THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA) SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014

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1 SOLUTION 1 (a) Consolidated fund Statement of revenue and expenditure for the year ended 31 st December 2012 Revenue Workings GH 000 Direct tax ,229 Indirect tax ,308 Grants 14,055 Other revenue 25,464 Total revenue 1,164,056 Expenditure Compensation of employees ,892 Use of goods and services ,973 Public debt interest 5. 61,986 Social benefits 6. 82,649 Other expenses 20,662 Consumption of fixed capital 123,973 1,088,135 Excess of revenue over expenditure 75,921 Net accumulated results Balance as at 1/1/2012 (30,671,838) Transfer for the year 75,921 Balance as at 31/12/2012 (30,595,917) Page 1 of 10

2 (b) Consolidated fund Statement of financial position as at 31/12/2012 Assets GH Cash & bank balances 980,449 Advances & receivables 30,082 Longterm receivables 1,418,308 Equity investments 1,809,876 Infrastructure, plants & equipment 1,014,403 Work-in-progress 152,440 Liabilities Payables 605,522 Deposit and trust monies 1,876,206 Short-term borrowings 5,649,911 Domestic debt 11,859,794 External debt 16,141,574 Accumulated surpluses (30,595,917) (c) Workings 1. Direct tax Taxes paid by individuals 405,218 Taxes paid by companies & enterprise 67,892 Other direct taxes 49, , Indirect taxes Taxes on goods & services 132,532 General taxes on goods & services 132,532 Excises 46,450 Customs and other import duties 290, ,308 Page 2 of 10

3 3. Compensation of employees GH 000 National pension contribution 45,440 Allowance to employees 28,000 Non-established post 400,000 Established post 200, , Goods and services Materials and office consumables 58,763 Utilities 17,280 Rentals, travel & transport 20,805 Training, seminar and conference cost 27, , Public debt interest External debt interest 41,886 Domestic debt interest 20,100 61, Social benefits LEAP program costs 33,060 School feeding program costs 15,250 Free school uniform cost 34,339 82,649 Page 3 of 10

4 SOLUTION 2 (a) Factors to be considered in government expenditure projections: (i) (ii) (iii) (iv) (v) Economic factors for example inflation What components of the government expenditure are susceptible to changes in which economic assumptions stated in (i) are applied. Guidance from past expenditure patterns Special expenditure in the budget year for example Electoral Commissions Budget in an election year. What constraints on expenditure projections in revenue or financing. (b) (i) Develop macro-economic framework which is broadly composed of the Real Sector, Monetary Sector, Fiscal Sector and External Sector. (ii) Invite proposals/papers from the public and civil society. (iii) Conduct policy reviews and hearing of the sectors. (iv) Conduct Intra-Sectoral Reviews of the past performance. (v) Determine resource envelope. (vi) Prepare and issue budget guidelines to MDA and MMDA. (vii) Presentation of budget and economic policy to Parliament. (viii) Submission of draft budget estimate to Parliament for approval. (ix) The passing of the appropriation bill by Parliament. (x) Issue of general and specific warrants to CAGD. (xi) Issue of treasury circulars and warrants to MDA s and MMDA s by CADG. (xii) Preparation of payment vouchers to treasuries for payment. (xiii) Preparation of public accounts by CAGD. Page 4 of 10

5 (xiv) Auditing by the Auditor General. (c) (i) Government wants to know its financial position (cash balances) at any point in time, especially weekly, monthly and yearly. It also wants to know its total revenue (tax) and other receipts (non-tax) at any particular time. In fact, both the 1992 Constitution and Financial Administration Regulations specify revenues (tax) as separate from other receipts (other monies). Therefore tax (revenue) and other monies (receipts) must be accounted for separately, hence the classifications. (ii) Government wants to take decisions on expenditure and lending as these activities diminish liquid reserves. Therefore, there is the need to have separate accounts on expenditure and lending. Thus, we have revenue and expenditure accounts (Above-the-line) that relates to transactions forming part of government s recurrent and capital expenditure that have limited lifespan of a year and subsidiary accounts (Below-the-line) that continue from year to year. (iii) Government wants to take decisions on borrowing. Government borrowing increases the liquid reserves, making money available for spending, but increases annual expenditure on interest charges. Liquid reserves have to be built to meet redemption of government debts. Decisions on borrowing and investment obviously require separate accounts reflecting cash balances, unspent revenue and uncommitted expenditure. (d) Policy objectives of privatization (i) To raise foreign exchange (ii) (iii) (iv) (v) (vi) To develop a domestic capital market To motivate the private sector To reduce the fiscal deficit To improve the efficiency of the economy by encouraging private sector participation and investment Government must not engage in commercial activities Page 5 of 10

