Topic: Public sector fiscal planning and budgeting

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  • 4 Marks

PSAF – May 2019 – L2 – Q2d – Public sector fiscal planning and budgeting

Identify ways to improve Internally Generated Funds (IGF) of local governments.

d) You have recently been appointed as a District Chief Executive (DCE) of a particular district. It has come to your attention that the Internally Generated Funds (IGF) of the District Assembly are very low, and you intend to address the problem for the assembly.

Required:
Identify FOUR (4) ways in which the IGF of the assembly can be improved.
(4 marks)

Ways by which the Internally Generated Fund (IGF) of Local Governments can be improved include:

  • Recruitment of quality and competent revenue staff: Hiring skilled personnel to manage revenue collection processes effectively.
  • Outsourcing of revenue collections: Engaging competent commission collectors to enhance the efficiency of revenue collection.
  • Setting revenue targets: Establishing clear revenue targets for revenue collectors to drive performance.
  • Proper supervision: Ensuring effective supervision of revenue staff to prevent revenue leakages and ensure accountability.
  • Rotation of revenue staff: Rotating revenue staff to prevent collusion and complacency.
  • Accurate data collection: Collecting and updating accurate data to improve revenue forecasts and collection strategies.
  • Public education and sensitization: Educating the public on how revenue collected will benefit the community, thereby encouraging compliance.
  • Periodic valuation of taxable properties: Regularly valuing and revaluing taxable properties to ensure accurate property rate collections.
  • Motivation of revenue staff: Providing incentives, including periodic awards, to motivate revenue staff and increase productivity.
  • Introduction of electronic payment systems: Implementing electronic payment systems to make revenue collection more efficient and reduce leakages.
  • 4 Marks

PSAF – May 2019 – L2 – Q2b -Public sector fiscal planning and budgeting

Outline the procedures for payment of works procured by an MDA.

b) Funds are released from the consolidated fund to the Ministries, Departments, and Agencies (MDAs) for use only when an appropriation bill has been passed into an appropriation act. However, when the Appropriation Act is issued, there are certain procedures usually followed in making payments for Capital Expenditure.

Required:
Outline the procedures for payment of works procured by an MDA.
(4 marks)

The general rule is that all covered entities shall use GIFMIS from the commencement of the procurement process through to payment. The procedures for payment of works procured by an MDA include the following:

i) Inspection for the purpose of certification: The Principal Spending Officer (PSO) inspects the physical output of the works and supplies to certify their completion. This inspection can be done before progress payment or when the work is fully completed.

ii) Certification of completion: Upon completion of works or supply of goods and services, the PSO prepares a certificate statement, including details such as the quantity and particulars of the works, method and result of the inspection, and any necessary remedial actions.

iii) Recording invoices and supporting documents: After certification, the PSO records the details of the invoices in the GIFMIS and uploads the certification statement and other supporting documents onto the system.

iv) Approval of payment voucher: The head of accounts and the PSO ensure the validity, accuracy, and legality of the claims for payment before approving the payment voucher on GIFMIS.

v) Payment: The Controller and Accountant General releases cash to the covered entities using GIFMIS. Payments are made through electronic fund transfer (EFT) for third-party transactions, system checks or electronic means for internal payments, and physical cash disbursement only from imprest or for allowances.

  • 6 Marks

PSAF – May 2019 – L2 – Q2a – Public Procurement

Analyze internal control measures for public assets, outline payment procedures for capital expenditure, explain procurement offenses, and suggest ways to improve IGF in local governments.

a) The backward development in the public sector has been attributed to weaknesses in the Internal Control Systems in the public sector. Proper systems for the effective control over the custody and management of assets in public institutions are critical for Public Sector Accounting.

Required:
Analyze FOUR (4) key control measures required to be put in place to ensure effective management of Public Assets.
(6 marks)

The following controls are necessary for effective management of public assets:

Fixed assets:
i) Proper use of the fixed assets: Ensure that systems exist to prevent wrongful use of public assets by both authorized and unauthorized persons. For example, institute tracking systems over vehicles and other assets. Physical restrictions such as locks and security systems are also important to safeguard the use of assets.

ii) Establishing a Fixed Asset Coordinating Unit: The principal spending officer should establish a coordinating unit within the entity to take responsibility for fixed asset management.

iii) Keep proper records on fixed assets: The entity should maintain and update a fixed asset register to ensure accurate records for effective checks and decision-making.

