UNIVERSITY OF MAIDUGURI CENTRE FOR DISTANCE LEARNING

Transcription

1 UNIVERSITY OF MAIDUGURI CENTRE FOR DISTANCE LEARNING ACC 309: Public Sector Accounting I (3 Units) Course Facilitator: Amina Ahmed Idriss Page 1 of 78

2 STUDY GUIDE Course Code/ Title: ACC 309: Public Sector Accounting I Credit Units: 3 Timing: 26hrs Total hours of Study per each course material should be twenty Six hours (26hrs) at two hours per week within a given semester. You should plan your time table for study on the basis of two hours per course throughout the week. This will apply to all course materials you have. This implies that each course material will be studied for two hours in a week. Similarly, each study session should be timed at one hour including all the activities under it. Do not rush on your time, utilize them adequately. All activities should be timed from five minutes (5minutes) to ten minutes (10minutes). Observe the time you spent for each activity, whether you may need to add or subtract more minutes for the activity. You should also take note of your speed of completing an activity for the purpose of adjustment. Meanwhile, you should observe the one hour allocated to a study session. Find out whether this time is adequate or not. You may need to add or subtract some minutes depending on your speed. You may also need to allocate separate time for your self-assessment questions out of the remaining minutes from the one hour or the one hour which was not used out of the two hours that can be utilized for your SAQ. You must be careful in utilizing your time. Your success Page 2 of 78

3 depends on good utilization of the time given; because time is money, do not waste it. Reading: When you start reading the study session, you must not read it like a novel. You should start by having a pen and paper for writing the main points in the study session. You must also have dictionary for checking terms and concepts that are not properly explained in the glossary. Before writing the main points you must use pencil to underline those main points in the text. Make the underlining neat and clear so that the book is not spoiled for further usage. Similarly, you should underline any term that you do not understand its meaning and check for their meaning in the glossary. If those meanings in the glossary are not enough for you, you can use your dictionary for further explanations. When you reach the box for activity, read the question(s) twice so that you are sure of what the question ask you to do then you go back to the in-text to locate the answers to the question. You must be brief in answering those activities except when the question requires you to be detailed. In the same way you read the in-text question and in-text answer carefully, making sure you understand them and locate them in the main text. Furthermore before you attempt answering the (SAQ) be sure of what the question wants you to do, then locate the answers in your intext carefully before you provide the answer. Page 3 of 78

4 Generally, the reading required you to be very careful, paying attention to what you are reading, noting the major points and terms and concepts. But when you are tired, worried and weak do not go into reading, wait until you are relaxed and strong enough before you engage in reading activities. Bold Terms: These are terms that are very important towards comprehending/understanding the in-text read by you. The terms are bolded or made darker in the sentence for you to identify them. When you come across such terms check for the meaning at the back of your book; under the heading glossary. If the meaning is not clear to you, you can use your dictionary to get more clarifications about the term/concept. Do not neglect any of the bold term in your reading because they are essential tools for your understanding of the in-text. Practice Exercises a. Activity: Activity is provided in all the study sessions. Each activity is to remind you of the immediate facts, points and major informations you read in the in-text. In every study session there is one or more activities provided for you to answer them. You must be very careful in answering these activities because they provide you with major facts of the text. You can have a separate note book for the activities which can serve as summary of the texts. Do not forget to timed yourself for each activity you answered. b. In-text Questions and Answers: In-text questions and answers are provided for you to remind you of major points or facts. To every Page 4 of 78

5 question, there is answer. So please note all the questions and their answers, they will help you towards remembering the major points in your reading. c. Self Assessment Question: This part is one of the most essential components of your study. It is meant to test your understanding of what you studied so you must give adequate attention in answering them. The remaining time from the two hours allocated for this study session can be used in answering the self- assessment question. Before you start writing answers to any questions under SAQ, you are expected to write down the major points related to the particular question to be answered. Check those points you have written in the in-text to ascertain that they are correct, after that you can start explaining each point as your answer to the question. When you have completed the explanation of each question, you can now check at the back of your book, compare your answer to the solutions provided by your course writer. Then try to grade your effort sincerely and honestly to see your level of performance. This procedure should be applied to all SAQ activities. Make sure you are not in a hurry to finish but careful to do the right thing. e-tutors: The etutors are dedicated online teachers that provide services to students in all their programme of studies. They are expected to be twenty- four hours online to receive and attend to students Academic and Administrative questions which are vital to student s Page 5 of 78

6 processes of their studies. For each programme, there will be two or more e-tutors for effective attention to student s enquiries. Therefore, you are expected as a student to always contact your e-tutors through their addresses or phone numbers which are there in your student hand book. Do not hesitate or waste time in contacting your e- tutors when in doubt about your learning. You must learn how to operate , because ing will give you opportunity for getting better explanation at no cost. In addition to your e-tutors, you can also contact your course facilitators through their phone numbers and s which are also in your handbook for use. Your course facilitators can also resolve your academic problems. Please utilize them effectively for your studies. Continuous assessment The continuous assessment exercise is limited to 30% of the total marks. The medium of conducting continuous assessment may be through online testing, Tutor Marked test or assignment. You may be required to submit your test or assignment through your . The continuous assessment may be conducted more than once. You must make sure you participate in all C.A processes for without doing your C.A you may not pass your examination, so take note and be up to date. Examination All examinations shall be conducted at the University of Maiduguri Centre for Distance Learning. Therefore all students must come to the Centre for a period of one week for their examinations. Your preparation for examination may require you to look for course mates so that you Page 6 of 78

7 form a group studies. The grouping or Networking studies will facilitate your better understanding of what you studied. Group studies can be formed in villages and township as long as you have partners offering the same programme. Grouping and Social Networking are better approaches to effective studies. Please find your group. You must prepare very well before the examination week. You must engage in comprehensive studies. Revising your previous studies, making brief summaries of all materials you read or from your first summary on activities, in-text questions and answers, as well as on self assessment questions that you provided solutions at first stage of studies. When the examination week commences you can also go through your brief summarizes each day for various the courses to remind you of main points. When coming to examination hall, there are certain materials that are prohibited for you to carry (i.e Bags, Cell phone, and any paper etc). You will be checked before you are allowed to enter the hall. You must also be well behaved throughout your examination period. Page 7 of 78

8 Course Tittle: Public Sector Accounting 1 Course Code: ACC 309 Course Facilitator: AMINA AHMED IDRISS Page 8 of 78

9 COURSE OBJECTIVES On successful completion of the course, you should be able to: (i) (ii) (iii) (iv) (v) (vi) Understand the Meaning, Composition, Objectives, Purposes, Users, Constitutional and Regulatory Framework of Public Sector, Basis of Government Accounts and the comparism Between Government Accounting and Commercial Accounting. Understand the legislative requirement governing the forms and contents of public sector accounts Understand the various sources of government revenue Understand Authorization of government Expenditure Understand and prepare the different cash books used in government Understand how to prepare the monthly transcript of the federal government (vii) Understand how to prepare the vote book Page 9 of 78

10 INTRODUCTION Public Sector Accounting is a course that provides you with useful information about accounting at all levels of government which is closely related to the budget process. The course is aimed at enabling you gain an understanding on the process of recording, analyzing, summarizing, reporting, communicating and interpreting of financial information about the government in aggregate and in details, reflecting all transactions involving the receipt, transfer and disbursement of government fund and property. Page 10 of 78

11 TABLE OF CONTENTS COURSE OBJECTIVES...9 INTRODUCTION...10 TABLE OF CONTENTS... Error! Bookmark not defined. STUDY SESSION 1: INTRODUCTION TO PUBLIC SECTOR ACCOUNTING...14 Introduction...14 Learning Outcomes Meaning and Composition of Public Sector Objectives of Public Sector Meaning of Public Sector Accounting Purposes of Government Accounting Users of Government Accounting Information Internal users: External users The Constitutional and Regulatory Framework of Public Sector Accounting Basis of Government Accounts Cash Basis Accrual Basis Commitment Basis Modified Cash Basis Comparism Between Government Accounting and Commercial Accounting Similarities between Government Accounting and Commercial Accounting...24 In-Text Questions (ITQ)...25 In-Text Answers (ITA)...25 Summary...26 Self-Assessment Questions (SAQs)...26 STUDY SESSION 2: LEGISLATIVE REQUIREMENT GOVERNING THE FORMS AND CONTENTS OF PUBLIC SECTOR ACCOUNTS...28 Introduction...28 Learning Outcomes Principal Officers, Appointment, Powers and Duties Accountant-General of the Federation (AGF) Auditor-General fur the Federation Accounting Officer Sub-Accounting Officer Revenue Collector Imprest Holder...35 In-Text Questions...36 In-Text Answers...36 Summary...37 Self-Assessment Questions (SAQs)...37 STUDY SESSION 3: SOURCES OF GOVERNMENT REVENUE...38 Introduction...38 Learning Outcomes Sources of Government Revenue Federation Account Revenue Heads How to prepare the Federation Account, Consolidated Revenue Fund Account and The Development Fund Account How to Prepare the Federation Account and Consolidated Revenue Fund Account How to Prepare Development Fund Account...43 Page 11 of 78

