importance of financial accountability and prudent personnel management to the leadership...

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Importance of Financial Accountability

and

Prudent Personnel Management

to the

Leadership Development

of Nigeria in the Third Millennium

Mr John Chukwunyelu Uzokwe

Bsc, Msc, ACCA, ACA, AMBIM

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TABLE OF CONTENTS

ABSTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

FINANCIAL ACCOUNTABILITY - CONCEPTUAL AND THEORETICAL FRAMEWORK . . . . . . . . . . . .5

The concept of financial accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Origins of financial accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Scope of the Financial Accountability concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Variety of Financial Accountability mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Governance Conceptual and Theoretical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Governance and Transparency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

THE NIGERIAN STATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..13

The Nigerian Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .13

Nigeria: Resource Curse or Blessing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

FINANCIAL ACCOUNTABILITY FRAMEWORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Internal Financial Accountability Mechanisms Its Importance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Internal Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

THE NIGERIAN INTERNAL AND EXTERNAL FINANCIAL ACCOUNTABILITY MECHANISMS. . . . .21

Internal Financial Accountability Mechanisms. . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Budget Office of the Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 22

Federal Budget Preparation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 22

Office of the Accountant General of the Federation. . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .. . . . . . . 25

Modernisation of Internal Audit . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Financial Accounts and Consolidated Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 27

Audit Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

External Financial Accountability Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Parliament. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Central Bank of Nigeria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 28

The Media . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

External audit - Supreme Audit Institution and the Auditor General of the Federation . ... . . .. . . . . . 29

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Supreme Audit Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Auditor General of the Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Report of the Auditor General for the Federation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Nigerian Extractive Industries Transparent Industries Act 2007. . . . . . . . . . . . . . . . . . .. . . . . . . . . . .35

NNPC: Process and Forensic Review Report by KPMG and SSA (Interim Report on Processes). .. 37

NNPC Newspaper Articles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

NEGATIVE EFFECTS OF THE LACK OF FINANCIAL ACCOUNTABILITY. . . . . . . . . . . . . . . . . . . . . . 43

Corruption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Systematic Approach to Anti Corruption Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Political Corruption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Corruption in Nigeria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

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Abstract

It is something of a paradox that a country categorised as one of the richest in human and material resources in

Africa finds itself in this inglorious position. Nigerians and her well-wishers hoped that with the enormous

resources, especially oil, the country would take off and achieve rapid economic and industrial transformation.

But this was not to be as through the combination of mismanagement, poor leadership and incredible levels of

corruption on the part of public officials, Nigerias fortunes have been squandered or siphoned off. (Wegh 2008)

This paper addresses the importance of public sector transparency, accountability, in particular financial

accountability, and prudent personnel management to meeting Nigeria's development aims. The lack of

transparency and accountability, amongst a number of other issues, is the biggest drawback, preventing Nigeria

from fulfilling her potential as one of Africas largest economies. Although corruption is not entirely restricted

to Nigeria, its situation is distinctive in that it is yet to put in place a credible independent infrastructure for

enforcing anti-corruption laws. The Government of Nigeria identified governance and corruption as issues that

must be tackled in order to reverse economic decline, they passed an anti-corruption bill and an independent

anti-corruption commission was created. It even reissued its financial regulations but there is no indication that

they are being followed more closely than in the past. In fact, on the African continent, the calls for more public

sector transparency and accountability is part of a set of endeavours aimed at solving the paradox of copious

natural resources and increasing donor magnanimity, on the one hand, and seemingly intractable abject poverty,

on the other hand. It is also aimed at addressing corruption, money laundering, and the theft of State resources

(UNECA, 2005). This paper illustrates the current public sector Accounting and Governance systems present in

Nigeria, the resulting implications on the economic development of Nigeria and highlights the urgency of

resolution. It concludes with viable, constructive ideas for restoring Nigeria on the path of financial

transparency, accountability and growth.

The data for this paper was derived from the research and analysis of scholars, analysts and practitioners,

government documents, and recent newspaper and journal articles. This is to say that the primary method of

study was an extensive review of available literature for description and critical analysis of the importance of

financial accountability in the Nigerian economy today.

Discussions in this paper are limited to the Federal Government, with a few references made to State and Local

Governments. This is not an indication that the other two tiers of government are not as important but rather due

to the limited scope of the project itself.

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Financial Accountability - Conceptual and Theoretical Framework

The Concept of Financial Accountability

In the simplest terms, financial accountability is about responsible stewardship for the use of public money.

Financial accountability is a means of ensuring that public money has been used in a responsible and productive

way. It is about verification of legality and regularity of financial accounts, but also about making sure that

value for money has been achieved in the use of resources.

The concept of financial accountability, as a relationship in which citizens hold the Government to account for

the stewardship of public money, is fairly complex and intricate. Establishing and securing an effective financial

accountability relationship requires setting up of a network of internal and external financial accountability

mechanisms, including adequate accounting, reporting and internal and external auditing. Financial

accountability requires the Government to manage finances prudently and regularly inform the public what has

been achieved with the use of public funds. Therefore, in procedures of both internal and external financial

accountability, the emphasis is gradually shifting from the classical concern of regularity and propriety of public

expenditure, to value for money investigations, which examines whethereconomy, efficiency and

effectiveness in the use of resources has been attained.

Growing attention has furthermore been paid to the establishment of systems of performance measurement

within Government departments, which should enable the Parliament and the public to assess how well public

money is spent and what has been achieved with it. Increasing attention has lately been paid to the regular

reporting on the financial control findings to the public, which should attain greater transparency in the conduct

of public finances and reinforce the level of trust between state and citizens when spending of public money is

in question.

Finally, it should be stressed that financial accountability mechanisms cannot be analysed as isolated

phenomena, but as mutually interrelated elements, which are in the process of constant interaction, mutually

supporting their structures and functions. Therefore, we can easily talk about financial accountability in terms of

a system, which consists of different mutually related elements/mechanisms of financial accountability. It

should be stressed that the effectiveness of financial accountability as a system depends mostly on the existence

of a proper balance between its different supporting mechanisms, so that weaknesses in one form of financial

accountability can be compensated for by controls through other mechanisms.

Origins of Financial Accountability

Accountability for the use of public money has always been at the centre of attention of politicians,

philosophers, lawyers, economists as well as ordinary people. In the old ages, the Greek philosophers devoted

considerable attention to handling of public money. Aristotle, thus, wrote: Some officials handle large sums of

public money; it is therefore necessary to have other officials to receive and examine the accounts. These

inspectors must administer no funds themselves. Different cities call them examiners, auditors, scrutinisers andpublic advocates.

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The United States Constitution states that: No Money shall be drawn from the Treasury but in Consequence of

Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public

Money shall be published from time to time. The French Revolution went much further and proclaimed a

doctrine of popular sovereignty over finance: All citizens have the right to ascertain, either in person or through

their representatives, the necessity for public taxation, to consent freely thereto, to observe its expenditure and

to determine its apportionment, its assessment, its collection and its duration.

Scope of the Financial Accountability concept.

It could be argued that the financial accountability relationship, in its widest sense, encompasses two broad

processes:

1) Adequate Income (including taxation, royalties, rent, etc) i.e. raising and collection of money from citizens

and other institutions in an appropriate manner and

2) Adequate allocation and use of these resources.

