemed that for the first four years after 1999 the challenge of government financial management reform had not really beengrasped.

Thepaceofreform,however,p�ckedupatthefederallevelafterthe2003pres�-dent�alelect�ons,andtheappo�ntmentofaneweconom�cteamw�thwhatseemeda strong reform mandate from the president. Since then, significant steps have been taken to increase the transparency of the budget process, ensure more efficient cash management,andreformprocurementprocesses.Amajoreffortwasmadetomod-ernize the legal framework for public financial management, through the drafting of new laws, updating the colonial era basic finance law, introducing a new audit law thatprom�sesgreater�ndependencetothesupremeaud�t�nst�tut�on,mak�ngstatutorypr�nc�plesofopen,compet�t�vetender�ngandcreat�nganautonomousprocurementregulator. The government also drafted the fiscal responsibility legislation aimed at smooth�ngo�lrevenuesandend�ngtheboom/borrow�ng/bustsyndromeofprev�ouso�l pr�ce cycles. In add�t�on, N�ger�a became an act�ve member of the Extract�veIndustr�esTransparencyIn�t�at�ve(EITI),comm�tt�ngthecountrytoh�gherstandardsoftransparency�nthemanagementofm�neralrevenues.

Themostpos�t�vedevelopments�nce2003hasbeenthepursu�tofamored�sc�-plined fiscal policy by the federal government. Budgets since 2004 have been made onthebas�sofanassumedlongrunpr�ceofo�l,w�thexcessrevenuesster�l�zed�ntheBankofN�ger�a.Wh�lerealspend�nghasbeenma�nta�ned,theshareofconsol�datedbudget spend�ng �nGDPhas fallen toamoresusta�nable (andabsorbable)35percent. The counterpart of fiscal prudence has been the build-up of substantial foreign exchangereserves�ntheCentralBank.Partly�nrecogn�t�onoftheseach�evements,�n2005N�ger�awonsubstant�alexternaldebtreduct�onthroughthePar�sClub.

At the same time many features of weakness in public financial management have continued. At the federal level, significant contractual and pension arrears (es-t�matedat$3b�ll�onattheendof2005)rema�ntobetackled,thoughcons�derableprogresswasmade�n2006�nrepay�ngdebtstosmallcontractorsandpens�oners.Aun�versalpr�nc�pleofpubl�cbudget�ng�sthatplannedspend�ngshouldbew�th�nthebudgetandvotedupon.Currently,however,about40percentofnon-�nterestspend-�ngadm�n�steredbythefederalgovernmentl�esouts�detheannualbudgetprocessandthusdemocrat�ccontrol.Th�s�ncludesthe�nvestmentcosts(‘cashcalls’)oftheN�ger�anNat�onalPetroleumCompany(NNPC)and,mostrecently,majorpowerandroad investments jointly funded by all tiers of government. Spending financed by externalborrow�nganda�dalsol�esmostlyouts�debudgets.Inthepastthreeyearsextra-budgetaryexpend�turehasaveraged42percentofnon-�nterestspend�ngvotedthroughthefederalbudget.

Stocktaking the Reforms in Public Financial Management ��

Althoughparastatalsubs�d�esarenowlessthattheyoncewere,theyrema�ns�g-nificant, with budget subsidization of the power, railways and ports sectors amount-�ngto0.9percentofGDP�n2004.Furthermore,thenewfullyfundedpubl�cpens�onscheme introduced in 2004 has major funding gaps, arising from the need to finance oldandnewpens�onsystemss�multaneously�fthefullcostsoftrans�t�onaretobeborne.

However, the most pers�stent problem has been the qual�ty of spend�ng, w�thcontinuing inefficiency and leakages in both the current and capital budgets. In the former there is inadequate funding of maintenance and operational costs and inflated payroll costs, due to a combination of payroll fraud and overstaffing. Projects con-t�nuetobepoorlyplannedandexecuted,w�thlongdelays�n�mplement�ngprojects.It�sas�fN�ger�aatbothfederalandstatelevels�s�nvest�ngever-�ncreas�ngamounts�n non-y�eld�ng assets, �n the form of a lengthen�ng p�pel�ne of never-complet�ngprojects.Asaresult,desp�teh�ghlevelsofspend�ng�nthesesectors,healthoutcomesrema�nextremelylowandhavenot�mprovedovertheyears,andadultl�teracyratesandtheenrolmentofg�rls�npr�maryeducat�onrema�nunacceptablylowforacoun-tryofN�ger�a’sstand�ngandamb�t�on.Mass�vespend�ngonpowergenerat�onhasnotallev�atedpowershortages,and�ntheroadssectorh�ghtransportcostsandpoorsafetycond�t�onscont�nueto�mposeanunacceptableburdenontheeconomyandsoc�etygenerally.

All of this points to the verdict that the problem in Nigeria is low efficiency of budgetspend�ngratherthan�nadequateamountsoffund�ngatalllevelsofgovern-ment. In turn the causes of low efficiency of public spending reach deep into the way �nwh�chbudgetsaremadeand�mplemented,theformaland�nformal�ncent�vesofbudgetactors,andthewaygovernmentatalllevels�smanaged,bothbureaucrat�callyand politically. With continuing high oil prices, there is undoubtedly fiscal space to expand government spending, but there is a risk that, given weak public finance management(PFM)capac�ty,scal�nguptoach�evethecountry’sdevelopmentgoalsbettermayresultonceaga�n�nheavym�smanagementofo�lsurpluses.And,aspastexperience has shown, there are benefits from not spending surplus revenues imme-d�ately,butspread�ngthe�ruseovertheo�lpr�cecycle.

The rest of this chapter is about how Nigeria’s public financial system stacks up aga�nst�nternat�onalstandards,thebettertoseecurrent�nst�tut�onsandthe�rcapac�-t�es�naw�derperspect�ve.Thepurpose�snottodemonstratethatN�ger�afallsshortof�nternat�onalbestpract�ce,butrathertoshowwhereprogresshasbeenmadeandwheremuchst�llrema�nstobedone,both�nthe�mprovementofformalrulesandprocesses,butalso�n thecapac�tytofollowthem.Thelatter �sat theheartof thechallenge.For,wh�lethedes�gnofN�ger�a’sPFMsystemclearlyneedsmodern�z�ng,eventooperate�tasonce�ntendedwouldbean�mmed�ate�mprovement.


11.2� Global�standards�and�the�PEFA�framework

Inthepasttwodecadestherehasbeenagrow�ng�nterest�ndevelop�ng�nternat�onalstandards across the full spectrum of public financial management. This has been ledby�nst�tut�onsl�ketheInternat�onalMonetaryFund(IMF),theOrgan�zat�onforEconom�c Cooperat�on and Development (OECD), the Internat�onal Organ�zat�onofSupremeAud�tInst�tut�ons(INTOSAI),theInternat�onalFederat�onofAccount-ants(IFAC)andtheUN.TheIMFhasdevelopedaCodeofF�scalTransparency;theOECDhas�ntroduceda12-�nd�catorassessmentframeworkforpubl�cprocurement;INTOSAI has developed standards for government external aud�t�ng, and IFACfor government account�ng; and theUNhas for over a decadehad amodel pub-l�cprocurementlaw.Mostrecently,theEU,IMFandWorldBankhavecooperatedtodevelopan�ntegratedframeworkof28h�gh-levelperformance�nd�cators,eachw�thperformancegraduat�ons,tobenchmarkcountr�es.Bytheendof2006about33countr�eshadundergoneassessmentsbaseduponthePubl�cExpend�tureandF�nan-c�alAccountab�l�ty(PEFA)framework,oneofwh�chhasbeenN�ger�a.

Thedr�versofth�ssearchforcommonstandardshavebeenseveral.Oneundoubt-edlyhasbeenglobal�zat�onandthe�ncrease�nfore�gnd�rect�nvestment.Anotherhasbeendebtrel�efthathasbeencond�t�onednotonlyonmacroeconom�cmanagement,butalsotheab�l�tyofdebtorcountr�estoensuredebtrel�ef�susedeffect�vely.Afur-ther factor has been the growing realization that the fight against corruption depends fundamentally on how public finances are controlled, managed, reported transpar-entlyandaccountedfor.Last,butbynomeansleast,there�stheadvantagethat,�facountry’sPFMcanbebenchmarkedaga�nstgoodpract�ce,th�sw�llhelppol�cy-makerschartarelevantreformcoursethatw�llmovethecountryforwardtowardsmoreeffect�veandsusta�neduseofpubl�cresources.ThusthePEFAframeworkhasa developmental as well as a fiduciary dimension.

ThePEFAPerformanceFrameworkconta�ns28�nd�catorsd�v�ded�ntothreesets.The first four look at aggregate expenditure and revenue out-turns relative to the or�g�nalbudget,asameasureof�tscred�b�l�ty.Thesecondsetofs�x�nd�catorslooksatcross-cutt�ng�ssuesofcomprehens�venessandtransparency.Theth�rdset,of18indicators, looks at the budget cycle, including whether the budget reflects govern-mentpol�cypr�or�t�es,whetherthere�spred�ctab�l�tyandcontrol�nbudgetexecu-tion, the quality of accounting, recording and reporting and, finally, external scrutiny andaud�t.

Asummaryofthefull�nd�catorset�sg�ven�nTable11.1.