12 In-Text Questions...46 In-Text Answers...46 Summary...47 Self-Assessment Questions (SAQs)...47 STUDY SESSION 4: AUTHORIZATION OF GOVERNMENT EXPENDITURE...48 Introduction...48 Learning Outcomes Meaning of Financial Warrant Types of Financial Warrants Recurrent Expenditure Warrant Capital Expenditure Warrant...51 In-Text Questions...53 In-Text Answers...53 Summary...54 Self-Assessment Questions (SAQs)...54 STUDY SESSION 5: CASH BOOKS IN GOVERNMENT ACCOUNTING...55 Introduction...55 Learning Outcomes Cash Books in Government Accounting Main Treasury Cash Book Bank Reconciliation Statement Imprest Holders Cash Book Revenue Collectors Cash Book...60 In-Text Questions...61 In-Text Answers...62 Summary...62 Self-Assessment Questions (SAQs)...62 STUDY SESSION 6: PREPARATION OF MONTHLY TRANSCRIPTS AND FINAL ACCOUNTS OF THE FEDERAL GOVERNMENT...64 Introduction...64 Learning Outcomes Monthly Transcripts Steps in Preparing Transcript Format of a Typical Transcript...65 In-Text Questions...67 In-Text Answers...67 Summary...68 Self-Assessment Questions (SAQs)...68 STUDY SESSION 7: VOTE BOOK...69 Introduction...69 Learning Outcomes Vote Book Objectives of Maintaining a Vote Book Officer Controlling Expenditure Roles of the Officer Controlling Expenditure Vote Example of a Vote Book Reasons for keeping a Vote Book...71 In-Text Questions...76 In-Text Answers...77 Summary...78 Page 12 of 78

13 Self-Assessment Questions (SAQs) for Study Session Page 13 of 78

14 STUDY SESSION 1: INTRODUCTION TO PUBLIC SECTOR ACCOUNTING Introduction Unlike the private sector of the economy, in which there is a clear objective and motivation in making profits or a return on capital, the public sector has a multitude of demands and objectives. Primarily, however, the public sector is concerned with providing services to the general public which would not otherwise be available or provided adequately within the financial resources of all individual members of the public. The need for public sector accounting arises in other to demonstrate the proprietary of transactions and their conformity with the established rules, to give evidence of accountability for the stewardship of government resources and to provide useful information for the good control and efficient management of government operations. Learning Outcomes At the end of this study session, you should be able to: 1.1 Understand the Meaning and Composition of Public Sector 1.2 Know the Objectives of Public Sector 1.3 Understand the Meaning of Public Sector Accounting 1.4 Know the Purposes of Government Accounting 1.5 Know the Users of Government Accounting Information 1.6 Know the Constitutional and Regulatory Framework of Public Sector Accounting 1.7 Understand the Basis of Government Accounts 1.8 Know the Comparism Between Government Accounting and Commercial Accounting 1.1 Meaning and Composition of Public Sector Public Sector could be defined as all organization which are not privately owned, and operated, but which are established, run and financed by the government on behalf of the public. The public sector consists of organization where control lies in the hand of the public, as opposed to private owners, and whose objectives involve the provision of services, where profit is not a primary objective. Financial performance of the public sector cannot be compared with that of the private sector because the public-sector organization are multipurpose and have different Page 14 of 78

15 sources of finance. Their performance measure is hindered by the lack of profit measure and by the presence of intangible service where benefits are hard to quantify. The composition of the public sector varies by country, but in most countries the public sector includes such services as the police, military, public roads, public transit, primary education and healthcare for the poor. The public sector might provide services that non-payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service (such as public education), and services that encourage equal opportunity. Public sector has been informally grouped into three categories viz: 1. The Federal Government ministries and departments 2. The state government ministries and departments 3. Local government and parastatals The onus is on the federal government, through the treasury department to prepare financial statement of the nation which must show a true and fair view of the state of affairs of the nation at any particular point in time. 1.2 Objectives of Public Sector Unlike the private sector of the economy, in which there is a clear objective and motivation in making profits or a return on capital, the public sector has a multitude of demands and objectives. Primarily, however, the public sector is concerned with providing services to the general public which would not otherwise be available or provided adequately within the financial resources of all individual members of the public. The public sector exists for the following objectives: i. to provide services for all citizens regardless of their ability to pay ii. iii. to provide a benefit to everyone within socially acceptable norms (e.g. equality of access to minimum and universal standard of health care through general practitioner and hospital services). to provide services which are beyond the private means of people using those services. Page 15 of 78

16 iv. to correct perceived inequalities (e.g. to achieve certain minimum standard of roads, education and training scheme). v. to substitute central or local planning in place of consumer choice (where an informal choice is difficult). vi. vii. to insure consistent approach to certain practices or procedures to promote certain minimum standards (e.g. of police operational matters, or fire services response to fires). to aid control and economic regulation in key areas. 1.3 Meaning of Public Sector Accounting Public sector accounting could be defined as a process of recording, analyzing, summarizing, reporting, communicating, and interpreting of financial information about government in aggregate and in details, reflecting all transactions involving the receipts, transfer and disbursement of government funds and property. Analyzing the above definition depict that it could be linked to the universally accepted definition of financial accounting. After all accounting is accountingwhether in government, private or public limited liability companies. It should be noted that government accounting is blended with fifty percent theoretical and fifty percent computational. 1.4 Purposes of Government Accounting Unlike most private sector organizations, governmental entities must be responsive to a number of different groups and organizations, including elected officials, other units of governments, investors, creditors, and citizens that are focused on monitoring their activities. All forms of monitoring include collecting and interpreting data, and this oversight function is often performed through information provided in governmental reports. Among the most important types of communication is the annual financial report, which presents the financial position, operating results and cash flows for a particular accounting period. All governments, including school districts, develop their annual financial reports in accordance with principles established by standard-setting authorities to provide consistency and comparability for users. The main purposes of government accounting are: i. to provide useful information for the good control and efficient management of government operations. Page 16 of 78

17 ii. iii. to demonstrate the proprietary of transactions and their conformity with the established rules. to give evidence of accountability for the stewardship of government resources. Uses or Purposes of Public Sector Accounting Information The uses to which public sector accounting information can be put could be summarized as follows: i. Control purposes: For efficient financial administration through system of internal control and management information. To monitor the progress of planned revenue and expenditure. ii. iii. iv. Planning purposes: to serve a basis for planning, i.e. to provide historical basis for models, forecast, budget and plans and also as a guide to the formulations of policies. Appraisal purposes: to serve as a basis for appraisal of the performance of management and staff of government. It also provides out-siders with financial information that will help them to reach informed decision i.e. IMF and international financial institutions in the present Nigeria economic plight. Decision making purposes: to serve as a basis for decision making. v. Accountability purposes: to give evidence of financial accountability which will promote proper stewardship and guide against dishonesty and extravagance and promote effectiveness at reasonable costs. vi. vii. To ascertain the propriety of transactions and their conformity with established rules. To depict the sources of government revenue and the resultant expenditure. Generally in government, there is considerable standardization of accounting records and external accounting reports. In general, accounting emphasis is on accountability and control. Information is required to show that relevant laws have been observed, that actual expenditures are in accordance with appropriations, and that adequate safeguard exist for the protection of public assets. For these reasons, therefore, government accounts are based on principles different from those of commercial enterprises. Page 17 of 78

18 1.5 Users of Government Accounting Information For governments to achieve the objective of accountability, financial information must be both relevant and reliable for reasonably informed users. Financial reports must satisfy numerous and diverse needs or objectives, including short-term financial position and liquidity, budgetary and legal compliance, and issues having a long-term focus such as capital budgeting and maintenance. The users of government accounting information have been grouped into two categories viz: Internal users: (i) The executives such as the president of the federal republic of Nigeria, the governors of the states and chairmen of the local government. (ii) (iii) (iv) (v) (vi) The advisers to the executives i.e. the federal ministers and state commissioners. Top administrators of government department e.g. the permanent secretaries and directors. The managers of government unit /parastatals such as GM and chief executive of NITEL, power holding company, Nigerian Port Authority (NPA). Sub ordinates that are delegated with control tasks e.g. tax collectors, revenue collectors, customs and excise, Chairman of MAMSA, DEFRI etc. The organized labour unions in the public service. (vii) The government employees for negotiations of salaries (viii) Various Adhoc committees set up by the government to examine specific functions External users (i) The legislative houses (i.e. the senate and the House of Representatives) (ii) (iii) (iv) (v) The members of the general public Governments, apart from the reporting government. Foreign countries Foreign financial institutions such as IMF, World Bank, ADB etc Page 18 of 78

