9/3/2022

Kramankus CA Family@
December 2022

ICAG Paper 2.5

Public Sector Accounting and
Finance
Redeemer Krah (Ph.D, FCA)
Salomey Osei Addo (MPhil, CA)
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Course Outline
1. Introduction to Public Financial Management Context
2. Legal and conceptual framework of public sector
accounting and reporting
3. Public Financial management Systems (PEFA&GIFMIS)
in Ghana
4. Revenue and Expenditure Management
5. Public Sector Budgeting and control
6. Preparation and presentation of financial statement for
a single entity and group
7. Evaluation of Financial Performance, position and
prospects of public sector entity
8. Public procurement
9. PFI (PPPs)

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Topic 1:
Introduction Public Sector Management
• Context of Public Sector Accounting and Finance
(nature, scope, characteristics, role)
• Nature of public sector programs and the programme
sustainability.
• Regulatory framework of PFM
• Public financial management cycle (budget,
implementation, accounting and reporting and audit
and control)
• Responsibilities for public financial management (MOF,
CAG, SPOs, etc).
• Public sector accounting concepts, Bases and Policies
• Key public sector accounting practices (commitment
accounting, fund accounting, budgetary accounting).
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Topic 2
Legal and Conceptual Framework for
Public financial management
• Legal framework (Constitution, PFMA, PFMR,
PPA, LGA e.t.c)
• Administrative framework, including court
rulings
• Professional regulatory framework (Conceptual
framework, IPSAS and RPGs).

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Topic 3
Public Financial Management Systems
• Key components of PFM systems
• PFM Models and Infrastructure (PEFA, GIFMIS, GFS
Manual)

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Topic 4
Public Revenue and Expenditure
Management
• Sources of revenue to the public sector (central
government, MDAs and MMDAs).
• Fiscal policy objective relating to revenue.
• Revenue Management
• Accounting for Revenues (Recognition and Measurement)
• Types and characteristics of public expenditure
• Expenditure classification (Chart of Accounts)
• Tools for Expenditure management and control (Budget,
Warrants and Quartey Ceilings, Commitments, Virement,
Chart of Accounts, GIFMIS),
• Payment processes and Platforms (treasury single account,
payment process on GIFMIS, payment platforms-EFT).
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Topic 5
Public Sector Budgeting and
Budgeting control
• Fiscal Planning and Budgeting
• Importance, objectives, challenges and limitation
• Stakeholders in central government budgeting
• Format and content of public sector budget
• Budget process (formulation, authorisation,
approval, execution and reporting, and monitoring
and evaluation)

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Topic 6
Financial Reporting in the Public
Sector
• Responsibility for financial reporting
• Preparation of financial statements of a single
entity (central government and the MDAs, MMDAs)
IPSAS 34
• Preparation of financial statement of a group of
entities (Consolidated Financial Statement for
central government and the local government)
IPSAS 35,36 &37
• Additional disclosures in the notes and extracts
(IPSAS 22 & 24) and the PFM Act.

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Topic 7
Evaluation of Financial Performance,
Position and Cash flows
• Calculation of suitable performance, position and
prospect measures (RPG2)
• Prepare evaluation reports based on the results.

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Topic 8
Public Procurement
• Object and function of PPA
• General principles of procurement
• Procurement rules, methods and procedures
• Review procedures
• Procedure for disposal of stores and equipment.

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Topic 9
Public Financing Initiatives
• PPP and 2PP
• Types of PPP and 2PP
• Accounting for PPP in accordance to IPSAS 12
&32.

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Topic 1
Introduction to Public Sector
Management

Redeemer Krah (Ph.D,FCA)

Kramankus ICA Family
West Africa Senior High School
[email protected]
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Context of Public Sector Accounting

• Nature and Scope
• Public Sector is part of the economy dominated by
government and its entities ,which is involved in in
the provision of public service.
• A distinguishing feature of public sector is the
absence of profit motive and equity ownership.
• Public Sector is broad and diverse, from civil service
to public enterprises.
• PFMA described public sector entities as covered
entities.

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Context (cont)
▪ The term “covered entities” under the PFMA
means:
▪ The Executive, Legislature and Judiciary;
▪ Constitutional bodies;
▪ Ministries, Departments Agencies and local government
authorities;
▪ Public service;
▪ Autonomous agencies; and
▪ Statutory bodies;

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Composition of PSE by Nature

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Context (cont.)
• Characteristics of Public Sector entities
• Every public sector entity is created by an Act of
Parliament or Executive Instruments or Decrees.
• Primary objective is to provide public service to maximize
public welfare.
• Absence of profit motive.
• Finance by public money from taxes, levies, grants and
borrowing.
• They are accountable to Parliament.
• Public goods and services have unique features that
distinguish them from commercial goods and services:
• Non-excludability
• Non-divisibility
• Non-rivalry

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Government Business Enterprise

• Government engages, sometimes, in enterprise in
the form of state own enterprise (SOE) and Public
corporations.
• According to IPSAS, Government business
enterprises has five characteristics:
• They are granted the power to contract in their own
name.
• They are assigned financial and operational authority to
carry on business
• They sell goods and services in the normal course of
business to other entities at profit
• They do not reliant on continuous government funding,
and
• They are controlled by a PSE.

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Roles of Public Sector entities

• Public service role
• Public sector entities are established to provide general
public service such policing, education, health, defense
etc. Example Police service, Hospitals etc
• Regulatory role
• Public sector entity created and empowered to regulate
entities operating in certain sectors of the economy to
safeguard public interest. Example are National Media
Commission, PURC.
• Governance (Executive) role
• Public sector entity may be created to provide general
administration support to government machinery. It
provides governance infrastructure of government.
Example will be Parliament, Presidency, MoF, etc
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Nature of public entity programme

• Public sector entities formulate programmes for
execution of government policies.
• Public sector programmes are usually long terms
• The sustainability of public sector programme
depends upon commitment of future taxations and
contributions.
• Financial sustainability of government programmes
may be achieved through:
• Multi-year budgeting such as MTEF
• Commitment process
• Funding accounting principles

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Public Financial Management cycle

• Public financial management is critical to national
development.
• 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

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Public financial Management cycle

(cont)
• A typical public financial management cycle
include:
• Preparation and approval of a national budget.
• Implementation of the budget
• Accounting and reporting
• Evaluation ,control and audit.
• These processes occur within the legal and
technological framework of the country

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Public financial cycle (cont)

Planning and
Parliament Parliament
budget
investigates scrutinizes and
executive's formulation votes the
audited reports budget bill
PFM objectives

External Audit Budget

& evaluation execution

Cross-cutting
issues, legal and
technological
Monitoring, infrastructure
Accounting,
Reporting

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PFM system
• PFM encompasses the mobilization of government
revenue, allocation and spending of resources by
public entities, and their accounting and reporting
on those revenues and expenditures.
• PFM system includes all the components of a
country’s fiscal situation and budget process —
upstream (strategic planning, medium term
expenditure frameworks, annual budgeting) and
downstream (revenue management, control,
accounting, reporting, monitoring and evaluation,
audit and oversight) .
• PFM occurs within the legal and regulatory
framework
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Responsibilities for PFM

▪ The PFMA prescribes specific responsibilities and
powers of the key officers and institutions:
▪ Minister of Finance
▪ Controller and Accountant General
▪ Chief Director
▪ Principal spending officer
▪ Budget office
▪ Parliament

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Responsibilities of MOF (PFMA s4)

▪ Responsibility of MOF is classified into three:
▪ General responsibility
▪ Planning and budgeting
▪ Public funds management
▪ Other responsibilities
▪ General responsibility
▪ The Minister is responsible for the policy
and strategic matters related to the efficient
operation of the public financial
management system of the country subject
to policy guidance from Cabinet.
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Responsibilities of MOF
▪ Planning and Budgeting responsibilities include
to
▪ Prepare Fiscal Strategy Document;
▪ Prepare the annual and supplementary budget
estimates and reports for submission to Parliament.
▪ submit to Parliament for approval, the budget of
covered entities.
▪ monitor and assess the implementation of the
annual budget and ensure the implementation of
the fiscal policy of Government.

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Responsibilities of MOF
▪ Public funds management include to:
▪ manage Government property, financial assets,
Government debts, Government guarantees and other
contingent liabilities;
▪ account for public funds through a consolidated public
account;
▪ Supervise the financial operations of a covered entity;
▪ manage public funds;
▪ coordinate and mobilise resources including financial
assistance from development partners and integrate the
resources into the planning, budgeting, reporting and
accountability processes;
▪ provide policy framework for conducting banking and
management of cash for a covered entity.

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Responsibilities of MOF (cont)

▪ Other Responsibilities include to
▪ Issue directives and instructions necessary for the
effective implementation of this Act or any other
enactment to the head of a covered entity, a Principal
Account Holder and Principal Spending Officer of a
covered entity.
▪ Perform any other functions assigned to the Minister

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Powers of the MOF

▪ The minister may:
▪ request a report or any other information from any
covered entity or any other person receiving grants,
advances, loans, guarantees or indemnities from the
Government;
▪ establish structures or units, within the Ministry
necessary to enable the Minister discharge
responsibilities in consultation with the civil service and
cabinet approval.
▪ acting on the advice of the Attorney-General and subject
to the approval of Parliament, enter into and execute an
agreement on behalf of the Government in relation to
matters of a financial nature.
▪ Give directives and instructions necessary for the
implementation of the provisions of this

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Powers (cont)
▪ The Minister may delegate any of the
responsibilities to the Chief Director or to a senior
public officer not below the rank of a Director
within the Ministry but shall not be relieved of the
ultimate responsibility for the performance
of the delegated responsibility.
▪ Subject to any procurement laws, the Minister may
hire or retain the services of professionals,
consultants or experts, as the Minister considers
necessary for the proper and effective
performance of the functions.

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Responsibilities of CAG
▪ Generally, Controller and Accountant-General shall
be responsible to the Minister for the custody,
safety and integrity of public funds.
▪ CAG has responsibility relating to:
▪ Consolidated funds and other public funds under his
care
▪ Covered entities

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Responsibilities of CAG
▪ Relating to consolidated Fund and other funds:
▪ Receive, disburse and provide secure custody
for public funds;
▪ compile and manage the accounts prepared in
relation to public funds;
▪ keep, render and publish statements on public
accounts
▪ On the instructions of the Minister, open an
account with the Bank of Ghana and its agents
necessary for the deposit of public funds subject
to compliance with the Treasury Single Account
system;

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Responsibilities of CAG
▪ Relating to Covered Entity
▪ Authorise the opening of an account for a covered
entity;
▪ specify for a covered entity, the accounting standards,
policies and the classification system to be applied in
public accounting, in consultation with the Auditor-
General, to ensure that a proper system of accounting
operates;
▪ Provide accounting officers to covered entities; and
▪ responsible for the classification and management of
value books.
▪ issue general instructions to a Principal Spending Officer
in accordance with the laws
▪ develop efficient accounting systems for a covered
entity;
▪ approve accounting instructions of a covered entity;
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Responsibilities of Chief Director

▪ Advise the Minister on economic, budgetary, and
financial matters and on matters related to the
implementation of this Act;
▪ Coordinate the preparation of the Fiscal Strategy
Document, budget estimates, and the
Appropriation Bill;
▪ Co-ordinate the promotion and enforcement of a
transparent, efficient and effective management of
public revenue, public expenditure, and the assets
and liabilities of a covered entity;

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Responsibilities of chief director

▪ monitor the performance of the public financial
management systems of the public sector;
▪ monitor the financial and related performance of a
covered entity; and
▪ prepare a report within one month after the end of
each quarter on the implementation of the annual
budget by the Government and submit the report
to the Minister.

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Powers of Chief director

▪ Shall through the Controller and Accountant-General
have access, during working hours, to
▪ the accounting records or information of a covered entity,
▪ the place where public accounting services are carried out, and
▪ the place where public accounting records are kept; and
▪ inspect, during working hours, the offices of a covered
entity and access any information relating to public
finance that the Chief Director may request.
▪ The Chief Director may authorise a public officer to
inspect the offices of a covered entity.
▪ The Chief Director may, in writing, delegate any of the
responsibilities under this section to a senior public
officer of the Ministry.

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Responsibilities of Principal Spending

officers (PSOs)
▪ Financial duties of PSOs are to:
▪ ensure the regularity and proper use of money
appropriated in that covered entity;
▪ authorise commitments for the covered entity within a
ceiling set by the Minister;
▪ Manage the resources received, held or disposed of by or
on account of the covered entity.
▪ establish an effective system of risk management,
internal control and internal audit in respect of the
resources and transactions of a covered entity.
▪ remit the subvention received on behalf of another
entity to that entity in accordance with the approved cash
flow plan for the subvention.

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Power of PSOs
▪ A Principal Spending Officer may delegate a his or
her function or responsibility to a public officer
who is under the control of that Principal Spending
Officer but shall not be relieved of the ultimate
responsibility for the performance of the delegated
function or responsibility.
▪ Where a Principal Spending Officer delegates a
function or responsibility, that Principal Spending
Officer shall give the directives necessary for the
proper exercise or performance of that function or
responsibility.

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Responsibilities of Budget office

▪ The Ministry of Finance is required to establish a
budget office that will be responsible for:
▪ The preparation of the annual estimates and Medium-
Term Expenditure Framework within the constraints
specified in the Government’s Fiscal Strategy Document;
▪ The preparation of the mid-year review and half-yearly
budget implementation reports;
▪ Advising the Minister through the Chief Director on all
matters related to the annual budget, supplementary
budget and the Medium Term Expenditure Framework;
▪ Advising the Chief Director on matters related to the
classification of the budget and systems required to
prepare the budget; and
▪ Perform any other function assigned by the Chief
Director

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Public Sector Accounting

• 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
• It is 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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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.

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PSA Vs. Bus accounting

Point of difference Public Sector Accounting Private Sector Accounting
Objective Emphasis provision of Emphasises profitability of
information for business through economic
accountability and value for and investment models.
money. No profit orientation
Reporting Fund basis of reporting Capital basis of reporting
entity/focus
Reporting framework PFM Act, PFMR and IPSAS Company Act and IFRS
Accounting Policy Transition from cash basis to Only accrual basis
accrual basis of accounting

Effect of Budget Focus of budget compliance Budget is separated from

through reporting process. financial statements.
Budget information is
included in the financial
statements, IPSAS 24.
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Accounting Concepts, Bases 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.
• Examples:
• Money measurement
• Going concern
• Historical cost
• Periodicity
• Materiality
• Prudence

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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

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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
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• 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.

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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.

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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.

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• 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.

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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

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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
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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.
• The objective of commitment Accounting are to:
• Account for expenditure transactions in advance of payment
• Ensure the over spending of the budget is avoided.
• Control spending of covered entities

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• 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.

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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

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Illustration-Vote book
• The warrant for a department for Item 2 for the first
quarter of 2020 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.

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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. -

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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.

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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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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 public
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).

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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.

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• 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)

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• 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.

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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

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Knowledge corner

Seeing is a way of not seeing

****End of topic 1****

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Topic 2
Legal and Professional
Framework of PSAF
Redeemer Krah (CA)
Kramankus CA Family
[email protected]

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Introduction
• PFM in general and Public sector Account and
Finance is governed by rules crafted to ensure
economic, efficient and effective management of
public resource.
• Rule for management of public financial resources
comes from three sources:
• Financial Legislations
• Administrative instructions and orders
• Professional conceptual framework and
standards.

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1. Financial Legislations
• Key legislations dealing with public financial
management in Ghana include:
• The 1992 Constitution (Chapter 13: Finance)
• Public Financial Management Act 2016, Act 921
• Public Financial Management Regulation 2019, L.I 2378
• Fiscal Responsibility Act 2018
• Public Procurement Act 2016 (Amendment) Act 914
• Audit Service Act 2000, Act 584
• Internal Audit Agency Act 2003, Act 658
• Local Governance Act 2016, Act 936, including
amendments
• National Pension Act 2008, Act 766
• Petroleum Revenue Management Act 2011, Act 815

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Legislative authority
• In general, the financial legislations are expected to
be consistent in their provisions.
• Thus, all the laws particularly the Constitution,
PFMA, PFMR and the enabling laws should be read
together.
• Where there exist inconsistent provision:
• Constitution supersedes all other laws
• PFMA supersedes all other financial legislations
including entity specific enabling enactments.
• For example, if the a provision of LGA is inconsistent
with the PFMA, you have to comply with the PFMA,

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The 1992 Constitution

• The Chapter 13 specifically make provisions for Finance.
• The Constitution provides the broad framework for
conducting public financial management.
• Key areas of Constitutional provision on public financial
management are:
• Power of taxation (Article 174)
• Composition of Public Funds ( Article 175)
• Receipts into the Consolidated Fund (Article 176)
• Withdrawal from public funds (Article 178)
• Budgeting system (Article 179&180)
• Loans and public debt (Article 181 & 182)
• Foreign transactions
• Institutional arrangements -BOG, STS, AG/AS

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Summary of Constitution (Chp. 13)

178 Withdrawals from public funds. It makes provision for withdrawal of

both statutory payments and discretional payments.

179 Provides for budgeting (estimate of Revenue and Expenditure) in the

public sector. The President is Ultimately responsible for budget
preparation and Parliament is a sole approving authority
180 Expenditure in advance of appropriation
181
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Summary of Constitution (Chp. 13)

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Exams Focus
The past trend of Exam Questions is that students
are required to have understanding of the major
financial provisions of the Constitution.

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Public Financial Management Act

2016, Act 921
• The object of this Act is to regulate the financial
management of the public sector within a
macroeconomic and fiscal framework by establishing:
• a framework to support a sound fiscal policy and the
macroeconomic management of public funds;
• processes for the preparation, approval and management
of a transparent, credible and predictable annual budget;
• mechanisms for the operation of the Consolidated Fund;
• mechanisms for the management of public funds, assets
and liabilities;
• internal and external audit frameworks and correlative
reporting and accounting systems; and
• a mechanism for oversight.
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Scope and application

• PFM Act applies to:
• a covered entity; and
• a public officer responsible for receiving, using,
or managing public funds.
• This Act shall be read together with any other
enactment relevant to public financial
management.
• Where there is a conflict or inconsistency between
the provisions of this Act and any other relevant
enactment, the provisions of this Act shall prevail
• PFMA repealed the FAA 2003.
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Innovations in PFMA
• What is new in PFMA?
▪ Broadening of PFM responsibilities of public officers to
cover Chief Director of MOF.
▪ Comprehensive provision on public debt management (
repealed of Loan Act 1970)
▪ Establishment of Audit Committee to replace the ARIC
under Audit Service Act, 2000.
▪ Specific provision on internal audit function
▪ Comprehensive provision on the planning ( fiscal and
economic policy) and Budgeting
▪ Treasury Single Account
▪ Stiffer punishment for offenses

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Key areas of PFMA provisions

• Responsibilities and Roles for Public Financial
Management.
• Macroeconomic and Fiscal Policies.
• Budget Preparation, Approval and Management.
• Contingency Fund.
• Sinking Fund and Debt Servicing
• Cash and Asset Management
• Public Debt Management
• Accounts and Audit ( Including Internal Audit)
• Audit Committees

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Summary of PFMA
Key areas summary
Responsibilities and Roles for It provides for the general responsibility, and specify the
Public Financial Management responsibility and powers of Minister of Finance, Chief Director of
MOF, CAG & deputies, PSOs, Budget Office and Parliament,
Macroeconomic and Fiscal Provides for fiscal policy making and the responsibility of
Policies Cabinet to approve and adhere to the fiscal polices.
Budget Preparation, Intensive provision on budget preparation, approval and
Approval and Management management.
Contingency Fund Provides for payments and advancement from the
Contingency Fund.
Sinking Fund and Debt Provides for creation and management of SF to ensure
Servicing effective debt management.
Cash and Asset Magt. Deals with treasury single account, investment, and bank
arrangement , among others
Public Debt Management Detail provisions covering all aspects of the debt
management including the purpose of borrowing,
establishment of public debt management office
Accounts & Audit Provides for financial reporting and function of internal audit
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Audit Committee Provides for establishment and management of AC.

Public Financial Management Regulation

2019, L.I 2378
• Scope and Application
• The PFMR 2019 revoked the FAR 2004 (L.I 1802).
• PMFRs apply to
• covered entity,
• a public corporation and state owned enterprises.
• PMFRs makes provision to ensure effective
implementation of PMFA.

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Key Issues covered in the PFMR

• Responsibilities and Roles for PFM ( focusing on accounts
officers)
• Macroeconomic and fiscal policies
• Public financial management systems (focusing on GIFMIS)
• Budget preparation, approval and management
• National development plans
• Revenue management
• Expenditure control
• Payroll payments
• Imprest
• Revolving funds
• Advance payments

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Key issues (cont)

• Deposits and other funds
• Banking arrangements
• Financial Instrument
• Cash management
• Value books
• Asset management
• Debt Management
• Issuance of government securities
• Domestic and external loan
• Debt service payment
• Loan and grant management

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Key issues (cont)

• SOEs and Public Corporation
• Accounting, reporting and Accounting practices
• In-year reporting
• Reporting requirements
• Internal audit
• Audit Committee
• Miscellaneous provisions

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2. Administrative Instructions and

Orders
• These are regulations, rules, procedures and
instructions issued by those entrusted with public
financial management consistent with the financial
legislations to ensure implementation and
compliance with such laws.
• Examples include:
• Budget guidelines issued by MOF
• Quarter ceiling set by MOF
• Chart of Accounts issued by CAG
• Accounting manuals issued by CAG to MDAs and
MMDAs

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3. Professional Framework
• The accounting profession also imposes additional
requirements on accountants in the public sector
when reporting financial events to the public.
• These requirements are in the form of:
• Concept framework for financial reporting
• International Public Sector Accounting Standards (IPSAS)
• Recommended Practice Guide (RPGs)

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The Conceptual Framework for General

Purpose Financial Reports (GPFR) in the public
sector

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Conceptual framework
• It is one of the documents issued by IPSASB to
provide the basis for accounting standard setting or
accounting policy decision making in absence of a
standard.
• It has 8 Chapters:
• Role and authority of the CF
• Objectives and users of GPFR
• Qualitative Characteristics
• Reporting entity
• Elements of Financial Statements
• Recognition in Financial Statements
• Measurement of Assets and Liabilities in Financial
Statement
• Presentation of General Purpose Financial Reports
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1. Role and Authority of Conceptual Framework

• Role of Conceptual Framework
• It establishes the concepts that underpin GPFR (financial
reporting) by public sector entities.
• The IPSASB applies these concepts in developing IPSAS
and RPGs for the public sector
• Authority of Conceptual Framework
• It is not an authoritative requirement for financial
reporting by public sector entities that adopt IPSAS.
• It does not override the requirements of IPSAS & RPGs.
• Relevance to Preparers of Financial Statement
• It provides guidelines in dealing with financial reporting
issues not dealt with by IPSAS or RPGs in terms of
definitions, recognition criteria, measurement principles
and other concepts.

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GPFR V. SPFR
• GPFRs
• These 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 need.
• GPFR comprise multiple reports, each responding to
more directly to certain aspects of the objective of
financial reporting and matters included in within the
scope of financial reporting.
• The scope of GPFR is determined by the information
needs of the primary users and the objectives of the
financial reporting.

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GPFR V SPFR
• SPFR
• It refers to financial reports prepared to respond to the
information requirements of users that have the
authority to require the preparation of financial reports
that disclose the information they need for their
particular purpose.
• Preparation of SPFR may not necessarily conform to the
IPSAS or RPGs
• Users of SPFR may find the information provided by
GPFRs useful for purpose, but GPFR is not develop to
specifically meet their need.
• Example of SPFR is Donor demanded financial reports,

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2. Objectives and Users of GPFR

• Objective of Financial Reporting
• The objective of FR by public sector entities are to
provide information about the entity that is useful to
users of GPFR for ACCOUNTABILITY PURPOSEs and
DECISION MAKING PURPOSES.

• General rule is that financial reporting is not an end

in itself but a mean for providing information useful
to the users GPFR.

• Three critical issues are:

• who are we providing the information for (users)?, why
do they want the information?
• what information is useful for their purpose?
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Users of GPFR
• There are two categories of Users of GPFR:
• Primary Users
• Other Users.

• Primary Users
• Primary users are those who need the financial
information by virtue that they are service
recipients and/or they have provided resources to
government ( resource providers).

• Primary users are simply:

• Service providers and their representatives
(Legislature)
• Resource providers and their representatives
(Legislature)

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Users (cont)
• Service recipient include
• Citizens
• Non-citizens residents
• Resource provider
• Tax payers
• Donor agencies (Bilateral and Multilateral)
• Lenders
• International governmental Organisation (UN, IMF,
world Bank)

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Users (cont.)
• Other users
• These users may also find the GPFR very useful for the
purpose even though the GPFR is primarily tailored to
meet the needs of service recipient and resource
providers.
• They include:
• Government statisticians
• Analysts
• Media
• Financial advisors
• Lobby groups
• Regulatory and oversight bodies
• Audit institutions
• Subcommittee of the legislature (e.g, PAC)
• Entity management
• Rating agencies
• Researchers and students.
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Why Users Need GPFR

• Primary users and other users may be interested in:
• assessing the accountability of the public sector entity
• Making decisions about the entity.
• Users thus require information about the entity’s
management of the resources entrusted to it for the
delivery of services in compliance with legislation and
other regulation.
• Users may also require information for decision
making.
• For example lenders, creditors, donors and other resource
providers on voluntary basis makes decision about continuous
funding of the entity.
• Citizens and taxpayers may make decision on their voting
preference based on the financial information,

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Information Needs of Users

• Primary users will need information to assess:
• Performance of the entity for the period in terms of
service delivery, resource management and
compliance.
• Liquidity and solvency of the entity
• Long term sustainability of entity’s service delivery
and other operations and changes therein in terms
of:
• Capability to continue to fund its activities and
meet operational objectives in the future,
• Current availability of physical and other
resources to support service delivery in the
future.
• Capacity of the entity to adapt to changing
circumstances (such as demographics or economic
conditions that impact the activities of the entity.
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Information provided by GPFR

• A GPFR provides information on:
• Financial position
• Financial performance
• Cash flows
• Budget & Compliance with legislations and other
regulations.
• Service delivery achievements
• GPFR may provide this information in the financial
statement and the notes to the financial statement.
• GPFR provides both Financial information and non-
financial information.

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Limitation of Scope GPFR

• GPFR provides as much information possible to the
users.
• However users may have to consider information
from other sources when information is not
available in the GPFR
• Other sources of information include
• Reports on current and anticipated economic conditions
• Government budget & forecast
• Government policy initiatives

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3. Qualitative Characteristics
• The qualitative characteristics are attributes that
make information useful to users and support
achievement of the objectives of financial
reporting.
• The 6 qualitative characteristics include:
• Relevance
• Faithful representation
• Understandability
• Timeliness
• Comparability
• Verifiability

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Relevance
• Information is relevant if it is capable of making
difference in achieving the objective of financial
reporting.
• Relevant information has:
• Confirmatory value
• Predictive value, or
• Both confirmatory value

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Faithful representative
• Information is faithfully represented when
economic and other phenomena represented what
it purports to represent.
• Information faithfully represented when it is:
• Complete
• Neutral
• Free from material error.

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Understandability
• Understandability is the quality of information that
enables users, who have a reasonable knowledge
of the entity and ready to read and review the
information, to comprehend its meaning.
• To achieve understandability, the information
should be:
• Classified
• Characterised
• comparable
• Presented clearly and concisely.

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Timeliness
• Timeliness means having information available for
users before it loses its capacity to be useful.
• Under the PFMA, timeliness of financial report of
public sector entity is 2 months after the end of the
year.
• For the Consolidated Fund, 3 months after the end
the financial year.

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Comparability
• Comparability is the quality of information that
enables users to identify similarities in and
differences between, two sets of phenomena.
• Note that comparability differs from consistency
and differs from uniformity.
• What is the differences?
• Comparability may be achieved by:
• Similar information about the same entity for some
other period or some other point in time
• Similar information about other entities for the same
period
• Prospective financial and non-financial information
previously presented for that reporting period

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Verifiability
• Verifiability is the quality of information that helps
assure users that information in GPFRs faithfully
represents the economic and other phenomena
that is purports to represent.
• It is also known as supportability.
• Verification may be:
• Direct, eg counting cash, observing marketable
securities and quoted prices etc.
• Indirect- checking inputs and recalculating output. Eg
inventory.

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Constraints on Information Included in GPFR

• GPFR does not include every information
because of some constraints.
• The major constraints determining the
information to include in GPFR are
• Materiality
• Cost-benefit
• Balance between the qualitative
characteristics

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Materiality
• Information is material if its omission or
misstatement could influence the discharge of
accountability by the entity or the decision that
users make on the basis of information provided in
the GPFR.
• Materiality depends on both the nature and
amount of items judged in the particular
circumstances.
• Assessment of what is material should reflect:
• Legislations
• Institutional and operational environment
• Preparer’s Knowledge and expectation about the future

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Materiality
• Materiality is regarded as a constraints on
information included in GPFR.
• In standard setting, materiality is considered in
making standards application of accounting policy,
basis of preparation and disclosure of a particular
item or type of information.
• Reporting entities should also consider the
materiality of application of a particular accounting
policy and separate disclosure of items.

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Cost-Benefit
• Financial reporting imposes costs on both the
preparer and users.
• Benefits of financial reporting should justify the
costs.
• Cost-benefit assessment is a matter of judgement
because not all cost and benefits can be identifies
and quantified.
• Sometimes, some qualitative characteristics might
be sacrificed to some degree to reduce cost.
• In developing, cost and benefit of financial
reporting are considered in making disclosure and
other reporting requirements
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Cost- Benefit
• Financial reporting cost to the preparer include:
• Cost of collecting and processing the information
• Cost of verifying the information and presenting the
assumptions an methodologies supporting it
• Cost of dissemination.
• Financial reporting cost to the users include:
• Cost of analysis and interpretation
• Cost of obtaining omitted but needed information
• Cost of wrong decision based on incomplete information

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Cost-benefit
• Most benefits is derived from information provided
in the GPFR for accountability and decision making
purpose.
• However public sector entities may also benefit
from information provided by GPFR in many ways:
• Better decision making by management
• Enhanced and reinforced perception of financial
transparency by government
• More accurate pricing of public sector debt

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Balance between the QCs

• QCs work together for the usefulness of the
information. Example, faithful representation of
irrelevant phenomena decreases the usefulness.
• In some cases, a balancing or trade-off between
QCs may be necessary to achieve the objective of
financial reporting. For example, faithful
representation and timely are likely to be balanced.

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Trial Questions
1. A transaction that qualifies as an asset has been report as
expense in the financial statement of the entity.
Required
Discuss how this will affect the quality of the financial
statement. 2 marks.

2. An accountant prepares a financial statement showing both

actuals and budgets. The director returns the financial report
angrily on the grounds that the quality of the financial
statement has been compromised.
Required
Discuss how the presentation of the accountant compromises
the quality of the financial statement. 2 marks
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4. Reporting entity
• A public sector reporting entity may comprise two
or more entities that present GPFR as if they are a
single entity.
• In reality, not all public sector entities are reporting
entity and therefore may not be required to
prepare GPFR.
• Key characteristics of reporting entity are that:
• it raises resources from, or on behalf of, constituents
and /uses resources to undertake activities for the
benefit of, or on behalf of, those constituents
• There are service recipients or resource providers
dependent on the GPFRs of the entity for information
for accountability or decision-making purposes.

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Reporting entity
• Users are likely to exist for entities that have
responsibility or capacity to raise or deploy
resources, acquire and manage public assets, incur
liability or undertakes activities to achieve service
delivery objective.
• The greater the resources raised, deployed and
managed the higher the possibility that users exist.
• The greater the liabilities it incurs and the
economic & social impact the likely is it that users
exist
• A public sector entity may have a separate legal
entity or be without separate legal identity.

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5. Elements of the financial statements

• Elements of financial statement include
• Assets
• Liabilities
• Revenues
• Expenses
• Ownership contribution/distribution

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Assets
• An asset is a resource presently controlled by the entity
as a result of past events
• A resource is an item with service potential or the
ability to generate economic benefits.
• Public sector assets that embody service potential may
include recreational, heritage, community, defense and
other assets which are held by government to provide
service to third parties
• Present Control indicators:
• Legal ownership
• Access to the resource, or ability deny or restrict access
• Means to ensure the resources is used to achieve the
objectives of the entity
• Existence of an enforceable right to service potential or
ability to generate economic benefits arising from a resource

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Assets
• Past events given control to an entity include:
• Purchase/develop in exchange transactions
• Non-exchange transaction – Exercise of Sovereign Power
such as power to tax, issue licenses, to access or
restrict/deny access to intangible assets.
• Entity’s control right arises when there is
• A general ability to establish power
• Establishment of a power through a statue
• Exercising the power t create a right
• Events which give rise to the right to receive resources
from an external party.

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Public Assets in Ghanaian Contexct

• Public sector assets that embody service
potential may include recreational, heritage,
community, defense and other assets which
are held by government to provide service to
third parties
• Present Control indicators:
• Legal ownership
• Access to the resource, or ability deny or restrict
access
• Means to ensure the resources is used to achieve
the objectives of the entity
• Existence of an enforceable right to service
potential or ability to generate economic benefits
arising from a resource
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Classification of Assets
• Under the COA, public assets are classified into
two: Non-financial assets and financial assets.
• Non-financial assets are assets that have a physical
substance, and usually having longer useful live.
• They are usually fixed assets.
• Non-financial assets include:
• Buildings and structures ( dwelling, nonresidential and
other structures)
• Machinery and equipment ( transport equipment and
other machinery & equipment)
• Infrastructure
• Intangible assets ( computer software)
• Unproduced assets ( land)

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Classification of assets
• Financial assets
• Assets that take liquid forms and often lack
physical substance.
• Examples of financial assets include:
• Currency and deposits (cash and cash
equivalent)
• Loans
• Shares and other equity
• Receivable ( Advances, other receivable)

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Management of Fixed Assets

• Fixed assets include land, buildings, vehicles and
other high value assets which an entity controls
and uses in operations to generate revenue or
provide services and which are expected to be in
use for more than one year.
• PSO is primary responsible for the management of
fixed assets (control, use and disposal).
• Key responsibility areas of the PSO are:
• Inventory of fixed assets
• Fixed asset coordination
• Acquisition, use and disposal
• Store management

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Inventory management
• PSO shall annually undertake an inventory of fixed
assets of the entity and update the records on the
asset register on the GIFMIS.
• Inventory management should be in accordance
with instructions on the procedure issued by CAG.
• Asset Register module on GIFMIS is used for
inventory management.
• Asset register has following benefits
• Ensure effective management of assets
• Ensure effective planning in the use of the asset
• Curtails lost of assets due poor tracking
• Provide database for all assets.

