Topic: Public sector fiscal planning and budgeting

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  • 4 Marks

PSAF – Nov 2016 – L2 – Q5c – Public sector fiscal planning and budgeting

Explain tax policy and tax planning in the context of tax administration in Ghana.

Explain the following terms used in tax administration in Ghana:
i) Tax Policy
ii) Tax Planning
(4 marks)

i) Tax Policy:
This includes the principles of simplicity, efficiency, fairness, and the ability to collect sufficient revenue. Tax policy ensures that taxes are designed to be as straightforward as possible while effectively generating the necessary revenue for government operations.

ii) Tax Planning:
This involves the strategic approach to ensuring that tax liability is not unduly high. The goal is to minimize tax payments legally, avoid litigation, ensure productive investments, and prevent tax evasion and double taxation.
(4 marks)

  • 4 Marks

PSAF – Nov 2016 – L2 – Q5a – Public sector fiscal planning and budgeting

Explain revenue management and identify three procedures involved.

i) Explain the term Revenue Management.
ii) Identify three procedures involved in Revenue Management. (4 marks)

i) Revenue Management is the recognition, measurement, and accounting for revenue. It also involves the management of the potential and actual revenue of an organization in such a way as to ensure that revenues due are properly collected and accounted for.ii) Procedures in the Management of Revenue:Identification and documentation of various sources of revenue available for the MDA.Provision of information to management on guidance and practices to promote the collection of such revenue.Establishment of management and accounting policies and procedures for revenue mobilization and collection.Establishment of an internal control system for revenue management.Posting of key personnel to take charge of revenue management.Establishment of roles and responsibilities of revenue personnel.Revenue should be properly receipted and promptly paid in gross into the designated bank account of MDA.

  • 4 Marks

PSAF – Nov 2016 – L2 – Q3b – Accounting policies for cash and accrual-based accounting systems.

Explain four circumstances where the Controller and Accountant General can reject payment requisitions by MDAs.

The Controller and Accountant General or an officer appointed by him has the legal authority to reject a requisition submitted by Ministries, Departments, and Agencies (MDAs) for payment.
Required:
Explain FOUR circumstances that will compel the Controller and Accountant General or an officer appointed by him to reject a requisition submitted by an MDA for payment. (4 marks)

i) If a payment voucher is not properly authorized by the head of the department or a person appointed by him, such as a deputy or authorized spending officer.
ii) If a payment voucher is not accompanied by all relevant documents and certifications as approved by the Controller and Accountant-General.
iii) If a payment voucher is not a lawful charge on an appropriation (vote) authorized in the approved estimates.
iv) If the payment of the voucher would result in expenditure exceeding the appropriation.
v) If the payment of the voucher would reduce the balance available in the vote, making it insufficient to meet commitments charged against it.

  • 4 Marks

PSAF – Nov 2016 – L2 – Q3a – Public sector fiscal planning and budgeting.

Explain four significant principles of budget hearing that align MDA budget proposals with government macroeconomic policy.

a) Budget hearing is a critical activity in the budget process which is conducted to review strategic plans and estimates of the departments in order to ensure that these plans and estimates are in accordance with the government’s macroeconomic policy framework.

Required:

Explain FOUR significant principles of Budget Hearing that ensures that Ministries, Departments, and Agencies (MDAs) prepare their budget proposals in accordance with the government macroeconomic policy framework.

  • Alignment with Macroeconomic Framework: The MDA budget should not introduce new political proposals that result in incremental or radical changes to the government’s macroeconomic policy.
  • Certainty in Budget Outcomes: Budget proposals from MDAs should provide certainty in outcomes, ensuring that all relevant costs are captured within a single fiscal year.
  • Legal Compliance: MDA budget proposals must comply with existing laws and legal rules, ensuring that no conflicts arise between proposed expenditures and existing legal frameworks.
  • Evaluation of Cost Variations: It is necessary to determine whether the projects or programs in MDA budget proposals will lead to variations in costs, ensuring that these variations do not extend beyond the fiscal year.

