PUBLIC SECTOR ACCOUNTING & FINANCE

The word ‘Public Sector’ is “all organisations which are not privately owned and operated, but which are
established, run and financed by Government on behalf of the public.” This definition conveys the idea
that the public sector consists of organisations where control lies in the hand of the public, as opposed to
private owners, and whose objectives involve the provision of services, where profit making is not a
primary objective. Performance measurement in the public sector is hindered by the lack of profit motive,
multiple objectives and presence of intangible services whose benefits are difficult to quantify.

Accounting generally is a scientific study in which records of expenditure and income of a company,
individuals or Government are kept coupled with other useful information for planning, decision making
and control. Government accounting, on the other hand, is composite activities of analysing, recording,
summarizing, reporting and interpreting the financial transactions of Government Ministries,
Departments and Agencies. It is clear from this description that the Government, like any business
organisation, should give an account of its activities to the various stakeholders/shareholders.

The above definition shares some features with the universally accepted definition of financial accounting.
Accounting is universal, whether in Government, private or public limited liability companies. The
essential requirement is to record all historical costs and income, which when processed further, become
useful information necessary for current appraisal, future decision-making and performance control.

Basically, public finance is the study of the role of the government in the economy. It is the definitive
branch of economics which assesses the government revenue and government expenditure of the public
Authorities and the adjustments of one or the other to achieve desirable effects and avoid undesirable
ones.

Users of Public Sector Accounting Information

The users of Public Sector Accounting information may be discussed under the following two categories:
(A) Internal Users - This group is made up of:

(i) The Executive, such as the President of the Federal Republic of Nigeria, the Governors of the States and
Chairmen of the Local Government Councils.
(ii) The Federal Ministers and State Commissioners.
(iii) Top Administrators of Government Departments, e.g. The Permanent Secretaries and Directors.
(iv) The Chief Executives of Government Business Entities/Parastatals such as Power Holding Company of
Nigeria (PHCN) and the Nigeria Ports Authority (NPA) etc.
(v) Subordinates who oil the administration wheels.
(vi) The organised labour unions in the public service.

(B) External Users- This group comprises:

(i) The National Assembly.

(ii) The members of the public.
(iii) Governments, apart from the one that is rendering the report.
(iv) Foreign countries.
(v) Foreign financial institutions such as International Monetary Fund (IMF), World Bank, Department for
International Development (DFID), United Nations Children’s Fund (UNICEF) etc.
(vi) Creditors, both local and foreign.
(vii) Researchers.
(viii) Political parties, trade unions and Civil Liberty Organisations.

Objectives of Public Sector Accounting

The main objectives of Public Sector Accounting are as follows:

(a) Determining the legitimacy of transactions and their compliance with the statutes and accepted norms:
Public Sector disbursements should accord with the provisions of the Appropriation Acts and Financial
Regulations. There should be due authorisations for all payments so as to avoid the commission of acts of
misappropriation.
(b) Providing evidence of stewardship: The act of rendering stewardship is being able to account
transparently and diligently for resources entrusted. Government and Public Sector operators are obliged
to display due diligence and sense of probity in the collection and disposal of public funds.
(c) Assisting planning and control: The future faces a lot of risks and uncertainties. Mapping out plans
prevents an organisation from drifting.
Plans of actions provide the focus of activities which are being pursued.
(d) Ensuring objective and timely reporting: Users of Public Sector Accounting information are anxious to
bridge their knowledge gaps of what Government is doing. They definitely treasure prompt and accurate
statistics to evaluate the performance of Government.
(e) Evaluating the costs incurred and the benefits derivable: In Public Sector Organisations, it is difficult to
measure costs and benefits in financial terms in all respects. The analysis of Cost-Benefit assesses the
economic and social advantages (benefits) and disadvantages or inconveniences (costs) of alternative
courses of actions, to ensure that the comfort of the citizens is well catered for.

Other Objectives are as follows:

➢ Enhancing the appraisal of the efficiency of management.

➢ Highlighting the various sources of revenue receivable and the expenditure to be incurred.
➢ Identifying the sources of funding capital projects.
➢ Evaluating the economy, efficiency and effectiveness with which Public Sector Organisations
pursue their goals and objectives.
➢ Ensuring that costs are matched by at least equivalent benefits accruing there from.
➢ Providing the details of outstanding long-term commitments and financial obligations.
➢ Providing the means by which actual performance may be compared with the target set.
➢ Proffering solutions to the various bottlenecks and/or problems identified.

The Importance of Public Sector Accounting Information to Users

The internal users require accounting information in order to ascertain the various levels of regulatory
compliance and whether actual expenditure is in accordance with the budget. They like to ascertain
whether or not adequate safeguards are available for the protection of public resources.

Conversely, the external users require accounting information to ascertain the financial viability of the
public sector organisations and the efficiency and effectiveness of management. Both the internal and
external users want to know whether the accounting information enhance the quality, consistency, and
transparency of public sector financial reporting.

THE CONSTITUTIONAL AND REGULATORY FRAMEWORK OF PUBLIC SECTOR ACCOUNTING

Public Sector Accounting is governed by the following regulatory frameworks:

(a) Nigerian Constitution:

The 1999 Constitution of the Federal Republic of Nigeria is one of the legal frameworks that regulate the
receipts and disbursements of public funds. The sections of the Constitution quoted above authorise the
receipts and payments of Government, the allocation of revenue, the audit of public accounts and other
financial matters. For ease of reference, some specific sections of the 1999 Constitution and their
provisions are listed below:

Section 80 - Establishment of the Consolidated Revenue Fund (CRF).

Section 81 - Authorisation of expenditure from the CRF.
Section 82 - Authorisation of expenditure in default of appropriations.
Section 83 - Establishment of the Contingencies Fund.
Section 84 - Remuneration of Statutory Officers.
Section 84(4) - Comprehensive list of Statutory Officers.
Section 85 - Audit of public accounts.
Section 86 - Appointment of the Auditor-General for the Federation.
Section 87 - Tenure of office of the Auditor-General for the Federation.
Section 88 - Power to conduct investigation by the National Assembly.
Section 89 - Power as to matters of evidence.
Section 149 - Declaration of assets and liabilities and oaths of office.
Section 153 - List of Statutory Commissions.
Section 162 - Establishment of the Federation Accounts.
Section 163 - Allocation of other revenue.
Section 164 - Federal grants-in-aid of State revenue.
Section 168 Provision with regard to payments

(b) Allocation of Revenue (Federation Account, etc) Act, 1982 CAP. A.15

The Act prescribes the basis for distribution of revenue accruing to Federation Account between the
Federal, States and Local Governments: the formula for distribution among the States, the proportion of
the total revenue of each State to be contributed to the State Joint Local Government Account; and for
other purposes connected therewith. Some of the specific sections of the Act and their provisions are as
follows:
Section Details
1 Distribution of the Federation Accounts, etc
2 Formula for distribution between the Federal and State Governments
3 Formula for distribution between local governments
4 Proportion of revenue to be paid by each state to state Joint Local Government Account
5 Allocations under Special Funds

(c) Finance (Control & Management) Act of 1958, Cap 144, 1990.
This governs the management and operation of government funds. It regulates the accounting system,
the books of accounts to be kept and the procedures to be followed in the preparation of accounts and
financial statements.

(d) Finance/Treasury Circulars:

These are administration tools which are used to amend the existing provisions of Financial Regulations,
Public Service rules and the introduction of new policy guidelines.

(e) Public Procurement Act, 2007:

This is an Act which establishes the National Council on Public Procurement (NCPP) and the Bureau of
Public Procurement (BPP) as the regulatory authorities responsible for the monitoring and oversight of
public procurement, harmonising the existing government policies by regulating, setting standards and
developing the legal framework and professional capacity for public procurement in Nigeria. The Act sets
standards for organising procurements, methods of procurement of works, goods, consultancy and non-
consultancy services as well as the procurement approval thresholds for the Bureau of Public
Procurement, Tenders Boards and Accounting Officers for all Ministries, Departments and Agencies.

(f) Fiscal Responsibility Act, 2007

This Act provides for the prudent management of the Nation’s resources, ensures long-term macro-
economic stability of the national economy, secures greater accountability and transparency in fiscal
operations within a medium-term fiscal policy framework, and the establishment of the Fiscal
Responsibility Commission to ensure the promotion and enforcement of the Nation’s economic
objectives. The Act emphasises the preparation of Medium-Term Expenditure Framework, Annual Budget,
Budgetary Execution and Achievement Targets, Collection of Public Revenue, Public Expenditure, Debt
and Indebtedness, Borrowing, Transparency and Accountability.

(g) The Financial Regulations (2009 Edition)

The Financial Regulations are powerful control tools used in the public sector fund management. They are
the accounting manuals of the three tiers of Government designed to guide the management of public
funds.

The rules spell out the system concerning the receipts and disbursements of funds and the procedures to
ensure good accountability, prevention and early detection of frauds and errors and other financial
malpractices.

