30/01/2015

TOPIC 2:
FUNDAMENTALS OF PUBLIC
SECTOR ACCOUNTING & FINANCE

Redeemer Krah
[email protected]

Fundamentals of PSAF
• The topic covers :
– What is public sector accounting? What is public
financial management?
– The objective of PSA compared with private sector
– Differences and similarity of PSA and BA
– Users of PSA Information
– Kinds of Financial Reports and the kind of
information reported
– The qualitative characteristics of PSA information
and the constraints
– PSA concepts, bases and techniques

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What is Public Sector Accounting?

• There is no single accepted definition of PSA
• Generally, PSA refers to the application of
accounting principles and concepts to the
activities or transactions of public sector entities.
• It refers to accounting practices that take place in
public sector entities, including NGOs.
• It means accounting for resources employed by
government and its entities

What is PSA?
• From methodological or procedural
perspective Public sector accounting may be
defined as:
– the process of recording, analysing, classifying,
summarizing and communicating and interpreting
financial information about government in
aggregate and in detail, reflecting all transactions
involving the receipt, transfer and disposition of
public funds and property.

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What is Public Financial Management

• Broadly, PFM refers to the judicious use of
public financial resources to meet public
needs (delivery of public services)
• PFM involves
– Revenue mobilization,
– allocation of revenues collected to various
activities,
– Spending on the approved activities,
– accounting and reporting on the funds collected
and used
– Evaluation and Control of outcome

PFM cycle
• A typical public financial management cycle
(aka public business cycle include:
– Preparation and approval of a national budget.
– Implementation of the budget
– Accounting and reporting
– Evaluation ,control and audit.
• A typical PFM system comprises the Process,
Procedures and People to be effective.

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Relationship between PSA and PFM

• PFM is an all encompassing term that entails
all process and activities required in ensuring
economic, efficient and effective use of public
financial resources to deliver public services.
• Thus PSA is an aspect of PFM which is concern
with the provision of useful financial and
other related information for accountability
and decision making.
• PSA is therefore a subset of PFM

Objectives of PSA
• According IPSASB, the over all goal of public
sector accounting and reporting is to provide
useful information for decision making and
accountability purposes.
• Thus the objectives of PSA include:
– To fulfil legal requirement
– To demonstrate public accountability and stewardship
– To facilitate planning and control of financial activities
of government
– To provide useful information for decision making
(economic, social and political decisions)
– To provide information for measuring financial
performance of entities in terms of economy,
efficiency and effectiveness

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Objective of PSA compared with

Business Accounting
• The key objective of PSA system is to provide
useful information for demonstration
accountability for the use of public resources
while business accounting is concerned with
providing information on profitability to the
investors for decision making.
• PSA system measures performance based on
budget information while BA system focuses
of profitability measures.

PSA Vs. Bus accounting

• The differences between the two is getting
narrower by the day due to the NPM
paradigm.
• Some differences include:
– PSA is predominately on cash basis whilst business
accounting is accrual based.
– PSA adopts fund entity concept but business
accounting uses proprietary concept.
– No profit determination but profit determination
is the bottom line in business accounting

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• Due to the use of cash basis in the PSA, non-

financial assets are written off in the year of
acquisition so no depreciation but capitalization
of NFAs with associated depreciation is key in
business accounting
• PSA is regulated by financial laws like FAA & FAR
but such laws do not affect business accounting
• PSA complies with IPSAS whiles business
accounting complies with IFRS.
• Budget information is integrated into public
financial reporting but budgets are not included
in corporate financial reports.

Users of Public sector financial

reports
• Users are regards as the audience or recipient
of public sector financial reports.
• The IPSASB in its conceptual framework
classified the users into two broad groups:
– Resource Providers to government
– Service recipients from government
• Citizens and their representatives are
regarded as primary users because they fall
into the two categories.

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• The general list of users and information needs

include:
– Parliament who seeks to:
• assess government accountability
• Determine compliance to legally adopted budget
• Assess to performance of entities.
– Citizens (as tax payers and voters want to:
• Hold government accountable
• To assess cost of service delivery
• To decide the fate of elected members.
– Donors and sponsors seeks
• information on the use of donor funds for accountability
• To determine the compliance to grant condition
• To assess the performance of donor funds/grants

• Cont (users):
– Creditors ( multilateral creditors, bilateral
creditors, and Banks.) they want information on
the ability of government to meet its obligations
and to assess compliance to debt covenants.
– Investors in government securities are interested
in the ability of government to honour the
coupons and the repayment when due.
– Management of government entities for decision
making, planning and control
– Rating agencies like Standard & Poor's (S&P),
Moody's, and Fitch Group. The need information
to rate the credit worthiness of the government.

