Danielle Jeffries Enhancing Financial Performance Presentation to Delegates of the Nigerian...

Enhancing Financial Performance

• The significance of standards in public life: concepts of

propriety, regularity and accountability.

• Debt management – current approaches to controlling

debt.

• Principles and practice of resource allocation and budget

management.

• Expenditure planning and control.

• Elements of strategy to secure sound public financial

management.

• Action planning to implement financial reforms.

• Developing accruals-based accounting to replace cash

accounting. (To be covered within the IPSAS

presentation).

“An urgent focus on improved

public sector financial reporting.”

- IFAC’s 2013 – 2016 Strategic Plan

Public sector fiscal management

and reporting problems are not

only confined to a handful of

European countries; the problem

is widespread.

“The Fierce Urgency of Now”

The current sovereign debt crisis

PLUS

Fiscal challenges of aging populations

COULD EQUAL

A GLOBAL FISCAL CRISIS

Radical transformation is

necessary.

Governments must provide clear,

comparable, and comprehensive

information regarding the financial

consequences of their economic,

political and social decisions.

The Significance of standards in public life:

concepts of propriety, regularity and

accountability.

“Standards and conformity assessment impact almost

every aspect of life in the US and are essential to a

sound national economy.”

“Today, nearly every agency of government has a

need for standards…”

-Standards Boost Business

“The bottom line . . . Standards and related compliance

programs help save money and improve performance,

quality, safety, and reliability – whether we’re talking

about the competitiveness of American industry or

your own agency’s procurement processes.”

-Standards Boost Business

Corporate Governance Framework

Board of Directors & Committees

Legal & Regulatory

Business Practices & Ethics

Disclosure & Transparency

Risk & Performance Management

Monitoring

Communication

Some Elements of Corporate Governance

• Timely and Accurate Financial Reporting

• Regular Audits

• Strong Internal Controls

• Continuing education and training.

Timely and Accurate Financial Reporting

– “Tone at the Top” – Top Management must always support

the importance of the Finance and Accounting function.

– Monthly financial statements with all supporting schedules

and reconciliations should be prepared in a timely fashion.

– All stakeholders should be aware of their relevance to the

process and what their expected input would be including

all applicable deadlines.

– A financial close checklist should be used to efficiently

manage the financial close process.

Regular Audits

– Independent auditors should be selected to perform audits.

– Internal controls should be analyzed and tested.

– Audits should be performed in a timely fashion.

– Audit results should be shared with all stakeholders.

Strong Internal Controls

– Documented evidence of management review & approval.

– Dual signatures on disbursements over a certain dollar

amount.

– Regular review of business processes.

– Written Policies and Procedures.

Continuing Education & Training

– Regular attendance to workshops and seminars to stay

abreast of the rapidly changing finance and accounting

environment.

– Succession planning, cross training, staff development.

– Memberships in professional organizations.

Debt Management:

Current Approaches to Controlling Debt

Quotes from Bloomberg

July 2, 2013

“Nigeria Braves Emerging-Debt

Plunge With $1 Billion in Bonds.”


“Nigeria’s sale was four times oversubscribed,”

Finance Minister Ngozi Okonjo-Iweala said

yesterday on a conference call.

“Investors in the U.S. accounted for 73 percent of

the 10-year note purchases and U.K. buyers

followed with 16 percent…”


“It was a bold move,” Maryam Khosrowshahi, who

runs sovereign debt origination for central and

eastern Europe, the Middle East and Africa at

Deutsche Bank…”


“NIGERIA BEAT THE REST TO THE BOND

MARKET: African countries from Kenya to Ghana

and Senegal are lining up to borrow abroad as debt

costs are still below the average of the last five

years.”

Material Need

“The government is raising funds to boost

electricity output in a country where demand is

almost double the supply of about 4,000

megawatts and blackouts are a daily

occurrence.”

-Bloomberg.com

“If the strength of the US recovery holds and

quantitative easing ends in 2014, we will

certainly see higher treasury yields and that

will impact emerging markets…” “If we look

down the road we might see liquidity flow out

of emerging markets.”

