UNIVERSITY OF MAIDUGURI CENTRE FOR DISTANCE LEARNING

UNIVERSITY OF MAIDUGURI CENTRE FOR DISTANCE LEARNING GEO 306: Geomorphology (2 Units) Course Facilitator: Dr. S. Y. Ibrahim

STUDY GUIDE Course Code/ Title: PAD 407: Budget & Budgetary Process in Nigeria Credit Units: 2 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 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 in-text carefully before you provide the answer. 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 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 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 email 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 email, because e-mailing 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 e-mails 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 email. 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 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.

Course Title: Budget and Budgetary Process in Nigeria Course code: PAD 407 Course Facilitator: Dr. S. Y. Ibrahim

INTRODUCTION The Nigerian government is increasingly assuming new functions due to the complex nature of the Nigerian state. In an attempt to respond to the emerging social and economic challenges, there is the need for the government prioritizes its development programmes and projects. This can only be achieved through her budget and budgetary process.the issue of development has been a great concern to scholars and policy makers. Despite the efforts of the federal government of Nigeria to modernize and improve budgetary concepts and procedures so that the budget system can be an effective device for planning, reviewing and controlling government operations, particularly as it relate to the national development plans. Hence, the need for us to examine the concept and operations of budget in Nigeria taking into cognizance it challenges.

Course Objective: At the end, students are expected to know how to prepare budget and the various forces that come into play when preparing a budget. The course highlights the role of various governmental institutions in budget making, authorization and control in Nigeria. It also focuses on the politics of budgeting in Nigeria.

TABLE OF CONTENTS INTRODUCTION...ix TABLE OF CONTENTS...x Study Session 1: Definition of Budget...1 Introduction...1 Learning Outcomes...1 1.1 Definition of budget...1 1.2 The genesis of budget...3 1.3 Classification of budget...4 Summary...11 Self Assessment Questions...12 Activity...12 References...13 Study Session 2: Uses of Budget...14 Introduction...14 2.1 Uses of a budget...14 2.1.1 Control Function...14 2.1.2 Management Function...15 2.1.3 Planning Function...15 2.2 Purpose of budgeting...15 2.2.1 Planning...15 2.2.2 As a tool of management...16 2.2.3 As an instrument of economic planning...16 2.2.4 Ensures accountability...16 2.3 Importance of budgeting...17 2.3.1 It enforces planning by all levels of government...17 2.3.2 It improves coordination of government activities...17 2.3.3 It sharpens the motivation of government workers...17 2.3.4 It reduces costs and improves efficient and effective use of resources...18 2.4 PURPOSES OF GOVERNMENT BUDGETING...19 Summary...19 Self Assessment Questions...19 Activity...20 References...20 Study Session 3: Budget Period and Budgeting Environment...21 Introduction...21 Learning Outcomes...21 3.1 Budget Periods...21 3.2 Factors affecting each period...21 3.3 Budgeting Environment...22 3.4 Forces coming into play when preparing a budget...22 3.5 Budget Structure...23 Summary...24 Self Assessment Question...25 Activity...25 Reference...25 Study Session 4: Budgeting Process in Nigeria 1...26 Introduction...26

Study Outcome...26 4.1 Sources of revenue...26 4.1.1 Revenue sources can be categorized into two at the federal level:...27 4.1.2 At the state level, the revenue sources are:...27 4.1.3 In the above arrangement...28 4.2 Institutions involved in budgeting process...28 4.3 Phases of Budgeting Process...29 4.3.1 Formulation...29 4.3.2 Legislation...29 4.3.3 Having assented,...30 4.3.4 Post Audit...30 4.4 Clarification of Functions...30 4.4.1 Administration Function...30 4.4.2 Economic Services...31 4.4.3 Social and community services...31 4.4.4 Transfers...31 Summary...32 Self Assessment Questions...32 Activity...33 References...33 Study Session 5: Budgeting Process in Nigeria 2...34 Introduction...34 Study Outcome...34 5.1 THE BUDGET PROCESS IN NIGERIA...34 5.2 BUDGET CALENDAR...37 5.3 INTERGRITY IN BUDGETING:...39 Summary...40 Self Assessment Questions...40 Activity...41 Reference...41 STUDY SESSION 6: BASIC CONCEPT IN THE BUDGET SYSTEM...42 Introduction...42 Study Outcome...42 6.1 Basic concepts in the budget system...42 Summary...46 Self Assessment Questions...47 Activity...47 Reference...47