11.3� Summary�of�PEFA�assessment�for�Nigeria

ThePEFAd�agnost�chasrevealedatrendtowardasystem-w�deupgrade�nN�ger�a’sPFM system, which reflects strong government reform commitment. In more than


Table 11.1 PEFA�nd�catorset

A. PFM out-turns: credibility of the budget

PI-1 Aggregateexpend�tureout-turncomparedtoor�g�nalapprovedbudget

PI-2 Compos�t�onofexpend�tureout-turncomparedtoor�g�nalapprovedbudget

PI-3 Aggregaterevenueout-turncomparedtoor�g�nalapprovedbudget

PI-4 Stockandmon�tor�ngofexpend�turepaymentarrears

B. Key cross-cutting issues: comprehensiveness and transparency

PI-5 Classification of the budget

PI-6 Comprehens�venessof�nformat�on�ncluded�nbudgetdocumentat�on

PI-7 Extentofunreportedgovernmentoperat�ons

PI-8 Transparency of intergovernmental fiscal relations

PI-9 Oversight of aggregate fiscal risk from other public sector entities

PI-10 Public access to key fiscal information

C. Budget cycle

C(�)Pol�cy-basedbudget�ng

PI-11 Orderl�nessandpart�c�pat�on�ntheannualbudgetprocess

PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting

C(��)Pred�ctab�l�tyandcontrol�nbudgetexecut�on

PI-13 Transparencyoftaxpayerobl�gat�onsandl�ab�l�t�es

PI-14 Effect�venessofmeasuresfortaxpayerreg�strat�onandtaxassessment

PI-15 Effect�veness�ncollect�onoftaxpayments

PI-16 Pred�ctab�l�ty�ntheava�lab�l�tyoffundsforcomm�tmentofexpend�tures

PI-17 Record�ngandmanagementofcashbalances,debtandguarantees

PI-18 Effect�venessofpayrollcontrols

PI-19 Compet�t�on,valueformoneyandcontrols�nprocurement

PI-20 Effect�venessof�nternalcontrolsfornon-salaryexpend�ture

PI-21 Effect�venessof�nternalaud�t

C(��)Account�ng,record�ngandreport�ng

PI-22 T�mel�nessandregular�tyofaccountsreconc�l�at�on

PI-23 Ava�lab�l�tyof�nformat�ononresourcesrece�vedbyserv�cedel�veryun�ts

PI-24 Qual�tyandt�mel�nessof�n-yearbudgetreports

PI-25 Quality and timeliness of annual financial statements

C(�v)Externalscrut�nyandaud�t

PI-26 Scope,natureandfollow-upofexternalaud�t

PI-27 Leg�slat�vescrut�nyoftheannualbudgetlaw

PI-28 Leg�slat�vescrut�nyofexternalaud�treports

halfof28PEFA �nd�v�dualareas,bothperformanceandunderly�ngsystemshave�mprovednot�ceablyoverthelastfewyears.However,becausethe�n�t�alpre-reformlevelwasextremelylow,evenafterseveralyearsofreformsN�ger�a’sPFMsystemrema�nsfundamentallyfrag�le.


TheassessmentalsofoundthattheFederalGovernmentofN�ger�a(FGN)madeadvances�nmacroeconom�canddebtmanagement,budgetformulat�on,account�ng,andprocurementreform.However,lessprogresswasmadew�threspecttocapac�tybuilding, including in the Budget Office, and in such areas of financial accountability asreport�ng,mon�tor�ngandd�sclosure.

The key findings of this report with respect to financial accountability systems couldbesummar�zedasfollows:

Pol�t�calcomm�tmenttothereformprocess�sstrongw�th�nthetoplevelofthegovernment,although�nsomeareasth�shasyettotranslate�ntoafullyart�culateddevelopmentplan.Thereformprogramme�sst�ll�n�ts�n�t�alstages,but�ts�mpacthasalreadybeensignificant on particular aspects of the PFM operations.Wh�le most areas of PFM cont�nue to show weaknesses, these weaknesses �nmostcasesarerecogn�zedbythegovernment,andappropr�atereformeffortsaree�therongo�ngorplanned.Overall, despite recent progress, the fiduciary assurance environment in the FGN rema�nsweak.Thus,apecul�arfeatureofthecurrentPFMs�tuat�on�nN�ger�a�sthatforanumber

of�nd�cators/areasperformance�s�mprov�ngbut�sst�llqu�teweak.Such�nd�catorsinclude budget classification, the comprehensiveness of budget documentation, pub-l�caccesstobudget�nformat�on,thetransparencyoftaxpayerobl�gat�ons,theeffec-t�venessoftaxpayerreg�strat�on,themanagementofcashbalancesanddebts,andthequal�tyof�n-yearbudgetreport�ng.

At the same t�me, foranumberof �nd�cators,performance rema�nsweak,andl�ttleornomater�alprogresshasbeenmaderecently.These �nclude the �nc�denceof government spending that remains off budget; the consolidation of fiscal data for enlarged government; the oversight of fiscal risk related to the operations of state enterpr�ses;thecontrolandcollect�onoftaxarrears;thepred�ctab�l�tyofgovernmentfund�ng;theava�lab�l�tyof�nformat�ononfundsrece�vedbyserv�ceprov�ders;thet�mel�nessandqual�tyofannualaccounts;andqual�ty/depthofleg�slat�vescrut�nyofthebudget.

Moreover,thereformsthatprom�setoadvancebudgettransparencyandexpend�-ture efficiency, including those in procurement, have been much slower at the sub-nat�onallevel,wheremorethanhalfofconsol�datedbudgetexpend�turesareadm�n-�stered.

Given the constitutional autonomy of state governments in fiscal and financial managementmatters,theFGNcandol�ttlebywayofd�rect�ntervent�on.Instead,the FGN should look for an alternat�ve, more cooperat�ve approach for engag�ngthestates�nPFMreformsbyprov�d�ngthemw�thtechn�calass�stance,g�v�ngthemfinancial incentives, and generating political benefits for sub-national leaders that are eagertoreform.

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11.4� Nigeria’s�performance�against�the�individual�indicators

11.4.1� PI-1:� Aggregate� expenditure� out-turn� compared� to� original� approved�budget

The standard here is defined in terms of the extent to which the budget as executed overthepastthreeyearsdev�atesfromthebudgetasapproved,and�sbaseduponpr�maryexpend�ture,�notherwords�texcludesdebtserv�ce,andalsoexcludesex-ternallyfundedprojectexpend�ture.

Thereareseveralreasonsforwant�ngasl�ttledev�at�onasposs�blebetweenthebudgetex ante andthebudgetex post. The first is predictability of funding for budget users,them�n�str�es,departmentsandagenc�eswh�chdel�verserv�ces.Asecond�smacroeconom�cmanagement.Th�rd �sdemocrat�caccountab�l�ty, �n thesense thatthebudget�sacontracttoexecutepol�cesandundertakefunct�onsbetweentheex-ecut�veandtheleg�slatureasauthor�zerofrevenuesandspend�ng.Herethefederalgovernment’sperformancehasbeen�mprov�ng,butfromaverylowbase.In2003total spend�ng, exclud�ngdebt serv�ce, fell short by38.3per cent of appropr�atedspending, chiefly because capital releases were 71.4 per cent less than the approved budget.Th�swaspartlybecause total revenueswere9.1per cent less thanant�c�-pated, but chiefly because the legislature in approving the budget more than doubled the capital budget relative to what the executive proposed, much of it on unjustified pork-barrelprojects.Th�slefttheexecut�venoalternat�vebuttorestr�ctreleasestoavoid an exploding budget deficit.

Th�spatternrepeated�tselfthefollow�ngtwoyears,but�nalessextremeway,astheexecut�vehas�ntroducedpre-budgetconsultat�onsw�ththeleg�slatureontheoverallmacroeconom�cframeworkw�th�nwh�chbudgetsmustbemadeandexecut-ed.Overall,theaverageexpend�turedev�at�on�n2004–05decl�nedtoonly5.3percent,whereas�texceeded28percent�n2001–03.Evenso,thefederalgovernmentfallsa longwayshortofacceptablestandardsofbudgetpred�ctab�l�ty,and th�s �sone of the factors that contribute to the inefficiency of spending. State governments showas�m�larm�smatchbetweenapprovedandexecutedbudgets,but th�s �s lessduetostateleg�slaturesexpand�ngthegovernor’sbudget,andmoreaboutgovernorsproposing ambitious capital programs and being unable to either finance or execute them.

The underly�ng need at the nat�onal level �s to reach greater accord betweentheexecut�veand the leg�slatureon thes�zeandcontentofbudgets.Unl�keothercountr�es�nsub-SaharanAfr�ca,wh�chhaveevolvedthe�rbudgetsystemsfromanor�g�nalWestm�nstermodel,�nN�ger�atherearenorestr�ct�onsontheab�l�tyoftheleg�slaturetochangethepres�dent’sbudget.Forsomeobserversth�s�sadangerousflaw in Nigeria’s constitutional arrangements, given that more than three quarters ofgovernmentrevenuesder�venotfromtaxesonc�t�zens(wh�chwouldconstra�nlawmakers)butfromo�l.Forothers,thepowertochangetheexecut�ve’sbudget�s

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fundamental to the principle of separation of powers. In practical terms, fiscal man-agementandeffect�vebudgetexecut�onare�mposs�ble�f largeexpend�turedev�a-t�onspers�st.ThedraftF�scalRespons�b�l�tyLaw,wh�chseekstob�ndgovernmentsatalllevelstomak�ngbudgetsconservat�velyonthebas�sofanassumedlong-runpr�ceofo�l�sav�talcomponentofbetterbudget�ngarrangements.Soalsoaretheefforts in recent years of the Budget Office of the Federation to brief the National Assembly on the fiscal outlook, and seek their support for budgets made within a Med�umTermExpend�tureFramework(MTEF).

11.4.2� PI-2:� Composition� of� expenditure� out-turn� compared� to� original�approved�budget

Th�s�nd�catormeasurestheextenttowh�chactualexpend�turecompos�t�onvar�esfromthecompos�t�onof theor�g�nalbudget.The rat�onaleof the �nd�cator �s thatbudgetsshouldbecapableof�mplement�ngthepol�c�esandprogrammesproposedbytheexecut�veandapprovedbytheleg�slature.

At the federal level there �s relat�vely l�ttledev�at�onbetween the shareof thema�nsectorm�n�str�es,departmentsandagenc�es(MDAs)�ntheapprovedandtheexecutedbudget.Furthermore,anydev�at�onsthatcanbemeasuredaredwarfedbythe largedev�at�onsat theaggregate level.Th�ssuggests that,when theexecut�vecutsthebudgetbackfromwhat�tv�ewsastheunsusta�nablyh�ghlevelsapprovedbytheleg�slature,thepa�n�ssharedequally–nom�n�stry�sd�sproport�onallyprotectedfrom�t.

