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Public Sector Accounting

This document contains solutions to questions on public sector accounting from the Institute of Chartered Accountants (Ghana) November 2014 exam. The first solution provides a summary of the consolidated fund statement of revenue and expenditure and statement of financial position for the year ended 31 December 2012. The second solution discusses factors to consider in government expenditure projections and outlines the budget preparation process in Ghana. The third solution defines the consolidated fund and outlines the four stages of the public sector business cycle in Ghana. It also provides recommendations to improve revenue collection. The fourth solution discusses reasons for parliamentary failure to control expenditure and lists benefits of a national social security pension scheme. It also discusses the implications of interest ceilings and debt limitation

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229 views

Public Sector Accounting

This document contains solutions to questions on public sector accounting from the Institute of Chartered Accountants (Ghana) November 2014 exam. The first solution provides a summary of the consolidated fund statement of revenue and expenditure and statement of financial position for the year ended 31 December 2012. The second solution discusses factors to consider in government expenditure projections and outlines the budget preparation process in Ghana. The third solution defines the consolidated fund and outlines the four stages of the public sector business cycle in Ghana. It also provides recommendations to improve revenue collection. The fourth solution discusses reasons for parliamentary failure to control expenditure and lists benefits of a national social security pension scheme. It also discusses the implications of interest ceilings and debt limitation

Uploaded by

bill
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)

SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014


SOLUTION 1
(a) Consolidated fund
Statement of revenue and expenditure for the year ended 31st December 2012
Revenue
Direct tax
Indirect tax
Grants
Other revenue

Workings
1.
2.

Total revenue

Expenditure
Compensation of employees
Use of goods and services
Public debt interest
Social benefits
Other expenses
Consumption of fixed capital

Excess of revenue over expenditure

GH000
522,229
602,308
14,055
25,464
1,164,056

3.
4.
5.
6.

673,892
123,973
61,986
82,649
20,662
123,973
1,088,135
75,921

Net accumulated results


Balance as at 1/1/2012
Transfer for the year

(30,671,838)
75,921

Balance as at 31/12/2012

(30,595,917)

Page 1 of 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)


SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014
(b) Consolidated fund
Statement of financial position as at 31/12/2012
Assets
Cash & bank balances
Advances & receivables
Longterm receivables
Equity investments
Infrastructure, plants & equipment
Work-in-progress

GH
980,449
30,082
1,418,308
1,809,876
1,014,403
152,440

Liabilities
Payables
Deposit and trust monies
Short-term borrowings
Domestic debt
External debt

605,522
1,876,206
5,649,911
11,859,794
16,141,574

Accumulated surpluses

(30,595,917)

(c) Workings
1. Direct tax
Taxes paid by individuals
Taxes paid by companies & enterprise
Other direct taxes

2. Indirect taxes
Taxes on goods & services
General taxes on goods & services
Excises
Customs and other import duties

Page 2 of 10

405,218
67,892
49,119
522,229

132,532
132,532
46,450
290,794
602,308

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)


SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014
3. Compensation of employees
National pension contribution
Allowance to employees
Non-established post
Established post

4. Goods and services


Materials and office consumables
Utilities
Rentals, travel & transport
Training, seminar and conference cost

5. Public debt interest


External debt interest
Domestic debt interest

6. Social benefits
LEAP program costs
School feeding program costs
Free school uniform cost

Page 3 of 10

GH000
45,440
28,000
400,000
200,052
673,892

58,763
17,280
20,805
27,125
123,973

41,886
20,100
61,986

33,060
15,250
34,339
82,649

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)


SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014
SOLUTION 2
(a) Factors to be considered in government expenditure projections:
(i)

Economic factors for example inflation

(ii)

What components of the government expenditure are susceptible to changes in which


economic assumptions stated in (i) are applied.

(iii)

Guidance from past expenditure patterns

(iv)

Special expenditure in the budget year for example Electoral Commissions Budget in
an election year.

(v)

What constraints on expenditure projections in revenue or financing.