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Coordination of Assets
• PSO shall establish a responsibility center (called
fixed asset coordinating unit) for coordination of
fixed assets of the entity.
• Responsibility of FACU include:
• Assist the PSO to take an inventory of fixed assets
• Keep record on fixed asset
• Prepare annual report on fixed asset
• Coordinate the retirement and disposal of fixed assets
• Coordinate transfer of fixed assets
• Assist PSO to update the fixe asset register after every
acquisition, disposal or transfer.

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Acquisition, use and disposal of asset

• Vehicles
• PSO shall obtain the prior written approval of the MOF
for
• the acquisition,
• transfer,
• exchange,
• sale,
• donation,
• contribution-in kind,
• Lease, rental or use
• trust and other disposals of vehicles.
• MOF establishes a ceiling on the number of vehicles
each entity may acquire.

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Acquisition, use and disposal of

asset
• Land an building
• PSO shall obtain the prior written approval of the
Minister for any transaction in land- transfer, exchange,
sale, donation, lease, rental, demolishing of building and
major changes in use.
• Note that disposal of land or building to a private entity
is subject to prior approval of Parliament on
recommendation of Minister.

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Acquisition, use and disposal of

asset
• Where land, building and vehicle are unused for
more than one year or damages, misused or
stolen the MOF shall take one of these measures:
• Issue instruction to request the PSO to change the
manner in which the asset is used.
• Cause investigation to be conducted in respect of the
asset
• Transfer management of asset to another entity or the
ministry.
• Instruct PSO to disposed of unused assets in accordance
of laid down procedures.

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Store management
• PSO is required to record the acquisition of store
items in the GIFMIS.
• PSO shall manage stores in accordance with
instructions issued by CAG
• Stores should be disposed of in accordance with
the Public Procurement Act 2016, amendment Act
914.

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Cash Management
• Cash management involves
• Bank account management (treasury single account)
• Cash forecasting
• Imprest management

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Bank arrangement
• Treasury Single Account (TSA)
• Treasury Single Account serves as a unified
structure of Government accounts to give a
consolidated view of Government cash
resources.
• All Government cash including moneys
received by covered entities shall be deposited
into and all expenditure of Government and
covered entities shall be made from the TSA.
• TSA exist for central government agencies at
BOG, local government authorities at
Commercial banks.

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Treasury Single accounts

• TSA for central government agencies includes:
• Treasury main account (TMA)
• Revenue transit accounts for tax and non-tax (balance
transferred to revenue holding account close every day)
• Revenue holding accounts (balance transferred to TMA)
• Operational accounts of covered entities (for security
deposit)
• Donor fund bank accounts
• Third party deposits and other deposits
• Foreign missions bank accounts, and
• Any other accounts designated by the CAG
• TSA should be managed on the GIFMIS

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Cash Management Committee

• To ensure effective management and use of all revenues
and paid into the consolidated fund the MOF shall establish
a cash management Committee (CMC) at the ministry of
finance.
• The MOF shall determine the procedure for the meeting of
CMC
• Functions of CMC
• Review monthly, quarterly and yearly cash forecast of inflows and
outflows in respect of economic classification and activities
• Advise MOF on the amount of budget allocation based on the cash
forecasts
• Advise the CAG on amount of monthly warrants based on the cash
forecasts
• Determine a level of cash buffer in the TSA
• Collect data from other covered entities
• Improve the quality of forecast errors
• Collaborate with DMO in cash management
• Perform any other function the MOF assigns.

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Opening and closing of bank accounts

• A bank account shall not be opened for any covered entity
without the written approval of the Controller and Accountant-
General.
• Subject to the written approval of the Controller and
Accountant General, a bank account shall not be opened to
receive or spend public funds.
• CAG shall approve service level agreement of revenue transit
account opened with commercial banks and other bank
accounts of TSA.
• Bank accounts of covered shall not be overdrawn and advance
or loan cannot be obtained with prior written approval of the
Minister.
• CAG has unrestricted access to the bank account of covered
entity and where a bank refuses CAG may close the account
with the bank.
• CAG shall have register of bank accounts opened with
commercial banks for covered entities and local government

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Imprest Management
• Imprest is a sum of cash advanced to a public officer to
meet payments which are otherwise inconvenience to
disburse from public funds through the normal payment
procedures.
• Two types of imprest: standing imprest and special imprest
• PSO who intends to operate an imprest shall apply to CAG
for approval, indicating the amount and the justification.
• CAG may approved the application and communicate
approval to PSO within 15 days, otherwise 10 days to
communicate refusal.
• CAG issues the imprest warrant for the year to the PSO
through the GIFMIS, establishing monthly float ceiling and
ceiling for total payment for standing imprest
• CAG shall specify imprest holder for standing imprest and
special imprest

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Imprest management
• Responsibility of the Imprest holder
• Safeguard public money (imprest)
• Ensure that the imprest is used wholly and exclusively
for the purpose for which it is established
• Ensure validity, regularity and accuracy of the
expenditure from the imprest
• Keep cash books and records of the imprest
• A holder of imprest is personally responsible for
loss or shortage of standing or special imprest he
holds and loss shall be charged to his salary and
other emoluments.

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Imprest management
• Payment out of imprest
• It should be classified as an advance.
• PSO request for an advance from imprest through the
GIFMIS using a purchase requisition to the CAG.
• CAG shall through GIFMIS approves the purchase
requisition made by PSO, ensuring that amount
requested is within the available balance of the
commitment ceiling.
• Upon approval, CAG shall through GIFMIS approve a PV
for the request, release funds the virtual account, print
cheques to be cashed by the holder (standing imprest)
or send a bank instruction for EFT to the bank account of
the holder (special imprest)

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Imprest management
• Retirement of imprest
• PSO shall ensure full retirement of standing imprest at
year end,
• Special imprest shall be retired fully within10 days after
completion of the activity.
• Unretired imprest shall be charged to the personal name
of the PSO/holder/recipient, as appropriate.
• Failure to retire imprest on due date is an offense,
unless on the grounds of death or incapacity.
• CAG shall not issue imprest warrant to a covered entity
that fails to retire the imprest for the previous year.
• Note: sub-imprest holding is allowed by law.
• CAG shall report on unretired imprest balances in the
public accounts to be submitted to Parliament.

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Advances and loans management

• Advances are moneys lent out from the public funds on
condition of repayment within one year, including
advance payment for goods and services
• Loans are moneys lent out from the public funds on
condition of repayment within a period longer than one
year.
• PSO shall approve through GIFMIS, a purchase
requisition for advance payment of a covered entity.
• When purchase requisition is approved, PSO approves
the PV for the advance payment on the GIFMIS.
• CAG then releases funds to the bank of the covered
entity, then PSO send bank instruction for EFT.
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Advance and loan management

• Advance payment for goods and services
• Necessary Conditions for making advance payment for
goods and services include:
• It shall be by a written contract;
• Amount shall not exceed more than 50% of the total
price to be paid under the contract
• Supplier/contractor shall obtain from a financial
institution a guarantee on payments of damages to
GOG in case on non-performance
• Terms of the guarantee shall cover the entire
contract period
• Financial institution providing the guarantee must be
licensed by BOG or foreign central bank and meet
regulatory requirements of capital adequacy ratio
• Advances must be properly recorded and
accounted for
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Advances and loans management

• Revolving fund may be used to management advances and
loans,
• Budget shall include appropriation for gross amounts of staff
loans, purchase of agricultural materials, and other
expenditures of each revolving fund of the entity.
• Expenditures including loans and advances of revolving fund
shall be committed and paid through the GIFMIS.
• Revolving fund shall be established by the approval of MOF.
• Records of loans and advances from revolving funds shall be
made in the GIFMIS.
• PSO shall submit to CAG financial statements of the
revolving funds of the entity.
• MOF may closed or wind up a revolving fund and any credit
amount standing shall be credited to the consolidated Fund.
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Financial instruments/investment
• Financial instruments forming part of the financial
asset of government include Deposit accounts,
shares, bonds, bills, commercial papers, notes,
loans, receivable, derivatives, repurchase
agreements etc.
• FIs shall mature within the fiscal year.
• Idle cash balance of government may be invested
by CAG in the most appropriate financial
instruments by approval of MOF.

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Value Books
• Value book refers to any official forms, books, or
electronic device used in any public financial
business, the improper use of which may cause loss
of public or trust moneys.
• Value books include:
• Official receipts document,
• Cheque books,
• Local purchase order
• Requisition and bill books
• Any other books declared so by CAG but exclude
passport booklets & laminates.

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Management of value books

• CAG is responsible for
• approval of the design, form and content of value books.
• Ordering the supply of value books
• Issuing guidelines for management of value books
• Approval of stock levels of value books to be produces
for use by covered entity.
• Ensuring security of value books
• May authorise BOG to print value books
• PSO is responsible for the efficient control of stock
of value books of covered entity.
• A person to whom value book is issued is
responsible for the custody

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Management of value books

• Loss of value books
• Loss of value book shall be reported immediately:
• By the officer responsible for the custody to the issuing
stockholder
• By issuing stockholder to the PSO
• By PSO to the Police
• Notice of suspected unlawful use of loss value book
should be made by the person in custody of the value
book shall be made to the public
• Notice to the public include Publication in gazette,
newspaper, circular and any other means indicated in
departmentall accounting instructions

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Management of value book

• Value of loss of value book comprise
• The cost of acquiring the value book
• Cost of the notice to the public
• Any resultant revenue loss or irregular payment .
• Retention of used value book
• PSO shall retain used value book for a period of 7 years.

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Recognition of PPEs
-IPSAS 17
• The cost of an item of property, plant, and equipment
shall be recognized as an asset if, and only if:
• It is probable that future economic benefits or
service potential associated with the item will flow
to the entity; and
• The cost or fair value of the item can be measured
reliably.
• An item of property, plant, and equipment that
qualifies for recognition as an asset shall be measured
at its cost.
• Where an asset is acquired through a non-exchange
transaction, its cost shall be measured at its fair value
as at the date of acquisition.
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Measurement at Recognitions
• Entity adopt either of the two subsequent recognition models
• Cost model
• Revaluation model
• Cost Model
• After recognition as an asset, an item of PPE shall be carried at
its cost, less any accumulated depreciation and any
accumulated impairment losses.
• Revaluation Model
• After recognition as an asset, an item of PPEs whose fair value
can be measured reliably shall be carried at a revalued amount,
being its fair value at the date of the revaluation, less any
subsequent accumulated depreciation, and subsequent
accumulated impairment losses

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Depreciation of PPEs
• Depreciation and amortization are the systematic
allocation of the depreciable amount of an asset over its
useful life.
• In the case of an intangible asset, the term “amortization”
is generally used instead of “depreciation.” Both terms
have the same meaning.
• Under accrual accounting all PPEs requires to be
depreciated using appropriate depreciation method
• Depreciation charged should be treated as an expenditure
described as “consumption of fixed capital”
• There is a need to prepare PPE schedule showing cost,
additions, disposals, accumulated depreciation,
depreciation charge and the net book values

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Derecognition of PPEs
• The carrying amount of an item of property, plant,
and equipment shall be derecognized:
• On disposal; or
• When no future economic benefits or service potential is
expected from its use or disposal.
• The gain or loss arising from the derecognition of an
item of PPE shall be included in surplus or deficit
when the item is derecognized

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Accounting for Infrastructure assets

• Infrastructure assets are long-lived capital assets that
normally are stationary in nature and normally can be
preserved for a significantly greater number of years
than most capital assets.
• Examples of infrastructure assets include
• Roads networks,
• Bridges and tunnels,
• drainage systems,
• water and sewer systems,
• power supply systems, and
• communication networks etc

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Characteristics of Infrastructure assets

• Infrastructure assets usually display some or all of the
following characteristics:
• They are part of a system or network;
• They are specialized in nature and do not have alternative
uses;
• They are immovable; and
• They may be subject to constraints on disposal.

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Recognition of Infrastructure asset

• Infrastructure assets meet the definition of property,
plant, and equipment and should be accounted for as
such.
• However, depreciating certain infrastructure may be
problematic because they may have indefinite
economic useful life.
• In such cases, the modified approach in lieu of
depreciation is applied.

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Modified Approach in lieu of

depreciation
• Under this approach governments are required to
capitalize their infrastructure assets, but they are not
required to report depreciation expense on those
assets, provided certain conditions are met that
demonstrate the government’s commitment to
maintaining infrastructure at a specified condition
level.
• Therefore the cost of regular improvement in the
infrastructure is treated as an expenditure in the
period in which it as carried out.
• If government fails to meet the conditions necessary
for adopting the modified approach, then the
infrastructure should be capitalized and depreciated.
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Accounting for Heritage Assets

• Heritage assets are assets held by government for
their cultural, historical and environmental
significance.
• These are assets that government intends to preserve
indefinitely because of their unique cultural, historical
and environmental attributes.

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Heritage Assets (cont)

• Examples include:
• Historical buildings and Monuments
• Art and museum collections
• Wilderness preservation/natural reserves
• Conservation areas (Battle fields)
• Archaeological sites

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Characteristics of Heritage Assets

• Their value in cultural, environmental, educational,
and historical terms is unlikely to be fully reflected in
a financial value based purely on a market price;
• Legal and/or statutory obligations may impose
prohibitions or severe restrictions on disposal by sale;
• They are often irreplaceable and their value may
increase over time, even if their physical condition
deteriorates; and
• It may be difficult to estimate their useful lives, which
in some cases could be several hundred years.

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Heritage Assets (cont)

• Measurement and recognition
• In general, it is difficult to measure the cost of heritage
assets reliably and that most do not have future economic
benefit that will flow to government.
• Therefore, heritage asset are usually not recognized in the
financial reports because of their inability to meet the
critical conditions for recognition assets.
• However, Heritage asset that meets the measurement
criteria should be capitalized and depreciated in the usual
manner.

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Impairment of PPEs –IPSAS 21/26

• Impairment refers to a loss in the future economic
benefits or service potential of an asset, over and
above the systematic recognition of the loss of the
asset’s future economic benefits or service potential
through depreciation.
• An asset is impaired when its carrying amount
exceeds its recoverable amount.

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Impairment of PPEs (Cont)

• The issue of impairment is only relevant when
government adopts the accrual basis of reporting.
• IPSAS requires an entity to assess at each reporting
date whether there is any indication that an asset
may be impaired.
• In assessing whether there is an indication of
impairment the Standard requires an entity to
consider, as a minimum, a number of specified
indications

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Impairment (Cont)
• Indicators of impairment are group into two –
external sources and internal sources
• External sources (indicators)
• Cessation, or near cessation, of the demand or need for
services provided by the asset
• Significant changes during the period in the technological,
market, economic, or legal environment in which the entity
operates.
• Increase in market interest rate which negatively affect the
value in use of the asset

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Impairment (cont)
• Internal sources :
• obsolescence or physical damage of an asset
• the asset becoming idle, plans to discontinue or restructure
the operation to which an asset belongs, plans to dispose
of an asset before the previously expected date, and
reassessing the useful life of an asset
• A decision to halt the construction of the asset before it is
complete or in a usable condition
• economic performance of an asset is, or will be, worse than
expected.

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Impairment (cont)
• Approaches of determining impairment:
• Depreciated replacement cost approach
• Restoration cost approach
• Service unit approach
• Treatment of impairment loss in financial reporting:
• An impairment loss shall be recognized immediately in
surplus or deficit.
• The entire amount of the impairment can be treated as a
direct increase to accumulated depreciation based on the
notion that the impairment is tantamount to a reduction of
the capital asset’s useful life

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IPSAS 12: INVENTORY

• What is inventory (stores) under the IPSAS 12?
• Inventories are assets:
• In the form of materials or supplies to be consumed in the
production process;
• In the form of materials or supplies to be consumed or
distributed in the rendering of services;
• Held for sale or distribution in the ordinary course of
operations; or
• In the process of production for sale or distribution.

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IPSAS 12
• Example of inventory in the public sector include:
• Ammunition;
• Consumable stores;
• Maintenance materials;
• Spare parts for plant and equipment, other than those
debited to PPEs
• Strategic stockpiles (for example, energy reserves);
• Stocks of unissued currency;
• Postal service supplies held for sale (for example, stamps);

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IPSAS 12
• Examples of inventory (cont)
• Work-in-progress, including:
• Educational/training course materials; and
• Client services (for example, auditing services),
where those services are sold at arm’s length
prices; and
• Land/property held for sale.

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Measurement of Inventory
• General rule for measurement of inventory is that
Inventories shall be measured at the lower of cost and
net realizable value.

• However Where inventories are acquired through a

non-exchange transaction, their cost shall be measured
at their fair value as at the date of acquisition.

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Measurement (cont)
• Also Inventories shall be measured at the lower of
cost and current replacement cost where they are
held for:
• Distribution at no charge or for a nominal charge; or
• Consumption in the production process of goods to be
distributed at no charge or for a nominal charge.
• How would the cost of inventory of currency
measured?
• How would you measure the cost of educational
textbook for free distribution?

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Determination of Cost of Inventory –

IPSAS 12
• The cost of inventories shall comprise all
costs of purchase, costs of conversion, and
other costs incurred in bringing the
inventories to their present location and
condition.

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Cost of inventory (cont)

• The costs of conversion comprise:
• Direct material costs
• Direct labour cost
• Overheads absorption
• Other cost of inventory:
• Other costs are included in the cost of inventories only to the
extent that they are incurred in bringing the inventories to
their present location and condition.
• For example, it may be appropriate to include non-
production overheads or the costs of designing products
for specific customers in the cost of inventories.

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Costs Excluded From the Cost of

Inventories
• Abnormal amounts of wasted materials, labour, or
other production costs;
• Storage costs, unless those costs are necessary in the
production process before a further production stage;
• Administrative overheads that do not contribute to
bringing inventories to their present location and
condition; and
• Selling costs.

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Accounting Treatment
• Treatment of government store (inventories)
depends on the policy on basis of accounting.
• Under cash basis and modified accrual basis:
• Inventories treated as expenditure in the period in which
they are acquired, irrespective of whether they are used up
or not.
• No inventory is reported on the statement of financial
position.
• Under accrual basis,
• Closing inventory is valued using recommended method
and shown on the statement of financial position as asset.

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What goes around comes around!

end

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Liability
• A liability is a present obligation of the entity for an
outflow of resources that results from a past event,
• Present obligation- is binding obligation (legal and
non-legal)
• Non legal obligation may result from economic
coercion, political necessity or other circumstances
such as constructive obligation.
• Liability must trigger an outflow of resources from
the entity in settlement.
• Past event- only past event can give rise to a
liability. Commitment for example is a future event.

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Revenue & Expenses

• Revenue is increase in the net financial position of
the entity, other than increases arising from
ownership contribution.
• Expense is decrease in the net financial position of
the entity. Other than decreases arising from
ownership distribution.
• Revenue and expense arise from
• exchange and non exchange transaction,
• increase or decrease in value of assets (allowances)
• consumption of assets (depreciation) and
• erosion of service potential (impairment)
• The difference between revenue and expenditure
reported in the GPFR is surplus or deficit

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Ownership Contribution/Distribution
• Ownership Contributions are inflows of resources to an
entity, contributed by external parties in their capacity
as owners, which establish or increase an interest in the
net financial position (Asset minus liabilities) of the
entity.
• Ownership distributions are outflows of resources
from entity, distributed to external parties in their
capacity of owners, which return or reduce an interest
in the net financial position.
• Ownership refers to entity that contributes resources
to provide a new entity with the capacity to commence
operational activities.
• This is most often associated with restructuring in the
public sector where resources and obligations are
transferred from one entity to another.
• It is ownership contribution to receiving entity and
ownership distribution to transferring entity
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6. Recognition in Financial Statement

• Recognition is the process of incorporating and
including in amounts displayed on the face of the
financial statement an item that meet the definition of
an element and can be measured.
• General recognition criteria are that:
• An item satisfies the definition of an element; and
• Can be measured reliably ( away that achieves the QCs and
takes accounts of constraints on information in GPFR)
• There may be measurement uncertainty and disclosure
of estimating technique used is required.
• Assets may be derecognized (written off) or removed
from further recognition to due changes.

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7. Measurement of Assets and Liabilities

• Objective of Measurement
• The objective of measurement is to select those
measurement bases that most fairly reflects the cost of
service, operational capacity and financial capacity of the
entity in a manner that is useful in holding the entity to
account and for decision-making purposes.
• Measurement basis provides information on:
• The cost of service provided in the period in historical or
current terms ( consumption of assets in current year)
• Operating capacity, the capacity of the entity to support the
provision of services in the future periods through physical
and other resources (resource information)
• Financial capacity, the capacity of the entity to fund its
activities (financing information).
• In selecting measurement, the effect on the QCs should
aso be considered.

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Asset measurement Bases

• The assets measurement bases include:
• Historical Cost – entry value
• Market values – entry or exit value
• Replacement cost- entry value
• Net selling price (NRV)- exit value
• Value in Use (economic value) – exit value
• Each of these bases should be assessed in terms of
the information it provides on:
• Cost of service
• Operational capacity
• Financial capacity
• Impact of QCs

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General attributes of MBs

• Entry or exist value
• Entry value reflects cost of purchase (historical cost and
replacement cost)
• Exit value reflects the amounts derived from sales or use of
the asset
• Entry and exit value may differ due to unique character of the
assets and transactional cost.
• Market type
• Observable market are open, active and orderly where values
can be observed. Unobservable are not.
• Entity specific an non-specific measures
• Entity specific values that reflects the condition of a specific
entity.
• No-specific reflect the general market conditions

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Historical Cost
• HC is the consideration given to acquire or develop
an asset, which is the cash or cash equivalents or
the value of other considerations given at the time
of its acquisition or development.
• Under HC model, assets are initially reported at the
cost and subsequently depreciated over its useful
life or impaired.
• Note that under HC model, the cost remains
unchanged despite the changing market values.

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HC and measurement objective

Objective Information provided
Cost of service COS reflects the amounts used to purchase or develop the asset consumed in service
delivery. Fails to facilitate the assessment of future cost of service in the face of
changing prices.
It demonstrates the extent to which the budget has been executed.

Operational It provides information on the operating capacity when acquired through exchange.
capacity Cost at acquisition is equal the service potential.
Depreciation reflects the extent to which service potential of an asset has been
consumed. That, resources available for future service is equal to the carrying amount
of the asset stated.
Non-exchange assets value reflect nothing on operating capacity.

Financial HC provides information that reflects the amounts of assets that may be used as
capacity effective collateral for borrowing.
It does not provide information on the amount that could be received on sale of an
asset, which is an important measure of financial capacity
QCs Enhance faithful representation because of actual transitions. Faithful representation
will reduce due to deprecation and impairment of non-cash generating assets.
HC measures are verifiable, understandable, and facilitate timeliness

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Market Values
• Market value is the amount for which an asset could be
exchanged between knowledgeable, willing parties in an
arm’s length transactions.
• Market value will equate to historical cost at acquisition,
given that transaction cost is zero and transaction is an
exchange transaction.
• The market value meet financial reporting objective and
users information need when there is quality market
evidence.
• The market evidence is depends on the characteristics of
the market (open, active and orderly market).
• Market value may not reflect the value to the entity of the
asset, represented by its operational capacity

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Market value and Measurement objective

Objectives Information provided

Cost of Allocation of the cost of assets to reflect their consumption in the current
service reporting period based on current value of the asset.
This gives rise to unrealized profit which will never be realized. Information
on cost of services becomes questionable.

Operational Information on the market value of assets held to provide services in the
capacity future periods is useful if it reflects the value that entity is capable of
deriving from using them in providing services.

Financial It reflects information on the amount that would be received on the sales of
capacity the asset.

QCs Information provided is relevant, faithfully represented, understandable,

comparable and verifiable when values are determined in open. Active and
orderly markets. It can be prepared timely. However, reverse is true for less
quality market.

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Replacement cost
• It is the most economic cost required for the entity
to replace the service potential of an asset,
(including the amounts that the entity will receive
from its disposal at the end of its useful life) at the
reporting date
• Differences between RC and MV:
• RC is an entry value that reflects the cost of replacing
the service potential of the asset while MV can be entry
or exit value;
• RC includes all the costs that would necessary be
incurred in the replacement of the services potential of
the asset but MV exclude transactional cost.
• It is entity specific not prevailing general market
condition.

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RC and Measurement Objective

Objectives Information provided

Cost of RC provides relevant measure of cost of service in current terms.

service RC reflects information on cost of consuming an asset through the
amount of sacrifice of service potential incurred by that use.

Operational It provides a useful measure of resources available to provide services

capacity in the future period, as it focuses on the current value of assets and
their service potential to the entity

Financial It does not provide information on the amount that would be

capacity received on the sale of assets so it fails to reflect financial capacity.

QCs Reduced faithful representation, timeliness, comparability and

verifiability, understandability.
Comparison within entity may be achieve.

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Net Selling Price

• Net selling price is the amount that the entity can
obtain from sale of the asset, after deducting the
costs of sales.
• Net selling price differs from market value in that it
does not require an open, active, and orderly
market or the estimation of a price in such market
and it includes the entity’s cost of sales.

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Net Selling Price

Objective Information provided

Cost of It does not reflect information on the cost of service since. It is not
service appropriate to quantify the cost of service delivery at net selling
prices.

Operational It does not provide in information on the operational capacity of

capacity the entity.

Financial It provides information on the financial capacity by reflecting

capacity information on the amount that would be received on sale of a
asset.

QC Provides information that is understandable, relevant, faithful

representation, verifiability and timeliness.

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Value in Use
• Value in use is the present value to the entity of the
asset’s remaining service potential or ability to
generate economic benefits if it continues to be
used, and of the net amount that the entity will
receive from its disposal at the end of its useful life.
• Value in use is appropriate where it is less than
replacement cost and greater than net selling price.

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Value in Use and Objective Measurement

Objective Information provided

Cost of Inappropriate for determining the cost of services

service

Operational Limited information on operating capacity.

capacity

Financial Less useful for assessing financial capacity

capacity

QCs Reduces faithful representation, timeliness, comparability,

understandability and verifiability

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Measurement of Liability
• Measurement bases of liabilities are
• Historical cost
• Cost of fulfillment
• Market value
• Cost of Release
• Assumption price

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Historical cost
• HC of liability is the consideration received to
assume an obligation, which is the cash or cash
equivalents, or the value of the other consideration
received at the time the liability is incurred.

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Cost of Fulfillment
• Cost of fulfillment is the costs that the entity will
incur in fulfilling the obligations represented by the
liability, assuming that it does so in the least costly
manner.
•.

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Market value of liability

• Market value is the amount for which a liability
could be settled between knowledgeable, willing
parties in an arm’s length transaction,

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Cost of release

• Cost of release is similar to net selling price which

refers to the amount that either the creditor will
accept in settlement of its claims or third party
would charge to accept the transfer of the liability
from the obligor

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Assumption Price
• It is similar to replacement cost
• Assumption price is the amount which the entity
would rationally be wiling to accept in exchange for
assuming an existing liability.

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IPSAS

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IPSAS
• IPSA is the accounting standard for the public sector
issued by IPSASB.
• IPSASB has the responsibility for:
• Setting high quality accounting standard for the public
sector across the world,
• Promoting the adoption and convergence of the IPSAS
• Issuing recommended practice guide and other
publications to support the implementation of the IPSAS

• There are two versions of IPSAS

• Cash Basis IPSAS
• Accrual Basis IPSAS

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• Cash basis IPSAS

• It allows for transparent financial reporting of cash
receipts, payments and balances, under the cash basis of
accounting.
• It was issued to help those countries reporting on cash
basis to improve their performance.
• Ghana adopted the cash basis IPSAS in 2009.
• Accrual basis/Full IPSAS
• Focuses on revenue, cost, assets, liability and
equity, instead of cash flow only.
• It is on accrual basis which is in line with IFRS.
• Ghana is yet to adopt this version of the standard.

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Pronouncements of IPSASB
• The pronouncements of IPSASB take the form of:
• A Conceptual Framework for General Purpose Financial
Reporting in the Public sector ( 8 chapters currently)
• International Public Sector Accounting Standards (IPSAS)-
currently 40 standards are issued.
• Recommended Practice Guide (RPGs)- 3 RPGs issued.

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Due Process in IPSAS Setting

• Project Identification and Prioritization
• Project Commencement
• Development of Proposed International
Standards
• Public Exposure
• Consideration of Respondents’ Comments on
an Exposure Draft
• Interaction with the IPSASB Consultative
Advisory Group
• Approval of the IPSAS

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Objectives/benefits of adopting IPSAS

▪ To enhance transparency and accountability of
financial reporting in the public sector
▪ To improve the decision usefulness of financial
information in the public sector
▪ To ensure comparability of financial statement across
different organisations and country
▪ To ensure better measurement of the performance of
public sector entities in terms of cost of services,
efficiency and accomplishment.
▪ Improve access to financing in the capital market
through bond issues.

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Reasons for the adoption of IPSAS in

developing countries
• Many countries have adopted the IPSA for the
following reasons:
• In order to improve the quality of general purpose financial
statement
• So as to enhance transparency and accountability in
financial management as indicator of good governance.
• To conform to international trend
• So as to comply with regional grouping requirements e.g
AU, Eu
• Donor pressure as a requirement for borrowing, e.g world
bank, IMF etc

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What are the arguments against

adoption of IPSAS?
• Most commonly cited arguments against IPSAS
adoption are
• It undermines the sovereignty of the state in financial
matters
• It is very costly to adopt since huge data base of assets and
other transactions are required.
• It is also seen to be to complex and does not meet the
need of developing countries
• The expertise required to successfully operate the system is
lacking
• Likely inconsistency with national legislations.

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IPSAS Implementation Challenges

• Most countries adopting IPSAS for the first time as
transition from cash basis IPSAS are facing these
implementation challenges:
• Lack of political will and support.
• Difficulty in identifying and valuing public assets
• Huge cost of implementation as a result of revaluation of
assets, high cost of expertise, training etc.
• Lack of expertise and strong regulatory body
• Complexity of the standards leading to lack of appreciation
among policy makers.

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Overview of the IPSAS

IPSAS Tittle

IPSAS 1 Presentation of financial statement

IPSAS 2 Cash Flow Statement

IPSAS 3 Accounting policies, Change in Accounting Estimate, Error

IPSAS 4 Effect of changes in foreign exchange rate

IPSAS 5 Borrowing Cost

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IPSAS Vol. 1 (cont)

Standard Description

IPSAS 6 Consolidated and Separate Financial Statements

IPSAS 7 Investments in Associates

IPSAS 8 Interests in Joint Ventures
IPSAS 9 Revenue from Exchange Transactions
IPSAS 10 Financial Reporting in Hyperinflationary Economies

IPSAS 11 Construction Contracts

IPSAS 12 Inventories
IPSAS 13 Leases
IPSAS 14 Events after the Reporting Date
IPSAS 15 Financial Instruments: Disclosure and Presentation

IPSAS 16 Investment Property

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IPSAS Vol. 1 (cont)

Standards

IPSAS 17 Property, Plant, and Equipment

IPSAS 18 Segment Reporting
IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets
IPSAS 20 Related Party Disclosures
IPSAS 21 Impairment of Non-Cash-Generating Assets
IPSAS 22 Disclosure of Financial Information about the General
Government Sector
IPSAS 23 Revenue from Non-Exchange Transactions
(Taxes and Transfers)
IPSAS 24 Presentation of Budget Information in Financial Statements

IPSAS 25 Employee Benefits

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IPSAS Vol.2
Standard Description

IPSAS 26 Impairment of Cash-Generating Assets

IPSAS 27 Agriculture

IPSAS 28 Financial Instruments: Presentation

IPSAS 29 Financial Instruments: Recognition and

Measurement
IPSAS 30 Financial Instruments: Disclosures

IPSAS 31 Intangible Assets

IPSAS 32 Service Concession Arrangements: Grantor

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IPSAS Title

IPSAS 33 First time adoption of Accrual based PSAS

IPSAS 34 Separate financial statements

IPSAS 35 Consolidated Financial Statements

IPSAS 36 Investment in associate and joint ventures

IPSAS 37 Joint arrangements

IPSAS 38 Disclosure of interest in other entities

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RPGs
• RPG 1
• Reporting on long term sustainability in entity’s finances.
• RPG2
• Financial statement discussion and analysis
• RPG3
• Reporting Service Performance Information

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Where you stand depends on where you sit!!

End

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Topic 3
Assessing Public Financial
Management System
Redeemer Krah (CA)
Kramankus CA Family
[email protected]

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Public financial management system

• Public financial management system is a system
through which government achieves economical,
efficient and effective use of public resources in a
sustainable manner.
• Public financial management system comprise several
sub-systems that functions in an integrative manner.
• Legal systems
• Budgeting systems
• Revenue system
• Expenditure management system
• Procurement systems
• Payment systems
• Accounting and reporting system
• Auditing systems
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Public Financial management

system
• A critical issue in PFM is how to ensure that the
system functions openly and orderly to achieve
result.
• In addition, improvement can be pursued when the
government is aware of how the PFM is
performing.
• Therefore, assessment and integration are two key
variables in understanding public financial
management system
• We will examine these matters in PFM:
• PEFA framework
• GIFMIS
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PEFA FRAMEWORK

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What is PEFA?
• Public Expenditure and Financial Accountability
(PEFA) is a framework developed for assessing the
status of public financial management at central
and local government levels of government.
• A PEFA assessment provides a thorough, consistent
and evidence-based analysis of PFM performance at
a specific point in time.
• The PEFA methodology can be reapplied in
successive assessments to track changes over time.