Although there is undoubtedly an integral relationship between these processes, financial accountability refers

more to the second process, where the emphasis is placed on the responsible and productive use of public

money, i.e. public expenditure. In this sense, it is useful to distinguish between several key stages of public

expenditure management:

1. Expenditure planning by the executive

2. Parliamentary debate and approval3. Spending of the money voted

4. Accounting for the money spent.

Variety of Financial Accountability mechanisms.

The Government can be held accountable by the Parliament and in the last resort, citizens, to ensure that money

is spent in accordance with Parliamentary wishes.

Financial accountability is primarily safeguarded by a number of different forms:

- Parliaments activity, work of parliamentary investigatory committees,

- Internal controls and reporting mechanisms within departments and

- External audit

With increasing devolution of managerial discretion and financial responsibility, ministries, departments and

agencies face increasing pressures to show that their managers have used their money and other resources in a

way that accomplishes their functions efficiently. The question that remains, however, is which type of system

of internal control would be most suitable for transitional countries, like Nigeria, who are facing numerous

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challenges in building new systems of financial accountability. The system should aim at achieving the

following number of objectives:

Giving a reliable account of the money spent and the income achieved

Ensuring that there is probity and sound financial administration, including proper stewardship of

public resources and compliance with regulatory standards.

Ensuring the achievement of value for money, that is economy, efficiency and equity in how funds

are used

Identifying, evaluating and managing risk

Supporting good decision making and assisting offices to properly assess the financial consequences of

policy and other choices

Enabling the Government to plan for the future and to align its resource allocation with its policy

objectives

Maximising Income sources Making it possible, from a financial Management point of view for organisational change to occur to

meet new circumstances.

Financial accountability forms one of the arms of the general term accountability, which in turn is interwoven

with the concepts of transparency and good governance.

Governance

Governance Conceptual and Theoretical Framework

During the post-colonial period, most Asian, African, and Latin American countries began to adopt the ideas,

principles, and institutions of accountability representing the liberal democratic mode of governance found in

advanced capitalist nations (Haque, 1994).

One of the most crucial features of this liberal-democratic framework is the existence of certain basic

mechanisms of accountability such as legislative committee, parliamentary debate, public hearing, ministerial

control, ombudsman, and media scrutiny.

Such democratic means have been quite useful to ensure government accountability in terms of delivering

goods and services, addressing public needs and demands, maintaining neutrality and representation,

ascertaining citizens entitlements, and guaranteeing equality and justice. However, in recent years, there has

emerged a unique set of challenges to the realization of accountability due to the current changes in public

governance under the rubric of reinventing or re-engineering government, which is often described as a market-

centred, neoliberal approach to governance (Haque, 1998a).

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Although this businesslike approach to governance has been reinforced by internal economic and political forces

in advanced capitalist nations, in the case of developing countries, it has been prescribed or imposed largely by

international financial agencies (IMF imposition of Structural Adjustment Programme SAP, in Nigeria 1986).

Some of these current reforms pose formidable political, managerial, and methodological challenges to

accountability

The traditional objectives and norms of governance (which emerged in advanced democracies and were

followed in many developing nations) have been the achievement of socioeconomic progress, law and order,

poverty alleviation, employment generation, and public well-being; and the maintenance of values such as

impartiality, equality, representation, integrity, fairness, welfare, citizenship, and justice (Haque, 1996; Lewis,

1991). But with the recent paradigmatic transition in the mode of public governance, its objectives have shifted

to economic growth and productivity, and its normative standards have changed toward efficiency, competition,

profit, and value-for- money, although these standards are largely associated with business management (Clarke

and Newman, 1997; Jann, 1997; Kickert, 1997). As Brereton and Temple (1999: 463) mention, it is

uncontroversial to note that there is a consensus that the private sector ethos has invaded the public sector.

Instead of being answerable for social welfare, citizens rights, poverty eradication, impartiality, fairness,

representation, and justice, public governance is increasingly accountable for accelerating economic-growth

rate, boosting efficiency and productivity, encouraging competition, maximizing profit, and ascertaining cost

effectiveness. Thus, under the current mode of governance, the standards of public accountability have become

instrumental in nature, especially in terms of an overemphasis on procedural, economic criteria (e.g. efficiency

and productivity) rather than substantive public concerns (e.g. equality and representation).

But since the early 1980s, this active, direct, and leading role of public governance has increasingly been

replaced with a more passive, indirect, and facilitating role (Peters and Pierre, 1998), with implementation and

monitoring of divestment and contracting out.

When the public sector plays a direct role in providing goods and services based on concrete socioeconomic

programmes and projects, its activities become more tangible and measurable, and thus, easier to scrutinize;

whereas its indirect role to encourage and facilitate the private sector to deliver goods and services is

relatively intangible, immeasurable, and thus, unverifiable.

Thus, although it is possible to hold public agencies accountable for tangible performances such as the quantity

and quality of services that they directly provide, it is not always possible to make them accountable for their

intangible performances such as divesting resources, making business deals, and monitoring services contracts.

In other words, the current transition in the role of public sector from rowing (direct production and

distribution) to steering (indirect monitoring and evaluation) implies a challenge to the realization of its

accountability.

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Under the current paradigm of new public management, this redefinition of citizens as customers, represents

an accountability challenge. Public governance is accountable for the effective delivery of its services to

customers who can pay, while it may remain indifferent towards low-income citizens who are not in a position

to use such services due to their financial incapacity.

Beyond this market-centred redefinition of citizenship, a customer-oriented focus in governance has also been

reinforced by the proliferation of user charges. This provision of user charges means that the recipients of public

sector services have to pay according to the costs of delivering such services, and it often allows Government

Agencies to determine the amount of charges without being subjected to legislative approval (OECD, 1998;

Wilson, 1998). Such a provision is likely to weaken the legal protection of economically underprivileged

citizens who often depend on the state for basic services. Thus, the principle of user charges implies that

although public governance may be readily accountable to affluent customers, it is not obliged to show

accountability to underprivileged citizens who cannot afford user charges and do not qualify as customers.

Another manifestation of excluding common citizens from the equation of public accountability is the

restructuring of the public sector in favour of the affluent business class at the expense of the poorer sections of

the population. Under the current market-biased governance, in addition to the windfall gains received by the

business elites from their purchase of privatized assets sold at nominal prices and their favourable deals in the

contracted-out services (Haque,1996), the remaining public sector has also been restructured to the disadvantage

of underprivileged citizens.

Nigerians complain that the privatisation of government assets which former President Obasanjo undertook atWorld Bank direction has lacked transparency and that well connected Nigerians have grabbed the countries

crown jewels at sale or give away prices.

Governance and Transparency

Governance is about people and how they organise themselves to achieve their common objectives. In a

democracy, people are the ultimate source of constitutional and political legitimacy. They are the beneficiaries

of good governance and victims of bad governance. To promote good governance and prevent bad government,

people must be empowered with knowledge about the role and responsibilities of Government, their citizenship

rights and obligations and the consequences if their rights are infringed upon or their obligations are not

exercised. Empowered people are likely to call to account, those in authority and ensure that the institutions,

principles and process that support checks and balances are strengthen. Good Governance entails inclusiveness,

popularity, transparency and responsiveness to the public.