Study Session 1: Definition of Budget Introduction Usually within the public sector, there are many demands that are competitive but the resource at the disposal of government is no adequate to meet these demands. The government has to adopt a strategy through which the government can meet these demands without neglecting any. Hence the concept of budgeting. Learning Outcomes At the end of this session, you should be able to: 1.1 Define budget 1.2 Discuss the genesis of budget 1.3 The panaceas practiced 1.4 List the advantages of budget 1.5 List the purpose of budget Bold Terms 1.1 Definition of budget Simply, a budget is a plan, but not all plans are budget. A budget deals with expenditure and revenue questions for a specific future time period, usually chosen by a jurisdiction. Public budget normally spans over 12 consecutive months. A budget document when passed by the legislature and signed by the chief executive, it becomes a law. The amounts of money specified in it are legally binding during that fiscal year. Ministries and departments cannot spend more than is specified during that fiscal year, unless the get supplemental appropriations. A supplementary budget can be prepared using the same legal channels as the original budget if the original budget cannot cover the period specified (12 months) or fiscal year due to unforeseen circumstances. Page 1 of 62

Budget can be defined as a plan for financing the activities of the government during a fixed future period, usually one year, prepared and submitted by the executive to the legislature whose approval is absolutely essential before the plan can be executed.. From these definitions, the following characteristics of a budget can be identified:- (a) It is a financial plan of action. (b) It is for a fixed or given period of time which is normally one year (c) It contains both estimated incomes and expenditures. (d) It contains authorizations to collect incomes and incur expenditures once approved. According to ( Budgeting thus connotes both planning and controlling functions. It is the determination for a future period of time of: what is to be done; what is to be accomplished; the manner in which it is to be done; and the cost of doing it. It requires that the broad objectives of the government be broken down into detailed work-plans for each project and for each unit of organization.. Thus each responsible official and supervisor in the organization will have a plan of action, which if successfully followed through and combined with similar efforts in all organizational units, should result in the organization meeting the overall objectives. Budgeting is the common art of allocating resources to various users. Everyone practices it, for example, when one plans his day, schedules his activities, programme his food and balances his income and expenditure. For the government, budgeting is. a critical exercise of allocating revenues and borrowed funds to attain sociopolitical and economic goals, maintain national security, provide for much needed social and other public services and pay for the country s debts. You can read more on the meaning of budget from the link below: http://www.nationalpriorities.org/budget-basics/... ITQ What is a budget? Page 2 of 62

ITA A budget is a document which deals with expenditure and revenue questions for a specific future period chosen by a jurisdiction, usually, 12 months. 1.2 The genesis of budget The idea of budgeting in Nigeria can be traced to an inheritance from Britain during the colonial period. The term budget was first used in England to describe the white leather bag or pouch that held the seal of the Medieval Court of the Exchequer (Government Treasurer). Later, the Minister s bag containing his proposals for financing government expenditures likewise became known as his budget and the minister, when presenting his proposals was said to open his budget. Gradually, the word came to be used for the proposals themselves and hence, for any statement of plans and expenditure for a future period whether of government, public bodies, commercial companies or private individuals. The budget is now widely regarded not only as an effective mechanism for the establishment of priorities in relation to the available resources. This was clearly demonstrated in the 1946 1956 Welfare plans for Nigeria initiated by the colonial masters to development Nigeria. In relation to the above development, there was lack of budgetary theory in the 1940s to see how government business could be run. Public managers and policy scholars developed ways to answer the question on what basis shall it be decided to allocate X Dollars to activity A instead of B? In order to have answers, these managers and scholars came out with these panaceas: (a) (b) (c) Performance budgeting Planning Programming budgeting Management by Objective budgeting Page 3 of 62