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Development of PEFA
• The development of PEFA is predicated on the
international recognition of the critical role of PFM
in public service delivery.
• PEFA program was initiated in 2001 by seven
international development partners:
• The European Commission,
• International Monetary Fund,
• World Bank, and
• France,
• Norway,
• Switzerland, and
• United Kingdom
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Development of PEFA
• The 2001 framework has undergone update in 2005
and 2011 respectively.
• The 2011 version was substantially upgraded in 2016,
which is the current version in use.
• Features of the 2016 version include
• Considers changing landscape of PFM reforms and the
evolution of good practices over the last decade;
• An addition of four new indicators to assess public
investment and asset management, macro fiscal forecasting
and fiscal strategy.
• the expansion and refinement of existing indicators;
• A recalibration of baseline standards for good performance in
many areas;
• focus on the elements of internal financial control
• Clearer guidelines

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PEFA Reports
• It provides an evidence-based assessment of PFM
performance based on the indicator analysis and other
crucial information in a concise and standardized
manner.
• The PEFA assessment takes several matters into
account:
• the controls used by governments to ensure that resources
are obtained and used as intended.
• transparency and accountability in terms of access to
information, reporting and audit, and dialogue on PFM
policies and actions.
• the institutions, laws, regulations, and standards used by
governments in the PFM process.
• the results arising from the operation of PFM in key areas
such as budget outturns, effectiveness of controls, and
timeliness of reporting and audit.

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PEFA Reports
• Benefits/uses of PEFA Reports
• Governments use PEFA to obtain a snapshot of their own PFM
performance.
• PEFA offers a common basis for examining PFM performance across
national and subnational governments.
• PEFA scores and reports allow both governments and others users
of the information to gain a quick overview of the strengths and
weaknesses of a country’s PFM system.
• PEFA assist users to appreciate the implications of the overall
performance results for the key goals of fiscal discipline, strategic
resource allocation, and efficient service delivery.
• The PEFA analysis contributes to dialogue on the need and
priorities for PFM reform.
• PEFA program provides support, monitoring, and analysis of PEFA
assessments

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PEFA Report
• Structure of the report
• An executive summary
• An introduction
• An overview of relevant country-related
information
• An assessment of performance in terms of the
seven pillars of the PFM system.
• Conclusions of the crosscutting analysis

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Scope of PEFA
• PEFA’s scope is aligned to three outcomes of an open
and orderly PFM system:
• Aggregate fiscal discipline
The objective of public financial management is to ensure
effective control of the total budget and management of fiscal
risks. The outcome is that government must be fiscally
discipline
• Strategic allocation of resources
The objective of a public financial management system is to
ensure resources are strategically allocated to priority areas of
government policy and plans. This involves planning and
executing the budget in line with government priorities aimed
at achieving policy objectives.
• Efficient service delivery
The objective of public financial management it to collect
revenues and direct these revenues to the provision of public
services in an efficient and effective manner. It requires using
budgeted revenues to achieve the best levels of public services
within available resources
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Scope of PEFA
• PEFA is built on Seven Pillars
• Budget reliability.
• Transparency of public finances.
• Management of assets and liabilities.
• Policy-based fiscal strategy and budgeting.
• Predictability and control in budget execution.
• Accounting and reporting.
• External scrutiny and audit.

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Seven Pillars
• Budget reliability.
• The government budget is realistic and is implemented
as intended. This is measured by comparing actual
revenues and expenditures (the immediate results of
the PFM system) with the original approved budget.
• Transparency of public finances.
• Information on PFM is comprehensive, consistent, and
accessible to users. This is achieved through
comprehensive budget classification, transparency of
all government revenue and expenditure including
intergovernmental transfers, published information on
service delivery performance and ready access to fiscal
and budget documentation.

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Seven Pillars
• Management of assets and liabilities.
Effective management of assets and liabilities ensures that
public investments provide value for money, assets are
recorded and managed, fiscal risks are identified, and
debts and guarantees are prudently planned, approved,
and monitored.
• Policy-based fiscal strategy and budgeting.
The fiscal strategy and the budget are prepared with due
regard to government fiscal policies, strategic plans, and
adequate macroeconomic and fiscal projections.
• Predictability and control in budget execution.
The budget is implemented within a system of effective
standards, processes, and internal controls, ensuring that
resources are obtained and used as intended.
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Seven Pillars
• Accounting and reporting.
• Accurate and reliable records are maintained, and
information is produced and disseminated at
appropriate times to meet decision-making,
management, and reporting needs.
• External scrutiny and audit.
• Public finances are independently reviewed and there is
external follow-up on the implementation of
recommendations for improvement by the executive.

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Institutional coverage
• PEFA has increasingly been used in the assessment
PFM performance in:
• Central governments
• Subnational government (state governments and local
governments)
• Extrabudgetary units (activities of central government
implemented outside the budget)
• Public corporations

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Scope Limitation of PEFA

• PEFA focus on the operational performance of key
elements of the PFM system rather than on all the
various inputs and capabilities that may enable
the PFM system to reach a certain level of
performance
• PEFA also does not involve fiscal or expenditure
policy analysis that would determine whether fiscal
policy is sustainable
• PEFA does not provide recommendations for
reforms or make assumptions about the potential
impact of ongoing reforms on PFM performance
• PEFA assessment elements of the defense, public
order and safety function may not be included if
information is not available
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PEFA Methodology
• PEFA has a well thought through and robust
methodology in terms
• framework of assessment of public financial
performance,
• scoring procedures,
• source of information and
• conclusion of analysis of PEFA.

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Analytical Framework of PEFA

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Measurement of Performance indicators

• Procedure for measuring indicators
• The Pillars of the PFM is reflective of some indicators
or elements of PFM. Thus, the Pillars are measured
based on the indicators of each of the Pillars.
• The Indicators of each Pillar are scored based on
certain dimensions.
• The dimensions of each indicator are assessed based
on a scoring criterion ranking from A to D. There are 2-
dimensional dimensions, 3-dimensional indicators and
4-dimensional indicators.
• The dimensions and indicators are respectively
aggregated based on a conversion table of scores to
arrive at the score for an indicator

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Scoring of Dimensional indicators

• A clear scoring criterion is designed to guide the
process. For example:
Table 3: Scoring of Dimension of an Indicator
P1-1: Aggregate expenditure outturn
Score Minimum requirements for scores
Aggregate expenditure outturn was between 95% and 105% of the
A approved aggregate budgeted expenditure in at least two of the last three
years.
B Aggregate expenditure outturn was between 90% and 110% of the
approved aggregate budgeted expenditure in at least two of the last three
years.
C Aggregate expenditure outturn was between 85% and 115% of the
approved aggregate budgeted expenditure in at least two of the last three
years
D Performance is less than required for a C score.
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Scoring (cont)
• Most indicators have a number of separate
dimensions, each of which must be assessed
separately.
• Each dimension is scored separately on a four-point
ordinal scale: A, B, C, or D, according to precise
criteria established for each dimension.
• The overall score for an indicator is based on the
scores for the individual dimensions.
• The scores for multiple dimensions are combined into
the overall score for the indicator using either
• the Weakest Link (WL) method or
• the Averaging (AV) method. Each indicator specifies the
method to be used

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Scoring methods
• Weakest Link Method: M1 (WL).
• This method is used for multidimensional indicators where
poor performance in one dimension is likely to undermine
the impact of good performance on other dimensions of the
same indicator. In other words, this method is applied where
there is a “weakest link” in the connected dimensions of the
indicator.
• The steps in determining the aggregate indicator score
are as follows:
• Each dimension is initially assessed separately and given a
score on the four-point calibration scale.
• The aggregate score for the indicator is the lowest score
given for any dimension.
• Where any of the other dimensions score higher, a “+” is
added to the indicator score. Note: It is NOT acceptable to
choose the score for one of the higher-scoring dimensions
and add a “-” for any lower scoring dimensions.

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Scoring methods
• Averaging method: M2 (AV).
• The aggregate indicator score awarded using this
method is based on an approximate average of the
scores for the individual dimensions of an indicator, as
specified in a conversion table (discussed next).
• This method is prescribed for selected
multidimensional indicators where a low score on one
dimension of the indicator does not necessarily
undermine the impact of a high score on another
dimension of the same indicator.
• Though all dimensions of an indicator fall within the
same area of the PFM system, in certain areas progress
on some individual dimensions can be independent of
the others.

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Scoring Method
• Average method (M2) cont
• The steps in determining the aggregate indicator
score are as follows:
• Each dimension is initially assessed separately and given
a score on the four-point calibration scale.
• Refer to the conversion table for indicator scores using
the averaging method and find the appropriate section
of the table—that is, whether there are two, three, or
four dimensions for the indicator.
• Identify the row in the table that matches the scores for
each dimension of the indicator; the ordering of the
dimension scores does not matter.
• Enter the corresponding overall score for the indicator.

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Dimensional score conversion

Table
• It is used to aggregated to a single score scores for
each dimension that made up an indicator.
• The conversion table applies to indicators using
M2 (AV) scoring methodology only. Using it for
indicators designated for M1 (WL) will result in an
incorrect score.
• Three types of conversion tables:
• 2-Dimensional
• 3-Dimensional
• 4-Dimensional

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2-Dimensional Table
Dimensional scores Overall score
D D D
D C D+
D B C
D A C+
C C C
C B C+
C A B
B B B
B A B+
A A A

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3-Dimensional Table
Dimensional scores Overall score
D D D D
D D C D+
D D B D+
D D A C
D C C D+
D C B C
D C A C+
D B C C+
D B B B
D B A B
C C C C
C C B C+
C C A B
C B C B
C B B B
C B A B+
C A A B
B B B B+
B B A B
B A A A
A A A A
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4-Dimensional Table Dimensional Score Overall

D D D D D
D D D C D
D D D B D+
D D D A D+
D D C C D+
D D C B D+
D D C A C
D D B B C
D D B A C+
D D A A C+
D C C C D+
D C C B C
D C C A C+
D C B B C+
D C B A C+
D C A A B
D B B B C+
D B B A B
D B A A B
D A A A B+
C C C C C
C C C B C+
C C C A C+
C C B B C+
C C B A B
C C A A B
C B B B B
C B B A B
C B A A B+
C A A A B+
B B B B B
B B B A B+
B B A A B+
B A A A A
A A A A A
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Sources of Information
• Information for PEFA assessment was sourced from
various official document such as
• legislation,
• government policy papers,
• budget documents,
• reports and statistics,
• recent surveys
• analytical work at national, regional or international
levels

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Conclusion of Analysis of PEFA

• PEFA does not provide a ranking or global result.
• It draws conclusion based on general assessment of
all matters in relation to:
• Internal control effective
• Government reforms action
• Strengths and weaknesses of the PFM

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Internal control
• Objective of internal control in PFM are:
• operations are executed in an orderly, ethical,
economical, efficient, and effective manner;
• accountability obligations are fulfilled;
• applicable laws and regulations are complied
with; and
• resources are safeguarded against loss, misuse
and damage.

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Internal control analysis

• PEFA adopted the COSO framework of internal
control in its analysis
• The Framework has five interrelated components

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Control environment
• The control environment describes a set of standards,
processes, and structures that provide the basis for
carrying out internal control across the organization

• Key areas on interest to PEFA are:

• The personal and professional integrity and ethical
values of management and staff, including a supportive
attitude toward internal control constantly throughout the
organisation
• Commitment to competence
• The “tone at the top” (i.e. management’s philosophy and
operating style)
• Organisational structure
• Human resource policies and practice
•

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Risk Assessment
• The risk assessment forms the basis for
determining how risks will be managed. A risk is
defined as the possibility that an event will occur
and adversely affect the achievement of
organizational objectives.
• Key areas:
• Risk identification
• Risk assessment (significance and likelihood)
• Risk evaluation
• Risk appetite assessment
• Responses to risk (transfer, tolerance, treatment or
termination

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Control activities
• Control activities are actions (generally described in
policies, procedures, and standards) that help
management mitigate risks in order to ensure the
achievement of objectives. Control activities may be
preventive or detective in nature and may be performed
at all levels of the organization
• Key areas
• Authorization and approval procedures.
• Segregation of duties (authorizing, processing, recording,
reviewing)
• Controls over access to resources and records
• Verifications
• Reconciliations
• Reviews of operating performance
• Reviews of operations, processes and activities
• Supervision (assigning, reviewing and approving, guidance and
training)

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Information and communication

• Information is obtained or generated by management
from both internal and external sources in order to
support internal control components.
• Communication based on internal and external sources
is used to disseminate important information
throughout and outside of the organization, as needed
to respond to and support meeting requirements and
expectations.
• The internal communication of information throughout
an organization also allows senior management to
demonstrate to employees that control activities
should be taken seriously
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Monitoring
• Monitoring activities are periodic or ongoing
evaluations to verify that each of the five
components of internal control, including the
controls that affect the principles within each
component, are present and functioning. around
their products.
• Key areas:
• Monitoring PFM under PEFA’s assessment deals with the
following:
• Ongoing monitoring
• Evaluations
• Management responses

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Consideration of Govt Reform

process
• The following identifies several factors that are
likely to be relevant in supporting an effective
reform process in many country contexts
• Government leadership and ownership
• Coordination across government
• A sustainable reform process
• Transparency of the PFM program

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Happiness is in little things.

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GIFMIS

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Ghana Financial Management

Information system
▪ IFMIS provide an integrated computerised financial
package to enhance the effectiveness and
transparency of public resource management by
computerising the budget management and
accounting system for a government. It consists of
several core sub-systems which plan, process and
report on the use of public resources.
▪ The automation of Government Financial
Management Systems, using IFMIS, is one of the core
elements of PFM reform programmes in many
countries including Ghana.

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IFMIS
• The scope and functionality of IFMIS can vary
across countries, but sub-systems normally include
• financial accounting,
• budgeting,
• cash management,
• debt management
• elated core treasury systems.
• Administration,
• procurement management,
• asset management,
• human resource and pay roll systems, pension and
social security systems
• other possible areas seen as supporting the core
modules

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GIFMIS
❑What is GIFMIS about?
▪ It involves the use of a number of integrated
electronic financial modules in the management of
public funds.
▪ Objectives of GIFMIS are:
▪ Promote efficiency, transparency and accountability in public
financial management through rationalization
and modernization of budgeting and public expenditure
management of the Government.
▪ Promote the timely dissemination of information for financial
management.
▪ Rationalize the financial Administrative Acts and Regulations.
▪ Improve the efficiency and effectiveness of revenue collection.
▪ Maximize payment and commitment control

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Tasks Performed on GIFMIS

• PFMR provides that GIFMIS platform to be used for:
• Budgeting preparation
• Budget execution
• Revenue management
• Expenditure management
• Cash management
• Assets management
• Debt management
• Payroll management
• Accounting and financial reporting
• Human resource management
• Public investment management

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Systems integrated under the GIFMIS

• Financial accounting system
• Payroll system
• HRMIS
• Strategic planning and budget system
• Debt management system
• Revenue system
• Public investment management system
• Treasury and fund transfer system
• Procurement system
• Public investment and asset management system
• Other systems that may be determined by MOF
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General Rules of GIFMIS Use

• MOF has over all responsibility for the installation and
operation of the components of the GIFMIS
• Principal spending officer is responsible for
implementation of the GIFMIS the entity
• Users shall be granted authorised access shall
constitute a valid signature for the transaction n
processed on the system
• User is personally liable for the improper use of the
system for transaction undertaken .
• Records, logs or audit trail generated from the GIFMIS
is admissible at law as valid evidence in case of any
malpractices or malfeasance

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GIFMIS Module
• GIFMIS modules includes
• Budget module
• Financial module
• HRMIS Module

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GIFMIS
• GIFMIS Budget Modules support budgeting
preparation and execution and they include:
• Hyperion Planning Plus – For Strategic Planning
aspect of the Budget preparation process as
well as analysis of the budget, e.g Sensitivity
and what if analysis.
• Hyperion Public Sector Planning and Budgeting
– for Costing.
• Hyperion Project Financial Planning – for
Project management including contract
management.

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GIFMIS Module
• Financial Modules support financial accounting,
reporting and controls and they are:
• Purchasing (P2P) - for Purchase Requisition, PO, SRA
• Accounts Payable - for preparing PVs, creating
accounting (i.e Dr & Cr.) and tracking liabilities.
• Cash Management- for making Payments, Bank
Reconciliation, cash forecasting, etc.
• Accounts Receivable- for recording & tracking of
revenue
• Fixed Assets Module- for managing fixed assets register
through recording, tracking and accounting for fixed
assets
• General Ledger- repository of all accounts which holds
the budget and facilitates financial reporting.

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GIFMIS Modules
• GIFMIS HRMIS Modules support human resource
management and payroll accounting and this comprises:
• Employee Profile Management -For maintenance of the
main bio data of employees from appointment to attrition
in the areas of Employee Appointment, Employee record
maintenance and Employee promotion.
• Establishment Management- For the management of
Organisations, Locations, organizational hierarchies, Grades,
Jobs, Positions and position hierarchies. This facilitates
position control at PSC level where no MDA/MMDA on the
HRMIS will exceed the established/approved staffing levels
without approval from their appointing authorities and the
Public Services commission
• Employee Cost Management - For managing compensation
of employees at all MDAs/MMDAs to ensure budgetary
control over payroll cost.
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GIFMIS module
• GIFMIS Business Processes:
• The approved Budget (by Parliament or local Assembly) for
the year is first loaded and activated on the GIFMIS at the
beginning of each year.
• Requests are made on GIFMIS by end-users for release of
Budget.
• Budgets are released through Warrants that are issued on the
GIFMIS
• When warrants are issued on the GIFMIS, users (at
MDA/MMDAs) are then able to process expenditure on the
system. The expenditure processes include:
• Purchase Requisition (for expenditure initiation)
• Purchase Order (when supplier is selected)
• Stores Receive Advice (when goods/services are taken on charge)
• Payment Voucher/Invoice (to pay for the transaction)

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Business processes
• Run Cash requirement report to establish total bills
due for payment.
• Run cash pooling report to establish total cash
available on the bank accounts, as set-up on the
GIFMIS.
• Effect payments on the system
• Electronic Funds Transfer for 3rd parties’ transactions
• System Cheques for moneys required for internal
payments.

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Key Users of GIFMIS

• Budget Officers
• . Accountants
• Procurement officers
• Store officers
• Internal Auditors
• Treasury officers
• Administrators and HR Managers
• Principal Spending Officers (Coordinating Directors,
HoDs, etc.)
• Vote controllers
• External auditors

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Challenges of GIFMIS
• Challenges of GIFMIS are:
• institutional,
• political,
• technical and
• human resource challenges

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Institutional challenges
• Legal framework – IFMIS must be underpinned by a
coherent legal framework governing the overall public
finance system.
• Business processes – IFMIS generally imply fundamental
changes in operating procedures and should be preceded by
a detailed functional analysis of processes, procedures, user
profiles and requirement that the system will support.
• Budget and account structure – Implementing IFMIS
requires that many government structures start working
with common tools. For the information to be coherent, all
administrative units at national, regional and local level
need to adopt a common language in the form of unified
budget classifications and charts of account. This can be a
very lengthy and cumbersome process, which for example
took more than five years in Vietnam.
• Centralised treasury operations – IFMIS reform is often
accompanied by the consolidation of all government
financial resources in a single treasury account or a set of
linked accounts.
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Political challenges
• IT reforms ( change management)
• Clarity in ownership of the system and unclear
authority to implement

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Technical challenges
• Basic system functionality
• Adaptation to the local context and environment
• Major hardware requirements and Power shortage
and interruptions

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Human Resource
• Low level of computer literacy in developing
countries
• Current salary structure and terms of employment

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GIFMIS
• Rationale for GIFMIS
▪ To establish a comprehensive, common Human Resource
database of all public service employees with the view to
strengthen controls around entrance, exit , promotions
and positions.
▪ To mitigate the problems associated with the current system
through the use of a common technology platform for HRMIS
of all the public services of Ghana.
▪ To address the problem of: Multiple stand-alone HRMIS in
the public service, which do not facilitate composite data
analysis of HR and unreliability of HR information for
planning, capacity utilization, deployment, promotion and
efficient payroll management.
▪ To address the problem of generating a reliable employee
report.
▪ To improve establishment controls and impact the integrity
of the payroll
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GIFMIS (cont)
• Benefits (cont)
▪ Enhance enforcement of financial legislation
▪ Complete and timely exchange of data and information
among/between MDAs/MMDAs and central
government for producing complete, timely and
accurate reports (Improve Record Keeping) etc.
▪ Enhance and re-enforce the internal control systems in
public financial management for accountability.
▪ Provide documentation of business processes,
workflows and approval levels to ensure consistent and
timely compliance across all MDAs and all MMDAs.
▪ An effective and efficient budget preparation, execution,
monitoring and evaluation mechanism
▪ Provide for the ability to budget for, track and monitor
projects and grants through the chart of accounts, by
using the Project

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Twenty children don’t play for twenty years

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Topic 4
Public Revenue Management

Redeemer Krah (CA)

Kramankus CA Family, Adentan WASS
[email protected]

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Public revenue management

• Outline
• Sources of revenues to different aspects of government
• Fiscal policy relating to revenues
• Revenue management
• Accounting for revenues (IPSAS 9&23)

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Public revenue
• Revenue is increase in the net financial position of the
entity, other than increases arising from ownership
contribution.
• Revenue comprises gross inflows of economic benefits
or service potential received and receivable by the
reporting entity, which represents an increase in net
assets/equity, other than increases relating to
contributions from owners (IPSAS 1).
• Revenues are inflows of government pertaining to
current financial period only.
• Revenue differs from receipt in that it relates to only
inflows attributable a particular year, whether received
or not. Receipt is all cash flows, both those relating to a
particular and those that are capital in nature.
• For example, tax revenues received in revenue as well
as receipt but loan received is only a receipt not
revenue.
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Public Revenue
• A fiscal policy objective of every government is to
ensure that sufficient revenues are available to
support government programmes and activities.
• Revenue are needed at all levels of government and
public sector to carry out public service delivery.
• We will examine sources of revenues to each
aspect of government as follows:
• Central government (Consolidated Fund)
• Ministries, Departments and Agencies
• Metropolitan, Municipal and District Assemblies
• Sub-vented entities
• Government business enterprises (State own
enterprises)

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Sources of Revenues to the Consolidated Fund

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Revenues to Consolidated Fund

• Revenues into the consolidated fund is made up of:
• Tax Revenues
• Non tax revenues
• Grants
• Other moneys received into the consolidated fund
included
• Loans
• Capital receipts
• Trust monies and deposits
• Note that other receipts are not revenues as they
create obligation on government to repay in future.

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Tax Revenues
• What is Tax?
• Taxes are compulsory levy imposed on the people of a
country by a legitimate body or person.
• According to IPSAS 23: revenue from non exchange
transactions, taxes are economic benefits or service potential
compulsorily paid or payable to public sector entities, in
accordance with laws and/or regulations, established to
provide revenue to the government.
• Taxes do not include fines or other penalties imposed for
breaches of the law.
• In Ghana, only Parliament that can approve the imposition of
taxes on the people of Ghana (Article 174 of the
Constitution).

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Why Government Tax

• Reasons for taxation include:
• To raise money for public administration and development
• To allocate and redistribute wealth.
• As fiscal and economic policy tool to control inflation and
others
• To protect infant industry by imposing high taxes on import
duties of competitive goods
• To control consumption behaviours relating to certain
harmful goods e.g. cigar
• As anti-dumping tool.

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Taxes
• Taxes may be classified as follows:
• Direct taxes and Indirect taxes based on tax
incidence
• Domestic taxes and International/ Custom taxes
based on origin of source
• Progressive taxes and Regressive taxes based on
relativity with income levels.

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Direct taxes
• These are taxes imposed on income, capital gains and
gifts.
• The tax burden is associated with these taxes fall on
the tax payer.
• Examples include:
• Personal income tax (PAYE) paid on employment income.
• Corporate taxes paid by Companies
• Rent tax paid by landlords
• Dividend taxes paid by shareholders.
• Vehicle income tax (VIT) paid by transport owners
• Stamp taxes paid by people in small business and other
categories
• Capital gain tax
• Gift taxes
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Fiscal policy on direct Taxes

• Taxing the formal sector is relatively easy due to the tax
withholding system.
• However, broadening the tax net to cover informal
economy is cumbersome but sustainable policy.
• The requirement for taxing the information sector are:
• Integrated national identification system
• Effective tax payer identification system (TIN)
• Innovative tax administration system to adapt to needs of
informal sector.
• Tax education
• Transparency and accountability for revenues collected

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Direct Taxes 2010-2017 (GHc’billion)

Direct tax 2010 2011 2012 2013 2014 2015 2016 2017

Personal ND 1.67 3.24 3.72

income tax
3.71 4.99 5.85 6.72
Corporate tax ND 1.57 1.47 1.59 3.79 3.27 4.01 6.39

Miscellaneous ND 0.70 0.50 0.71 0.48 0.87 0.88 1.16

Total 2.38 3.74 5.41 6.02 7.98 7.72 9.25 14.06

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Indirect taxes
• These are taxes imposed on goods and services.
• The tax burden falls on the final consumers in the form
of higher prices.
• Examples of indirect taxes include:
• Value added taxes (VAT now 17.5%) imposed on chargeable
goods and services.
• Communication service taxes (tax talk) paid on air time and
data.
• Custom duties (export and import taxes) on international
trade.
• Petroleum taxes on petroleum products and operations.
• Excise duties imposed on certain locally manufactured goods
such as beer, sachet water, polythene bags, wine etc

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Indirect taxes 2010-2017

Indirect taxes 2010 2011 2012 2013 2014 2015 2016 2017
GHcb GHcb GHcbn Ghc bn GHcbn GHcbn GHcbn Ghcbn
n n

VAT ND 0.99 1.39 1.40 2.10 2.73 3.35 3.99

Excise ND 0.15 0.56 0.56 0.29 2.14 1.96 2.49

Import duties ND 3.28 3.23 3.97 5.28 8.85 6.93 9.26

Export duties ND 0.19 0.05 1.00 0.32 0.26 0.37 0.21

Others 0.20 0.11 - 2.89 3.01

Total 2.32 4.43 5.37 6.24 7.24 10.23 12.83 15.75

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Fiscal Policy Implications for Indirect Taxes

• Generally, indirect taxes have cascading effect with
the potential to destabilise the economy.
• Indirect taxes are easy and quick to collect at less cost
but an abuse can need to macroeconomic lapses.
• Government should be extra cautious in formulating
policies that increases revenue for this source.
• It is better for government to collect more direct taxes
than indirect taxes, as economic implications are mild
for direct taxes.

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Domestic and International Taxes

• Domestic taxes are those taxes that are imposed
on local goods and services and incomes derived
from Ghana.
• Examples include:
• P.A.Y.E
• Corporate taxes
• Gift
• VAT on local goods
• Fuel taxes
• Communication service taxes
• International taxes are obtained from custom
duties including VAT on imported and exported
goods.
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Progressive and Regressive Taxes

• A progressive tax is defined as a tax whose rate
increases as the payer's income increases.
• That is, individuals who earn high incomes have
a greater proportion of their incomes taken to
pay the tax.
• A regressive tax, on the other hand, is one
whose rate increases as the payer's income
decreases.
• Proportional taxes

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Tax Administration in Ghana

• In recent past, three state institutions were
responsible for collecting tax revenues and these
were the IRS, VAT and CEPS.
• In attempt to improve tax administration, a single
institution called Ghana Revenue Authority was
established in 2009 by the GRA Act 2009 (Act 791).
• This is achieved by merging the three existing
collecting agencies into one.
• GRA has three divisions: Domestic Tax Division (VAT &
IRS), Custom Division (CEPS) and Support Services
Division (newly introduced)

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• Objectives of establishing GRA per GRA Act include:

• Provide a holistic approach to tax and customs
administration;
• Reduce administrative and tax compliance cost
and provide better service to taxpayers;
• Promote efficient collection of revenue and the
equitable distribution of tax burden and ensure
greater transparency and integrity.
• Ensure greater accountability to Government for
the professional management of tax
administration;

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Objectives of GRA (cont)

• Improve information linkage and sharing of
information among the Divisions of the Authority;
• Provide a one-stop service for taxpayers for the
submission of returns and payment of taxes;
• Provide common tax procedures that enable tax
payers to be governed by a single set of rules: and
• Provide for other matters related to the
improvement of revenue administration

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• Functions of GRA include:

• Assess and collect taxes, interest and penalties on taxes
due to the Republic with optimum efficiency;
• Pay the amounts collected into the Consolidated Fund
unless otherwise
• Promote tax compliance and tax education;
• Combat tax fraud and evasion and co-operate to that
effect with other competent law enforcement agencies
and revenue agencies in other countries;
• Advise District Assemblies on the assessment and
collection of their revenue;

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Functions of GRA (cont)

• Prepare and publish reports and statistics related
to its revenue collection;
• Make recommendations to the Minister on
revenue collection policy; and
• Perform any other function in relation to revenue
as directed by the Minister or assigned to it under
any other enactment.

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NON TAX REVENUES

• NTRs are dealt with by IPSAS 9: Revenue from
exchange transactions.
• NTR refers to revenues that accrued to
government from sources other than taxes,
grants and borrowings.
• NTR is also termed exchanged revenues or
reciprocal revenues.

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Types of NTRs
• NTRs include
• Sales of public assets (divestiture proceeds).
• Sale of goods such as gold, Cocoa etc
• User fees and charges for services such passport fees,
academic facility user fees, DVLA charges, road tolls e.t.c
• Dividend from GBEs
• Interest from investment in securities and loans receivable
• Rent income
• Fines, penalties and forfeits
• Royalties on natural resources (mining companies) e.t.c

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Collection of Non tax revenues

• Collection on non tax revenues is the responsibility of
the various agencies or institution involved in such
transactions or services.
• For example court fines are collected by the law
courts on behalf of government
• Dividends are collected by the MOF on behalf of
government.
• Rent income by provider of the accommodation or
grounds etc.
• Principal spending officer are responsibility of
ensuring that NTRs are collected and paid into the
Consolidated fund or retained in accordance with law.

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Fiscal policy implications on NTR

• NTR remains a neglected element of government
revenue over the years.
• Fiscal policy should be tailored towards increasing the
contribution of NTR to government revenue.
• Some policy directives are that:
• Fees and charges should be introduced on non-essential
public services such as parking fees, licenses etc
• Premium services introduced in the public sector
• Retention policy should be reviewed to allow entities to
retain all revenues collected to motivate them to collect
more. E.g police service should retained all spot fines.

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Grants/other transfers
• Grants are a form of financial or other similar
assistance that is given freely without any requirement
of repayment.
• Grants are usually in the form of money, but some
types of grants may offer access to resources, services,
goods or other aid.
• Most grants are made to fund a specific project and
require some level of compliance and reporting.
• The grants may be in the form of:
• Donor grants and reliefs (bilateral and multilateral) for
programmes
• Capital grants for projects.
• Counterpart grants
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Fiscal policy implication for grants

• Policy is Ghana beyond aids and therefore fiscal
policy should not encourage increasing revenue
from grants.
• However, grants should not be rejected by
government unless inimical to the fiscal policy of
government.
• Targeted grants could be taken advantage of, where
available.

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Sources of Revenues To The MDA

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Revenue to MDAs
• MDAs are expected to meet their commitments
through:
• Appropriation/votes of parliament for the MDAs
(approved budget allocation to the MDAS which is
the main source of revenues to them)
• Appropriation-in-aid.
• It refers to any income to an MDAs outside the
budget allocation
• Such incomes are set off against the budget
allocation before disbursement is made.
• Such income may include donor grants, retained
IGF and other receipts.
• Any such revenues requires approval by
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Sources of revenues to MMDAs

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Sources of Revenue to MMDAs

• S124 of Local Governance Act, 2016 make provisions
on revenues sources of a District Assembly to
comprise of:
• decentralised transfers;
• internally generated funds; and
• donations and grants.
•.

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Decentralised transfers
• This is also known as intergovernmental transfers.
• Decentralised transfers comprise funds from the
following revenue sources:
• the District Assemblies Common Fund;
• Grants-in-aid from the central government such
as the DDF; and
• Any other revenue transferred from the central
Government to the District Assembly

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Internally generated funds

• Internally generated funds comprise funds from the
following:
• Licences (vehicle licenses, entertainment license
• fees and miscellaneous charges
• taxes;
• investment income; and
• Rates
• Fines and penalty

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Licenses
• A District Assembly may charge fees for a licence
issued by or on behalf of the District Assembly,
subject to guidelines in respect of the charging of
fees for licences, as may be prescribed by the
Minister.
• A licence from a District Assembly may be issued
subject to conditions specified in a by-law or, where
there is no provision in a by- law, conditions that
the District Assembly may consider fit.
• Failure to pay licenses is an offence.
• Sources of licenses: vehicle license, entertainment
licenses and other licenses on economic operators.
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Licenses
• Vehicle licenses is imposable on the following
• Every cart, truck or wagon, not propelled by
mechanical power and used primarily for the
conveyance of goods and provision of other
services except a wagon, truck or carriage used
on Government railway.
• Every bicycle other than a bicycle belonging to
an establishment or Government Department or
the Prison Service, Armed Forces or Police
Service or other bicycle not propelled by
mechanical power.

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Licenses
• Examples of entertainment licenses
• Concerts, musical or theatrical performances
• Video shows
• Cinemas
• Fairs
• Circuses
• Discotheques
• Clubs
• Other entertainments to which admission is to
be obtained on payment of money or reward,
except where the whole proceeds are being
devoted to charity.