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• Other users include

– Pressure group
– Media
– Auditors
– Trade unions
– NGOs
– Regulatory agencies.
– government statisticians,
– analysts,
– financial advisors,
– public interest and lobby groups

• Question
– Identify any five (5) resources providers group users of local
government financial reports and their information needs.
5marks

Types of Financial Reports

• The IPSASB’s conceptual framework for public
sector financial reporting identified two types:
– General purpose financial report (GPFR)
– Special purpose financial reports (SPFR)
• SPFRs are those financial reports prepared to
respond to the requirements of users that have
the authority to require the preparation of
financial reports that disclose the information
they need for their particular purposes.

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Types of Financial reports

• GPFRs are financial reports intended to meet
the information needs of users who are
unable to require the preparation of financial
reports tailored to meet their specific
information needs.
• GPFRs are prepared in accordance with
accounting standards and rule to ensure
fairness to all the users.
• Thus GPFRs are not developed to
specifically respond to the users particular
information needs.

GPFRs
• GPFRs are likely to comprise multiple reports, each
responding more directly to certain aspects of the
objectives of financial reporting.
• GPFRs encompass financial statements including their
notes
• A complete set of financial statements comprises:
– A statement of financial position;
– A statement of financial performance;
– A statement of changes in net assets/equity;
– A cash flow statement;
– When the entity makes publicly available its approved
budget, a comparison of budget and actual amounts either
as a separate additional financial statement or as a budget
column in the financial statements; and
– Notes, comprising a summary of significant accounting
policies and other explanatory notes.

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Kinds of information Provided in

GPFR
• A GPFR provides the ff information about the
entity:
– the sources, allocation, and uses of financial
resources;
– how the entity financed its activities and met its cash
requirements;
– the entity’s ability to finance its activities and to meet
its liabilities and commitments;
– the financial condition of the entity and changes in it;
and
– the entity’s performance in terms of service costs,
efficiency, and accomplishments.
– whether resources were obtained and used in
accordance with the legally adopted budget.

Qualitative Characteristics of GPFRs

• The qualitative characteristics of information
included in GPFRs are the attributes that make
that information useful to users and support the
achievement of the objectives of financial
reporting
• The IPSASB as identified six (6) Xtics:
– relevance,
– faithful representation,
– understandability,
– timeliness,
– comparability, and
– verifiability

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• Relevance
– information is relevant if it is capable of making a
difference in achieving the objectives of financial
reporting.
– Financial and non-financial information is capable of
making a difference when it has confirmatory value,
predictive value, or both
• Faith Representation (reliability)
– information must be a faithful representation of the
economic and other phenomena that it purports to
represent.
– Faithful representation is attained when the depiction
of the phenomenon is complete, neutral, and free
from material error.

• Understadability
– Understadability is the quality of information that
enables users to comprehend its meaning.
– GPFRs of public sector entities should present
information in a manner that responds to the
needs and knowledge base of users, and to the
nature of the information presented.
– Users of GPFRs are assumed to have a reasonable
knowledge of the entity’s activities and the
environment in which it operates, to be able and
prepared to read GPFRs, and to review and
analyse the information presented with
reasonable diligence.

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• Timeliness
– Timeliness means having information available for
users before it loses its capacity to be useful for
accountability and decision-making purposes
• Comparability
– Comparability is the quality of information that
enables users to identify similarities in, and
differences between, two sets of phenomena.
– Uniformity and consistency are key elements of
comparability.
– Comparability is enhance by providing information
about the budget, previous year or other entities.

• Verifiability
– Verifiability is the quality of information that helps
assure users that information in GPFRs faithfully
represents the economic and other phenomena
that it purports to represent.
– Verifiability means supportability of information.
– The characteristic implies that different
knowledgeable and independent observers could
reach general consensus, although not necessarily
complete agreement, about the faithfulness in
representation and accuracy in recognition.

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Constrains to X’tics
• Practically there are some constraints that make
it impossible to achieve all the x’tics perfectly.
• These include
– Materiality constraints
– Cost-benefit constraints
• Trial Questions
– As a accountant, I identify two ways each by which
you will enhance each of the six characteristics of
GPFRs to produce very useful report ( 6 marks)

Accounting Concepts, Basis and

techniques
• Accounting Concepts
– It refers to the broad assumptions underlying the
preparation and presentation of financial
statements.
– Most concepts/postulates or conventions used in
business accounting are also applicable to public
sector accounting.