(d) Zero-base budgeting Performance budgeting: This is tying work load measures to various governmental activities. This was the answer in the 1950s Planning: Programming budgeting was devised by economists. This is releasing resources to the activity in progress. In other words, releasing resource for the current activity taking place. Release of fund depends on when an activity is to take place. This was the answer for the 1960s. Management by Objectives: was to pick up the pieces of earlier budget reform failures in the early 1970s. This is allocating funds to the objectives of each governmental entity where each entity defines its objectives and fund required to realize them. The total of these objectives form the budget of that entity. Funds are adjusted based on the ability to apply these objectives in practical reality. The Zero-based budgeting. This is a kind of budget that asks managers to build a budget from the ground up starting from zero. ITQ 1 Many ways of preparing a budget were used at different times. True or False. ITA True ITQ 2 Which of the ways was used during the 1970s? ITA The Management by Objectives type of budgeting. 1.3 Classification of budget Government budgets may be classified as follows:- Page 4 of 62

Annual budget: This is a budget which covers a period of one year. It is the basis of an annual appropriation. Supplementary budgets: These are budgets which purport to supplement or adjust a previous budget which is deemed inadequate for the purpose for which it is intended. They are the basis of supplementary appropriation bill. Deficiency budgets: These are budgets intended to cover any deficit, or overdraft incurred over and above those originally budgeted. They are the bases of deficiency appropriations passed by the legislative body. Special budgets: These are budgets which are of special nature and generally submitted in special forms on account of the fact that itemizations are not adequately provided in the Appropriation Act or that the amounts are not at all included in the Appropriation Act. This type of budget is used generally for special funds not ordinarily subject to formal budgetary control like trust funds. Administrative budgets These are the so called line item budgets the bases of which are the objects of expenditures such as salaries and wages, travelling expenses, freight, supplies and materials, equipment, etc. The traditional or administrative budgetary system which is the system being operated by the Federal Government, is designed to serve the purposes of financial and legal accountability of the Executive to Parliament and, within the Executive, of spending authorities to controlling officers. The purpose of a traditional budget i to guard against unauthorized expenditures and its watch words are: honesty, economy, strict accountability and a balanced budget. You can read more on types of budget from ITQ What is an administrative budget? ITA Page 5 of 62

These are the so called line item budgets the bases of which are the objects of expenditures such as salaries and wages, travelling expenses, freight, supplies and materials, equipment, etc. The traditional or administrative budgetary system which is the system being operated by the Federal Government, is designed to serve the purposes of financial and legal accountability of the Executive to Parliament and, within the Executive, of spending authorities to controlling officers. Programme budgeting According to Omopariola (2000) Functional or programme Budgeting is a system wherein the principal emphasis is on a budget classification in which functions, programmes and their subdivisions are established for each agency and these are related to accounts and meaningful financial data. A programme is an instrument for performing functions by which goals could be set and undertaken, in principle by high level administrative units or an instrument for establishing targets to be achieved through an integrated set of investment projects. This budget innovation is not different from the process cost accounting system employed in manufacturing concerns whose production can be decentralized into distinct, separate departments to. serve as cost centres for better analysis and evaluation of production cost.3 Similarly, Programme Budgeting groups homogenous, related functions and activities of a government office into budget programmes to serve as: 1. the framework in submitting budget estimates. 2. the control centres during budget implementation. 3. the reference points during budget review. This technique makes possible better budgetary analyses because instead of organizational units as basis for presenting budget proposals (which can be numerous), there are relatively few budget programmes to review and evaluate. The requirement of Programme Budgeting that budget programmes and their subdivisions must be described in terms of functions and activities to be performed in each programme and its subdivisions make possible intelligent comparative studies of allocations among different budget programmes. Page 6 of 62

As Programme Budgeting cannot be installed unless the functions and activities of an office are realigned to establish logical and meaningful budget programmes, it is obvious that defects and inadequacies in the organizational structure are automatically corrected. Omopariola shows how Programme Budgeting is installed. He gave example of the Ministry of Works and Transport. This Ministry is responsible for the construction of highways, buildings, sewage facilities and its subsequent maintenance and repair. As technical support, the Ministry operates workshops and equipment and also has administrative and planning services. On this basis, he opines that the Ministry can be subdivided into the following budget programmes: Programme 100 - Programme 200 - Programme 300. - Programme 400 - Programme 500 - Planning and Financial Services Administrative Services Highways Construction and Maintenance Services Buildings Construction and Maintenance Services Public Health engineering, Facilities Construction and Maintenance Services. Programme 600 - Equipment and Workshops Services. The budget proposals of the Ministry must be presented according to the above budget programmes. Budget programmes could have subdivisions that can be termed budget projects. For example, Programme 100 can be subdivided into Project 101 - Planning Services and Project 301 - Technical supervision and Overheads, Project 302 - Maintenance and Repair of Highways and so on. Performance budgeting Performance budgeting complements Programme/Functional budgeting. Where functional budgeting provides the framework for the budgeting process, performance budgeting provides the mean for measuring accomplishments or results her by the use of quantification Page 7 of 62