19 (vi) Foreign and local creditors and investors. (vii) Researchers and representative of the media (viii) Political parties, trade unions and civil liberty organization. 1.6 The Constitutional and Regulatory Framework of Public Sector Accounting Public sector accounting is governed by the following regulatory framework: i. Nigerian constitution: The 1999 constitution of the Federal republic of Nigeria is one of the legal frameworks that regulate the receipt and payments of public funds. ii. Audit ordinance Act of 1956: section 13, sub-sections 1-3 mandate the accountant - general of the federation to furnish the auditor general for the federation with the country s financial statement. The auditor general shall within 60 days of receipt of the accountant general s financial statements submit his report to each house of the national assembly. iii. Finance (cont rol and management) Act of 1958: This governs themanagement and operation of all government funds. It regulates theaccounting system, the books of accounts to be kept and the procedures to be followed in the preparation of accounts and financial statements. iv. Financial regulations: these are the accounting manual of the government ministries/extra ministerial departments which deals with financial and accounting matters. It sets out the procedures and steps to be followed in treating most of government transactions. vi. Finance/treasury circulars: these are administration tools which are used to amend the existing provisions of financial regulations, public service rules and the introduction of new policy guidelines. The sections of the constitutions above authorize the receipts and payments of government the allocation of revenue, the audit of public accounts and other financial matters. 1.7 Basis of Government Accounts There are three bases under which the financial Statements of public sector enterprise are complied. They are: i. The cash basis ii. The accrual basis Page 19 of 78

20 iii. The commitment basis Cash Basis It s the basis under which revenue are recorded only when cash is received and expenditure recorded only when cash is paid, irrespective of the fact that the transactions might have occurred in the previous accounting periods. This is the basis upon which government financial statements in Nigeria is been prepared. The reason for choosing the basis is its simplicity. Advantages of Cash Basis i. It is simple to understand ii. It eliminate the existence of debtors and creditors iii. It permits easy identification of those who authorize payment and collect revenue iv. It allows for comparison between the amount provided in the budget and that actually spent. v. It saves time and is easy to operate vi. The cost of fixed asset is written off in the year of purchase, resulting in fewer accounting entries. vii. It permits delegation of work in certain circumstances. Disadvantages i. It takes unrealistic view of financial transaction as only the settlement of liability is recognized. ii. It does not provide for depreciation since assets are Written off in the year of purchase. iii. It does not convey an accurate picture of the financial affairs at the end of the year. v. It cannot be use for economic decision because it hides basic information. v. It does not accord with the matching concept Accrual Basis It s the basis under which revenue is recorded when earned and expenditure acknowledges as liability when known or benefits received, notwithstanding the fact that the receipts or payment of cash have taken place wholly or partly in other accounting years. This basis is practiced in the private sector and all parastatals such as power holding company of Nigeria and Nigerian Page 20 of 78

21 airways. The reason for this is they are profit oriented.in other words, the accrual basis of accounting is the recording of the financial effects on a government, of transactions and other events andcircumstances that have cash consequences for the government in the periods in which those transactions, events and circumstances occur, rather than only in the periods in which cash is received or paid by the government. Advantages The benefits of accruals accounting have been summarized by Evans (1995) as follows: i.better measurement of costs and revenues, including comparisons between years ii.greater focus on outputs rather than inputs iii. More efficient and effective use of resources, e.g., through charges for fixed assets iv.full cost of providing a service can be compared with outside suppliers v. A better indication of the sustainability of government policy vi. Improved accountability vii. Better financial management viii. Greater comparability of management performance results. Other advantages of accrual basis are: i. It takes a realistic view of financial transaction ii. It reveals an accurate picture of the state of financial affairs at the end of the period. iii. It could be used for both economic and investment decision making. iv. It aligns with the matching concept v. It makes allowance for the diminution in the value of assets used to generate the revenue of the enterprise. Disadvantages i. It is very difficult to understand, especially by non accountants. ii. It does not permit easy delegation of work in certain circumstances. Page 21 of 78

22 iii. This basis requires highly trained accounting personnel which may not be available in government service iv. It costs more in terms of time and money due to a lot of adjustment and painstaking analysis that are involved Commitment Basis It is a basis that records an anticipated expenditure evidenced by a contract or a purchase order as determined by the administration. In public sector financing, budgetary and accounting systems are closely related to the commitment basis Advantages Commitment accounts kept on a memorandum basis have several advantages. These include. i. A separate payment tabulation is available when required. ii. Adjustments occurring when actual expenditure have been obtained do not affect the financial accounts iii. It is an aid to financial control. A commitment is regarded as a charge which has been made on a budget provision. iv. It takes a realistic view of financial transactions v. It is used for both economic and investment decision-making, as all parameters for performance appraisals are available vi. It reveals an accurate picture of the state of financial affairs at the end of the period. In short they have the same advantages with accrual basis. Disadvantages i. It involves extra work, because actual figures have to be substituted for the commitment provisions to finally determine the running balance under the sub-head of expenditure. ii. Over-expenditure is more under this basis, in the expectation that government may finally release fund to settle the legal obligations. iii. Balances which ought to have lapsed in the vote book at the end of the year may be spent by issuing local purchase orders to exhaust the votes. Page 22 of 78

23 iv. at the end of the year, all commitments that are the subject of unfulfilled orders will have to be written back to reflect the exact picture of the transacting which took place during the year. v. It is not use in isolation, but has to be supported with either the cash basis or accrual basis Modified Cash Basis The modified cash basis records revenue when money is received and treat expenditure when incurred. This basis is a variant of the cash basis. Thus, the cash basis is applied to revenue while the accrual basis is applied to expenditure. The modified cash basis is used and adopted by most government parastatals like NEPA, NITEL, and NIPOST etc. 1.8 Comparism Between Government Accounting and Commercial Accounting There is an important difference between private sectoraccounting and governmental accounting. The main reasons for this difference are the environment of the accounting system. In the government environment, public sector entities have differing goals, as opposed to the private sector entities one main goal of gaining profit. Also, in government accounting, the entity has the responsibility of fiscal accountability which is demonstration of compliance in the use of resources in a budgetary context. In the private sector, the budget is a tool in financial planning and it isn t mandatory to comply with it. The governmental accounting system uses the historic system of fund accounting. A set of separate, self-balancing accounts are responsible for managing resources that are assigned to specific purposes based on regulations and limitations. The governmental accounting system has a different focus for measuring accounting than private sector accounting. Rather than measuring the flow of economic resources, governmental accounting measures the flow of financial resources. Instead of recognizing revenue when they are earned and expenses When they are incurred, revenue is recognized when there is money available to liquidate liabilities within the current accounting period, and expenses are recognized when there is a drain on current resources. Governmental financial statements must be accompanied by required supplementary information (RSI). The RSI is a comparison of the actual expenses compared to the original budget created at the beginning of the fiscal year for the Government s General Fund and all major Special Revenue Funds Page 23 of 78

24 In Summary, the following are the differences between government accounting and private accounting 1. The main objective of commercial accounting is to maximize profit while that of government is to provide adequate welfare to the people at the reasonable costs. 2. Government revenues are derived from the public in form of taxation, fines, fees etc. whereas business concerns derive their income principally from the sales of goods and services. 3. In government, financial transactions are recorded on cash basis while in commercial organizations, it is on accrual basis. 4. In public sector accounting tangible fixed assets such as land and building, plant and machinery are not shown in the balance sheet, whereas these are reflected in commercial accounting. 5. In government there is no annual general meeting of shareholders/stakeholders unlike in commend accounting. What government does is to hold public briefing on specific issues. 6. In public sector accounting what operates substantially is fund accounting, while in commercial accounting, the proprietary approach is adapted. 7. In public sector accounting, current assets such as stocks and debtors are not shown in the balance sheet. Debtor and creditors are not reckoned with until money is received or paid. The current assets and current liabilities are shown in the balance sheet in commercial accounting system. 1.9 Similarities between Government Accounting and Commercial Accounting i. Both the government and commercial enterprises follow the principle of double entry. ii. They are both use as a basis for future planning iii. The two systems are measured in financial terms iv. Both prepare budgets v. The two system work towards measurement and evaluation of performance As Nigerian government accounting is on cash accounting basis, the double entries arise only from cash entries or adjustment vouchers. Every financial transaction of government has two aspects, the Page 24 of 78