(b) (i) Develop macro-economic framework which is broadly composed of the Real Sector,
Monetary Sector, Fiscal Sector and External Sector.
(ii) Invite proposals/papers from the public and civil society.
(iii) Conduct policy reviews and hearing of the sectors.
(iv) Conduct Intra-Sectoral Reviews of the past performance.
(v) Determine resource envelope.
(vi) Prepare and issue budget guidelines to MDA and MMDA.
(vii) Presentation of budget and economic policy to Parliament.
(viii) Submission of draft budget estimate to Parliament for approval.
(ix) The passing of the appropriation bill by Parliament.
(x) Issue of general and specific warrants to CAGD.
(xi) Issue of treasury circulars and warrants to MDAs and MMDAs by CADG.
(xii) Preparation of payment vouchers to treasuries for payment.
(xiii) Preparation of public accounts by CAGD.
Page 4 of 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)


SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014
(xiv) Auditing by the Auditor General.

(c) (i) Government wants to know its financial position (cash balances) at any point in time,
especially weekly, monthly and yearly. It also wants to know its total revenue (tax) and other
receipts (non-tax) at any particular time. In fact, both the 1992 Constitution and Financial
Administration Regulations specify revenues (tax) as separate from other receipts (other monies).
Therefore tax (revenue) and other monies (receipts) must be accounted for separately, hence the
classifications.
(ii) Government wants to take decisions on expenditure and lending as these activities diminish
liquid reserves. Therefore, there is the need to have separate accounts on expenditure and
lending. Thus, we have revenue and expenditure accounts (Above-the-line) that relates to
transactions forming part of governments recurrent and capital expenditure that have limited
lifespan of a year and subsidiary accounts (Below-the-line) that continue from year to year.
(iii) Government wants to take decisions on borrowing. Government borrowing increases the
liquid reserves, making money available for spending, but increases annual expenditure on
interest charges. Liquid reserves have to be built to meet redemption of government debts.
Decisions on borrowing and investment obviously require separate accounts reflecting cash
balances, unspent revenue and uncommitted expenditure.

(d) Policy objectives of privatization


(i)
To raise foreign exchange
(ii)

To develop a domestic capital market

(iii)

To motivate the private sector

(iv)

To reduce the fiscal deficit

(v)

To improve the efficiency of the economy by encouraging private sector participation and
investment

(vi)

Government must not engage in commercial activities

Page 5 of 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)

SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014


SOLUTION 3
(a) The Consolidated Fund is the assumed receptacle into which all state revenue is lodged
and from which all payments are fund. It is a fund with its own sets of rules and books
for operating it. It is set up for specific purpose and has self balancing set of accounts.
The Treasury Main Account is the account opened at Bank of Ghana for the Consolidated
Fund. Every fund is expected to have an account with a Bank. The Treasury Main
Account is therefore the account for the Consolidated Fund.
(b) The four (4) stages in Public Sector business cycle in Ghana include:
(i)

Planning budget preparation and approval

(ii)

Budget execution
-

Revenue generation
Expenditure administration

(iii)

Accounting and reporting

(iv)

Auditing

(c) (i) Recruitment of quality and competent revenue staff


(ii) Outsourcing of revenue allocation to competent commission collectors
(iii) Setting of revenue targets for revenue collectors
(iv) Proper supervision of revenue staff to prevent revenue leakages of records
(v) Rotation of revenue staff to prevent collusion
(vi) Accurate data collection to ascertain improved revenue forecast
Page 6 of 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)


SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014
(vii) Education, sensitization and demonstration to general public that revenue collected
will be used judiciously for the benefit of the community.
(viii) Periodic valuation and revaluation of taxable properties to ensure proper property
rate collection.
(ix) Motivation of revenue staff including periodic awards to induce productivity.
(x) Improving the monitoring of revenue collection.