techniques or by using expenditure or inputs ratio. According to the Hoover Commission, performance budgeting could focus attention upon the general character and relative importance of the work to be done or upon the service to be rendered, rather than upon the things to be acquired such as personnel services, supplies, equipment, etc. A performance budget would indicate the objectives of a particular governmental programme of activity, the volume of work to be performed at the various levels of responsibility and the expected costs of the respected operations. Such a budget developed in terms of costs and volume of work becomes an effective tool of management and provides a built in mechanism for appraisal of actual performance against the budget targets. According to the Administrative Reforms Committee (A Commission Appointed by the Indian Government in 1968 to reform the Budgetary Process in India) Performance budgeting seeks to achieve the following objectives: 1. To present more clearly the purposes and objectives for which the funds are sought and to bring about programmes and accomplishments in financial and physical terms. 2. To help a better understanding and better review of the budget by the legislature. 3. To improve the formulation of the budget and to facilitate the process of decisionmaking at all levels of government. 4. To enhance the accountability of management and at the same time to provide an additional tool to management for proper control of financial operations; 5. To render performance audit more purposeful and effective. Since performance budgeting requires periodic assessment of physical and financial progress of governmental activities on the basis of a single report, an adequate information system for performance reporting (progress reports) is a necessary adjunct to performance budgeting.. A performance report is an indispensable aid to internal management. It goes without saying that Performance Budgeting makes it comparatively easier to assign clear and definite responsibilities to functionaries at various levels, along with a sound system of performance reporting, performance budgeting should greatly facilitate performance appraisal and make for accountability of operating officials and agencies to the reviewing of administrative authorities. Enforcing accountability under such a system of budgeting would, however, make provision of necessary operational facilities to the various functionaries imperative. It would necessitate delegation of adequate powers commensurate with the duties and tasks entrusted to the various operating levels of responsibility. It is also essential to create the right type of Page 8 of 62

climate and environment for motivating the delegates to exercise their powers for the effective performance of the tasks assigned to them. Performance Budgeting concept was borrowed from the private l3qsiness where budgeting in terms of the various purposes and levels of responsibilities has been in operation for quite some time. In so far as a Performance Budget is a work plan to be implemented at a predetermined cost, such a budget needs to be built from below in terms of each operating level of responsibility. Budgets ought to be born where they are to be carried out. In industry; it is called a Responsibility Centre. A responsibility centre may coincide with a cost centre or may comprise of several cost centres. Each cost centre may consist.of a group like machines doing a particular job or a group of machines complementing each other in completing one stage of production. Since the budget is one of the principal instruments of managerial control and appraisal of performance of individuals and levels of responsibilities it would be worthwhile to prepare these budgets relating to operating levels. As stated earlier, powers needed for the controlled discharge of responsibilities should be conferred on the various levels of management. Such a synchronization of powers and responsibilities as well as the collection of controllable costs in terms of identifiable centres of responsibility assumes greater significance in general government where the operating levels are physically not so proximate or accessible to top management. Performance budgeting may flounder in the absence of such decentralized budgetary involvement and control. (i) (ii) (iii) (iv) (v) (vi) (vii) Should cover a short period (usually one year) to permit more realistic forecasting for the future. should be related to the development plans, since ideally, the budget should reflect a phase of implementation of the plan, should identify the needs for the period (usually one year) and select priorities, should be linked with the immediate past and future should identify costs in their various components and the sources of funds for meeting the costs. should provide for its own implementation by having builtin mechanisms to indicate what is to.be done,. when and where it should be done, by whom it should be done and also to provide checkpoints for a good feedback; should allow for necessary flexibility in the light of experience. Page 9 of 62