Whatthe�nd�catordoesnotmeasure�sreallocat�onsw�th�nMDAbudgets.Th�s�slarge.Whenbudgetsarecut,thewageb�ll�sprotectedattheexpenseofoperat�onsand maintenance spending, and this contributes to inefficiency. There is also redis-tr�but�onw�th�nthecap�talbudget,asfundsared�rectedtowardswhattheexecut�veregardsash�gher-pr�or�typrojects.Whenth�sresults�nthecomplet�onratherthanpartial implementation of projects, the reallocations are efficiency enhancing. How-ever,thelatterhasnotbeencommonbudgetexecut�onpract�ce�nN�ger�a.As�m�larpatterncanbefoundatthestatelevel.

11.4.3� PI-3:� Aggregate� revenue� out-turn� compared� to� original� approved�budget

Th�s�nd�catormeasuresthereal�smofgovernmentrevenueproject�ons,andthe�n-ternational standard defined in the PEFA framework is for actual revenue collections nottofallbelow97percentofbudgeteddomest�crevenues�nmorethanoneofthepastthreeyears.

N�ger�a’srecord�nrecentyearshasbeenoneofexceed�ngdomest�crevenuefore-casts, chiefly thanks to unexpectedly high international oil prices. But this was due moretoluckthangoodplann�ng.Ifo�lrevenuesaresettoones�deanddev�at�ons�nnon-o�ltaxcollect�onsareanalysed,aratherd�fferentp�ctureemerges.Inboth2003

Stocktaking the Reforms in Public Financial Management ��1

and2004theactual�nternallygeneratedrevenue(IGR)collectedamountedtoonlyaboutoneth�rdofthebudgetedlevel.Th�spo�ntstoweakcollect�onandunreal�st�cbudget�ng.

As�m�larpatternofweakIGRcollect�onshowsupatthestatelevel,w�thafewexcept�ons.LagosStatehasmadedramat�c�mprovements�nIGRs�ncethetrans�t�onfromm�l�taryrule,bycontract�ngoutcollect�ons,albe�tatah�ghoverheadcost.Nowthestate �s try�ngto �nst�tut�onal�zesoundtaxadm�n�strat�on�n thenewlyformedBureauofInternalRevenue.

11.4.4� PI-4:�Stock�and�monitoring�of�expenditure�payment�arrears

PEFAbestpract�cebenchmarkstwovar�ables:(�)thestockofarrears,wh�chshouldbebelow2percentoftotalexpend�ture,and(��)rel�ableandcompletedataonthestockofarrearsgeneratedthroughrout�neprocedures,regularlyupdated.

H�ghlevelsofarrearsareaconsequenceoflargedev�at�onsbetweentheapprovedandexecutedbudget,and�nN�ger�a’scasethere�sabacklog�nher�tedfromtheyearsofm�l�tarym�srule,forwh�chthedataareunrel�able.Bylate2005,totalarrearsatthefederallevelwereest�matedatnotlessthan400b�ll�onna�ra($3b�ll�on),wh�chwasmore than20percentof the total2005federalgovernmentbudgetspend�ng.Thema�ncategor�esofbudgetarrearspresentlyaredebtstocontractorsandover-duepens�onpayments.Therearealsoarrearsonut�l�typaymentsandpaymentsto�nternat�onalorgan�zat�ons.Totalcontractors’arrearsareest�matedat275–300b�l-l�onna�ra(about2.2percentof2005GDP),andhavebeenthesubjectofsuccess�vescreen�ngexerc�ses.Cons�derableprogresshasbeenmade�nbu�ld�ngupadatabasein the Budget Office of the Federation (BOF), verifying, auditing and deflating the reportedcla�ms.Smallcontractorarrearsare�ntheprocessofbe�ngpa�doff;largecontractorarrearsarebe�ngsecur�t�zed.

Pens�onarrearshaveaccumulatedundertheFGN’strad�t�onalpay-as-you-gode-fined benefit scheme for public servants, and pension rolls have long been unreliable. In2004thePens�onActprov�dedfor the �ntroduct�onoffundedpens�onschemesacrossthepubl�csector,andtheestabl�shmentofaNat�onalPens�onComm�ss�on,which has begun a verification exercise. The 2006 FGN budget set aside funds for clear�ngmostfederalpens�onarrears.

11.4.5 PI-5: Classification of the budget

Bestpract�ce�stheoperat�onofbudgetsystemsthatarebasedontheadm�n�strat�ve,economic and sub-functional/programme classifications, using Government Finan-cial Statistics/Classification of Functions of Governmentstandards.

Nigeria’s budgets at all levels of government employ traditional classification systems, which are based mainly on administrative classifications and some econom-ic classifications. In this way the country has lagged behind international develop-mentsthathaveseentheemergenceandadopt�onofun�versalstandardswh�ch,w�th


modern �nformat�on technology, can prov�de pol�cy-makers and budget managersw�th�nformat�ononPFM�nat�melyandmoremean�ngfulway.Furthermore,thebroader budgeting, reporting and accounting system, of which the classification sys-temformsacentralpart,hasdeter�orated�n�tsappl�cat�onovertheyears.Thebudgetest�matesaremostlytoodeta�ledforleg�slat�veovers�ght,andtheaccountsaretoocoarse-grained for management purposes, while the classification system allows no funct�onalanalys�s.

Aslongasthepr�maryobject�veofPFM�mprovements�sbettercontrolofspend-ing by budget units, an administrative-based classification system serves. And the mosturgentneed�sbetter�n-yearreport�ngbyMDAsunderthepresentsystem.But,asthepol�cybeh�ndspend�ngbecomesmore�mportant,amoremodernbudgetclas-sification system will be demanded. Some steps are now being taken, partly by the Accountant-GeneraloftheFederat�on,to�mprovereport�ng(throughtheAccount�ngTransact�onReport�ngandRecord�ngSystem(ATRRS)),andtoamendtheex�st�ngchart of accounts. Also the introduction of integrated financial management systems �nsomestatesonthe�rownaccount�sprompt�ngchange.

11.4.6� PI-6:� Comprehensiveness� of� information� included� in� budget�documentation

Abest-pract�cebudgetw�llprov�de�nformat�ononthemacroeconom�cassumpt�onsunderlying the budget, the fiscal deficit defined by international standards and financ-ing, financial assets at the beginning of the year and prior years’ out-turns, explana-tions of the budgetary implications of new policies, tax expenditures and fiscal risk, summaries of budget data, including institutional, economic and functional classifi-cat�on,aswellasdeta�lsofproposedspend�ngatanappropr�atelevelofdeta�l.

Currentlythepackageofdocumentsthatconst�tutestheFGN’sbudgetlacksana-lyt�caltables,andsummar�eshavebecomemorecursory�nrecentyears,av�ct�moftherushtocompletethebudgetandthelackof�n-depthcapac�ty�ntheBOF.Thebudgetstressesgovernmentpr�or�t�essuchastheN�ger�aEconom�cEmpowermentandDevelopmentStrategy(NEEDS)butdoesnotexpla�nwellhowthesearetrans-lated�ntospend�ngallocat�ons.Inotherrespects,theFGN�smov�ngforward.Ithasbegun the development of a medium-term fiscal framework for the budget, which w�lleventuallyevolve�ntoafullerMed�umTermExpend�tureFramework(MTEF).Acr�t�calsteptowardsl�nk�ngthesebetterhasbeentherecentrequ�rementform�n-�str�estoprepareMed�umTermSectoralStrateg�es(MTSS).

Thebudgetpresentat�onhaschanged l�ttle �ndecades,w�thagapbetween thebudgetspeech,wh�ch�sveryaggregate,andthemassofdeta�l�ntheest�matesbutw�thoutanalyt�calsummarytables.Suchanunbalancedpresentat�onst�mulatesleg-islators (who need little prompting) to ignore the underlying fiscal strategy of the subm�ttedbudgetproposaland�mmersethemselves�nthedeta�lsofspend�ng.


11.4.7� PI-7:�Extent�of�unreported�government�operations

Governmentsshoulda�mforcomprehens�vebudgetsandaccountsthatcoverallrev-enue and expenditure flows for all institutional units that are part of that government t�ertowh�chthebudgetperta�ns.Inpract�caltermsth�smeansensur�ngthatunre-portedextra-budgetaryexpend�ture(otherthandonor-fundedprojects,wh�chcanbedifficult to capture) is insignificant (below 1 per cent of total expenditure).

As already noted in this chapter, a significant proportion (42 per cent of non-inter-estexpend�tureonaverage�nthepastthreeyears)ofspend�ngbyfederalent�t�esl�esouts�dethefederalbudget.Th�sser�ouslyunderm�nesthecomprehens�venessoftheannual budget. The main categories of spending outside the budget are: (i) first line charges of the Federation Accounts (chiefly investment costs of NNPC), (ii) donor funds, and (iii) expenditure financed with MDA’s own revenues. In 2005 settlement ofexternaldebtarrearsaspartoftheh�stor�cPar�sdebtdealwasextra-budgetary.S�nce 2005 a further category has been added – major �nfrastructure �nvestments(pr�mar�lypower)fundedw�thmoneythat�saccumulated�ntheexcesso�lsav�ngsaccount.

Constitutional interpretation and budgetary principles appear to be in conflict w�th respect to th�s extra-budgetary spend�ng. Inpart�cular,NNPCcashcalls anddebtrel�efpaymentsarecommonpurposespend�ngmadebyfederalgovernmenten-t�t�es,wh�chtheSupremeCourt�n2002determ�nedwereouts�dethefederalgovern-ment’sjur�sd�ct�on.Asaresult,aseparateapprovalprocedurehasbeenestabl�shedforth�sspend�ng,�nvolv�ngtheFederat�onAccountAllocat�onComm�ttee(FAAC),theFederalExecut�veCounc�l(FEC)andtheNat�onalAssembly,w�thaud�t�ngbytheAud�tor-GeneraloftheFederat�on.However,th�sresults�nasegmentedexpend�-tureprocess,andmakes�t lesstransparentandaccountable.Aposs�blesolut�ontoth�sproblemcouldbe�ncorporat�onofsuchcommonpurposespend�ng�ntheregularFGN’sbudget,perhapsasaseparatepart.