Transparency is a prerequisite for good governance and sound financial regulation. It is a remedy for otherwise

illegal or objectionable actions, an approach which has influenced todays anti-corruption Strategies: If the

broad light of day could be let in upon mens actions, it would purify them as the sun disinfects (Brandeis).

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In the aftermath of the financial crisis, transparency has become a priority and agenda of regulators around the

world.

Some see Transparency as being embedded in the broader contents of lawful and ethical behaviour e.g. Swiss

code of ethics. The principles for transparency developed in constitutional law are also applicable to financial

regulation which proposes a comprehensive, rule-based rather than a purely processed oriented approach and

suggests a three dimensional concept of transparency in financial regulation.

The first dimension refers to institutional aspects i.e. procedures and decision making. By providing legal

certainty, transparency serves as an anchor for financial regulation. It is the basis for establishing trust, which is

the key element in any financial system. Once rules are published and transparent, holding those who are bound

by those rules accountable for violations is a logical consequence. Accountability therefore becomes part of the

concept of transparency. In its second dimension, transparency is understood as the substantive backbone of

financial regulation. It lays open the values and goals of financial policy and regulation. The third dimension is

accountability of actors as an essential element for rebuilding confidence in the financial system.

Nigeria faces several daunting challenges in its efforts to improve governance in a nation of 150 million people.

The socioeconomic and political challenges have remained perpetually unresolved because of bad governance,

and it has seen its institutions deteriorate due to decades of military dictatorships and corrupt and visionless

leaders. Some of the outstanding governance issues include: the need for rules for withdrawing funds from the

Excess Crude Oil Account, the ability of the legislature to scrutinize the Federal budget, as well as a legal and

judiciary system that is run-down, and above all, the embedded nature of corruption in the country and itsinstitutions.

Obasanjo presided over a few notable and well publicised economic successes. In 2003, he entrusted economic

policy making to a team of energetic young technocrats he referred to as his apostles, several were recruited

from overseas, most notable, finance minister Ngozi Okonjo Iweala, who had previously served as a vice

president at World Bank, and more recently, Managing Director of the World Bank. Okonjo Iweala and her

colleagues set out to implement an ambitious reform programme that would strive for transparency in financial

matters and due process in the awarding of government contracts. In 2006 Okonjo Iweala, helped by the US

treasury department persuaded the Paris Club to forgive some 18 billion dollars of Nigerias foreign debt.

In recognition of the importance of these issues, reforms and measures put in place to improve transparency and

governance include:

a. The adoption and effective implementation of the Nigeria Extractive Industries Transparency Initiative

(NEITI) to improve governance of the oil and gas sector and provide a legal basis for collecting and

publishing oil revenue data. The FGN continues to regularly provide information on revenue

allocations to the three tiers of the government (federal, state and local) in widely circulated

newspapers and also on official websites.

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b. the adoption of the National Economic Empowerment and Development Strategy (NEEDS)

c. Fiscal Responsibility Act 2007; this law formalizes fiscal rule, a budget process around a medium-

term fiscal framework and fiscal transparency and reporting standards has been approved by both

houses of parliament The Fiscal Responsibility Act was passed in 2007with the objective of

introducing financial accountability, probity and Transparency in the management of public funds, it

also set up the Fiscal Responsibility Council., which was empowered to enforce the compliance of the

dictates of the act (attached in Appendix 1.2).

d. the establishment of a computerized federal payroll management system;

e. The establishment of the Economic and Financial Crimes Commission (EFCC); established in 2002,

enforces laws relating to banking, money laundering, advance-fee fraud (also known as 419 fraud)

and other laws relating to economic and financial crimes. and,

f. the introduction of a Value for Money audit in government procurement contracts;

The rolling out of Accounting Transactional Recording and Reporting System (ATRRS), resulting in

timely availability of fiscal data;

There has also been a Growing International Focus on Transparency, which is amply demonstrated by the

proliferation in recent years of initiatives aimed at directly and indirectly promoting and enforcing transparency

practices. These include:

The United Nations convention against corruption articles 9 to 14

The International Monetary Funds Code of Good Practices and Fiscal Transparency

The Organisation of Economic Co-operation and Development (OECDs) Best Practices for Budget

Transparency

The Global Reporting Initiatives Global Transparency Initiative

The Extractive Industries Transparency Initiative (EITI)

The Save the Childrens UK Publish What you Pay

The George Soros Open Society Institution

The Global Witness

The Catholic Agency for Overseas Development (CAFOD)

The OECDs Project on Revenue Transparency

The IMFs Guide on Resource Revenue Transparency

The Basel III 2010

United Nations Economic Commission for Africa African Governance Project

The Democracy Index Of the Institute for Democracy in South Africa

The Worldwide Governance Indicators Dataset of the World Bank

Swiss Code of Ethics

Critical areas of transparency clarity of roles and responsibility, public availability of information, open

budget preparation, execution and reporting, independent assurances of integrity. The extent to which these are

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practised in Nigeria fiscal transparency and accountability, deluge of new laws and regulations of international

standard especially the passage of Fiscal Responsibility Act 2007, demonstrates that the nation is making

progress towards trying to improve corporate governance, however implementation shortfalls of these laws,

lingering capacity constraints, lack of political will and commitments, endemic corruption, have hindered any

progress in good governance.

Equally, without core economic and fiscal reforms put into practice, no amount of legislation can extricate the

country and her people from economic mismanagement, corrupt practices and the dire poverty plaguing the

country. Against the backdrop and realisation that economic development and the fight against poverty can

effectively be enhanced under good governance and fiscal responsibility, some elites and citizens, civil society

organisations and NGOS are still demanding transparency in budgeting, reporting and oversight functions of

the legislature and emphasising their rights to know and determine how public funds are collected and spent.

There have been various studies, essays, and researches focusing on governance in Nigeria. All reveal a country

bugged down by a myriad of problems, including abject poverty of the generality of the citizenry, abysmal

performance by both political class and public office holders, declining agricultural productivity, high illiteracy

(Some Nigerian graduates cannot spell Polytechnic), gross indiscipline, very low purchasing power of the Naira

and high inflation.

*Please read the attached Appendix 1.1 Abridged Story of Nigeria which gives an insight as to why theSearch for a Lasting Federation) has been elusive, due to the fundamental North South Dichotomy, which

has allowed corruption and bad Governance to take root in Nigeria.

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The Nigerian State

The ABC of Jonathans Transformation Agenda is lucid, pungent, and relevant and addresses the major and key

priority needs of the nation and holds a key to the transformation of Nigeria economically and socially. The

Problem is in its implementation.

The Nigerian Experience

Nigeria is a country blessed with rich human and natural resources. The country has the largest population in

Africa of over 150 million, and great diversity of cultures, cities and terrain. Her wide span of land includes

large quantities of some of the most valuable mineral resources in the world. Given the volume, value andvarieties of available natural resources, Nigeria should be ranked among the richest countries of the world.

However, Nigeria typifies the paradox of poverty in the midst of plenty. At the dawn of the Third Millennium,

approximately 70% of the population still live on less than US$1 a day, an indication of extreme poverty.

Annual Real Gross Domestic Product (GDP) growth has remained sluggish (especially during the military

regime), but has improved during the last few years, currently averaging 7% per annum (OECD, 2010).