25 debit and the credit, e.g. when salaries are paid, Dr personnel cost and Cr cash/bank a/c. when cash is received, the double entries are: Dr cash book and Cr appropriate revenue account-tax. In-Text Questions (ITQ) 1. What do you understand by the term public sector? Why are comparisons difficult between the financial performance of the public sector and the private sector? 2. List under each category five distinct internal and external users of government financial reports and the purposes for which the reports are required. 3. Define financial regulations and state the purposes for which it was established. In-Text Answers (ITA) ITQ 1. The simplest definition of public sector is All organisations which are not privately owned and operated but which are operated or established by government on behalf of the public. Comparisons between the Financial performance of the public sector and the private sector are difficult because the public sector organisations are multi-purpose, not dealing with a single product or service and have different sources of finance. Performance measurement is hindered by the presence of intangible services where benefits are hard to quantify. ITQ 2. The following are five distinct internal and external users of government financial reports and the purpose for which the reports are required. Internal Users (i) The executives and their advisers. (ii) Top administrators of government departments. (iii) Managers of government units. (iv) Sub-ordinates who are delegated with control tasks. (v) Various ad-hoc and other committees set up by government to examine a specific function. External Users (i) The legislative house. (ii) The general public. (iii) Researchers and representatives of the media. (iv) Sectional group such as trade unions, political parties etc. (v) Foreign interest such as friendly countries, foreign investors and creditors. Page 25 of 78

26 Purposes for which the reports are required (i) Planning (ii) Controlling (iii) Decision making (iv) To give evidence of financial accountability (v) To ascertain the propriety of transactions and their conformity with established rules (vi) To serve as a basis for appraisal of the performance of management and staff of government ITQ 3. Financial regulations are internal regulations that are intended to provide a framework of financial control and place prime responsibility for elementary control and anti-fraud duties on executive departments, whilst recognizing the role of internal audit. Financial regulations are established for the following purpose:- (i) (ii) (iii) (iv) They outline good systems, organization and procedures of basic financial management. They give backing to internal audit and establish it as a tool of management. They help internal audit allocate responsibility and maintain its independence. They ensure that operations remain within the law and reduce the scope for fraud Summary This Session explained the meaning of public sector and public sector accounting. The composition, objectives, purposes, users, constitutional and regulatory framework of public sector. It also discusses the basis of government accounts and the comparism between government accounting and commercial accounting. Self-Assessment Questions (SAQs) Now, that you have completed this study session, you can assess how well you have achieved its learning outcomes by answering the following questions. Write your answers in your study diary and discuss them with your tutor at the next Study contact. SAQ 1.1 (tests learning outcomes 1.1) What are the major uses of public sector accounting data? SAQ 1.2 (tests learning outcomes 1.7) Explain the following basis of keeping public sector accounting and highlight the advantages and disadvantages of each. Page 26 of 78

27 (i) Cash Basis (ii) Accrual Basis (iii)modified Cash Basis (iv)commitment Basis References: Adams, R.A. (2009), Public Sector Accounting and Finance: Revised (ed) 2,Corporate Publishers Venture, Lagos. The IFAC Public Sector Committee. Study 11 Governmental Financial Reporting: Accounting Issues and Practices, June Page 27 of 78

28 STUDY SESSION 2: LEGISLATIVE REQUIREMENT GOVERNING THE FORMS AND CONTENTS OF PUBLIC SECTOR ACCOUNTS Introduction Generally, political power is shared by three main branches of government; the executive, the legislature and the judiciary. The Executive is responsible for proposing policies and taking decisions necessary for their implementation. The executive consists of the President and Ministers at the Federal level, while it consists of Governors and the Commissioners at the State level. The Legislature is responsible for the approval of policies proposed by the Executive by giving legislative authorization where necessary. It is also responsible for acting as a focus for discussion of policies and administration so that the views of the people may be represented. The Legislature consists of members of the National Assembly i.e. thesenate and the House of Representatives as well asmembers of the State Assembly. - The Judiciary is responsible for the protection and interpretation of rights established by law. There is a separation of power between the three arms of government. A further aspect of the separation of power in the Nigerian Federal Government is the bicameral (two chambers) legislature, i.e. the Senate and the House of Representatives. They are independent of each other as well as the President for the enactment of legislation. Procedures exist for securing agreement between the two houses in the case of conflict in certain strictly defined circumstances where difference have occurred between the two houses on a proposed money bill. Ajoint meeting of all membersof the NationalAssembly may pass a money bill into law without the President s assent. Learning Outcomes At the end of this study session, you should be able to: 2.1 Know the Principal Officers, how they are appointment, their powers and duties. 2.1 Principal Officers, Appointment, Powers and Duties Accountant-General of the Federation (AGF) The Accountant-General of the Federation is the chiefaccounting officer of the receipts and payments of the Federal government saddled with the responsibility of general supervision of the accounts of all Ministries and Departments within the Federation. He also prepares the annual Page 28 of 78

29 financial statements of accounts of the nation as may be required by the Minister of Finance. He or his representative shall have free access at all reasonable times to all files, documents and other records that are related to the accounts of every Ministry or Department and is entitled to obtain information necessary for the proper performance of his duties. Appointment Accountant-General of the Federation will be appointed on the recommendation of the Minister of Finance by the President. Qualifications He must be versed in Government Accounting and spent not less than 10 years in the government accounts department. Principal Powers of the Accountant-General (i) Power of access to books and records of every ministry at any reasonable time. (ii) Power to request for information and explanation necessary for his duties. (iii) Power to carry out special investigation in any Ministry. (iv) Power to carry out Ad -hoc investigation in any Ministry. (v) Power to make disbursements from the various public funds in the manner prescribed by law in accordance with the special rules relating to each find. Functions of the Accountant-General The functions of the A.G.F. are divided into two, namely routine accounting functions and management functions. Routine Functions are: (i) Establishment and maintenance of proper system of accounts as prescribed by the Minister of Finance (ii) Exercise supervision over the receipt of public revenue and ensure its punctual collection. (iii) Ensure that proper provision is made for the safe keeping of public money, stamps, securities etc. Page 29 of 78

30 (iv) Establishment and maintenance of proper system of internal control in all the ministries. (v) Establishment of internal Audit Department in all the Ministries (vi) Ensure that all money collected are properly accounted for. (vii) Exercise supervision over all officers under his authority entrusted with the receipt and expenditure of public monies. (viii) Maintain carelessness.- -efficient checks against the occurrence of frauds, embezzlement and (ix) Ensure that money is expended for the purpose for which they were meant. (x) Ensure that all books are kept up to date and correctly posted. (xi) Ensure that the authorized maximum cash balances that may be held are notexceeded (xii) Ensure that officers make good any minor deficiency, not caused-by-theft or fraud in the cash held by them. The Management Functions include: (i) Preparation of management accounts for decision making (ii) Preparation of financial statements required by law or by the Minister of Finance (iii) Preparation of annual and supplementary estimates (i.e. budget) (iv) Issuance of financial regulations. (v) Issuance of financial circulars. (vi) Reporting defect in the procedures for collecting revenue Auditor-General fur the Federation This is the officer responsible under the Constitution of 1979, 1989 and 1999 of the Federation to audit the accounts of all Accounting Officers and all persons entrusted with the collection, custody, receipts, issue or payment of public moneys. He is to examine the accounts in such manner as he may think fit and shall ascertain whether in his opinion: Page 30 of 78

31 (a) the accounts show a true and fair view of the state of affairs of the nation at any particular point in time. (b) the accounts have been properly kept. (c) all public moneys have been fully accounted for, and the rules and procedures applied are sufficient to ensure an effectivecheck on the assessment, collection and proper allocation of revenue. (d) public money has been expended for the purpose for which they were meant and the expenditures have been made as authorized (e) essential records are maintained and the rules and procedures applied are sufficient to safeguard and control public property and funds. Appointment Auditor--General for the Federation will be appointed on the recommendation of the Minister of Finance by the President Qualifications He must be versed in government auditing and spent not less than 10 years in the government audit department. Functions/duties of the Auditor-General (i) Ensure that proper systems of accounts as prescribed by the Minister of Finance are maintained (ii) Exercise supervision over the receipt of public revenue and ensure its punctual collection (iii) Ensure that proper provision is made for the safe keeping of public money, securities etc. (iv) Promptly bring into account as receipt of any cash or stamp found in excess of the balance shown in the cash book or stamp register (v) Ensure that all books are correctly posted up to date. (vi) Ensure that the authorized maximum cash balances that may be held are not exceeded. (vii) Report any apparent defects in the procedure of revenue collection which come to his notice during the course of his audit. Powers of the Auditor General of the Federation (i) Powers of access to books and records of every ministry at any reasonable time. (ii) Powers to request for information and explanation necessary for his duties. Page 31 of 78

