ABSTRACT
The study examined the compatibility of the public sector reforms and the accounting systems in the Nigerian public sector. In particular, the Fiscal Responsibility Act 2007, being a major framework for carrying out the public sector reforms in Nigeria, is examined in order to determine in what ways, if any, the provisions therein would require a reform in public sector budgeting and accounting systems to enhance transparency, accountability and economic development in Nigeria. The study employed the descriptive and ex-post facto research designs. The descriptive research design employed the cross-sectional method which consisted of surveys and field studies in the analyses of the primary data. The primary data and secondary data were subjected to statistical analyses using the paired-wise t-test, correlation analyses, simple regression analyses, and sample t-test statistical models. The findings revealed that the present cash-based accounting and budgeting systems have not supported the achievement of economic and development targets as major objectives of the Public Sector Reform and the Fiscal Responsibility Act (FRA). Also, it discovered that the present cash accounting and budgeting systems do not ensure accountability and efficiency in the public sector and that the current cash accounting and budgeting systems are not congenial to GDP growth as one of the aims of the Public Sector Reforms. This research also established that there is significant relationship between the attainability of fiscal policies and financial reporting systems and that there is need for a reform of the public sector accounting and budgeting systems to be able to achieve the objectives of the Nigeria Public Sector Reforms as provided for in the Fiscal Responsibility Act. A model was developed by the researcher as a guide for economic and fiscal planning, and to reflect the relationship which has been established by the findings of this research. The practical and theoretical implications of the model developed in this work is that a desired economic index can be used to derive and prepare budget estimates much the same way that economic variables can be used to predict economic indicators. Based on the findings of this study, it is recommended that the Public Sector Reform in Nigeria should be backed up with a reform of the public sector accounting and budgeting systems to be able to achieve the reform objectives. Having done this much, further work should be carried out to determine the best way to implement accrual accounting to achieve fiscal transparency, accountability, efficiency, and economic growth in Nigeria, given the level of development in general and IT in particular.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Nigeria is a country endowed with abundant natural economic resources. But despite the abundance of national wealth, Nigeria has remained underdeveloped and is ranked among the poorest nations of the world (King, 2003; Soludo, 2007).
Since there is abundance of resources, Nigeria’s poverty level and underdevelopment can only be attributed to mismanagement and corruption, facilitated by weak, inappropriate and malfunctioning public sector. In fact, Phillips (2006) has opined that the greatest hindrance to progress has been the boom and bust mode of economic management in Nigeria. This has been encouraged by the dominance of oil in the economy. According to the European Commission (2002), “the quality of management of public finances in Nigeria represents the principal constraint on development”. The IMF has a similar view (King, 2003).
The federal government of Nigeria under Olusegun Obasanjo embarked on far-reaching economic reforms designed to deliver sustainable economic growth, wealth creation, and improve the quality of life of the Nigerian citizen. The economic management reform, which is an integrated package of various economic reforms, was started in 2004.
The implementation of the comprehensive economic reform programme is in four main areas: Macroeconomic Reform; Structural Reforms; Government and Institutional Reforms; and Public Sector Reforms (Iba, 2007). However, these main areas are interlocking and actually form a continuum, intended to work together to achieve the common goal of better and more transparent management of public resources, probity, accountability, and economic growth. These are supposed to address the various sectors of the economy.
Under the Macroeconomic Reforms Programme, government adopted prudent oil price• based fiscal rule; introduced Medium Term Expenditure Framework (MTEF) and Medium Term Sector Strategies (MTSS); improved implementation of monetary policy by Central Bank; undertook a bank consolidation exercise to strengthen financial sector; adopted trade liberalization policies; and undertook the privatization of some government enterprises.
Under the Structural Reforms Programmes, there has been a bank-consolidated exercise to strengthen financial sector; trade liberalization reform; and privatization of some government enterprises. These are intended to open up the economy and to encourage private investment, both foreign and domestic.