Including donor-financed spending in the budget is a problem in many poor coun-tr�es,and�nthecaseofN�ger�a�sperhapsalesserproblembecausethemagn�tudeofdonor assistance in relative terms is not so great. Still, it would be prudent to reflect at leastallgovernmentexternalborrow�ng�nthebudget.More�mportantly,thefa�lureto �nclude theown revenuesofparastatals,wh�charepartlydependentonbudgettransfers,�nthebudget,even�fonlyfor�nformat�onratherthanappropr�at�on,doesunderm�nethetransparencyandaccountab�l�tyofthebudgetsystem.As�m�lars�tu-at�onex�stsatthestatelevel.

11.4.8 PI-8: Transparency of intergovernmental fiscal relations

Thegoalhere�sarule-based,transparentandpred�ctablesystemfortheallocat�onoffundsbetweend�fferentt�ersofgovernment,enabl�ngsub-nat�onalgovernmentstomakereal�st�cproject�onsforfederaltransfers,andthatactualreleasesdur�ngtheyeararemade�naregularandpred�ctableway.Forearmarkedtransfers,thereshould


beameans,e�ther thoughpubl�shedaccountsorstat�st�calsurveys, toensure thatthese have been used for their intended purpose by their ultimate beneficiaries.

The d�v�s�on of respons�b�l�t�es �s generally set out �n the 1999 const�tut�on,wh�chdescr�bes the exclus�ve respons�b�l�tyof theFGN for funct�onsofnat�onalconcern,l�kedefenceandfore�gnaffa�rs,concurrentrespons�b�l�t�esoffederalandstategovernments,suchassecondaryandtert�aryeducat�on,andrespons�b�l�t�esoflocalgovernmentauthor�t�es(LGAs)suchaswaterandsan�tat�on,togetherw�thre-spons�b�l�t�essuchaspr�maryeducat�onandhealthwh�chLGAsmaycooperatew�thstategovernments�ndel�ver�ng.Overall,there�scons�derableoverlap�nexpend�tureresponsibilities and insufficient clarity of expenditure mandates.

Thebulkofrevenuesforallthreet�ersofgovernmentder�vefromo�l.O�lrev-enuesandnat�onallycollectedtaxesarechannelledtothethreet�ersthroughtheFed-erat�onandVATAccounts,accord�ngtoaformulaapprovedbybothhousesoftheNat�onalAssembly,andoverseenbytheRevenueMob�l�zat�on,Allocat�onandF�scalComm�ss�on(RMAFC).Theformulatakesspec�alaccountofsuchfactorsaspopula-t�on,soc�aldevelopment,revenueeffort,landmassandterra�n,aswellasequal�ty�nd�str�but�on.O�l-produc�ngstatesrece�veanadd�t�onal‘der�vat�on’allocat�on.Notunexpectedly, theformula�shotlydebatedandzealouslywatched.Theformula�ssupposed to be updated every five years on the basis of proposals developed by the RMAFC,butth�sd�dnottakeplacerecentlyongroundsoflackofconsensus.

The flow of transfers is generally predictable and transparent. There are two is-sues, however, which affect transparency. The first is prior deductions from the Fed-erat�onAccount, both statutorydeduct�ons and jo�ntventure cashcallsofNNPC,andadm�n�strat�velydeterm�neddeduct�onssuchastheset-as�de‘excesscrude’rev-enues,andthedomest�cpetroleumsubs�dy.Asalreadynoted,therearearrangementsforovers�ghtofthesededuct�ons,buttheyarenotpartoftheannualbudgetprocessofthefederalGovernment.Therehasalsobeenlackoftransparencyoverthegenera-t�onofo�lrevenues,butth�s�s�mprov�ngw�thN�ger�a’spart�c�pat�on�ntheExtrac-t�veIndustr�es’TransparencyIn�t�at�ve(EITI).Thesecond�ssuewh�chdetractsfromthetransparencyandpred�ctab�l�tyofthe�ntergovernmentaltransferprocess�sthepoorlyregulatedw�thhold�ngbystategovernmentsoftransferstolocalgovernmentsfortheexecut�onofjo�ntprogrammes.

11.4.9 PI-9: Oversight of aggregate fiscal risk�from�other�public�sector�entities

Best practice is centralized oversight of fiscal risk through timely reports and audited accounts fromallmajorautonomousagenc�esandpubl�centerpr�ses, ruleswh�chprevent sub-national governments from generating fiscal liabilities for the central government, regular monitoring of the net fiscal position of all levels of sub-national government, and regular consolidation of these reports into an overall fiscal risk as-sessmentbythecentralgovernment.


There are presently several sources of risk to Nigeria’s public finances. While the country’s large parastatal sector is required by law to present accounts and finan-c�alstatementstostateandfederalaud�tors-general,subm�ss�onsareoftenlate,andthere are no regular in-year financial reports, a matter of serious concern, given the generallyweakperformanceofbudget-dependentautonomousagenc�esandpubl�centerpr�ses,wh�chhaveshownanalarm�ngtendencyovert�metoaccumulatelargedebtsandotherl�ab�l�t�es.

A second source of fiscal risk is the lack of a hard budget constraint on state gov-ernments and the absence of a mechanism for monitoring their fiscal positions. In the first years of the return to civilian rule, many states borrowed heavily from domestic financial markets, short-term and at high cost, and, until rising oil prices improved the�rrevenues,serv�c�ngth�sdebtd�stortedbudgetsand�nmanycasesledtoarrearsin salaries and other payments. The third source of fiscal risk, obviously, is the heavy dependenceofgovernments �nN�ger�aon revenues fromo�land theattendanto�lpr�cecycle.

Of vital importance to the management of fiscal risk at all levels is the outcome of current efforts to put in place a new legal framework for public financial man-agement, and thusamore respons�blebudgetprocess.Cr�t�calhereare theF�scalRespons�b�l�tyB�ll(FRB),theBudgetProcedureB�ll,andamendmentstothe1958F�nance(ControlandManagement)Act(F(C&M)A).Ascurrentlydrafted,theFRB,which includes the fiscal rule that budgets should be made on the basis of the long-runpr�ceofo�l,�s�ntendedtobeb�nd�ngonstatesandLGAs.Progress�vestatesarebeg�nn�ngtolookathowthestatelevelbudgetprocesscouldbestrengthened,buttherearenotyetexpl�c�tstateequ�valentstotheF(C&M)A.

11.4.10 PI-10: Public access to key fiscal information

Thestandardhere�sthepubl�cava�lab�l�tyofacompletebudgetpackageassoonas�t�stabled�ntheleg�slature,of�n-yearbudgetexecut�onreports,t�melyyear-endau-dited financial statements, external audit reports, and regular publication of contract awardsabove$100,000.

HereN�ger�ascoresverypoorly;there�sveryl�ttle�nformat�ononN�ger�a’sgov-ernment finances that is available to the public on a timely basis. This may be be-causethe�nformat�ondoesnotex�st,or�snotcompleteorava�lable�nat�melyway.Alternat�vely,�tcanbethatauthor�t�esdec�denottorelease�nformat�onbecauseof�tssupposedsens�t�venature.Some�mprovement�stak�ngplace.TheCentralBankpublished summaries of the budget aggregates and related financial information, and boththeFederalM�n�stryofF�nance(FMoF)andtheBOFnowhavewebs�tes,andtheamountof�nformat�on,part�cularly�ntheCentralBanks�te,�sgrow�ng.Inadd�-t�on,there�snowanact�veconsort�umofpubl�cpol�cyNGOs�nN�ger�ademand�ngmore transparent public finances. This is encouraging; at bottom the challenge is to


develop a culture amongst government officials to regularly release and not with-hold the type of information on government finances that is normal in a democratic country.Partly,theex�st�ngculture�salegacyofm�l�taryrule,whenanyreleaseofinformation could get an official into serious trouble. It is also driven by a fear that releaseofany�nformat�oncouldbem�srepresentedforpol�t�calga�n.Thesolut�ontoleaksandd�stort�onofreleased�nformat�on�s,ofcourse,regularandt�melypubl�ca-t�onofamuchw�derrangeofpubl�c�nformat�on,w�thhold�ngonly�nformat�onthattrulyshouldbesecret,fore�therpersonalorsecur�tyreasons.

11.4.11� PI-11:�Orderliness�and�participation�in�the�annual�budget�process

Thea�mhere �saclearandpred�ctablebudgetcalendarwh�chg�vesstakeholderssufficient time to participate in the budget process, communicates cabinet-approved budgetce�l�ngstoMDAs�nthecallc�rcular,andenablestheleg�slature�toapprovethebudgetbeforethestartofthenew�financial year.

InN�ger�a,atalllevelsofgovernment,thebudgetcalendar�sanadm�n�strat�vetrad�t�on,notsetbylaw.Wh�letheBOFendeavourstocompletethebudgetest�matesforthepres�denttomakeh�sbudgetspeech�nm�d-October,sothattheleg�slaturecan approve the next year budget by the end of the current financial year, this seldom happens,e�therbecausetheleg�slaturetakeslonger,orbecausebudgetpreparat�on�sdelayed.Inrecentyears,notw�thstand�ngeffortstogetthebudgetapproved�nt�me,the Appropriations Bill was not passed until after the first quarter of the new financial year,necess�tat�ngprov�s�onalfund�ngwarrants.Th�s �scompoundedbytheoftenfract�ous relat�ons between the execut�ve and the leg�slature, mult�ple changes �nthebudgetasproposedbythepres�dent,andmult�pleadjustmentstoreleasesafterthebudgethasbeenapproved,�norder,�ntheexecut�ve’sv�ew,torestorebalancetospend�ngplans.Oftenth�shasmeantthatm�d-yearhascomebeforetheBOFhascompletedthelaunchofthecurrentyear’sbudget,postpon�ngyetaga�nthegoaloflaunch�ngthenextyear’sbudgetpreparat�ononanorderlyt�mepath.Th�sresults�ninsufficient time to explain to the legislature and get their understanding of the macr-oeconomic fundamentals underpinning public finances, to get ministers to agree col-lect�velytothebudgetframework,andtoallowMDAstopr�or�t�zethe�rspend�ng.