Investment of Excess Moneys:
i) Establish an investment policy: The entity should establish an investment policy in accordance with the PFM Act and regulations to ensure lawful and prudent investment activities.

ii) Accurate accounting and reporting: Ensure that all investments made from public monies are accurately accounted for and reported.

Advances and Loans:
i) Establish appropriate schemes: Implement appropriate advance and loan schemes with the approval of the Minister of Finance and Parliament, where necessary.

ii) Institute effective recovery systems: Ensure effective recovery systems for advances and loans made under the scheme.

iii) Proper accounting and reporting: Follow proper accounting and reporting practices for advances and loans.

Cash management:
i) Cash planning and forecasting: Implement an effective cash planning and forecasting system to ensure efficient management of cash resources.

ii) Custody of cash resources: Ensure that all cash is deposited gross in designated bank accounts.

iii) Approval of bank accounts: Open bank accounts under the approval of the Controller and Accountant General as part of the Treasury Single Account system.

iv) Bank reconciliation: Regularly perform bank reconciliations to ensure accurate records of cash transactions.

  • 20 Marks

PSAF – April 2022 – L2 – Q5 – Accounting policies for cash and accrual-based accounting systems

Explain constitutional provisions on budgeting, the concept and benefits of Citizen’s Budget, the role of budget guidelines, and how to address financial transactions not covered by IPSAS.

a) Budgeting is an essential element of Public Financial Management and it is a requirement of the Constitution and other Public Financial Management enactments. Budgeting is a process that requires the engagement and participation of citizens for accountability purposes. The prime objective of budgeting is to set out the financial plans of government for the ensuing year and how government plans and programs will be financed.

Required:
i) Explain TWO (2) provisions in the 1992 Constitution relating to budgeting. (4 marks)

ii) Explain Citizen’s Budget and identify THREE (3) of its benefits in Public Financial Management. (5 marks)

iii) Explain the role of budget guidelines in budgeting and identify FOUR (4) items of information to be expected in a budget guideline. (6 marks)

b) A Public Sector entity that applies IPSAS is currently faced with a particular financial transaction for which no IPSAS exists for dealing with the issue. The management is undecided on the choice of accounting policy to apply.

Required:
Discuss how the matter can be dealt with by the management of the entity. (5 marks)

a) Provisions in the 1992 Constitution Relating to Budgeting

i) Responsibility and Authority for National Budget:

  • The President is required to prepare and lay before Parliament at least one month before the end of the financial year, estimates of the revenues and expenditure of the Government of Ghana for the following financial year.
  • Budget system and budget presentation: The estimates of the expenditure of all
    public offices and public corporations, other than those set up as commercial
    ventures shall be classified under programmes or activities which shall be included
    in a bill to be known as an Appropriation Bill and which shall be introduced into
    Parliament to provide for the issue from the Consolidated Fund or such other
    appropriate fund, of the sums of money necessary to meet that expenditure and
    the appropriation of those sums for the purposes specified in that bill; and (b) shall
    in respect of payments charged on the Consolidated Fund, be laid before
    Parliament for the information of members of Parliament.
  • Estimates of the Judicial Council: The Chief Justice shall, in consultation with the
    Judicial Council, cause to be submitted to the President at least two months before
    the end of each financial year, and thereafter as and when the need arises(a) the
    estimates of administrative expenses of the Judiciary charged on the Consolidated
    Fund under article 127 of this Constitution; and (b) estimates of development
    expenditure of the Judiciary.
  • Laying of Estimates of Judicial Council: The President shall, at the time specified
    in clause (1) of this article, or thereafter, as and when submitted to him under
    clause (3) of this article, cause the estimates referred to in clause (3) of this article
    to be laid before Parliament.

ii) Citizen’s Budget and Its Benefits

Explanation of Citizen’s Budget:A Citizen’s Budget is a simplified version of a government’s budget, designed to be understood by the general public. It presents the key components of the budget in an accessible format, using clear language, charts, and graphics that are easy for non-experts to understand.