Under Institutional and government reforms, government introduced the Due Process mechanism in public procurement; adopted the Extractive Industries Transparency Initiative (EITI) in Nigeria; and established the Economic and Financial Crimes Commission (EFCC) as well as the Independent Corrupt Practices Commission (ICPC) to address corruption in public offices.
Under the public sector reform, there has been a restructuring of some government agencies and an increased focus on service delivery. Being so, public expenditure and matching results with expenditure form the focal point of the reforms in this area. The reforms in this area have given rise to a number of Bills and Acts such as the Fiscal Responsibility Act and the Public Procurement Act.
Until recently, Nigeria was heavily indebted to the Paris Club of creditors (to the tune of $30.4billion). The bulk of this debt (60% precisely) was forgiven and cancelled when it appeared that Nigeria was tending towards more transparent management of its resources. There were efforts by the government to convince the world that it was serious about improving the economic and development indices that ranked Nigeria among the poorest, most corrupt, and least developed countries in the world.
Nigeria came to the realization that there is need to instill some prudence in the management of public resources. In pursuit of this, the Fiscal Responsibility Bill was proposed by the Federal Government through the Federal Ministry of Finance. According to the then Minister of Finance, Nenadi Usman, the Fiscal Responsibility Bill is expected to underpin Nigeria’s economic growth as Nigeria’s finances will be managed at a very high standard; and to revolutionalize the budgeting process (The African Economy, 2006).
Among other means of achieving the above, the Fiscal Responsibility Bill contains a clause which seeks to make states, agencies, and other arms of government financially responsible. The clause states that the servicing of debt shall be the direct responsibility of the government that incurs the debt. For starters, the federal government refunded a total of US$2.605billion to the excess crude oil account from seven states. This amount represents the excess amount withdrawn from the account to settle the seven states’ share of the US$12.4billion debt owed to the Paris Club (The African Economy, 2006).
The economic and public sector reforms have certainly led to fiscal reforms whose framework is the Medium Term Fiscal Strategy. The Medium Term Fiscal Strategy comprises the Medium Term Revenue Framework and the Medium Term Expenditure Framework.
The medium-term fiscal strategy is one of the components of the economic management reform framework of the Federal Government of Nigeria. It is a principal component of the public expenditure management system of the economic reform geared towards channeling resources to fund developmental needs in an efficient, effective and transparent manner. It is a public sector reforms strategy.
The fiscal strategy of the federal government, being a component of the economic management reform is embodied in the Fiscal Responsibility Act 2007. The Fiscal Strategy Paper documents a summary of how the Federal Government proposes to conduct its fiscal affairs for a three-year period.
1.2 STATEMENT OF THE PROBLEM
The issues of accountability, transparency, probity, and budget implementation are at the heart of the developmental problems of the Nigerian economy. It is widely accepted that the quality of management of public finances in Nigeria is a principal constraint on its development. It is against this background that the researcher seeks to examine if the Public Sector Reforms and the objectives of Fiscal Responsibility Act 2007 can be successfully achieved without reforms in the Public Sector Accounting and Financial Reporting Systems in Nigeria.
The Public Sector Reform was embarked upon to improve efficiency, fiscal accountability and transparency in the public sector. These, in tum, should translate to improved economic and development indicators such as per capita, fiscal balance, rate of inflation, GDP, citizen welfare in terms of life expectancy, availability of adequate health and other social services, as well as good business climate needed to expand the economy.
The Fiscal Responsibility Act (2007) is one of the frameworks provided for the implementation and achievement of the public sector reform objectives undertaken by the government. Among other provisions, it seeks to provide the framework that will ensure prudent management of public resources in order to increase citizen welfare and rapid economic growth by matching input with output.