However, the high growth rates do not seem to have translated into equitable distribution of wealth. The current

Nigerian investment rate is unlikely to reach the minimum investment rate required to achieve the Millennium

Development Goals (MDGs) by 2015.

Most of the Foreign Direct Investment (FDI) into the country is directed at the oil, gas and extractive sectors.

Thus, the economic structure remains undiversified and oil exports account for 95% of total export earnings,

while the manufacturing sector accounts for less than one percent (UNDP, 2004). As at 2007, life expectancy

was 46.9 years.

Nigeria: Resource Curse or Blessing?

According to Wegh 2008 It is something of paradox that a country categorised as one of the richest in human

and material resources in Africa finds itself in this inglorious position. Nigerians and her well-wishers hoped

that with the enormous resources, especially oil, the country would take off and achieve rapid economic and

industrial transformation. But this was not to be as through the combination of mismanagement, poor leadership

and incredible levels of corruption on the part of public officials, Nigerias fortunes have been squandered or

siphoned off. A statement as true in 2008 as it is today.

Countries that are rich in natural resources are often poor because of the resource curse associated with this

natural endowment. With specific reference to the curse of corruption, exploiting natural resources tends to

take precedence over good government. Auty (1997), for instance, examines the relationship between broadly

defined resource-rich groups of countries over the period between 1960 and 1990. Sachs and Warner (2000)

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show a robust inverse relationship between growth and resource riches for a sample of 97 countries over the

period 1970-1989. Hausman and Rigobon (2003), while supporting the generally inverse relationship, pointed

out that oil-rich countries performed well economically in the 1980s when oil was doing well. Equally, most

Arab oil producing and exporting countries have not overheated their local economy with oil money, rather,

they have invested wisely and widely in international companies and real estate and they have also played the

Ace game with their robust currency reserves.

In an attempt to explain Africas performance with growth and investment regressions, Mkandawire and Soludo

(1999) find that while the Dutch disease syndrome, caused by large natural-resource endowments, constitutes

serious impediment to investment and growth in Africa, other factors also exist to explain her

underdevelopment. Competing oil and mining companies, backed by their Governments, are accused of a

willingness to deal with anyone who can assure them of a concession. This has bred corrupt and repressive

governments and armed conflict, leading to economic and social problems characterizing resource-rich countries

in Africa today.

Very large, quickly growing, but time-limited production and revenue flows, combined with a high degree of

volatility as a result of fluctuating world prices, when combined with weak administration, ownership of such

wealth provides ample scope for inefficient policies, discretionary behaviour, and outright corruption. For

countries like Nigeria, the problem is how to turn this resource curse into a blessing. Owning resources may

not be a curse in itself but the problem seems to lie in the institutional factors inherent in the management of

these resources. Transparency has been propagated as a fundamental first step to lifting the curse and effective

Resource Management would also be essential. These can be achieved with a conscious commitment andeffective institutional creation and implementation, of a framework, that is able to reconceptualise and bring

about development.

With 80% of its public revenues dependant on oil, Nigeria's reliance on oil production for income generation

clearly has serious implications for its economic policy management (World Bank, 1995). In addition, the

country faces daunting challenges of re-building a country badly damaged by decades of military misrule and a

fragile democracy.

In an effort to avert the resource curse, Nigeria could start by enabling other streams of resource revenues to

promote economic growth and poverty reduction. This could be achieved by departing from a consumption

oriented economy to a production oriented friendly country and restoring basic industries such as:

- Agriculture - including cocoa, palm oil, palm kernel, cotton, groundnut, timber, etc. These agricultural

industries sustained the Nigerian economy before the military takeover, during which period, Nigeria was

ranked as one of the fastest growing Economies in the world.

- Rehabilitation of moribund (associated) processing industries including the textile mills in Kaduna and

Lagos, Palm Oil processing mills in the South East, South South, Delta and Edo states,

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- Resuscitation of the Car/Truck assembly plants (with proper, monitored, legal binding frameworks for

the assembly plants to attain at least 50% local content production within 10 years). The Automobile

Industry is one of the main barometers with which to measure the industrial activities of a nation, especially

with its attendant multiplier effect and employment generation.

- The need to decongest the courts is more than imminent. A situation where litigants have to wait

between 10 to 15 years for judgement to be passed by the respective judges could be termed justice

delayed is justice denied

- The gap in the power sector has far reaching implications for improving the business climate,

sustaining economic growth and the social wellbeing of Nigerians. About 45% of the population have

access to electricity with only about 30% of their demand for power being met. The power sector is plagued

by recurrent outages to the extent that some 90% of industrial customers and a significant number of

residential and other non residential customers provide their own power at a high cost to themselves and to

the Nigerian economy. In a country where electricity is said to be about 40 per cent cost of production

(Daily Sun, June 7, 2010), reasoned macroeconomic policy and investment in electricity would lure

lucrative industries into the society and wake up the sluggish economy.

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Financial Accountability Framework

The question of public accountability has become more significant due to the growing challenge to various

means of accountability posed by recent changes in governance. The major means of accountability that are

traditionally practiced include the following:

1. external-formal mechanisms, including legislative instruments (legislative committees and parliamentary

questions), executive means (controls exercised by political executives over public agencies), and judicial or

quasi-judicial processes (administrative courts and ombudsmen);

2. external-informal mechanisms, such as public hearings, interest groups, opinion polls, and media scrutiny;

3. internal-formal means, including officials rules, codes of conducts, official hierarchies, segregation of duties,supervision of work, and performance reviews; and

4. internal-informal mechanisms, such as organizational culture, professional ethics, and peer pressure (DeLeon,

1998; Haque, 1994; Heeks, 1998).

.

The viability of these established and widely practiced means of public accountability is affected by the

emerging neoliberal mode of governance, which has brought new sets of institutions, structures, and norms, and

expanded the scope for administrative politicization, managerial autonomy, and publicprivate partnership.

First, one of the basic prerequisites for public accountability in democracies is the political neutrality of career

public servants, which has come under challenge due to the growing power of ministers or political executives

to exert influence on the public service. In this regard, it has been pointed out by Rhodes (1997: 46) that in

countries such as the UK, this is an era of macho-ministers in terms of expanded ministerial power to make

decisions related to the appointment, dismissal, and retirement of top civil servants.

These decisions are increasingly based on the political considerations and personal preferences of ministers.

The rise of ministerial power to politicize the civil service has contributed to blurring the professional lines

traditionally drawn between politicians and civil servants (Rouban, 1995: 50). The politicization of civil

servants by ministers which violates the principle of political neutrality, and thus public accountability, of

public employees has become much easier due to the recent policy to eliminate permanent tenure of senior

public servants and introduce temporary contract-based appointments.

Such a policy makes these public servants more vulnerable to political executives who now exercise control

over their job contracts and careers For example; the tenured heads of government agencies have been replaced

with the so-called chief executives appointed for five years based on individual contracts; In Nigeria, the

Permanent Secretaries are now legally required to serve a maximum term of 5 years. These changes are not

conducive to accountability because the means of accountability, such as ministerial control or supervision over

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public servants, is meaningful only when public servants are politically neutral, and when they enjoy such

immunity from political influence due to their merit-based selection and job permanence

When senior public servants are already politicized especially because their appointments are on short-term

contracts decided by ministers as the political heads the ministerial control as a means of accountability may

not only make these public servants extremely loyal to their respective ministers while ignoring their

accountability to the general public, it may also expand the power of ministers to the extent that they themselves

become less accountable to the public.