(h) Revised Financial Memoranda for Local Government, 1991

This is published by Federal Government which contains the administrative guidelines, the existing
systems of checks and balances as well as the roles of all the officers from the Chief Accounting Officer,
the Chairman to the officer at the lowest cadre.

The contents of Financial Memoranda for Local Government may be summarised as follows:
i. The format of budget and budgetary control
 ii. The financial responsibilities of the Chairman and other Accounting Officers of a Local
Government
iii. The responsibilities of the Internal Auditor as they relates to audit alarm
iv. The powers and functions of the Auditors General for Local Government
v. Various financial offences and their respective sanctions
vi. The means of revenue collection and control
vii. Main books of accounts kept in the Local Government
viii. The custody, accounting and control of stores
ix. The responsibilities of the Local Government Secretary, Treasurer and Head of Departments.

(i) Other laws guiding Public Sector Accounting and Finance

Other laws guiding Public Sector Accounting and Finance include:

✓ The Pension Reform Act of 2004 as amended in the Pension Reform Act of 2014,
✓ The Independent Corrupt Practices and Other Related Offences Commission (ICPC) Act of 2000,
✓ Economic and Financial Crimes Commission (Establishment) Act, 2002,
✓ Nigeria Extractive Industries Transparency Initiative (NEITI) Act 2007
✓ Appropriation Acts,
✓ Code of Conduct Bureau and Tribunal Act, 1991
✓ Money Laundering Act, 1995
✓ International Public Sector Accounting Standards (IPSAS)
✓ International Financial Reporting Standards (IRFS)
✓ Financial Reporting Council Act, 2011
✓ Freedom of Information Act, 2011

CONCEPTS AND PRINCIPLES APPLICABLE TO PUBLIC SECTOR ACCOUNTING AND FINANCE

Concepts have been defined as broad basic assumptions which underline the preparation of financial
statements of an enterprise. Public Sector Accounting is an integral but separate branch of Financial
Accounting, sharing in common many concepts and principles applicable in the private sector. These
concepts include: Consistency, Materiality, Periodicity, Duality, Entity, Historical Cost and Going Concern
etc.

Bases of Public Sector Accounting

There are three bases under which the financial statements of a public sector enterprise are compiled.
These are:
(a) The Cash basis.
(b) The Accrual basis.
(c) The Commitment basis.
(d) Modified Cash basis
(e) Modified Accrual basis

The Cash Basis

It is the basis of accounting under which revenue is recorded only when cash is received, and expenditure
recognised only when cash is paid, irrespective of the fact that the transactions might have occurred in
the previous accounting period. Non-Accountants such as General Managers of Government Corporations
and Police Superintendents are often called upon to perform some accounting duties or supervise
bookkeeping work. Such people need a simple method, which can be operated easily.

Advantages of Cash Basis

The advantages of this basis include the following:

(a) It is simple to understand.
(b) It eliminates the existence of debtors and creditors.
(c) It permits easy identification of those who authorize payments and collect revenue.
(d) It allows for comparison between the amount provided in the budget and that actually spent.
(e) It saves time and is easy to operate.
(f) It permits the delegation of work in certain circumstances.
(g) The cost of fixed assets is written off in the year of purchase, resulting in fewer accounting entries.

Disadvantages of the Cash Basis.

(a) It takes unrealistic view of financial transactions as only the settlement of liabilities is recognised. For
example, there are four stages through which a spending decision passes. These are:
(i) Issue of order or contract for the supply of goods or services.
(ii) Supply of goods or services - acknowledgment of liability.
(iii) Settlement of the amount of the good or service received.
(iv) Consumption of value.
The cash basis of accounting records only stage
(iii) while the accrual basis takes care of stages
(ii), (iii) and (iv). The commitment basis records stages (i) to (iv).
(b) It does not provide for depreciation since assets are written off in the year of purchase.
(c) It does not convey an accurate picture of the financial affairs at the end of the year.
(d) The cash basis cannot be used for economic decisions as it tends to hide basic information. For
example, some of the missing information relate to fixed assets, debtors and creditors.
(e) It does not accord with the ‘matching concept.’

Accrual Basis

Under this basis, revenue is recorded when earned and expenditure acknowledged as liabilities when
known or benefits received, notwithstanding the fact that the receipts or payments of cash have taken
place wholly or partly in other accounting periods.

Accrual basis is practised in the private sector and all parastatals such as Power Holding Company of
Nigeria (PHCN) and Customs Services. The reason for this is that private sector concerns are profit-
oriented. It is therefore necessary to estimate how much profit has been earned in each period, with a
view to keeping invested assets intact and making periodic distributions to shareholders by way of
dividends. In the public sector, the main consideration is the enhancement of the standard of living of the
people.
Advantages of Accrual Basis

The advantages of this basis can be summarised as follows:

(a) It takes a realistic view of financial transactions.
(b) It reveals an accurate picture of the state of financial affairs at the end of the period.
(c) It could be used for both economic and investment decision-making as all parameters for performance
appraisal are available.
(d) It aligns with the ‘matching concept.’
(e) It makes allowances for the diminution in the value of assets used to generate the revenue of the
enterprise.

Disadvantages of Accrual Basis

(a) It is very difficult to understand, especially by Non-Accountants.

(b) It does not permit easy delegation of work in certain circumstances.

Commitment Basis

It is a basis that records anticipated expenditure evidenced by a contract or a purchase order. In public
sector financing, budgetary and accounting systems are closely related to the commitment basis.

Advantages of Commitment Basis

(a) A separate payment tabulation is available when required.

(b) Adjustments occurring when actual expenditure has been obtained does not affect the final accounts.
(c) It is an aid to financial control. A commitment is regarded as a charge which has been made on a budget
provision.
(d) It takes a realistic view of financial transactions.
(e) It reveals an accurate picture of the state of financial affairs at the end of the period.
(f) It is used for both economic and investment decision making, as all parameters for performance
appraisals are available.
(g) It aligns with the ‘matching concept.’
(h) It makes allowance for the diminution in the value of assets employed to generate the revenue of the
enterprise.

Disadvantages of Commitment Basis

The system of Commitment Basis of Accounting has the following disadvantages:

(a) The system involves extra work. Actual figures have to be substituted for the commitment provisions
to finally determine the running balances under the sub heads of expenditure.
(b) Over-expenditure is more under commitment basis in the expectation that Government may finally
release fund to settle the legal obligations.

(c) At the year end, all commitments that are the subject of unfulfilled orders will have to be written back
to reflect the exact picture of the transactions which took place during the year.
(d) Balances which ought to have lapsed in the Vote Book at the end of the year may be spent by issuing
local purchase orders to exhaust the votes.
Modified Cash Basis

This is an Hybrid of cash and accrual basis. Under this basis, revenues are recorded on cash basis while
expenditures are recorded on accrual basis i.e, revenue is recorded when cash is received but expenditure
when incurred.

Under this basis, the books of accounts are left open for a maximum of three months after the end of the
year, so as to capture substantial amount of income or expenses relating to the year just ended.

Modified Accrual Basis

This is the basis under which revenue is recorded when received and not earned while expenditure is
recorded once its liability is incurred. It means that cash basis is used for recording revenue while accrual
basis is adopted for expenditure.

The modified accrual basis operates as follows:

Revenue is recorded when cash is received, except for:
(a) Revenue which is susceptible to accrual, and
(b) Revenue of a material amount which has not been received at the normal time it should.

Expenditure is recorded on accrual basis, except in the cases of:

(a) Disbursements for inventory items which may be considered as expenditure at the time the items are
utilised.
(b) Interest on long-term debt commonly accounted for in debt service funds, and recorded as
expenditure on its due date.

FUNDING PRINCIPLE

Fund accounting is oneof the fundamental principles underlying government accounting. Government
income is categorised into series of funds for stewardship purpose and each fund caters for a specific
welfare activity of government.