-Ngozi Okonjo-Iweala, Globally Renowned Economist and Finance Minister of Nigeria

“The cost of financing Nigeria’s debt has

already started to climb, with the yield on 10-

year bonds issued in 2011 rising from 3.64% in

January to 6.24% as of the end of June 2013.”

“We have to build confidence that this money

will be well managed and will be well invested,”

-Ngozi Okonjo-Iweala, Globally Renowned Economist and Finance Minister of Nigeria

Percentage of Debt to the GDP

57.3

59.561.3

62.7 63.3 63.964.8

76

87.1

95.2

99.4

101.6

50

60

70

80

90

100

110

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

United States Government Debt to GDPPercentage of the GDP

57.3

59.561.3

62.7 63.3 63.964.8

76

87.1

95.2

99.4

101.6

50

60

70

80

90

100

110

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Percentage of Debt to the GDP

63.9

52.7

28.6

11.8 12.811.6

15.2

18 17.8 18.3

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Nigerian Government’s Debt to GDPPercentage of the GDP

63.9

52.7

28.6

11.8 12.811.6

15.2

18 17.8 18.3

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

– Proper Corporate Governance as it relates to:

• Bond Issuance

– Why are we issuing the bonds – is there a material need?

– Is it necessary?

– Is it feasible?

– Are budgets and projections realistic?

• Are unused bond proceeds held in trust and properly

invested?

• Are there tight controls in place to ensure that the government

receives the goods and services procured with bond

proceeds?

– Is the government properly vetting government vendors and

suppliers?

– Are contracts properly executed?

– Is there proper accountability within the government regarding

construction progress; goods & services delivered by suppliers?

– Are their tight controls around cost over-runs?

– Are contract change orders required?

– Is there proper accountability within the government for bond

expenditures? For example, are the responsible managers

signing off on invoices before they are forwarded to the finance

department for payment?

• Are there tight controls around the disbursement of bond proceeds?

– Does finance/treasury have copies of all contracts for goods and services

procured with bond proceeds?

– Is there a delegation of authority to indicate who has the authority to 1)

enter into contracts and 2) to approve expenditures; dollar limits included?

– Are the responsible government officials reviewing and signing all invoices

presented for payment before invoices are submitted to the finance

department for payment?

– Is the finance department properly monitoring all expenditures to ensure

that disbursements are proper and do not exceed contract amounts?

• Elements of Strategy to Secure Sound

Public Financial Management

• Principles and Practice of Resource

Allocation and Budget Management

• Expenditure Planning and Control

What is the Budget?

“The word budget comes from “budjet”, a

Middle English word which means king’s

bag containing the money necessary for

public expenditure.”

“Managing Public Expenditures: A Reference Book for Transitioning Countries”

“In order to perform the roles assigned to it by its people, the government

needs, among other things, to: (i) collect resources from the economy, in a

sufficient and appropriate manner; and (ii) allocate and use those

resources responsively, efficiently, and effectively. The national budget is

the main instrument through which these transactions are planned and

carried out.”


The Budget–Policy Link

“The national budget is the single most important policy vehicle for giving

effect to a country’s economic and social priorities within the scarce

resources that are available to government for public expenditure. It is

through the budget process that competing policy objectives are

reconciled and implemented in concrete terms.

The budget preparation process is a powerful tool for achieving policy

coherence. The budget is both an instrument of economic and financial

management and an implicit policy statement, as it sets relative levels of

spending for different programs and activities. A coherent relationship

needs to be established between the policy-making agenda (which

should take into account economic and fiscal realities) and the budget

(which should accurately reflect the government’s policy priorities).”


The Budget Translation

“A bridge between the policy-making process and the budget process is

essential to make policy a breathing reality rather than a statement of wishes.

For this purpose, at least two clear rules should be established:

• The resource implications of a policy change should be identified,

before a policy decision is taken. Any entity proposing new policies

should quantify their effects on public expenditure, including both the

impact on its own spending and on the spending on other

government departments.

• The ministry of finance should be consulted in good time about all

proposals involving expenditures before they are reviewed by the

council of ministers (or some other ministerial committee) and

certainly before any public announcements are made.”