Equally, there have been changes in the criteria to evaluate program and performance in the public sector as a

means to ensure its public accountability. More specifically, under new public management, many countries

have shifted from process-oriented to result-oriented performance with an increasing focus on outcomes rather

than inputs public agencies and employees are supposed to be accountable for policy outcomes rather than

policy processes.

As far as accountability is concerned, this result-oriented mode ofgovernance is likely to render the

existing means of accountability ineffective.

Internal Financial Accountability Mechanisms Its Importance

Internal Audit

Internal audit is another valuable tool in securing financial accountability. Internal audit could be defined asindependent, objective assurance and consulting activity designed to add value and improve an organizations

operations.

Historically, internal auditing has solely focused on financial systems and financial controls within an

organization. However, the role of internal audit has been changing and widening over time. These changes

form a continuum from pre-audit, through regularity or compliance audit, to risk-based audit as well as

reviewing the adequacy of the underlying activities to manage those risks.

The origins of internal audit dated back from internal checking on the accuracy and validity of all payments

made by an organisation (pre-audit). No payments could be made without them first being reviewed and

stamped for payment by the staff of the internal audit section.

Internal audit practice now forms a spectrum from this, original role of pre-audit, to risk-based audit. The latter

consists of internal audit reviewing the risk management and internal control systems and processes with only

limited testing of internal controls to ensure that they are actually applied as required. The role of the internal

audit in financial matters has remained quite valuable and very important for building reliable new transitional

systems of financial accountability.

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The objective of internal audit should be to help to ensure that the internal control system of an entity is

adequate and effective. Adequate can be construed as meaning fit for purpose, so in the context of internal

controls, that the controls are appropriate for the risks which the organisation faces and that they are actually

implemented on a routine basis. The term effectiveness demands more than this and infers an interest in the

actual outcome of the controls, for example ensuring that the transactions are actually appropriate, accurate and

valid. As a result, if internal audit is to conclude on whether the risk management and internal control systems

are effective, it should undertake at least some substantive testing to confirm whether or not the internal controls

have operated as expected and thus ensured that the transactions are accurate and valid.

Pre-payment audit checks (or pre-audit for short) are examinations of payment vouchers and other documents

before the associated payments are made. The objective of pre-audit is to ensure that payments made are:

Valid

Necessary and accurate; and

Expenditure is in line with the approved budget.

The advantages of pre-audit are said to be that it can help to:

ensure that all expenditure is necessary and appropriate

ensure that all payments are properly authorised before being made

ensure that expenditure is in accordance with relevant laws and regulations

prevent management fraud reduce the incidence of fraud or irregularity

confirm the accuracy of the classification and the coding of expenditure

ensure arithmetical accuracy of the transactions which are checked.

The pre-audit approach to internal audit is found in many African governments and many other continental

European countries with a legal tradition based on the Napoleonic Code. As far back as September 1974, the

Udoji Commission report had queried the cost effectiveness of the pre-audit. The report recommended that:

A move be made towards eliminating the prepayment or 'internal check' function of internal audit to

comply with Financial Instruction. Secondly, if this were done, internal audit would have more time to

pursue its intended functions, which should not be part of the day-to-day control system but rather an

independent review of the day-to-day controls, so as to be able to advice management on their

effectiveness and means of improvement.

Ex ante checking, whether it be universal or on the basis of sampling, is unlikely to be a cost-effective process:

the effort put in to checking all transactions is clearly disproportionate, while sampling is unlikely to have

sufficient dissuasive effect. The second, and fundamental, principle is that any retention of ex ante control runs

up against the crucial objection that, de facto if not de jure, it displaces responsibility for financial regularity

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from the person actually managing expenditure onto the person approving it. This displacement of

responsibility, meaning in effect that no-one is ultimately responsible.

Effective internal control systems should not only include suitable checks and other control procedures, but they

should also include review processes to ensure that the checks and controls are actually implemented and

complied with. Managers who see internal audit's role in compliance terms believe that they can rely on internal

audit to ensure that controls are actually reliably followed in all circumstances.

Managers should be responsible for implementing effective control systems. They should also be responsible

for ensuring that these control systems are routinely complied with.

A comprehensive set of instructors and regulations are developed and reviewed by internal audit to ensure all

existing risks will be avoided. All that is then required is for a regular check that these instructions are followed

by all staff at all times.

The Key areas of the Internal Audit functions now include:

Internal control evaluations aimed at monitoring the effectiveness of internal Control

Management and Operations audit aimed at risk assessment and Management Process

System Assurance aimed at Procedural compliance including Information Technology system Integrity

Operation Strategic Risk Assurance aimed at Audit committee briefs

Internal Consultations aimed at Corporate Governance issues

Frequent reporting with a view of ensuring compliance with established policies and regulations

Other issues concerning the internal audit operations include:

Earning Measurement issues

Asset Valuation Disclosures

Capital write offs and write ins

Confidentiality Issues

These issues require a systematic and disciplined approach to be adopted by the internal auditor to ensure

effectiveness of internal control, risk management process, promoting open dialogue and communication.

Effective internal control systems will not only include checks that regulations are complied with, but also

periodic review of these regulations to ensure that they remain valid. Internal auditors have a professional

responsibility to ensure that these regulations are regularly reviewed and amended as appropriate. The Federal

Government of Nigeria introduced revised Financial Regulations which were applicable from 1st January 2000.

The full benefits of internal audit can only be achieved if managers and internal auditors share the same

perception of their mutual responsibilities. The view of internal auditors as only compliance auditors may

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indicate a limited understanding of the roles of internal audit and also a lack of understanding of the full range

of responsibilities that managers themselves should have. Internal auditors should work with managers to

facilitate the implementation of effective control systems.

Internal auditors should also advise on the appropriate controls, compliance checks and review procedures that

they should adopt. The Internal Auditors are in positions of trust and must be seen to maintain integrity,

independence, good relationship with management and should have good accounting and audit experience. The

internal audit functions should be both ex ante and post ante.

*Please read the attached Appendix 1.2 For Objectives of Internal Control and Examples of ControlProcedures for different Accounting Systems

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The Nigerian Internal and External Financial Accountability Mechanisms

It is worthy of note that during the first republic i.e. after independence, both the Federation and the regions had

a high reputation for efficiency and Integrity and were visibly transparent. Consequently financial

accountability, at the time, rested on disciplined implementation of General Orders (GO) and Financial

Instructions (FI). It is interesting to note that effective high scores in real sector development including

infrastructural development, higher educational standards, health, and agriculture were contemporaneous with

the First Republic.

The Federation Accounts are prepared under a Cash rather than Accrual Accounting basis.

Under cash based accounting, transactions and events are recognized when cash is received or paid as opposed

to the Accrual based Accounting system where transactions or events are recognised at the time economic value

is created, transformed, exchanged, transferred or extinguished and when all, not only cash flows, are recorded.

The Federal Government has introduces Medium Term Sector strategies, under the Ministry of Finance, with

the objective of ensuring consistency between sectoral spending plans, existing government Development

priorities and envisaged resource envelopes.