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Licenses
• Licenses on economic operators (S137-2) include:
• Dog licences
• Hawkers licence
• Extension of Hours licence
• Hotels and Restaurants licences
• Beer and Wine Sellers licences
• Petroleum Installations licences
• Palm-wine Sellers licences
• Akpeteshie Distillers or Sellers licences

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Licenses – economic operators

• Herbalists licences
• Taxi Cabs licences
• Lorry Park Overseers licences
• Taxi Drivers licences
• Self-employed Artisans licences
• Fishing Tolls licences
• Births and Deaths licences
• Electronic Communication Servers and Providers
licences
• Licence for any other locally brewed beverage

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Fees and miscellaneous charges

• District Assembly may charge fees for any service or
facility provided by that District Assembly or for any
permit issued by or on behalf of the District
Assembly subject to guidelines on fee charging
prescribed by the Minister.
• Despite the provisions of any enactment to the
contrary non-tax revenue collected by a
department of a District Assembly shall be retained
by that District Assembly and be used for the
performance of the functions of that department;

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Fees and Miscellaneous charges

• Examples of fees and miscellaneous charges
• Cattle pounds
• Conservancy
• Slaughter House
• Market Dues
• Market Stalls and Stores
• Lorry Park Dues
• Advertisements
• Trading Kiosks
• Restoration of Conservancy Services
• Public Cemeteries and Burial Grounds
• Bread Confectioneries
• Chop Bars
• Corn Mills
• Dressing Stations
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Taxes
• A District Assembly shall collect the taxes
chargeable on the income of the income earners
specified under the Act 936.
• The Minister may, in consultation with the Minister
responsible for Finance and subject to the terms
and conditions agreed upon with an appropriate
public body, authorise that the public body collect
taxes imposed on the income earners on behalf of
the District Assembly.

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Taxes
• The following income earners are subject to local
taxation:
• Spare parts dealers
• Chemical sellers
• Tailors and dressmakers
• Sand Crete block manufacturers
• Musical spinners
• Radio and television repairers
• Gold and silver smiths
• Drinking bar operators
• Professional photographers
• Chop bar keepers and cooked food sellers

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Taxes (cont)
• Butchers
• Refrigeration and air-conditioning workshop owners
• Hairdressers
• Garage owners
• Video operators
• Corn mill owners
• Co-operative distillers
• Scrap dealers
• Livestock breeders and traders
• Traders
• Liquor sellers

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Investment Income
• A District Assembly may in consultation with the
Minister responsible for Finance invest any portion
of moneys of the District Assembly in safe
securities other than Government treasury bills.
• Income from the investment made shall constitute
part of the revenue of the Assembly.

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Rates
• A District Assembly shall be the only authority to
levy rates for a district despite any customary law
to the contrary.
• Two methods of rating:
• General rating
• Special rating
• A District Assembly shall levy general or special
rates for the amount considered necessary to raise
sufficient funds to meet expenditure.

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Rating
• General rate is
• a rate payable by the owner of premises within the
district on the rateable value of the premises; or
• a rate assessed on the possessions or any category of
possessions of persons who reside within the district.
• Special rate is
• a basic amount payable by any person of the age of
eighteen years and above, but below the age of seventy
years who resides within the area ;or
• an amount imposed on an owner of movable or
immovable property in the area, but a District Assembly
in fixing the basic rate, shall consult with district level
stakeholders in the district.

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• Rates
• Are compulsory levy imposed on all ratable persons and
properties within the jurisdiction of the assembly.
• There are three types of rates
• Basic rate
• Property rate
• Special rate
• Basic rate are rates per ratable person per a year
• Property rate are imposed on the value of ratable
properties (immovable property) . However some
properties such as registered places of worship, burial
grounds, etc are excepted
• Special rate are special levy impose on only beneficiaries of
a given service.

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Revenue Management

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Revenue Management
• It involves the approval of revenues, collection of
approved revenues and custody of the revenues
collected.
• The management of tax revenues is the
responsibility of the Minister of Finance and the
Ghana Revenue Authority.
• Non-taxes are managed by the principal spending
officer of the entity in line with the PFMA, 2016.

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Responsibility of collection
Institution Revenues to collect

MOF • Dividend from public corporations and SOEs

• Interest income on lending
• Proceeds from sale of shares held by GOG
• Proceeds from sale of nom-financial assets

GRA • Tax revenues

• Petroleum revenues under the PRM Act 2011
• Airport Taxes

GRA,NPA, ECG, • Energy sector levies

NEDCo, VRA etc

Covered entities • Other non-tax property income such as rent

• Internally Generated Fund
• Other non tax revenues

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Responsibility of PSO in Revenue Collection

• Principal spending officers have the responsibility to collect public
funds and trust moneys,
• PSOs shall appoint supervising collector for each area where
collection is required.
• PSOs shall take effective and appropriate steps to collect money
due the covered entity.
• Report to cash management office any impending under
collection of revenues due and shortfalls in the budget revenue.
• PSOs are to ensure that TNR collected are lodged gross within 24
hours in designated CF transit bank account uless IGF
• PSOs are monitor and ensure that NTR lodged are transferred to
main CF bank account
• A PSO shall seek prior written consent from CAG before collecting
amount owned government in foreign currency.
• Moneys collected in foreign currency shall be deposited into the
TSA within 72 hours after receipt.

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Revenue collectors
• A person or officer not authorised to collect revenue
shall not collect monies owed to government and a
covered entity.
• Public officer collecting revenues has these
responsibilities:
• A collector shall issue an original receipt to the payer and
treat the duplicate and triplicate in accordance with the
requirements of the departmental accounting instructions,
• A collector shall not use temporal receipts or receipts other
than the authorised form (GOG Counterfoil Receipt) for
collection
• Cheques issued for government is wrongly issued in the name
or position of an officer, the officer should endorse it
immediately with the statement “Pay to the GOG”.
• Unclosed cheque issued in the name of GOG should be
crossed immediately upon receipt by officer who receives it.
• All moneys collected shall be paid in gross into the public
funds accounts and disbursement shall not be made from the
money except provided by an enactment.

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Official Receipts
• Official receipts as evident for moneys paid to
government and covered entity include:
• A deposit-slip issued by the BOG or a
commercial bank
• An electronically- generated deposit- slips of an
electronic fund transfer (EFT)
• All official receipts approved by CAG issued by a
cashier of an office of GRA or covered entity

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Payment in Kind, Foreign Currency

and ceremonial receipts
• Tax or NTR payment in Kind is not allowed unless
permitted by an enactment or CAG.
• PSO who intends to collect revenue in foreign
current must seek prior written consent of CAG.
• Moneys collected in foreign currency should be
deposited in the TSA within 72 days after the
receipt.
• Ceremonial receipts shall be paid within 48 hours
into the appropriate accounts.
• Symbolic cheques should not be accepted if it is not
supported with an actual cheque.

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Review of rates, fees and charges

• All rates, fees and charges to be collected shall be
submitted through MOF to Parliament for approval.
• PSO shall review annually the administrative
efficiency of collection, the accuracy of past
estimates and relevance of rates, fees, and charges
to the current economic conditions and submit
proposals through MOF to Parliament for approval.

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Authority for Refund

• Refunds may be authorised:
• By the authority prescribed in the appropriate
enactment e.g, contract retention.
• By the head of the department to be made from the CF
in accordance with the PFMR in relation to erroneous
collection that took place within the current year.
• By CAG to be chargeable to an accounts so designated in
the departmental accounting instructions in respect of
erroneous collection that occur in the current year.

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GIFMIS and Revenue

Management
• GRA and covered entities are required to process
all revenues collected in the GIFMS through the
Ghana Customs Management System and revenue
information processing modules.
• Revenue data on prior revenue administration
system interfaced with GIFMIS or recorded directly
into GIFMIS shall be transferred to the GIFMIS

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Accounting for Revenues

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Accounting for Revenues

• Under the PFMR, a PSO shall fully disclose all non-tax
revenues collected, lodged or retained as part of a
monthly report to the MOF and CAG copied CAG & AG
• Disclosure required:
• The collection points of the department in the regions and
districts by type of NTR
• Attainment of revenue target for the month and corrective
measures, if necessary
• Expenditure out of retained NTR, including IGF
• NTR including IGF due but not collected
• Any other NTR, including IGF leakages and measures to
address them;
• Certification confirming reconciliation of lodgments with
collections

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Accounting for Revenue under IPSAS

• Both Cash based IPSAS and Accrual based IPSAS
make standards for revenue accounting.
• Cash Accounting Policies for Revenue recognition
• Revenue should be recognized when received at amount
duly receive.
• Revenue received should be reported on Gross Basis
unless the receipt arise from:
• A transaction an entity administered on behalf of another
entity and transaction recognized in the statement of receipt
and payment.
• A pass-through transaction, which is a quick turn over item
with large amount with short maturity.
• In such case the revenue will be accounted for on net
basis.

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IPSAS- Revenue
• Accrual based IPSAS are of two:
• IPSAS 9 – revenue resulting from exchange transactions
• IPSAS 23- Revenue resulting from non-exchange
transaction

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IPSAS 9- Revenues from Exchange

Transactions
• Revenue of government should be recognise when it
meet the following conditions:
• It is probable that the economic benefits or service
potential associated with the transaction will flow
to the entity; and
• The amount of the revenue can be measured
reliably.
• Revenue shall be measured at the fair value of the
consideration received or receivable.

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Accounting treatment
• Revenue from exchange transactions shall be
recognized using the following accounting treatments:
• Interest shall be recognized on a time proportion basis that
takes into account the effective yield on the asset;
• Royalties shall be recognized as they are earned in
accordance with the substance of the relevant agreement;
and
• Dividends or similar distributions shall be recognized when
the shareholder’s or the entity’s right to receive payment is
established.
• Other revenues are recognized when earned.

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Accounting treatment (cont)

• Revenues from services.
• When the outcome of a transaction involving the rendering
of services can be estimated reliably, revenue associated
with the transaction shall be recognized by reference to the
stage of completion of the transaction at the reporting date.
• The outcome of a transaction can be estimated
reliably when all the following conditions are
satisfied:
• The amount of revenue can be measured reliably;
• It is probable that the economic benefits or service potential
associated with the transaction will flow to the entity;
• The stage of completion of the transaction at the reporting
date can be measured reliably; and
• The costs incurred for the transaction and the costs to
complete the transaction can be measured reliably.
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• Sale of goods
• Revenue from the sale of goods shall be recognized
when all the following conditions have been
satisfied:
• The entity has transferred to the purchaser the significant
risks and rewards of ownership of the goods;
• The entity retains neither continuing managerial
involvement to the degree usually associated with
ownership nor effective control over the goods sold;
• The amount of revenue can be measured reliably;
• It is probable that the economic benefits or service
potential associated with the transaction will flow to the
entity; and
• The costs incurred or to be incurred in respect of the
transaction can be measured reliably

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Disclosure for Revenue from Exchange Transactions

• The reporting entity discloses the following:
• The accounting policies adopted for the recognition of
revenue, including the methods adopted to determine the
stage of completion of transactions involving the rendering
of services;
• The amount of each significant category of revenue
recognized during the period, including revenue arising
from:
• The rendering of services;
• The sale of goods;
• Interest;
• Royalties; and
• Dividends or similar distributions; and
• The amount of revenue arising from exchanges of goods or services
included in each significant category of revenue.

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Accounting for Revenues from non-

exchange transactions-IPSAS 23
• Measurement of Revenue
• Revenue from non-exchange transactions shall be measured at
the amount of the increase in net assets recognized by the
entity.
• Recognition
• An inflow of resources from a non-exchange transaction
recognized as an asset shall be recognized as revenue, except to
the extent that a liability is also recognized in respect of the
same inflow.
• As an entity satisfies a present obligation recognized as a liability
in respect of an inflow of resources from a non-exchange
transaction recognized as an asset, it shall reduce the carrying
amount of the liability recognized and recognize an amount of
revenue equal to that reduction. E.g. tax received in advance.
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Recognition (cont)
• Tax revenues
• Taxation revenue shall be determined at a gross
amount.
• It shall not be reduced for expenses paid through
the tax system.
• However, taxation revenue shall not be grossed up
for the amount of tax expenditures. (what is tax
expenditure?)
• Tax expenditures are preferential provisions of the
tax law that provide certain taxpayers with
concessions that are not available to others.

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Measurement and Recognition

Transfers
• Transfers include grants, debt forgiveness, fines,
bequests, gifts, donations, and goods and services in-
kind.
• All these items have the common attribute that they
transfer resources from one entity to another without
providing approximately equal value in exchange, and
are not taxes.

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Recognition of transfers
• Grants
• Are recognised as revenue and asset in the year in which it
was received
• Debt forgiveness
• Entities recognize revenue in respect of debt forgiveness
when the former debt no longer meets the definition of a
liability or satisfies the criteria for recognition as a liability,
provided that the debt forgiveness does not satisfy the
definition of a contribution from owners.
• Revenue arising from debt forgiveness is measured at the
carrying amount of the debt forgiven.

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• Fine
• Fines are recognized as revenue when the receivable meets
the definition of an asset and satisfies the criteria for
recognition as an asset.
• Assets arising from fines are measured at the best estimate
of the inflow of resources to the entity.
• Bequest
• A bequest is a transfer made according to the provisions of
a deceased person’s will.
• Bequests that satisfy the definition of an asset are
recognized as assets and revenue when it is probable that
the future economic benefits or service potential will flow
to the entity, and the fair value of the assets can be
measured reliably.

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• Gift and Donation

• Gifts and donations (other than services in-kind) are
recognized as assets and revenue when it is probable that
the future economic benefits or service potential will flow
to the entity and the fair value of the assets can be
measured reliably.
• Goods in-kind are recognized as assets when the goods are
received, or there is a binding arrangement to receive the
goods. If goods in-kind are received without conditions
attached, revenue is recognized immediately.
• An entity may, but is not required to, recognize services in-
kind as revenue and as an asset.

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Recognition of transfers
• Concessionary loans (soft loans)
✓ Where the difference between the transaction price (loan
proceeds) and the fair value of the loan is non-exchange
revenue, the difference is recognize as revenue, except where a
present obligation exist (say condition imposes obligation on the
recipient)
✓ Where present obligation exist, recognize the difference as
liability and subsequently recognize revenue when the condition
is satisfied.
Example
Ghana obtained a concessionary loan of GHc100,000,000 from
China at the rate of 2% p.a at the time the commercial rate for such
loan is 10% p.a.
a) Assume no condition exist for the loan, how you recognized the
transaction under IPSAS 23 revenue from non-exchange
transaction.
b) Assume condition imposes present obligation on Ghana, how
you would treat the transaction under IPSAS 23.
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Classification of Revenues for

Reporting Purposes
• Under the 2018 Chart of Accounts of GOG,
Revenues are classified into four headings
• Tax revenues
• Donor Grants and Reliefs
• Other revenues ( also known as NTR)
• Notional revenues- Revenues that pass through the
Consolidated fund to other funds eg:
• DACF
• GETFUND
• Domestic NHIL
• Project grant
• Petroleum, Energy and Road Fund
• NHIL-Import and SSNIT

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Trial Questions
• What is tax expenditure?
• Classify the following items as revenue from exchange or
revenue from non-exchange and describe when each
would be recognized:
• Taxes
• Sale of goods
• Fines
• Royalties
• Grants
• Interest
• Dividend
• Debt forgiveness
• Gift and donation
• Fees on public services [ 10 marks]

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Emancipate yourselves from mental slavery, none

but ourselves can free our minds.
- Bob Marley

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Public Expenditure
management and Control

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Outline
• Under this topic we shall cover:
• Types and characteristics of public expenditure
• Expenditure classification (Chart of Accounts)
• Tools for Expenditure management and control (Budget,
Warrants and Quartey Ceilings, Commitments,
Virement, Chart of Accounts, GIFMIS),
• Payment processes and Platforms (treasury single
account, payment process on GIFMIS, payment
platforms-EFT).

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What constitute Public

Expenditure?
• Public expenditure consists of withdrawal from
public funds based on legitimate authority and
appropriate evidence of its application.
• It is the aggregate of central government
(Consolidated Fund)spending, MDAs spending,
MMDAs spending and other public instructions of
state.
• A withdrawal that is wrongly charged on the public
funds will be disallowed by AG and surcharge to a
responsible public officer.

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Types of Public Expenditure

• Public expenditure may be categorized as:
• Statutory expenditure ad discretional expenditure
• Recurrent expenditure and capital expenditure
• Transfer expenditure and non-transfer expenditure
• Actual expenditure and committed expenditure
• Planned expenditure or unplanned expenditure
• Functional expenditure and economic expenditure

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Statutory & Discretional Expenditure

• Statutory Expenditure
• Expenditures charged on public funds by the Constitution and
other enactments.
• The government in power has no control over those
expenditures.
• Examples include
• Interest payment
• Debt repayment
• Pension entitlements (Under CAP 30 and ESBs)
• Statutory transfers- DACF, GETFund, NHIS, GIIF etc)
• Emolument of certain class of public officers (Article 71)
• Court judgements (nugatory cost)
• Discretional expenditures
• They are determined by the government in power and required
parliamentary approval prior to spending.

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Recurrent and Capital Expenditure

• Recurrent expenditure
• Expenditures for which the outlay and the benefit is
expected to be concurrent.
• Example include compensation for employees, goods
and services ( travel and transport etc), interest expense
• Capital Expenditure
• Expenditures for which the benefits extents beyond the
year of expenditure.
• They have longer useful life
• Example, purchase of motor vehicles, construction of
roads etc

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Transfer and Non-transfer Expenditure

• Transfer Expenditure
• Expenditures that are made without any direct
economic benefit in exchange.
• It is also known as non-exchange payments
• Examples: subsidies, interest, social benefit cost, grants
to other government etc.
• Non-transfers
• These are exchange based expenditures
• Examples include: wages &salaries, travel and transport,
purchase of vehicle etc.

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Actual & Committed Expenditure

• Actual expenditure
• Expenditure that results from obligation on the public
sector entity.
• Commitment expenditure
• Expenditure that is implied from decisions taken by
management without any resulting obligation on the
entity.
• Example: an order for supply, contract singed etc.
• Commitment expenditure will eventually become actual
expenditure as soon as the commitment is successful
carried out

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Planned and Unplanned Expenditure

• Planned Expenditure
• Expenditure that has been budgeted prior to spending.
• Unplanned Expenditure
• Expenditures that are notional in nature and therefore
not included in the budget.
• Example: consumption of fixed capital, Foreign exchange
difference, contingent expenditure etc

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Functional & Economic Expenditure

• Functional expenditure
• Expenditure classified based on the purpose or for
function for which is has been incurred.
• Example, public service, defense, general services,
economic services, etc.
• Economic expenditure
• Expenditure classified based on nature of economic
transaction
• Example: compensation for employees, goods and
services, interest, subsidies etc

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Expenditure Classification
• Classification of accounts is a very important
process in managing public expenditure.
• Under the PFMA & PFMR, the CAG is responsible
for classifying accounts in the entire public sector.
• This is achieved through a Chart of Accounts.
• The design of the chart is guided by international
practices such as the GFS Manuals.

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Chart of Accounts
• A chart of accounts (COA) is a critical element of the PFM
framework for classifying, recording and reporting
information on financial plans, transactions and events in
a systematic and consistent way.
• The chart of accounts is a set of coding elements used to
classify, record, budget and report on all financial
transactions in the most suitable form for making
informed and good financial decisions.
• It is used to organize the finances of the entity and to
segregate expenditures, revenue, assets and liabilities in
order to give interested parties a better understanding of
the financial health of the entity.
• Government of Ghana expenditure classification per the
chart of accounts is dynamic. We have:
• MTEF classification ( 1999-2011)
• GIFMIS classification ( 2012 to date)

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COA - Objective
❑ Effective COA these objectives:
▪ Control
▪ Accountability
▪ Budget management (eg facilitation of virement)
▪ Financial Planning and management
▪ Management information systems
▪ General purpose financial reporting
▪ Statistical reporting

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Principles of developing chart of accounts

• COA should meet the following principles
• Comprehensiveness
• Adequate granularity (combinations of many data for
control)
• Mutual exclusiveness ( Unique and avoid confusing in
recording)
• Relevance ( avoid redundancy of a segment of a code)
• Internal consistency ( consistent numbering and
structure throughout the framework)
• Unified framework ( same structure and code across the
entire public sector)
• Scalability ( room for spare capacity for future
requirements)

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Factors to consider in designing COA

❑ The following factors must be considered:
▪ Institutional framework for financial transaction
processing and accounting.
▪ Transaction processing and accounting platform.
▪ Accounting basis ( Cash basis or Accrual basis).

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Government Financial Statistics

Manual (GFSM
• Government finance statistics (GFS) are an economic
representation of a government's financial activity.
• GFS are the International Monetary Fund’s preferred
standard for publishing financial statistics on government.
• The concepts underlying GFS are consistent with those
used to produce balance of payments and national
accounts statistics.
• The first edition of the GFS Manual was in 1986, second
edition was in 2001 and the current edition is 2011.

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GFS
▪ Purpose
• The primary purpose of the GFS Manual is to provide a
comprehensive conceptual and accounting framework
suitable for analysing and evaluating fiscal policy, especially
the performance of the general government sector and the
broader public sector of any country.
• The GFS system is designed to provide statistics that enable
policymakers and analysts to study developments in the
financial operations, financial position, and liquidity
situation of the general government sector or the public
sector in a consistent and systematic manner.
• The GFS analytic framework can be used to analyse the
operations of a specific level of government and
transactions between levels of government as well as the
entire general government or public sector
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GFS Manual adoption in Ghana

• The manual which is an economic and accounting
policy developed by the International Monetary
Fund (IMF) is accrual accounting based and
provides complete coverage of government
economic and financial activities.
• It also provides a standard for the compilation and
presentation of fiscal statistics.
• The Budget Division in conjunction with the
Controller and Accountant General’s Department
(CAGD) of the Ministry of Finance and Economic
Planning MoFEP) is adopting the Government
Finance Statistics (GFS) 2014 Manual

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GFS classification structure

• GFS structure provides information on:
• Economic Entity
• Funding Classification
• Functional Classification
• Organization Classification
• Program and Sub Program Classification (Themes, Key
Focus Areas, Strategic Codes)
• Economic Classification (Expenditures, Revenues, Assets,
Liabilities)

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Chart of Accounts
• COA has been changing over the years to match the
changing PFM environment, particular the
approach to budgeting.
• We had MTEF classification system based on
Activity based budgeting from 1999-2011
• In 2012, we adopted the GIFMIS classification
based on the GFS requirement and the
classifications have been updated in 2018.
• GIFMIS classification has been based on
Programme based budgeting.

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MTEF Classification
• This classification system categorized public
expenditure into four items:
• Item 1: Personal Emolument
• Item 2: Administration Activity Cost
• Item 3: Service Activity Cost
• Item 4: Investment activity cost.

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GIFMIS Classification
• The 2018 edition of the GIFMIS has 12 segments:
1. Institution – 3 codes
2. Funding- 5 codes
3. Function of Government – 5 codes
4. Organisation-10 codes
5. Policy Objectives- 6 codes
6. Program/ Sub Program Objective- 8 codes
7. Project- 7 codes
8. Activity /Operations – 6 codes
9. Location-7 codes
10. Spare 1 – 6 codes
11. Spare 1 – 6 codes
12. Natural Account – 7 codes (Assets, Liabilities, Revenues and
Expenses)

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Interpretation of Code (example)

• Office of the President is a cost centre under the Office of
Government Machinery and is incurring an expenditure
for the purchase of A4 copier Paper. Funds are drawn
from the Consolidated Fund.
• The Institution, Funding, Function of Government,
Organisation and Location for the Public Accounts
Directorate are as follows:
• 001-01000-70112-0010101001-010300-06090401-
1030114-414723-0304304-000000-0000-2210101.
• Required
Interpret the code in reference to the GIFMIS Chart
of Accounts 2018.

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Interpretation of Accounts Code.

Segment Code Code Description

Institution 001 Office of Government Machinery

Funding 01000 Consolidated Fund Expenditure

Function of government 70112 Financial & Fiscal Affairs

Organisation 0010101001 MoFEP, CAGD, FMS, Public Accounts Directorate

Policy objective 010300 Economic Policy Management

Programme/subprogramme 06090401 Capacity building

Project 1030114 Administrative support

Activity/operations 414723 Undertake technical support to facilitie

Location 0304304 Greater Accra, AMA, Osu Klotte

Spare 1 000000 Unspecified

Spare 2 0000 Unspecified

Natural accounts 2210101 Printing and Stationery

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Expenditure Classification
• The COA classifies expenditure as a natural account
with 8 items as follows:
• Item 1: Compensation
• Item 2: Use of Goods and services
• Item 3: Consumption of fixed capital
• Item 4: Interest
• Item 5: Subsidies
• Item 6: Grant
• Item 7: Social benefits
• Item 8: Other expenses

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Compensation for employees

• It has four sub-items
• Established Post
• Non established post
• Other allowances
• National pension contribution

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Compensation
• Non-established post
• Daily rated
• Monthly paid & casual labour
• Probation
• Recruitment
• Secondment
• Limited Engagements

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Compensation
• Other allowances
• Motorbike Allowance
• Bicycle Maintenance Allowance
• Car Maintenance Allowance
• Bereavement Allowance
• Book Subsidy
• Committee of Council Allowance
• Continuous Judicial Education Allowance
• Funeral Grants
• Journalist Allowance
• Judicial Service Committee Allowance
• Jurors Allowance
• Commuted Leave Allowance
• Night Watchman Allowance
• Protocol Commission
• Rations
• Rotational Head of Department Allowance
• Rules of Council Allowance
• Rules of Court Allowance
• Steering Committee Allowance
• Top-Up Allowance
• Training Allowance

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Compensation
• Other allowances
• Duty Allowance
• Clothing Allowance
• Board Allowance
• Acting Allowance
• Cashier Allowance
• Commissions Meeting Allowances
• Professional Allowance
• Entertainment Allowance
• Fuel Allowance
• Guide Allowance
• Housing Subsidy/Allowance
• Risk Allowance
• Overtime Allowance
• Tools Allowance
• Uniform and Protective Clothing Allowance
• Per Diem & Inconvenience Allowance

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Compensation
• Other allowances
• Watchman Extra Days Allowance
• Basic PE Related Allowances
• Traditional Authority Allowance
• Commissions
• Travel Allowance
• Transfer Grants
• Out of Station Allowance
• Domestic Servants Allowance
• Foreign Service Allowance
• Utility Allowance
• Special Allowance/Honorarium
• Responsibility Allowance
• Child Allowance
• Cost of Living Allowance (COLA)

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Compensation
• National pension contribution
• 13% SSF Contribution
• Gratuity
• Pension
• End of Service Benefit (ESB)
• Rounding
• Superannuation
• NHIL
• 40% FAMILY PLAINNING

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Goods and services

• It is classified as follows
• Materials
• Utilities
• General cleaning
• Rental and Lease
• Travel and transport
• Repairs and maintenance]
• Training, seminar and conferences
• Consultancy
• Special services
• Other charges
• Emergency
• Insurance

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Materials
• Printed Material & Stationery
• Office Facilities, Supplies & Accessories
• Refreshment Items
• Medical Supplies
• Drugs
• Oils and Lubricants
• Electrical Accessories
• Construction Material
• Spare Parts
• Specialised Stock
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Materials
• Other Office Materials and Consumables
• Uniform and Protective Clothing
• Feeding Cost
• Rations
• Textbooks & Library Books
• Chemicals & Consumables
• Teaching & Learning Materials
• Sports, Recreational & Cultural Materials
• Household Items
• Purchase of Petty Tools/Implements
• Clothing and Uniform
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Utilities
• Electricity charges
• Water
• Telecommunications
• Postal Charges
• Sanitation Charges
• Armed Guard and Security
• Fire Fighting Accessories
• Gas and Heating

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General cleaning
• Cleaning Materials
• Contract Cleaning Service Charges

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Rentals
• Office Accommodations
• Residential Accommodations
• Rental of Office Equipment
• Hotel Accommodations
• Rental of Land and Buildings
• Rental of Vehicles
• Rental of Other Transport
• Rental of Furniture & Fittings
• Rental of Plant & Equipment
• Rentals of Computers and Accessories
• Rental of Network & ICT Equipment's
• Rental of Towing Vehicle
• Lease of Communication Gadgets
• Lease of Vehicle Lease of office equipment's
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Travel and transport

• Overseas Medical Treatments
• Maintenance & Repairs - Official Vehicles
• Fuel & Lubricants - Official Vehicles
• Car Rental/Leasing
• Running Cost - Official Vehicles
• Freight and Handling Charges
• Running Cost of Presidential Aircraft
• Running Cost of Fighting Vehicles
• Other Travel & Transportation
• Night allowances
• Local travel cost
• Mileage Allowance
• Local Hotel Accommodation
• Foreign Travel- Per Diem
• Foreign Travel Cost and Expenses
• Toll Charges and Tickets
• Fuel Allocation To Waste Management Department

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Repairs and maintenance

• Roads, Driveways & Grounds
• Repairs of Residential Buildings
• Repairs of Office Buildings
• Maintenance of Furniture & Fixtures
• Maintenance of Machinery & Plant
• Maintenance of General Equipment
• Minor Repairs of Schools/Colleges
• Maintenance of Presidential Aircraft
• Maintenance of Fighting Vehicles
• Drains

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Repairs and maintenance

• Markets
• Public Toilets
• Schools/Nurseries
• Traditional Authority Property
• Recreational Parks
• Sanitary Sites
• Street Lights/Traffic Lights
• Cemeteries
• Elevator(Lift)
• Air conditioners
• Security Gardgets
• Maintenance of Computer Software

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Training, seminar and conferences

• Training Materials
• Visits, Conferences / Seminars (Local)
• Examination Fees and Expenses
• Hire of Venue
• Hotel Accommodation
• Library & Subscription
• Recruitment Expenses
• Refreshments
• Seminars/Conferences/Workshops/Meetings Expenses
• Staff Development
• Public Education & Sensitization
• Malaria Expenses

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Consultancy
• Local Consultants Fees
• External Consultants Fees
• Other Consultancy Expenses
• Contract appointments
• Consultants Materials and Consumables

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Special services
• Service of the State Protocol
• Official Celebrations
• Head of State End of Year Activities
• Assembly Members Special Allow
• Assembly Members Sittings Allow
• Unit Committee/T. C. M. Allow
• Canteen Services
• Property Valuation Expenses
• Operational Enhancement Expenses
• Trade Promotion / Publicity

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Other charges
• Bank Charges
• Bank Errors
• Audit Fees
• Exchange Differences
• Rounding
• NHIL – Penalties
• NHIL - Interest
• Arrangement Fee on Loans
• Participation Fee on Loans

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Emergency
• GMP Field Operations
• Refurbishment Contingency
• Emergency Works
• Security Forces Contingency (election)

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Insurance
• Insurance-Residential Accommodation
• Insurance-Office Accommodation
• Insurance-Property, Plant and Equipment
• Insurance-Official Vehicles
• Owners Liability

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3. Consumption of fixed capital

• Depreciation - Lands & Buildings
• Depreciation - Transport (Motor Vehicles,
Airplanes, Trains, Ships & Vessels)
• Depreciation - Furniture and Fittings
• Depreciation - Plant and Equipment
• Depreciation - Other Assets

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4. Interest
• Non-Residents
• External Statutory Payments - Interest
• External Statutory Payments - Principal
• Residents
• Internal Statutory Payments - Interest
• Internal Statutory Payments - Redemption

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5.Subsidies
• To public corporations
• To non financial public corporations
• To financial public corporations
• Oil Subsidy
• Utility Subsidy
• Capitation Grants
• Schools Subsidy( BECE and SHS)
• Feeding Grant
• Fetilizer Subsidy
• To private enterprises
• To non financial private enterprises
• To financial private enterprises

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6.Grants
• District Assemblies Common Fund
• Ghana Educational Trust Fund
• Road Fund
• Petroleum Related Fund
• GOG Shared Revenues
• DDF
• Goods and Services Payments – Transfers to MMDAs
• Compensation Payments – Transfers to MMDAs
• MSHAP
• School Feeding Program
• CWSPII
• HIV/AIDS
• Poverty Alleviation
• NORST
• DACF – Assembly Transfer Capital
• DACF – MP Capital
• GOG Asset Transfers to MMDAs
• Research and Innovation Facility

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7.Social benefits
• Social security benefits in cash
• National Health Insurance Scheme
• Social assistance benefits in cash
• Exempt for Aged, Antenal & Under 5 Years
• Refund for Medical Expenses (Paupers/Disease
Category)
• Employer social benefits in cash
• Workman compensation
• Staff Welfare Expenses
• Refund of Medical Expenses

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Other expenses
• Insurance and compensation
• Professional fees
• Customs Duties
• DA’s
• UN - Peace
• Court Expenses
• Awards & Rewards
• Donations
• Contributions
• Tuition Fees
• Scholarship/Awards

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Other expenses
• Special Operations (COS)
• Special Operations (NSC)
• Special Operations (Peace Keeping)
• Special Operations (Docking of Ships)
• Refuse Lifting Expenses
• Civic Numbering/Street Naming
• Scholarship & Bursaries
• Grants to Employees
• Grants to Households
• National Awards
• Council Tax

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Expenditure control
• The objective of expenditure control is to ensure
that public resources are spent as intended, within
authorized limits, and following sound financial
management principles.
• Fiscal rules, medium-term budget plans, and
annual budgets are meaningless if expenditure
cannot be controlled during execution.
• The primary focus of an expenditure control system
is to ensure that the level and allocation of
government expenditure reflect the will of the
legislature as voted for in the budget.

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Expenditure controls
• Expenditure controls outcomes include:
• sound financial management principles,
• ensuring that public resources are utilized efficiently,
• incurred obligations are cleared in a timely manner,
• abuse/ misappropriation of public money is prevented,
and
• private actors compete on a level playing field for
government contracts.