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• Some of applicable concepts/Convention

– Fund concept
– Going Concern*
– Money measurement
– Historical cost
– Periodicity/ reporting period
– Consistency
– Materiality
– Off-setting
– Prudence

Going concern
• It states that financial statements should be
prepared on the assumption that an entity will
continue to be in operational existence into
foreseeable future.
• Assessment of going concern is more relevant
than government as a whole.
• Assessment of going concern for public sector
entities is not predicated on profitability and
solvency.

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• Factors considered in assessing going

concern of public sector entity include the
following:
– current and expected performance,
– potential and announced restructurings of
organizational units,
– estimates of revenue or the likelihood of
continued government funding,
– potential sources of replacement financing.

Basis of Accounting
• It refers to the methods used to determine
when transactions or events are recognized in
the entity’s accounts and reported in the
entity’s financial statement.
• It answers the question: when will a
transaction be captured in the books of
accounts ?
• The basis of accounting determines the extent
of information that an accounting system can
collect and therefore report

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• There are two main known bases of

accounting: Cash basis and accrual basis.
• However both has modification, so we have
modified cash basis and modified accrual
basis.
• Thus we have four bases in the public sector
for government to choose from:
– Cash basis/accounting
– Modified cash basis/accounting
– Accrual basis/accounting
– Modified accrual basis/accounting

Cash basis
• It is also described as cash accounting.
• It is a basis of accounting where transactions (
relating to revenues, expenditures, assets and
liabilities) are recognized only when cash is
received or paid irrespective of the timing of
the event.
• For example, services provided on account to
clients will not be recorded in the books as
revenue unless the client effect payment.

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• Features of cash accounting system include the

following:
– It emphasis movement in cash and cash equivalent
– It makes no distinction between revenue items and
capital item
– It disregards the principle of matching since
transactions are recognised in the financial statement
irrespective of the period they relate.
– It emphasizes the cash condition of the entity instead
of financial condition
– Non-financial assets are written off in the year they
are paid for hence no depreciation.
– It does not have room for provisions and allowances
such as provision for doubtful debts
– Receipt and payment statement is the main financial
report under this basis

• Advantages
– It is very easy to understand and operate
– It is less costly to design and operate
– It facilitate fiscal stewardship and accountability.
– It produces verifiable and objective reports hence
facilitating control
– It produces information that is friendly to ordinary
taxpayers and their representative.

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• Disadvantages
– It fails to measure the financial performance of
the entity as it focus on cash generated and used.
– It does no disclose information on the assets,
other than cash and cash equivalents. Hence poor
control and management of public assets.
– Liabilities are hidden as such transaction are
merely reported as receipts for the period.
– It provide insufficient information that support
management decision making.

Modified Cash Basis

• It is variation of cash basis where accounting
period is held open for a specified period (say
one month) in order to recognise those
expenditures that occur in the previous year
but payment effected in the subsequent year.
• The modified cash basis allows a short period
of time after the year-end for settling
liabilities of the year just ended (and treats
this expenditure as occurring in the year just
ended).

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• Note that modifications may be done in some other

respects like disclosure on receivables, payables and
debts.
• Modified cash basis tries to resolves timing
challenges of pure cash basis by improving
recognition of expenditure.
• Thus, it demonstrate all features of cash basis
except that it extents the measurement period.
• In practice, MDAs are allowed through revote
warrant to use unexpended appropriation to
discharge un-discharged commitments in the new
year and recognise such expenditure in the previous
period.

Accrual Basis
• It may also be described as resources
accounting
• Under the accrual basis of accounting,
transactions and other events are recognized
in financial statements when they occur (and
not only when cash or its equivalent is
received or paid).
• Therefore, the transactions and events are
recorded in the accounting records and
recognized in the financial statements of the
periods to which they relate.

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• Features of accrual accounting system include:

– Clear distinction is made between revenue
expenditure and capital expenditure.
– It uphold the principles of matching
– It recognises earned revenues receivable in the
financial report
– It reports expenses incurred but not paid for as a
liability in the financial report
– It capitalizes NCAs and depreciates them over their
useful year
– It provides comprehensive financial report.
– It also provides separate cash information to
supplement the accrual information.

• Advantages
– It provides a better measure of performance since
it considers all resources of the entity.
– It provides full disclosure of assets and liabilities of
the entity.
– It provides separate cash information to support
fiscal control and stewardship.
– It provides more useful information for
accountability and decision making purposes

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• Disadvantages
– It is complex accounting system
– It is much more costly than cash accounting
– It resulting financial statements are difficult to
understand by ordinary tax payers.
– It allows for the use of judgment in the
preparation of financial statement thus increasing
subjectivity.
– It provides room for manipulations.