32 (iii)power to carry out special investigation in any ministry. (iv)power to carry out Ad-hoc investigation in any ministry Accounting Officer This refers to the officer who is accountable for the receipts and payments of the government agency i.e Ministry-Commission, Boards etc. The Financial Regulation (FR 103) defines the officer as The officer of a ministry or department, who upon receiving an appointment as a permanent secretary or head of an extra-ministerial department is consequently designated and appointed an Accounting officer for his ministry or department by the minister of finance. Responsibilities / Functions of an Accounting Officer (i) Ensure that proper systems of accounts as prescribed by the Minister of Finance are maintained (ii) (iii) (iv) (v) (vi) Exercise supervision over the receipt of public revenue and ensure its punctual collection. Ensure that proper provision is made for the safe keeping of public money, securities etc. Exercise supervision over all officers under his authority entrusted with the receipt and expenditure of public money. Take adequate precaution by maintaining efficient checks against the occurrence of frauds, embezzlement and carelessness. Supervise the expenditure of government and ensure that no payment is made without proper authority. (vii) Promptly prepare such financial statements as required by the law or the Minister of Finance. (viii) Ensure that all books are posted up to date. (ix) (x) (xi) Ensure that the authorized maximum cash balance that may be held are not exceeded. He should produce when required by the Accountant General or the Auditor- General or their deputies, all cash, stamps, etc in his care. He must reply to every query addressed to him within twenty-one days. Page 32 of 78

33 (xii) The 1988 Reforms (DEGREE 43) state that his liability or accountability shall not cease by virtue of his leaving office and may be called at any time thereafter to account for his tenure as Accounting Officer. (xiii) He shall face periodic checks in order to ensure full adherence to the finance (control and management) Act, 1958 and all its amendments. (xiv) By the virtue of the provision of the law, he is under obligation to reduce to writing all instructions relating to expenditure of public finds. (xv) He shall discharge his accountability to the public through the Public Accounts Committee of the Legislature to whom he renders account of all the money not accounted for. (xvi) An Accounting Officer shall render annual report of his ministry to the Accountant- General for incorporation into the latter s annual report. (xvii)it is also mandatory under DECREE 43, 1988 that the Accounting officer shall set up an Internal Audit Unit for the auditing and monitoring of the Ministry s financial operation Sub-Accounting Officer Sub-Accounting Officer is an officer entrusted with the receipt, custody and disbursement of public money. He is required to maintain one of the recognized cash books with such other books that may be required by the Accountant-General. His other duties and responsibilities are: (i) (ii) (iii) (iv) (v) (vi) Exercise supervision over the receipt of public money and ensure its punctual collection. Ensure that proper provision is made for the safe-keeping of public money, securities etc. Exercise supervision over all officers under his authority. Take adequate precaution by maintaining efficient checks against the occurrence of frauds, embezzlement and carelessness. Super-vise the expenditure of government and ensure that no payment is made without proper authority. Promptly charge in his accounts-under proper heads and sub-heads all disbursement of expenditure or payment. Page 33 of 78

34 (vii) Check all cash and stamps in his care to verify the accounts with the balance in the cash book and stamp register. (viii) Make good any minor deficiency not caused by theft or fraud in cash or stamps for which he is responsible and report in writing to the Minister. (ix) (x) (xi) Promptly prepare such financial statements as required by law or by the Minister of Finance. Ensure that all books are correctly posted up to date. Ensure that authorized maximum cash balance that may be held are not exceeded (xii) Report any apparent defect in the procedure of revenue collection. (xiii) Promptly bring to account as a receipt, any cash or -stamps found in excess of the balance shown in the cash book or stamp register. (xiv) Produce when required by the Accountant-General or the Auditor-General all cash and stamps in his care. (xv) He should also maintain a cash book Revenue Collector This is an officer entrusted with official receipts and collects some particular form of revenue on behalf of the government. He must maintain a Cash Book. The revenue collectormust not spend a kobo out of his collection, and he has to account for his collection. Functions of the Revenue Collector are (i) Exercise supervision over the receipts of public revenue and ensure its punctual collection. (ii) (iii) (iv) Promptly bring into account under proper heads and sub-heads of the estimates or approved classification, all moneys collected by him on behalf of thegovernment. Ensure that proper provisions are made for the safe-keeping of public moneys, securities etc. Exercise supervision over all officers under his authority and take precautions through maintenance of efficient checks against the occurrence of frauds, embezzlement and carelessness. Page 34 of 78

35 (v) (vi) Check all cash and stamps in his care to verify the amount with the balance in the cash book and stamp register. Promptly bring to account as receipt any cash or stamps found in excess of the balance shown in the cash book and stamps register. (vii) Make good any minor deficiency not caused by theft or fraud in the cash or stamps in his care and report in writing to appropriate officer e.g. Minister. Ensure that all books are correctly posted upto date. (viii) Ensure that the authorized maximum cash ha ice that may he held are not exceeded. (ix) (x) Report any apparent detect in the procedure of revenue collection which comes to his notice. Produce, when required by the Accountant-General and the Auditor-General all cash, stamps etc in his care Imprest Holder This is an officer other than a sub-accounting officer who is entrusted with disbursement of public money where vouchers cannot be presented immediately to a sub-accounting officer. He is required to keep an Imprest Cash Book. Imprest Holder must duly observe all regulations regarding the control of expenditure and the disbursement of public money and is responsible dir the correctness of vouchers signed by him (FR. 510). Heis also responsible for ensuring the early reimbursement.other functions performed by the Imprest Holder are as follows: (i) (ii) (iii) (iv) (v) Ensure that proper provision is made for the safe keeping of public money and securities. Ensure that the imprest is used only for the purpose for which it is issued. Promptly charge in his account under proper heads and sub-heads all disbursement made by him. Check all cash and stamps iii his care to verify the amounts with the balance shown in the cash book or stamp register. Promptly make good any minor deficiency not caused by theft, or fraud in cash or stamps ii his care. Page 35 of 78

36 (vi) Ensure that all books are correctly posted up to date. (vii) Produce when required by the Accountant-General, cash, stamps etc in his care. In-Text Questions 1. Briefly itemize the powers and responsibilities of the Accountant-General 2. List five important documents used by a Revenue Collector. 3. What are the matters to be expressly stated in the Auditor-General s report. In-Text Answers ITQ 1. The following are the powers and responsibilities of the Auditor-General:- (i) He has the power to enquire and receive from members of the public service such information he deemed necessary. (ii) The power to enquire and receive reports from the various ministries and extra-ministerial departments. (iii)the powers to enquire and receive explanations as he may deem necessary for proper performance of his duties. (iv)he is responsible for general supervision of the accounts of all the ministries and extraministerial departments throughout the federation (v) He is responsible for compilation of other financial statements of accounts. ITQ 2. The following are five important documents used by a revenue collector (i) Revenue collectors cash book (ii) Revenue receipt booklets (iii)tellers/paying-in slip (iv)cheque summary register (v) Paper money register ITQ 3. Matters to be expressly stated in the Auditor-General s report are as follows:- (i) (ii) (iii) (iv) (v) State whether in his opinion the account shows a true and fair view of the state of affairs of the nation. State whether in his opinion proper books of accounts and records are been kept. State whether in his opinion money were collected as at when due. State in his opinion, all money collected are properly accounted for. State whether in his opinion all rules and regulations were complied with. Page 36 of 78

37 Summary This Session discussed the principal officers in the public sector. The session explained the powers and duties of the accountant general, the auditor general, the accounting officer and the sub-accounting officer. It discussed how they are appointed, their qualifications and how they are removed. Self-Assessment Questions (SAQs) Now, that you have completed this study session, you can assess how well you have achieved its learning outcomes by answering the following questions. Write your answers in your study diary and discuss them with your tutor at the next Study contact. SAQ 2.1 (tests learning outcomes 2.1) Ministers, Commissioners, Director-Generals, Chairmen of Local Governments were made accounting officer by the civil service and Local Government Reform Decree 43 of 1988 despite the fact that they do not perform any accounting functions. Required:- (i) Define the word Accounting Officer. (ii) List the functions of Accounting officer SAQ 2.2 (tests learning outcomes 2.1) What is the purpose of keeping accounts of Local Government Councils? References: Adams, R.A. (2009), Public Sector Accounting and Finance: Revised (ed) 2,Corporate Publishers Venture, Lagos. Ishola, K. A. (2009), Public Sector Accounting and Finance, INDEMAC (Nigeria Publishers) ltd, Ilorin. Page 37 of 78