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General features of contemporary expenditure

control system
• An increased focus on ex ante controls over expenditure
commitments rather than ex post controls only at the
payment stage of the expenditure cycle;
• A shift from controlling only cash expenditures towards
controlling the accumulation of accrued liabilities as well;
• Greater devolution of responsibility for routine expenditure
controls towards ministries and agencies and a more risk-
based approach to the exercise of centralized controls;
• Stronger reliance on internal and external audit to ensure the
integrity of financial control systems in ministries and
agencies; and
• An emphasis on transparency and accountability to the
legislature and the public for expenditure overruns.
• vi. Increasing deployment of e-governance systems to
ensure effective linkages in the control elements
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Expenditure Process/cycle
Payment made via EFT, cheques or
7 Payment cash

authorization for payment after

6 Payment order satisfying that funds are available

Responsible officer verify and satisfy

5 Verification (or certification that supplies are proper and liability
has been created.
Funds reserved for orders and
4 Commitment contracts
Funds are reserved for those
3 Reservation expenditures that are not committed. Eg
statutory payments
Allotment to periods (by MOF) and to sub-
2 Apportionment of authorization units (by Sector Minister)

Authorization given through the

1 Authorisation Appropriation Act
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Expenditure control mechanisms

• There are several tools applied to expenditure
control and these include:
• Budget control/appropriation control),
• Warrants and Quartey Ceilings controls/drawing limit
controls. PSO made request for warrant through the
GIFMIS system.
• Commitment control
• Virement
• Payment controls
• Accounting controls
• Payroll controls
• Procurement controls
• Chart of Accounts, classification control
• GIFMIS/e-governance control
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Structures of controls
• Expenditure controls take place at different levels
of government and this include:
• Legislative control. Approval of the financial estimates
(budget) of the executive and ensuring strict compliance
to the budget approved.
• Judicial control. Courts processes that ensure that public
official indicted for malfeasance and abuse of public
funds put before it is tried and punished to serve as
deterrent.
• Administrative control. Administrative controls are those
controls instituted by the executive to ensure effective
use of public resources. It includes treasury controls,
ministerial controls and departmental controls.

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Payment for goods, works and services

• Responsibility for Payment
• The PFMR provides that the PSO of a covered entity is
personally responsible for making payments.
• In making payment the PSO is required to ensure that:
• Payment is base on valid, accurate and legal claims
• Evidence of services received, certificate for work
done and any other supporting documents exists
• Commitment for the payment has been approve
through LPO generated through GIFMIS
• There is sufficient unspent amount of the
appropriation for making payment.

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Payment process
• GIFMIS shall be used from commencement of the
procurement process through to payment.
• Payment process for goods, services and works
involves five stages:
1. Physical output of woks and supply inspection
2. Certification of completion of works or supply
3. Recording of invoices and supporting document
4. Recording of approval of payment voucher
5. Making payment

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Payment process
Stage 1: Physical output of woks and supply inspection
• PSO is require to inspect the physical output of works and
supply in the field prior to certifying the completion of
works and supply of large scale.
• Rule is inspection should be carried out before a progress
payment under a contract is made and when works or
supplies are fully completed.
• PSO should not certify the completion of works unless:
• the contract complies with ALL provisions of the
contract
• The size, quality an performance of the physical
output is consistent with the design and
specifications.
• PSO is permitted to authorize an officer with adequate
expertise in the relevant field to undertake the inspection
on his behalf.
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Payment process (cont)

• Stage 2: Certification of Completion
• PSO upon completion of works or supply of goods or
services prepare a certificate statement in respect of
works an stores received.
• The certificate statement should include:
• The quantity and particulars of the works an supply
• The method and results of inspection, and
• Any evidence supporting the results
• The certification statement should also include
necessary remedial actions for inconsistent output
against the contract.
• Remedial actions may include:
• Partial rejection and payment for portion accepted
• Full rejection, hence no payment
• Any other action that may be necessary to ensure complete
delivery.

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Payment process
Stage 3: Recording invoices and supporting
documents
• Upon issuing the certification statement, PSO is required
to undertake the following procedures:
• Record details of the invoices in the GIFMIS
• Upload the certification statement and other
supporting documents onto the GIFMIS

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Payment process
Stage 4: Recording approval of PV
• Every payment should be accompanied with a payment
voucher authorised by head of account an approved by
the PSO on the GIFMIS.
• In respect of the authorisation and approval of the PV,
both the PSO and Head of Accounts should ensure that:
• Claims for payment are valid, accurate and legal
• Commitment has been approved through LPO or EO under the
GIFMIS
• An invoice, a certification statement and a complete set of
supporting documents have been recorded in the GIFMIS.
• Approval for each PV must be recorded on the GIFMIS

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Payment process (cont)

Stage 5: Payment
• All payment for expenditure should be made
through the GIFMIS.
• Approved methods of payments are:
• Electronic funds transfer (EFT) for 3rd party transactions
• System cheques or other electronic means for
withdrawals of internal payments (eg imprest
recoupment) and allowances
• Physical cash disbursement from imprest and payment
of allowances to ultimate individual beneficiaries.
• Approved payment shall be release by CAG on the
GIFMIS to the covered entity, where it relates to
consolidated fund.
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Never stop trying until the moon is no more!

End!

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TOPIC 5
FISCAL PLANNING AND BUDGETING

Redeemer Krah (CA)

KRAMANKUS CA FAMILY, WASS ADENTA
[email protected]/0243340420

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Outline
• Explain the concept of macroeconomic policy and
fiscal policy.
• Role of fiscal policy in public financial management
• Examine the provisions of the PFMA on fiscal
policy: (fiscal policy objective, general principle of
fiscal policy, Guiding principles in formulating and
implementation fiscal policy objective, Fiscal policy
indicators, Fiscal strategy document).
• Discuss the link between fiscal policy and budget
statement

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Outline cont
• Concept and characteristics of budgeting in the public sector
• Importance of budgeting in the public sector
• Challenges and Limitation of budgeting in the public sector.
• Legal framework for public sector budgeting

• Format and content of National Budget

• Budgeting process/cycle

• Budget management

• Budgeting system

• Budget programme sustainability: public expenditure survey & MTEF

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Fiscal Planning
• What is planning?
• Planning is the process of thinking through the means of
achieving an end.
• Planning is “a process to develop a strategy to achieve
desired objectives, to solve problems, and to facilitate
action" (Mitchell 2002, 6).
• Planning is about establishing of goals, policies and
procedures.
• Financial management involves a great deal of planning:
• Setting the desire goals for a given period
• Developing appropriate macro economic and fiscal policies
• Contextualizing the condition under which the plans will unfold
through laid down procedures.

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Planning (cont)
• Setting economic goals and targets
• In financial management, goal and target setting is critical
in effective budgeting
• Goals and target provides direction of efforts towards goal
congruence.
• Goals and targets must be SMART
• Careful goals and targets are required in financial planning
in the areas of:
• Growth ( measured by GDP or GNH of Bhutan)
• Inflation
• Employment
• Aggregate spending of government
• Etc.

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Planning (cont)
❑ Development of Macro economic and fiscal
strategies and policies.
▪ Strategies and policies must support the goals and
targets
▪ In budgeting, formulation of strategies and policies is
necessary to support the goals
▪ No wonder the PFM Act 2016 (s12-18) provides for
Macroeconomic and fiscal policies.

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Macroeconomic and Fiscal Polci

• What is Macroeconomic and Fiscal policy?
• Macroeconomic policy refer to macroeconomic
quantities that can be directly controlled by an
economic policy maker. it can be divided into two
subsets : Monetary policy and Fiscal policy.
• Monetary policy is how central banks manage liquidity
to create economic growth focusing on money supply to
achieve inflation and interest rate targets.
• Fiscal policy refers to the means by which Government
policies are implemented with respect to revenue,
expenditure and debt management (PFM Act, 2016)

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Fiscal Policy
• Fiscal Policy General Principles (s 12)
• the Principal Account Holder and Principal Spending
Officer of a covered entity shall be accountable to
Parliament for the performance of their functions with
respect to the implementation of fiscal policies;
• Fiscal Policy shall be developed in a manner that takes into
account the impact on the welfare of the current
population and future generations;
• Fiscal Policy shall be conducted in a manner that avoids
abrupt changes in the evolution of macroeconomic and
fiscal indicators; and
• the management of public funds, assets and liabilities,
including natural resources, and fiscal risks in the country
shall be conducted in a prudent way, with a view to
maintaining fiscal sustainability.
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Fiscal Policy (cont)

• Fiscal Policy Objective (s 14)
• Fiscal policy objective means the targets that
Government seeks to achieve on the
implementation of a fiscal policy
• The prime Fiscal Policy objective of Government
is to ensure the macroeconomic stability of the
country within the macroeconomic and fiscal
framework.
• The Government may determine any other fiscal
policy objective in line with professionalism and
transparency principle enshrined in the PFM Act

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Fiscal Policy (cont)

• Fiscal Policy objective Formulation Guiding
Principles (section 12-2)
▪ sufficient revenue mobilisation to finance
Government programmes;
▪ maintenance of prudent and sustainable levels
of public debt;
▪ ensuring that the fiscal balance is maintained at
a sustainable level over the medium term;
▪ management of fiscal risks in a prudent
manner; and
▪ achieving efficiency, effectiveness and value for
money in expenditure.
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Fiscal Strategy Document

▪ Fiscal policy document refers to an outline of the
fiscal policy of government, including revenue,
expenditure, financing and debt management
decisions of Government that influences the
economy;
• The Minister shall, not later than the end of May of
each financial year, prepare and submit to Cabinet
for approval, a Fiscal Strategy Document (s15-1).

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Fiscal Strategy Document (cont)

• Content of Fiscal Strategy Document (s15-2)
• The Medium-Term Fiscal Framework of the
Government with measurable fiscal objectives and
targets to guide short and medium term fiscal
planning for the ensuing three to five year period,
consistent with the fiscal principles and fiscal policy
objectives of Government,
• An updated and comprehensive medium-term
macroeconomic and fiscal forecast covering current
developments and multiple year projections in line
with the co-ordinated programmes of economic
and social development policies as specified in
article 36(5) of the Constitution;
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Fiscal Policy Document (cont)

• Content of Fiscal Strategy Document (s15-2)
• the Medium-Term Expenditure Framework of the
Government with a resource envelope and overall
expenditure ceiling;
• a statement of policy measures the Government shall
implement in order to stay within the confines of the
fiscal policy objectives;
• a comprehensive and quantified fiscal risk statement
for the public sector showing the impact of alternative
macroeconomic assumptions on the forecast fiscal
balances, and quantified risks of guarantees,
contingent liabilities and public private partnerships;
• the Medium-Term Debt Management Strategy
including debt sustainability analysis and sensitivity
analysis of macro fiscal risk scenarios
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Fiscal Policy Document (cont)

• Content of Fiscal Strategy Document (s15-2)
• the alignment of statutory and other earmarked funds
to national macro-fiscal goals and targets
• a progress report on the implementation of the Fiscal
Strategy Document for the previous financial year;
• an update on the macroeconomic forecasts and fiscal
outturns;
• the implementation of the fiscal policy and progress
against the fiscal principles and rules, including targets
where feasible;
• an explanation of deviations from the fiscal principles,
rules and targets for the short and medium term
objectives; and
• an explanation of the measures taken to respond to
deviations.

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Economic Policy Coordinating

Committee (EPCC)
• For purposes of economic and fiscal policies, the
regulation provides for the establishment of the
EPCC to serve as a platform to:
• Deliberate on high level macro-fiscal policy issues;
• Provide strategic direction for effective coordination;
• Manage the economy to meet set macroeconomic
objectives.

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Functions of EPCC (R.7)

• The Economic Policy Coordinating Committee shall:
• Review macroeconomic performance in the real, fiscal,
monetary, and external sectors of the economy on quarterly
basis and provide a strategic direction for the future;
• Provide a quarterly update on the performance of the
economy with possible recommendation to Cabinet;
• Discuss significant deviations from the forecasts and provide
direction on recommended corrective actions;
• Address policy-related bottleneck include fiscal risks to
ensure the smooth implementation of macroeconomic
policies;
• Discuss and provide direction on the implementation of
relevant recommendations from studies on topical issues on
the economy and propose relevant topic areas for research;
• Provide a platform to discuss and monitor macro-fiscal
policies and strategies to ensure irreversibility in
macroeconomic gains
• Perform other functions determined by Chairperson of EPCC.
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Fiscal Measurement
• Fiscal Policy Indicators
• the non-oil primary balance or non-oil fiscal
balance, as a percentage of gross domestic
product; and
• any two of the following fiscal policy indicators:
• public debt as a percentage of gross
domestic product;
• (capital spending as a percentage of total
expenditure;
• revenue as a percentage of gross domestic
product; or
• wage bill as a percentage of tax revenue.
• The Ministry shall review the fiscal policy
indicators every five years.
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Fiscal Risk Management (R.5)

• Fiscal risk are those events or actions that may have
a material effect on the fiscal outlook of the
country.
• The strategy for fiscal risk management should be
stated in the fiscal strategy document.
• Fiscal Risk management involves the following:
• Developing and updating a fiscal risk register annually
• Preparing a fiscal risk statement to be included in the
fiscal strategy document, budget statement and other
documents
• Analysing forecast for inclusion in the fiscal strategy
document
• Maintaining a database on major sources of fiscal risk.

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Fiscal risk statement (R.5-2)

• Fiscal risk statement to be included in the Fiscal
Strategy document include
• Result of a sensitivity analysis on revenues and expenditure
projection;
• A list of all guarantees, PPP and any other contingent
liabilities of a covered entity
• A list of on-lending facilities from the annual budget and by
covered entities
• Aggregate financial positions of the public corporations and
SOEs
• A detail analysis of key financial indicators of Public
corporations and SOEs
• An amount of total budget support, including tax benefits
provided to public corporations and SOEs for immediate
preceding three financial years.

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Fiscal Risk Committee (R.9)

• Fiscal Risk Committee is a sub-committee of EPCC
responsible for:
• Reviewing the fiscal risk statement and other reports
pertaining to fiscal risk management.
• Exchanging information and making recommendations
pertaining to fiscal developments in relation to fiscal
risk.
• Providing directives on the implementation of relevant
policy recommendations from studies on fiscal risks.
• Proposing typical areas for research on fiscal risks
• Facilitating the provision of data and information
needed for fiscal risk analysis and reporting.
• Perform any other functions assigned by MOF

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Compliance to Fiscal Strategy

• Cabinet to adhere to targets in Fiscal Strategy
Document
• Subject to article 76(2) of the Constitution, Cabinet
shall, adhere to the targets set out in the Fiscal
Strategy Document,
• in making decisions with implications for public
finances,
• in determining, formulating and implementing the
policies of the Government, or
• in performing any function conferred on it by the
Constitution, this Act or any other enactment.

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Suspension of fiscal target

• A fiscal target or rule provided for in the Fiscal Strategy
Document may be suspended with the prior written
approval of Cabinet where (a) any of the following
events occur:
• a natural disaster, public health epidemic, or war as a result
of which a state of emergency has been declared by the
President under article 31 of the Constitution
• an unanticipated severe economic shock, including
commodity and oil price shocks; and
• (b) as a result of the occurrence of an event under
paragraph (a), the Minister is of the opinion that the
implementation of any of the fiscal targets or rules
would be unduly harmful to the fiscal and
macroeconomic or financial stability of the country.

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The only impossible journey is the one

you never begin.
-Anthony Robbins.

Public Sector Budgeting

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Concept of Budget and Budgeting

▪ Budgeting refers to the quantification of government’s
plans, programmes and policies.
▪ Budgeting refers to the allocation of resources among
different purposes so as to achieve the greater return.
▪ It can be defined as a comprehensive plan
expressed in financial terms by which an operating
programme is effected for a given period for the
purpose of attaining a given objective.
▪ It embodies an estimate of proposed expenditure
for a given period and proposed means of financing
them.
▪ It a process for systematically relating the
expenditure to the accomplishment of objectives

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Budget and Budgeting (cont)

• The PFM Act describes budgeting as the process by
which Government sets levels to efficiently collect
revenue and allocate the spending of resources
among all sectors to meet national objective.
• A budget , on the other hand, is the end product of
the budgeting process which becomes a references
document for both the approving authorities,
executioners and the citizens as a whole.
• Citizens’ Budget explains in simple terms how
government plans to raise the needed
revenues to implement its policies and
programmes to help improve the living
standards of Ghanaians.

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Characteristics of government
budgeting
• The key characteristics of government budgeting
are
Comprehensiveness

Budgeting Legality
Annuality

Public
Accountability
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Objectives of Budgeting
▪ Budgeting is carried out to achieve the following
economic and behavioural outcomes:
▪ Effective allocation of resources to Priority areas
(resource-priority link)
▪ Effective planning and control of government activities for
attainment of objective.
▪ For coordination of government activities towards goal
congruence at national level
▪ Communication of government plans, policies and
programme
▪ Motivation to managers and employees through target
setting
▪ Performance management of programmes, projects and
activities
▪ Ensure public accountability and transparency
▪ Fiscal discipline
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Limitation of a Budget
❑Budget is very important in public financial
management however it has the following limitations:
▪ Costly in terms of time and financial resources
▪ Lack of economic instability. In terms of rising inflation
the budget is rendered irrelevant for controlling
▪ Behavioural effect in that the authorization of a budget
may be misapplied.
▪ Budget does not allow for flexibility in decision making
as compliance is a must.
▪ Budget can easy become an end rather than the mean
to an end.
▪ Lack of fiscal discipline in implementation in budget

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Legal frame of Budgeting

▪ Budget is a law of parliament (Act of parliament)
and therefore budgeting is a mandatory process.
▪ Budgeting is a prerequisite for spending public
money (see Chapter 13 of the Constitution).
▪ Key Legislations on budgeting are
▪ 1992 Constitution of Ghana (chapter 13, Article 179-
180)
▪ PFM Act 2016 Act 921
▪ PFM Regulation, 2019

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1992 Constitution and Budgeting

• Article 179 makes comprehensive provision on national
budgeting
• Clause (1): Responsibility and Authority for National Budget.
• Clause (2): budget system and budget presentation
• Clause (3) Estimate of the Judicial Council
• Clause (4): Laying of Estimates of Judicial Council
• Clause (5): Restriction on alteration of estimates of Judicial
Council
• Clause (6): Development expenditure of Judicial Council
• Clause (7): Procedure for presenting budget to Parliament
• Clause (8): Supplementary Estimates
• Clause (9): Supplementary Appropriation Bill
• Clause (10): Budget period
• Clause (11): Unspecified votes

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PFM Act 2016 and Budgeting

• Section 12 -35 makes primary provisions on fiscal
policy and budgeting in the central government and
all covered entities.
• Macroeconomic and Fiscal Policies provisions
include
• Application of the provision.
• Fiscal policy principles (s.13).
• Fiscal policy objectives (s.14).
• Fiscal Strategy Document (s.15).
• Fiscal policy indicators (s.16).
• Cabinet to adhere to targets in Fiscal Strategy Document
(s.17).
• Suspension of rules or targets (s.18)

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PFM Act 2016 and Budgeting

• Budget Preparation, Approval and Management covers:
• Salary negotiations for public sector (S.19)
• Guidelines for preparation of annual budget (s.20).
• Annual budget (s.21).
• Approval of annual budget by Parliament (s.22).
• Expenditure in advance of appropriation (s.23).
• Budgeting on a gross basis (s. 24).
• Commitment of approved budget (s.25).
• Expiry of appropriation (s. 26).
• Performance Report (s.27).
• Mid-year review (s.28)
• Re-allocation of funds from a covered entity (s.29).
• Budget implementation by Principal Spending Officers (s.30).
• Cash flow forecast (s.31).
• Virement (s.32).
• Multi-year expenditure commitments (s.33).
• Submission of quarterly reports on budget implementation (s.34).
• Supplementary budget (s.35).

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PFM Regulation 2019 & Budgeting

• Regulation 15-30 provides for budget preparation,
approval and management.
• Forecast for compensation of employees
• Expenditure ceilings
• Budget proposal and hearing
• Budget module of GIFMIS
• Integration of budget process for statutory funds
• Programme classification
• Publication of budget statement
• Expenditure in advance of appropriation
• Supplementary budget
• Mid year review
• Budget unit
• Budget committees
• Virement
• Procedure for virement
• Transfer of functions between covered entities
• Contingency fund

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Content and format of National Budget

• A typical annual budget of government is a bound
document well packaged with national emblems
such as the national flag and the coat of arms
symbols.
• Usually, annual national budgets presented to
Parliament has varied pages from 200-300 pages.
• A typical format for national budget statement and
economic policy:
• Cover page (outer and inner covers)
• List of acronyms and abbreviations
• Table of Content
• Body of the document

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Cover page
• A typical cover page contains:
• Coats of Arms of Ghana
• Title of the document (e.g economic policy and
budget statement for 2019),
• Date of presentation to Parliament
• Name and designation of person caused to present
the budget Parliament under Article 179 of the
Constitution. This person is the Minister of Finance.
• Declaration of authority under which the budget is
presented. Here reference is made to the authority
of the President of the Republic
• Theme of the budget. This captures the spirit of the
budget.

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Main Body of budget statement

• The body of the budget statement and economic
policy is organised in numbered paragraphs for
easy references.
• The body is organised into 6 sections:
• Introduction
• Global economic developments and outlook
• Macroeconomic performance of the preceding
year
• Current year and Medium-term fiscal policy
objectives and targets
• Sectoral performance and Programmes for the
current year and the medium term
• Conclusion
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Responsibilities for Budget

• The responsibility for budgeting is entrusted to:
• The president of the republic /Cabinet
• Parliament (scrutiny and approval responsibility)
• The Minister of finance (PFM Act)
• The Chief Director (PFM Act
• Principal spending officer and Budget
committees (PFM Act and Budget Committee).

Read the relevant laws for the roles of these officers

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Role of President and cabinet

• Under article 179 of the Constitution, the president
is required to cause an estimate of revenues and
expenditures of government for the coming year
and lay it before parliament at least one month to
the end of the current financial year.
• Cabinet is responsible for providing policy
guidelines to the MOF as serves as the foundation
for efficient PFM policies and strategies (PFMA S.4).

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Role of Minister of Finance

• The MOF is the chief authority in the preparation of
nation budget responsible for planning, allocation,
preparation, execution, control, monitoring and
evaluation.
• Specific responsibilities of MOF are to:
• prepare the annual and supplementary budget estimates and
reports for submission to Parliament.
• submit to Parliament for approval, the budget of covered
entities as required under this Act or any other enactment to
ensure compliance of the covered entities.
• monitor and assess the implementation of the annual budget
and ensure the implementation of the fiscal policy of
Government
• Coordinate and mobilise resources and integrate the resources
into the planning, budgeting, reporting and accountability
processes
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Role of Budget Office (S.10)

• The Ministry of Finance shall have an office known as
the Budget Office with the following responsibilities:
• the preparation of the annual estimates and Medium-Term
Expenditure Framework within the constraints specified in
the Government’s Fiscal Strategy Document;
• the preparation of the mid-year review and half-yearly
budget implementation reports.
• advising the Minister through the Chief Director on all
matters related to the annual budget, supplementary budget
and the Medium Term Expenditure Framework
• advising the Chief Director on matters related to the
classification of the budget and systems required to prepare
the budget.
• perform any other function assigned by the Chief Director.
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Role of Chief Director (s.6)

• The responsibilities of the chief director are to:
• Advise the Minister on economic, budgetary, and
financial matters and on matters related to the
implementation of PFMA.
• Coordinate the preparation of the Fiscal Strategy
Document, budget estimates, and the Appropriation Bill;
• co-ordinate the promotion and enforcement of a
transparent, efficient and effective management of
public revenue, public expenditure, and the assets and
liabilities of a covered entity.
• monitor the financial and related performance of a
covered entity
• prepare a report within one month after the end of each
quarter on the implementation of the annual budget by
the Government and submit the report to the Minister

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Role of principal spending officers (S.7)

• PSOs are required to prepare and submit the estimate and
strategic plan of the department to the minister of finance
through the sector.
• PSOs are to establish budget committee (BC) to be
responsible for the budget preparation of the department.
(PSOs are chair of the BC).
• PSO is responsible to:
• ensure the regularity and proper use of money
appropriated in that covered entity;
• authorise commitments for the covered entity within
the budget ceiling; and
• manage the resources received, held or disposed of by
or on account of the covered entity.

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Budget Committees
• Budget committees are established under
Regulation 26 of the PFMR
• BC compose of:
• The Principal Spending Officer ( chairperson)
• Heads of Budget Management Centre or Cost Centers
• The head of the Budget Unit shall serve as the
secretary to the BC.

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Budget Committees
• Functions of BCs:
• Review and formulate the strategic plans based on the
policies of the government
• Review the revenue collection activities of the entity
• Allocate resources based on budget programmes and sub-
programmes of the entity
• Coordinate and consolidate the budget
• Monitor and evaluate budget performance
• Present a quarterly report to a Principal Account Holder

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Role of parliament (S.11)

• Parliament shall provide oversight in respect of
• matters relating to budget and finance;
• government expenditure;
• performance reporting;
• post-legislative scrutiny; and
• impact of financial policy measures on the
economy.
• Parliament is primarily responsible for approval and
accountability for the budget.
• The Speaker of Parliament may assign these
oversight responsibilities to a committee of
Parliament or an office established by Parliament
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Relevant stakeholders in National

Budgeting
• Relevant stakeholders include (PFMA, s21-8)
• the Ministry of Finance,
• Bank of Ghana,
• Ghana Statistical Service,
• civil society organisations,
• Ministries, Departments and Agencies,
• Ghana Revenue Authority,
• Controller and Accountant-General’s Department,
• National Development Planning Commission and
• Local government authority.

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Annual Budget Cycle

• Budget is formulated on the principles of Annuality.
• Principle of Annuality states that the authority of a
budget elapsed at the end of every year.
• Annual budgeting cycle involves:
• Formulation
• Authorisation
• Approval
• Budget implementation
• Monitoring, evaluation and control
• NB. Budget preparation is carried out on the
GIFMIS module called Hyperon.
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Public Process/Cycle
Budget
Formulation

Budget Budget
monitoring Authorisat
and Budget ion
evaluation Office of
MOF

Budget
Implementation

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Budget formulation
• Budget formulation follows the fiscal and
macroeconomic policies stage.
• Typical activities involved include:
• The MOF issues a budget circular, budget
guidelines and instructions to the various heads of
departments
• The heads through the budget committees reviews
and prepares their strategic plans, makes estimate
of revenues and expenditures for the budget
periods in line with the budget instructions and
constraints.
• The heads submit their plans and estimates to
MOF through their sector ministers.

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Budget Formulation
• Provision on Budget guidelines (PFMA, s.20)
• The Minister shall subject to Cabinet approval, issue
guidelines for the preparation of the budget for each
financial year.
• The Minister shall circulate copies of the guidelines to
each covered entity not later than the 30th of June of
every year.

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Budget formulation
• Content of budget guidelines (PFMA, s.3)
• the economic outlook for the country;
• revenue forecasts;
• fiscal targets in relation to the fiscal principles,
particularly, the need to achieve sustainable levels of
public debt and fiscal balance;
• medium-term fiscal framework including key
assumptions;
• the multiple year ceilings for each covered entity in line
with
• the Fiscal Strategy Document;
• the ceilings on the required number of staff for each
covered entity and the cost of appropriation for the
relevant year for the public service;

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Budget formulation (cont)

• Content of budget guidelines (cont)
• the reconciliation of any change to the previous
Medium- Term Expenditure Framework arising from the
discretionary policy changes, baseline parameters, and
re-allocation of expenditure items;
• the selection criteria for investment projects, including
provision for linking forward recurrent expenditure
estimates to investments;
• the ceilings for the preparation of the budget estimates
of local government authorities;
• details of expenditure under statutory funds and
alignment and co-ordination of statutory funds with
fiscal objectives, targets and other aspects of the
budget; and
• any other information required from a covered entity to
enable the Minister prepare the annual budget in
accordance with the requirements of section 21
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Budget Formulation (cont)

• Estimating Revenue for the Consolidated Fund
• Revenues of Consolidated fund comes from:
• Tax revenues ( Direct taxes and Indirect Taxes)
• Non tax revenues ( sale of goods and services,
royalties, Dividends, Interest, fines, forfeiture and
penalties)
• Grants (multilateral grants and Bilateral grants)
• Oil revenue (not more than 70% of oil revenue)
• Estimate of tax revenue is made by GRA and MOF

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Budget formulation
• Estimating Government Revenue at Department
level (Internally generated Revenue)
• Identify all existing revenue generating activities of
the department.
• Identify all potential revenue generating activities of
the department.
• Estimate the frequency of the these activities
• Compute the revenue arising by multiplying the
budgeted rates with the frequency of the activity.
• Prepare monthly forecast of revenue flow.

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Budget Formulation (cont)

• Expenditure estimate is arrived as follows:
• Consider the macro economic frame, resources
available, budget constraints, ceilings and priorities.
• Prepare strategic plan including the mission, goals,
objectives, outputs and programmes.
• Cost and prioritize programmes.
• Prepare monthly estimate of expenditure.
• Prepare a cash forecast showing outflows.

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Budget formulation (cont)

• Budget classification of expenditure:
• Compensation for employees
• Goods and Services
• Capital expenditure/non-financial assets
• Interest
• Social benefits
• Grants
• Subsidies
• Other expenditures.

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Budget Formulation
• Estimation of Compensation for employees
• Compensation for employee is a significant item of
government budget.
• Estimation of compensation is difficult due to late
negotiation with trade unions.
• For this reason the PFM Act has made specific provision
on estimation of compensation for employees for
inclusion in the budget

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Budget Formulation (cont)

• Provisions of Compensation for employee
estimation (PFMA, s.19):
• The Minister responsible for Employment in
consultation with the Minister shall ensure that
• Salary and other compensation negotiations
in respect of he public sector for the ensuing
financial year are completed not later than
the end of April of the current financial year;
and
• the Fiscal Strategy Document reflects the
negotiated aggregate of public sector salaries
and compensation for the ensuing year
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Budget Formulation (cont)

• Provisions (Cont)
• Where salary and other compensation negotiations in
respect of the public sector are not completed by the
end of April of the current fiscal year, the Fiscal Strategy
Document prepared for the ensuing fiscal year shall
state an expected negotiated aggregate of public sector
salaries and compensation for the ensuing year based
on the negotiated public sector salaries and
compensation for the preceding fiscal year.

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Budget Authorisation
• The principal accounts holders are call for a budget
hearing to defend their plans and estimates.
• During the budget hearing the MOF ensures that the
plans and estimates are consistent with government
priorities, and budget constraints.
• At this stage the MOF has the authority to determine
the appropriateness of the plans and estimate of the
departments prior to submission to cabinet
• The MOF consolidates the budget estimate of the
various departments and submits same to Cabinet for
review and authorization.
• Final national budget is prepared and signed
(authorized) by the president for submission to
Parliament

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Approval of Budget
• Parliamentary Approval
• The final budget is submitted to Parliament is a manner
prescribed by parliament.
• The budget statement is laid before parliament in the
form of Appropriation Bill and Finance Bill
• Parliament considers (examines) the estimates in small
groups (examination sub committees) and debate the
budget (whole house acting as appropriation
committee) and approve or disapproves it.
• The expenditure estimates are approved by passing the
Appropriation Act.
• The Finance proposal are approved in the Finance Act

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Budget execution/implementation
• This is a critical stage of the budgeting process in
that failure at this point is the failure of the entire
programmes and policies of government.
• Once the budget is approved, it is implemented by
collecting the revenues and disbursing the
expenditures approved.
• The MOF issues Warrants and cash release
instructions to the CAG to enable him to
commitment and disburse funds.
• CAG disburses moneys according to the approvals

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Monitoring, evaluation and control

• There will be continuous process of monitoring,
evaluating and controlling the budget throughout the
execution stage.
• This requires regular reporting of the budget out turns
to the vote controllers
• The actual results are compared with the planned
outcome and the variance are investigated and
corrective action taken.
• The MOF is responsible for monitoring, evaluating and
controlling the national budget.
• Principal spending officers are responsible for MEC
their respective budgets and report to the MOF
through the SMs.

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Budget management
• Budget management refers to the methods and
processes that are used to monitor, evaluate and
control government budget to ensure that the fiscal
objectives and the budgets are achieved.
• Budget management tools include:
• Budget performance reporting
• Re-allocation of budget
• Mid year review
• Virement
• Supplementary budget
• Cash flow forecast
• Budget ceilings and
• Periodic warrants

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Budget Management
• Budget Performance Report (PFMA, S27)
• Each Principal Account Holder shall, within the first
quarter of the ensuing year after the Minister submits
the annual budget to Parliament, submit to Parliament,
a performance report on budget implementation for the
proceeding financial year.
• Each Principal Account Holder shall submit a copy of the
performance report to the Minister.
• The Minister shall determine the format of the
performance report.
• Read section 27 (4) for the content of the BPR.

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Typical Budget Performance Report

Budget items Annual Revised Budget to Actual to Variance
(Revenue/Expe Budget Budget date Date
nditure) GHc GHc GHc GHc GHc

Tax revenue 100 120 40 45 5

Non tax 20 24 6 4 (2)

Compensation 50 60 15 18 (3)

Goods & 30 28 7 3 4
Service

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Re-allocations of funds from covered

entity (S.29/R.29)
• Subject to any limitation that Parliament may impose,
the Minister may, re-allocate funds that have been
allocated to a covered entity to another covered entity
specified in the annual budget in the event where the
functions of that covered entity are transferred to
another covered entity.
• The Minister report to Parliament in the next reporting
period on a re-allocation.
• Function of a covered entity may be transferred in
consultation with the MOF
• Covered entity to which function is transferred with 90
days submit a Memo to MOF requesting a
supplementary allocation

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Mid-year review (PFMA, S.28/R.24)

• The Minister shall, not later than the 31st of July of
each financial year, prepare and submit to
Parliament a mid-year fiscal policy review.
• The mid-year fiscal policy review shall include the
following information:
• a brief overview of recent macroeconomic
developments of Government;
• an update of macroeconomic forecasts undertaken by
Government;
• an analysis of the total revenue, expenditure and
financing performance for a period up to the first six
months of the financial year;

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Mid-Year Review (cont)

• A presentation of a revised budget outlook for the
unexpired term of the financial year, and the
implication of the revised budget outlook for the
Medium-Term Fiscal and Expenditure Framework if
necessary; and
• where necessary
• plans for submitting a proposed supplementary budget
for approval by Parliament; and
• an overview of the implementation of the annual
budget and of the budgets of covered entities.