 Benefits of Citizen’s Budget:

  1. Enhances Transparency and Accountability: Citizen’s Budgets make government fiscal policies and decisions more transparent, thereby holding the government accountable to the public.
  2. Promotes Civic Engagement: It empowers citizens by informing them about government financial decisions, which can lead to more informed public participation in governance.
  3. Improves Public Understanding: By presenting budget information in a simplified format, it increases the public’s understanding of how public funds are being used, thereby fostering trust in government.

iii) Role of Budget Guidelines and Items in a Budget Guideline

Role of Budget Guidelines:Budget guidelines provide comprehensive information on the policies, constraints, and procedures for the current budgeting process. They guide Ministries, Departments, and Agencies (MDAs) in preparing their budgets by outlining the economic outlook, revenue forecasts, fiscal targets, and budget ceilings:

 Items to be Expected in a Budget Guideline:

  1. Economic Outlook: Information on the country’s economic environment, including GDP growth rates, inflation, and exchange rates.
  2. Revenue Forecasts: Expected revenue collections from various sources, including taxes, grants, and other income.
  3. Fiscal Targets: These include goals related to debt levels, budget deficits, and other financial targets.
  4. Expenditure Ceilings: Maximum spending limits for each government department or agency.

b) Dealing with Financial Transactions Not Covered by IPSAS

  • When a financial transaction is not covered by any existing IPSAS, management must apply judgment to develop an appropriate accounting policy. This involves:
    1. Considering the relevance and reliability of the financial information: The policy should result in information that is useful to users for making economic decisions.
    2. Referencing Other IPSAS Standards: Management should refer to IPSAS standards that address similar or related issues.
    3. Applying Established Practices: Consider industry practices or standards used by similar public sector entities.
    4. Consistency: The chosen policy should be applied consistently in future transactions of a similar nature, ensuring comparability of financial statements over time.
    5. Disclosure: Any policy chosen should be fully disclosed in the financial statements to inform users of the applied methodology.
  • 10 Marks

PSAF – April 2022 – L2 – Q3b – Public sector fiscal planning and budgeting

Prepare a budget performance report and analyze the budget outturn for Nkong District Assembly.

Below is the Revenue and Expenditure Extract of Nkong District Assembly for the year ended 31 December, 2020.

Description Annual Budget (GH¢’ 000) Revised Budget (GH¢’ 000) Actual Performance (GH¢’ 000)
Decentralised Transfer 32,000 35,000 42,000
Internally Generated Fund 56,000 45,000 33,000
Compensation 23,000 20,000 25,700
Goods and Services 13,000 18,000 24,000
Non-Financial Asset 18,000 15,000 12,000

Required:
i) Prepare a Budget Performance Report of Nkong District Assembly based on the extract above. (5 marks)

ii) Write a report analyzing the Budget Outturn while assessing the likely causes of the variances during the year. (5 marks)

Answer:
i) Budget Performance Report of Nkong District Assembly

Description Revised Budget (GH¢’ 000) Actual Performance (GH¢’ 000) Variance (GH¢’ 000) Variance (%)
Decentralised Transfer 35,000 42,000 7,000 20.00%
Internally Generated Fund 45,000 33,000 (12,000) (26.67%)
Compensation 20,000 25,700 (5,700) (28.50%)
Goods and Services 18,000 24,000 (6,000) (33.33%)
Non-Financial Asset 15,000 12,000 3,000 20.00%

ii) Report on Budget Outturn Analysis
From: Budget Officer
To: District Chief Executive, Nkong District Assembly
Date: [Insert Date]
Subject: Analysis of Nkong District Assembly Budget Performance for the Year Ended 31 December 2020

Introduction:
This report provides an analysis of the budget performance of Nkong District Assembly for the year ended 31 December 2020. The analysis is based on the variance between the revised budget and actual performance for key revenue and expenditure items.