38 STUDY SESSION 3: SOURCES OF GOVERNMENT REVENUE Introduction The financial business in the public sector is similar to that applicable to the private sector. In the public sector, the government has to live and perform its duties to the nation; as a result, there must be a means of livelihood called money. The money required by the government to perform its duties must be obtained from somewhere and utilize on something. Government financial problems falls under three areas which are; where to get the money, how to keep the money and how to utilize the money. These problems are more compounded because the state in modern times has many functions to perform. Its activities are no longer confined to mere maintenance of peace order and security. Important economic, industrial and social schemes form part and parcel of the activities of a modern state. Learning Outcomes At the end of this study session, you should be able to: 3.1 Understand the Sources of Government Revenue 3.2 Know how to prepare the federation account, consolidated revenue fund account and the development fund account 3.1 Sources of Government Revenue Prior to 1989 budget the federal government derives its revenue through heads 1,2,3, than 6-17 that is 15 heads. With effect from 1989 budget, the federal government revenue was classified into two groups:- (i) Federation Account Revenue heads (ii) Federal Government Account Revenue heads The above classification was again modified in 1994 fiscal year as follows:- (i) Federation Account Revenue heads (ii) Value-Added Tax and (iii)federal Government Account Revenue heads Federation Account Revenue Heads Federation Account, according to Section 149(1) of the 1999 Constitution, is a special Account into which shall be paid all revenues collected by the Government of the Federation, except the Page 38 of 78

39 proceeds, from the Personal Income Tax of the personnel of the Armed Forces of the Federation, Nigeria Police Force/Foreign Service Officers and the residents of the Federal Capital Territory, Abuja. In other words, the Federation Account is a distributable pool account being shared among the Federal, States and Local Governments on such terms and in such manner prescribed by law i.e. in accordance with revenue allocation formula. It is the account that is commonly being referred to a National Cake Sources of Revenue Paid into the Federation Account The following are the sources of revenue paid into the Federation Account. (i) Indirect Taxes: These are taxes levied on goods and other commodities in the form of customs and exercise duties, e.g. import duties, export duties, tariffs, penalties etc. (ii) Direct Taxes These are taxes levied on the incomes of individual and companies, e.g. PAYE, Companies Income Tax, Petroleum Profits Tax, Capital Gains Tax, Surcharge on Pioneer Companies etc. (iii) Value Added Tax (VAT): This is a tax on gross receipts less cost of input. (iv) Mining: These are: (a) Pipeline Licence Fees (b) Rent on mining right (c) Mining fees and royalty on minerals (d) NNPC earning from direct sales of crude oil for domestic consumption (e) Penalty for gas flared etc. (v) Independent sources In accordance with the provision of S1 of the Allocation of revenue Act, 2004, it states that the amount standing to the credit of the federation account will be distributed as first line charge for distribution to the beneficiaries of the derivation principle, 13% of the revenue derived from oil sources goes to the states from which it is obtained, 7% and 4% of the gross revenue in the federation account is allocated to the customs service and federal inland revenue service respectively. Whatever remains is shared between the three tiers of government. Federal Page 39 of 78

40 government 56%, 24% state government and 20% local government. The 56% that goes to the federal government is shared as 48.5% federal government, 2% general ecological problems, 1% federal capital territory, 1.5% stabilization account and 3% development of national resources. The 24% allocation to the 36 states and Abuja treated as a state i.e 37 for this purpose, is redistributed as 40% on the equality of all states, 40% on population, 15% on social development and 5% on the internally generated revenue. Page 40 of 78

41 3.2 How to prepare the Federation Account, Consolidated Revenue Fund Account and The Development Fund Account How to Prepare the Federation Account and Consolidated Revenue Fund Account Page 41 of 78

42 Solution Federation Account Statement for the year 2015 N Import duties 250,000,000 Export duties 150,000,000 Excise duties 250,000,000 Petroleum Profit tax 2,000,000,000 Capital gains tax 2,500,000,000 Proceeds from crude oil 2,500,000,000 Royalty on oil 500,000,000 8, Allocation Federal Govt 48.5/o = 3,952,750,000 State Govt 24.0% = 1,956, Local Govt. 20.0% = 1,630,000,000 Others 7.5% = 611,250, ,000,000 N Federal Consolidated Revenue Fund Account for the year 2015 N N Personnel cost 1,200,000 Federal statutory allocation 3,952,750,000 Overhead 1,500,000 Personal income taxes 1, Transfer Royalties 6,000,000 Development Fund 1,000,000 Quarry 750,000 To contingency fund 800,000 Court fees 150,000 Gen. Rev. Bal. 4,357,750,000 Med. Fees 100,000 Visa fees 100,000 Repayment of loan Rent of Govt. prop 1, Transfer from coot. fund , , Page 42 of 78

43 3.2.2 How to Prepare Development Fund Account Below are the, balances extracted from the books of accounts of I.J Karimu State for theyearended31 st December2015. Head N 000 Balance as at 1 st January 2015 (Dr.) 7,200, Contribution from Consolidated Revenue Fund 5,350, External Grants Internal loans 1,280, External loans 305, Rural Development 65, Agriculture 240, Livestock 21, Mining and quarrying 200, Land Transport system 650, Housing 302, Police 55, Defence 260, General Administrationand Federal Capital Territory 240, Public debt Charges 4,050,000 Required: Determine the balance in the development fund as at 31 st December, 2015 Solution I.J. KarimuState Development Fund Account for the Year ended 31 st Dec N N Balance B/F (7,200,000) Add Head 211 Contribution from CRF 5,350, External Grants Internal loans 1, External Loans 305, ,000 Less: Page 43 of 78

44 220 Rural Development Agriculture 40, Livestock 21, Mining and Quarying 200, Land Transport system 650, Housing 302, Police 55, Defence 260, Gen. Admin & Fed. Cap Territory Public Debt charges 4,050,000(6,083,015) (6,348,015) Example II on Development Fund Account You discovered the following, data in the accounting books and records of Lobi State Government in respect of their capital expenditure and development fund for the year ended 31 st December, (a) Payments: Payments were made on the following under-listed projects N 000 (i) River Basin project to boost the fishing industry in the state 5,000 (ii) Yarn flour processing to boost food production 3,000 (iii) Rural Electrification Scheme designed to attract foreign investment into the state 7,000 (iv) Rural Road development to enhance the transportation network of the state 10,000 (v) Miscellaneous Capital Development projects that were commenced but abandoned by the previous administration 25,000 (b) Receipts N 000 (i) Loans raised by Government from foreign investors for capital development projects 40,000 (ii) The following grants were likewise received from concerned bodies: (a) Federal Government Grant for rural roads development and electrification 3,500. (b) NIDB Grant for development of food baskets in the states 15,000 (iii) African Development Bank (ADB) Grant for Rural development in the West African sub-region 25,000 (iv) Appropriation by the Executive Council from the revenue of the Government for Page 44 of 78

45 capital and other developmental projects 5,000 Required: Prepare the extracts of: (a) The capital expenditure and development fund account and (b) The Cash book LOBI STATE GOVERNMENT RELEVANT BOOKS OF ACCOUNT FOR THE YEAR ENDED 31 ST DECEMBER 2001 Capital expenditure and development fund account N 000 N 000 River basin project for fishing 5,000 Loans from foreign investors 40,000 Yam flour processing to boost Food 3,000 Federal Government grant 3,500 Production Rural Electrification Scheme 2,000 NIDB grant for food baskets 15,000 Rural Road Development to enhance 10,000 African Development Grant for Rural 25,000 transportation network Development Miscellaneous Capital Development 25,000 Appropriation by Executive Council 5,000 projects Balance c/f 38,500 88,500 88,500 Balance b/d 38,500 (b) CASHBOOK N 000 N 000 Loans from foreign investors 40,000 River basin fishing project 5,000 Federal Government grant for Rural 3,500 Yam flour processing 3,000 Roads Development NIDB for development of Food 15,000 Rural Electrification scheme 7,000 baskets ADB Grant for Rural Development 25,000 Rural Road Development to enhance 10,000 transportation Appropriation by Executive Council 5,000 Miscellaneous Capital Development 25,000 Balance c/d 38,500 88,500 88,500 Page 45 of 78

46 Balance b/d 38,500 In-Text Questions 1. Define the development fund and itemize the sources of revenue as well as charges to this account 2. Examine the operation of consolidated revenue fund. In-Text Answers ITQ 1. Development fund could be defined as fund established by the constitution of the federal republic of Nigeria 1979 as amended 1989, the finance (control and management) act of 1958 and the audit ordinance of1956 which states that there shall be established the development fund to take care of capital projects. Sources of revenue paid into the development account (i) Transfer from consolidated revenue fund (ii) External grants (iii)external loans (iv)internal loans Charges from the development fund account (i) Summary of capital expenditure (ii) General administration (iii)external financial obligations (iv)loan on lent to states ITQ 2. The operations of the consolidated revenue fund could be examined through the following:- (i) (ii) (iii) (iv) (v) Before money could be expended from the consolidated revenue fund, a budget must be prepared. The budget must be laid before the National Assembly within 60 days before the commencement of the new fiscal year in which the budget relates to. The budget must be duly approved by the National Assembly The annual general warrant must be released by the minister of finance Salaries and allowances of statutory officers are direct charges to the CRF fund irrespective of budget approval Page 46 of 78