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Virement (PFMA, s32/R.27)

• This is another budget management activities.
• virement refers to the reallocation of funds within
the budget from one budget line to another budget
line without affecting the total amount
appropriated.
• The Minister may, on the request of a Principal
Spending Officer, execute a virement in respect of
an amount of money allocated to the covered
entity of that Principal Spending Officer.
• A virement executed shall not result in a future
liability for that covered entity or the Government.

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Virement (cont)
• Conditions for virement
• a virement of funds allocated for wages
and salaries in an expenditure vote shall
not be made unless the virement is in
respect of wages and salaries within that
expenditure vote;
• a virement that involves a change in the
spending plans approved by the Minister
for the current financial year shall require
the prior written approval from the
Minister;
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Virement (cont)
• Conditions (cont)
• a virement may be made from a recurrent
expenditure to capital expenditure as well as
from one capital expenditure to another capital
expenditure but shall not be made from a
capital expenditure to a recurrent expenditure;
and
• a virement shall not be made in respect of
appropriated amounts between covered entities
without the approval of Parliament in a
supplementary estimate.

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Virement (cont)
• Prohibition of Use of Virement
• Virement for compensation of employees from
other recurrent expenditure
• Virement of compensation of employees to
other recurrent expenditure.
• Virement from capital expenditure to recurrent
expenditure.
• Virement to decrease utility expenses.
• Virement for any other expenditure to be
protected, and
• Virement to create a new budget programme.

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Approval of Virement
• PSOs may vire without the approval of the Minister if:
• The virement is made from recurrent expenditure to
other recurrent expenditure within the same
programme;
• The cumulative amount of virement made during a
financial year within a budget programme does not
exceed 5% of the total expenditure appropriation
for the budget programme.
• The virement does not require a change in spending
plan.
• Approval of Virement by MOF is required if:
• Covered entity wishes to vire between the votes in a
warrant issued.
• The virement involves changes in the spending plan
approved by the MOF for the current financial year
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Procedure for Virement

• Application for virement between votes in the
warrants issued shall made on the GIFMIS to the
MOF, indicating the source and destination of each
amount being vired for approval.
• The MOF approves the application on the GIFMIS,
where the application is appropriate and sound.

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Supplementary Budget (S.35/R.23)

• Where in a financial year, it is found that the
amount appropriated by the Appropriation
Act is insufficient, or that a need has arisen
for expenditure for a purpose for which no
amount has been appropriated by the
Appropriation Act, the Minister shall lay
before Parliament for approval, a
supplementary estimate, in the form of a
Supplementary Appropriation Bill indicative
of the amount required.

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Supplementary budget (cont)

• The Supplementary Appropriation Bill shall indicate
how the supplementary expenditure shall be
financed.
• The appropriated budget of a covered entity does
not include the supplementary budget of the
covered entity.
• The Minister shall ensure that supplementary
expenditure under a Supplementary Appropriation
Bill is not likely to breach the objectives, targets, or
rules set out in the Fiscal Strategy Document.

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Supplementary budget (cont)

• Generally, a Supplementary expenditure shall not
increase the total appropriation of the annual
budget.
• Supplementary expenditure may cause an increase
in total appropriation only when:
• It arises from events leading to suspension of rules or
targets;
• It can be financed by the increase in the revenue other
than domestic or external borrowing.

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Supplementary Budget (cont.)

• A supplementary Appropriation Bill submitted to
Parliament shall be accompanied with a report that
indicates (R.23-5):
• The justification for the supplementary budget,
• The revised macroeconomic and fiscal forecasts for the
next three years or more
• The comparison of the forecasts with those included in
the annual budget and fiscal strategy document;
• An analysis of the impact on achievement of the numerical
fiscal targets and the adjustments to be made towards its
achievement;
• A source of financing required for the execution of the
supplementary budget.

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Cash Flow Forecast (PFMA,s31)

• A Principal Spending Officer shall, in accordance with the
Regulations, prepare and submit to the Minister monthly
cash flow forecasts of the covered entity for the ensuing
three months or any other period that the Minister may
specify.
• It is a statement that shows the projected receipts (inflows)
and payments (outflows) of an entity within a given period
and the available cash balances.
• Cash flow forecast is a every important tool for managing
cash resources of the entity.
• Cash a budget reveals the potential effects of all aspect of
entity’s operation on its future cash resources

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Cash flow forecast (cont)

• Usefulness of CFF
• It helps management to management its cash resources
efficiently and effectively.
• It helps management to plan its activities within available
cash resources.
• It also assists management to address its cash deficiency
during the period before hand.

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Cash flow forecast for the 3months ending March

Jan Feb March Total
GHc GHc GHc GHc
INFLOWS
GOG releases
IGF
others
TOTAL INFLOWS
OUTFLOWS
Compensation
Goods and services
Non financial asset
Other payment
TOTAL OUTFLOW
Balance (surplus/deficit 10 80 40 130
Balance at start 20 30 110 20
Cash9/3/2022
balance at end @ Redeemer30
Krah [email protected]
110 150 540
150

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Budget Programme Sustainability

• Programme sustainability refers to the continued
use of program components and activities for the
continued achievement of desirable programmes
and population outcomes.
• It describes the continued use of program
components and activities beyond their initial
funding period and sometimes to continuation of
desired intended outcomes.
• Programme sustainability tools may include
• Public Expenditure Survey
• Medium Term framework
• Multi-year commitment

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Public Expenditure Survey (PES)

• Public Expenditure Survey
• In a system of analysing government expenditure which
examines the effect of government spending plan on the
development of the country.
• Rationale of PES include:
• Help plan activities within limited resources
• Rationalized allocation of resources
• To anticipate problems associated with spending plans
and cure them
• To enhance coordination of government activities
• Determine over all volume of public spending
desirable

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Medium Term Expenditure Framework

• Medium-Term Expenditure Framework” means an annual,
rolling three-year expenditure planning that sets out the
medium term expenditure priorities and hard budget
constraints against which sector plans may be developed
and refined to match available resources (PFMA, 102)
• MTEF of budgeting was piloted in selected MDAs in 1998
and full adoption was made in the 1999 budget.
• MTEF allows for the planning and allocation of resources for
a medium term period of three years on rolling basis
• Rolling budget is one which after being established at the
start of the fiscal year, is continuously amended to reflect
and accommodate variances that may arise due to changes
in prevailing market circumstances.
• The rolling budget ensures that the budgeted time period
remains constant and stable as the market conditions
change.

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Multi- year Expenditure commitment

• Parliament may, in the annual budget, authorise a
covered entity to make a multi-year expenditure
commitment, and where Parliament so authorises,
the annual budget shall indicate the commitment
approved for the financial year and the approved
multi-year commitments.
• A multi-year expenditure commitment approved
shall be consistent with the objectives of the Fiscal
Strategy Document.
• The Minister shall submit to Parliament a report on
the performance of the multi-year expenditure
commitments made for each financial year.
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Start where you are, use what you have,

do what you can.
-Arthur Ashe

Budgeting System

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Budgeting Systems
❑In general, budget system may be input based or
output based.
❑Input based budgets are primarily concerned with
accountability and stewardship for public resources
by ensuring fiscal accountability for every resource
used by the department. This is the traditional
budgeting approach in the public sector based on
cash budgeting. A type of this approach is the line
item budgeting.
❑Output based budgets are outcome oriented which
focuses on the performance of managers and
programmes and activities. Types are planned
performance budgeting, activity based budgeting,
programme based budgeting.

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Budgeting system
• On the other hand, determination of cost of the budget
item or activity may be done in either of two ways:
• Incremental budgeting
• Zero base budgeting
• Incremental budgeting
• This method of budgeting is closely linked to input based
budgeting system/line item budgeting system.
• Under this approach, the budget is derived by making
marginal increments to previous years estimate. There
any no much need for review of activities or items for
inclusion in the current budget.

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Budgeting system
• Incremental Budgeting
• Advantage include:
• Makes budgeting simple
• It ensures continuity in government programmes
and activities
• It maintains inertia, thereby reducing risk
• It remains the most popular approach to budgeting
in public sector entities
• Disadvantages are:
• It encourages budget slacks in putting together a
budget
• It leads to allocation of resources to irrelevant items
or activities. That is obsolete spending
• It discourages change in public entities

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Budgeting systems (cont)

• Line item Budgeting
• Most popular traditional approach to budgeting is the
line item budget (a.k.a input budgeting ,object of
expenditure budget, or lump sum budgeting
• Under this method, resources are allocated to each item
of expenditure which any measure of output
• The emphasis is on input rather than output

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Budgeting systems
• Advantages of Line item budgeting are:
• It is very simple to prepare and control
• It enhances fiscal accountability and control
• It fits into the limitation of public administration
• It provides clear indications of the ambit of a vote.
• Disadvantages
• Fails to measure attainment of objective/outcome
• Provide no link between resource allocation and level of
service delivered
• It provides to much details which makes control very
cumbersome.
• It provide no clue to guide resource allocation decisions
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Budgeting systems
• Zero Base Budgeting
• ZBB approach calls for the review and
revaluation of each item or activity whenever a
budget is prepared.
• This approach requires that all activities are
justified and prioritized before decisions are
taken relating to the amount of resources
allocated to each activity
• Here the budget estimate is prepared
independent of the previous budget in that the
mere existence of the item or activity in the
previous budget does not justify its inclusion in
the budget.
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Budgeting systems (cont)

• ZBB process involves
• Identification of decision units which
entails identifying responsibility centre
and the objectives as the basis of budget
preparation
• Development of clear decision packages(
mutually exclusive and incremental
packages)
• Evaluation and ranking decision packages
• Allocate resources
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Budgeting system (cont)

• Advantages of ZBB
• It eliminates budget slacks and inefficient activities.
• It serves to motivate managers at all levels
• Encourages culture of change in the organisations
• It ensures more efficient allocation of resources
• Enhances effective planning and control of activities
• Disadvantages of ZBB
• It is difficult and time consuming
• Requires higher level of skills and competences for
developing decision units and packages which may be
lacking in the sector
• Ranking of decision packages may be influenced by
political consideration

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Budgeting System
• Programme Based Budgeting
• It is a performance based budgeting system evaluated
on programme basis.
• Programme-based budgeting is the practice of
developing budgets based on the relationship between
program funding levels and expected results from that
program.
• The programme-based budgeting process is a tool that
program administrators can use to manage more cost-
efficient and effective budgeting outlays.
• the Programme Budget shows what each Cedis will
accomplish, generally in the way of a measurable result
achieved (such as a reduction in accidents, an
improvement in health, an increase in customer
satisfaction, etc.).
• Currently government is using the programme based
budgeting system under the GIFMIS
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Budgeting systems (cont)

• Programme based budgeting (cont)
• Programme budgets use statements of missions,
goals and objectives to explain why the money
is being spent.
• It is a way to allocate resources to achieve
specific objectives based on program goals and
measured results.
• There are three elements to PB:
• The result/objective (final outcome)
• The strategy (means of achieving the result)
• Activity/output ( what should be done)

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Budgeting Systems (cont)

• Steps in programme based budgeting:
• The four steps involved in PBB are:
• Identifying Budget Programmes
• Organisational Mapping
• Developing the Budget Programme Summary
• Budget Programme Results Statement

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Budgeting systems (cont)

• Advantages of PPB
• PBB specifically links resource allocations to MDA functions
and its strategic policy objectives.
• PBB provides a framework against which to measure the
performance of MDA expenditure programmes
• PBB structures allow for the identification of necessary inputs
to produce the core operations and projects required in order
to contribute to strategic objectives.
• PBB provides a management framework within which MDAs
can effectively manage resources to achieve government
objectives
• It provides the public with a clear and transparent means of
seeing the fiscal stewardship

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Budgeting system (cont)

• Disadvantages PBB
• It difficult to define measurable outcome of most public
sector programmes
• The process is time consuming and distractive to both
legislators and administrators ( budgeting becomes the
end instead of the means)
• Resource allocation may be influenced by political and
social factors instead of cost benefit analysis. This
undermines the budgeting process.

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Budgeting Systems (cont)

• Activity based Budgeting (PUFMARP 2008-13)
• It’s a variation of ZBB where resources are linked to the
activities leading the attainment of set objectives (out come).
• ABB refers to the resource allocation based on relationship
between activities and costs, and which provides greater
detail on overheads than the normal financial budgeting .
• ABB provides a framework that links resources to the
activities to be carried out in attaining the set objectives
(outcome).
• ABB is a method of budgeting in which the activities that
incur costs in every functional area are accounted for,
analyzed, and then linked to the mission and strategic goals of
the institution.
• The full costs of programs and services are then more
transparent and available to help with planning, budgeting
and decision making

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Budgeting systems (cont)

• Advantages ABB
• Output costs are supported by a schedule of cost
activities drivers (provides details of cost)
• Opportunities to examine work processes.
• Identifies non value adding activities that can be
eliminated.
• Basis of a performance measurement system and direct
link between strategic goals and operational realities.
• Enables cost profiles to be managed
• Accurate costing data for operational management
• Costs are transparent, understandable and actionable

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Budgeting systems (cont)

• Disadvantages of ABB
• Activity definition may become too detailed and the
model may become too complex and difficult to
maintain
• Underestimation of the task of collecting activity driver
data
• Implementation may be considered a financial
management “fad” and there is insufficient commitment
from operational managers
• Lack of performance indicators of MDA budgets also
made it difficult to measure budget performance and
outputs.
• An absence of a real strategic focus in MDA budgets with
limited linkage between resource allocations and policy
priorities
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Winners are not afraid of losing. But Losers are!

end

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TOPIC- 6
FINANCIAL REPORTING IN THE PUBLIC
SECTOR

Redeemer Krah @2022

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Financial Reporting under

Cash Accounting Policies

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If there is no struggle, there is no progress.

-Frederick Douglas

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Cash Accounting Policy

• Cash Accounting policies refers to the specific
principles, bases, conventions, rules and practices
adopted by an entity (adopting cash basis of
accounting) in preparing and presenting financial
statement.
• Cash accounting policies selected by an entity
should be understandable, relevant, faithfull
represention.

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Cash Accounting and Financial

Reporting
• Government and entities that use cash basis of
accounting are required to prepare and present
financial reports in compliance with cash based
IPSAS.
• Advantage Cash based IPSAS in financial reporting
• enhances comprehensive and transparent financial
reporting of cash receipts, payments and cash balances
of the entity.
• Ensures comparability of financial statements
• Promote accountability and stewardship for cash
resources of the entity.

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Cash Based IPSAS

• The Cash based IPSAS is in two parts:
• Part 1: Requirements ( Mandatory)
• Part 2: Encouraged disclosure ( non mandatory)
• All entities ( including consolidated financial
statement) using cash accounting system are
required to comply with the provision of Part 1 of
the standard.
• An entity that should disclosed that it has complied
with the Cash based IPSAS only when it has fully
complied with all the requirements of Part 1.

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Composition of financial statement

under Cash Based IPSAS
• The financial reports requirement are:
• Statement of Cash Receipt and Cash Payment for the
period
• Notes to the accounts.
• Budget Information ( when the budget is publicly
available)
• Encouraged additional disclosures

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Statement of Receipt and Payment

• A statement of receipt and payment provides
information on the cash controlled by an entity.
• Control of cash arises when an entity can use or
otherwise benefit from the cash in pursuit of its
objective and can exclude or regulate access of
others to that benefit.
• Generally, amounts deposited in the bank account
of an entity is deemed to the controlled by the
entity.

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Statement of Receipt and Payment

• A statement of receipt and payment will show:
• Cash receipts, Cash payments and resulting cash
balances controlled by the entity
• Separately identify payments made on behalf of
third parties.
• Comparative budget information (additional
budget column)

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Statement of Receipt and Payment

• Applicable accounting policies include
• Total cash receipts showing separate sub-classifications
• Total cash payment showing separate sub-classification
• Cash receipts and payments should be report on GROSS
BASIS
• Cash receipts and payments should be report on NET
BASIS only under these two conditions:
• When it arises from transactions that have been
administered on behalf of other parties and have
been recognizes in the statement of receipt and
payment, e.g GETfund, NHIS, DACF etc
• When turn over of the item is quick, amount is large
and maturity is short e.g. withholding items.

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Net Basis of Reporting

• Circumstance 1: Transactions administered on
behalf of other parties include:
• Collection of tax by one level of government for another,
eg central government collecting taxes or fees on behalf
of local government
• Acceptance and repayment of demand deposit of
financial institutions
• Fund held for customers by investment or trust entity
• Rent collected on behalf of and paid over to a property
owner
• Statutory transfer from one entity to another, eg
GETFUD
• Funds administered by entity under single treasury
account system.

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Net Basis of Reporting

• Circumstance 2: “Pass through” items including
• Advances for purchase and sale of investment
• Other short term borrowing ( 3 month) eg T.Bill is
reported as net treasury operations.

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Foreign currency transactions

• Accounting policies are
• Cash transaction in a foreign currency should be
recorded in an entity’s reporting currency , using
the rate at the time the transaction.
• Cash balances should be reported using a
closing rate
• Amount of exchange rate difference should be
used as reconciliation item between the
opening and closing balances for the period.
• Where the reporting currency is different from
the currency of the country in which the entity
is domicile, it must be disclosed in the notes
with reasons.
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Statement Receipt and Payment of the Consolidated Fund

Notes GHc GHc
RECEIPT Actual Budget
Direct tax 2 xx xx
Indirect tax 3 xx xx
Non-tax 4 xx xx
Grants 5 xx xx
Statutory transfer (GETFund Etc)* 6 xx xx
Domestic borrowing (NTO) 7 xx xx
External borrowing 8 xx xx
Recoveries of loans and advances 9 xx xx
TOTAL RECEIPT xx xx
PAYMENTS
Compensation 10 xx xx
Goods and services 12 xx xx
Non-financial assets 13 xx xx
Public debt interest 14 xx xx
Subsidies 15 xx xx
Grants 16 xx Xx
Social benefits 17 xx xx
Other expenditure
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Statement of R & P (cond)

Note GHc GHc
Actual Budget
Repayment of debt 19 xx xx
Loan and advance granted 20 xx xx
Investment acquired 21 xx xx
Total Payment xx Xx
Cash surplus deficit xx xx
Cash stock at start xx
Cash stock at end xx

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Statement of R & P for MDA

Notes GHc GHc
Actual Budget
Receipt

GOG receipt /Warrants 2 xx xx

Other receipt (donation, IGF etc) 3 xx xx
Net item transactions* 4 xx xx
Borrowing* 5 xx xx
Recoveries 6 xx xx
Total receipt xx xx
Payment
Compensation 6 xx xx
Goods and services 7 xx xx
Non-Financial assets 8 xx xx
Other expenditure 9 xx xx
Loan and advance xx xx
Repayment* xx xx
Total payment xx xx
Cash surplus/deficit xx xx
Cash at start xx
Cash at end Xx
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Notes to the Accounts

• Note to the financial statement should include
• Accounting Policies
• Basis of preparing the financial statement ( cash basis in this
case) and the accounting policies such as basis of reporting
(gross or net)
• Explanatory information- disaggregation of values on the
face of the financial statement
• Additional disclosures of information not shown on the
face of the financial statement but useful information to
the users abound the entity’s operations

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Successful people do what unsuccessful people are

not willing to do.
Don’t wish it was easier: wish you are better.
-Jim Rohn

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Financial Reporting under

Accrual Accounting Policies

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Topics covered
• Accrual Basis IPSAS
• Financial Reporting Responsibility
• Financial Reporting for the Consolidated fund
• Financial Reporting for the MDAS
• Financial Reporting for the MMDAs

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IPSAS Required for Financial Reporting

• IPSAS 1: presentation of financial statement*
• IPSAS 2: Cash flow Statement
• IPSAS 3: Accounting Policies, Changes in estimates and
Errors*
• IPSAS 4: Foreign exchange transactions
• IPSAS 5: Borrowing Cost*
• IPSAS 9: Revenues from exchange transactions
• IPSAS 23: Revenue from Non-exchange transactions
• IPSAS 12: Inventory
• IPSAS 16: Investment property
• IPSAS 17: PPEs
• IPSAS 24: Presentation of Budget Information in FR
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IPSAS 1: Presentation of Financial Statement

• To set out the manner in which general-purpose
financial statements shall be prepared under the
accrual basis of accounting, including guidance for
their structure and the minimum requirements for
content.
• Overall consideration in the preparation of
financial statements include:
• going-concern assumption,
• consistency of presentation
• Materiality and aggregation
• Offsetting
• Comparative information

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IPSAS 1
• A complete set of financial statements comprises:
• Statement of financial position
• Statement of financial performance
• Statement of changes in net assets/equity
• Cash flow statement
• When the entity makes it approved budget
publicly available, a comparison of budget and
accrual amounts
• Notes, comprising a summary of significant
accounting policies and other explanatory notes

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IPSAS 1
• Disclosure required by IPSAS 1
• Accounting policies followed
• The judgments that management has made in the
process of applying the entity’s accounting policies that
have the most significant effect on the amounts
recognized in the financial statements
• The key assumptions concerning the future, and other
key sources of estimation uncertainty, that have a
significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year
• The domicile and legal form of the entity
• A description of the nature of the entity’s operations
• A reference to the relevant legislation
• The name of the controlling entity and the ultimate
controlling entity of the economic entity
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IPSAS 3:
Accounting Policies, Changes in Accounting Estimates
and Errors
• Objective and scope
• The objective of this Standard is to prescribe the criteria for
selecting and changing accounting policies, together with
the (a) accounting treatment and disclosure of changes in
accounting policies, (b) changes in accounting estimates,
and (c) the corrections of errors.
• Applied in selecting and applying accounting policies, and
accounting for changes in accounting policies, changes in
accounting estimates, and corrections of prior period
errors.

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Definitions
• Accounting Policies
• They are the specific principles, bases, conventions, rules,
and practices applied by an entity in preparing and
presenting financial statements.
• It include change is basis of accounting, change in
accounting treatment, recognition or measurement.
• A change in accounting estimate
• It is an adjustment of the carrying amount of an asset or a
liability, or the amount of the periodic consumption of an
asset, that results from the assessment of the present
status of, and expected future benefits and obligations
associated with, assets and liabilities.
• Changes in accounting estimates result from new
information or new developments and, accordingly, are not
correction of errors.

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Definitions
• Prior period errors
• These are omissions from, and misstatements in, the entity’s
financial statements for one or more prior periods arising from
a failure to use, or misuse of, reliable information that was
available or expected to be obtained when financial
statements for those periods were authorized for issue;
• Such errors include the effects of
• mathematical mistakes,
• mistakes in applying accounting policies,
• oversights or misinterpretations of facts, and
• fraud.

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Definition
❑Prospective application
• In terms change in accounting policy, it means
applying the new accounting policy to
transactions, other events, and conditions
occurring after the date as at which the policy is
changed.

• In terms of recognition, it means recognizing the

effect of the change in the accounting estimate in
the current and future periods affected by the
change.

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Definition Cont
❑Retrospective application
❑It is applying a new accounting policy to
transactions, other events, and conditions as if
that policy had always been applied.

❑Retrospective restatement
❑It is correcting the recognition, measurement, and
disclosure of amounts of elements of financial
statements as if a prior period error had never
occurred.

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Accounting Policies
❑Selection of accounting policies
❑the accounting policy or policies applied to an item shall be
determined by applying the Standard.
❑Where no specific standard exist then management may use
judgement in developing accounting policies that will protect
the relevance and reliability of the financial statement
❑In making use judgement consideration should be given to:
❑IPSAS dealing with similar or related issue
❑Definitions, recognition and measurement criteria for
asset, liabilities, revenues and expenses by IPSAS
❑Most recent pronouncement of other standard setting
bodies like IASB, AFRIC e.t.c
❑Accepted private and public sector practices

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Accounting Policies
• Consistency of accounting policies
• An entity shall select and apply its accounting policies
consistently for similar transactions, other events, and
conditions, unless an IPSAS specifically requires or permits
categorization of items for which different policies may be
appropriate.
• A change in accounting policy is only allowed when:
• It is required by the IPSAS, or
• It results in the financial statements providing reliable
and more relevant information

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Accounting Policies
• Applying changes in accounting polices
• Account for a change in accounting policy resulting from the
initial application of an IPSAS in accordance with the specific
transitional provisions, if any.
• Voluntary change in accounting policy should be applied
retrospectively
• When change is applied retrospectively, the entity shall adjust
the opening balance of each affected component of net
assets/equity for the earliest period presented, and the other
comparative amounts disclosed for each prior period
presented as if the new accounting policy had always been
applied.

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Accounting Policies
• Limitations on retrospective application
• It may be impracticable to apply a change in accounting
policy retrospectively.
• Where is impracticable to determine the period-specific
effect of changing accounting policy, the entity shall apply
the new accounting policy to the carrying amounts of
assets and liabilities as at the beginning of the earliest
period for which retrospective application is practicable,
which may be the current period, and shall make a
corresponding adjustment to the opening balance of each
affected component of net assets/equity for that period.

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Accounting Policies
• Limitation (cont)
• When it is impracticable to determine the cumulative
effect, at the beginning of the current period, of applying a
new accounting policy to all prior periods, the entity shall
adjust the comparative information to apply the new
accounting policy prospectively from the earliest date
practicable.

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Accounting Policies
• Disclosure of change in policy
• Disclosure when the change is recommended by
IPSAS, if practicable:
• Disclose the title of the standard
• Disclose that the change is apply in accordance with trans.
Provisions
• Disclose the nature of change in accounting policy
• Disclose the description of trans provision
• Disclose the amount of the adjustment for current period
and each prior financial statement line item affected;
• Disclose reasons for impracticability if any.

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Accounting Policies
• Disclosure for voluntary change:
• The nature of the change in accounting policy;
• The reasons why applying the new accounting policy
provides reliable and more relevant information;
• For the current period and each prior period presented, to
the extent practicable, the amount of the adjustment for
each financial statement line item affected;
• The amount of the adjustment relating to periods before
those presented, to the extent practicable
• Reasons for impracticability of retrospective application.

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CHANGE IN ACCOUNTING ESTIMATEs

• The use of reasonable estimates is an essential part of
the preparation of financial statements and does not
undermine their reliability.
• Examples of estimates in accounting are:
• Tax revenue due to government;
• Bad debts arising from uncollected taxes;
• Inventory obsolescence;
• The fair value of financial assets or financial liabilities;
• The useful lives of, or expected pattern of consumption of
future economic benefits or service potential embodied in,
depreciable assets, or the percentage completion of road
construction; and
• Warranty obligations.
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Change in accounting estimate (cont.)

• When it is difficult to distinguish a change in an
accounting policy from a change in an accounting
estimate, the change is treated as a change in an
accounting estimate.
• The effect of a change in an accounting estimate,
other than a those given rise to assets and liabilities
shall be recognized prospectively by including it in
surplus or deficit in:
• The period of the change, if the change affects the period
only; or
• The period of the change and future periods, if the change
affects both.

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Change in accounting Estimate

• Disclosure on change in accounting estimate:
• An entity shall disclose the nature and amount of a change in
an accounting estimate that has an effect in the current period
or is expected to have an effect on future periods, except for
the disclosure of the effect on future periods when it is
impracticable to estimate that effect
• If the amount of the effect in future periods is not disclosed
because estimating it is impracticable, the entity shall disclose
that fact.

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Errors
• Errors can arise in respect of the recognition,
measurement, presentation, or disclosure of
elements of financial statements.
• An entity shall correct material prior period errors
retrospectively in the first set of financial statements
authorized for issue after their discovery by:
• Restating the comparative amounts for prior period(s)
presented in which the error occurred; or
• If the error occurred before the earliest prior period
presented, restating the opening balances of assets,
liabilities and net assets/equity for the earliest prior period
presented.

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Errors
• Disclosure of Prior Period Error
• An entity shall disclose the following:
• The nature of the prior period error;
• For each prior period presented, to the extent practicable,
the amount of the correction for each financial statement
line item affected;
• The amount of the correction at the beginning of the
earliest prior period presented; and
• If retrospective restatement is impracticable for a particular
prior period, the circumstances that led to the existence of
that condition and a description of how and from when the
error has been corrected.

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IPSAS 5: Borrowing cost

• Borrowing costs are interest and other expenses incurred by an
entity in connection with the borrowing of funds.
• Borrowing cost may include:
• Interest on overdrafts, short and long term borrowings
• Amortizations, discounts, premiums on borrowings
• Amortization of ancillary costs incurred in relation to
borrowing
• Finance charges relating to leases or concessions
• Foreign exchange differences arising from foreign borrowing
• Two treatments
• Benchmark treatment: recognise as expense when incurred
• Allowed alternative treatment

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Qualifying assets
• Examples of qualifying assets are
• office buildings, hospitals, infrastructure assets
such as roads, bridges and power generation
facilities, and inventories that require a substantial
period of time to bring them to a condition ready
for use or sale.
• Other investments, and those assets that are
routinely produced over a short period of time, are
not qualifying assets.
• Assets that are ready for their intended use or sale
when acquired also are not qualifying assets.
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Treatment of Borrowing cost

• Two methods:
• Benchmark treatment
• Allowed alternative treatment
• Benchmark Treatment
• Benchmark treatment: recognize as expense when incurred
• Allowed alternative treatment
• borrowing cost that is directly attributable to the acquisition, construction,
or production of a qualifying asset shall be capitalized as part of the cost of
the asset.
• Borrowing cost on funds specifically borrowed for qualifying assets:
actual borrowing cost less investment income from temporarily
investing those funds
• Borrowing cost on funds borrowed for general use: capitalization rate
on the outlay for the qualifying asset
• Consistency in the treatment of borrowing cost
• Commencement
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• Suspension of capitalization

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Commencement, suspension and stoppage

• Commencement
• The capitalization of borrowing costs as part of the cost of a
qualifying asset should commence when:
• Outlays for the asset are being incurred;
• Borrowing costs are being incurred; and
• Activities that are necessary to prepare the asset for its intended use
or sale are in progress
• Suspension of Capitalization
• Capitalization of borrowing costs should be suspended during extended
periods in which active development is interrupted, and
expensed.
• Cessation of Capitalization
• Capitalization of borrowing costs should cease when substantially all the
activities necessary to prepare the qualifying asset for its intended use or
sale are complete.
• When the construction of a qualifying asset is completed in
parts and each part is capable of being used while construction
continues on other parts, capitalization of borrowing costs
should cease when substantially all the activities necessary to
prepare that part for its intended use orsale are completed

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IPSAS 12: INVENTORY

• What is inventory (stores) under the IPSAS 12?
• Inventories are assets:
• In the form of materials or supplies to be consumed in the
production process;
• In the form of materials or supplies to be consumed or
distributed in the rendering of services;
• Held for sale or distribution in the ordinary course of
operations; or
• In the process of production for sale or distribution.

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IPSAS 12
• Example of inventory in the public sector include:
• Ammunition;
• Consumable stores;
• Maintenance materials;
• Spare parts for plant and equipment, other than those
debited to PPEs
• Strategic stockpiles (for example, energy reserves);
• Stocks of unissued currency;
• Postal service supplies held for sale (for example, stamps);

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IPSAS 12
• Examples of inventory (cont)
• Work-in-progress, including:
• Educational/training course materials; and
• Client services (for example, auditing services),
where those services are sold at arm’s length
prices; and
• Land/property held for sale.

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Measurement of Inventory
• General rule for measurement of inventory is that
Inventories shall be measured at the lower of cost and
net realizable value.
• Inventories are acquired through a non-exchange
transaction shall be measured at fair value as at the
date of acquisition.
• Inventories shall be measured at the lower of cost and
current replacement cost where they are held for:
• Distribution at no charge or for a nominal charge; or
• Consumption in the production process of goods to be
distributed at no charge or for a nominal charge.

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Measurement (cont)
• How would the following be measured:
• Inventory of currency at BOG
• Inventory of textbook for distribution
• Inventory of food stuffs for FSHS
• Inventory of Car stickers for sale at DVLA

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Determination of Cost of Inventory –

IPSAS 12
• The cost of inventories shall comprise all
costs of purchase, costs of conversion, and
other costs incurred in bringing the
inventories to their present location and
condition.

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Cost of inventory (cont)

• The costs of conversion comprise:
• Direct material costs
• Direct labour cost
• Overheads absorption
• Other cost of inventory:
• Other costs are included in the cost of inventories only to the
extent that they are incurred in bringing the inventories to
their present location and condition.
• For example, it may be appropriate to include non-
production overheads or the costs of designing products
for specific customers in the cost of inventories.

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Costs Excluded From the Cost of

Inventories
• Abnormal amounts of wasted materials, labour, or
other production costs;
• Storage costs, unless those costs are necessary in the
production process before a further production stage;
• Administrative overheads that do not contribute to
bringing inventories to their present location and
condition; and
• Selling costs.

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Accounting Treatment
• Treatment of government store (inventories)
depends on the policy on basis of accounting.
• Under cash basis and modified accrual basis:
• Inventories treated as expenditure in the period in which
they are acquired, irrespective of whether they are used up
or not.
• No inventory is reported on the statement of financial
position.
• Under accrual basis,
• Closing inventory is valued using recommended method
and shown on the statement of financial position as asset.