Limitations of Performance Budgeting Performance budgeting operates efficiently in government offices whose activities are readily susceptible to quantification techniques especially in offices involved in capital development activities: It will not work, however in offices where work measurements become a difficult exercise such as in the Ministry of Justice, Social Welfare or External Affairs. Application, therefore, of performance budgeting should be selective in order to avoid frustration and discouragement. Programme budgeting however, is applicable to all government activities. Planning Programming Budgeting System (PPBS) Planning Programming Budgeting System (PPBS) which is a system aimed at helping management make better decision on the allocation of resources among alternative ways to attain government objectives. Its essence is the development and presentation of relevant information as to the real implications - the costs and benefits - of the major alternative courses of action. In the United States of America the idea behind introducing the concept of PPBS to the Federal Establishment Federal agencies were to: 1. Identify the national goals with precision and on a continuing basis; 2. Choose among those goals the ones that are most urgent; 3. Search for alternative means of reaching those goals most effectively at the least cost; 4. Inform ourselves not merely on next year s costs, but on the second, third and subsequent years costs on programmes; and 5. Measure the performance of government programmes to ensure a dollar s worth of service for each dollar spent. PPBS were characterized as a very new and revolutionary system. Yet several people doubted the geniuses of all the attributes claimed for this type of budgeting. Arguments about the new system ranged from its implications for the political process to some detailed technical problems of calculation. Considering the significance of PPBS for the conduct of governmental affairs,, the intensive discussion that marked the introduction of PPBS into many governments is quite necessary. Page 10 of 62

Summary In study session 1, you have learned that: 1. Budget is a plan which deals with expenditure and revenue questions for a specific future time period. 2. Public budget spans over a period of 12 months. 3. A budget document has to be passed by the legislature and signed by the chief executive before it becomes a law. 4. Amounts specified in the budget are legally binding during the fiscal year. 5. Supplementary appropriation can be made when the need arises and must pass through the process the original budget went. 6. There was lack of budgetary theory in the 1940s. 7. The efforts of public managers and policy scholars developed ways of answering why X Dollars should be allocated to activity A instead of B. 8. The panaceas developed by public managers and policy scholars were four i. Performance budgeting ii. Planning Programming budgeting iii. Management by Objectives budgeting iv. Zero-base budgeting 9. Budget is a plan, which deals with expenditure and revenue questions for a specific future time period. 10. The various classification of budget which include: annual budget. This is a budget which covers a period of one year. It is the basis of an annual appropriation; supplementary budgets. These are budgets which purport to supplement or adjust a previous budget which is deemed inadequate for the purpose for which it is intended. They are the basis of supplementary Page 11 of 62

appropriation bill; Deficiency budgets. These are budgets intended to cover any deficit, or overdraft incurred over and above those originally budgeted. They are the bases of deficiency Self Assessment Questions Now that you have completed this study session, you can assess how well you have achieve 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 support meeting. You can check your answers with the notes on the Self Assessment Questions at the end of this module. SAQ 1 (Testing Learning Outcomes 1.1) Discuss the meaning of budget. SAQ 2 (Testing Learning Outcome 1.3) List the four panaceas developed y public managers and policy scholars. Activity What do you think are the main challenges facing the implementation of budgets in Nigeria. Challenges of budget implementation in Nigeria 1. 2. 3. 4. 5. Page 12 of 62

References Ndubuisi, W. C. (1996). Practice of Federal Finance, the Nigerian Dimension, Welcome Services (Nig.), 167 Kirikiri Road, Oladi Apapa, Lagos. Salawu, R. O. (2005). Essentials of public finance, OAU University Press Ltd., Ile-Ife. Page 13 of 62

Study Session 2: Uses of Budget Introduction In this session, you would be introduced to the various uses of budget. These are control, management and planning, the purpose and importance of budgeting. Learning Outcomes By the end of this session, you should be able to: 2.1 Identify the uses of a budget 2.2 List the purpose of budgeting 2.3 List the importance of budgeting 2.1 Uses of a budget A budget is a multipurpose document that reflects and seeks to serve the information needs of the participants in the budgetary process. From this disposition, a budget has three main uses: 1. Control function 2. Management function 3. Planning function 2.1.1 Control Function A budget controls administrators by tying them to the stated policies contained in the budget. This control is obtained through: (a) (b) Accounting practices Reporting of procedures that restricts the transfer of funds from one account to another. (c) (d) Limit the number of positions available to an agency. Creates mountains of paperwork. Page 14 of 62