Modified Accrual Basis

• It is a mixed basis of accounting that combines
the features of cash basis and accrual basis
• Modified accrual focuses on financial
resources instead of only cash or all resources.
• Revenues are recognized in the period when
they are susceptible to accrual- when the can
be measured and available.

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• Revenue item is recognized on either cash basis

or accrual basis.
• However, expenditures are on accrual basis
except that
– NFAs, including inventory are expended in the year of
payment
– No depreciation is charged
• All financial assets are shown on the balance
sheet-bank, receivables, advances, loans,
investments etc.
• All liabilities are disclosed on the balance sheet
except commitments and contingent liabilities

Conversion of Basis
• It is possible to convert financial reports prepared
on one basis to another by making some
adjustments.
• We can convert cash based reports to accrual
based reports provided we are provided the
relevant accrual based data.
• Similar way, we can convert accrual reports into
cash based reports by adjusting for accrual
information.
• It the moment, conversion from cash basis to
accrual is most relevant because of the adoption
of the IPSAS that required the use of accrual
basis.

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Techniques of public sector

accounting
• Techniques refers to the special method or system used
in achieving the objectives of the public sector.
• It is an additional method added to a chosen basis of
accounting in order to achieve a particular objective
like controlling the budget, restricting spending and
categorization of government activities through fund.
• Note that some authors confused basis of accounting ,
accounting concepts and technique and therefore
using them interchangeably.
• Main techniques used are
– Commitment accounting
– Budgetary accounting
– Fund accounting

Commitment Accounting
• It is also known as encumbrance accounting
• This technique recognizes transactions (especially
expenditures) when a decision is made, e.g. placing
an order, or signing a contract for services.
• The aim is that every expenditure decision made by
managers diminishes the funds available to the
entity for spending, even though no actual spending
has taken place.
• In Ghana, revote warrant permits the use of
commitment accounting, where only undischarged
commitments could be honoured from unexpended
balance of appropriation at the year end.

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• For example, a department is voted

GH3,000,000 for the year. Then the managers
signed a contract for construction of computer
lab at cost of GHc500,000 on January 3 2014.
• The available balance on January 3 will be
GHc2,500,000 (Ghc3,000,000 – 500,000).
• When the actual amount becomes due for
payment, we reverse the
commitment/encumbrance entry and make a
new entry for the expenditure (either on cash
or accrual basis)

• Advantages
– It avoids or prevents over spending of
appropriation or vote.
– It encourage planning of activities to be
undertaken before spending is made.
– It facilitate tracking of expenditures from the time
of order (commitment) to the time of payment.

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• Disadvantage
– Commitment does not constitute legal basis of
recognition since orders are mere commitment,
hence accounting records of commitment are
improper
– Potential reversal of entries as result of contract
cancellation can be tedious and unacceptable in
accounting.
– It can lead to end of year rush ordering and
spending
– It may cause a delay in the expenditure process
since commitment must precede every payment.

Vote Book/Vote Ledger

• In accounting for commitments
(encumbrances), the vote book is used.
• A typical vote book/ledger shows the
encumbered amounts, the actual expenditure
and the available balance on appropriation.
• The objective of maintaining vote book is to
ensure that departments spend within their
allocations and to avoid wasteful commitment
of government funds.

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Vote Book/Ledger
Date Reference Encumbrance Expenditure Appropriation/votes/a
llocation
Dr Cr Open Dr To date Cr Balance

Illustration-Vote book
• The warrant for a department for Item 2 for the first
quarter of 2012 was GHC120,000
• 3rd Jan, L.P.O was issued for Stationery costing
GHC20,000
• 6th Jan, service order was made for the repairs of air
conditioners at GHC 8,000
• 15th Jan, Cleaning contract was made with chief
cleaners ltd for GHC 3,000
• 20th Jan, 80% of the stationery was delivered at invoice
of GHC17,000
• 30th Jan, air con was repaired at invoice of GHC7,500.
• 31st Jan, cleaning bill was same as agreed.
– Prepare the vote ledger for the month of January

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Budgetary Accounting
• It is also termed vote accounting or appropriation
accounting.
• Budgetary accounting refers to the integration of
budgeted amounts into the financial accounting system
for the purposes of budgetary control and
comparability of financial reports.
• In this case, the budget figures are incorporated into
the accounting system to facilitate generation of
budget performance reports.
• Thus the principal aim is to aid budgetary control and
enhance accountability through financial reporting.
• Reporting of budget information is required by IPSAS
24.

Fund Accounting
• What is a fund?
– A fund is a fiscal and accounting entity with self
balancing set of accounts recording cash and
other financial resources, together with all related
liabilities and residual balances, which are
segregated for the purposes of carrying on specific
activities or objective in accordance with certain
regulations, restrictions and limitations.

