Topic: Public sector financing initiatives

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  • 6 Marks

PSAF – Nov 2016 – L2 – Q2b – The context of public financial management.

Explaining key financial management provisions in the 1992 Constitution.

State and explain FOUR key financial management provisions in the 1992 Constitution. (6 marks)

i) Responsibility Accounting: The constitution defines clearly the powers and responsibilities of financial stewards (individual office holders) and their precise roles and functions, e.g., the appointment and roles of the Auditor General.

ii) Approval and Authorization Policies: It defines clearly approval and authorization policies, e.g., loans shall be approved by Parliament.

iii) Revenue Policies: The constitution has outlined revenue policies to regulate the revenue function, e.g., all revenues, receipts, and trust monies shall be paid into the Consolidated Fund.

iv) Establishment of Public Funds: The constitution establishes public funds for efficient management of government business.

v) Financial Management and Accounting Practices: Public sector financial management practices established by the constitution include:

Public debts charged to the Consolidated Fund.
The Bank of Ghana as the central bank in charge of monetary policy.
Establishment of public corporations.
vi) Imposition of Taxes: The right to impose taxes in Ghana is vested in Parliament.

  • 4 Marks

PSAF – Nov 2016 – L2 – Q2c – The context of public financial management.

Explaining modalities for making payments out of the Consolidated Fund.

Explain FOUR modalities for making payments out of the Consolidated Fund. (4 marks)

i) Payments should be approved by Parliament in the Appropriation Act according to the purpose described and within the limits set by item classification.

ii) Release of funds to government entities shall be in accordance with warrants issued by the Ministry of Finance and copied to the Controller and Accountant General.

iii) A valid obligation must exist before making a payment, e.g., supplier performs contract and submits invoices to institutions for processing and payment.

iv) All payments must be certified by the head of department or an authorized officer accountable for the use of public monies.

v) A competent person must certify that goods have been received or services have been carried out as expected.

vi) The invoice and other documents requesting payment must be correct, suitable for payment, and the creditor properly identified.

vii) The approval process of the MDA must be fully followed.

  • 8 Marks

PSAF – Nov 2016 – L2 – Q2a – Public Procurement.

Explain the stages involved in the national competitive tendering process for public procurement.

Competitive tendering is a method of public procurement that seeks tenders from all potential suppliers or contractors to achieve value for money in public procurement. Competitive tendering is carried out in accordance with the competitive tendering procedures under the public procurement law.

Required: Explain FOUR procedures involved in carrying out national competitive tendering for the procurement of goods, services, and works. (6 marks)

Stages of national competitive tendering procedure are:

i) Invitation of tenders and prequalification
Preparation of standard tender document in accordance with PPA requirements.
Preparation of invitation document containing all relevant information required by the Public Procurement Law.
Advertisement in national newspapers or other approved media for the supply of goods, services, or works (GSWs). Tenderers should be given at least two weeks to prepare and submit their tenders.

ii) Submission of tenders
All tenders shall be deposited in the designated locked tender box until the tender opening.
The Tender Document will provide clear instructions on the marking, sealing, and submission of tenders.
The closing date and time for submission of tenders must be determined in advance and stated in the Tender Document.
The tenderer submitting a tender should receive a receipt showing the date and time of delivery.
A tender submitted after the deadline should be returned to the tenderer unopened.
The tenderer may submit a tender security together with the tender document when required by the entity.

iii) Evaluation and Comparison
Opening of tenders: Tender opening shall commence immediately after the close of tenders.
A Tender Opening Panel shall consist of at least 3 persons, including a member of the Entity Tender Committee.
Minutes of the tender opening proceedings should be duly written.
Examination of tenders: Tenders should be examined to ensure they meet the requirements of the tender document.
A tender is responsive if it conforms to the requirements of the tender invitation documents.
A tender should not be accepted if:
The supplier is not qualified to tender.
The tender is not responsive.
The supplier refuses to correct minor indicated errors.
There is evidence of inducement from the supplier.
Evaluation of tenders:
The head of the Procurement Entity shall constitute an Evaluation Panel consisting of at least three persons with the required expertise to conduct the evaluation.
Procurement Entities must evaluate tenders solely on the basis of the information provided in the tenders.
Responsive tenders should be evaluated based on criteria set in the tender invitation document.
The Tender Evaluation Panel will prepare an evaluation report for submission to the Tender Committee.
The evaluation report should be prepared using the standard format for the evaluation of goods.
The appropriate review authority will review the evaluation report and recommendations.
The approval process should be a ‘One stop’ only, i.e., concurrent approvals must be obtained.

iv) Contract Offer
Following approval from the relevant review body, the contract will be awarded to the tenderer who submitted the lowest evaluated tender.
Before contacting the tenderer, a formal commitment of the required funds against the budget of the Procurement Entity must be approved.
Notice of the tender award shall be promptly issued to the successful tenderer. The successful tenderer shall confirm in writing the acceptance of the tender award and submit the appropriate Performance Security (if required).
The tenderer shall be invited to sign the contract. If impractical, the contract can be signed remotely, with signed copies returned to the Procurement Entity.
Failure to confirm acceptance, submit Performance Security, or sign the contract may annul the award, and the next lowest evaluated tenderer may be considered.