Funds can be defined as a separate fiscal and accounting entity in which resources are held, governed by
special regulations, separated from other funds and established for specific purposes

CLASSIFICATION OF FUNDS

Funds can be classified into three categories, namely:

1. Government Funds: They are used to accrue for resources which are derived from the general tax
and revenue power of government. Examples are debt service fund, special fund and revolving
fund i.e working capital fund
2. Proprietary Funds: These are funds to account for the resources derived from the business
activities of government and its agencies such as parastatals. Examples are various recurrent and
capital funds released to government business entities to carry out their operations.
 3. Fiduciary Funds: These are used to account for resources held and managed by government in the
capacity of a custodian or trustee. E.g Petroleum Technology Development Fund (PTDF), Trust and
Agency Fund and Pension Trust Fund

TYPES OF FUNDS

The following are different types of funds. They are:

➢ General Fund: This is fund established for resources which are devoted to financing the general
administration or services of government. It is also called Consolidated Revenue Fund (CRF).
Section 5 of the Finance (Control and Management) Act of 1958 Cap 144, 1990 stipulated that the
management of the fund shall be in accordance with the requirement of the Constitution of the
Federal Republic of Nigeria
➢ Capital Project Fund: This is a fund created to accommodate resources meant for acquisition of
capital assets or facilities. It is also knows as Capital Development Fund (CDF). It came into
existence by virtue of section 18 of Finance (Control and Management) Act of 1958. CDF sources
include but not limited to grants, share of VAT, transfer from CRF, etc.
➢ Special Fund: It is a fund created for special purposes, e.g South African Relief Fund, African Staff
Housing Scheme (A.S.H.S.), etc
➢ Trust Fund: It is a fund whose resources are held by government as a trustee. It is used for the
purpose stated in the trust deed, e.g Petroleum Technology Development Fund and Research
Foundation Fund
➢ Contingency Fund: It is a fund whose resources are meant for expenditure or anticipated
expenditure of uncertain amounts. An example is the expenditure on natural disaster. Section 15
of the Finance (Control and Management) Act of 1958 brought the fund into existence.
➢ Inter-Governmental Service Fund: This is established to provide service to other funds. E.g
Government Clearance Fund which helps to maintain (transitionally) the balance between the
Federal Government and State Governments in respect of transactions.
➢ Revolving Fund: This is also known as Working Capital Fund. It is created to finance services
provided by a designated unit to other department within a single government set-up. An
example is Revolving Loan Fund.
➢ Self-Liquidating Fund: This is a fund into which resources are transferred periodically and out of
which any money left has to be transferred to a current fund, e.g monies held on behalf of third
parties.

Comparison between Government Accounting and Private Sector Accounting

(a) The main objective of a commercial enterprise is to maximize profit while that of Government is to
provide adequate welfare to the people at reasonable costs.
(b) Government revenue is derived from the public in the form of taxation, fines, fees etc., whereas
business concerns obtain their income principally from the sales of goods and services.
(c) In Government, financial transactions are recorded on ‘cash basis’ while in commercial organizations,
it is on accrual basis.
(d) In Public Sector Accounting, tangible fixed assets such as land and building, plant and machinery are
not shown in the balance sheet, whereas in private sector accounting these are reflected, showing the
historical cost, accumulated depreciation and the net book value of each.
(e) In Public Sector Accounting, current assets such as stocks and debtors are not shown in the balance
sheet. Debtors and creditors are not reckoned with until money is received or paid. The current assets
and current liabilities are shown in private sector accounting system.
(f) In Government there is no Annual General Meeting of stakeholders/ shareholders, unlike the situation
with commercial enterprises. What Government does is to hold public briefing on specific issues.
(g) Accounting: The public sector majorly operates on IPSAS. They operates substantially on fund
accounting. However, the private sector accounting operate on IFRS and adopt proprietary approach for
their funding.
(h) Public Sector Accounting thrives rigidly on the budgetary approach, whereas in private sector
accounting budgeting is embraced as a very potent control instrument.
(i) Dissolution: On dissolution of public sector, any income raised or assets acquired cannot be distributed
to benefit members or directors, or officers of the organisation because all the proceeds must revert to
the state. However, income realised on dissolution of a private company can be distributed for the benefit
members, directors or officers of the organisation.

FUNDS IMPLICATIONS FOR INCOME MEASUREMENT AND VALUATION

The measurement of revenue/ income is useful for more than one purpose and therefore, its objectives
may be studied from different points of view:
1. As a guide to future Investment
The current income positively influence the expectations about the futures. The prospective
investors looks to the income of the business enterprises as a guide to his investments decisions
in the future. The investors attempt to maximise their returns on their investments and this
decision will be guided by income.
2. As a Tax Base
Though, the Income Tax Act does specify what is taxable and what is deductible in arriving at the
taxable income. The tax authorities can conveniently mobilise revenues through taxes, which are
one of the main sources of government income
3. As a guide to Dividend of Democracy Policy
The dividend of democracy policy at present is directed to determine the proportion of the
current revenue which should be retained and the proportion which should be distributed as
dividends of democracy. So long as dividends of democracy are paid out of current revenue, the
right of creditors are adequately protected since others resources of government would not be
used to pay dividends of democracy
4. As an Indicator of Managerial Efficiency
The efficiency of management as decision makers and as trustees of resources is judged by the
reported revenue of the current year. The auditors, therefore, certify that the financial statements
present a true and fair view of operational result. The measurement of government sources of
funds therefore provides a suitable criterion for the efficiency of management.
5. As a guide to Social-Economic Decision
A number of decisions affecting the society and economy as a whole are taken. Keeping in mind
the level of business income. For instance,, price increases are justified in terms of income levels.
Trade unions demand more wages for their members on the basis of reported income while
employers plead that increase in wages would have adverse effects on the income. Levels of
business income also guide the economic policies of the governments which constitutes a major
source of tax revenue
6. Asset Valuation
 Assets valuation plays a key role in finance and often consists of both subjective and objectives
measurements. The value of a government’s non-current assets is easier to measure, based on
their book values and replacement costs. However, there is no value on the financial statements
that tells investors exactly how much a government’s brand and intellectual property are really
worth. This is because the valuation of an intangible assets is subjective, therefore there is a risk
that goodwill can be overvalued in an acquisition.

Assets valuation is the process of determining the fair market or present value of assets using
book values, absolute valuation model like discounted cash flow analysis and option-pricing
models.

PUBLIC REVENUE
(a) Estimated revenue shall be broken down by the Executive Arm of Government into monthly collection
targets, indicating measures to combat tax fraud and evasion.
(b) The Executive Arm of Government shall at least 30 days before the deadline for the submission of its
budget proposals, place at the disposal of the National Assembly, the revenue estimates for the following
year.
(c) Any fund due to the Federation from any tier of government may be set off by the Federation in or
towards payment or remittance of any sum due to that tier of government from the Federation.

PUBLIC EXPENDITURE
Public Sector Resources Management requires that Government annual expenditure be kept below its
revenue level or, at worst, at par with the annual revenue from all sources so as to avoid the need to get
involved in deficit financing. Sometimes, however, the need to provide a higher level of and high quality
socio-economic services to the people may demand increased expenditure. Under this Act, conditions
under which this can occur are given hereunder.

Conditions for Increasing Government Expenditure:

(a) Any action of Government which results in increase in expenditure should be backed up by:
(i) an estimate of the budgetary or financial impact in the year it becomes effective and in the two
subsequent years;
(ii) a statement by the person requesting for the expenditure, stating that the increase is consistent with
the Appropriations Act and the Medium-Term Expenditure Framework;
(b) Prior budgetary allocation should have been done before granting any advantage or increase of
remuneration, creation of posts or allocation of career structures and admission of personnel.
(c) All contracts in relation to annual budget execution should comply with the rules and guidelines on:
(i) procurement and award of contracts
(ii) due process and certification of contract.

DEBT AND INDEBTEDNESS

(a) All tiers of a Government shall borrow only for capital expenditure and human development. Such
borrowing should also be on concessional terms with low interest rate and reasonable long amortization
period subject to the approval of appropriate legislative body.
(b) The public debt as a proportion of natural income shall be held at a sustainable level as prescribed by
the National Assembly.
(c) Government may borrow from the capital market.

INTERPRETATION OF BORROWING
Borrowing means any financial obligation arising from:
(a) any loan including principal, interest and fees on such loan
(b) the deferred payment for property, goods or services
(c) bonds, debentures, notes or similar instruments.
(d) letters of credit and reimbursement obligations with respect thereto
(e) guarantees
(f) trade or bankers acceptances
(g) capitalized amount of obligations under leases
(h) agreements providing for swap, ceiling rates, ceiling and floor rates contingent participation or other
hedging mechanism with respect to the payment of interest or the convertibility of currency.
(i) conditional sale agreements, capital leases or other retention agreement.

ETHICAL ISSUES IN PUBLIC SECTOR ACCOUNTING AND FINANCE

In order to stamp out the rising cases of corruption, fraud, greed and avarice which are pervasive in the
society and in view of the need to overhaul the image of the country before ‘accountability organs’ such
as Transparency International, the Federal Government of Nigeria introduced various regulatory laws and
measurers.

ECONOMIC AND FINANCIAL CRIMES COMMISSION (EFCC)

The EFCC was established by Act No. 5 of 2002, effective from 14 December, to combat economic and
financial crimes in Nigeria. The Commission is empowered to prevent, investigate, prosecute and sanction
economic and financial crimes and is charged with the responsibility of enforcing the provisions of other
laws and regulations relating to economic and financial crimes such as The Money Laundering Act 1995,
The Advance Fee Fraud and Other Related Offences Act 1995, The Failed Banks (Financial Malpractices in
Banks) Act 1994, The Banks and Other Financial Institutions Act 1991, and Miscellaneous Offences Act.