Internal Financial Accountability Mechanisms

One of the key instruments of internal financial accountability mechanisms is the strength of Internal Checking

mechanism in which an officials work is independently checked by another official. For example, this system

ensures that the same person cannot make orders, verify, check deliveries and make payments.

Internal Financial Accountability Systems are based on the delegation of Financial Controls by the Hon.

Ministry of Finance to heads of Line Ministries (Permanent Secretaries) or officials in the budget and finance

department of these ministries. The role of the ministry of finance is one of monitoring co-ordination, but it

remains responsible for the overall effectiveness and consistency of the system. There are a number of internal

controls whose aim is to ensure compliance, and lay in force, financial accountability including financial

accounting and reporting, accounting controls, procurement controls, fiscal controls, performance management

and internal audit.

In Nigeria, virtually all of the Internal Financial accountability mechanisms rest with the Minister of Finance;

the very able, qualified, amiable, intelligent and one of the new generation technocrats in Africa - Ngozi Okonjo

Iweala, the former Managing Director of World Bank, who also doubles as the Economic Minister, with the

daunting mission of ensuring Accountability, Probity and Transparency in the Public Sector Management.

However there are serious and disturbing leakages within the whole system, including system updates,

accounting mechanisms and internal checking system, management inefficiency and problems with built in

internal controls.

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The following are the functions of the Federal Ministry of Finance:

- Preparing annual estimates of revenue and expenditure for the Federal Government:

- Formulating policies on fiscal and monetary matters;

- Mobilizing domestic and external financial resources through both internal and external financial

institutions, for development purposes.

- Maintaining adequate foreign exchange reserves aimed at Ensuring a healthy balance of payment position;

- Maintaining the internal and external value and stability of the Nigerian currency; Monitoring government

revenue from oil and non-oil resources;

- Supervising the insurance industry;

- Managing revenue allocation matters;

- Relating with relevant international organization and financial institutions, such as the Economic

Commission for Africa, World Bank, International Monetary Fund (IMF). United Nations Development

Programmes (UNDP), Commonwealth Economic Committee, European Union/Africa. Caribbean and

Pacific, Economic and Social Commission of the AU, ECOWAS, etc.

Under the Finance Ministry are two key departments:

1. Budget Office of the Federation

Budgets

Niskanem 1971 established an influential and enduring model of bureaucrats as budget maximizers. He

described bureaucrats as actors who pursued Budget maximising strategies for a number of different internalmotivations including salary, prerequisites of the office, public reputation, power, patronage and other personal

gains. These Bureaucrats are further classified as

a). climbers,

b). conservers (protective type),

c). Advocates (zealots, statesmen oriented towards effective service delivery with public interest at heart)

d). Altruistic and Aggrandizers

There are also minority groups of civil servants (not necessarily in Nigeria) who uphold professional ethics that

include service to the citizenry as opposed to service to self. If the preparation of the budget is transparent, its

implementation enhances financial accountability.

Federal Budget Preparation Process

Two of the three arms of the Nigerian Federal Government, the Executive and the Legislature Share the

responsibility for the Federal Budget. The President is required under the Constitution to submit a budget for

the next financial year to the National Assembly, for approval. By law, it covers a stated period, called a

financial year, which in the Nigerian case, runs from the 1st of January to the 31st December every year.

Therefore, the Executive is responsible for preparing the Federal Budget while the Legislature approves it.

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There have been significant improvements to the preparation and submission of the budget. The Budgets give

high hopes of expectations to the citizens which are subsequently dashed due to dismal performances.

The President gives directions to the Minister of Finance and the Budget Office of the Federation to prepare the

Budget in line with the governments vision and direction for Nigeria which is currently contained in the 7 Point

Agenda and the Vision: 2020.

The Budget Office of the Federation, in consultation with the revenue generating agencies of the Federal

Government (which includes NNPC and the Central Bank of Nigeria) project estimates of oil and non-oil

revenue (including Value Added Tax allocation, customs and exercise, licenses and internal revenue, direct

taxes, fees, mining royalties, earnings and sales, armed forces revenue, interest and repayment (general), interest

and repayment (state), reimbursements; rent on government property; statutory and non statutory financial

transfers and miscellaneous revenue). Once the underlying assumptions are agreed, they are then used to

estimate the amount of total revenue that should accrue to the Federation Account. The share of the Federal

Government is then determined. In addition to the annual estimates, the Government prepares medium and long

term revenue framework which forms the guiding framework for the annual budget.

The next step is to determine the Governments Expenditure Profile for the Financial Year under various

expenditure Heads and Subheads. The fiscal rule being observed under the Fiscal Responsibility Act 2007

stipulates that total spending should not exceed total revenues by more than 3% of GDP (Gross Domestic

Product).

The Difference between the Total Revenue and Total Expenditure is referred to as the Budget Deficit or

Surplus, as the case may be. The Aggregate Expenditure Ceiling (the maximum amount of total spending in the

budget) is then sub-allocated among the three major heads of expenditure, that is, Statutory Transfers, Debt

Service and the MDAs Expenditure.

The Frameworks are then presented at the Stakeholders Consultation to different Stakeholders (including the

National Assembly, the organised private Sector, Civil Society and the Public Sector) for their input and buy- in.

For the National Assembly, every ministry, department and agencies are called upon to defend their budgets

and the consultations are more rigorous and continuous as their input is particularly taken into account in

preparing the Budget. The Budget estimates is then presented to the two houses of the National Assembly.

The Medium-Term Revenue Framework, the Medium-Term Expenditure Framework and statements of how the

Federal Government proposes to conduct its fiscal affairs for the next three years are summarised in a Fiscal

Strategy Paper. The Fiscal Strategy Paper is then presented to the Federal Executive Council, along with the

Medium- Term Expenditure Framework, for consideration and approval, so that required spending tradeoffs can

be properly debated and agreed. Once approved by the Federal Executive Council the Medium-Term

Expenditure Framework and the Fiscal Strategy Paper are shared with the National Assembly.

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The next stage is the issuance of the Budget Call Circular by the Minister of Finance. The Budget Call Circular

gives detailed instructions to the MDAs on how to prepare and submit their expenditure estimates in accordance

with governments priorities and within the limits of their Expenditure Ceilings. MDAs then prepare their

budget proposals in accordance with the Budget Call Circular and within their Expenditure Ceilings, and submit

same to the Budget Office of the Federation.

The draft Budget is then presented to the President for approval. Once approved by the President, the Budget

and other supporting documents are formally presented by the President to the National Assembly for

consideration and appropriation. The Budget is presented at a joint session of the Senate and the House of

Representatives. Following the presentation of the Budget to the joint sitting of the National Assembly, the

Budget is debated. Both the Senate and House of Assembly are given the right to make amendments to the

budget framework, mandated to reallocate apportionments between the various programmes which constitute a

particular mission. Increase or decrease allocations of any particular project playing a much more substantial

role in public finance expenditure strategy and stating priorities of policy objectives in order to strengthen the

link between budget execution and parliamentary authorisation. In order to strengthen the links between budget

execution and parliamentary authorisation, Parliament has the right to supervise the movement of appropriations

such as credit transfers, carry over to the next budget/brought forward from previous budget, advances and

cancellations on any particular expenditure item. Members of the houses are provided with much better

information on the overall economic, social and financial situations of the country at the time the budget is

discussed. Detailed economic and fiscal policy guidelines broken down by main functions are debated at many

sessions of the two houses.