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• The process of accounting for earmarked resources in

accordance with certain rules and restrictions is termed
fund accounting.
• Fund accounting refers to the practice of accounting in
terms of separate, independent and constituent parts of
a fiscal entity.
• In fund accounting, each individual fund created by
government is seen as separate and independent
accounting unit.
• Fund accounting separates all financial accounts into
individual categories, or funds.
• Each fund includes its own set of financial accounts,
including assets, liabilities, revenues and expense
accounts. -

Features of a Fund
• The essential features of a fund include:
– It is a fiscal and accounting entity
– It should be established and government by
regulations, restrictions or legislation.
– It has a defined purpose or objective that
demarcates its ambit.
– It is separate and independent in nature.

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Strength of Fund accounting

• The use of fund accounting has the following
advantages:
– It promotes accountability and control in public
financial management.
– It facilitates monitoring and evaluation of
performance of the various funds created by
government.
– It ensures fiscal discipline in the use of public
resources since virement is prohibited.
– It is consistent with government’s approach to
public service delivery through specific
programmes, projects and thematic.

Weakness/disadvantages
• It artificial demarcation public resources contrary
to holistic view
• It restricts the switching of resources from one
fund to another (virement).
• It may undermine optimal utilization of public
resources due to the restriction.
• It results in duplication of accounting function
since each fund used in an entity requires
separate and independent books of accounts
• Consolidation of various funds statement may be
complicated where different accounting policies
are used.
• It is also costly to administer funds since separate
administrative structure is required for each fund.

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Three Categories of funds

FUNDS

Government Funds Proprietary Funds Fiduciary Funds

Pension trust Fund
General Fund
Investment trust
Special rev Fund Enterprise fund fund
Debt service Fund Internal service Private purpose trust
Capital project fund Fund fund
Agency fund

Government funds
• These are funds that are established from
public resources for public purpose.
• In Ghana, government funds are called public
funds.
• They include:
• General fund
• Special revenue fund
• Debt service funds
• Capital project funds

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• General fund
– This is a fund established to meet expenditures for
general government business. The use of which
required parliamentary approval.
– It is an all-purpose fund.
– In Ghana, it is called the consolidated fund.
• Special revenue fund
– Used to account for the proceeds of specific revenue
sources that are restricted or committed to
expenditures for specified purposes other than debt
service or capital projects.
– Example is Ghana is the GET Fund, Road fund, DACF
e.t.c

• Debt Service fund/sinking fund

– used to account for the accumulation of resources
that are restricted, committed or assigned for,
and the payment of, general long-term debt
principal and interest.
• Capital Project fund
– used to account for financial resources that are
restricted, committed, or assigned to
expenditures for the acquisition and construction
of major capital facilities.
– Example is the proposed Ghana Infrastructure
Fund

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Proprietary Funds
• Are used to account for a government's on going
organizations and activities that are similar to
businesses found in the private sector.
• These funds are considered self-supporting in that the
services rendered by them are generally financed
through user charges or on a cost reimbursement
basis.
• Proprietary funds are used to account for a
government's business-type activities.
• There two main types
• Enterprise fund
• Internal service fund
• Enterprise funds
– They are used in situations where a fund provides services
primarily to external customers.

• Internal Service funds

– used to account for the provision of goods or
services by one department or agency to other
departments or agencies of the state, or to other
governmental units, on a cost-reimbursement
basis.
– Internal service funds should only be used if the
state is the predominant participant in the activity.
– Internal service funds are used when a fund
primarily provides benefits to other funds,
departments or agencies of the government

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Fiduciary Funds
• Are used to account for assets held by a
governmental unit in a trustee capacity or as
an agent for individuals, private organizations,
and/or other governmental units.
• There are the types of fiduciary funds:
– Pension trust funds
– Investment trust fund
– Private purpose trust fund
– Agency Fund

• Pension Trust Fund

– Used to report resources that are required to be
held in trust by the state for the members and
beneficiaries of defined benefit pension plans,
defined contribution pension plans, and other
employee benefit plans.
– In Ghana, we have Social security and national
insurance trust fund.
• Investment Trust Fund
– used to report the external portion of Investment
Pool (local government or other entities), which is
reported by the state as the sponsoring
government.

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• Private purpose trust fund

– Used to report trust arrangements, other than
pension and investment trusts, under which
principal and income benefit individuals, private
organizations, or other governments.
– The resources held under these arrangements are
not available to support the government's own
programs.
• Agency Fund
– used to account for resources held by the state in a
purely custodial capacity for other governments,
private organizations or individuals.