Composition
The Commission shall consist of the following members:
(a) (i) A Chairman, who shall be the Chief Executive and Accounting Officer of the Commission.
(ii) A serving or retired member of any Government security or law enforcement agency.
(b) A Director-General who shall be the Head of Administration.
(c) The Governor of the Central Bank or his representative.
(d) A representative each of the following Federal Ministries, not below the rank of a Director
(i) Foreign Affairs,
(ii) Finance,
(iii) Justice.
(e) The Chairman, National Drug Law Enforcement Agency.
(f) The Director-General, The National Intelligence Agency.
(g) The Director-General, The Department of State Security Service.
(h) The Director-General, Securities and Exchange Commission.
(i) The Commissioner for Insurance.
(j) The Postmaster-General, Nigerian Postal Services.
(k) The Chairman, Nigerian Communications Commission.
(l) The Comptroller-General, Nigeria Custom Services
(m) The Comptroller-General, Nigeria Immigration Services.
(n) A representative of the Nigeria Police Force, not below the rank, of Assistant Inspector-General.
(o) Four eminent Nigerians with cognate experience in finance, banking or accounting.
Duties of the Commission
According to Part II of the Act, the Commission is responsible for:
(a) The enforcement and the due administration of the provisions of the Act.
(b) The investigation of all financial crimes which include advance fee fraud, money laundering,
counterfeiting, illegal charge transfers, futures market fraud, fraudulent encashment of negotiable
instruments, computer credit card fraud, contract
scam, etc.
(c) The co-ordination and enforcement of all economic and financial crime laws and enforcement
functions conferred on any other person or authority.
(d) The adoption of measures to eradicate the commission of economic and financial crimes.
(e) The adoption of measures to identify, trace, freeze, confiscate or seize proceeds derived from terrorist
activities, economic and financial crime related offences or the properties, the value of which corresponds
to such proceeds.
(f) The adoption of measures which include coordinated preventive and regulatory actions, introduction
and maintenance of investigative and control techniques on the prevention of economic and financial
related crimes.
(g) The facilitation of rapid exchange of scientific and technical information and the conduct of joint
operations geared towards the eradication of economic and financial crimes.
(h) The examination and investigation of all reported cases of economic and financial crimes with a view
to identifying individuals, corporate bodies or groups involved.
(i) The determination of the extent of financial loss and such other losses by Government, private
individuals or organisations.
(j) Collaboration with Government bodies both within and outside Nigeria, carrying on functions wholly
or in part analogous with those of the commission concerning -
(i) The identification, determination, of the whereabouts and activities of persons suspected of being
involved in economic and financial crimes.
(ii) The movement of proceeds or properties derived from the commission of economic and financial and
other related crimes.
(iii) The exchange of personnel or other experts.
(iv) The establishment and maintenance of a system for monitoring international economic and financial
crimes in order to identify suspicious transactions and persons involved.
(v) Maintaining data, statistics, records and reports on persons, organisations, proceeds, properties,
documents or other items or assets involved in economic and financial crimes.
(vi) Undertaking research and similar works with a view to determining the manifestation, extent,
magnitude and effects of economic and financial crimes and advising Government on appropriate
intervention measures for combating same.
(k) Taking charge of, supervising, controlling, coordinating all the responsibilities, functions, activities
relating to the current investigation and prosecution of all offences connected with or relating to
economic and financial crimes, in consultation with the Attorney-General of the Federation
(l) Carrying out such other activities as are necessary or expedient for the full discharge of all or any of the
functions conferred on the Commission under the Act.

Powers of the Commission

Under paragraph 6 of the Act, the Commission has power to:
(a) cause investigations to be conducted as to whether any person has committed an offence under the
Act.
(b) cause investigations to be conducted into the properties of any person, if it appears to the Commission
that the person’s lifestyle and extent of his properties are not justified by his source of income.
(c) enforce the provisions of:
(i) The Money Laundering Act 1995.
(ii) The Advance Fee Fraud and Other Related Offences Act 1995,
(iii) The Failed Banks (Recovery of Debts) Financial Malpractices in Banks, Act 1994(as amended).
(iv) The Banks and Other Financial Institutions Act 1991 (as amended).
(v) Miscellaneous Offences Act, and
(vi) Any other law or regulations relating to economic and financial crimes.

OFFENCES AND CONVICTIONS

A summary of the various offences committed and the penalties stipulated under part IV, of the ACT is:
(a) Offences which relate to financial malpractice attracts 5 years imprisonment or a fine of fifty thousand
naira (N50,000) or both imprisonment and fine.
(b) Offences associated with terrorism attracts Imprisonment for life.
(c) Offences committed by public officers.........Between 15 and 25 years imprisonment.
(d) Retaining the proceeds of a criminal conduct. Not less than 5 years imprisonment or to a fine
equivalent to 5 times the value of the proceeds of the criminal conduct or to both fine and imprisonment.
(e) Offences in relation to economic and financial crimes…… Imprisonment for a term not less than 15
years and not exceeding 25 years.
(f) Retaining the proceeds of a criminal conduct attract not less than 5 years imprisonment or to a fine
equivalent to 5 times the value of the proceeds of the criminal conduct or to both fine and imprisonment.

Paragraph 20 of the Act says ‘for the avoidance of doubt and without any further assurance than this Act,
all the properties of a person convicted of an offence under this Act and shows to be derived or acquired
from such illegal act and already the subject of an interim order shall be forfeited to the Federal
Government.’

THE CORRUPT PRACTICES AND OTHER RELATED OFFENCES ACT, 2000

The Corrupt Practices And other Related Offences Act, 2000, gave birth to the Independent Corrupt
Practices and other Related Offences Commission. The Commission is a body corporate, endowed with
perpetual succession. It has a common seal and is juristic (that is, may sue and be sued in its corporate
name).

Composition of the Commission

The Commission shall consist of a Chairman and twelve (12) other members, two of whom shall come
from each of the six geo-political zones, thus:
(a) A retired Police Officer not below the rank of Commissioner of Police.
(b) A legal practitioner with at least 10 years post call experience.
(c) A retired Judge of a supreme court record.
(d) A retired Public Servant not below the rank of a Director.
(e) A woman.
(f) A youth not being less than 21 or more than 30 years of age at the time of his or her appointment.
(g) A Chartered Accountant.

The Chairman shall be a person who has held or is qualified to hold office as a Judge of a superior court of
record in Nigeria.
Appointment of Members
The Chairman and members of the Commission who must be persons of proven integrity shall be
appointed by the President upon confirmation by the Senate and shall not begin to discharge the duties
of their offices until they have declared their assets and liabilities as prescribed in the Constitution of the
Federal Republic of Nigeria.

The Chairman shall hold office for a period of five (5) years and may be re-appointed for another term of
(5) years. Other members hold office for (4) years and can be re-appointed for another four (4) years.

Removal of Members
The Chairman or any member can be removed from office by the President acting on an address
supported by two-thirds (2/3rd) majority of the Senate.

The Commission shall have a Secretary appointed by the President who under the general direction of the
Chairman shall be responsible for keeping the records of the Commission and the general administration
and control of the staff of the Commission.

Immunities
An Officer of the Commission when investigating or prosecuting a case of corruption, shall have all the
powers and immunities of a Police Officer under the Police Act and any other laws conferring power on
the Police or empowering and protecting law enforcement agents.

Duties of the Commission

(a) Where reasonable ground exists for suspecting that any person has conspired to commit or has
attempted to commit or has committed an offence under the Act or any other law prohibiting corruption,
to receive and investigate any report of the conspiracy to commit, attempt to commit or the commission
of such offence and, in appropriate cases the offenders.
(b) To examine the practices, systems and procedures of public bodies and where, in the opinion of the
Commission, such practices,

systems or procedures aid or facilitate fraud or corruption, to direct and supervise a review of them.
(c) To instruct, advise and assist any officer, agency or parastatals on ways by which fraud or corruption
may be eliminated or minimized by such officer, agency or parastatal.
(d) To advise Heads of Public Bodies of changes in practices, systems or procedures compatible with the
effective discharge of the duties of the public bodies as the Commission thinks fit to reduce the likelihood
or incidence of bribery, corruption and related offences.
(e) To enlist and foster public support in combating corruption.