2.1.2 Management Function The Management function of a budget involves efforts to carry out the approved plans and policies efficiently and effectively. 2.1.3 Planning Function In the budgeting context, planning involves the determination of objectives, the evaluation of alternative courses of action and so the process reflects political pressures as well as financial analysis. Planning here is closely linked to policy choices. ITQ ITA List any three uses of budgeting you know. (a) (b) (c) Planning Management Control 2.2 Purpose of budgeting Budgeting allows all activities to be coordinated in a single plan. Its purpose include the following (i) (ii) (iii) (iv) Planning As a tool of management As an instrument of economic policy Ensures accountability 2.2.1 Planning This process considers a lot of factors which include the timing, the resources required among others. This gives basis for comparison of the past and present. Page 15 of 62

2.2.2 As a tool of management Budget provides operational guide in which costs, time and nature of expected results are specified management makes use of this to guide their activities and performance. 2.2.3 As an instrument of economic planning Budget can be used to bring about economic stability such as price level stability full employment, economic growth and development. It can be a tool for efficient utilization of resources and an equitable distribution of income. 2.2.4 Ensures accountability Public funds and resources should be properly utilized for the purpose for which they are allocated. At government level, budget guarantees legislative control over the executive. ITQ 1 ITA 1 ITQ 2 ITA 2 Budgeting allows all activities to be coordinated in a single plan. True or False. True List any four purposes of budgeting 1. Ensures accountability 2. As a tool of management 3. As an instrument of economic policy 4. Planning Page 16 of 62

2.3 Importance of budgeting Budgeting has the following importance: It enforces planning by all levels of government. Policies are established. Policies are declared in the budget in that emphasis is given on the essential of projects to be undertaken. A system of priorities is often established especially where there are limited resources. (i) (ii) (iii) It improves coordination of government activities It sharpens the motivation of government workers. It reduces costs and improves efficient and effective use of resources. 2.3.1 It enforces planning by all levels of government Every level of government has certain objectives to accomplish. It is through proper planning that such objectives can be accomplished. 2.3.2 It improves coordination of government activities This allows all government activities to be properly organized to avoid duplication among the agencies. Action is based on study. Due to the fact that executives and departmental heads make the plans which they are bound to execute when approved, careful study will become a habit before any action is taken. 2.3.3 It sharpens the motivation of government workers 1. The various activities contained in the budget especially the capital expenditure indicates that, during the fiscal year there will be no idleness. Cooperation is secured in the entire organization Operating heads and all those who have something to do with operations are supposed to assist in the formulation of the best operating plans for the organization. As such, the result of their work represents the judgment of the entire organization. Page 17 of 62

2.3.4 It reduces costs and improves efficient and effective use of resources The avoidance of duplication reduces wastages and if properly done little resources could be used to achieve much. Omopariola (2000) also identified the following as the advantages of budget: Programmes for activities are related to expected or available resources and economic conditions: The economy of the nation as a whole is considered in budgeting of public expenditures. Government spending may be contrasted or expanded depending on the needs of the economy. Balanced Programme are developed Again, the priority and essentiality of projects are studies and related to the end in view before determining how money should be spent and what is to be expected in the prosecution of chosen projects or actions. Coordinated effort is attained In budgeting, co-ordination of all departments, divisions or agencies is necessary for without it concerted action cannot be attained. Operations are controlled: Control of expenditures and operations is provided in a sound system of budgeting. Weaknesses in the organization are revealed: In the execution of plans, responsibilities are delegated. One will not accept responsibility unless authority is delineated. Where plans are developed and responsibilities for the accomplishments are delegated, weaknesses, if any, in the organization will be revealed. Waste is prevented: expenditures in advance, waste is prevented. Because budgeting analyzes the reasons for proposed ITQ How does a budget motivate workers? ITA A budget motivates workers through the nature of resources allocation in the budget. If more resources are allocated to capital expenditure, it implies that, there ill be more activities to be done in the fiscal year. This prevents idleness. Page 18 of 62