  • 5 Marks

PSAF – Nov 2016 – L2 – Q5d – Public sector fiscal planning and budgeting

Discuss five benefits of integrating Ghana's tax revenue agencies.

In December 2009, the three tax revenue agencies, the Customs, Excise and Preventive Service (CEPS), the Internal Revenue Service (IRS), and the Value Added Tax Service (VATS) were merged in accordance with Ghana Revenue Authority Act 2009, Act 791 to become the Ghana Revenue Agency.

Required:
Discuss five benefits of the integration to Tax Payers and the Tax Administration in Ghana.
(5 marks)

Benefits of Integration of the Revenue Collecting Agencies

  • Reduced administrative and tax compliance cost:
    The consolidation of agencies minimized the costs associated with managing multiple tax authorities, leading to streamlined operations and reduced expenses for both the government and taxpayers.
  • Better service delivery:
    The integration led to improved coordination among the various tax departments, resulting in faster and more efficient services to taxpayers.
  • Improved departmental information flow:
    By merging the agencies, information sharing among departments was enhanced, leading to better decision-making and more accurate tax assessments.
  • Holistic approach to domestic tax and customs administration:
    The unified structure allowed for a more comprehensive approach to managing domestic taxes and customs, ensuring consistency and reducing overlaps.
  • Enhanced revenue mobilization:
    The integration created a more effective tax collection system, leading to increased revenue for the government through better compliance and reduced tax evasion.

(5 points for 5 marks)

  • 5 Marks

PSAF – July 2023 – L2 – Q5c – Public sector financing initiatives

Outline the sources of income for the District Assembly Common Fund (DACF) and the Petroleum Holding Fund (PHF).

In accordance with Article 175 of the Constitution of the Republic of Ghana, the Public Funds of Ghana consist of the Consolidated Fund, Contingency Fund, and such Other Funds as may be established by or under the authority of an Act of Parliament. Other Funds established by or under the authority of an Act of Parliament include the District Assembly Common Fund (DACF) and the Petroleum Holding Fund (PHF).

Required:
With respect to each fund (DACF and PHF), outline THREE (3) sources of income.

Sources of Income for DACF:

  1. 2.5% of VAT:
    A statutory transfer of 2.5% of Value Added Tax (VAT) receipts is made to the DACF monthly.
  2. Other Moneys Allocated by Parliament:
    Parliament may allocate other funds to the DACF as necessary, in addition to the statutory transfer.
  3. Donations, Grants, and Gifts:
    The DACF can receive income from donations, grants, and gifts from various sources, both domestic and international.

Sources of Income for PHF:

  1. Royalties from Oil and Gas:
    Royalties paid by oil and gas companies operating in Ghana are a primary source of income for the PHF.
  2. Revenues from Direct or Indirect Participation:
    Revenues derived from the government’s direct or indirect participation in petroleum operations, including state-owned enterprise (SOE) shares, contribute to the PHF.
  3. Corporate Income Taxes:
    Taxes levied on the profits of upstream and midstream petroleum companies operating in Ghana are also a significant source of revenue for the PHF.
  • 6 Marks

PSAF – Nov 2020 – L2 – Q5b – Public sector financing initiatives

State and explain three measures the Finance Minister shall take when recognizing illegally occupied government land or building.

In accordance with Section 4 (2) (d) of the Public Financial Management Act 2016 (Act 921), the Minister of Finance shall manage Government property, Financial assets, Government debts, Government guarantees, and other contingent liabilities specified under Act 921. Paragraph 160 (2) of Public Financial Management Regulations, L.I 2378 of 2019 sets out measures the Finance Minister shall take upon recognizing that Government land or building is illegally occupied by an unauthorized person.

Required:

State and explain THREE (3) measures the Finance Minister shall take, upon recognizing that Government land or building of a covered entity is illegally occupied by an unauthorized person. (6 marks)

  • Eject the Person: The Finance Minister can initiate the removal of the unauthorized person from the government property to reclaim it for public use.
  • Request Law Enforcement Intervention: The Minister may request assistance from law enforcement to ensure that the unauthorized person is removed from the land or building.
  • Impose Rent: The Minister may order the unauthorized person to pay the rent they would have been liable for during the period of illegal occupation, effectively retroactively charging for the use of the property.
  • Refer the case to the Attorney-General for advice.
  • 5 Marks

PSAF – July 2023 – L2 – Q5b – Public sector financing initiatives

Explain the challenges that the Ghana Integrated Financial Management Information System (GIFMIS) promises to address in public financial management.