However, there have been some �mportant developments �n recent years. TheBOF now makes a serious effort to explain the fiscal framework to the legislature at theoutsetofthebudgetpreparat�onprocess.AndMDAs,�n�t�allyonap�lotbas�s,havebegunprepar�ngthe�rMed�umTermSectorStrateg�es(MTSS),w�ththehelpofconsultants,asanefforttogetresourcesbetterfocusedonpol�cypr�or�t�espr�ortodetailed budget preparation. For the first time, the BOF was able to undertake these act�onsandgetthe2007budgetplacedbeforetheNat�onalAssemblybythem�ddleofOctober.

Atthestatelevel,w�ththegovernordom�nat�ngexecut�ve–leg�slaturerelat�onsandw�thgreaterscopeforpatronage,there�styp�callynotthecontent�ousrelat�on-


sh�pthatcharacter�zesrelat�onsatthefederallevel.Th�senablesbudgetstobesub-m�ttedont�me,andgenerallypassedbeforeorshortlyaftertheendofthecurrentfinancial year. But other problems manifest themselves, such as unrealistic budget est�mates,poorlycoord�natedcurrentandcap�talbudgets,poorqual�typubl�c�nvest-mentplans,andslowexecut�on.

Threedevelopmentsarecruc�alto�nst�tut�onal�z�ngamoreorderlyandpart�c�-patory budget process. The first is the enactment of the Fiscal Responsibility Bill, andassoc�atedPFMleg�slat�onatfederalandstatelevels.Thesecond�sra�s�ngthecapac�tyofBOFstaff (andthe�rcounterparts �nstatebudgetandplann�ngdepart-ments).Theth�rd�smoreharmon�ousrelat�onsbetweentheexecut�veandtheleg-�slatureatthenat�onallevelonbudgetmatters.Thelastofthese�spartlystructural,and therefore difficult to change, partly a matter of political incentives of elected officials who seek to add programmes they can be associated with to budgets, and partlyamenabletobettercommun�cat�onsandstrongeraccountab�l�tyarrangements,wh�chhavebegunto�mprove.

11.4.12 PI-12: Multi-year perspective in fiscal planning, expenditure policy and budgeting

Best practice is three-year or more rolling forecasts of fiscal aggregates, on which annualbudgetsarebased,annualdebtsusta�nab�l�tyanalysesforbothdomest�candexternaldebt,ex�stenceofsectorstrateg�esw�thfullcost�ngofrecurrentand�nvest-ment spending, broadly consistent with fiscal forecasts, and selection of investments baseduponthe�rrelevancetosectorstrateg�esandrecurrentcost�mpl�cat�ons,andcons�stentw�thsectorenvelopesandforwardbudgetest�mates.

Herethefederalgovernment�swellaheadofstates.Inthepastthreeyears,theBOF has prepared multi-year aggregate fiscal frameworks, based upon conserva-t�veest�matesoftheexpectedpr�ceofo�l,andusedth�sframeworktobr�efboththeleg�slatureandtheFederalExecut�veCounc�lontheforthcom�ngbudgetpreparat�oncycle.TheBOF,asyet,hasnoteffect�velyevolved theaggregate framework �ntoasetofmed�um-termsectorenvelopesbaseduponthecostofex�st�ngandagreedfuturepol�cy,thoughthelaunch�ngoftheMTSSprocess�san�mportantstep�nth�sd�rect�on.Inthejargonofbudget-mak�ng,atthefederallevel,N�ger�ahasanMTFFbutnotanMTEF.

Atthestatelevel,mult�-yearbudgetplann�ng�slessadvanced.Althoughafewstateshaveev�nced�nterest �ng�v�ngamed�um-termperspect�vetobudget�ng,alleffectively make budgets on an annual basis, and the culture of budgeting is firmly rooted�ntheolddualbudgetroll�ngpubl�c�nvestmentplanmodel.

Thechallenge�smov�ngfromthedualbudgetmodel,�nwh�ch�nvestmentspend-�ngdom�nates,toone�nwh�chserv�cedel�verygu�desthemak�ngofbudgets.Th�srequ�reslook�ngatbudgets�namuchmore�ntegratedway,balanc�ngcap�talw�thre-currentspend�ngw�th�nanoverallsector(orMDA)resourcesenvelope.Techn�cally,


th�srequ�resmuchbetter�nformat�ononcostsofserv�cedel�veryandthesemustbegenerated, as also must information on the efficiency and effectiveness of spend-�ng(wh�ch�sverypooratpresent).Italsorequ�resamajor�nvestment�ncapac�tybuilding of budget staff, both in budget offices and in line ministries, at all levels of government.Mostofall,�trequ�resaseachange�nthecultureofpubl�cspend�ng�nN�ger�a,�nawaythatmakesthecons�stentdel�veryofcorepubl�cserv�cesthedr�verofspend�ngdec�s�ons,ratherthanamb�t�ous,poorlythought-through,badlyexecutedandoftenunsusta�nablecap�talspend�ngschemes.

11.4.13� PI-13:�Transparency�of�taxpayer�obligations�and�liabilities

Taxpayerl�ab�l�t�esneedtobespelledout�nclearandcomprehens�velawsandregu-lat�ons,backedupbyeffect�ve taxpayereducat�onandaproperly funct�on�ng taxappealsmechan�sm.

Ev�dencefromenterpr�sesurveyssuggeststhattaxregulat�onsandhowtheyareappl�edareaconstra�nttobus�nessdevelopment,cr�ter�afortaxwa�versareunclear�nthe�rappl�cat�on,andtaxpayereducat�onhasalongwaytogoatbothfederalandstatelevels.Taxappealsmechan�smsex�stbuttheyarecomplexandthe�reffect�ve-ness is difficult to assess.

Actions to remedy these deficiencies are under way. The Federal Internal Rev-enueServ�ce(FIRS)has�n�t�atedapackageofleg�slat�veamendmentstotaxlaws,remedy�ngsomeoftheex�st�ngfaults�nVAT,suchastheabsenceofareg�strat�onthreshold, improvements to the appeals mechanisms, and a clearer definition of the t�metableford�sputeresolut�on.There�salsoaneedtos�mpl�fytheoveralltaxstruc-ture,�nclud�ngsubnat�onaltaxesandfees,toel�m�natevar�oussecondarytaxesthatbr�ngl�ttlerevenuebutgeneratecons�derableadm�n�strat�vecosttothepr�vatesec-tor.Afurtherchallenge�sbu�ld�ngthecapac�tyofstaff.

11.4.14� PI-14:� Effectiveness� of� measures� for� taxpayer� registration� and� tax�assessment

Thefocusofth�s�nd�cator�sontheex�stenceandaccuracyofcontrols�nthetaxpayerreg�strat�onsystem,effect�venessofpenalt�esfornon-compl�ancew�thtaxreg�stra-t�on,andadequateplann�ngandmon�tor�ngoftaxaud�tsandfraud�nvest�gat�ons.

Coord�nat�onbetweenFIRSheadquarters and �tsbranches �n the states,wh�charerespons�bleforreg�ster�ngtaxpayers,�sweak,lead�ngto�naccurac�es�ntaxpayer�nformat�onandconsequently�ntaxcollect�ons.There�snos�ngletaxpayerreg�steryet.Non-compl�ancepenalt�esaree�ther too low toconst�tutean �ncent�veor toocomplex tobe effect�ve.The recently establ�shedaud�t departmentsofFIRS lackcapac�ty,andw�thnosystemat�ccollect�onoftaxdata,letalone�ndustrydata,theprocess of risk identification cannot be begun.

Effortsareunderwaytoconstructas�ngletaxpayerdatabasewh�chw�llbecom-puterized, enabling the adoption of a single Tax Identification Number (TIN). This


needstobeaccompan�edbyval�dat�onofex�st�ngtaxpayerdataandbu�ld�ngofstaffcapac�ty,espec�allyforaud�t.

11.4.15� PI-15:�Effectiveness�in�collection�of�tax�payments

Best practice is defined as a high ratio of collection of tax arrears relative to their stock,regulartransfersofcollectedtaxesfromarevenueauthor�tytotreasury,andaccountsreconc�l�at�onbetweentaxassessments,collect�ons,arrearsrecordsandre-ce�ptsbythetreasury.

Presentarrangements�nN�ger�afallbelowthestandard.There�snodatabaseontaxarrearsclass�fy�ngarrearsbyamountsandtaxtypeatthelevelsoftheFederat�onandstates(wh�chcollectPersonalIncomeTax),wh�lereconc�l�at�onsare�ncompleteandlessthanregular.Atthefederallevel,therearereformsunderway�nFIRS,aswellas�nthestatew�ththelargesttaxbase,Lagos.Overt�me,asstaffcapac�tyandbettersystemsarebu�lt,th�sshouldleadto�mprovedperformance.Autonomoussta-tusofrevenueagenc�es,wh�ch�sproposed�nrecentleg�slat�on,�s�mportanttomakestaff salar�esmore compet�t�ve than regular c�v�l serv�ce scales.Th�swouldhelp,comb�nedw�thbetterovers�ghtandgovernance,tobreakthe�nformalpract�cesthathavebecomeembedded�nmanyareas.

11.4.16� PI-16:� Predictability� in� the� availability� of� funds� for� commitment� of�expenditures

Forbudgetstobepred�ctable,theyneedtobeapprovedont�me,respectedbytheexecutive, flexible enough to accommodate a reasonable level of fiscal uncertainty, and supported by a cash management system that ensures that thegovernment �snever�ll�qu�d.