2.4 PURPOSES OF GOVERNMENT BUDGETING The purposes of government budgeting can thus be summarized as: - 1. To promote general economic objectives such as growth, higher employment levels, and stability. 2. To provide a basis for legislative control, authorization and accountability to the legislature, and 3. To provide a basis for executive management within ministries and departments. You can read more on this from http://www.cityofdubuque.org/1326/purpose- of-abudget Summary In study session 2, you have learned that: (1) A budget is a multipurpose document. (2) A budget has three main uses. (3) A budget ties administrators to the stated policies it contains. (4) A budget involves efforts to carryout approved plans and policies efficiently and effectively. (5) A process of budgeting reflects political pressures and financial analysis. (6) A budget ensures accountability. (7) A budget improves coordination of government activities and sharpens the motivation of government workers. Self Assessment Questions 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 answer in your study diary and discuss them with your tutor at the next study support meeting. You can check your answers with the notes on the self assessment questions at the end of this module. Page 19 of 62

SAQ1 (Testing learning outcome 2.1) In your opinion, do you think a budget has any use at all? SAQ2 (Testing Learning Outcome 2.2) List the purpose of budgeting you know. SAQ3 (Testing Learning Outcome 2.3) Identify any importance of budget you know. Activity You are given 15 minutes to complete this task. At the end of the exercise you can write your answer in your study diary and compare notes with your tutor in the next support meeting. With the aid of a diagram draw the budget cycle. Which stage in the budget cycle you do think is most fundamental to you and why? References Anyanwu, J. C. (1997). Nigerian Public Finance, JOAWEE Educational Publishers Ltd., 51, Awka road, Onitsha. Ndubuisi, W. C. (1996). Practice of Federal Finance, the Nigerian Dimension, Welcome Services (Nig.), 167 Kirikiri Road, Oladi Apapa, Lagos. Page 20 of 62

Study Session 3: Budget Period and Budgeting Environment Introduction In this session you would be introduced to budget period and budgeting environment. Learning Outcomes By the end of this session, you should be able to: Know budget periods. List the factors affecting each period. Define budgeting environment. List forces coming into play when preparing a budget. Discuss the Structure of the budget. 3.1 Budget Periods This refers to time earmarked for a budget. It varies from sector to sector. This leads us to having what is called short and long terms budgeting. There is also corporate budgeting. 3.1.1 Short term budgeting takes short time between 1 2 years. 3.1.2 Long term budgeting takes longer time from 2 years and above. 3.1.3 Corporate budgeting often varies between one month and one year and public budgeting spans a period of one year. 3.2 Factors affecting each period The short term budgeting is often costly to prepare and operate. The long term budgeting may be considerably affected by unforeseen conditions. ITQ1 What is budget period? Page 21 of 62

ITA1 Budget period refers to the time a budget is supposed to cover, while some budgets take shorter time, others take longer time. ITQ2 Which types of budget can be affected by unforeseen circumstances? (a) short term (b) Long term (c) Corporate ITA 2 (a) Long term 3.3 Budgeting Environment This refers to an entity where the said budget will operate. For instance, a budget meant for Nigeria, must be operated in Nigeria not Chad and vice versa. 3.4 Forces coming into play when preparing a budget The whole nation or state is a system which considers an aggregated of interests. These interests are: (a) (b) (c) Political Social Economic Political forces Here the government will consider its legitimacy which depends on the support of the electorate. So government will always remember promises made during the campaign. These serve as input which is to be processed along with the inputs by the civil servants. Economic forces The economic base of the nation or state is the controlling factor. Available resources have to be matched with the expenditure as well as revenue sources must be considered. Page 22 of 62

Social factor Under this factor, the demographic structure must be considered. Whatever programmes the government embarks upon will affect the budgeting process. A population dominated by aged, females etc. will determine how the budget should look like. ITQ1 What are the dominating factors that influence budget preparation? ITA 1 The dominating factors: (a) (b) (c) Social factor Political factor Economic factor ITQ2 How does the social factor influence budgeting? ITA 2 Under the social factor, the demographic structure of the population must be considered. This is because their demands vary, and this influences the nature of that nations budget. 3.5 Budget Structure This addresses the question of how the budget is or should be composed. Such a budget structure facilitates the accounting aspects of fiscal management. Budgets have revenue and expenditure sides. Within the public sector, such revenues refers to all monies accruing the government. Where revenues are usually short of expenditures, loans become necessary. This creates the presence of public receipts in the budget. The public expenditure side of the public budget refers to the absorption of resources involving all the expenses. Page 23 of 62