The Ghana Integrated Financial Management Information System (GIFMIS) was launched to eradicate or reduce the endemic challenges in the public financial management system. Many experts hailed it as the panacea for the developmental challenges of Ghana.

Required:
In reference to the above, explain FIVE (5) challenges that the GIFMIS promises to address in public financial management in Ghana.

  • Poor Budgeting and Budgetary Control:
    Before GIFMIS, public financial management faced issues with poor budgeting and lack of effective budgetary control, leading to overspending. GIFMIS provides a reliable budgeting framework and enhances budgetary control through real-time budget performance monitoring.
  • Weak Expenditure Control:
    Previously, expenditures on activities, programs, and projects without budgetary provision were common, leading to unbudgeted spending and increased liabilities. GIFMIS ensures that all expenditures are supported by budget commitments, thereby preventing overspending and unplanned liabilities.
  • Delay in Financial Reporting:
    Manual and unintegrated financial reporting systems led to delays in producing timely financial reports, which hampered accountability and decision-making. GIFMIS strengthens financial reporting by enabling the provision of timely and accurate financial information.
  • Low Integrity of Financial Information:
    The manual processing of financial data resulted in unreliable information. GIFMIS enhances the integrity of financial information by providing a platform that integrates various financial management processes, ensuring data accuracy and reliability.
  • Poor Cash Management:
    Managing government cash resources was problematic, with separate accounts maintained by individual entities, leading to inefficiencies. GIFMIS introduces a Treasury Single Account (TSA) system, improving cash management by consolidating government funds.
  • Weak Revenue Management:
    Issues like delayed lodgment of tax revenues collected by commercial banks caused revenue losses. GIFMIS addresses these challenges by enabling real-time revenue lodgment into the consolidated fund, reducing delays and potential losses.
  • Poor Human Resource/Payroll Management:
    The existence of ghost names on payrolls was a significant issue. GIFMIS integrates human resource data with the payroll system, ensuring that only qualified employees are paid, thereby saving government funds.
  • 10 Marks

PSAF – May 2017 – L2 – Q5b – Public sector financing initiatives

This question evaluates the feasibility of a public-private partnership (PPP) for constructing and managing libraries in rural areas and identifies associated risks.

The Ministry of Education is currently considering public-private partnership as a means of improving educational infrastructure in the rural areas. The Ministry intends to use Public-Private Partnership to construct and manage modern libraries in rural areas to increase access to quality reading materials in a serene environment. The project would be fully financed by the private sector and will be built on lands secured by the government from the chiefs of the communities.

The private sector requires government guarantee to borrow externally to execute the project. Currently, public library services are free; however, the new project when executed through Public-Private Partnership would be on a “user-pay” basis. The average fees payable per user are estimated at GH¢20 per week and will be subject to an upward review from time to time. In order to stimulate private sector interest in the project, the Ministry intends to immunize the private sector against risks associated with the project. Meanwhile, the Ministry would insist that local materials and skills are employed in the construction and management of the library project. The project is also environmentally friendly as there will be little or no destruction of the forest vegetation. The project when completed will be of great benefit to the country as a whole.

Required:

i) Based on FOUR guiding principles of Public-Private Partnership under the national Public-Private Partnership policy, explain the feasibility or otherwise of the proposed library project by the Ministry of Education. (6 marks)

ii) Explain TWO sources of risks associated with the library project that should be allocated between the public sector and the private sector in the Public-Private Partnership arrangement. (4 marks)

i) Feasibility of the Library PPP Project Based on Guiding Principles:

  • Value for Money: The project is fully financed by the private sector, potentially ensuring value for money if it proves more cost-effective than public sector execution. However, the “user-pay” basis may impact accessibility, raising concerns about affordability and equity.
  • Risk Allocation: Immunizing the private sector against risks contradicts the PPP principle of optimal risk allocation. Risks should be shared between the public and private sectors to align incentives and ensure project success.
  • Affordability: The project introduces user fees, which may limit access for low-income individuals. This could undermine the principle of ensuring that services remain affordable and accessible to all.
  • Local Content and Environmental Considerations: The use of local materials and labor, along with the environmentally friendly nature of the project, aligns with PPP principles, promoting sustainability and local economic development.

ii) Sources of Risks and Their Allocation:

  • Financial Risk: The private sector’s reliance on external borrowing introduces financial risks such as exchange rate fluctuations and interest rate variability. These risks should be shared between the public and private sectors, with the government potentially providing guarantees.
  • Demand Risk: The risk that user fees may not generate sufficient revenue due to lower-than-expected demand should be carefully assessed. This risk could be shared, with the private sector bearing some responsibility for managing and promoting the service to ensure its viability.
  • 8 Marks

PSAF – May 2016 – L2 – Q4c – Public sector financing initiatives

This question explores the objectives and guiding principles of Public Private Partnership (PPP) agreements in Ghana.

i) State ONE objective of a public private partnership agreement?

ii) Explain THREE factors that the Government would consider before entering into a public private partnership agreement?

iii) Explain the following terms used as guiding principles in IPSAS 13 and 32 – Accounting for Public Private Partnership:

  • Service Concession Arrangement
  • Lease
  • Recognition of Revenue
  • Economic Life of an Asset

i) Objective of PPP Agreement: Leverage public assets and funds with private sector resources to accelerate investment in infrastructure and services.

ii) Factors considered before entering into a PPP include:

  • Value for Money: Ensuring the PPP gives greater value than the best realistic public sector alternative.
  • Risk Allocation: Optimizing risk transfer to the party best able to manage it.
  • Ability to Pay: Considering end-user affordability and government budgetary sustainability.

iii) Explanation of terms:

  • Service Concession Arrangement: A binding arrangement where the operator provides a public service on behalf of the grantor using the service concession asset.
  • Lease: An agreement where the lessor conveys the right to use an asset to the lessee in return for payment.
  • Recognition of Revenue: Revenue is recognized evenly over the term of the arrangement as a reduction of liability.
  • Economic Life of an Asset: The period over which an asset is expected to yield economic benefits or service potential.
  • 10 Marks

PSAF – Nov 2023 – L2 – Q4c -Public sector financing initiatives

Discuss PPP investment models and benefits for MTU in the context of developing university infrastructure under fiscal constraints.

Musko Technical University (MTU) is a public University in Ghana. The University has a student population of about Twelve Thousand (12,000). It relies on Government subvention and Internally Generated Fund in running its operations and developing public infrastructure. As a result of the fiscal challenges the Government is experiencing, it has reduced its funding support to the University. This problem together with low Internally Generated Fund has resulted in the University expending greater proportion of its Internally Generated Fund on Goods and Services which reduces spending on infrastructure development. Currently, the University needs a good Library, Lecture Theatre and Hostel facility for the smooth running of its operations. The University is aware of the new Public Funding Initiative called Public Private Partnership (PPP). Fortunately, it has been approached by a South African investor who wishes to enter into a PPP contract with the University to build 8,400-unit capacity hostel facility in the University within two years. This arrangement is expected to reduce students’ internal accommodation deficit from 90% to 20%. Currently, the University’s challenge is how to maintain their control on the Hostel Facility after the construction under PPP.

Required: i) Explain THREE (3) PPP investment models suitable for addressing the needs of MTU. (6 marks)
ii) Discuss FOUR (4) benefits MTU may obtain from such initiatives. (4 marks)

i)Investment models that will appropriately address their challenges and meet their other investment objectives:

  1. Build-Operate and Transfer (BOT): In this model, the South African Investor finances and acquires the asset for the provision of Accommodation for the candidates, operates it for an agreed duration to recoup its investment and transfers ownership to MTU. The features of BOT are:
    • The South African investor invests its capital to build the asset.
    • Risk associated with the condition of the asset will be shared between the South African Investor and MTU.
    • It will take a longer duration for recoupment to occur.
    • Residual interest will be transferred to MTU upon expiration of the agreement.
  2. Build-Transfer and Operate (BTO): In this model, the South African Investor will find the financial resources to build the hostel facility and upon completion will transfer the Hostel facility to MTU before MTU in turn will grant the South African Investor the right to operate the hostel to recoup the investment.
  3. Joint Venture: In this model, the South African Investor and MTU will jointly finance the construction of the 8,400-unit capacity hostel, share management and risk of managing/running the hostel facility.

    (2 marks each = 6 marks)

ii) Benefits MTU will be derived from the Private Public Partnership are as follows;

  • Increase in candidates’ enrollment.
  • Ensuring quality provision and smooth running of academic programs.
  • It will create more jobs both formal and informal.
  • Risk from the investment will be shared by the University and the South African Investor.
  • It will lead to increase in the University’s Internally Generated Fund.
  • The University could use the resources which could have been used in the construction of the hostel facility to construct equally important academic facilities such as a good library and lecture theatre etc.
  • MTU can also benefit from the residual value of the hostel facility at the terminal year of the contract if the investment model is BOT or BTO.

    (Any 4 points @ 1 mark each = 4 marks)

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