Offences and Penalties

(a) Offence of accepting gratification: Any person who corruptly asks for, receives or obtains any property
or benefit of any kind for himself or for any other person or agrees or attempts to receive or obtain any
property or benefit of any kind for himself or for any other person, is liable to imprisonment for seven (7)
years.
(b) Offence of giving or accepting gratification through agent: On conviction, shall be liable to
imprisonment for seven (7) years.
(c) Acceptor or giver of gratification to be guilty, notwithstanding that, the purpose was not carried out or
matter not in relation to principal’s affairs or business: On conviction shall be liable to imprisonment for
(seven) 7 years.
(d) Fraudulent acquisition of property: Any person found guilty, shall on conviction, be liable to
imprisonment for seven (7) years.
(e) Fraudulent receipt of property: Any person who receives anything which has been obtained by means
of act constituting a felony or misdemeanour inside or outside Nigeria, which if it had been done in Nigeria
would have constituted a felony or misdemeanour and which is an offence under the laws in force in the
place where it was done, knowing the same to have been so obtained, is guilty of a felony and the offender
shall, on conviction be liable to imprisonment for seven (7) years.
(f) Penalty for offences committed through postal system: If the offence by means of which the thing was
obtained is a felony, the offender shall on conviction be liable to imprisonment for three (3) years, except
the thing so obtained was postal matter, or any chattel, money or valuable security contained therein, in
which case the offender shall on conviction be liable to imprisonment for seven (7) years.
(g) Deliberate frustration of investigation being conducted by the Commission: Any person who, with
intent to defraud or conceal a crime or frustrate the Commission in its investigation of any suspected
crime of corruption under the Act or any other
law destroys, alters, etc any document shall on conviction be liable to seven (7) years imprisonment.
(h) Making false statements or returns: Any person who knowingly furnishes any false statement or return
in respect of any money or property received by him or entrusted to his care, or of any balance of money
or property in his possession or under his control, is guilty of an offence and shall on conviction be liable
to seven (7) years imprisonment.
(i) Gratification by and through agents: Any person who corruptly accepts, obtains, gives or agrees to give
or knowingly gives to any agent, any gift or consideration as an inducement or reward for doing, fore
bearing to do any act or thing, shall on conviction be liable to five (5) years imprisonment.
(j) Bribery of public officer: Any person who offers to any public officer, or being a public officer solicits,
counsels or accepts any gratification as an inducement or a reward, in the course of official duties shall on
conviction be liable to five (5) years imprisonment with hard labour.
(k) Using office or position for gratification: Any public officer who uses his office or position to gratify or
confer any corrupt or unfair advantage upon himself or any relation or associate shall be guilty of an
offence and shall on conviction be liable to imprisonment for five (5) years without option of fine.
(l) Any public officer who in the course of official duties, inflates the price of any good or service above
prevailing market price or professional standards shall be guilty of an offence under this Act and liable on
conviction for a term of seven (7) years and a fine of one million naira (N1,000,000.00).

CODE OF CONDUCT FOR PUBLIC OFFICERS

The Fifth schedule, Part 1, of the 1999 Constitution states that “a public officer shall not put himself in a
position where his personal interest conflicts with his duties and responsibilities.’’

Restrictions on Specified Officers

A public officer shall not receive or be paid the emoluments of any public office just as he receives or is
paid the emoluments of any other public office, except where he is not on full time basis, or does not
engage in the running of any private business. However, no public officer shall be prevented from
engaging in farming.

Prohibition of Foreign Accounts

The President, Vice-President, Governors, Deputy Governors, Ministers of the Government of the
Federation, State Commissioners, Members of the National Assembly and of the Houses of Assembly of
the States and such other public officers or persons as the National Assembly may by law prescribe shall
not maintain or operate a bank account in any country outside Nigeria.

Retired Public Officers/Certain Retired Public Officers

No public officer shall, after retirement from public service and while taking pension from public funds,
accept more than one remunerative position as Chairman, Director or Staff of a company controlled by
the Government or any public authority. A retired public servant shall not receive any other remuneration
from public funds additionally to his pension and the emolument of such one remunerative position.

The holders of the offices of President, Vice-President, Chief Justice of Nigeria, Governor and Deputy
Governor of a State are prohibited from service or employment in foreign companies or foreign
enterprises.

Gifts or Benefits In-Kind

A public officer shall not ask for or accept any gift or benefit for himself or any other person, in the
discharge of his duties. However, he may accept personal gifts or benefits from relatives or friends as
recognised by custom only.

Bribery of Public Officers

A public officer should not receive any property, gift or benefit of any kind as a bribe for granting a favour
in the performance of his duties.

Abuse of Powers
A public officer shall not do or cause to be done, in abuse of his position, any arbitrary thing which
prejudices the rights of others.

Membership of Societies
A public officer shall not belong to a society, the membership of which run incompatible with the dignity
of his office.

PARAGRAPH 11 OF THE FIFTH SCHEDULE, PART 1, states that every public officer shall within three months
after the coming into force of this Code of Conduct or immediately after taking office and thereafter:
(a) at the end of every four years, and
(b) at the end of his term of office,
(i) Submit to the Code of Conduct Bureau a written declaration of all his properties, assets and liabilities
and those of his unmarried children under the age of eighteen years.
(ii) Any statement in such declaration that is found to be false by any authority or person authorized in
that behalf to verify it shall be deemed to be a breach of this Code.
(iii) Any property or assets acquired by a public officer after any declaration required under this
Constitution and which is not fairly attributable to income, gift or loan approved by this Code shall be
deemed to have been acquired in breach of this Code unless the contrary is proved.

CODE OF CONDUCT BUREAU

Part I of the Third Schedule of the 1999 Constitution established the Code of Conduct Bureau:
Composition
Code of Conduct Bureau shall consist:
(a) a Chairman; and
(b) nine (9) other members, each of whom at the time of appointment, shall not be less than fifty years of
age and vacate his office on attaining the age of seventy years.

The Bureau shall establish such offices in each State of the Federation as it may require for the discharge
of its functions under the Constitution.

Powers of The Code of Conduct Bureau

The Code of Conduct Bureau was set up to:
(a) receive declarations by the public officers made under paragraph 12 of Part 1 of the Fifth Schedule of
the 1999 Constitution;
(b) examine the declarations in accordance with the requirements of the Code of Conduct or any law;
(c) retain custody of such declarations and make them available for inspection by any citizen of Nigeria on
such terms and conditions as the National Assembly may prescribe;
(d) ensure compliance with and, where appropriate, enforce the provisions of the Code of Conduct or any
law relating thereto;
(e) receive complaints about non-compliance with or breach of the provisions of the Code of Conduct or
any law in relation thereto, investigate the complaint and, where appropriate, refer such matters to the
Code of Conduct Tribunal;
(f) carry out any other functions as may be conferred upon it by the National Assembly.;

CODE OF CONDUCT TRIBUNAL

It is made up of a Chairman and two other persons.

Punishments Imposed by the Tribunal

The following are the punishments, which the Code of Conduct Tribunal shall impose if it finds a public
officer guilty of contravention of any of the provisions of the Code of Conduct for Public Officers, viz:
(a) Vacation of office or seat in any Legislative House.
(b) Disqualification from membership of a Legislative House and from holding any public office for a period
not exceeding ten years.
(c) Seizure and forfeiture to the State any property acquired in abuse or corruption of office.
(d) Penalties that may be imposed by any law where the conduct is also a criminal offence.
(e) Prosecution of the Public Officer punished in a court of law.

NIGERIA EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE, (NEITI) ACT, 2007

Objectives of the NEITI:

(a) to ensure due process and transparency in the payments made by all extractive industry companies to
the Federal Government and statutory recipients.
(b) to monitor and ensure accountability in the revenue receipts of the Federal Government from
extractive industry companies.
(c) to eliminate all forms of corrupt practices in the determination, payments, receipts and posting of
revenue accruing to the Federal Government from extractive industry companies;
(d) to ensure transparency and accountability by government in the application of resources from
payment received from extractive industry companies, and
(e) to ensure conformity with the principles of Extractive Industries Transparency Initiative

Functions of NEITI:
(a) develop a framework for transparency and accountability in the reporting and disclosure by all
extractive industry companies of revenue due to or paid to the Federal Government;
(b) evaluate without prejudice to any relevant contractual obligations and sovereign obligations the
practices of all extractive industry companies and government respectively regarding acquisition of
acreages, budgeting, contracting, materials procurement and production cost profile in order to ensure
due process, transparency and accountability.
(c) ensure transparency and accountability in the management of the investment of the Federal
Government in all extractive industry companies,
(d) obtain, as may be deemed necessary, from any extractive industry company an accurate record of the
cost of production and volume of safe of oil, gas or other minerals extracted by the company at my period,
provided that such information shall not be used in any manner prejudicial to the contractual obligation
or proprietary interests of the extractive industry company,
(e) request from any company in the extractive industry, or from any relevant organ of the Federal State
or Local Government, an accurate account of money paid by and received from the company at any
period, as revenue accruing to the Federal Government from such company for that period; provided that
such information shall not be used in a manner prejudicial to contractual obligations or proprietary
interest of the extractive industry company or sovereign obligations of Government,
(f) monitor and ensure that all payments due to the Federal Government from all extractive industry
companies, including taxes, royalties, dividends, bonuses, penalties, levels and such like are duly made;
(g) identify lapses and undertake measures that shall enhance the capacity of any relevant organ of the
Federal State or Local Government having statutory responsibility to monitor revenue payments by all
extractive industry companies to the Federal Government,
(h) disseminate by way of publication of records, report or otherwise any information concerning the
revenues received by the Federal Government from all extractive industry companies as it may consider
necessary;
(i) promote or undertake any other activity related to its functions and which in its opinion, is calculated
to help achieve its overall objectives as enumerated in section 2 of this Act;
(j) ensure that all fiscal allocations and statutory disbursements due from the Federal Government to
statutory recipients are duly made.