Cooperation

“Within the budget formulation process, close cooperation between the ministry of

finance and the centre of government is required, at both the political and the

technical level. The role of the centre is to ensure that the budget is prepared

according to the principles previously defined; arbitrate or smooth over conflicts

between the ministry of finance and line ministries; and ensure that the relevant

stakeholders are appropriately involved in the budget process.”


The UK Code for Fiscal StabilityUnder the Code, the government makes the following commitments. It will:

• Conduct fiscal and debt management policy in accordance with a specific set of principles.

• State explicitly its fiscal policy objectives and operating rules, and justify and changes to them.

• Operate debt management policy to achieve a specific primary objective.

• Disclose, and quantify where possible, all decisions and circumstances that may have a material impact on the

economic and fiscal outlook.

• Ensure that best-practice accounting methods are used to construct the public accounts.

• Publish a Pre-Budget Report to encourage debate on the proposals under consideration for the budget.

• Publish a Financial Statement and Budget Report to discuss the key budget decisions and the short-term

economic and fiscal outlook.

• Publish an Economic and Fiscal Strategy Report outlining the government’s long-term goals and strategy for the

future.

• Publish a specific range of information from its economic and fiscal projections, including estimates of the

cyclically-adjusted fiscal position.

• Invite the National Audit Office (NAO) to audit changes in the key assumptions and conventions underpinning the

fiscal projections.

• Produce a Debt Management Report outlining the government’s debt management plans.

• Refer all reports issued under the Code to the House of Commons Treasury Committee; and

• Ensure the public have full access to the reports issued under the Code.

Source: United Kingdom, HM Treasury (1998a).

Efficient and Effective Budget Preparation

The budget preparation process is a clear, precise and well defined sequence of

steps which allows the budget preparers enough time to implement each step. The

budget preparation procedures for the operational and capital investment

expenditures should be integrated.

Negotiation and prioritization between programs and departments/agencies must

take place to ensure that the budget mirrors the government’s policies and

priorities. The most cost effective budget strategies should be selected. Spending

agencies should be focused on maximizing technical efficiency of program

implementation. Program managers should receive efficiency incentives. In order

for these objectives to be accomplished, decision-making processes must be

unified and financial constraints must be built into the process and enforced.

Finally, major policy issues should always be the driving factor during the budget

preparation process.

Accounting and ReportingBudget and accounting categories should share a common classification system,

facilitating and promoting both policy analysis and accountability respectively.

Action Planning to Implement Financial Reforms

“Streamlining a public expenditure management system requires setting up a strategy for

reform and managing the change properly.”



Preparing and Monitoring an Action Plan

“Once the key reform measures have been identified, on the basis of the assessment of the budget system, a

phased action plan can be prepared. This plan should include the following elements:

• The overall goal of the reform and the specific objectives of each of its component parts.

• A list of the components (e.g. streamlining the budget preparation process, preparing a new budget law,

etc.)

• A list of activities for preparing and implementing the reforms (e.g. pilot studies, user surveys, training

courses); the deadlines for completing these activities; and milestones for accomplishing key tasks.

• Indicators to monitor progress achieved.

• The organizational arrangements to prepare the reform and supervise its implementation.

• The resources that will be devoted to the reform in order to purchase the required inputs of technical

assistance, equipment and computer software, training of staff, etc.

The action plan should include appropriate indicators to assess progress against the reform objectives and

provide feedback to correct or complete the reform process.”



Building a Commitment to Reform

“The reform will succeed only if it has a champion or champions within the government.

Financial reforms need unflagging commitment and strong leadership from the minister of

finance. The top management of the ministry of finance should actively participate in the

reform process. Reforms prepared outside this ministry, or by a reform committee or by

consultants working in isolation, often attempt to copy so-called best practice solutions from

another country or to focus on technical issues without considering the specific institutional

character and culture of the country concerned.

It is crucial to build up a consensus for reform among the different participants involved in

public expenditure management. To design and implement the reforms, the ministry of finance

should work in close cooperation with line-ministries, sub-national government authorities and

other key players.”


Main Elements of an Organic Budget Law

~ General Principals• Principles of good budgeting – fiscal discipline, allocative

efficiency, cost effectiveness.