47 Summary This Session discussed the sources of government revenue which are classified into federation account, federal government and value added tax. The operations of the federation account and the consolidated revenue fund account were demonstrated using examples. Illustrations were given and solutions to the questions also provided. Self-Assessment Questions (SAQs) Now, that you have completed this study session, you can assess how well you have achieved its learning outcomes by answering the following questions. Write your answers in your study diary and discuss them with your tutor at the next Study contact. SAQ 3.1 (tests learning outcomes 3.1) What are the rules for the operation of contingencies funds? SAQ 3.1 (tests learning outcomes 3.2) Discuss the current method of allocating revenue to the states and local governments. References: Ishola, K. A. (2009), Public Sector Accounting and Finance, INDEMAC (Nigeria Publishers) ltd, Ilorin Page 47 of 78

48 STUDY SESSION 4: AUTHORIZATION OF GOVERNMENT EXPENDITURE Introduction Before any expenditure can be incurred by any government officer, proper authority as prescribed by the regulations must be followed. Any officer controlling a vote who incurs expenditure without proper authority does so at his own risk and he will be held personally liable for his action. When the President has assented his legislative authorities, the Minister of Finance then hands down the executive authority to incur expenditure by way of diverse warrants to the Account General of the Federation. The Accountant General may not allow an issue from the Consolidated Revenue Fund or Development Fund unless it is supported by a relevant Warrant for expenditure. At the Federal level warrants are issued by the Minister for Finance, in the State by Commissioner for Finance. Learning Outcomes At the end of this study session, you should be able to: 4.1 Understand the meaning of Financial Warrant 4.2 Know the different Types of Warrants 4.1 Meaning of Financial Warrant A warrant is a document authorizing an officer controlling expenditures or vote to incur expenditure or make payment. The original copy of the warrant goes to the Accountant General of the Federation, while the duplicate goes to the Auditor General of the Federation. 4.2 Types of Financial Warrants Financial warrants are in two groups, viz i. Recurrent Expenditure Warrant ii. Capital Expenditure Warrant Recurrent Expenditure Warrant Recurrent Expenditure is paid from the consolidated Revenue Fund. Minister of Finance is conveyed through one of the following warrants. The authority of the a. Annual General Warrant (AGW) b. Provisional General Warrant (PGW) c. Supplementary General Warrant-(SGW) Page 48 of 78

49 d. Reserve Expenditure Warrant (REW) e. Supplementary (Contingencies) Warrant f. Virement Warrant g. Supplementary (Statutory Expenditure) Warrant (a) ANNUAL GENERAL WARRANT (AGW) This authorizes the Accountant-General to release funds for the payment of Personal Emoluments, Overhead costs and other services provided for in the Appropriation Act/Approved Budget. It also author s the officer controlling expenditure to incur expenditurefor these purposes. However, the Minister of Finance may exclude from the Annual General Warrant any item of expenditure for which he desires to exercise-special control. In this case, the sums granted by the Appropriation Act that is amounts approved in the Annual Estimate, are greater than the amount authorized in the Expenditure Warrant. Original copy of this warrant is addressed to the Accountant General while duplicate copy is sent to the Auditor General. (b) PROVISIONAL GENERAIJWARRANT (PGW) This warrant is issued before the Appropriation Act comes into operation at the beginning of the financial year. It provides for the continuation of the services of the government at a level not exceeding the level of those services prevailing in the previous financial year. This warrant is in operation for' a maximum period of six months or until the Appropriation Act comes into operation whichever is the, shorter, Such money spent shall not exceed the amount specified in the approved budget and any such money spent shall be set-off against the amount provided in the Appropriation when it comes into operation, Original copy is addressed to the Accountant General of the 'federation and duplicate copy sent to the Auditor General. (c) SUPPLEMENTARY GENERAL WARRANT (SGW) This is issued for additional Personal Emoluments and other services provided for in the approved Supplementary Estimates. Also the Minister of Finance may exclude from the General Warrant any item of expenditure on which he wishes to exercise special control. The original copy of a Supplementary General Warrant is addressed to the Accountant-General and signed copy goes to the Auditor-General. Page 49 of 78

50 (d) RESERVE EXPENDITURE WARRANT (REW) This authorizes the release of Funds included in the approved annual supplementary estimates but excluded from the Annual General Warrant or Supplementary General' Warrant. In other words, it is the release of the fund which the Minister of finance initially withheld to exercise special control. (e) SUPPLEMENTARY (CONTINGENCIES) WARRANT This warrant is issued in exceptional cases where: a) Virement is not possible b) The degree of urgency demands that-the issue of fund cannot be postponed until a Supplementary Appropriation Act is passed. If the release of fund is postponed it will cause serious injury to the public interest. Contingencies Fund Warrant must first be-issued authorizing the Accountant General to transfer the necessary Fund from the contingencies fund to the Consolidated Revenue Fund. Then a Supplementary (Contingencies) Warrant must therefore be issued authorizing expenditure from the Head and sub-heads concerned: (f) VIREMENT WARRANT (VW) This is issued where additional provision is required under a particular sub-head and an equivalent amount can be saved under another sub-head of the same head. However, virement warrant should not-be used to create a new sub-head orused for items disallowed by the Budget or Estimate Committee. It should be noted that the issue of virement warrant has been suspended since 1985 Conditions Precedent for an Application for Virement to be Successful (i) (ii) (iii) (iv) (v) (vi) The application must be in writing. The application must state that a particular vote head is in deficit The application must state that another vote head is in surplus. The application must state that both vote heads are within the same economic head. The application must state that after the transfer, the other vote head will not be in deficit. The application must state that virement is not sought to create a new vote head. Page 50 of 78

51 (vii) The application must state that virement is not sought to expend money which the budget Page 51 of 78 ministry had disapproved. (viii) The application must state the necessity for such transfer. (g) SUPPLEMENTARY(STATUTORY EXPENDITURE) WARRANT This warrant authorizes expenditure over and above that included in the Annual General Warrant and Supplementary General Warrant from votes chargeable to Consolidated Revenue Fund by legislation other than the Appropriation Act. Examples is the salaries and allowances of statutory officers paid directly from the Consolidated Revenue Fund. The original copy of a Supplementary (St atutory) Expenditure Warrant is addressed to the Accountant-General and a signed copy forwarded to the Auditor-General Capital Expenditure Warrant Capital Expenditure - is paid from the Development Fund and it can only be incurred through the issue of the following warrants by Minister of Finance. (a) DEVELOPMENT FUND GENERAL WARRANT (DFGW) This authorizes the Accountant General of the Federation to issue funds for expenditure on capital projects, as contained in the Annual Appropriation Act/Approved Budget and also authorizes officers controlling expenditure votes to incur expenditure on their respective projects. (b) PROVISIONAL DEVELOPMENT FUND GENERAL (PDFGW) This is issued at the beginning of the year before the Appropriation bill is passed. It authorizes release of funds from the Development Funds that are necessary for carrying on projects for which expenditure have been authorized in the previous financial year for a period of six month or until the Appropriation Act comes into operation whichever is shorter. (c) DEVELOPMENT FUND SUPPLEMENTARY GENERAL WARRANT (DFSGW) This is issued for additional new projects provided for in the approved Supplementary Capital Estimate. The Minister of Finance has the power to exclude the Development Fund Supplementary General Warrant any item of expenditure which has been in the Supplementary Capital Estimate. (d) DEVELOPMENT FUND RESERVE EXPENDITURE WARRANT

52 This authorizes the release of funds included in the approved Annual or Supplementary Capital Estimates, but excluded from the Development Fund General Warrant (DFGW) and Development Fund, Supplementary Warrant (DFSW) other.wordsxit.is the release of fund which the Minister of Finance initially withheld in order to exercise special control. (e) DEVELOPMENT FUND SUPPLEMENARY WARRANT (DFSW) This authorizes additional expenditure over and above that included in the Development Fund Annual General Warrant (DFAEW) or Development Fund Supplementary General Warrant (DFSGW) its purpose is to a) revote capital expenditure which was provided in the previous financial year not fully expended in that year. b) accelerate the provision of funds already formally allocated but not yet voted for a project c) accelerate the completion of a specific initial project. Under nocircumstanceshould be amount revoted or additional expenditure under this warrant when added to the initial expenditure exceed the totalcost of the project. (f) DEVELQPMENT FUND (SPECIAL) WARRANT (SAME AS CONTINGENCY) This is issued in exceptional cases where: a) Virement is not possible b) Provision reveals such a degree of urgency that the issue of funds cannot be postponed until a supplementary Capital Estimates can be approved. If the issue of Funds is postponed, it will cause serious injury to the public interest. The amount to be expended under this. warrant must not exceed the balance of the development fund remaining after all other expenditure provided for in the capital estimate have been incurred. (g) DEVELOPMENT FUND VIREMENT WARRANT (DFVW) This authorizes the issue of additional fund necessary to complete a capital project for which funds have been allocated but the amount allocated in the estimate is not enough to complete the project, but where sufficient offsetting savings can be found in the amount appropriated for other projects in the same,economic programme section. The Limitations for the Issuance of this Warrant include Page 52 of 78