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Work example
Ghana Education Service (GES) has procurement new textbooks, for free
distribution to basic schools in the country, on November 1 2019. The
total cost of the procurement was GHc1,000,000 consisting of the
following: Printing cost GHc820,000; customization of the books with
Crest of Ghana GHc25,000; Exchange rate difference GHc65,000; freights
and carriage charge GHc40,000 and publicity for the new text books
GHC50,000. On 31st December, the inventory of the books could be
replaced at GHc920,000. According to GES, if government was to sell this
book, it would have made an amount of GH1,200,000 net of estimated
selling cost. The fair value of the books could be GHc1,280,000.
Required:
In reference to IPSAS 12 -Inventory:
a) Determine the cost of the inventory of the text books at 31st
December 2019.
b) Determine the amount of inventory of text book to be recognized in
the financial statements for 2019 financial year.
c) Discuss how these should be recognized in the financial statements
i) Written down inventory
ii) Inventory (textbook) distributed.

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Responsibility for Financial

Reporting
• Financial reporting in the public sector is provided for
under section 79-82 of the PFM Act, 2016 and the
PFMR (R207-217).
• Under the PFMA & PFMR financial reporting is the
responsibility of the:
• Principal spending officers (for every department)
• Controller and Accountant General (for the Consolidated
fund and the petroleum funds)
• FR is prepared quarterly and annually
• This public accounts are audited by the Auditor
General Annually.

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Financial Reporting Responsibility

of CAG
• General Reporting responsibility
• CAG in consultation with the Auditor General adopt
accounting standards and prescribe relevant accounting
policies, systems and procedures for the covered entities
(R.2017).
• Basis of accounting of covered entity shall be on accrual
basis of accounting or as determined by the CAG
• CAG with the approval of MOF develop, implement and
manage the chart of accounts, which shall be applicable
to all covered entities.

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CAG’s reporting responsibility

• Specific reporting responsibility
• CAG is responsible for compiling public accounts of the
Consolidated Fund and any other fund under his care (
that, the Contingency Fund and Petroleum Funds).
• The Controller and Accountant-General shall, within
three months after the end of each financial year,
prepare and submit the following consolidated accounts
to the Minister and the Auditor-General:
• the consolidated annual accounts of Government including the
accounts specified in the Schedule;
• the accounts of the Contingency Fund; and
• the accounts of the Petroleum Funds.

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Composition of financial statements of the

Public funds
• Public accounts of the public funds within three months
after year end include:
• A statement of financial performance
• A statement of Financial position
• A Cash flow statement
• A statement of receipt and payments
• A statement of expenditure by classification of function of
Government.
• A Statement of changes in net asset and equity;
• Notes to the accounts
• In addition, the CAG prepares within 6 months after year
end:
• Consolidated annual accounts of government
• Annual accounts of the Contingency Fund
• Annual accounts of the consolidated Fund
• AG’s reports on these accounts.

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Statement of Financial Performance (R&E)

Notes GHc GHc
Revenues Actual Budget
Direct tax 2 xx xx
Indirect tax 3 xx xx
Non-tax 4 xx xx
Grants 5 xx xx
Total revenues xx xx
Expenditure
Compensation 6 xx xx
Goods and services 7 xx xx
Consumption of fixed capital 8 xx xx
Public debt interest 9 xx xx
Subsidies 10 xx xx
Grants 11 xx xx
Social benefits 12 xx xx
Other expenditure 13 xx xx
Total expenditure xx xx
SURPLUS/DEFICIT xx xx

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Statement of Financial Position

Assets Notes GHc
Non current Assets
Non-Financial Assets (PPE) (NBV) 22 xx
Non-Financial Assets (infrastructure) NBV 22 xx
Equity Investment 23 xx
xx
Current Assets
Loan and Advances 24 xx
Revenue Receivables 25 xx
Gold holding and other reserves 26 xx
Bank and cash xx
Total assets xx
Liabilities and Funds
Payables 27 xx
Deposits 28 xx
Domestic debt 29 xx
External Debt 30 xx
Total liabilities xx
Trust funds xx
Accumulated fund 31 xx
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The successful warrior is the average man with the

lazerlike focus!
-Bruce Lee

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Cash Flow Statement –IPSAS 2

• CFS is a statement that reports the net increase
or decrease in cash and cash equivalent within
the financial year.
• Cash equivalent refers to short term, highly liquid
investment that are readily convertible to known
amounts of cash and which are subject to an
insignificant risk of change in value.
• CFS helps user to assess the ability of the entity
to generate and use cash resources

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Cash Flow Statement (cont)

• Benefits of cash flow information:
– It is useful in assessing the future cash requirements of the
entity
– It enable users to predict the entity’s ability to generate
cash flows in the future
– It also helps users to assess the entity’s ability to fund
changes in the scope and nature of the entity’s activities.
– It serves a means to discharge accountability for cash
flows during the reporting period
– It also enhances the comparability of the reporting of
operating performance by different entities because it
eliminates the accrual effects.
– It helps to determine the amount, timing and certainty of
future cash flows.

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Presentation of Cash Flow Statement

• IPSAS 2 provides the standard for preparing
and presenting cash flow statement for public
sector entities.
• The standard required that cash flow
information is presented under three main
headings:
– Cash flow from operating activities
– Cash Flow from Investing activities
– Cash flow from financing activities

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Cash flow from Operating Activities

• CFOA s are primarily derived from the principal
cash generating activities of the entity.
• CFOA are derived from:
– Cash receipts from taxes, levies and fines
– Cash receipts from charges for goods and services
– Cash receipt from grants, transfers and
appropriations
– Cash receipt from royalties, fees, commissions etc
– Cash receipt from insurance compensations
– Cash receipts from litigation settlement
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Cash flow from Operating Activities (cont)

– Cash payments include:
– Cash payment to supplier for goods and services
– Cash payments to and on behalf of the employees
(wages, salaries and SFF)
– Cash payments for insurance etc
– Cash payments in relation to litigation settlements
– Cash payment to other public sector entities to
finance their operation

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Cash flow from Operating Activities

(cont)
• There are two methods of presenting CFOA:
– Direct method
– Indirect method
• In direct method major classes of gross cash
receipts and gross cash payments are disclosed.
• In indirect method, the surplus or deficit is
adjusted for the effects of transactions of a
noncash nature, any deferrals or accruals of past or
future operating cash receipts and payments and
items not related to CFOA.
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CASH FLOW STATEMENT (Direct)

GHC GHC
Cash flow from operating activities:
Direct tax xx
Indirect tax xx
Non-tax xx
Grants xx
Compensation of employees (xx)
Goods and services (xx)
Interest payment (xx)
Subsidies (xx)
Grants (xx)
Social benefit (xx)
Other expenditure (xx)
Net Cash flow from operating activities XX

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Cash flow statement (cont)

GHC GHC
Net Cash flow from investing activities
Purchase of PPEs (furniture, motor vehicle etc) (xx)
Proceeds from sale of PPE xx
Loans and grants offered (xx)
Loans and advances recovery xx
Equity and other security investment (xx)
Proceeds from sale of investment xx
Inventory (xx)
Net cash flow to investing activities (XX)
Cash flow from financing activities:
Domestic borrowing xx
External borrowing xx
Repayment of domestic debt (xx)
Repayment of external debt (xx)
Lease payment (xx)
Net cash flow from financing activities XX
Increase/decrease in cash and cash equivalent XX
Cash and cash equivalent at start XX
Cash and cash equivalent at end XX
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Cash Flow Statement (indirect)

GHc

Surplus/(Deficit) XX
Add: Consumption of fixed capital Xx
Unrealised Exchange difference (loss) XX
Provisions and allowances XX
xx
Changes during the year:
(Increase)/decrease in inventory (xx)
(Increase) /decreases in operating receivable (xx)
Increase/(decrease) in payables xx
Net Cash flow from operating activities xx

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Notes to the accounts

• Note 1 is reserved for accounting policies covering
• Information about the entity
• Basis of Accounting
• Consumption of fixed capital policy
• Cost Measurement
• Foreign exchange translation
• Statement of compliance with laws and standards
• Etc
• Other notes (2 to ….) will provide information on
aggregation and explanatory notes

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PSO’ Reporting Responsibilities

• PSOs has the responsibility for ensuring that financial resources
of the department are lawfully discharged and accounted for
quarterly and annually
• PSOs are required to prepare quarterly accounts of their
departments within 15th day after the end of the quarter and
submit same to the CAG and the Auditor General.
• The quarterly financial statement shall be in the form prescribed
by CAG, which includes the following information about the
entity’s financial operations:
• Actual revenue for the quarter and the cumulative actuals to date
• Actual expenditure for the quarter and the cumulative actuals to date
• Committed amounts for the quarter and cumulative commitments to date
• Outstanding committment at the end of the quarter
• Comparative budget information
• Notes to highlight variation in excess or deficit of 10% in the budget
performance on line item basis.
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PSO’s Reporting responsibility

• Annual Reporting
• Principal Spending Officer of a covered entity shall,
within two months after the end of each financial year,
prepare and submit to the Auditor-General and
Controller and Accountant-General.
• The financial statements include:
• A statement of financial performance of the entity
• A statement of financial position of the entity
• A Cash Flow statement of the entity
• A statement of changes in net asset and equity of the entity
• Notes to the accounts
• Web-site publication of financial statement
• PSO shall published these financial statement, the AG’ report
on the website of the entity within 6 months after the end of
the year.

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Example of Monthly/quarterly
Report
• Prepare 3rd Q rev. and exp. return for submission to
CAG
Item 1st Q 2nd Q 3rd Q 4th Q
GHc000 GHc000 GHc000 GHc000
Warrants
Compensation 1,200 1,300 1250 1,400
Goods and services 800 750 600 500
Assets 600 350 400 500

Expenditure for the year

Compensation 1150 1,240 1,200 1450
Goods and services 700 800 550 400
Assets 400 400 450 450

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Solution
3rd Quarter Revenue and Expenditure
Returns
Items Current Previous Cumm Current Previous Cumm Balac
Warrant Warrant Warrant Payment Payment Payment e
Comp. 1,250 2,500 3,750 1,200 2,390 3,590 160
G&S 600 1,550 2,150 550 1,500 2,050 100
Asset 400 950 1,350 450 800 1,250 100
Total 2,250 5,000 7,250 2,200 4,690 6,890 360

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Statement of Revenue and Expenditure

Notes GHc GHc

Revenues Actual Budget
GOG receipt/warrant 2 xx xx
Other revenues (donation e.t.c) 3 xx xx
Total revenue xx xx
Expenditure
Compensation 4 xx xx
Goods and services 5 xx xx
Consumption of fixed asset 6 xx xx
Other expenditure 6 xx xx
Total payment xx xx
Surplus/deficit xx xx

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Statement of Financial Position

Assets GHc
Non-financial assets-PPE NBV xx
Non-financial assets - Infrastructure NBV xx
Investment xx
Loan and advance xx
Bank and cash xx
Total assets xx
Liability and fund
Payables xx
Deposits/withholdings xx
Accumulated Fund xx
Total liabilities and fund xx

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Whenever you find yourself on the side of

majority, it is time to pause and reflect.
-Mark Twain

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Financial Reporting in the MMDAs

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Budgeting in the MMDAs

• The MMDAs are granted the authority to
prepare and approve their own budget without
recourse to parliament.
• The budgeting process is guided by the budget
framework policy issued by the MOF to the
Chief Executive.
• The chief executive issue call for estimates to
the heads of the various department in the
assembly requesting them to make their
expenditure and revenue estimates for the year.

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Structure of Assembly’s Budget

• The budget for a District Assembly shall
comprise:
– the aggregate revenue and expenditure of
the Office of the District Assembly, the
Departments of the District Assembly; and
– the budget for the annual development
plans and programmes of the Departments
of the District Assembly

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Budgeting in the MMDAs (cont)

• The heads prepare their estimates and submit
them to the budget committees through the
budget unit.
• The budget committee prepares a draft and
transmit it to the Finance and Administration
sub-committee for review.
• The final budget is prepared based on the
reviews along with a fee-fixing proposal
• The budget and the fee-fixing proposal is laid
before the general assembly for approval.

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Budgeting in the MMDAs (cont)

• The assembly considers the budget and
approves it before the end of the current
financial year.
• The fee-fixing resolution will also be passed by
the assembly to give approval for revenue
mobilization.
• Copies of the approved budget is submitted to
the RCC, MLGD and the MOF

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Submission of Budget
• Each District Assembly is responsible for the preparation,
administration and control of the budgetary allocation of
the Office of the District Assembly and the Departments
of the District Assembly.
• Each District Assembly shall before the end of each
financial year, submit to the Regional Co-ordinating
Councils, the detailed budget for the respective district
that states the estimated revenue and expenditure of the
District Assembly for the ensuing year.
• The Regional Co-ordinating Council shall collate and
coordinate the budgets for the districts in the region and
shall submit same to the Minister responsible for
Finance.

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Composite Budgeting in MMDAs

• Composite Budget is an aggregation of projected revenues and
expenditures of the Departments and institutions of the MMDAs
• Composite budget seeks to
harmonize the budget of all decentralized departments and brin
g them under the ambit of the Assemblies’ budgeting process.

• Composite budgeting is a tool to effectively facilitate, the

coordination, harmonisation of planning and budgeting at the district
level.

• Composite budget was piloted in three assemblies from 2003 -2005

and in 2011 a policy decision was taken to fully implement
composite budgeting in all the MMDAs effective 2012 budget year.

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Legal Provision
• Section 122 supports the preparation of
Composite Budget.
• S 122 of Act 936 provides that the budget for a
District Assembly shall comprise the aggregate
revenue and expenditure of the Office of the
District Assembly, the Departments of the
District Assembly;

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Objectives of Composite Budgeting

• The composite budgeting process aims at
ensuring:
– Cost effectiveness in the planning and implementation of
district programmes;
– Holistic development of the MMDAs
– Transparency in the use of resources;
– Effective planning and utilization of resources;
– A unified approach for district and national budgeting
system;
– Uniform system of monitoring, evaluation and reporting
system; and
– Determination of the total inflow and outflow of resources
to the Assembly.
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Financial Reporting
• MMDAs are required to keep proper books of
accounts and to prepare financial statements
annually which should be audited by the AG.
• The financial statement of MMDAs include
– Statement of financial performance
– Statement of Financial Position
– Cash flow statement
– Statement of changes in net asset and equity
– Notes
• Accounts are prepared on accrual basis classified
using the Chart of Accounts of Ghana

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Statement of Financial Performance

GHc GHc
Actual Budget
Revenues Notes
Decentralised transfers 2 Xx Xx
Internally generated transfers 3 Xx Xx
Donation and grants 4 Xx Xx
Xx xx
Expenditures
Compensation for employees 5 Xx Xx
Goods and services 6 Xx Xx
Consumption of fixed capital 7 Xx Xx
Other expenditure 8 Xx Xx
Xx Xx
Net operating result xx xx

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District Assembly Common Fund

• Article 252 requires the establishment of the DACF
for the purposes of supporting developmental
projects in the MMDAs
• The DACF Act 1993 ,Act 455 (now repealed by Local
governance Act 2016, Act 936) was passed to
regulate the administration of the fund.
• The District Assemblies Common Fund consists of
– moneys allocated by Parliament; and
– any interests and dividends that accrue from the
investments of moneys from the Common Fund.
• The allocation made by Parliament shall be paid
into the Common Fund in quarterly instalments
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Allocation of DACF
• Parliament shall annually allocate not less than
five per cent of the total revenue of the country
to the District Assemblies for development.
• The total revenues of the country includes the
revenues collected by or accruing to the central
Government other than foreign loans and foreign
grants, non-tax revenue, petroleum revenue paid
into the Petroleum Holding Fund under section 3
of the Petroleum Revenue Management Act,
2011 (Act 815) and revenues already collected by
or for District Assemblies under any enactment.
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Application of DACF
• The Minister shall, in consultation with the
Minister responsible or Finance, determine the
category of expenditure of the approved
development budget of District Assemblies that
must in each year be met out of amounts
received by the District Assemblies from the
District Assemblies Common Fund

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Administration of DACF
• The President shall, acting in consultation with
the Council of State and with the approval of
Parliament appoint a District Assemblies
Common Fund Administrator.
• The Administrator shall hold office for four years
and is eligible for re-appointment.
• The salary and allowances payable and the
facilities and privileges available to the
Administrator shall be determined by the
President in accordance with of the Constitution.
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Function of DACFA
• Propose a formula annually for the distribution
of the Common Fund for approval by Parliament;
• Administer and distribute moneys paid into the
Common Fund among the District Assemblies in
accordance with the formula approved by
Parliament;
• Reports in writing to Parliament on how
allocations made from the Common Fund to the
District Assemblies have been utilised by the
District Assemblies; and
• Performs any other functions that may be
directed by thePresident.
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Distribution of DACF
• The moneys that accrue to the Common Fund
shall be distributed among the District
Assemblies on the basis of a formula
approved by Parliament.
• The Administrator of the Common Fund shall
submit proposals for the formula to
Parliament for consideration within three
months after the end of each financial year.

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Formula for distribution

❑The general principle of sharing the DACF is to
uphold fairness and equity.
❑Factors considered in the formula are:
❑Need factor- basic needs of the assembly
❑Service pressure- population is usually used
❑Responsiveness – revenue mobilization efforts of
the assembly is mostly used
❑Equalizing factor – ensure guaranteed minimum
equal amount across board
❑Reserved fund

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The whole secret of successful life is to find out

what is one’s destiny to do, and then do it!
-Henry Ford

Thank You

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TOPIC 7
Evaluation of financial
position, performance and
prospects
Redeemer Krah(CA)
Kramankus CA Family, 2019

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Outline
• The discussion covers:
• RPG 2
• Techniques of analysis
• Ratios
• Common Size
• Budget variance analysis
• Evaluation Comments and Reports Writing

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RPG2:
Financial Statement Analysis and Discussion
• RPG 2 provides guidance for preparing and presenting
financial statement analysis and discussion.
• Financial statement A&D refers to explanations of
significant items, transactions and events presented in
the financial statement and the underpinning factors.
• Financial statement analysis and discussion help users
to understand the financial position, performance and
cash flows information presented in the GPFR.
• RPG 2 requires that the financial statement analysis and
discussion should be done annually and should be
issued with the financial statements.
• FSAD should be in compliance with RPG2 and clearly
stated so.
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Benefits of FSAD
• Presentation of FSAD complements the information
provided in the financial statement by:
• Increasing the accountability and decision making
usefulness of the financial statements as it helps users
to understand the performance of the entity from the
entity’s perspective.
• Providing opportunity to the entity to reflect its
interpretation of significant items, transactions and
events that affect the financial position, performance
and cash flow of the entity

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Content of FSAD
• Content of FSAD should include
• An overview of entity’s operations and
environment
• Information about entity’s objectives and
strategies
• An analysis of the financial statement and
the changes and trends in financial
position, performance and cash flow.
• A description of entity’s principal risks and
uncertainties that affect the financials.

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Techniques of FSAD
• In most cases, financial position, performance and cash
flows reported in an entity’s financial statement is
evaluated using quantitative methods such as:
• Ratios
• Common size
• Budget variance analysis
• Qualitative approaches are also used to analyse the
financial position, performance and cash flow focusing on
service delivery in terms of
• Efficiency
• Effectiveness
• Outcomes
• For this study, emphasis will be on quantitative
approaches

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Ratios
• Ratios are very useful tool in analysing financial
position performance and cash flow of public
sector entities.
• It tells the deep relationship between significant
accounts items, transactions and events.
• It may be as basic as percentages or ratios of
significant accounts items, transactions and events.

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Common Ratios required Under

PFMA, 2016
• Under the PFMA, the following ratios are required in
measuring fiscal achievements
• Non-oil primary balance to GDP
• Non-oil fiscal balance to GDP
• Public debt to GDP;
• Capital spending to total expenditure;
• Revenue to gross domestic product
• Wage to tax revenue.
• Other ratios include:
• Debt per capita
• Tax per capita
• Interest to tax revenue/total revenue
• Interest to total expenditure

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Financial Position Ratios

Financial Position analysis Definition Formula
Non-oil primary balance to It measures fiscal (Fiscal bal b4
GDP balance before Interest) /GDP
interest to domestic x100
product.
Non-oil fiscal balance to Measures fiscal Fiscal bal / GDP
GDP balance as a x100
percentage of GDP
Public debt to GPD Measures debt (Domestic debt +
sustainability Ext Debt)/ GDP
x100
Debt per capita Measures level of Public Debt/
citizens indebtedness population
as result of public
debt

Capital spending to total Expenditure on future Capital assets/Total

expenditure consumption to total exp x100
spending
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Financial Performance Ratios

Financial Performance Definition Formula
Analysis
Revenue to GDP Measures position Revenue/GDP
of the GDP that is x100
financed by revenue
of government

Wage bill to Tax revenue Measures portion of Compensation /

tax revenues spent Tax revenue x
on paying worker 100
workers

Tax per capita Tax paid by each Tax

person in the revenue/populati
country. It measures on
of tax compliance

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Cash Analysis ratios

Cash flow analysis Definition Formula

Liquidity ratio Ability to pay Current

short term assets/Current
obligations. Liability: 1
Or
Cash and cash
equivalent/
Payables : 1
Cash generation ratio Measures the
extent to which NCFOA/Net
the entity Cash flow *
finances its 100.
operation for it
own activities

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Common size analysis

• It is a method of analysis whereby all figures as
expressed as percentage of a give item in the
financial statement.
• In SFPe, we use total revenues as the indicator.
• In SFPo, we use the total asset as the indicator.
• It is computed as specific item/key indicator x100

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Budget Variance analysis

• BVA is a usual tool in measuring budget reliability.
• It is based on the budget outturns in terms of revenues
and expenditure.
• Total revenue Outturn % = (BR-AR)/BR x100
• Revenue Composite Outturn % = (BR1-AR1)/BR1 x100
• Total expenditure outturn percentage = (BE-AE)/BE x100
• Expenditure Composite outturn % = (BE1 – AE1)/BE1 x100

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Comments and Reports

• After the computation, you will be required to
prepare and present a report of financial statement
analysis and discussion based on your results.
• Typically, such reports has three sections:
• Introduction (introduce the task or purpose of the FSAD.
• Body (highlight significant items, changes and trends in
financial position, performance and cash flow.
• Conclusion (provide a summary of the significant
revelations in the analysis.)

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Surely, your are what you think often.

Mind your Mind!

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Topic 8
Public Procurement

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Outline
• Concept of public procurement
• Object, function and operation of public
procurement authority
• Procurement structure
• Procurement rules
• Methods and procedures for procuring goods,
works and services.
• Methods of procurement of consultants
• Review procedures
• Disposal of stores, vehicles and equipment

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What is Public Procurement?

• The term procurement refers to the processes involved
in the acquisition of goods, works and services.
• Public procurement relates to procurement
undertaken by central government MDAS, boards,
commissions, authorities, public universities, local
government entities and to the extent of the use of
public fund in acquiring goods, works and services by
commercial entities.
• Public procurement constitute about 60% -70% of the
annual budget after compensation for employees in
developing countries.
• Public procurement is an important element to tackle
in public financial management strategies

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Principles of Public Procurement

• General principles in public procurement
include:
– Competition
– Accountability
– Transparency
– Fairness/non-discrimination
– Economy
– Efficiency
– Environmental sustainability
– Social impact

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Why Regulating Public procurement?

• Public Procurement (PP) is among the most dynamic
areas of anti-corruption reforms being championed by
the World Bank and many countries including Ghana.
• PP is a high level risk area in public financial
management, particularly in developing countries.
• Source of leakages in PP include:
– Bribery and inducement (10%?)
– Inflation of prices of goods, services and works,
– Acquisition of inferior goods, works and services at
exorbitant prices
– Cronyism and favouritisms
– etc

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Why Regulate Public Procurement (cont)

• Laws on PP has been scattered in several
legislation making enforcement difficult.
• They include:
– The District Tender Board Regulations. 1995 (L.I
1606)
– The Ghana National Procurement Agency
Decree.,1976 (SMCD, 55)
– Ghana Supply Commission Law, 1990 (PNDCL 245)
• In 2003, the Public Procurement Act 2003 (Act
663) was passed to provide a single source of
procurement rule for the entire public sector.
• Further in 2016, the Act 663 was amended by
Public Procurement Act 2016, Act 914.
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Outline of Act 914

Part Heading

I Establishment of the Authority

II Procurement Structures
III Procurement Rules

IV Methods of Procurement

V Tendering Procedures

VI Methods and procedures to engage the services of consultants

VII Complaints and administrative reviews

VIII Disposal of stores, vehicles ,plant and equipment

IX Miscellaneous provisions

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Public Procurement Authority

• The authority is a body corporate.
• The object of the creating the authority is
to harmonize the public procurement in
the public service to secure a judicious,
economic and efficient use of state
resources and to ensure that public
procurement is carried out in a fair,
transparent, non-discriminatory,
environmentally, and socially
transparent manner.
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Functions of the PPA

• Section 3 of Act 914 provides for the following functions:
– To make proposal for formulation of public procurement
policies
– To develop draft rules, instructions and other regulatory
documents on PP and format for relevant documents
– To establish and implement public procurement information
systems
– To facilitate the training and professional development of
public officers involved in public procurement at various
levels.
– To develop, promote and support training and professional
development of persons engaged in public procurement.

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Functions of PPA
• Section 3 (cont):
– To publish by the end of each month a public procurement
bulletin.
– To assist the local business community to become competitive
and efficient suppliers.
– To maintain a list of firms that have been barred from
participating in public procurement and communicate the list to
procurement entities.

Read from the Act all the functions of PPA

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PPA Board
• The governing body of the PPA is a board of
nine members:
– Chairperson – competent and experience in
public procurement
– Four person – one from AtG and three
nominated by minister of Finance of whom one
is a woman (all must be experience in public
procurement.
– three from private sector, one be a woman
– CEO
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Funds to the Authority

▪ The funds to the PPA is made up of:
▪ Moneys provided by parliament
▪ Administrative fines, fees and other income
accruing to the authority
▪ Donations, grants and gifts
▪ Other moneys provided by the Minister of
Finance
▪ The PPA may retain part or all of the IGR
under an L.I.

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Scope and Application of Act 914

• Act 914 should be applied to these activities
– procurement of GWS financed whole or in part
from the public funds
– functions pertaining to the procurement of GWS
(eg tender related activities
– disposal of public stores, vehicle and equipment
– Procurement by public funds with loans by
government, grants, foreign aids and IGF, unless
exempted by the Act.
• In connection to entities:
– All covered entities under the PFM Act are required
to apply the Act 914, including BOG and statutory
funds
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Scope and Application

• Use of Established commercial practices
– By approval of the Board, a procurement entity may
undertake procurement in accordance with
established commercial practices if:
• The entity is legally and financially autonomous and
operates under commercial law
• It is beyond contention that public procurement practices
are not suitable, given the strategic nature of the
procurement.
• The proposed procurement method will ensure value for
money, provide competition and transparency to the
extent possible.
– Board approval to use commercial method must be
published in a gazette.

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Procurement Structures
• The Act provides for these structures in the
conduct of public procurement:
– Procurement entity
– Procurement unit
– Entity tender committee
– Tender evaluation panel
– Tender review committee

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Procurement Entity
▪ Procurement entity is an entity conducting procurement
under the Public Procurement Act
▪ Procurement entity is responsible for procurement
subject to provisions of Act and any other regulations
issued by MOF.
▪ Head of entity is the Head of Procurement entity
▪ Head of entity and the officer to whom responsibility
has been delegated (Procurement Officer) are
responsible and accountable for procurement actions
and decisions made under the Act 914.
▪ The liability of the head of entity and procurement
officer are limited to acts that are inconsistent with the
Act 914.

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Procurement entity
▪ Functions of the Head of procurement entity:
▪ Ensure compliance to the Act 914 and concurrent approval
from a tender review committee does not absolve the
accountability of the head for contracts made.
▪ Establish procurement unit within entity staffed with qualified
personnel.
▪ Empanel competent and qualified evaluation panels
▪ Ensure that procurement procedures are followed (due
process)
▪ Ensure stores, vehicles and equipment are disposed off
according to the Act
▪ Exercise sound judgement in making procurement decisions
▪ Seek concurrent approval from the tender review committee
when threshold is exceeded.
▪ Facilitate contract administration and ensure compliance to
contract reporting requirements
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Procurement Unit
▪ Procurement unit is a unit or person within
the entity that is dedicated to providing
technical procurement services to the
tender committee.
▪ The Head of entity establishes a
procurement unit within the entity.
▪ The head of procurement entity of appoints
a head the head of procurement unit, who
shall be a qualified procurement personnel.
▪ Head of procurement unit is the secretary to
the entity tender committee
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Entity Tender Committee

▪ Tender Committee refers to a body within an
entity with the responsibility for planning,
processing and generally making
procurement decisions and ensuring
compliance with the public procurement law,
among others.
▪ A procurement entity shall establish entity
tender committee in accordance with the Act
and the composition shall be as determined
by the Schedule of the Act
▪ ETC must ensure to work within the
thresholds specified by the Act.
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General Function of ETC

▪ All entity tender committees perform these functions:
▪ Ensure that each stage of the procurement process is
followed through.
▪ Ensure that it works within the thresholds established in
the law
▪ Exercise sound judgement in procurement decisions
▪ Review procurements above its threshold that have
been duly processed by the procurement unit and
evaluated by the evaluation panel and seek concurrent
approval from the central tender committee.
▪ The laws allows for delegation of duties by the
chairman and members of ETC &TRC.

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Specific Functions (depending on

the class) of entity
• MDAs, Subvented agency and Central management
agency has these functions
– Review and approve procurement plans and quarterly update
of the plan to ensure connection with the objectives and
operations of the entity
– Approved cost of items in the plan and ensure they fit into
the budget amounts.
– Review procurement schedules and specifications and ensure
compliance with law
– Secure concurrent approval from the relevant TRC
– Facilitate contract admin and ensure compliance with all
reporting requirements
– Ensure that stores and equipment are disposed off according
to the law.
* Functions for RCCs & MMDAs are largely same to these ones

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Tender Evaluation Panel

▪ This is an expert group appointed by the
entity to evaluate tenders and assist the TC in
its works.
▪ The head of entity appoints a tender
evaluation panel with the required expertise
to evaluate tenders.
▪ The evaluation panel must evaluate tenders
based on only predetermined and published
evaluation criteria

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Tender Review Committee

▪ The tender review committee is established for
all central management agency, MDAs, and the
MMDAs in accordance with the Act.
▪ Two Review Committees
▪ Central tender review committee – for the MDAs
▪ Regional tender review committee – for MMDAs
▪ Decisions of the TRC may be reviewed by the
Board of the authority, upon writing compliance
from the procurement entity or tenderer.
▪ Dissatisfied with the ruling of the board on the
board complainant may proceed to court.
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Functions of tender Review

Committee
– Review the activities carried out in a particular
procurement at each step of the procurement cycle
to ensure compliance with the law, instructions and
guidelines.
– Give concurrent approval or otherwise to enable the
procurement entity continue with the procurement
process;
– Review decisions of heads of entities in respect of a
compliant
– Participate in public procurement fora;
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Procurement Rules
• Procurement rules covers the following
– Procurement plan*
– Qualification of tenders*
– Suspension of supplier or consultant*
– Prequalification proceedings and decisions*
– Participation in procurement proceedings
– Form of communication
– Documentary evidence in procurement proceeding
– Recording of procurement proceedings
– Cancellation of procurement proceedings*
– Rejection of tenders, proposal and quotations*
– Entry into force of the procurement contract
– Public notice of procurement contract award
– Inducements from supplier, contract and consultants
– Confidentiality
– Description of goods, works and services
– Language

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Procurement plan
• A procurement entity is required to prepare a procurement plan to support
its approved programme.
• A procurement must indicate the following:
– Contract packages, descriptions or lots
– Estimated cost for each package
– The procurement method approvals needed
– Processing steps and time lines
• Procurement plan must be submitted to the entity tender committee for
approval not later than one month to the end of the financial year.
• Procurement plan must be updated after budget approval and every
quarter and submitted to the entity tender committee as well
• Procurement plan of the procurement shall be posted on the website of
the Authority.
• Procurement order breaking in lower parts to avoid the application of
procedures is prohibited.

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Qualification of tenderers
• A tenderer in public procurement shall
– Possess necessary competences (professional, technical and
environmental), capabilities (managerial, reliability,
experience, reputation) and resources (financial, equipment
and personnel).
– Have the legal capacity to enter into the contract and meet
ethical and other applicable standards.
– Be solvent, not be in receivership, bankrupt or in the process
of being wound up, not having its business activities
suspended.
– Have fulfilled its obligations to pay taxes social security
contribution and pollution compensation.
– Have directors who have no criminal records or have been
disqualified by administrative suspension or debarment
– Meet other justifiable criteria set by the procurement entity
which are not discriminatory.

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Suspension of a supplier or
consultant
• The governing board my suspend a supplier or
consultant from engaging in any public
procurement or disposal process for a period
determined by the board.
• Suspended action may be based on
– the recommendation of a procurement entity
– Investigation initiated by the board itself

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Suspension (cont)
• Ground of suspension
– unsatisfactory performance by Auditor General
– Failures to substantially perform its obligation
under the contract
– Suspension of supplier by a professional body
for misconduct
– Non-compliance to obligations under an Act of
Parliament.
– Conviction of corrupt practices or fraudulent
act under this Act.

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Prequalification
• Prequalification is procedures engaged by
procurement entity in identifying tenderers who are
qualified prior to submission of tenders.
• Prequalification should be conducted in accordance to
the methods and procedures of procurement under
the Act.
• Procurement entity undertaking prequalification must
supply a set of prequalification document to suppliers
or contractors at a fee
• Decision on prequalification must be based on only
the prequalification criteria in the document.
• Notice of Decision on prequalification should be made
to prequalified suppliers, otherwise on requiest.