Appointment of External Auditors for the Extractive Industry Companies

According to Section 4. (1) of NEITI Act 2007, NEITI shall, in each financial year appoint independent
auditors to audit the total revenue which accrued to the Federal Government for that year from extractive
industry companies, in order to determine the accuracy of payments and receipts. The independent
auditors appointed under subsection (1) of this section shall undertake a physical process and financial
audit on such terms and conditions as may be approved by the National Stakeholders Working Group
(NSWG). Upon the completion of an audit, the independent auditors shall submit the reports together
with comments on the Extractive Industries Company to NEITI, which shall cause same to be disseminated
to the National Assembly and the Auditor-General for the Federation and also ensure their publication.
NEITI shall submit a bi-annual report of its activities to the President and National Assembly.

The Auditor-General for the Federation shall not later than 3 months after the submission of the audit
report to the National Assembly publish any comment made or action taken by the Government on the
audit reports.

Penalties for Offences Committed by Extractive Industry Companies

(a) An extractive industry company which gives false information or report to the Federal Government or
its agency regarding its volume or production, sales and income; or renders false statement of account or
fails to render a statement of account required under this Act to the Federal Government or its agencies,
resulting in the underpayment or non-payment of revenue accruable to the Federal Government or
statutory recipients commits an offence and is liable on conviction to a fine not less than N30,000,000.
(b) Where the Extractive industry has been convicted of an offence under (a) above, the court shall, in
addition to the penalty prescribed there under, order the company to pay the actual amount of revenue
due to the Federal Government.
(c) An extractive industry company which delays or refuses to give information or report under this Act,
or wilfully or negligently fails to perform its obligations under this Act, commits an offence and is liable on
conviction to a fine not less than N30,000,000.
(d) President may on the recommendation of the NSWG suspend or revoke the operational license of any
extractive industry company which fails to perform its obligations under this Act.
(e) If any extractive industry company commits an offense against the Act, every Director or other persons
concerned in the management of the company commits the offence and is liable on conviction to not less
than 2 years imprisonment or a fine not less than N5,000,000 unless that person proves that
(i) the offence was committed without his consent or connivance, and
(ii) the person exercised all such diligence to prevent the commission of the offence as ought to have been
exercised by that person, having regard to the nature of his functions in that company and to all the
circumstance.
(f) A government official who renders false statement of account or fails to render a statement of account
required under this Act to the Federal Government or its agencies, resulting in the underpayment or non-
payment of revenue accruable to the Federal Government or statutory recipients, commits an offence
and is liable on conviction to not less than 2 years imprisonment or a fine not less than N5,000,000, unless
that person proves that
(i) the offence was committed without his consent or connivance, and
(ii) the person exercised all such diligence to prevent the commission of the offence as ought to have been
exercised by that person, having regard to the nature of his functions in that company and to all the
circumstance.

National Stakeholders Working Group (NSWG)

The governing body of the NEITI shall be the National Stakeholders Working Group (in this Act referred to
as “the NSWG”)
Functions of NSWG
(a) Be responsible for the formulation of policies, programmes and strategies for the effective
implementation of the objectives and the discharges of the functions of the NEITI.
(b) Have powers to recommend the annual budget and work-plan of the NEITI and ensure the periodic
review of programmes performance by the NEITI

Composition of National Stakeholders Working Group (NSWG)

The NSWG shall be constituted by the President and shall consist of a Chairman
and no more than 14 other members one of whom shall be an Executive Secretary.
In making appointment into the NSWG, the President shall include:
(i) representative of extractive industry companies,
(ii) representative of Civil Society,
(iii) representative of Labour Unions in the extractive Industries,
(iv) experts in the extractive industry, and
(v) one member from each of the six geopolitical zones.

Tenure, Allowances and Meetings of National Stakeholders Working Group (NSWG)

(a) The Chairman and other members of NSWG other than the Executive Secretary shall serve on part-
time basis.
(b) The appointment of Executive Secretary shall be for 5 years and no more.
(c) A person appointed as a member of the NSWG shall hold office for 4 years and no more.
(d) The members of the NSWG as well as any person appointed to any of its special committees may be
paid such allowances out of the funds of the NEITI as the National Revenue Mobilization and Fiscal
Commission may approve.
(e) The NSWG shall ordinarily meet quarterly for the dispatch of business at such times and places as it
may determine, but not less than four times in a year.

At every meeting of the NSWG, the Chairman shall preside and in his absence, a member of the NSWG
appointed by the members from among themselves shall preside. Questions proposed at a meeting of
NSWG shall be determined by a simple majority of members present and voting and in the event of an
equality of votes, the person presiding shall have a casting vote.

The NSWG may at any time co-opt any person to act as an adviser at any of its meetings but no person so
co-opted shall be entitled to vote at any meeting.

The validity of the proceedings of the NSWG shall not be affected by the absence of any member, vacancy
among its membership or by any defect in the appointment of any of the members.

The quorum of the NSWG at any meeting shall be 8 members.

GENERAL RULE
(a) Any officer found guilty of contravention of any of the provisions of the Code of Conduct shall appeal
to the Court of Appeal.
(b) Prerogative of mercy shall not apply to any punishment imposed by the Tribunal.

GOVERNMENT CONSTRUCTION CONTRACTS AND PROCUREMENTS

According to the Statement of Accounting Standard No. 11 (SAS 11) and the International Public Sector
Accounting Standards No. 11 (IPSAS 11), Construction Contract refers to the execution of a building and
civil engineering projects, mechanical and electrical engineering installations and other fabrications
normally evidenced by agreements between two or more parties.

In Government, a construction contract is a capital project which is normally financed by appropriations

from the Capital Development Fund.

THE TENDERS’ BOARD ON CONTRACTS

A tender is a proposal for the supply of some services or goods. It is usually made and presented as a
result of an invitation. It is legally accepted as an offer for acceptance.

The Tenders Board is the assemblage or congregation of public officers constituted to handle public
tenders in respect of all government contract works and/or services.
Government introduced the new policy guidelines on the procurement and award of contracts in all
Ministries and Extra-Ministerial Departments in the year 2001, on the strength of Federal Ministry of
Finance’s circular no. F15775 of 27 June, 2001.

Types of Tenders’ Boards

The Departmental Tenders Board and the Federal Tenders Board have been abrogated. The functions are
now assumed by the Permanent Secretaries and Ministerial Tenders Board, respectively. Contracts of
works, services and purchases of up to Five Million Naira (N5,000,000) can be approved by the Permanent
Secretary/Chief Executive without open competitive tendering. However, at least three relevant written
quotations should be obtained from suitably qualified contractors/ suppliers. All expenditure incurred
under this policy should be documented and reported to the Honourable Minister on quarterly basis, for
information.

Ministerial Tenders Board

The set-up may be discussed, as follows:

(a) Composition
The Chairman is the Permanent Secretary/Chief Executive of the Ministry or Extra-Ministerial Department,
respectively. Other members are all Directors/Heads of Departments in the Ministry or Establishment.
(b) Limit of Expenditure
The Ministerial Tenders Board is empowered to award any contract which its value exceeds
N5,000,000.00 (Five Million Naira) but not more than N100,000,000.00 (One Hundred Million Naira
Only).
(c) Approval
The decision of the Ministerial Tenders Board (MTB) shall be confirmed by the Honourable Minister.

Armed Forces/Ministry of Defence Tenders Board

Composition: The composition of the Board is:

(a) The Chairman of the Armed Forces/Ministry of Defence Tenders Board shall be the Permanent
Secretary, Ministry of Defence.
(b) Other members are representatives of the Army, Navy, Air Force and the Director of Finance and
Accounts of the Ministry of Defence.
(c) Approval
The decision of the Armed Forces/Ministry of Defence Tenders Board shall be subject to the confirmation
of the Minister of Defence.

Nigeria Police Tenders and Purchasing Board (Ministerial)

According to Government Financial Regulations and the Ministry of Finance’s circular No. F15775 of 27
June, 2001, the Composition of the Board is:
(a) The Chairman shall be the Permanent Secretary, Police Affairs.
(b) Other members are:
(i) The Deputy Inspector-General of Police (Finance and Administration).
(ii) All the Heads of Departments.
(iii) The Head of Finance and Accounts Department.
(c) Approval
Each contract awarded by the Nigeria Police Tenders and Purchasing Board shall be subject to the
confirmation of the Minister of Police Affairs.