Types of Account items in a Fund

• There are two main types of accounts items
found in every fund:
– Above-the-line account items
– Below –the- accounts items
• Above-the-line items
– relate to recurrent revenues and expenditures for
the current period.
– Examples are: taxes, fees and charges, income
from investment, personal emolument, admin
expenses, investment activity expenses, service
activity expenses.

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• Below-the-line accounts items

– relate to financial assets, liabilities and residual
balances (or net asset).
– They are balance sheet items.
– Examples are:
• Loans
• Advances
• Receivables
• Deposits
• Sundry creditors (payables)
• Debts
• Accumulated fund

Fund Financial Reporting

• Each funds requires to be separated
accounted for and reported on as an entity.
• Financial reports of funds include:
– Fund statement (receipt and payment statement)
– Revenue and Expenditure statement
– Statement of financial position
– Cash flow statement
– Notes to accounts

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Public Funds of Ghana

• Article 175 of the 1992 Constitution provides
that:
– The public funds of Ghana shall be made up the
consolidated fund, contingency fund and other funds
established by or under an Act of Parliament.
• Thus public funds include
– Consolidated fund
– Contingency Fund
– Other funds ( DACF, GET fund, Road Fund, VCTF, GIF,
Petroleum funds etc).

1. Consolidated Fund
• This fund has its existence from the 1992
Constitution (Article 175,176 and 178)
• It is a general fund of government into which
all receipts are paid into and out of which all
withdrawals, except those that are charged on
other funds, are made from in accordance
with the Constitution.
• Consolidated fund is therefore the main fund
of government out of which other splitter
funds can be created.

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• Sources of Moneys into the Consolidated

fund (Article 176):
– Two main sources
• All revenues and other moneys receive for or on behalf
of government
• Trust monies received for or on behalf of government
– Revenues may come from Taxes, Non tax
revenues, and grants.
– The other moneys include loans and other capital
receipts.
– Trust monies include those monies received in
trust for individuals, groups or agencies.

• Under what circumstances will revenues of

received for or on behalf of government
should not be paid into the consolidated
fund?
• The answer is fund in Article 176 (b) as
follows:
– When an Act of parliament directs that a specific
revenue should be paid into any other funds
– When a government department is allowed by
and Act of Parliament to retain part or whole of
revenues collected (IGF) on behalf of government
to defray its expenses.

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• Withdrawal (expenditure) from the

Consolidated fund.
– This is governed by Article 178.
– There exists strict restriction on withdrawal from
the consolidated fund.
– There are only two conditions for withdrawal from
the consolidated fund.
• Where the withdrawal is made to meet
expenditure that is charged on the fund by the
Constitution or by an act of parliament.
(statutory expenditure)
• Where withdrawal of those moneys has been
authorized (discretional expenses)

• Means of authorizing withdrawal from the

Consolidated Fund include:
– By an Appropriation Act passed by parliament to
approve budget estimates of government.
– By a supplementary estimate approved by
resolution of Parliament passed for that purpose
– By an provisional appropriation or vote on
account which allows for spending prior to the
approval of the budget, (under Article 179 & 180)
– By rules or regulation made by parliament in
respect of trust monies paid into the consolidated
fund

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• Benefits of CF (why consolidated fund?)

– It provides information on the available cash
resources of government at all times
– It helps government to plan its borrowing and
lending requirements
– It also provides flexibility in government spending
since the use of the fund is unrestricted.
– It provides strict control and accountability of
public resources.

2. Contingency Fund
• It established by Article 177
• It is created to account for urgent or unforeseen need for
which no other provision exists to meet the need.
• The urgency or unforeseen circumstances may include
natural disaster, social disorder and other similar events.
• Advances made from the fund should be replaced as
soon as possible by introduction supplementary estimate
to parliament to that effect.
• The fund is resourced from the moneys voted by
parliament for that purpose.
• Withdrawal is effected through the request of the
president to the public finance committee of parliament.

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3. Other Public Funds

• The other funds established by or under an
Act of Parliament include:
– District Assembly Common Fund
– Ghana Education trust Fund
– Road fund
– Venture capital trust fund
– Petroleum related funds
– Ghana Infrastructure fund
– Contingency reserve fund
– Pension funds

3a. District Assembly Common Fund

• It established by the District Assembly Common Fund Act
1993, (Act 455) under Article 242.
• Purpose is to provide resources to support the
developmental activities of the local government.
• It a fund created out of the consolidated fund to channel
resources from the central government to the local
governments for development.
• The District Assemblies’ Common Fund (DACF) is a pool of
resources created under section 252 of the 1992
constitution of Ghana.
• It is a minimum of 5% of the national revenue set aside to
be shared among all District Assemblies in Ghana with a
formula approved by Parliament.
• The fund is a Development Fund which enables the use of
the nation’s wealth throughout Ghana to the benefit of all
citizens.