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Cancellation of Procurement
•
Proceeding
A procurement entity may cancel procurement
proceedings before the expiry of the deadline for
submission of tenders where there is:
– Discovery of An imperfection in the wording of request
for submission of tenders which could mislead supplier
– Decision to carry out the work in house by itself
– A cut in the budget for the contract
– No bid submission
– Exceptional circumstances or forced majeure render the
normal performance of the contract impossible
– The economic or technical data of the project has
fundamentally changed

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Cancellation of procurement
• Head of procurement entity may after the expiry of the deadline
for the submission of tenders, cancel a procurement proceeding
where:
– No tender has been submitted within the specified deadline;
– Tender procedure has been unsuccessful;
– Tender documents contain term or technical specifications that
cannot be met by any of tenderers
– Prices that meet the terms and technical requirements of the
tenderer documents are unrealistic or appear to be a product of
conclusion between tenders, circumvention of heathy competition.
– Circumstance under which the procurement procedures was
announced have changed to the extent that procurement is no
longer necessary.
– Exception circumstances or a forced majeure render normal
performance of the contract impossible.
– Any other serious justifiable unforeseeable reason
• NB Cancellation of procurement proceeding shall not impose any
liability to the procurement entity

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Decision of Cancellation
• In taking a decision to cancel a procurement
proceeding, the head of entity shall give
consideration to the following
– The time and resources spent by the interested
tenders, especially in cases of complex and
complicated contracts.
– The right of interested party who sustain or likely to
sustain a loss as a result of the cancellation to seek
administrative review or court redress.
– General principles of good faith, transparency and
public policy

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Rejection of tenders, proposal and

quotations.
• A procurement entity may reject tenders, proposal
and quotations at any time prior to acceptance if the
grounds for the rejection are specified in the tender
documents.
• Ground for rejection should be communicated to the
tenderer but justification for rejection is not
required.
• No liability arises upon rejection.
• Notice of rejection must be given to participating
tenders within two days from the date the
procurement entity decides to discontinue with the
tender process.
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Methods of Procurements
• The methods of procurement are put into four
categories:
– Competitive tendering
– Single source procuring
– Consultant selection
– Framework contracting
• These methods shall be used subject to and in
according with the thresholds

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Competitive tendering
• Competitive tendering methods include
– International competitive tendering (open)
– National competitive tendering (open)
– Two-stage tendering
– Request for quotation
– Restricted tendering
• A procurement shall procure goods, services or works
by competitive tendering except provided by the Act.
• If a procurement entity uses the method of
procurement other than competitive tendering, it shall
include in the record required a statement of the
grounds and circumstances on which it relied to justify
the use of that method.

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International Competitive Tendering

• ICT is used whenever open competitive
tendering is used and effective competition
cannot be obtained unless foreign firms are
invited to tender.
• In ICT, foreign firms are invited to submit
tenders so as to deepen competition among
tenders,
• Remember that both local firms and foreign
firms participate in ICT.

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National competitive tendering

• In NCT, locally registered firms are openly invited to
participate in the procurement proceedings.
• Generally, NCT does not consider the nationality of the
local firm, however a procurement entity may decide
to consider only domestic suppliers.
• A procurement using NCT is not required to conduct
prequalification unless thresholds set in the Act is
met.
• In the invitation for participation, the procurement
entity that decided to limit the proceedings to
domestic supplier must notify the prospective tenders.
• Procurement entity that decided to limit participation
to domestic supplier must provide the reasons and
circumstances on which it relied.
• Submission period is between 2 to 6 weeks
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Two stage tendering

• TST is a two fold competitive method.
• A procurement may use two state tendering
where:
– Not feasible to formulate detail specification,
characteristics of goods, works and services (
may due to rapid technological advances)
– Entering into a contract for research,
experiment, study or development, except
where commercial viability to recover cost is
established.

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Two Stage Tendering

• Procedures
First stage
– Invitation document call upon suppliers to submit
initial tenders which contains proposal without
tender price
– In the invitation document may solicit proposal on
technical, quality or other characteristics of the
goods, works and services.
– In this stage the procurement entity may engage in
negotiation with the suppliers whose tenders has
not been rejected under specified grounds on an
aspect of its tenders.

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Two-stage tendering
• Procedure
Second stage
– Invite suppliers whose tenders have been accepted to
submit final tenders with prices on a single set of
specification
– Procurement entity may review the specification and
criteria and notify prospective supplier accordingly,
– A supplier who wishes to withdraw for submitting the
final tender may be permitted without forfeiting the
tender security.
– Final tenders are evaluated and compared in order to
ascertain the successful tenderer.

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Restricted Tendering
• Restricted tendering (RT) is a method of procurement
in which only few firms are invited to tender for supply
of goods, works and services.
• RT is used for the reason to economy and efficiency of
the procurement.
• The use of RT required the approval of the Board,
probably for a fee.
• RT is appropriate method when
– The goods, works and services could only be obtain
from one or few suppliers due to complexity and
specialised nature of the supply.
– Cost and time needed to process the tender is
disproportionate to the value of goods being procured.
– If an offer for competitive tendering fails to receive any
response after publication.
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Restricted Tendering
• Procedure for RT are:
– Invite suppliers who can supply the goods,
works and services.
– Select in a non-discriminatory manner, a
number of suppliers to ensure effective
competition.
– Evaluate and compare tenders
– Select successful tender
– Offer contract
– Contract administration and reporting.

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Request for Quotation

▪ This is a method in which the entity request invoices from as
many suppliers , but at least three and pick the supplier with the
lowest invoice or quotation.
▪ The quotation should not be related in terms of ownership,
shareholding and directorship.
▪ Principle of conflict of interest between procurement entity and
the members should be considered in the evaluation.
▪ Here there should be no negotiation between the entity and the
supplier.
▪ Successful quotation is the one with lower prices
▪ Conditions for use:
▪ Where the goods are readily available ( they are not specially made
for the entity)
▪ Where established market exist for the goods and services, and the
amount falls within the threshold.
▪ Where the low cost goods and services are require

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Request for quotation

• Procedure
– Invite quotation ( pro forma invoice) from at
least 3 suppliers of the goods and works.
– Compare the prices of the invoices considering
the relations of quotation and conflict of
interest issues.
– Select the invoice with lower price
– Place order and follow up on delivery.

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Single Source Procurement

• SSP allow for offering contract to a single
supplier to supply goods, works and services.
• SSP can only be used upon the approval of the
board, for a fee.
• It is non-competitive method and therefore
must be used only under exceptional
circumstances.

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Single source procurement

• Exceptional circumstances for use of SSP:
– Goods or services are only available from a single
supplier or the supplier has excusive right.
– Urgent need for the GWS not caused by dilatory
conduct of the procurement entity, making it
impracticable to use competitive methods
– Occurrence of catastrophic even making the use of
competitive method impracticable.
– Contract for research, experiment, study or
development not for commercial purpose.
– Procurement has implications for National security
– Where additional supplies need to be procured from a
supplier who had made supply in the immediate to
ensure standardization and compatibility with existing
goods or equipment.

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Single source procurement

• Procedures
– Seek approval from the Board, making clear
justification of the grounds or circumstances in
accordance with the Act.
– Invite quotation from the single supplier
– Enter in to agreement
– Contract administration and reporting

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Selection of Consultants
• The methods of selecting consultants include:
– Quality and cost based selection
– Quality based selection
– Selection based on qualification of consultant
– Least cost selection
– Fixed budget selection
– Single source selection

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Framework contracting
• Under this method, the board in consultation
with the Minister of Finance introduces a
framework contracting agreements and other
methods for a specific entity where the
context permits until such time that is
possible to do so nationally.
• A procurement entity applying framework
contracting procedure must comply with the
Regulations or guidelines issued by the
board.
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Tendering Procedure
• The major stages in the tendering procedures
are:
– Invitation of tenders and prequalification
– Submission of tenders
– Evaluation of tenders
– Comparison of tenders and selection of a
tender
– Contract offer and acceptance
– Contract administration and reporting

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Invitation of tenders and prequalification

• NCT and ICT differ in terms of some invitation
rules and requirements
• NCT
– Notice to tenders must clearly indicate whether
NCT is limited to only domestic supplier, contractors
etc.
– Procurement entity may indicate that tenders
should be quoted only in the local currency and
payment must be made in local currency
– Procurement entity must state a minimum period
of 2 weeks to maximum of 6 weeks for submission
of tenders.
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Invitation to tender (cont)

• ICT
– The invitation to tender and the invitation
document must be in English
– Invitation must be place in a newspaper of
adequate circulation to attract foreign competition
– At least 6 weeks should be given for the submission
of tenders
– Technical specification, to the extent compatible
with national requirements, must be based on
international standards or international
conventions.
– Tenders must be presented in freely convertible
currency stated in the invitation documents.
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Invitation to tender and prequalify

• Procedures:
– Procurement entity makes invitation to tender/prequalify by
publication on the public procurement bulletin and the
website of the Authority
– Procurement entity also publishes the invitation in at least
one daily newspaper of national circulation or for ICT,
newspaper ( or other publications) of wide international
circulation.
– The content of the invitation to tender or prequalify should
comply with S.48.
– The procurement entity aslo provides a specified tender
document to the suppliers at a fee.
– Tender document content must comply with S.50-3.
– Supplier has a right to seek clarification on the document.
– The procurement entity may modify the document by issuing
an addendum prior to submission and notify all suppliers
provided with the document.

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Submission of tenders.
• Language
– Tenders should be made and submitted in English, but
supporting documents and other literature may be in
another language if translated in English
• Place, Date and Time
– The procurement entity must specify the place, date
and time as deadline for the submission.
– Minimum of 6 weeks should be allowed for submission
for ICT.
– Deadline for submission may be extended prior to the
deadline for submission when modification is made or
when procurement thinks appropriate at least 10 days
before expiry of the deadline.
– In all cases, supplier must be notified using expedient
means.

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Submission
• Mode of submission
– A tender shall be in writing, signed and be submitted in
sealed envelops.
– However, it may be submitted in other forms in accordance
with the tender document.
– The procurement entity shall provide the tenderer with
receipt showing date and time when the tender was
received.
– Tenders received after the submission deadline shall not be
opened but return to the tenderer.
– Supplier may modify or withdraw his tender prior to the
submission deadline without forfeiting his tender security
unless it is stipulated by the tender document.
– Withdrawal of tender is effective if it is received by the
procurement entity prior to the deadline for submission.

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• Tender security
Submission (cont)
– Tender security is the security provided to the entity as
a pledge against fulfilment of an obligation under the
law.
– It may include bank guarantee, surety bonds, stand-by
letter of credit, cheque issued by banks, cash deposits
and bill of exchange.
– The procurement entity shall specify the principal terms
and conditions of the required tender security, including
issuer and confirmer in the invitation document.
– Circumstances under which Tender security is returned:
• Tender security expires
• Entry into force of the procurement contract and provision of
security for performance of the contract
• Termination of the contract process
• Withdrawal of tender prior to deadline for submission.

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Tender Evaluation and Comparison

• Opening of the tenders
– Tenders shall be opened at the time, date and
place specified in the tender document.
– The time for opening shall be same as the
deadline of submission.
– Tender opening shall take place in the presence
of all tenderers or proxy.
– The name and address as well as the tender
price of each tenderer must be openly
announced and recorded immediately in the
tender proceeding.
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Tender evaluation and Comparison

• Examination of tenders
– The objective of examination is to determine responsive
tenders.
– In course of examination, the respective tenders are
matched to the requirements of the tender documents.
– The procurement entity may seek writing clarification
on the tender submitted by a supplier.
– The procurement entity may correct purely arithmetical
errors in the tender and inform the tenderer promptly,
however the tender have the right to object leading to
non-acceptance of the tender.
– Substantial changes in tenders that are capable of
making unresponsive responsive is not allowed.

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Tender evaluation and comparison

• Examination of tenders (cont)
– At the examination stage, tenders are not
accepted if:
• Tenderer is not qualified.
• Tenderer refuses minor corrections
suggested by the procurement entity
• Tender is not responsive
• Inducement from tenderer.

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Tender evaluation and comparison

• Evaluation of tenders
– The entity evaluates the responsive tenders to arrive at
the successful tender.
– Evaluation must be done using only the criteria set out
in the invitation document.
– Evaluation criteria are in line with S.59-2.
– Margin of preference is also factored into the criteria to
benefit domestic suppliers or local content.
– Margin of preference must be authorised by the Board
and approved by the Board
– It involves rank
• Comparison of tenders
– Comparison of tenders is based on evaluation results
towards the selection of successful tender.
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Selection and contract offer

• A successful tender is the one with lowest tender price.
• Where the invitation document stipulates bases other than
price, then the lowest evaluation tender shall be
ascertained objectively and quantified, given due regard to
relative weights in the evaluation procedure.
• To determine lowest evaluated tender consideration must
be given to
– tender price,
– cost of operating e.t.c,
– national security and
– impact of the tender on other factors like balance of
payment, counter trade agreements, local content,
employment, technology transfer, skills development etc.

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Selection and contract offer

• Contract offer
– Successful tender is accepted and notice of acceptance
served on the supplier within 30 days after the acceptance
of the tender.
– Where a singed written contract is required, the entity
and supplier shall sign within 30 days after the notice of
acceptance.
– The contract is entered into force on the commencement
date stated in the contract.
– Where supplier fails to sign the contract within 30 working
days or fails to provide tender security, the procurement
entity will select successful supplier from among
remaining tenders that are in force, subject to the right of
the entity to reject the remaining tenders.

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Methods and procedures for consultants

• Consultants may be procured through either
competitive method or direct invitations.
• A procurement entity causes a notice seeking
expression of interest in submitting a proposal to
be published in the public procurement bulletin
for consultancy contract and in the newspaper.
• Direct invitation is used when economy and
efficiency is considered.
– Approval of the Board is necessary
– Where services needed are available from limited
consultants
– Time and cost variant
– Confidentially in to protect national security.

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Method and procedures for consultants

• Shortlisting of candidates
– The procurement entity is responsible for
preparation of shortlist of consultants to be
considered to participate in the selection process (
at least 3 and not more than 6 are required).
– Invitation of proposal will be made to the
shortlisted consultants
– The content of the request for proposal for
consultancy services shall be in line with S.68-2.
– Selection criterial should be stipulated in the
invitation of proposal document in line with S.69-2.

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Complaints and Administrative Review

• Right to compliant and review
– Any contractor or supplier that claims to have
suffered, or that may suffer loss or injury due to
breach of a duty imposed on the procurement
entity by this Act, may seek redress: compliant
and administrative review.
– A complaint may be made by an application to
the procurement entity
– Request for administrative review may be made
by an application to the Board.
– The decision of the board may be appealed
against in court.
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Complaints and Administrative Reviews

• Matters not subjected to Complaints or
admin Review:
– Selection of method of procurement in
accordance with the Act.
– Choice of selection procedures in accordance
with the Act.
– Limitation of procurement proceeding to
domestic firms in accordance with the Act.
– Decision of procurement entity to reject a
tender in accordance with the Act.

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Complaints and Admin Review

• Complaint procedures
– This review is exercised only when the contract in question is
not already in force
– Procurement entity should not enter into force a contract
when complaints have been received about that contract.
– Complaint in writing should be submitted to the head of the
entity within 20 days after becoming aware or should
become aware of the matter.
– HOE should attempt to resolve the complaints by mutual
agreement of the supplier.
– HOE issues his written decision within 21 after submission of
the complaints, including the reason for the decision as well
as corrective actions to be taken
– The complainant may appeal against the decision with the
Board.

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Complaints and Admin Review

• Administrative Review procedures
• Administrative review may be evoked by a supplier when:
– The contract has been entered in to force prior to the time that the
supplier became aware of the matter.
– Suppliers claimed to be adversely affected by the decision of the
head of procurement entity.
• Procedures
– The supplier submits complaint to the PPA within the required
period (21 days) or when he becomes aware of it after decision by
head of procurement entity.
– The Board notifies the HOE about the complaints against him
enters review process and other interests affected may be
permitted to participate
– Board within 21 days issues a written decision on the complaints
and gives reason
– Please read more on the powers of the board in this matters.

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Disposal of Stores, Vehicle and

Equipment
• Authority to Dispose
– Head of procurement entity shall convene a board of
survey comprising representative of the departments
with vehicle, unserviceable, obsolete or surplus stores,
plant and equipment which shall report on the items
and subject to a technical report from them,
recommend the best method of disposal after the
officer in charge has completed the board of survey
form.
– The board of surveys recommendation shall be
approved by the head of procurement entity and the
items shall be disposed of as approved.
– For item that become unserviceable for reasons other
than wear and tear, disposal guidelines issues by the
Board of procurement authority shall be followed.
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Disposal of stores…
• Procedures for disposal
– Transfer to government department or other
public institution with or without financial
adjustment
– Sale by public tender to the highest bidder,
subject to reserve price
– Sale by public auction, subject to reserve price
– Destruction, dumping or burying as
appropriate.

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wisdom corner

Happiness is when what you think, what

you say and what you act are in harmony.

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Topic 8
Accounting for Public
Private Partnership

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What is Public Private Partnership?

• PPP refers to arrangements, typically medium to long
term, between the public and private sectors
whereby some of the services that fall under the
responsibilities of the public sector are provided by
the private sector, with clear agreement on shared
objectives for delivery of public infrastructure and/ or
public services.
• A service concession arrangement (PPP) is a binding
arrangement between a grantor and an operator in
which the operator uses the service concession asset
to provide a public service on behalf of the grantor
for a specified period of time and the operator is
compensated for its services over the period of the
service concession arrangement
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Features of PPP arrangement

• The grantor is a public sector entity;
• The operator is responsible for at least some of the
management of the service concession asset and related
services and does not merely act as an agent on behalf of the
grantor;
• The arrangement sets the initial prices to be levied by the
operator and regulates price revisions over the period of the
service concession arrangement;
• The operator is obliged to hand over the service concession
asset to the grantor in a specified condition at the end of the
period of the arrangement, for little or no incremental
consideration, irrespective of which party initially financed it;
and
• The arrangement is governed by a binding arrangement that
sets out performance standards, mechanisms for adjusting
prices, and arrangements for arbitrating disputes

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Objectives PPP
• PPP policy of a government has the following
objectives;
• Encourage and promote increase private sector
participation in development
• Increase availability of public infrastructure at least cost to
government
• Leverage public assets with private sector resources local
and international market
• It ensure risk sharing between the public sector and private
sector or risk transfer to the private sector
• Improves the quality of public service delivery by private
expertise
• Sharing of mass expertise of the private sector which is
lacking in the public sector.
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Benefits of PPP arrangements

• Accelerating the delivery of needed infrastructure and public
services in time and within budget
• Encourage the private sector to provide innovative design,
technology and financing structure;
• Increase international and domestic investment;
• Risk sharing by government with the private sector in the
provision of public infrastructure and services
• Ensuring good quality public service and their wider
availability;
• Real financial benefit reflected in the reduction in initial public
capital outlay, and a better utilization allocation of public
funds.
• Economic growth and increased and wider employment
opportunity.
• Technology transfer and capacity building
• Improved operation and maintenance of public infrastructure.
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PPP Principles
• Under the PPP policy, there two sets of PPP
principles:
• Guiding Principles
• Governing principles
• Guiding principles of PPP
• Value for money
• Risk allocation
• Ability to pay
• Local content and technology transfer
• Safeguarding public interest and consumer rights
• Environmental, climate and social safeguards

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Principle 1 -Value for Money

• Value for money is paramount and PPPs should give
greater value for money than the best realistic public
sector project designed to achieve similar service
outputs.
• Achieving value for money is a key requirement of
government at all stages of a project’s development
and procurement and is a combination of the service
outcome to be delivered by the private sector,
together with the degree of risk transfer and financial
implications for government.
• Value for money is the driver for adopting the PPP
approach, rather than capital scarcity or the balance
sheet treatment.
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Principle 2- Risk Allocation

• An efficient risk allocation is vital in determining
whether value for money can be achieved in PPP
projects.
• Government’s principle with regards to risk allocation
shall be used to optimise, rather than maximise, the
transfer of project risks to the private party.
• Risks will therefore be allocated to the party best able
to control and manage them in such a manner that
value for money is maximised.
• The allocation of risk will therefore determine the
chosen method of private sector involvement and
allocation of responsibilities, which shall take into
account the protection of the public interest.
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Principle 3 – Ability to pay

• End user ability to pay shall be a key consideration
for all PPP projects.
• The PPP option must demonstrate long-term
affordability to the public and overall Government
budgetary sustainability, forward commitments in
relation to public expenditure and the potential for
returns on private sector investment, given other
priorities and commitments.

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Principle 4:
Local content and technology
Local content & technology transfer
• PPP projects shall be structured to encourage the
maximum use of local content and technology
transfer.
• As much as possible, the PPP arrangement shall
facilitate the promotion of local industries and the
private sector in Ghana.

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Principle 5
Safeguarding public interest and
consumer right
• Government is committed to ensuring that each
PPP project shall have positive impact upon the
public interest.
• The following principles shall be addressed in PPP
transactions:
• Safeguards to users particularly vulnerable groups;
• Setting affordable user charges and tariff structures

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Principle 6
Environmental, Climate and Social Safeguards
• The Government shall ensure that PPP activities
conform to the environmental laws of Ghana and
the highest standards of environmental, climate
and social safeguards.

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Governing Principle
❑When a government entity opts for PPP
arrangement, the implementation should be
governed by these principles:
• Clear objective and output requirements
• Accountability
• Transparency
• Competition
• Contracting authority, ownership and authority
• Stakeholder consultation process

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Governing principles
• Clear objectives and output requirements:
• PPP projects shall take into account the expected
outputs of each project, allowing for optimal risk
transfer to the private party and thereby ensure greater
value for money for the public sector.
• Accountability:
• As a means of good governance PPP projects must
ensure accountability:
• Every stage of the PPP arrangement shall follow laid-
down procedures and regulations.
• Public sector entities undertaking PPPs must follow
prescribed processes for decision-making within their
organizations.

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Governing principles cont

• Principles of transparency shall guide all PPP
projects:
• There must be a well-defined procurement process for
the PPP. Instructions to bidders must be clear and
unambiguous to prevent manipulation or abuse of the
process. The bid conditions and evaluation criteria must
lead to the attainment of value for money, economy,
and efficiency and must be made available to all
interested private sector parties
• Competition
• As much as feasible all PPP projects should be subjected
to a competitive process so as to obtain value for money
and efficiency.
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Governing principles cont

• Contracting Authority, ownership and commitment:
• Contracting Authorities shall have the primary
responsibility for managing the process and implementing
the project.
• Stakeholder Consultation Process:
• Contracting authorities shall ensure adequate stakeholder
consultation, understanding and support in advance of
entering into a PPP arrangement and shall endeavour to
identify relevant stakeholders and undertake
comprehensive consultation and awareness of PPP
projects under consideration

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Risk associated with PPP

arrangements
• Type of risk in PPP arrangements are:
• Financial risk
• Technical and operational risk
• Demand risk
• Availability of risk
• Construction risk
• Residual value risk

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Risk
• Financial risk.
• Such risk arises if and when the entity is unable to obtain
funding needed for the project or when interest rates
charged impact adversely on the financial viability of the
project.
• This might arise from the circumstances of the specific
entity or the private party due to, for example, the credit
status or debt limitations of the party involved or investor
perceptions of the risks of a project. Other financial risks
include inflation and exchange rates.
• Technical and operational risks.
• These include a broad range of risks involved in providing
the service, eg. price increases or shortages of input
materials, increases in labour costs, damage as a result of
natural disasters, and costs resulting from maintenance
and obsolescence, amongst others.
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Risk
• Demand risk.
• This relates to the variability in the amount of services required
or consumed by users, the risk that the demand for the service is
less than projected.
• Availability risk.
• This involves insufficient output being delivered under the PPP
agreement, eg. as a result of inadequate management or failure
to meet the required quality standards.
• Construction risk.
• This includes various issues that can arise during the
construction phase of a project, such as budget overruns,
building material defects, construction delays, safety regulations,
structural design risks, technical deficiencies, health risks,
worksite accidents and other catastrophic events.
• Residual value risk.
• This risk arises from the market price of the asset used in the
PPP agreement varying from the original expectation.

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Types of PPP Arrangements

There are several type of PPP arrangements:
Build-own-operate (BOO)
Build-operate-transfer (BOT)
Build-Transfer and Operate (BTO)
Rehabilitate-operate and transfer (ROT)
Service and/ maintained
Service Concession

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Build-own –operate
• Under this arrange the operator provides the facility,
own it and operate it indefinitely, unless otherwise.
• Features of BOO include:
• The asset is owned by the operator
• Capital investment is made by the operator
• Operational (demand) risk rest solely with the
• It has duration of 25 – 30 years or otherwise
• Residual interest is for the operator

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Build-Operate and Transfer

• In BOT, the operator provides the asset, operate for
some time and transfers ownership to grantor.
• Features are that:
• Grantor owns the asset
• Capital invested by operator
• Risk is shared by grantor/or operator
• Duration covers 25-30years
• Residual interest is for grantor

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Rehabilitate-Operate-Transfer
• Under ROT, the a worn out asset of grantor is
rehabilitated by the operator and thereafter operate
the assets for a specified period and transfer it to
grantor
• Ownership is in the grantor
• Capital invested by operator
• Risk rest with grantor and/or operator
• Duration of the agreement is between 25-30years
• Residual interest in the asset is for the grantor.

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Service and/ Maintain contract

• Here the operator is engaged to offer a specific
service or task for a fee or commission e.g. debt
collection, facility management etc.
• Features:
• Own by grantor
• Capital investment by grantor
• Risk rest with grantor
• Duration is usually, 1 – 5years
• Residual is for grantor

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Service Concession
• In a concession agreement, the entity transfers the
right to provide services to the public through the
use of an asset to the private party.
• In service concession, the asset may be either
provided by the grantor, operator or both.
• The operator in turn assumes an obligation to
provide such services, normally in accordance with
performance requirements set by the entity.
• Compared to service or management contracts,
operation concession agreements have a much
longer term, often so that the operator can earn an
acceptable rate of return on its investment.
• PDS ECG deal is a good example.
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Design Build Operate and Transfer

• In these arrangement, the operator is contracted to
design a specialised asset or infrastructure with the
resources of the grantor or its own resources or
both, permitted under the contract to operate it for
an agreed period and transfer residual asset to the
grantor.

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Public-Public Partnership (PUP)

• A public-public partnership (PUP) is simply a
collaboration between two or more public
authorities or non-profit organisations, based on
solidarity, to improve the capacity and effectiveness
of one partner in providing public services like
public water or sanitation services.
• PUPs are a peer relationship forged around
common values and objectives, which exclude
profit-seeking

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Objectives of PUP
The objectives of undertaking PUP include to:
• Train and develop human resources needed for the
efficient provision of public services;
• Provide technical support to public entities on a wide
range of issues towards the enhancement of public
service;
• Improve efficiency and building institutional capacity
• Access financing within the public sector for the
provision of public services
• Improve participation and collaboration between public
sector players to promote collective efficiency in
service delivery.

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Forms of PUP
• There are two broad forms of PUP
• Public to public partnership
• Public to NGO/Community partnership

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Advantages of PUP
• Mutual understanding of public sector objectives and ethos
• Non-commercial relationship as both entities are not profit
making and therefore there will be low risk to contracting entity;
• Transparency and accountability is enhanced since there is not
trade secret concerns of the parties;
• Unlimited collaboration among the public sector players are
there are several entities operating in several sectors of the
economy
• Lower transaction costs particularly administrative costs since
there is no profit loading.
• Possibility of reinvesting 100% of available financial resources
into the public sector therefore strengthening the capacity of the
sector.
• There is a possibility of long-term gain in capacity-building
• Develops closer linkage between the government sector and
non-governmental organisation in the provision of public service.

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Disadvantages of PUP
• Weak financial leverage among public sector
entities.
• Lack of certain expertise in the public sector
• Low economic motivation to pursue PUP
effectively, compared to PPP arrangements.
• Efficiency and effectiveness in public service
delivery may be low.

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Accounting for PPP

• PPP arrangement is what IPSAS 32 described as service
concession arrangement- grantor.
• IPSAS 32 examines transactions only from the grantor
perspective, therefore the accounting effect of the
transaction on the operator is treated by relevant IFRS.
• Note that PPP as a public policy issue is quiet different
from the accounting issues.
• IPSAS does not cover service and maintain
arrangements in which the assets is not controlled by
the grantor (eg outsourcing, service contracts, and
privatization)

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Terms in IPSAS 32
• Key terms in IPSAS 32 are:
• Binding arrangement
Binding arrangement is a contract and other
arrangements that confer similar rights and
obligation on the parties to it as if there were in
the form of contract.
• Grantor
Grantor is entity that grants the right to use the
service concession asset to the operator
• Operator
Is the entity that uses the service concession asset to
provide public services subject to the grantor’s control of
the asset

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Key terms
• Service Concession arrangement
It is a binding arrangement in which two things happen:
• The operator uses the SCA to provide public service on behalf of
the grantor for a specified period of time; and
• The operated is compensated for its services over the period of
the arrangement.
• Service Concession Asset (SCA)
It is an asset provided by either the operator or grantor that
is used to provide public service in a service concession
arrangement.
• The operator may provide it by constructing it, developing it or
acquiring it from third parties.
• The grantor may provide it by allocating its own existing asset or
upgrading existing asset.
• How the asset is provided affect the accounting arrangement
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Accounting issues in PPP

• The main issues of accounting for PPP are:
• Measurement and recognition of SCAs
• Measurement and recognition of Liabilities
• Measuring and recognition of Revenues
• Disclosure in the financial statement

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Measurement & Recognition of SCA

• Recognition of SCA
• The grantor shall recognise asset provided by
the operator and upgraded to an existing asset
of the grantor as a SCA if two conditions exist:
a) If the grantor controls or regulate the services
that the operator must provide with the asset,
to whom the it must be provided and at what
price.
b) If the grantor controls any significant residual
interest in the asset at the end of the term of
the arrangement. Control or regulation may be
evidenced by ownership or beneficial
entitlement.

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Measurement & Recognition of SCA

• Recognition of whole-life assets
• Where the grantor has control over service type,
recipient and the price of the service (a) but has no
control over the residual interest (b)), the asset qualities
for recognition as SCA.
• Such asset is called whole-life-asset.
• After initial recognition, the asset be accounted for
under IPSAS 17 & 31
• Recognition of Existing Assets of the Grantor
• An existing asset provided by the grantor in a service
concession arrangement shall be reclassified as a
concession asset.
• The reclassed asset should be accounted in accordance
with IPSAS 17 and IPSAS 31.
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Measurement & Recognition of Liability

• Recognition of liability
• Where a grantor recognizes SCA , the grantor
shall also recognize the liability, except in the
case of reclassification of existing asset of the
grantor.
• Where an asset has been reclassified as a SCA,
there shall be no recognition of liability, except
where the operator contributes assets to the
existing asset.
• Where the operate provides additional
consideration to the existing asset, liability
should be recognized to the value of additional
consideration provided.

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Redeemer Krah @ Kramanskus CA Family

2022- 0243340420. 381
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Measurement & Recognition of Liability

• Measurement of Liability
• Liability recognized should be initially measured
at the same value as the SCA, adjusted by any
amount of any consideration given by the
grantor to the operator or from operator to the
grantor.
• The nature of liability depends on the nature of
the consideration exchanged between the
grantor and the operator, as will be determined
by the binding agreement.

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Liability recognition models

• There are two liability recognition models
• Financial liability model
• Grant of right to operator model
• Financial Liability Model
• This model is used where the grantor has unconditional
obligations to pay cash or other financial assets to the
operator for provision of SCA.
• This may take the form of payment of specific or
determinable amounts or revenue short fall gap
payment.
• The resulting financial asset should be dealt with under
IPSAS 28, 29 & 30 (financial instruments)

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Redeemer Krah @ Kramanskus CA Family

2022- 0243340420. 382
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Financial Liability model

• When liability is recognized using financial liability
model, the grantor shall allocate the payment to the
operator and account for them according to their
substance.
• The payment should be allocated as follows:
• Reduction in the liability (cost component)
• Finance charge, (treat as expense)
• Service charge (treat as expense)
• For example, an operated an asset costing GHc1000
The grantor will pay GHc450 each year for the next five
years, inclusive of service charge of GHc50 a year.
• In this case, service charge is GHc50, Finance charge is
GHc250 [(400x5 – 1000)/5} and the cost component
will be GHc150 per year.

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Grant of right to the operator Model

• This model is used to recognise liability when the
grantor grants the operator the right to earn
revenue from third party users or another revenue
generating asset.
• In this case the grantor recognises liability equal to
the unearned portion of revenue arising for from
the exchange of assets between the grantor and
the operator.
• The grantor shall recognize revenue and reduce
liability recognized according to the economic
substance of the arrangement.

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Redeemer Krah @ Kramanskus CA Family

2022- 0243340420. 383
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Grant of Right example

• Example, operator constructed a road under
binding arrangement and was given the right to toll
the road for 50 years. The toll for each year is
estimated as GHc100.
• In this case the asset will be PV of GHc5000 and the
liability will be same. When toll is collected we
credit revenue by the PV of the toll GHC100 and
liability credited.

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Recognition of Revenue
• Revenue resulting service concession agreement
which is not part of the rights granted to the
operator to earn revenue shall be accounted for as
revenues under IPSAS 9: Revenue from non-
exchange transactions.

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Redeemer Krah @ Kramanskus CA Family

2022- 0243340420. 384
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Disclosures in the financial statement

• The following disclosure are required:
• Description of the arrangement
• Significant terms of the arrangement that may affect the
mounts, timing and certainty of the cash flows
• Nature and extent of:
• the right to use the asset
• Right to expect to service to be provided under the
arrangement
• Carrying amount of SCA
• Right to residual assets at end of service
• Renewal and termination options
• Other rights and obligations

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Resilience!

End of the Story. Wishing you well

9/3/2022 @ Redeemer Krah [email protected] 794

Redeemer Krah @ Kramanskus CA Family

2022- 0243340420. 385