SOLUTION 4
(a) Reasons for Parliamentary failure to control expenditure
(i)

Political stands of Parliamentarians supporting their parties

(ii)

Lack of resources to operate efficiently

(iii)

Lack of training or technical skills to deal with the issue

(iv)

Self benefits from the non-control

(v)

Late submission of the Auditor-Generals report to Parliament

(vi)

Ministers doubling as Parliamentarians

(vii) Lack of legal framework to deal with issues

Page 7 of 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)


SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014
(b) Benefits of national social security pension scheme:
Superannuation pension a member who retires voluntarily or compulsory and has
contributed for at least 15 years in aggregate or 180 months in aggregate is entitled to
superannuation pension which entails payment of gratuity and monthly pension
allowance.
Invalidity pension is awarded to a member who becomes an invalid certified by the
medical board. The member should have contributed for at least 12 months within
the last 36 months before the occurrence of the invalidity.
Lump sum payment a member who fails to satisfy the 15 year/180 months
contribution requirement at retirement is entitled to a lump sum of money equal to the
members contribution plus some interest on the contribution.
Survivors lump sum payment it is a lump sum money payable to the family of a
member who dies in active service.
Hazardous employment benefits its granted to members who attained the age of 55
years and has been a worker in underground mines, steel works and other hazardous
employments.
(c) (i) Interest Ceilings
The relationship of the public debt to the solvency of government does not depend on the
absolute level of debt on its level relative to that of the Gross National Product (GNP).
As such, unless the government can identify a new source of income or increase the
amounts raised from existing sources, interest ceilings may rise in relation to Gross
National Product.
(ii) Debt Limitation
Some debts (loans) are tied in the sense that there are limitations as to the use of the funds
as per the debt agreement. In such cases, the governments policy objective of
minimizing cost of goods and services needed and at the same time preventing illiquidity
at the lowest available price is often threatened as goods and services must be obtained
from specific locations (countries or country) although the prices of goods and services in
these countries may be very high relative to similar goods and services obtained in other
countries.
Page 8 of 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)


SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014
(iii) Unstable Commodity Prices
Ghana face perennial foreign exchange constraints due to low and unstable commodity
prices like cocoa and gold at the world market. This means that finding foreign currency
to pay for its external loans is usually an annual challenge.
(iv) Fluctuating Tax Receipts
Unsteady export prices for Ghanas exports reflect on price fluctuations in the domestic
market leading to currency depreciation and therefore difficulties in raising enough local
currency to service domestic debts.
(v) Burden of Transfer
Low growth of the economy makes it difficult to close the deficit gap in the national
budget through taxation. This means that existing debts, principal plus interests may tend
to be postponed or rescheduled for payment. This leads to a burden of transfer of debt
payments to a future generation or what is often referred to as intergenerational equity.
(d) (i) Government departments or spending agencies experience no cost of managing their
cash resources poorly or benefit for managing them well. Because of how government is
organized and accounts are kept, the system fails to hold accountable those responsible
for incurring the expense of interest. Departments cash management requirements or
responsibilities are limited to depositing public funds and submitting requests for
payment.
(ii) The main focus of the budget execution process is on the release of funds to spending
agencies, and on the obligation of funds by these agencies, the actual spending of money
is often not well coordinated with the apportionment of the budgetary appropriation.
(iii) The primary focus of government accounting systems is the accountability of funds
(propriety) and not the efficiency with which funds are utilized.
(iv) Lack of training/expertise in cash management
(v) Lack of monitoring
(vi) Lack of use of IT systems in management
Page 9 of 10

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)


SOLUTION: PUBLIC SECTOR ACCOUNTING, NOVEMBER, 2014
SOLUTION 5
(a) In a broader sense, PPP is defined as the implementation of all known types of
(i)
Co-operation between the public sector and private partners, which in many cases,
leads to the establishment of joint ventures.
In other words, partnership between the public sector and the private sector for the
purpose of delivering a project or a service, traditionally provided by the public sector.
(ii)

Reasons for PPP are:


(i) Lack of financing
(ii) Bringing on board the technical and managerial expertise from the private sector
(iii)

Increase in infrastructural provision

(iv)

The ability to identify, prioritize and plan capital investment from the private
sector.

(v) They may not require any immediate cash spending.

Page 10 of 10

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