Analys�sofactualmonthlyreleasestospend�ngdepartmentsoverthepastfouryears shows continuation of significant variability in the amounts provided by the treasury.Th�sexpend�ture�nstab�l�ty�sonlypartlyexpla�nablebymonthlyrevenuevariations, which have fluctuated somewhat less recently; this stabilization is in part thanks to oil-price-based budgeting. The introduction of an oil-price-based fiscal rule,however,hashelpedlessthanhopedforbecause�tdoesnotsmoothvar�at�ons�no�lproduct�on;w�thdomest�cpetroleumpr�cecontrols�nplace,budgetaryresourceshave had to be diverted to offsetting fuel subsidies that fluctuate in line with world oil pr�ces.Inadd�t�on,ontheexpend�tures�dethegovernmenthasstruggledw�thcashmanagement and delays in procurement certification.

Aslongaspetroleumsubs�d�esarema�nta�ned, thebudgetw�llalwaysbevul-nerabletopr�ceshocks�n�nternat�onalo�lmarkets.Deepen�ngthemarketforgov-ernmentsecur�t�es,�mprovedcashmanagement,�nclud�ngtheadopt�onofas�ngletreasuryaccount,�mprovedprocurementcapac�tyonthepartofMDAs,andapprovalofareal�st�callys�zedbudgetmuchearl�er�ntheyeararethekeystepsto�mprovethepredictability of funds for efficient and effective public expenditure.

��0 Stevens and Freinkman

11.4.17� PI-17:� Recording� and� management� of� cash� balances,� debt� and�guarantees

Inwellfunct�on�ngPFMsystems,domest�candfore�gndebtrecordsarecomplete,regularlyupdated, reconc�led and reported tomanagementon a regularbas�s.Allcashbalancesarecalculatedda�lyandconsol�dated,andcentralgovernment’scon-tract�ngofloansand�ssuanceofguaranteesaremadeaga�nsttransparentcr�ter�aandfiscal targets, and all have to be approved by a single responsible government entity.

Currently,budgetfundsarereleasedtoMDAs,wh�chkeepthe�rownaccountsw�thcommerc�albanks,w�thoutcentralovers�ght.Th�smeans thatnooneknowshowlargearegovernmentcashbalancesw�ththecommerc�albanks,wh�chearnno�nterest,mak�ngforunnecessaryborrow�ngbythetreasuryfrome�thertheCentralBankortherelat�velyth�ndomest�cmarket�ngovernmentpaper.Th�shasbeenes-pec�allycostlyg�ventheh�ghlevelofdomest�c�nterestrates�nrecentyears.Th�smakescashmanagementoneoftheweakestareasofPFM�nN�ger�a,po�nt�ngtotheneedfort�mely�ssueofwarrants,greaterovers�ghtofcashbalancesandeventually�ntroduct�onofas�ngletreasuryaccount,replac�ngtheCentralBankoverdraftfac�l-�tyw�thopenmarketoperat�ons tomeet short-term l�qu�d�tyneeds,and �ncreasedab�l�tyofthegovernmentCashManagementComm�tteetoreducevar�ab�l�ty�ncashreleases.

Bycontrast, at the federal level theareaofdebtmanagementhasbeenoneofstrong advance, with the formation of the Debt Management Office under the FMoF and�tsacqu�s�t�onofcons�derableexpert�se�ntheareaofexternaldebt,onwh�ch�thasfocused.Th�swasamajorfactorsupport�ngN�ger�a’sfavourabledebtrel�eftermsfromthePar�sClub�n2005.Furthermore,theDMOActof2003andsubse-quentgu�del�neslaydownstr�ctrulesforfederalMDAs,parastatalsandstategov-ernmentexternalborrow�ng.Stategovernmentscancontractnewexternaldebtonlywith the permission of the FMoF, normally given only after DMO financial analysis, Federal Execut�ve Counc�l and Nat�onalAssembly approval. Parastatals typ�callyborrowthroughtheFMoF,wh�chcontractstheloanandon-lendstheproceeds,thusensuring the amount is captured in the sovereign debt profile. State domestic borrow-�ngmustbecons�stentw�thrulesoftheSecur�tyandExchangeComm�ss�on(SEC),wh�ch,�ndefault,prov�dededuct�onoftheamountsduebytheFMoFfromfedera-t�onaccounttransferstoapart�cularstate.

11.4.18� PI-18:�Effectiveness�of�payroll�controls

Governmentsw�thgoodpayroll controls can l�nkd�rectly and regularly reconc�lepersonnel records, staffing authorization and payroll systems. Changes are updated at leastmonthly,andretroact�veadjustmentsarerare.Author�tytochangerecordsandpayroll�srestr�ctedandresults�nanaud�ttra�l,andthere�sastrongsystemofannualpayrollaud�tsto�dent�fycontrolweaknessesand/orghostworkers.

Stocktaking the Reforms in Public Financial Management ��1

TheFGNoperatesadecentral�zedpayrollsystemforthec�v�lserv�ce,wherebyMDAsoperatethe�rownpayrolls,cons�stentw�thgovernment-w�deproceduressetbytheAccountant-General.Intheory,thepayroll�sl�nkedtothepersonnelrecordssystem,andtheformalrulesaresound.Inpract�ce,someoftheabusethatbecamew�despreadunderm�l�taryrulehascont�nuedand,notw�thstand�ngmanystaffcen-suses,payrollfraudhasnotyetbeenfullyel�m�nated.Theweakestpartofthepayrollcontrol system is the establishment list, in theory the approved staffing structure of eachMDA.Inpract�ce,th�shaslostcred�b�l�ty,andthebas�sofcontrolhasbecomethepayrollalone.Parastatals,whosecomb�nedemploymentexceedsbyfarthatofthec�v�lserv�ceproper,l�eouts�deth�ssystem,andalsohaveweakpayrollcontrols.

Amajoreffort�snowunderwaytoreplacethepresentlargelymanualsystemsoftheFGNw�than�ntegratedpayrollandpersonnelmanagementsystem.Th�s�san�mportantstepforward�nstrengthen�ngpayrollcontrols.As�t�s�ntroduced,�tw�llbe�mportanttoensuretheaccuracyofpersonneldataentered�ntothenewsystem,�fnecessarythroughfurtherstaffaud�ts.

11.4.19� PI-19:�Competition,�value�for�money�and�controls�in�procurement

Thebenchmarkforpubl�cprocurement�sopenrule-basedcompet�t�on,appl�edtoatleast 75 per cent of contracts above the threshold, with full justification for less com-pet�t�veprocurementmethods,andacompla�ntsmechan�smthatprov�desfort�melyresolut�onofprocurementprocessd�sputes,undertheovers�ghtofanexternalbody,w�thpubl�clyaccess�bledataoncompla�ntsresolut�on.

Publ�c procurement �s an area where the government has made cons�derableprogressat thefederal level,aga�nstabackgroundof large-scaleabusedur�ngtheyearsofm�l�taryruleofwhatwasor�g�nallyasoundprocess,throughr�gged,non-compet�t�veandcostlyawardofcontracts.The�n�t�aleffortsofc�v�l�angovernmentwere todealw�thanoverhangofcontractors’cla�ms, reduc�ngorel�m�nat�ng themostegreg�ousones.From2001theFGNbeganputt�ng�nplaceamorerobustsys-temofprocurementovers�ght,throughthe�nst�tut�onof‘dueprocess’andthecrea-t�onoftheBudgetMon�tor�ngandPr�ceIntell�genceUn�t(BMPIU).Departmentaltenderboardswereabol�shedandreplacedw�thm�n�ster�altenderboards,subjecttoovers�ghtbyBMPIU.Thegovernment�ntroducedclearrulesforcompet�t�vetender-�ng, avo�dance of contract spl�tt�ng, nat�onal advert�s�ng, and transparent b�d andproposalevaluat�oncr�ter�a.BMPIUhasbeenh�ghlysuccessful�nreduc�ngcontractcosts, and its certification of ‘due process’ is required before the release of budgetary fundsbytheAccountant-General.Thefocusthusfarof‘dueprocess’hasbeentheCap�talBudget.Rulesford�rectcontract�nghavebeent�ghtened.

Leg�slat�on �s now before the Nat�onalAssembly that would convert BMPIU�ntoanautonomousprocurementregulatorw�th�ntheexecut�vebranch,empoweredto �ssue procurement rules, cons�stent w�th statutory pr�nc�ples of open compet�-t�vetender�ng,andw�thaseparateappealsmechan�sm.Itw�llbe�mportantforth�s


leg�slat�ontobepassed,�mplemented�nsubstanceaswellas�nform,andemulatedbytheothert�ersofgovernment,wh�chgenerallyhavenotmovedyettore�nstateopencompet�t�vetender�ngaseffect�velyastheFGN.Atthestatelevel,contractsofanymagn�tudeareeffect�velydeterm�nedbythegovernor.Atalllevelsofgovern-mentprocurementstaffneedtobetra�ned,preferablythroughtheestabl�shmentofaspec�al�stprocurementcadre,andstepstakentoensurethatbothcap�talandcurrentbudgetcontract�ngofworks,goodsandserv�cesarecompet�t�ve.

11.4.20� PI-20:�Effectiveness�of�internal�controls�for�non-salary�expenditure

Bestpract�ceenta�lscomprehens�veexpend�turecomm�tmentcontrolswh�cheffec-t�velyl�m�tcomm�tmentstoactualcashava�lableandapprovedbudgetallocat�ons,supportedbyotherrelevant�nternalcontrolsandrules,w�thh�ghcompl�ance,�ns�g-nificant misuse, and very limited use of emergency procedures.