(4 points for 4 marks)

  • 20 Marks

PSAF – May 2021 – L2 – Q5a – Public sector fiscal planning and budgeting

Analyze the budget performance of Atuum District Assembly and explain the functions of internal audit under the Public Financial Management Act.

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)

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:

  1. 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.
  2. Diversify Revenue Sources: The Assembly should explore alternative sources of revenue, such as local economic development initiatives, to reduce reliance on underperforming revenue lines.
  3. 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:

  1. Improved Financial Planning: Effective revenue budgeting enables better financial planning by providing accurate projections of available funds.
  2. Enhanced Accountability: It promotes accountability by setting clear revenue targets and tracking performance against those targets.
  3. Resource Allocation: Helps in the efficient allocation of resources by identifying revenue shortfalls early and adjusting expenditure plans accordingly.
  4. 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:

  1. Evaluation of Internal Controls: Internal audit is responsible for appraising and reporting on the soundness and application of internal controls within the organization.
  2. Risk Management: The internal audit function involves evaluating the effectiveness of risk management and governance processes, contributing to the improvement of these processes.
  3. Operational Efficiency: Internal audit assesses the efficiency, effectiveness, and economy of the administration of programs and operations.
  4. 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.
  • 4 Marks

PSAF – Nov 2020 – L2 – Q5c – Public sector fiscal planning and budgeting

State and explain four internal control systems that Assemblies can implement to effectively control their revenues.

Revenues of Local Government Authorities are often limited. Therefore, there is a need for the Assemblies to institute adequate internal controls over their revenues to improve their financial health.

Required:
State and explain FOUR (4) internal control systems that the Assemblies can put in place to effectively control their revenues. (4 marks)

  • Immediate Banking of Collections: Ensure that all revenue collected is banked promptly to prevent misuse. This can include direct deposits by payers into the Assembly’s account.
  • Accurate Assessment and Collection: Identify all potential revenue sources and ensure accurate levying. Implement electronic systems to track and collect revenue efficiently.
  • Proper Custody of Value Books: Ensure that value books (e.g., receipt books) are stored securely and issued only to authorized personnel. Maintain proper records of these books.
  • Regular Record Keeping: Assign responsible officers for maintaining up-to-date records of revenue transactions. Implement approved accounting software for better accuracy and transparency.
  • 5 Marks

PSAF – Nov 2020 – L2 – Q5a – Public sector fiscal planning and budgeting

Explain five segments of the Ghana Integrated Financial Management Information System (GIFMIS) Chart of Accounts.

Explain FIVE (5) segments of the Ghana Integrated Financial Management Information System (GIFMIS) Chart of Accounts. (5 marks)

 

  1. Institution: This segment defines the institution responsible for the transaction. In Ghana, only the Government of Ghana qualifies as an institutional unit under this segment.
  2. Funding: This segment tracks the source of funding for expenditures, including Fund Types and Fund Sources as established by law.
  3. Functions of Government: This segment classifies outlays by function, providing an overview of the allocation of budget resources among different sectors of the economy.
  4. Organization: This segment defines the organizational structure of Ministries, Departments, Agencies (MDAs), and Metropolitan, Municipal, and District Assemblies (MMDAs), identifying cost centers or units within these organizations.
  5. Program, Sub Program, Projects and Activities: This segment is used to identify government programs and their strategic objectives, tracking outputs and services to achieve these objectives.
  6. Location: This segment will record each geographical location, e.g. where work is
    performed or transactions occur. This is determined by using the Regions, Districts
    and various subdivisions of Metropolitan, Municipal and District areas.
  7. Natural Accounts: This segment is used to define account classes – Revenue,
    Expenditure, Assets and Liabilities. The natural account segment as produced in
    the trial balance is an essential component of the Chart of Accounts.
  8. Two Spare segments: There are two segments with 6 characters each provided for
    future business operations. They may be dependent or independent of each other.
  • 10 Marks

PSAF – July 2023 – L2 – Q5a – Public sector fiscal planning and budgeting

Prepare a Cash Flow Forecast for Tham District Assembly for the first quarter of 2022.