The essence of the financial accountability relationship lies in the parliaments authorisation of the public

revenue and expenditure plans. By authorising revenue and expenditure, legislation provides a framework of

law, which is the basis for calling the government to account for its actions. Statutory approval of revenue and

expenditure thus provides a good foundation for exercising financial accountability which in its most basic

form consists of a comparison of submitted accounts to those initially approved by parliament. This ex-post

financial accountability starts only after revenue and expenditure have been appropriately planned and

authorised by parliament.

Once the Budget has been approved, the Executive is authorised to spend. Equally, the budget office continues

to monitor budget implementation exercises throughout the MDAs and produce quarterly Budget

implementation reports. The write-up and the reports included in these publications in themselves are very

impressive and thorough. The problem is What Happened behind the figures?

Improvements have been made in the budget process in Nigeria such as increasing the levels of transparency in

its preparation and widespread consultations including consultations with civil society. This process, however,

could be enhanced by strengthening the institutional capacity of the responsible authorities.

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2. Office of the Accountant General of the Federation

The Accountant General (AG) is fully responsible for the preparation of the Consolidated Accounts of the

Federal Republic of Nigeria. In this respect he is also responsible for the Accounting and Financial Management

of the Ministries, departments and agencies and he provides the system for monitoring the accounts for MDAs

(Ministries, Departments and Agencies), provides accurate and timely financial information for planning and

decision making. Other functions include:

- Fund Management - management of the treasury of the nation

- Revenue Monitoring and Accounting

- Cash Supply ( including cash-backing and control of banking operations for the Federal Government)

- Management and Disbursement of the Federation accounts on behalf of the three tiers of Government.

- Management of Federal Government Investments

- Collation and preparation of the Federal Government Statutory Accounts and Financial Statements.

- Inspection and Audit of the books, records and accounts of the Federal Ministries and Agencies

- Investigation of cases of Fraud and losses of funds and Stores

- Issuance of Federal Treasury Circulars to convey Financial Policy directives

- Servicing of external and internal loans of the Federal Government

The internal audit units in the Federal ministries have a direct line to the permanent secretary in their respective

ministry. However, their independence is preserved, as it is the Accountant-General in the Ministry of Finance

that controls their transfer rather than their home ministry. In addition, the head of each internal audit unit is

required to report to the Accountant-General each quarter on the work they have undertaken and their main

findings. However, their scope could still be restricted, as it is the permanent secretary in their ministries that

endorses their annual plan.

Internal audit in the Federal ministries also appears to have a reasonable level of independence. However, at

state and local government council levels internal audit has limited independence.

Various innovations have been introduced by the Federal Ministry of Finance in order to level up with

international best practices in Public Finance and bring the nations Public Accounting systems up to the

International Standards. Some of these reforms include:

a. Implementation of the Interim Accounting Transactions Recording and Reporting System

(ATRRS)

This is an ICT Microsoft Access based software application which enables rapid improvements in

Accounting and Reporting.

b. Government Integrated Financial Management Information System ( GIFMIS)

GIFMIS is the computerisation of Public Financial Management (PFM) processes from budget

preparation, execution, accounting, and reporting, with the help of an integrated system for financial

management of Line ministries, spending Agencies, and other public sector operations.c. Improving the Financial Reporting System through the conduct of IPSAS GAAP Analysis

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The international public sector Accounting Standards Board (IPSASB) is a standing board of

International Federation of Accountants (IFAC). It issues high quality accounting Standards and other

guidance relating to the financial reporting needs of National, Regional and Local Governments.

d. New Chart of Accounts

A multi-dimensional charter of accounts to provide a framework to align policy priorities with the

budget and financial reports has been developed primarily for the implementation of (GIFMIS). The

details of each transaction will include, not only the exact particulars of a given receipt or payment but

also the unit and section of the MDA responsible for the transaction.

e. The E-Payment

One of the measures taken by the ministry to ensure transparency and accountability was the

introduction of the E-payment. The E-payment covers all payments to contractors, service providers

e.g. PHCN, staff and other Government Agencies such as FIRS

Modernisation of Internal Audit

Internal Audit and Inspectorate activities are strong instruments of Internal Control Systems designed to ensure

that the accounting systems and other public financial management systems are functioning well and comply

fully with extant regulations. There have been reforms to strengthen capacity in risk based audit and Modern

ICT Internal Control Management. The office of the Accountant General of the Federation has, through GIFMIS

project, gone into the restructuring and modification of the internal audit functions as core components for

strengthening Internal Audit Functions.

The office of the Accountant General of the Federation of Nigeria is both daunting and challenging and he holdsthe principle key to the Internal Financial accountability. The primary responsibility for financial records rests

with the Accountant General and the Auditor General. However, there is no-one in either department who

champions record management. The Department of Planning, Research and Statistics, although headed by a

non-accountant, might be the appropriate location for this role.

The Ministry has created the Directorate of Finance and Accounts for all Ministries, Departments and Agencies

(MDAs) reporting directly to the Director of Finance and Accounts under the Ministry. The Directorate has

posted/created Finance Departments as well as Internal Audit Departments for every MDA and these

departments have Line relationship (i.e. report directly) with the respective Permanent Secretary/head of

Department or Agency, and Staff relationship with the Director of Finance and Accounts in the Ministry.

The Office of the Accountant-General of the Federation is structured into eight (8) Departments around its core

functions. These departments include:

1. Audit Monitoring

2. Administration

3. Planning, Research & Information Technology

4. Finance & Accounts5. Funds

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6. Consolidated Accounts

7. Inspectorate

8. Revenues & Investment

Financial Accounts and Consolidated Accounts

Whilst the Finance and Accounts Department deals with the accounts of the respective MDAs, Consolidated

Accounts Department Deals with the consolidation of all the accounts within the MDAs which forms the

consolidated account of the Federal Government of Nigeria. The accounts of Ministries, Departments and

Agencies are subject to periodic accounting reports which should include:

Statement of Financial Position at the end of the reporting period (Balance Sheet)

Statement of Comprehensive Income ( Profit and Loss Account)

Statement of Changes in Equity for the reporting period

Statement of Cash Flows for the reporting period

Notes to the Accounts Comprising a summary of Significant accounting policies and other explanatory

information with corresponding figures for the previous accounting period. In some cases, accounting ratios

are also included.

Audit Monitoring

The Audit Monitoring department is responsible for the Internal Auditing and periodic audit monitoring of

internal audit of MDAs and FPOs. The Department is structured into two main Divisions namely:

- Ministries, Department and Agencies Division.

- Zonal Offices and Federal Pay Offices Division.

The functions of the Audit Monitoring department include:

- Reviews reports from Internal Audits in the field and draws the attention of AGF to significant issues

arising from the reviews as well as advising the office on Audit matters.

- Provides feedback to Internal Auditors in the field as well as Accounting Officers where necessary and

carries out follow-up Monitoring activity.

- Monitor Internal Audit Units in the MDAs/FPOs so as to provide assurance to the AGF that activities in the

Internal Audit Units are being carried out in a manner to ensure complete and continuous audit including

management Audit as well as provide safeguards for prevention and / or prompt detection of fraud and loss

of government assets.