POWERS OF BOARDS OF CORPORATIONS AND PARASTATALS OVER TENDERS

(a) The Chief Executive of a Parastatal is empowered to make purchase or award a contract, the value of
which does not exceed N2,500,000.00 (Two Million, Five Hundred Thousand Naira Only), without open
competitive tendering. However at least, three relevant written quotations should be obtained from
suitably qualified contractors or suppliers. Any expenditure incurred under this policy should be
documented and reported to the Chairman of the Board of the Corporation on quarterly basis.
(b) Any contract exceeding N2,500,000.00 (Two Million, Five Hundred Thousand Naira) but not more
than N50,000,000.00 (Fifty Million Naira) shall be referred to the Board of Parastatals Tender Board for
approval.
(c) Any contract whose value exceeds N50,000,000.00 (Fifty million Naira) but not more than N100million
(One Million Naira) shall be referred to the Ministerial Tenders Board (MTB) of the relevant supervising
Ministry or Corporation/Parastatal, for consideration.

FEDERAL EXECUTIVE COUNCIL

Any contract, which the value exceeds 100,000,000.00 (One Hundred Million Naira) shall be approved by
the Federal Executive Council.

TENDER SPLITTING

Government’s Financial Regulation regards it as “an offence for any public officer to deliberately split
tenders, contracts of works, purchases procurement or services so as to circumvent the provisions of this
chapter and the circular earlier referred to.

Such breach of the rules will be severely dealt with by a competent disciplinary authority”.

REGISTRATION OF CONTRACTORS/SUPPLIERS

All eligible contractors/suppliers must be duly registered with the Federal Ministry of Works and Housing
or their respective ministries or Extra-Ministerial Departments. They must produce their VAT registration
certificate before registration.

AUDIT INSPECTION

The following must be forwarded to the Auditor-General for the Federation:

(a) Certified true copies of all contract agreements.
(b) The minutes of Tenders Board meetings, and
(c) Full records of all tendering processes which shall be made available for the inspection of Auditor-
General for the Federation and the Accountant-General, at short or no notice. The records shall be kept
for verification for a period of seven (7) years, from the date of completion and take-over of the project.

As a condition for final payment for contracts exceeding N5million (Five Million Naira), the Auditor-
General for the Federation or his representative and a very senior member of the Ministry/Agency should
countersign the certificate releasing final payment.
OPERATION OF TENDER BOARDS

When approval has been obtained in respect of a contract for the supply of goods and/or services and
availability of fund confirmed, the Tenders Board Secretariat will be informed of the magnitude of the
amount so required. The Secretary to the relevant Board will inform the Chairman as to when the contract
will be slated for consideration.

Where the Board meets periodically, the Secretary will present the issue at such a meeting. However,
where the contract award necessitates any urgency, an emergency meeting may be summoned.

NOTICE OF INVITATION

At its meeting, the Board orders a notice of invitation to tender for the contract to be put up. Such notice
will include all necessary details in respect of the jobs/services to be awarded. Where the use of tender
forms applies the information disclosed in the notice may be limited while the form will contain the
details. The media through which such notice shall be published includes one official gazette and/or the
national newspapers and magazines. The notice board of the offices of the Ministry concerned shall also
be used in displaying the advertisement. A specific date is always given as closing date for the submission
of tenders.

SELECTIVE TENDERS

Where the implementation of a project is to be accelerated, selective or limited tender procedure may be
applied. In this case, the number of contractors to be invited to tender shall not be less than five.

DEPOSIT FOR TENDER

Where deposit is required before a tender form is submitted, it may be required that a Treasury receipt
for the required amount is attached to it before the form is considered at all. Sometimes, the Treasury
receipt or the amount paid by the depositor is confirmed before the tender form is issued.

TENDER PROCEDURE

Tenders are usually submitted in sealed envelopes to the Secretariat of the Tenders Board. At the close
of the notice of invitation to tender, the Secretary under the close supervision of the Chairman or a
member deputizing for him will open the Tenders.

They will be numbered serially and authenticated by the initials of the Secretary, with the dates indicated.
The tenders will thus be listed, in duplicate, and kept in safe custody. A meeting of the Board will then be
summoned to, among other things, discuss the tenders and make necessary selections for onward
transmission to the approving authority. The Board usually selects the best of the tenders.

Consideration will include the past records of the contractors, the quality of service being offered, and
experience as can be deduced from the tender price (rate). It is necessary to emphasise that the lowest
tender does not necessarily have to be the best, as many other things are considered.
If all the tenders are rejected, fresh applications shall be called for. However, if one of the tenders is
recommended, all the bids shall be forwarded with a duplicate list to the approving authority with
comments or remarks on why each tender is recommended or not.

AWARD OF THE CONTRACT

The approving authority will communicate his position to the Tenders Board. The Secretary will
subsequently write a letter of award to the successful tenderer and/or invite him for the signing of the
contract. Where necessary, a bond will have to be signed and/or sureties provided. In principle, the award
of the contract has to be published in the newspapers and gazette and unsuccessful tenderers informed
as such.

As earlier stated, certified true copies of the contracts are to be forwarded to the Auditor-General as well
as the Accountant-General. It should be emphasised that Government contracts are not to be ‘sub-let’,
“assigned”, except the terms of the agreement require or permit this. The sale of Government property
may be made by tender, in the same way as award of contract.

POST CONTRACT AWARD ACTIVITIES

These may be briefly discussed, as follows:

( a ) Tender Board Information on Voucher

Payment voucher in respect of a contract awarded through tender must contain among other things:
(i) Certified true copy of all the minutes of the meetings of the Tenders Board in relation to the award of
the contract.
(ii) Certified true copy of the contract agreement.
(iii) Copy of the approving authority.
(iv) Copy of each voucher in respect of payments already made on the contract.

(b) Tenders Board Information Availability

Minutes of the Tenders Board meetings and the full records in respect of the various types of tendering,
shall be made available to the Accounting Officer on request and for inspection of the Auditor-General,
on demand.

TERMS ON CONTRACT
These are:
( a ) Contingencies Clause
This is one of the clauses in contract agreements which states that if the contractor had taken reasonable
care in executing the job and he is still faced with unexpected situation, the contractee or the owner of
the project shall bail out the contractor by making more money available, or review upward the contract
sum. If otherwise, the contractor will bear the cost.
(b) Retention Fee
It is a clause in a contract agreement which states that after the completion of the project, Government
shall with-hold about 5% of the contract sum, for six (6) months. The amount withheld will be paid to
the contractor thereafter if the project is properly executed and constructional error is not noticed.
If the job is not properly executed, e.g if there is a crack on the wall and is due to an error which arose
from construction, then the amount withheld will be used to correct the anomaly. If the amount withheld
is not enough, Government will ask the contractor to pay in the difference. If the contractor fails to pay it
in, he may be blacklisted.

CONTRACT PAYMENT VOUCHERS

All payment vouchers relating to contract awards should contain the following information:
(a) The names and addresses of the contractors.
(b) Contract numbers.
(c) The votes of charge.
(d) Description of projects.
(e) Certificate numbers being paid.
(f) The gross amounts and retention fees (if any) of the contracts.
(g) The authority for payment.
(h) If it is part payment of a certificate which is being effected, a statement to show the full amount of the
contract and the balance outstanding, should be disclosed.

Payments for Contracts and Procurements

The Federal Government’s policy from January 2009 is that public fund would henceforth be made
electronically; payments are henceforth to be effected to the contractors by electronic transfers to their
bank accounts.

The objective of the new system is to eliminate delay in effecting payments to the creditors, contractors,
etc. of government and minimise undue interaction between the agents of Government and third parties.

The ultimate objective is to reduce, if not completely put a stop to, corruption and other vices.

Implementation of the E-Payment Procedure

Treasury Circular Ref. No. TYR/A8 &B8/2008, reference OAGF/CAD/026/ Vol. 11/465 of 22nd October,
2008 conveys the guidelines for the implementation of the ‘e-payment’ procedure, as follows:
(a) All forms of payments from all government funds are to be made through the banks, either Commercial
Banks or Central Bank of Nigeria.
(b) All organs of Government, Ministries, Departments and Agencies are to stop using cheques to make
payments to contractors.
(c) All bank accounts in respect of all Government funds shall cease to be cheque accounts.
(d) Government contractors must indicate their current accounts particulars with Commercial Banks on
the invoices submitted for payment under their corporate seals.
(e) Mandates containing details of payments shall be issued to Banks authorizing them to pay into the
contractors’ designated bank accounts, the proceeds of executed contracts and supplies.
(f) In addition to the existing monthly financial returns, every organization of Government, Ministry,
Department or Agency must forward copies of mandates issued to Banks to the Office of Accountant-
General of the Federation.
(g) Henceforth, all employees of the Federal Government of Nigeria must open accounts with the
commercial banks into which all payments due to them as individuals would be made.
(h) On no account should Central Pay Officers (CPO) collect cash from the bank for the purpose of
disbursement to any government official.
Contract Registers

Copies of all contract agreements must be forwarded to the Accounts Division of relevant Ministry or
Extra-Ministerial Department. They should be entered in a Contract Register maintained.