53 a) Re-allocation can only be made within the same Head of expenditure in the capital b) The re-allocation must not give rise to a new principle or policy c) It cannot be used to provide funds for new projects Section 409 (ii) of the Financial Regulation States that-the following conditions must be met before any Accounting Officercan vire from one subhead to the other. a) The amount to be vired must not exceed N50,000 b) Virement from any sub-head within a financial year under overhead costs should not exceed N30,000 and in the case of Personnel Emolument N70,000. c) It should not be used to create new sub-head or reintroduce items disallowed by the Budget Committee. d) Virement does not apply to queries raised by the Auditor-General of the Federation in respect of improper expenditure. In-Text Questions 1. Explain the use of the following warrants in expenditure disbursement-out of the development fund. (i) Development fund General Warrant (ii) Development fund Reserve expenditure warrant 2. List five of the conditions that Accounting Officer must satisfy in order to make virement of fund according to Financial Regulation of In-Text Answers ITQ 1 (i) Development Fund General Warrant authorizes the Accountant General of the federation to issue funds for expenditure on capital projects as contained in the approved capital estimate, and authorizes the officer controlling expenditure votes to incur expenditure on these projects. (ii) Development fund reserve expenditure warrant authorizes the release of funds included in the approved annual or supplementary capital estimates, but excluded from the DFAGW and DFSGW. ITQ 2. Five conditions to be satisfied by Accounting Officer in order to make movement of fund are:- Page 53 of 78

54 (i) Make application in writing (ii) The application must state that a particular vote head is in deficit (iii)the application must state that another vote head is in surplus (iv)the application must state that both vote heads are within the same economic head (v) The application must state that virement is not sought to create a new vote head. Summary The session discussed what financial warrant is and the different types of financial warrants that are issued to enable an officer controlling expenditure to incur expenditure. Self-Assessment Questions (SAQs) Now, that you have completed this study session, you can assess how well you have achieved its learning outcomes by answering the following questions. Write your answers in your study diary and discuss them with your tutor at the next Study contact. SAQ 4.1 (tests learning outcomes 4.1) Financial warrants are vital tools in the efficient implementation of the budget before and after its approval. They are also used in controlling the approved budget. (i) mention five warrants used in budget implementation (ii) write short notes on three of them SAQ 4.2 (tests learning outcomes 4.1) What do you understand by the virement? In what circumstances can the budget department decide to refuse a virement proposal. References: Ishola, K. A. (2009), Public Sector Accounting and Finance, INDEMAC (Nigeria Publishers) ltd, Ilorin. Adams, R.A. (2009), Public S ector Accounting and Finance: Revised (ed) 2, Publishers Venture, Lagos. Corporate Page 54 of 78

55 STUDY SESSION 5: CASH BOOKS IN GOVERNMENT ACCOUNTING Introduction Cash book is used in businesses and organisations for the purpose of recording all cash-related transactions. The cash book used to record cash transactions in government accounting is called Treasury Cash Book. One of the main functions of Sub-Accounting Officer is the maintenance of treasury cash book. The treasury cash book is a permanent record of accounts which is used to record all revenues, receipts and payments made by an organization. This treasury cash book is divided into two parts, namely: Debit and Credit sides and each side contains eight columns. Revenue and receipts are recorded on the debit (Dr) side, while payments and expenditures are entered on the credit (Cr) side with particular for every entry. The treasury cash is to be balanced daily with cash specification shows for each day. The signature of the Head of Accounts or Central Pay Officer will be taken as certifying the accuracy as well as correctness of the entries and cash balance. Learning Outcomes At the end of this study session, you should be able to: 5.1 Understand and prepare the different cash books used in government accounting 5.1 Cash Books in Government Accounting The following cash books that are used in government accounting will be discussed in this session: (i) Main Treasury Cash book (ii) Bank reconciliation Statement (iii) Imprest holders cash book (iv) Revenue collectors cash book Main Treasury Cash Book The main treasury cash book is a cash book that is maintained by the sub-accounting officer as part of his duties. The cash book is best explained by an example. Example MINISTRY OF FOODS as at 31 st May 2015 had the following transactions in its financial records: 1. Balance: Cashbook 160,000 N Page 55 of 78

56 Bank 2,500, Received from Mr. Chukuru, fees vide Treasury Receipt No. A Head & S/head 10/4 for 3. Paid leave grant to Mr. S.A. Ejosalo vide cheque No and on payment voucher No. MF/OC/114/98 150,000 10, Cash flat vide cheque No , Received from Miss Nyang Yakoyo refund on vehicle advance vide Treasury Receipt No. A for 6. Paid Touring Advance to Engineer E. Kaloko On Payment Voucher No. MF/AND/119/98, Head Paid staff salaries for the month to Last Bank Plc vide Payroll No. MF/PE/05/98, cheque No in favour of Mr. Richard Amala and others 7,500 10, , Payment deduction from above salaries include: - Rent of Quarters Head & S/head 66/1 - Union Dues Contribution Head & S/head - Income Tax Head & S/head 25,000 9,550 10, Payment for Petrol Purchased during the month vide payment voucher No. MF/OC/121/98, cheque No in favour of MALU PETROLS LTD 115, Reimbursement of imprest Account vide payment voucher No. MF/IM/04/98 8, Received from Engineer E. Kaloko, unspent balance of Touring Advance Treasury receipt No. A Made payment for purchase of 2 Air-conditioners vide payment Voucher No. MF/OC/128/98 cheque No in favour of BAOC Nig. Company 19, ,000 Required: (i) Post the necessary entries in the Treasury Cashbook (ii) Prepare the Cashbook Summary Page 56 of 78

57 MINISTRY OF FOOD, IKOLABA TREASURY CASHBOOK Page 57 of 78

58 Cash book summary N Opening Balance - Cash Bank 2, Add: Total Payments for the month 2,660.Ô Less; Total Payments for the month Closing Balance Bank Reconciliation Statement The combined cash book of Festac Town Council showed a credit balance of N1,985,000 on 31 st march, 2015 which did not agree with the bank balance for that month. On investigation you find that: i) Commission on turnover (COT) of N 23,500 charged by the bank for the quarter ended 31 st March have not been recorded in the Cash Book. ii) Cheques amounting to N250,500 received in settlement of tenement rates were subsequently dishonoured by the bank. These cheques have been recorded in the Cash Book and banked on 22 March. iii) Interest of N310,800 on the councils short-term deposit (STD) with the same bank was credited directly to the current account but this has not been recorded in the Cash Book. iv) Amounts of N5,000,000 and N2,500,000 being statutory allocations from the Federal and Lagos State Governments were transfered by the Central Bank directly into the council account on 20 March, but these have not been recorded in the Cash Book. v) The bank has a standing order to remit at the end of each month the salaries of council officials on study leave to their various study centres. For the month of March, these amounted to N105,000but the amount has notbeen recorded in the cash book. vi) Lodgements of N155,000 made on 31 March by the council was not cre4ited by the bank until the following day. Page 58 of 78

59 vii) Other charges of N1,580,000 and salaries of N420,000 for which cheques have been issued were not reflected in the bank statement. Required: i) Show the balance which should appear in the Cash Book, on 31 st March, 2015 and ii) A Statement reconciling the cash book balance with the bank balance. Solution Festac Town Council Adjusted Cash Book as at 31 st March, 2015 N N Balance b/f 1,985,000 C.O.T. 23,500 STD Interest 310,800 Dishonoured cheques 250,500 Statutory Allocation 7,500,000 Standing Order 105,000 Balance c/d 9,416,800 9,795,800 9,795,800 Bank Reconciliation for the month of March, 2015 N Balance as per cash book 9,416,800 Add unpresented cheques 2,000,000 11,416,800 Less uncredited lodgements 155,000 Balance as per bank statement 11,216,800 Page 59 of 78

60 5.1.3 Imprest Holders Cash Book Example Solution Revenue Collectors Cash Book Example Mr Olojuede, a revenue collector in the magistrate court of Wyse Local Government submit the following information for the month ended 30 th June, Page 60 of 78