Revenue Performance:

  • Decentralised Transfer: The actual revenue from decentralised transfers exceeded the revised budget by GH¢7,000,000, representing a positive variance of 20%. This positive outturn could be attributed to higher-than-expected transfers from central government, possibly as a result of additional allocations or improved compliance with transfer schedules.
  • Internally Generated Fund (IGF): The IGF fell short of the revised budget by GH¢12,000,000, resulting in a negative variance of 26.67%. This significant underperformance could be due to factors such as the economic impact of COVID-19 on local businesses, poor enforcement of revenue collection, or inefficiencies in the IGF mobilization process.

Expenditure Performance:

  • Compensation: Expenditure on compensation exceeded the revised budget by GH¢5,700,000, translating to a negative variance of 28.50%. This over-expenditure may be linked to unanticipated wage adjustments, higher staff recruitment, or payment of arrears.
  • Goods and Services: There was an overspend of GH¢6,000,000 on goods and services, leading to a negative variance of 33.33%. The overspend might be a result of increased operational demands or inflationary pressures that were not anticipated during the budget preparation.
  • Non-Financial Assets: The actual expenditure on non-financial assets was GH¢3,000,000 less than the revised budget, showing a positive variance of 20%. This underspend could indicate delays in the implementation of capital projects or procurement issues.

Conclusion:
Overall, the budget performance of Nkong District Assembly shows mixed results, with significant variances in both revenue and expenditure. While the revenue from decentralised transfers exceeded expectations, the shortfall in IGF and the overspend on compensation and goods and services are areas of concern that need addressing in future budget cycles. It is recommended that the assembly strengthens its IGF mobilization strategies and enforces stricter controls on expenditure to avoid budget overruns.

Recommendations:

  • Enhance IGF Mobilization: Implement more effective strategies for revenue collection to improve the performance of IGF.
  • Expenditure Control: Strengthen internal controls to manage expenditures, particularly in compensation and goods and services.
  • Capital Project Management: Improve planning and execution of capital projects to ensure timely utilization of allocated funds.
  • 5 Marks

PSAF – May 2018 – L2 – Q3c – Public sector fiscal planning and budgeting

Explain financial controls provided by the Financial Administration Regulation (FAR) 2004 over the management of public funds.

The Financial Administration Regulation (FAR) 2004 L.I 1802 provided for various financial controls over the management of public funds.

Required:
Explain the controls provided by the FAR under the following areas:
i) Signing a blank document
ii) Security of signatures
iii) Use of indelible ink and prohibition of alterations
iv) Amendment of figures
v) Fraction of reporting currency

The controls provided by the FAR under the specified areas are as follows:

i) Signing a blank document:
Under Regulation 199(1) of the FAR, no officer is allowed to sign any incomplete document or record pertaining to accounts. This control prevents the misuse or fraudulent completion of such documents after they have been signed.

ii) Security of signatures:
Regulation 198 of the FAR states that any officer signing a document or record pertaining to accounts must ensure that the document or record is signed in such a way as to preclude subsequent alteration or addition to the information contained in the document or record. This measure is to secure the integrity of the signature against forgery or unauthorized changes.

iii) Use of indelible ink and prohibition of alterations:
According to Regulation 205(1) of the FAR, accounting records and documents must be written in indelible ink. Additionally, an entry in an accounting record or document must not be erased or altered by overwriting. This control ensures that records remain permanent and tamper-proof.

iv) Amendment of figures:
Regulation 206 of the FAR provides that an incorrect figure in a document may be amended by ruling a single line through it, so the original entry can still be read clearly, and the correct figure is inserted above the original entry. The officer signing or certifying the document must then initial the amended entry. This control ensures that any corrections are transparent and traceable.

v) Fraction of reporting currency (one cedi):
Regulation 208 of the FAR stipulates that for the purpose of keeping public and other government accounts and preparing financial statements, all pesewas must be rounded upwards to the nearest Cedi. This control simplifies the reporting and management of currency in public accounts.

  • 10 Marks

PSAF – May 2018 – L2 – Q3b – Public sector fiscal planning and budgeting

Prepare the MDA’s annual budget and calculate the amount of budgetary subvention support required for the fiscal year.