The FGN’s current control framework dates back to the pre-�ndependence F�-nance (Control and Management)Act of 1958, and F�nanc�al Regulat�ons �ssuedthereafter(thelatestbe�ng�n1999–essent�allyare�ssue). Thoughfundamentallysound,thepresentsystemrel�esma�nlyuponmanualproceduresofaccount�ngandreport�ng;although�tsabuse�slessthanwhat�tusedtobeunderm�l�taryrule,there�sw�despreadd�sregardofalltypesofcontrols.Thesamecontrolframeworkoper-ates�nstates(thoughthere�snoactualstateleg�slat�on�nplace,justregulat�ons),and the same lack of financial discipline applies as well. At all levels, there is far too frequentresorttoemergencyexcept�ons.Awareoftheweakness�n�nternalcontrols,theFMoFseekstocontrolspend�ngthroughcashrat�on�ng.

Intheory,furn�sh�ngmonthlybudgetexecut�onreportsshouldbeacond�t�onofcashrelease,butth�s�snotstr�ctlyappl�edandmanyMDAsrunlatew�ththe�rre-port�ng.Poorrecord-keep�ngofcomm�tmentsbyMDAsandthe�rfa�luretoregularlyreportonbothactualspend�ngandoutstand�ngcomm�tmentsmeanthattheFMoFhasl�ttleknowledgeofthemagn�tudeofcomm�tmentsaccumulateddur�ngtheyear.

The remak�ngof thebudget through the cash release system,necessary �n theexecut�ve’sv�ew to restoremacroeconom�cbalanceandspend�ngpr�or�t�es to thebudget, leadstodelaysandunpred�ctab�l�tyoffund�ngtoMDAs.Thelatereleasecauses low capital budget spending within the fiscal year, and thus a large carry-over. Insteadofmak�ngth�sachargeaga�nstnextyear’sbudget,theFMoF�nthepasttwoyearshascont�nuedfund�ngthecarry-overaga�nsttheor�g�nalappropr�at�on,�nthefaceofpol�t�calpressureto�mplementcap�talbudgetspend�ng.Th�shasresulted�nan effective extension of the financial year up to at least next June and the spending �n2006ofaround$2b�ll�onof2005appropr�at�onsfromthecap�talaccount.Th�spract�ceunderm�nestheannual�tyofthebudget.

Stepsarebe�ng taken tomodern�zeexpend�turecontrolandassetmanagementsystemsacrossgovernment.Thecashreleasesystemhasbeent�ghtened,sothatcashbalances�nMDAcommerc�albankaccountsdecl�ned.Dueprocesshassharplyre-


ducedexcess�veadvancefeepaymentsoncontracts.TheFMoFnowrece�vesmoretimely information on ministerial spending, and the Accountant-General’s Office has been taking the first steps towards installing an integrated financial management sys-tem.Thechallengenow�sto�ncreasethepressureonMDAstoreportandreconc�leaccounts, placing sanctions on those accounting officers who do not exercise proper stewardship over their votes, and to place greater emphasis on financial manage-mentasacr�ter�onofcareeradvancementw�th�nthec�v�lserv�ce.S�m�larchallengespreva�latthestatelevel,whereasmallnumberofstateshave�nvested�n�ntegratedfinancial management systems (for example Lagos and Delta), but generally finan-c�ald�sc�pl�ne�sweak.

11.4.21� PI-21:�Effective�internal�audit�

Thebenchmark�soperat�onal�nternalaud�tforallcentralgovernmentent�t�esthatmeets professional standards and focuses on systemic issues, adheres to a fixed schedule, and produces reports to the audited entity, the finance ministry and the supreme audit institution. Action by management on internal audit findings is prompt andcomprehens�ve.

Atbothfederalandstatelevels,�nternalaud�tun�tsex�st�nmostMDAs,staffedbyaud�torspostedbytheAccountant-General.Theemphas�s�soncompl�anceratherthansystemsaud�t�ng.There�snoseparatecareerstreamforaud�tors,whoaredrawnfromthew�derpoolofgovernmentaccountants,them�nor�tyofwhomareprofes-sionally qualified. The weaknesses of the present system are recognized, including the difficulty in recruiting and retaining professionally qualified staff on government payscales.TheOAGFhasbeenmak�ngeffortstotra�nstaff�nmodernaud�t�ngtech-n�ques,andtoencourageun�tstoundertakemoresystem-basedaud�ts.

Thegreatestconstra�nt�snotlackofcapac�ty,however.Rather�t�sweaknessonthe demand side of the financial accountability equation. Presently, the climate for PFM at all levels of government is ‘soft’, with few officers sanctioned for irregulari-ties. Thus management response to internal audit findings is disappointing, and this feedsbacktothequal�tyofaud�t.Tot�ghtenthesystem,theFMoF,w�ththepres�-dent’sback�ng,needsmoreemphat�callytow�thholdreleasestodepartmentswh�chfail to address deficiencies in their control systems. Only when accounting officers haveastrong�ncent�vetodemandtheproductsof�nternalaud�t,w�llperformancemovetotheh�gherlevel.

11.4.22� PI-22:�Timeliness�and�regularity�of�accounts�reconciliation

In modern financial management systems, bank account reconciliation is fully auto-matedanddoneatleastonada�lybas�s.ForPEFAthestandard�sreconc�l�at�onforallcentralgovernmentbankaccountsatleastmonthlyataggregateanddeta�ledlev-els,w�threconc�l�at�onandclearanceofsuspenseaccountsatleastquarterly,w�th�namonthfromtheendofper�odandw�thfewbalancesbroughtforward.


Reconc�l�at�onofbankaccounts�sbeg�nn�ngto�mprovew�ththe�mplementat�onoftheATRRS,w�thmoreMDAsreport�ngthe�raccountstranscr�pts,�nclud�ngbankreconc�l�at�onstatements,ont�me.Acont�nu�ngchallenge�sthevolumeofadvancesto public employees in the form of per diems for workshops and other benefits, in turnaproductoftheuseoftheseasquas�salarysupplementstoaugmentlowpay.Advancesarealsopa�dtocontractors,thoughabuse�nth�sareahasbeenmuchre-ducedrecently.Encourag�ngly,�n2006theOAGFhasbeenempoweredtow�thholdreleasesfromMDAswh�chdefault�nthemonthlysubm�ss�onofbudgetexecut�onreports,andhasselect�velybegundo�ngso.Thecorollary,though,�sthat,w�thoutanexternalst�mulus,MDAsseel�ttle�ntr�ns�cvalue�nreconc�l�ngthe�rbankaccountsand generally operating effective financial control systems. In turn this reflects the soft financial management culture that pervades the public sector at all levels; chang-�ngth�stomakereport�ngandaccount�ngvaluedfor�tsownsake�samajorgovern-ancechallengeforfutureadm�n�strat�ons.

11.4.23� PI-23:� Availability� of� information� on� resources� received� by� service�delivery�units

Bestpract�ce�srout�nedatacollect�onoraccount�ngsystemswh�chprov�derel�able�nformat�ononalltypesofresourcesrece�ved�ncashand�nk�ndbybothpr�maryschoolsandpr�maryhealthcl�n�csacrossthecountry.Th�s�nformat�on�scomp�led�ntoreportsatleastannually.

Asafederalstate,N�ger�a’saccount�ng�nformat�ononresourcesusedbyserv-�cedel�veryun�tsw�llalwaysbespreadoveralargenumberofgovernments,ren-dering difficult the consolidation of information on a regular basis. Currently, there �snod�rectaccount�ng�nformat�onava�lableatthefederallevelregard�ngthefullamountofresourcesusedw�th�nkeysegmentsofthepubl�csectorbecausethere�snosystemforaggregateconsol�dat�onofaccount�ng�nformat�onfromstatesandlo-calgovernments.Moreover,externalgrantsandloansarenotcoveredbytheex�st�ngbudgetprocess.Thus�t�snotposs�bletosayhowmuchtotalpubl�cspend�ngthere�sonbas�csoc�alserv�ces�nN�ger�a.Furthermore,atlocalgovernmentlevel,there�s w�despread m�sallocat�on and m�sreport�ng of expend�tures.The ava�lab�l�ty ofbudget�nformat�onatthelocallevel�sverylow,andthebudgetsof�nd�v�dualfront-l�neserv�ceprov�dersareunobta�nabletolocalcommun�tygroups,whobel�evethatmuchofthemoney�se�thers�phonedofforspentonsalar�es.

Aprom�s�ngdevelopment�sthearrangementsnow�nplacetomon�tortheuseofsav�ngsfromthePar�sClubdebtrel�ef,wh�chtheFGNhascomm�ttedtospendonM�llenn�umDevelopmentGoalprogrammes.Thesew�llbe �ntens�velymon�tored,including by programme beneficiaries. The hope is that the monitoring of MDG programmesw�llspearheadbettermon�tor�ngandreport�ngpract�ceacrossgovern-ment.


11.4.24� PI-24:�Quality�and�timeliness�of�in-year�budget�reports

Bestpract�ce�n�n-yearreport�ngenta�ls:(�)presentat�onofdatatoallowd�rectcom-par�sonofbudgetexecut�onw�ththeor�g�nalbudget,w�th�nformat�ononallbudget�temsandbothcomm�tmentandd�sbursementstages;(��)quarterlyormorefrequentreports�ssuedw�th�nfourweeksoftheendofper�od;(��)nomater�alconcernsre-garding data accuracy; and (iv) reliable instruments for data verification, based upon a combination of field monitoring, audit and statistical analysis.

Unt�ltheroll-outoftheATRRS,monthlyreport�ngbyMDAswaspoor,andtheFMoFd�dnothaveaclearp�ctureofbudgetexecut�on.Th�shas�mproved,andre-leaseofcurrentandcap�talspend�ngtoMDAs�snowsupposedtobecond�t�onalonreportshav�ngbeenrece�ved,w�thstrongerenforcementbyFMoFthanbefore.But,wh�lem�n�ster�alreport�nghas�mproved,th�scannotbesa�dforotherpartsofgov-ernment.Therearenoregular�n-yearreportsofuseofbudgetfundsbyparastatals,federalextra-budgetaryfundsandautonomousagenc�es.In-yearreport�ngbyMDAsatthestategovernmentlevel�sveryunevenandperformance�snotl�nkedtoreleaseofcash.