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• Purpose of the DACF include:

– The Fund is to ensure equitable distribution of the
national resources for the development in every part
of Ghana.
– To Improve housing Schemes.
– To support sanitation management
– It is to strengthen decentralization, and to promote
Sustainable self-help development communities.
– To improve upon primary health care delivery in all
part of Ghana
– It is to improve the country’s educational facilities,
and to ensure quality education
– The Fund support Community policing.

• Sources of moneys into the fund

– 7.5% of Total tax revenue is transferred quarterly
into the fund.
– Income from investment of the fund
– Donations and Grants
• Expenditures charged on the DACF
– Disbursement to MMDAs/MPs
– Disbursement to RCCs
– Direct expenditures on behalf of MMDAs
(reserves)
– Administrative expenses directly related to fund
administration( audit fee, bank charges etc)

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• Approved areas of spending the share of DACF

by the MMDAs:
• Economic Ventures ( Energy, Markets,
Agriculture, Services roads etc.
• Social services (Education, health, Water, Sports
and Recreation, Self help projects ,Educational
Activities e.t.c)
• Administration (capacity building of DA staff and
Assembly members, Accommodation, office
Equipment etc.
• Environment (Sanitation, Disaster management)
• MPs common fund

• Administration of the DACF

– The fund is administered by the DACF
Administrator appointed by the president.
– The DACF Administrator has the following
mandatory functions:
• Propose formula annually for the allocation and
distribution of the common fund to the MMDAs
• Allocate and distribute the common fund quarterly
based on the approved formula to the various MMDAs
• Report in writing to the MOF on how the fund was
distributed and utilized by the various MMDAs; and
• Perform any other functions required by the President
of the Republic.

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• Benefits of the DACF include;

– The fund aims at creating jobs for all through
programmes such as cottage industries.
– It seeks to get more people gain access to improve
shelter through housing.
– Through the fund, health facilities are expanded and
improved to make health delivery accessible to many
people
– Through the fund numerous school buildings and
structures have been constructed for the increasing
needs of the population.
– The fund encourages and supports communities that
make effort to initiate their own development projects
(Community Initiated Programme).

• Challenges of the Administration of the

DACF:
– Delay in the release and disbursement of the
fund to the MMDAs
– Government interference in the allocation and
disbursement of the fund
– Inadequacy of the funds
– Misappropriation and financial malpractices at
the MMDAs level
– Over reliance on the fund by some district
assemblies. Retarding innovative financing .

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3b.Ghana Education Trust Fund

• GETFund is established by GETFund Act, 2000
(Act 581)
• The object of the Fund is to provide finance to
supplement the provision of education at all
levels by the Government.
• It is to provide funds for the development and
maintenance of essential academic facilities
and infrastructure in public educational
institutions, especially tertiary institutions
• It is a special revenue fund.

• Sources of money
– 2.5% of VAT transferred from the consolidated fund
monthly
– Other moneys allocated by parliament
– Donations, grants and gifts
– Income from investment .
• Expenditures charged on GET Fund
– Educational infrastructure in
– Scholarships
– Student loan scheme
– Faculty development and research
– Facilities such vehicles, Laptops e.tc
– Allowances of the board members
– Others educational activities as approved by the minister
of education.

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3c.Road Fund
• It is established by the Road Fund Act 1997,
Act 536
• The object of the Fund is to finance routine,
periodic maintenance and rehabilitation of
public roads in the country and to assist the
MMDAs in the exercise of their functions
relevant to public roads under any enactment.

• Moneys into the fund include:

– proportion of government levy on petrol, diesel
and refined fuel oil as may be determined by the
Cabinet with the approval of Parliament;
– bridge, ferry and road tolls collected by the
Authority;
– vehicle Licence and inspection fees;
– international transit fees, collected from foreign
vehicles entering the country; and
– As the Minister responsible for Finance in
consultation with the Minister may determine
with the approval of Parliament

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• Expenditure chargeable on the road fund

include:
– routine and periodic maintenance of road and
related facilities;
– upgrading and rehabilitation of roads;
– road safety activities;
– selected road safety projects; and
– other relevant matters as may be determined by
the Board.

3d. Venture Capital Trust Fund

• It is established by the VCTF Act 2004, Act
680.
• The object of the Trust Fund is to provide
financial resources for the development and
promotion of venture capital financing for
Small and Medium Enterprises (SMEs) in
priority sectors of the economy as shall be
specified from time to time.