However, when the economic indicators for the past ten (10) years up to the year 2003 (before the commencement of the Public Sector Reform that necessitated the Fiscal Responsibility Act 2007) are compared with those of subsequent years up to 2008, there has not been much difference nor improvement. For example, the percentage increase of per capita income between 1994 and 2003 averages 5.28% against those of annual expenditure which averages 23% for the same period. The economy has not recorded much improvement thereafter. The average percentage increases in per capita GDP and federal government expenditure from 2004 to 2008 are 3.49% and 21.7% respectively. Indeed, whereas the annual expenditure increased by 26% in 2007 and 32% in 2008 against their respective previous years, the per capita GDP for the same periods increased marginally by 3.15% and 2.69% respectively. These statistics show that despite the marginal increase in welfare being far less than the marginal increase in expenditure, there is actually a decline in welfare in 2008 in spite of the existence of the Fiscal Responsibility Act 2007.
Inflation is also on the rise which is an indication that not enough goods are available to meet demand. Also, there has not been much improvement on the quality and availability of healthcare delivery and services to the ordinary citizen. Life expectancy of 54 years has indeed declined to 47 years according to World Bank figures; and infant mortality rate of 114 per 1,000 live births has not recorded any appreciable improvement over the period in question, as it is still among the highest globally. Adult literacy rate has also not seen much improvement. These are evidences that the increases in budgetary allocations have not increased the welfare of the citizens nor have they translated to any appreciable improvement in the economic indices.
This existing state of affairs can be attributed to the inadequacies of the present cash• based budgeting and accounting systems used in the Nigerian public sector. The cash budgeting and accounting systems focus on actual cash flows and whether monies are released as appropriated. They do not give enough information that can be used to evaluate the performance of those entrusted with public resources. They pay no attention to whether or not the resources so appropriated are efficiently utilized. This poses serious hindrance to prudent management of the nation’s resources, macro-economic stability, accountability, transparency, and efficiency in the use of the nation’s resources, which are among the major objectives of the Fiscal Responsibility Act. And so it can be adduced that more needs to be done so that the objectives of the economic reforms can be achieved.
1.3 RESEARCH OBJECTIVES
The main objective of this research is to examine whether the Public Sector Reforms and the objectives and provisions of the Fiscal Responsibility Act can be achieved without reforms in the Public Sector Accounting and Budgeting Systems in Nigeria.
Specifically, this research aims to achieve the following objectives:
1. To determine whether the current public sector accounting and budgeting systems are appropriate for the realization of sectoral targets as a major objective of the Fiscal Responsibility Act (FRA).
2. To determine whether the present cash accounting and budgeting systems ensure accountability and efficiency in the public sector.
3. To determine whether the current accounting and budgeting systems are congenial to GDP growth as one of the aims of the Public Sector Reforms.
4. To ascertain whether accrual-based accounting and budgeting systems can be viable alternatives for the implementation of the Fiscal Responsibility Act and the Public Sector Reforms in Nigeria.
1.4 RESEARCH QUESTIONS
This research is guided by the following questions:
1. To what extent can the existing cash accounting and budgeting systems in the Nigerian public sector be appropriate for the realization of desired sectoral targets as a major objective of the FRA?
2. To what extent do the present cash budgeting and accounting systems ensure accountability and efficiency in the Nigerian public sector?
3. How congenial are the current budgeting and accounting systems in providing support to fiscal policies meant to grow per capita GDP?
4. Which budgeting and accounting systems would be more suitable for the implementation of MTEF and MTSS as provided for in the FRA in order to achieve fiscal transparency, accountability and efficiency in Nigeria?
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1.5 HYPOTHESES
1. The existing cash accounting and budgeting systems in the Nigerian public sector are not appropriate for the realization of desired sectoral targets as a major objective of the FRA.
2. There is negative relationship between accountability and efficiency and cash• based accounting and budgeting systems in the Nigerian public sector.
3. The current budgeting and accounting systems are not congenial in providing support to fiscal policies meant to grow per capita GDP.
4. Objective number four does not lend itself to statistical analysis using raw data.
Therefore, the research question is used as basis to undertake an in-depth study of the various accounting systems with a view to establishing that which best suits the implementation of performance-based budgeting as provided for in the FRA via the MTEF and MTSS.