The Budget Department of a Ministry, Department, and Agency (MDA) has received the following inputs from the cost centres for the 2015 budget year:

Expenditure Item Amount (GH¢)
Construction Works – New Projects 289,199.28
Information and Documentation 250,877.16
Depreciation of Assets 450,000.00
Miscellaneous General Expenditure 180,000.00
Property Purchases 366,874.28
Staff Allowances 50,315.60
Research Activities 243,596.45
Charges and Fees 17,752.62
Repairs and Maintenance 32,294.05
Rehabilitation Expenses 661,506.00
Special Services 24,327.00
Travel and Transport 270,789.35
Printing and Publication 151,924.25
Materials and Consumables 193,236.81
General Cleaning 450,000.71
Utilities 650,000.81
Salaries for Established Post 783,594.00
Staff Overtime 871,900.00
Advertisement and Media 170,000.74
Out-of-Station Allowances 131,114.85
Insurance 74,943.28

For the 2015 fiscal year, the Ministry has projected to generate an amount of GH¢3,036,230.57 from Internally Generated Funds. The law in 2015 allowed the MDA to retain all internally generated funds and use it to finance their budget expenditure.

Required:
i) Prepare the MDA’s annual budget using the current chart of accounts for the public sector and submit it to the Ministry of Finance as their proposed budget for the 2015 fiscal year. (8 marks)

ii) Calculate the amount of budgetary subvention support required from the Ministry of Finance for the 2015 fiscal year. (2 marks)

i) MDA’s Annual Budget for 2015 Fiscal Year:

Expenditure Item Amount (GH¢)
Compensation
Salaries for Established Post 783,594.00
Staff Overtime 871,900.00
Staff Allowances 50,315.60
Out-of-Station Allowances 131,114.85
Total Compensation Budget 1,836,924.45
Goods and Services
Utilities 650,000.81
Advertisement and Media 170,000.74
Insurance and Compensation 74,943.28
Information and Documentation 250,877.16
Depreciation of Assets 450,000.00
Miscellaneous General Expenditure 180,000.00
Research Activities 243,596.45
Charges and Fees 17,752.62
Special Services 24,327.00
Travel and Transport 270,789.35
Printing and Publication 151,924.25
Materials and Consumables 193,236.81
General Cleaning 450,000.71
Total Goods and Services Budget 3,052,505.90
Non-Financial Assets
Repairs and Maintenance 32,294.05
Rehabilitation Expenses 661,506.00
Property Purchases 366,874.28
Construction Works – New Projects 289,199.28
Total Non-Financial Assets Budget 1,349,873.61
Grand Total Expenditure Budget 6,239,303.96

(8 marks evenly spread using ticks)

ii) Calculation of Budgetary Subvention Support Required:

Description Amount (GH¢)
Total Expenditure Required 6,239,303.96
Less: Internally Generated Funds (IGF) 3,036,230.57
Total Subvention Required 3,203,073.39
  • 5 Marks

PSAF – May 2018 – L2 – Q3a – Public sector fiscal planning and budgeting

Explain the difference between direct and indirect taxes and suggest three ways to improve tax collection.

Both direct and indirect taxes are critical components of government revenue as they are intricately linked with the overall economy. Collection of these taxes is important for the government as well as the well-being of the country.

Required:
Distinguish between direct taxes and indirect taxes and suggest THREE ways by which tax collection can improve.

Direct and Indirect Taxes and Ways of Improving Collection by the State:

  • Direct Taxes: A direct tax is one that the taxpayer pays directly to the government. These taxes cannot be shifted to others. A homeowner, for example, pays personal property taxes directly to the government. In a general sense, a direct tax is imposed upon an individual person (juristic or natural) or property (e.g., real and personal property, livestock, crops, wages).
  • Indirect Taxes: An indirect tax is imposed upon a transaction, such as a sales tax or a value-added tax (VAT), which is paid by consumers when they purchase goods or services. The tax is collected by intermediaries (e.g., retailers) from the person who bears the ultimate economic burden of the tax (e.g., consumers).