Phys�calmon�tor�ngofprojectshasalwaysbeenweak�nN�ger�a.Althougheachagencyusuallyhasamon�tor�ngun�t�n-house,theyproducel�ttleandareheld�nlowesteem.Travell�ngtov�s�taprojecthastrad�t�onallybeenseenasawayofgenerat-�ngperd�ems and other benefits, with reporting on outputs a secondary objective. Aga�n�t�shopedthatthemorer�gorousapproachtoreport�ngandmon�tor�ngoftheMDGprojectsw�llleadthewaytobetteracrosstheboardpract�ces.If�tcont�nues,weakreport�ngw�ll leave thegovernment �ncreas�nglyopen tod�vers�onof fundsandoutr�ghtcorrupt�on.Techn�cal�mprovementsarestra�ghtforward,buttherealtest�sagovernanceone–whetherthepurposeofbudgets�sthespend�ngofmoneyasanend�n�tself,orasameanstoproducesoc�allydes�rableoutputs,wh�chareexpectedto be verified.

11.4.25 PI-25: Quality and timeliness of annual financial statements

Thestandardhere�sthet�melyproduct�onofconsol�datedgovernmentstatements,which include full information on revenue, expenditure and financial assets/liabili-t�es,cons�stentw�thIPSASorequ�valentnat�onalstandards,andaresubm�ttedforexternal audit within six months of the end of the fiscal year.

Th�s�sanareawhereperformanceatthefederallevelhasbeenexcept�onallypoor– as of the beginning of 2006, no full set of audited government financial statements havebeenpresented to theNat�onalAssemblys�nce2001, to theconsternat�onofleg�slators.However,aneffort�sunderwaytoreducethebacklogoflateaccounts.Amajorreasonforthebacklog�sthedelaybyMDAs�nproduc�ngthe�raccountsforconsol�dat�onbytheAccountant-General.Laggards,however,havenotbeensanc-t�oned,though�nd�cat�onsarethatreport�ngd�sc�pl�ne�sbe�ngt�ghtenedup.Overall,thedelay�nproduct�onofaccounts�satelltaleofthesl�ght�mportancethathasbeen


attached over the years to financial accountability. States present a mixed picture oflaggards,buttherearesomestateswh�chareaheadofthefederalgovernment�nproducing financial accounts on time.

11.4.26� PI-26:�Scope,�nature�and�follow-up�of�external�audit

Thebest-pract�cestandard�sforallent�t�esofcentralgovernmenttobeaud�tedannu-ally. A full range of financial audits (covering revenue, expenditure and financial as-sets/l�ab�l�t�es)andsomeaspectsofperformanceaud�tareexpectedtobeperformedto a generally accepted standard, focusing on significant and systemic issues. Audit reportsaresubm�ttedtotheleg�slaturew�th�nfourmonthsoftheendofper�odcov-ered and, in the case of financial statements, from their receipt by the audit office. There is clear evidence of effective and timely follow-up on audit findings.

N�ger�a’sconst�tut�onsetsa90-dayl�m�tforaud�tors-generaltosubm�tthe�rre-ports to the legislatures, and federal Financial Regulations require that the financial accounts be submitted for audit within six months of the end of the financial year. Were th�s t�metable to be adhered to, N�ger�a would meet the standards as far ast�mel�ness�sconcerned.Asalreadynoted,theAud�tor-General’sch�efconstra�nt�sdelayedsubm�ss�onofaccounts toaud�t fromtheAccountant-General.Aud�tcov-erage extends to allm�n�str�es, extra-m�n�ster�al departments and agenc�es, and �schiefly compliance based.

Surprisingly, there is currently no specific legislation covering the powers and dut�esoftheAud�tor-General,theprev�ouslawhav�ngbeenexcludedfromthe1991consolidation of laws of Nigeria. But authority for the office is conveyed by the Const�tut�on,andabsenceofastatutoryframework(m�rroredalsobymoststates)doesnotseemtohavebeenah�ndrance,thoughenactmentofamodernprocurementlawwouldprov�deanopportun�tytomodern�zealsoaud�tstrategyandmethods.AnewAud�tB�ll�sbeforetheNat�onalAssembly,andwouldstrengthenthe�ndepend-ence of the supreme audit authority, freeing his office from debilitating civil service rules.

Follow-up of audit findings is weak. There is no formal mechanism of reporting back to the Public Accounts Committees (PACs) on actions taken on previous find-�ngs,andnosystemat�cfollow-upofact�onstakenbytheexecut�ve.Movesareafoottog�vetheFMoFtheauthor�tytodoth�s.Anewaud�tlawwouldnotonlymandatereporting back on actions taken, but also spell out the penalties for accounting offic-ersofnon-comply�ngMDAs.On�tspart,there�saneedforthesupremeaud�t�nst�-tut�ontobemoreamb�t�ous�n�tsaud�ts,focus�ngscarcestaffresourcesonh�gh-r�skareas, and more frankly evaluating the efficacy of financial control systems. There also needs to be more aggressive follow-up of individual audit findings by MDAs.


11.4.27� PI-27:�Legislative�scrutiny�of�the�annual�budget�law

The benchmark best practice is for the legislature’s review to cover fiscal policies, medium-term fiscal framework and priorities, as well as details of revenue and expenditure. The legislature’s procedures for review should be firmly established andrespected,w�thatleasttwomonthstorev�ewthebudgetproposals.Clearrulesshouldex�stfor�n-yearbudgetamendmentsbytheexecut�ve,wh�chsetstr�ctl�m�tsonextentandnatureofamendmentsandarecons�stentlyrespected.

S�ncethereturntodemocracy,therehasbeenact�vescrut�nyoftheexecut�ve’sbudgetproposalsbytheleg�slature.Unl�ke�nmostotherAfr�cancountr�es,wh�chbeganw�thaWestm�nstermodelofgovernment,N�ger�a,�npursu�tofUS-typecon-st�tut�onalarrangementsenta�l�ngafullseparat�onofpowers,�mposesnoconstra�ntsontheextenttowh�chtheleg�slaturecanchangethebudgetputforwardbytheex-ecut�ve.Stateleg�slatureshave�dent�calpowers,thoughtheyhavegenerallytendednottousethem.Inmanyoftheyearss�ncethereturntoc�v�l�anrule,therehavebeenbitter fights over the respective roles of the federal executive and the legislature in budget-making, resulting in gross inflation of ex ante budget, chiefly by Assembly’s add�ngnewprogrammesandprojects. In turn, th�shasprompted theexecut�ve tousethecashreleasesystemtoselect�vely�mplementthebudgetaspassed,andsotorestoreor�g�nalspend�ngpr�or�t�es.Althoughthe2006budgetwasal�ttlebetter,th�santagon�st�crelat�onsh�pbetweentheexecut�veandtheleg�slaturehastyp�callydelayed the approval of the new budget until well into the first half of the new finan-c�alyear.

Thereare stepsbe�ngundertaken tomakebudget-mak�ng lessconfrontat�onal.WhentheF�scalRespons�b�l�tyLaw�spassed,eacht�erofgovernmentw�llhavetomake its budgets consistent with the fiscal framework set by the FMoF. The inde-pendentBudgetProcessB�llwouldmandateatwo-stageprocessofbudgetapproval,though �tm�ghtdangerouslysh�ftbudget-mak�ngpower towards the leg�slature,as�tuat�onofconcerntomanyobservers,g�ventheleg�slature’sev�dentlackofspend-�ngconstra�nts.Clearrulesex�stfor �n-yearbudgetamendmentsbytheexecut�ve,or�g�nat�ng�ntheF�nance(ControlandManagement)Actof1958,butovertheyearsa great deal of abuse has crept in. The challenge is twofold. The first part is to install a modern financial management legal framework for transparent and accountable spend�ng of publ�c mon�es.The second part �s ensur�ng that the legal frameworkforPFM�nN�ger�a,once�thasbeenmodern�zed,�stakenser�ouslybyallbudgetactors.

11.4.28� PI-28:�Legislative�scrutiny�of�external�audit�reports

Bestpract�cecallsforscrut�nyofaud�treportsbytheleg�slaturew�th�nthreemonthsof receipt, in-depth hearings in which officers of the audited department participate, andthe�ssueofrecommendat�onsbytheleg�slaturetobe�mplementedbythegov-ernment.


The�ssue�nN�ger�a�snotthet�metakenforaud�tbythepubl�caccountscomm�t-teesformedbybothHouses–wh�chseemsreasonable–butthedelay�nrece�v�ngannualaccountsfromtheAud�tor-General,who,�nturn,�sdependentonthesubm�s-s�onofaccountsby theAud�tor-General.Evenso, somePAChear�ngshavebeenheld, which are open to the public, officials are required to attend, and conclusions aredrawnandrecommendat�onsmade.IftheAud�tB�llnowbeforetheleg�slature�spassed, this will give the SAI more independence, in terms of both staffing and mate-r�als,wh�chshouldenable�ttoservebettertheleg�slat�verev�ew.Mostcr�t�cal�sthepassageoftheF�scalRespons�b�l�tyB�ll,wh�chholdsthehopeofmoreharmon�ousrelations between the executive and the legislature on public financial management matters�nthefuture.

Notes

1 Th�schapterwaspreparedonthebas�softheauthors’contr�but�ontoN�ger�a’sPubl�cEx-pend�tureManagementandF�nanc�alAccountab�l�tyRev�ew(PEMFAR),arecentreportbytheWorldBank(2006).Wewouldl�ketoacknowledgeacons�derablecontr�but�ontothedeta�ledPEMFARassessmentbyothermembersoftheWorldBankteam,�npart�cularAllanGustafsson,Ch�nedumNwoko,Illar�aChessa,BayoAwosemus�andGertvanderL�nde.

Reference

WorldBank,2006,‘N�ger�a:AF�scalAgendaforChange.Publ�cExpend�tureManagementandF�nanc�alAccountab�l�tyRev�ew(PEMFAR)’,ReportNo.36496-NG,October,Wash�ngton,DC.

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