ITQ1 What is revenue? ITA 1 In budgeting, revenue refers to all monies accruing to the government. ITQ2 In budgeting when do loans become necessary? ITA 2 In budgeting loans become necessary where revenues are usually short of expenditures. This creates the presence of public receipts in the budget. Summary In study session 3, you have learned that: (1) Budget period refers to time earmarked for a budget. (2) Budget period varies from sector to sector. (3) There are short and long budget periods. (4) While the short term takes 1 2 years, the long term takes upwards of 2 years. (5) Within the private sector, there is corporate budgeting and varies from one month and one year. (6) Public budgeting spans for a period of one year. (7) Short term budgeting is often costly to prepare and operate. (8) Long term budget may be considerably affected by unforeseen conditions. (9) Budgeting environment refers to an entity or country where the said budget will operate. (10) Political, economic and social factors of a nation influences its budget. Page 24 of 62

(11) Political factors are related to promises made during campaigns and inputs from the civil servants. (12) Economic factor has to do with the economic base of that nation. (13) Social factor relates to the demographic structure of that entity. Where predominantly the population is women, adults, it influences the nature of the budget. Self Assessment Question 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 dairy and discuss them with your tutor at the next study support meeting. You can check your answers with the notes on the self assessment questions at the end of this module. SAQ 3.1 (Testing Learning Outcome 3.3) Explain budgeting environment SAQ 3.2 (Testing Learning Outcome 3.4) List the forces that influence public budgeting. Activity Make a general list on the socio-political forces that influence budget implementation in Nigeria. Reference Anyanwu, J. C. (1997). Nigerian Public Finance, JOAWEE Educational Publishers Ltd., 51, Awka road, Onitsha. Ndubuisi, W. C. (1996). Practice of Federal Finance, the Nigerian Dimension, Welcome Services (Nig.), 167 Kirikiri Road, Oladi Apapa, Lagos. Page 25 of 62

Study Session 4: Budgeting Process in Nigeria 1 Introduction In study session 3, you have learned about budget period and budgeting environment. This session will also introduce you to the budgeting process in Nigeria. the most important aspects I would like you to understand in this module are institutions involved in the budgeting process, phases of budgeting process and revenue sources to the government. Study Outcome By the end of this session you will be able to: 4.1. List the major sources of revenue to governments (federal, state and local). 4.2. Know the institutions involved in the budgeting process. 4.3. Know the phases of budgeting process. 4.4. Discuss the budgeting process. Bold terms 4.1 Sources of revenue The Nigerian public sector consists of the central (Federal), state (36) and local (774) governments, and number of public enterprises. Some governmental financial operations remain entirely outside the budget and are funded by extra- budgetary accounts such as the stabilization account. The Nigerian fiscal system is highly centralized with central (federal) government expenditures being more than double those of all the states combined. In Nigeria, the major budget instruments include: (a) Taxes: These are personal income, company income, petroleum profits, capital gains, import and export excises, mining rents, royalties and NNPC earnings. (b) Government expenditure: These are taxes along with interest and repayments, licenses and fees constitute government revenue. Page 26 of 62

4.1.1 Revenue sources can be categorized into two at the federal level: Category A Under category A there are direct taxes and indirect taxes. Table 4.1: Direct and indirect tax Direct Taxes Indirect Taxes (a) Personal income tax (a) Import duties (b) Company income tax (b) Export duties (c) Petroleum profits tax (c) Excise duties (d) Capital gains tax (d) Value added tax (VAT) (e) (f) Stamp duties and penalties Casino taxes (g) Airport tax Source: Anyanwu (1997) Category B The non-tax revenue sources are interests and repayments which are (a) (b) (c) (d) Rent Royalties NNPC sales Miscellaneous economic recovery fund The above sources go into the federally collected revenue. 4.1.2 At the state level, the revenue sources are: (a) Taxes (b) (c) non-taxes Statutory allocation Page 27 of 62