1.6 SCOPE OF THE STUDY
The Fiscal Responsibility Act 2007 is an Act of the Federal Republic of Nigeria. Sections 17 and 54 of the Act provide that States and Local Governments that wish to implement the provisions contained therein may receive assistance from the Federal Government. In effect, this Act is not binding on States and Local Governments. Therefore, this study will focus on the effect of the public sector reforms on the public accounting and budgeting systems of the Federal Government of Nigeria.
1.7 SIGNIFICANCE OF THE STUDY
A number of scholars have made efforts on the link between fiscal reforms and economic growth in developing countries (Goode, 1993; Hemming et al, 2002; Khalid, 1996; Lucas, 1988; Easterly and Sergo, 1993; Diamond, 2006; Ossowski, 2008). However, to the best of my knowledge, no study has been done on fiscal responsibility and accounting system, and how proper coordination between fiscal responsibility and accounting could achieve the economic objective of fiscal transparency, accountability, poverty reduction and economic growth in the Nigerian setting. This research seeks to bridge this gap.
This research which seeks to examine the compatibility of the public sector reforms and the public accounting systems in the Nigerian public sector should be useful as a guide to policy makers in the implementation of public sector reform and the FRA2007 in order to achieve maximum impact and the desired goals of enhanced fiscal discipline, transparency, accountability, and economic growth. This work has indeed begun engendering interests from hitherto non-committal and indifferent persons to take a closer look at the FRA and the provisions contained therein. This expectedly should create healthy discussions and debates which may lead to interests to further research in this and other aspects of the public sector reforms in Nigeria. Therefore, academics and researchers will find this work useful both as foundation for further research work and as reference material.
This study will provide useful insight for accountants in the public sector on the dynamism of the accounting profession and the role that accounting plays towards achieving the objectives of any economic reform process.
1.8 LIMITATIONS OF THE STUDY
Works of this nature are usually time-consuming and can be a drain on financial resources. Besides, getting the needed materials, especially source documents, proved quite difficult. In addition, getting the respondents for oral interviews was an especially daunting task as one experienced so many cancelled appointments without notice. This resulted in repeated visits in many instances. Even then, not all those intended for oral interviews actually participated as the time frame for an academic work such as this is not indefinite. However, the number of those that were actually interviewed far outnumbered those that were not by a 92% to 8% margin.
Many more respondents in diverse locations outside of Abuja, Enugu, and Aba could have been included in the sample size but for limits imposed by student budget constraints.
1.9 OPERATIONAL DEFINITION OF TERM S Accrual Budgeting
This is a budgeting process in which appropriations for running costs and some other items cover full costs, including depreciation, and other increases in liabilities.
New Public Management (NPM)
NPM refers to a set of broadly similar structural, organizational, and managerial changes in the public sector. It shifts the emphasis from traditional public administration to public management. NPM systems permit greater flexibility of inputs and processes in return for greater emphasis on outputs and performance. Whereas the traditional public administration focuses on adherence and compliance with legislative appropriations, the New Public Management (NPM) focuses on performance evaluation and result-oriented accountability.
Public Sector Reform (PSR)
PSR is used here to refer to the totality of the economic reform programme embarked upon by countries to tackle corruption in the public sector and bring about more transparency, accountability, and probity in the management of public resources. This programme was started in Nigeria in the year 2004 under the Obasanjo administration.
Resource Accounting
This is a set of accruals accounting techniques for reporting on expenditure by departments and the relationships between expenditure and departmental objectives. This is opposed to cash accounting, which records payments and receipts when they are paid or received.
Resource Budgeting
Resource Budgeting involves using Resource Accounting information as the basis for planning and controlling public expenditure. It requires agencies and departments to consider the costs of capital consumption and to match their costs to the time of the related service delivery activity.
This material content is developed to serve as a GUIDE for students to conduct academic research
THE EFFECT OF PUBLIC SECTOR REFORMS ON PUBLIC SECTOR BUDGETING AND ACCOUNTING SYSTEMS IN NIGERIA
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