6 SOLUTION 3 (a) The Consolidated Fund is the assumed receptacle into which all state revenue is lodged and from which all payments are fund. It is a fund with its own sets of rules and books for operating it. It is set up for specific purpose and has self balancing set of accounts. The Treasury Main Account is the account opened at Bank of Ghana for the Consolidated Fund. Every fund is expected to have an account with a Bank. The Treasury Main Account is therefore the account for the Consolidated Fund. (b) The four (4) stages in Public Sector business cycle in Ghana include: (i) (ii) Planning budget preparation and approval Budget execution - Revenue generation - Expenditure administration (iii) (iv) Accounting and reporting Auditing (c) (i) Recruitment of quality and competent revenue staff (ii) Outsourcing of revenue allocation to competent commission collectors (iii) Setting of revenue targets for revenue collectors (iv) Proper supervision of revenue staff to prevent revenue leakages of records (v) Rotation of revenue staff to prevent collusion (vi) Accurate data collection to ascertain improved revenue forecast Page 6 of 10

7 (vii) Education, sensitization and demonstration to general public that revenue collected will be used judiciously for the benefit of the community. (viii) Periodic valuation and revaluation of taxable properties to ensure proper property rate collection. (ix) Motivation of revenue staff including periodic awards to induce productivity. (x) Improving the monitoring of revenue collection. SOLUTION 4 (a) Reasons for Parliamentary failure to control expenditure (i) (ii) (iii) (iv) (v) (vi) Political stands of Parliamentarians supporting their parties Lack of resources to operate efficiently Lack of training or technical skills to deal with the issue Self benefits from the non-control Late submission of the Auditor-General s report to Parliament Ministers doubling as Parliamentarians (vii) Lack of legal framework to deal with issues Page 7 of 10

8 (b) Benefits of national social security pension scheme: Superannuation pension a member who retires voluntarily or compulsory and has contributed for at least 15 years in aggregate or 180 months in aggregate is entitled to superannuation pension which entails payment of gratuity and monthly pension allowance. Invalidity pension is awarded to a member who becomes an invalid certified by the medical board. The member should have contributed for at least 12 months within the last 36 months before the occurrence of the invalidity. Lump sum payment a member who fails to satisfy the 15 year/180 months contribution requirement at retirement is entitled to a lump sum of money equal to the member s contribution plus some interest on the contribution. Survivors lump sum payment it is a lump sum money payable to the family of a member who dies in active service. Hazardous employment benefits its granted to members who attained the age of 55 years and has been a worker in underground mines, steel works and other hazardous employments. (c) (i) Interest Ceilings The relationship of the public debt to the solvency of government does not depend on the absolute level of debt on its level relative to that of the Gross National Product (GNP). As such, unless the government can identify a new source of income or increase the amounts raised from existing sources, interest ceilings may rise in relation to Gross National Product. (ii) Debt Limitation Some debts (loans) are tied in the sense that there are limitations as to the use of the funds as per the debt agreement. In such cases, the government s policy objective of minimizing cost of goods and services needed and at the same time preventing illiquidity at the lowest available price is often threatened as goods and services must be obtained from specific locations (countries or country) although the prices of goods and services in these countries may be very high relative to similar goods and services obtained in other countries. Page 8 of 10

9 (iii) Unstable Commodity Prices Ghana face perennial foreign exchange constraints due to low and unstable commodity prices like cocoa and gold at the world market. This means that finding foreign currency to pay for its external loans is usually an annual challenge. (iv) Fluctuating Tax Receipts Unsteady export prices for Ghana s exports reflect on price fluctuations in the domestic market leading to currency depreciation and therefore difficulties in raising enough local currency to service domestic debts. (v) Burden of Transfer Low growth of the economy makes it difficult to close the deficit gap in the national budget through taxation. This means that existing debts, principal plus interests may tend to be postponed or rescheduled for payment. This leads to a burden of transfer of debt payments to a future generation or what is often referred to as intergenerational equity. (d) (i) Government departments or spending agencies experience no cost of managing their cash resources poorly or benefit for managing them well. Because of how government is organized and accounts are kept, the system fails to hold accountable those responsible for incurring the expense of interest. Department s cash management requirements or responsibilities are limited to depositing public funds and submitting requests for payment. Page 9 of 10 (ii) The main focus of the budget execution process is on the release of funds to spending agencies, and on the obligation of funds by these agencies, the actual spending of money is often not well coordinated with the apportionment of the budgetary appropriation. (iii) The primary focus of government accounting systems is the accountability of funds (propriety) and not the efficiency with which funds are utilized. (iv) Lack of training/expertise in cash management (v) Lack of monitoring (vi) Lack of use of IT systems in management

10 SOLUTION 5 (a) In a broader sense, PPP is defined as the implementation of all known types of (i) Co-operation between the public sector and private partners, which in many cases, leads to the establishment of joint ventures. In other words, partnership between the public sector and the private sector for the purpose of delivering a project or a service, traditionally provided by the public sector. (ii) Reasons for PPP are: (i) Lack of financing (ii) Bringing on board the technical and managerial expertise from the private sector (iii) (iv) Increase in infrastructural provision The ability to identify, prioritize and plan capital investment from the private sector. (v) They may not require any immediate cash spending. Page 10 of 10