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- 20 Marks
Question
a) Since the creation of Atuum District Assembly (ADA) in 2011, inadequate revenue mobilization has been its major challenge making the Assembly unpopular. The newly appointed District Chief Executive (DCE) is concerned about the effectiveness of the revenue budget system of the Assembly.
Below is the extract of the Revenue Budget of the Assembly for the 2021 financial year:
| Revenue | Annual Budget (GH¢) | Actual to March (GH¢) |
|---|---|---|
| Licenses | 880,000 | 244,000 |
| Fees and Miscellaneous charges | 3,400,000 | 890,000 |
| Investment income | 600,400 | 178,000 |
| Property rate | 5,400,000 | 1,310,000 |
| Basic Rate | 750,000 | 120,000 |
| Grants and donations | 1,000,000 | 320,000 |
The budget allocation over the various items over the quarters is in the ratio of 3:3:2:2. The DCE indicates that the budget reliability measures of Public Expenditure and Financial Accountability (PEFA) are ideal for assessing the budget performance of the Assembly. In the framework, the following interpretation is given to budget outturns:
- Outturn/variance not greater than 5% is scored as A, indicating very good budget reliability.
- Outturn higher than 5% but not exceeding 10% is scored B, indicating good budget reliability.
- Outturn higher than 10% but not exceeding 15% is scored C, indicating average budget reliability.
- Outturn higher than 15% is scored as D, indicating poor budget reliability.
Note that each revenue item is treated as an indicator under the PEFA framework.
Required:
i) As the Budget Officer, prepare the statement of budget performance for the first quarter of the 2021 financial year, indicating clearly the outturn percentage and the respective scores. (5 marks)
ii) Write a report to the DCE on the budget performance of the Assembly and suggest ways of improving the budget reliability of the Assembly. (6 marks)
iii) Discuss FOUR (4) benefits of effective revenue budgeting in the Assembly. (4 marks)
b) In a recent audit committee meeting, there arose a serious disagreement between the Director of Finance and the Chief Internal Auditor concerning the internal audit role in the public sector. The Internal Auditor insists that internal audit’s primary responsibility in the public sector is to carry out intensive pre-audit or to vouch. He concludes that internal audit without pre-audit is useless and unfit for purpose. The Director of Finance opposed this view vehemently, arguing that pre-audit is an old-fashioned practice in the public sector and in the 21st century this should not be encouraged in a forward-looking organization like theirs.
Required:
As a member of the Audit Committee, educate the two key officers of the organization on the functions of the internal audit under the Public Financial Management Act, 2016 (Act 921). (5 marks)
Answer
a)
i) Statement of Budget Performance for the First Quarter of 2021:
| Revenue | Annual Budget (GH¢) | Budget to March (GH¢) | Actual to March (GH¢) | Outturn (GH¢) | Outturn (%) | Score |
|---|---|---|---|---|---|---|
| Licenses | 880,000 | 264,000 | 244,000 | 20,000 | 7.58% | B |
| Fees and Miscellaneous charges | 3,400,000 | 1,020,000 | 890,000 | 130,000 | 12.75% | C |
| Investment income | 600,400 | 180,120 | 178,000 | 2,120 | 1.18% | A |
| Property rate | 5,400,000 | 1,620,000 | 1,310,000 | 310,000 | 19.14% | D |
| Basic Rate | 750,000 | 225,000 | 120,000 | 105,000 | 46.67% | D |
| Grants and donations | 1,000,000 | 300,000 | 320,000 | (20,000) | (6.67%) | B |
ii) Report to the District Chief Executive on Budget Performance:
Introduction:
This report provides an analysis of the revenue budget performance of the Atuum District Assembly for the first quarter of 2021. The report highlights areas of underperformance and offers recommendations to improve budget reliability.
Revenue Performance:
The overall revenue performance was mixed, with some revenue lines performing better than others. Investment income exceeded expectations, with an outturn percentage of 1.18%, scoring an “A” under the PEFA framework. However, other revenue lines such as property rate and basic rate performed poorly, scoring a “D” with outturn percentages of 19.14% and 46.67% respectively.
Recommendations:
- Strengthen Revenue Collection Mechanisms: The Assembly should improve its systems for collecting property and basic rates by updating its property database and enforcing penalties for non-compliance.
- Diversify Revenue Sources: The Assembly should explore alternative sources of revenue, such as local economic development initiatives, to reduce reliance on underperforming revenue lines.
- Enhance Monitoring and Evaluation: Establish a robust monitoring system to track revenue collection regularly and address issues promptly.
Conclusion:
The revenue performance of the Atuum District Assembly in the first quarter of 2021 was below expectations, particularly for property and basic rates. Immediate action is required to address these challenges and improve budget reliability.
iii) Benefits of Effective Revenue Budgeting:
- Improved Financial Planning: Effective revenue budgeting enables better financial planning by providing accurate projections of available funds.
- Enhanced Accountability: It promotes accountability by setting clear revenue targets and tracking performance against those targets.
- Resource Allocation: Helps in the efficient allocation of resources by identifying revenue shortfalls early and adjusting expenditure plans accordingly.
- Increased Donor Confidence: Demonstrates fiscal discipline and reliability, which can enhance confidence among donors and lead to increased financial support.
b) Functions of Internal Audit under the Public Financial Management Act, 2016 (Act 921):
The Public Financial Management Act, 2016 (Act 921) outlines the key functions of internal audit in the public sector, including:
- Evaluation of Internal Controls: Internal audit is responsible for appraising and reporting on the soundness and application of internal controls within the organization.
- Risk Management: The internal audit function involves evaluating the effectiveness of risk management and governance processes, contributing to the improvement of these processes.
- Operational Efficiency: Internal audit assesses the efficiency, effectiveness, and economy of the administration of programs and operations.
- Compliance Monitoring: Internal audit ensures that the organization complies with relevant laws, policies, standards, and procedures. This includes ensuring that financial transactions are conducted in accordance with established guidelines and regulations.
- Tags: Budget Performance, Internal Audit, PEFA Framework, Public Financial Management
- Level: Level 2
- Topic: Public sector fiscal planning and budgeting
- Series: MAY 2021
- Uploader: Joseph