• Concepts and definitions.

• Scope of budget – comprehensiveness.

• Accounting and classification issues.

• Appropriations and cash limits.

• Roles and responsibilities of budget institutions.

• Relationship with other public finance laws.

• Powers of ministry of finance to regulate budget system.

Budget Formulation• Budget timetable.

• Multi-year framework.

• Setting initial budget ceilings in spring.

• Budget circular.

• Integrated procedure for current and

capital expenditures.

• Analysis of budget requests.

• Preparation of draft budget law.

• Submission to legislature.

• Content of budget documents.

• Rules for supplementary budgets.

Budget Execution and Audit• Treasury/cash management function.

• In-year cash limits.

• Internal control and internal audit.

• Penalties and procedures for non-compliance.

• Fiscal impact analysis.

• End of year budget execution report.

• External audit procedures.

• Management of government debt, fiscal risks

and contingent liabilities.

• Fiscal rules for extra budgetary funds (outside of

budget) and subnational government.

Core Objectives of the Budget Process

• Maintain Aggregate Fiscal Discipline

• Prioritize and Allocate Government Resources

• Promote the Efficient Delivery of Services

Accountability and Transparency are necessary elements of the

overall budget process.

Accountability

All responsible parties must be held accountable for their part in

the decision-making and budget expenditure processes.

What are some examples of how government officials are

held accountable?

Transparency

Fiscal and financial information must be made

available on a regular and timely basis. The financial

information should be relevant and understandable . . .

user friendly.

Are your government’s financial reports made

available on a regular and timely basis?

Are they user friendly?

Predictability of financial resources is key for strategic

prioritization.

What is government’s track record regarding

predictability?

Are revenues properly estimated?

Are there controls in place to ensure

predictability?

Flexibility in Decision-Making is Necessary.

Agency Heads and Operational Managers should have

the flexibility to make decisions relevant to their areas

of expertise, as long as the decisions are consistent

with the government’s mission and goals. Flexibility

provides operational efficiencies at all levels.

Misuse of Government Funds

If budget managers do not comply with legislative

authorizations, or if public funds are used for private

purposes, it is doubtful whether aggregate fiscal

discipline or efficient resource allocation, or both, will

be achieved.

Misuse of public funds is a major source of inefficiency

in public expenditure management.

10 Basic Principles of Budgetary Reform

1. Foster an environment that supports and demands performance before introduction of

performance or outcome budgeting.

2. Control inputs before seeking to control outputs.

3. Account for cash before accounting for accruals.

4. Establish external control before introducing internal controls.

5. Establish internal controls before introducing managerial accountability.

6. Operate a reliable accounting system before installing an integrated financial

management system.

7. Budget for work to be done before budgeting for results to be achieved.

8. Enforce formal contracts in the market sector before introducing performance contracts

in the public sector.

9. Have effective financial auditing before moving to performance auditing.

10. Adopt and implement predictable budgets before insisting that managers efficiently use

the resources entrusted to them.

Source: “Managing Public Expenditures: A Reference Book for Transitioning Countries”

“Food for Thought”

• The world is looking for and finding alternative sources of energy, thereby

reducing revenue generated from oil exports. More supply, less demand, lower

price per barrel of oil.

• Oil accounts for 95% of Nigeria’s export earnings.

• Oil is 65% of Nigeria’s total government revenue.

• Nigeria’s oil wealth is dependent upon external markets.

• Oil is a wasting and depleting asset, vital to Nigeria’s future growth and

development. If the Nigerian economy is to grow, it will need its oil reserve for

domestic consumption which will diminish oil export revenue.

Some Strategies for Moving Forward

• Consider an oil conservation policy in order to address future oil consumption

needs.

• Search for alternative sources of income and conserve what is, after all, a finite

and depleting resource.

• Diversify the economy and enhance foreign exchange opportunities. Potential

areas to investigate are the agro-allied industries, petrochemicals, liquefied

natural gas.

Danielle O. Jeffries, CPA

[email protected]

mailto:[email protected]

Danielle Jeffries Enhancing Financial Performance Presentation to Delegates of the Nigerian...

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