The following transactions relate to Tham District Assembly (TDA):

i) The estimated internally generated funds of the Assembly for the fourth quarter of 2021 and the first quarter of 2022 are given below:

Source of Revenue Oct 2021 (GH¢’000) Nov 2021 (GH¢’000) Dec 2021 (GH¢’000) Jan 2022 (GH¢’000) Feb 2022 (GH¢’000) Mar 2022 (GH¢’000)
Fees and Charges 300,000 320,000 310,000 400,000 450,000 420,000
Licenses 120,000 120,000 200,000 180,000 140,000 160,000
Property rate 800,000 1,200,000 1,000,000 900,000 900,000 1,300,000
Fines and Penalties 50,000 50,000 40,000 60,000 80,000 80,000

ii) The revenue policy of the Assembly is as follows:

  • Fees and Charges: 100% of Fees and Charges are expected to be collected in the month of estimation.
  • Licenses: Licenses are collected in the month following the month of estimation.
  • Property Rate: Property rates are collected in the third month after the month of estimation.
  • Fines and Penalties: Fines and Penalties are collected on the spot.

iii) Experience shows that about 10% of the amount owed in respect to property rate is never received.

iv) Decentralised transfer is estimated at GH¢2,000,000 and GH¢1,800,000 for the first and second quarters of 2022 respectively. The decentralised transfers are often released in the second month of each quarter, except for the first quarter, which is released in the last month.

v) Goods and services are paid two months in arrears. The projected expenses in the Assembly’s 2021 and 2022 budgets are as follows:

Oct 2021 (GH¢’000) Nov 2021 (GH¢’000) Dec 2021 (GH¢’000) Jan 2022 (GH¢’000) Feb 2022 (GH¢’000) Mar 2022 (GH¢’000)
365,000 280,000 280,000 290,000 200,000 320,000

vi) The Assembly budgets to acquire equipment and furniture amounting to GH¢300,000,000 in the month of February 2022. It has planned that 50% of the amount will be paid in the month of purchase, and the balance paid equally over the following two months. The equipment and furniture will be depreciated at the rate of 10% per annum.

vii) The cash and cash equivalent balance at the end of the 2021 financial year was GH¢63,000.

Required:
Prepare a Cash Flow Forecast for the first quarter of 2022, showing clearly the forecast for each month and the quarter as a whole. (10 marks)

Tham District Assembly

Cash Flow Forecast for the First Quarter of 2022

 

  • 18 Marks

PSAF – May 2017 – L2 – Q3a – Public sector fiscal planning and budgeting

This question involves preparing a cash forecast for a public hospital for the first quarter of 2017 and advising on financing options.

KTM Regional Hospital is a public referral hospital under Ghana Health Services established in 1980. The hospital is a sub-vented organization that finances its operations from Internally Generated Revenues (IGR) and government subventions. In order to forecast for the first quarter of 2017, you are provided with the following information on revenues and expenditure projections of the Hospital for the fourth quarter of 2016 and first quarter of 2017.

Month IGR (GH¢ ‘000) Subvention (GH¢ ‘000) Donations (GH¢ ‘000) Non-Established Post (GH¢ ‘000) Goods and Services (GH¢ ‘000) Non-Financial Assets (GH¢ ‘000) Other Expenditure (GH¢ ‘000)
October 2016 2,000 8,000 200 300 700 1,200 120
November 2016 2,400 – – 310 740 – 240
December 2016 2,500 – 100 400 900 1,000 125
January 2017 3,000 10,000 500 600 800 – 130
February 2017 3,200 – 700 820 1,600 – 150
March 2017 3,400 – 900 800 840 – 290

Additional Information:

  1. The cash and bank balance of the Hospital as at December 2016 was a deficit of GH¢500,000.
  2. Breakdown of IGR:
    • National Health Insurance Customers (60% of IGR) pay two months after service.
    • Corporate Customers (20% of IGR) have one-month credit terms.
    • Cash Customers (20% of IGR) pay immediately.
  3. Government subvention is released in two equal instalments in the second and third month of each quarter.
  4. Donations for March 2017 (GH¢900,000) will be received 40% in cash and 60% in kind.
  5. Non-established post refers to wages and salaries for casual and contract workers, paid in the month incurred.
  6. Goods and services are paid 40% in the month incurred and 60% in arrears.
  7. Non-financial assets are paid for in four equal instalments starting from the month of purchase.
  8. Other expenses are paid as and when incurred.