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• Sources Money to the VCTF:

– an amount of money equivalent to twenty five per cent of
the proceeds of the National Reconstruction Levy with
effect from the 2003 financial year (defunct);
– such other monies as the Minister with the approval of
Parliament may determine;
– fees and other monies earned by the Fund in pursuance of
its functions under this Act;
– money that accrues to the Fund from investment made by
the Board;
– grants, donations, gifts, and other voluntary contributions
to the Fund; and
– other moneys or property that may in any manner become
lawfully payable and vested in the Board for the Fund

• Expenditures chargeable to the fund:

– the provision of credit and equity financing to
eligible venture capital financing companies to
support Small and Medium Enterprises which
qualify for equity and quasi equity financing;
– the provision of monies to support other activities
and programs for the promotion of venture capital
financing, as the Board may determine, in
consultation with the Minister.

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3e.Petroleum Related funds

• Under the Petroleum revenue management
Act 2011 (Act 815) three funds are created:
– Petroleum Holding Fund
– Stabilisation fund Ghana Petroleum Fund
– Heritage Fund

Petroleum Holding Fund

• The PHF is established to receive and disburse
petroleum revenues due to the state.
• All petroleum revenues are required to be
deposited into the PHF with BOG for
subsequent transfers to the stabilization fund,
heritage fund and the consolidated fund.

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• Restriction on the use of PHF

– It cannot be used provide credit to government or any other
entity, whether private or public.
– It cannot be used as a collateral for debt, guarantees,
commitments or other liabilities
• Receipt into the PHF include:
– Royalties for oil and gas, additional oil entitlements, surface
rentals, sale or export of petroleum and other receipts from
operation.
– Revenues from direct or indirect participation in petroleum
operation
– Corporate income taxes from upstream and midstream
petroleum companies.
– Taxes, royalties, dividends etc from the national oil company
(GPNC)
– Other related receipts such as capital gain taxes on sale of
ownership of exploration, development and production rights

• Disbursement from PHF

– Not exceeding 70% of money in the fund to
consolidated fund to support the national budget
– To Ghana Petroleum Fund(Ghana stabilization
fund and Heritage fund) for savings and
investment
– To exceptional deductions approved by parliament

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Ghana Stabilisation Fund

• Ghana Stabilization Fund
– It is a fund established to cushion the impact of or
sustain public expenditure capacity during period of
unanticipated petroleum revenue shortfall.
– An approved percentage is transferred from the PHF to
the GSF.
– Transfers could only be made from the GSF only for the
purposes of alleviating the shortfall in actual
petroleum revenue.

Ghana Heritage Fund

– It is created to provide an endowment to support the
development for the future generations when the
petroleum resources have been depleted.
– Any excess petroleum revenues in a particular year are
payable into this fund
– An approved percentage is transferred from the PHF to
this fund
– One year after the depletion of the petroleum
reserves, the amount in the GSF and GHF will be
consolidated into Ghana Petroleum Welfare Fund, and
the GSF and GHF will cease to exist.

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3f. Ghana Infrastructure Investment

Fund
• This is a recently proposed fund and it
expected to the established by the Ghana
Infrastructure investment fund Act 2014 (Act
???).
• The object of the fund is to mobilise and
provide financial
resources to manage, coordinate and invest in
a diversified portfolio of infrastructure projects
in Ghana for national development.

• Sources of Money into the fund

– an amount of money equivalent to 2.5 %
points of the existing Value Added Tax revenue
– an amount of money equivalent to 25% Annual Budget Funding
Amount to be applied to amortization and direct infrastructure
expenditure;
– repayment inflows of moneys on-lent by the Ministry of Finance to
government ministries, departments and agencies
or state-owned enterprises, for capital project or infrastructure
development;
– proceeds from the disposal of state-owned equity investments;
– grants, donations, gifts and other voluntary contributions to the
Fund;
– fees or other moneys earned by the Fund in pursuance of its
functions
– money that accrues to the Fund from investment made by the
Fund;
– any other moneys that the Minister with the approval of
Parliament determines to be paid into the Fund

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• Purpose/functions of the funds

– undertaking investments for the development of infrastructure
within the country to promote economic growth and
attract investments;
– the management and investment of initial and future
contributions
made to the Fund;
– reinvesting into the Fund to generate returns, the profits and
proceeds from investment of moneys of the Fund
– promoting, in Ghanaian personnel, the development of skills in
infrastructure development, including project design,
project management, financing and investment, consistent
with the object of the Fund;
– leveraging the capital of the Fund by attracting investments
through the domestic and international capital and financial
markets; etc.

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