(2 marks)

Ways to Improve Tax Collection:

  1. Educating taxpayers: Providing education about compliance and the benefits of paying taxes to the nation.
  2. Ensuring regular updates to the taxpayer registry: Keeping an updated registry of taxpayers to improve the accuracy of tax assessments and collections.
  3. Simplifying the tax system: Making the tax system simpler to encourage formalization and compliance, especially among small businesses and individuals.
  • 4 Marks

PSAF – May 2018 – L2 – Q1c – Public sector fiscal planning and budgeting

Discuss the benefits and preconditions for the successful adoption of an Integrated Financial Management Information System (IFMIS).

Governments all over the world have seen the need to have government businesses automated and integrated for efficiency and effectiveness. This has led to the adoption of Integrated Financial Management Information Systems (IFMIS) by most governments in managing public finances.

Required:
i) Identify TWO benefits a country stands to gain by adopting an Integrated Financial Management Information Systems (IFMIS) in the management of Public funds.

ii) Explain TWO preconditions required to be met for the successful automation of government business through the IFMIS.

i) The benefits of IFMIS in public funds management in Ghana include:

  • Improved budgetary, financial management, and reporting processes: IFMIS enhances the accuracy, timeliness, and reliability of financial information, thereby improving financial management and reporting.
  • Uniformity in accounting and reporting: The introduction of a common Chart of Account and Database for all MDAs and MMDAs ensures uniformity in accounting and reporting.
  • Reduce manual processes, duplication of effort and errors
  • Match disbursements with availability of revenues thus Improve efficiency in cash management and treasury Management System
  • Enhance and re-enforce the internal control systems in public financial management for accountability.

ii) The preconditions for IFMIS to function effectively include:

  • Effective information technology infrastructure: A robust IT infrastructure, such as internet connectivity, is required to support the automation process.
  • Strong political commitment: The successful implementation of IFMIS requires strong political will, which is necessary for resource allocation and setting the tone for effective use.
  • Expertise to administer the system: The availability of human resources with the right expertise in Management Information Systems (MIS) is essential for the effective implementation of IFMIS.
  • 6 Marks

PSAF – May 2018 – L2 – Q1b – Public sector fiscal planning and budgeting

Explain four objectives of proper cash management in public financial management.

Your subordinate read an article written by the Minister of Finance titled “Streamlining and improving public cash management.” As a professional student of Public Financial Management, your subordinate has drawn your attention to a certain paragraph of the publication that reads:

“Without cash management it is very difficult for the Controller and Accountant-General or the Minister of Finance to make informed financing or investment decisions. For these reasons, all MDAs and MMDAs are expected to prepare cash-flow forecasts as part of their budgetary control system. All revenue agencies are to prepare revenue projections, just as the Ministry of Finance also prepares a schedule of statutory payments and non-tax revenues.”

Required:
Briefly explain to your subordinate FOUR objectives of proper cash management in public financial management.

You agree with me that cash management is a very important aspect of public financial management that ensures the availability of funds to support intended uses while controlling and safeguarding the cash resources of the entity. The objectives of proper cash management in public financial management include:

  • To eliminate idle cash balances: Every Cedi held as cash rather than used to augment revenues or decrease expenditures represents a lost opportunity. Funds that are not needed to cover expected transactions can be used to buy back outstanding debt or can be invested to generate a flow of funds into the Treasury’s account. Minimizing idle cash balances requires accurate information about expected receipts and likely disbursements.
  • To deposit collections timely: Having funds in-hand is better than having accounts receivable. Once funds are due to the Government, they should be converted to cash-in-hand immediately and deposited in the Treasury’s account as soon as possible.
  • To ensure timely disbursements: Some payments must be made on a specified or legal date. For other payments, such as vendor payments, discretion in timing is possible. Timely disbursements can be used to secure discounts and reduce costs.
  • To promote efficient and effective management of cash resources: Cash management seeks to ensure that cash of government is used wisely to achieve the intended purposes while demonstrating accountability.
  • To enhance financing decisions: Effective cash management will help forecast cash deficiencies and crises, enabling proactive steps to be taken to address potential problems ahead of time.

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