- Control the production, custody and issuance of audit stamps.

- Provides guidance, training direction of Internal Auditors in the field.

- Carries out special audit work as may be directed by the AGF.

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External Financial Accountability Mechanisms

External Financial accountability mechanisms are means of holding the Government to account to Parliament

and other institutions outside of the administration, such as the Public Complaints Commission and external

audit. The main mechanisms of this category are scrutiny by legislative and investigatory committees, various

public debates and, in the last resort, parliamentary elections.

It may be argued that the main loci of financial accountability are external, since key financial accountability

mechanisms are established outside the executives structure. However, since the executive can fulfil its external

accountability responsibilities only if it is efficiently and effectively performing its internal duties, the financial

accountability relationship is also established within its internal structure, between public officials dealing with

public funds. Some of the key Mechanisms are include:

1. Parliament

The main function of the parliamentary oversight responsibilities rests on their judicial power to scrutinise and

oversee the accounts and functions of ministries, departments and agencies to ensure that expenditure conforms

to the appropriation rules and account for their stewardship of public money.

A key weapon of the parliament in securing financial accountability is the work of its most senior and most

formidable committee, the Public Accounts Committee. Its role is to examine whether public money voted by

Parliament has been spent in accordance with Parliaments intentions, and with due regard to issues of

regularity, propriety and value for money. Work of the Public Accounts Committee is substantively supportedby the external audit institution, without whose professional assistance the Committees control would be almost

impossible. On the basis of the external audit institutions reports, the Public Accounts Committee calls officials

to account for misuse of public money and reports its findings to Parliament. The Committees reports and the

governments responses to them are debated in Parliament and may be raised by Members of Parliament at any

time.

2. Central Bank of Nigeria

The Central Bank of Nigeria (CBN) under the current leadership of Sanusi Lamido Sanusi CON, one of the

new generation African technocrats committed to transparency and Accountability receives money on behalf of

the Federal government of Nigeria, for the Federation Account and passes same to the Accountant General of

the Federation.

The objectives of the CBN are as follows:

- ensure monetary and price stability;

- issue legal tender currency in Nigeria;

- maintain external reserves to safeguard the international value of the legal tender currency;

- promote a sound financial system in Nigeria (e.g. Banks); and

- act as Banker and provide economic and financial advice to the Federal Government.

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The bank is responsible for monetary policy, which should aim to achieve reasonable price and exchange rate

stabilization over a medium term. It is given sufficient independence to attain the above objectives for which it

is held responsible and expected to inform the public of its decisions under the above enumerated

responsibilities.

3. The Media

Special investigation commissions appointed by the Central Government, NGOs and other organisations, play a

significant role as a watch dog for the efficient and effective utilization of public funds by the government.

The involvement of Special Investigative Commissions, Unions, NGOs and the Media in covering national

budgeting processes and potential corruption also results in important avenues for citizens access to

information. Although many reporters cannot make an informed analysis of budgetary policies, the media can be

an effective ally in sparking debate among the general public and eliciting responses from the government.

Trade Unions can also determine, change and influence government accountability of public funds.

4. External audit - Supreme Audit Institution and the Auditor General of the Federation

Supreme Audit Institution

Supreme Audit Institutions ( SAI) are watchdog agencies that carry out external audits of expenditures, incomes

and assets of all government institutions, ensuring public sector transparency and financial accountability with

functional, institutional and financial independence. They have essential legal powers and tools in order to audit

all public funds, resources and activities and report audit findings to parliament so as to reinforce parliamentaryoversight over the executive and publicise them. They have judicial powers to audit the accounts of Government

institutions and put emphasis on compliance audit (i.e. Auditing compliance with laws and regulations). They

serve as an independent body to report to parliament, supporting financial accountability and transparency for

the sake of a strong financial management system. In so doing they ensure that all transactions regarding

expenditures and income comply with laws and regulations and that public resources are expended efficiently,

effectively and economically.

Regular and well designed audits provide the opportunity to discover the weaknesses and loopholes in internal

controls, as well as inefficient and ineffective use of public funds. In Nigeria, the structure discussed above

under the external financial accountability mechanism is fully established. The external audit is under the

responsibility of the Auditor General of the Federation.

Auditor General of the Federation

The 1999 Constitution provides for an Office of the Auditor General for the Federation. The office is an

independent entity whose existence, powers, duties, and responsibilities are specified in the constitution. The

Public Accounts of the Federation and of all Offices and Courts of the Federation should be audited and

reported on by the Auditor General (AG). The AG is required to report the findings to the Public Accounts

Committees of both houses of the NASS within 90 days of receipt of the Accountant Generals The AG or any

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person authorized by him has access to all the books, records, returns, and other documents relating to those

accounts. The main function of the Public Accounts Committee is to review whether public money was spent

for approved purposes and with due regard to efficiency. Strengthening the functions of this office by the

current administration will contribute immensely to the governance efforts of the country. Finally, even though

Auditor-Generals in Nigeria at the Federal and State levels have a reasonable degree of independence, it could

be greatly enhanced if at the Federal level, their budgets were not decided directly by the MOF but by the

parliament. The Auditor-General should also be allowed to promote and dismiss their staff. At the local and

State level, they have limited independence.

Reading through the report of the Auditor General for the year ended December 2008 (the most recent published

report available), a conclusion could be drawn, that the Auditor General of the Federation demonstrates high

professional integrity in his report which is both LUCID and PUNGENT. The report is replete with

disturbing errors of omission and commission in the accounts of every ministry, department, and agency.

Examples of such issues include:

non-compliance with procedures

insufficient documentation supporting purchases

incomplete reconciliations

failure to account for items properly

weaknesses in documentation which permits and in some instances highlights fraudulent activity

Below are extracts of some of the few, random samples of the Auditor Generals report which highlight some ofthe issues mentioned above:

Report of the Auditor General for the Federation

Annual Report on the Account of the Federal of Nigeria for the Year Ended 31 st December 2008

Page 56, Section 3.05:

The records made available by the Funds department showed that the sum of NAIRA5 Billion for Group Life

Insurance was cash backed in 2008in favour of the office of the Head of Civil Service of the Federation

(OHCS). However it was observed that the sum of NAIRA4 Billion was reflected in the Financial Statements

and in the Consolidated Transcripts of the OHCS, whereas, Note 4 which is the List of Closing Cash Book

balances as at the 31st of December 2008 showed the closing balance of OHCS to be Nil. This balance did not

account for the NAIRA1 Billion difference between the cash backed figure of NAIRA5 Billion and NAIRA4

Billion reflected in the Financial Statements and the transcript of the accounts. The Accountant General has

been requested to account for the difference of NAIRA1 billion.

Comments: On the surface, it would appear that there is an account reconciliation problem or more seriously,

an error of Commission. Whatever the situation, it demonstrates deficiencies in the accounting system. The

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accounts should be reconciled to explain the NAIRA1Billoion difference. This indicates lapses in the

accounting system.

Page 57, Section 3.07:

In the audit examination of the subheads relating to the Service Wide Vote, the sum of

NAIRA25,614,551,162.00 made up of two tranches of NAIRA13,239,551,162

importance of financial accountability and prudent personnel management to the leadership...

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