Required:

i) Prepare a cash forecast for the Hospital for the first quarter of 2017, showing the forecast for each month and that of the quarter as a whole. (12 marks)

ii) On the basis of the cash forecast in (i) above, advise management on the financing options available to them for the 2017 fiscal year. (4 marks)

 

i) Cash Forecast for the First Quarter of 2017

Month Receipts/Inflows (GH¢ ‘000) Payments/Outflows (GH¢ ‘000) Surplus/(Deficit) (GH¢ ‘000) Balance Carried Down (GH¢ ‘000)
January 3,040 2,140 900 (500) + 900 = 400
February 7,740 2,308 5,432 400 + 5,432 = 5,832
March 8,480 2,568 5,912 5,832 + 5,912 = 11,744
Total 19,260 7,016 12,244 11,744

Workings:

  • Receipts/Inflows:
    • IGR (Cash): Collected immediately (20% of total IGR).
    • IGR (NHIS): Collected two months after service (60% of IGR).
    • IGR (Corporate): Collected one month after service (20% of IGR).
    • Subvention: GH¢5,000,000 in February and GH¢5,000,000 in March.
    • Donations: GH¢500,000 in January; GH¢700,000 in February; GH¢900,000 in March (40% in cash, 60% in kind).
  • Payments/Outflows:
    • Non-Established Post: Paid fully in the month incurred.
    • Goods and Services: 40% paid in the month incurred, 60% in arrears.
    • Non-Financial Assets: Paid in four equal instalments starting from the month of purchase.
    • Other Expenditure: Paid fully in the month incurred.

ii) Advice to Management:

  • January Financing Needs: Seek additional financing in January or revise payment plans to cover the GH¢500,000 deficit.
  • Investment of Surplus: The cash surpluses in February and March should be invested in short-term securities to maximize returns and optimize cash management.

 

 

   

 

  • 10 Marks

PSAF – May 2017 – L2 – Q2a – Public sector fiscal planning and budgeting

This question explores the methods of authorizing payments from the Consolidated Fund and identifies statutory payments permissible by law in the public sector.

The objective of enactments relating to public financial management, among others, is to safeguard public funds from plunder. One way to achieve this objective is by making specific provisions on the modalities for making payments from the Consolidated Fund (Article 178 of the 1992 Constitution). The law requires that all payments from the Consolidated Fund should be authorized and the payment should comply with certain general rules.

Required:

i) Identify and explain THREE ways of authorizing payments out of the consolidated fund. (6 marks)

ii) Identify FOUR statutory payments permissible by law in the public sector. (4 marks)

i) Ways of authorizing payments out of the Consolidated Fund:

  • Appropriation Act: When Parliament passes an Appropriation Act, it authorizes the withdrawal of funds from the Consolidated Fund to cover expenditures outlined in the budget.
  • Supplementary Estimate: A supplementary estimate approved by Parliament allows additional funds to be withdrawn when new or additional expenditures arise during the fiscal year.
  • Advance of Appropriation: When a budget is not effective from the start of the fiscal year, Parliament may approve an advance of appropriation to authorize expenditure until the full budget is passed.

ii) Statutory payments permissible by law:

  • Interest Payment and Debt Repayment: Payments related to the servicing and repayment of national debt.
  • Pension Payments: Statutory pension payments to retired public sector employees.
  • Statutory Transfers: These include transfers to the District Assembly Common Fund, Ghana Education Trust Fund, and the National Health Insurance Scheme.
  • Statutory Transfers to Ghana Infrastructure Investment Fund: Payments allocated to the Ghana Infrastructure Investment Fund for development projects.

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