The register will contain the following information:

(a) Name and address of contractor.
(b) Contract number.
(c) Contract sum.
(d) Contingency and variation clauses (if any).
(e) Payment terms.
(f) Completion period of contract work.
(g) File number.
(h) Particulars of payment and balance outstanding.
(i) Signature of officer controlling expenditure.

In the case of a big project in respect of which there are many contracts, a project register may be
maintained as a summary of various contracts, to ascertain at any given time how much has been paid.

Attachments to Contract Payment Vouchers

Before a contract payment voucher is processed for payment, the following items should be ascertained
and attached:
(a) A copy of the minutes of the Tenders Board awarding the contract. It should be ascertained that the
amount of the contract is within the Board’s power.
(b) A completion certificate of work done, signed by a competent authority in the field, such as an
Engineer, a Surveyor or an Architect.
(c) A copy each of the letter of award and contract agreement.
(d) In the case of supplies, original copies of delivery notes and store receipt vouchers issued.
(e) A bill or invoice submitted by the firm requesting for payment.

BID SECURITY

All contracts established to cost N10 million (Ten Million Naira) and above should attract a Bid Security
in an amount of not more than 2% of the bid price by way of a bank guarantee issued by reputable banks
acceptable to the procuring entity.

PERFORMANCE BOND GUARANTEE

Performance Bond Guarantee in an amount of 10% of contract value or an amount equivalent to the
mobilisation fee requested by the supplier or contractor whichever is higher should be obtained for all
contracts.

PROCUREMENT PLAN

Quantity procurement arrangement should be evolved and used to determine the requirement of funds
for various Government offices during the fiscal year.
Such plans should spell out the timing for different procurement actions and hence, the funding
requirements at different stages. Release of funds should be on the basis of realistic, approved and
updated procurement plans.

SERVICES OF INTERNATIONAL AGENTS

The services of International Procurement Agents of the highest repute may be obtained, to assist in
medium and large scale contracting where necessary.

MOBILISATION FEE

Mobilisation fee where necessary and appropriate shall not exceed 15% of the contract sum. However,
payment of such mobilization fee shall be effected upon written application and an unconditional Bank
Guarantee for equivalent amount valid until the goods are supplied or until the mobilization fee has been
repaid, in the case of works contracts. Only Unconditional Bank Guarantees issued by reputable Banks
should be accepted.

INTEREST ON DELAYED PAYMENT

There shall be a provision of interest payment to contractors for delayed payments by Ministries/Extra
Ministerial Departments. Such payment should however be made:
(a) At the interest rate specified in the contract agreement;
(b) If there is delay in the settlement of the claim of more than 60 days, from the date of submission of
the contractor’s invoice/valuation certificate and the confirmation/authentication by the relevant
Ministry.

Contract Revenue
According to the standard, contract revenue should comprise:
(a) The initial amount of revenue agreed in the contract; and
(b) Variations in contract work, claims incentive payments to the extent that:
(i) It is probable that they will result in revenue; and
(ii) They are capable of being reliably measured.

Contract Costs
Contract costs should comprise:
(a) Costs that relate directly to the specific contract;
(b) Costs that are attributable to contract activity in general and can be allocated to the contract on a
systematic and rational basis; and
(c) Such other costs as are specifically chargeable to the customer under the terms of the contract.

Recognition of Contract Revenue and Expenses

When the outcome of a construction contract can be estimated reliably, contract revenue and contract
costs associated with the construction contract should be recognised as revenue and expenses
respectively by reference to the stage of completion of the contract activity at the reporting date.

In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably
when all the following conditions are satisfied.
(a) Total contract revenue, if any, can be measured reliably;
(b) It is probable that the economic benefits or service potential associated with the contract will flow to
the entity;
(c) Both the contract costs to complete the contract and the stage of contract completion at the reporting
date can be measured reliably;
(d) The contract costs attributable to the contract can be clearly identified and measured reliably so that
actual contract costs incurred can be compared with prior estimates.
In the case of a cost plus or cost based contract, the outcome of a construction contract can be estimated
reliably when all the following conditions are satisfied:
(a) It is possible that the economic benefits or service potential associated with the contract will flow to
the entity; and
(b) The contract cost attributable to the contract, whether or not specifically reimbursed, can be clearly
identified and measured reliably. When the outcome of a construction contract cannot be estimated
reliably:
(a) Revenue should be recognised only to the extent of the contract costs incurred that it is probable will
be recovered; and
(b) Contract costs should be recognised as expenses in the period in which they are incurred.

Recognition of Expected Deficits

According to the standard, construction contracts in which it is intended at inception of the contract that
contract costs are to be fully recovered from the parties to the construction contract, when it is probable
that total contract costs exceed total contract revenue, the expected deficit should be recognised as an
expense immediately.

Disclosure
The standard stipulates that an entity should disclose:
(a) The amount of contract revenue recognised as revenue in the period;
(b) The methods used to determine the contract revenue recognised in the period; and
(c) The methods used to determine the stage of completion of contracts in progress.
An entity should disclose each of the following for contracts in progress at the reporting date:
(a) The aggregate amount of costs incurred and recognised surpluses (less recognised deficits) to date;
(b) The amount of advances received; and
(c) The amount of retentions.
The standard further states that an entity should present:
(a) The gross amount due from customers for contract work as an asset; and
(b) The gross amount due to customers for contract work as a liability.

COMPETITIVE TENDERS

The Ministerial Tenders Board must adopt the open competitive tendering procedures. However, if it is
considered necessary to use selective or limited tender procedures, the short-listing or selection of
contractors or suppliers should be done by the Ministerial Tenders Board. In addition, the following
procedures and practices should be adopted:
(a) All contracts above N10Million (Ten Million Naira) should be advertised in at least two national dailies
and/or Government gazette. The advertisement will be at least six weeks before the deadline for
submitting bids for goods and works, and at least one month for consultancy services. Notices of all other
tenders must be pasted at the notice board of procuring agencies.
(b) Opening of tenders must be done in the ‘open’ at a designated date and time and opening should
immediately follow the closing of the bidding period, to minimize the risk of bid tampering. The following
people should be invited to the opening tender:
(i) The bidders or their representatives.
(ii) Members of the civil society.
(iii) Members of the press, if they wish to attend.
(c) Bid evaluation criteria should be clearly defined in the bidding documents and the award of all
contracts should be based on the criteria so defined.
(d) There should be a committee made up of professionals for the evaluation of the bids. The Secretary of
the Tenders Board should be Secretary of the Committee. Members of the Evaluation Committee, Tenders
Boards, and approval authorities should be obliged to declare any conflict of interest and exclude
themselves from bid evaluation and approval processes.
(e) The award of any major contract of N20,000,000 (Twenty Million Naira) and above should be
published in two national dailies, stating:
(i) Description of the contract.
(ii) Name of the contractor.
(iii) Contract price.
(f) Contract awards should be properly handled so as to avoid or minimize variations. Contract variations
should not be allowed except when absolutely necessary, subject to approval and/or the recommendation
of the Ministerial Tenders Board (MTB). The method for determining price variation during contract
execution should be incorporated into the contract. Such price variations shall be for contracts extended
for more than eighteen (18) months.

OPERATION OF THE PUBLIC PROCUREMENT ACT, 2007

Procurement In Government

The National Council on Public Procurement was established by the Public Procurement Act, 2007. The
Council is to carry out the following functions:
(a) Consider, approve and amend the monetary and prior review thresholds for the application of the
provisions of the Act by procuring entities.
(b) Consider and approve policies on public procurement.
(c) Approve the appointment of the Directors of the Bureau of Public Procurement.
(d) Receive and consider, for approval, the audited accounts of the Bureau of Public procurement.
(e) Approve changes in the procurement process to adapt to improvements in modern technology.
(f) Give such other directives and perform such other functions as may be necessary in order to achieve
the objectives of the Act.

Membership of National Council on Public Procurement (NCPP)

(a) Minister of Finance, as Chairman.
(b) Attorney-General and Minister of Justice of the Federation.
(c ) Secretary to the Government of the Federation.
(d) Head of Service of the Federation.
(e) Economic Adviser to the President.
(f) Six Part-Time members representing:
(i) Nigeria Institute of Purchasing and Supply Management.
(ii) Nigeria Bar Association.
(iii) Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture.
(iv) Nigeria Society of Engineers.
(v) Civil Society.
(vi) The media.
(g) Director-General of the Bureau who shall serve as the Secretary to the Council.

Bureau of Public Procurement (BPP)

The Bureau was established by the Public Procurement Act, 2007. Its Objectives include:
(a) Harmonization of existing government policies and practices on public procurement and ensuring
probity, accountability and transparency in the procurement process.
(b) Establishment of pricing standards and benchmarks.
(c) Ensuring the application of fair, competitive, transparent, value for money standards and practices for
the procurement and disposal of public assets and services.
(d) Attainment of transparency, competitiveness, cost effectiveness and professionalism in the public
sector procurement system.
The Bureau’s functions as stated by the Act include:
(a) Formulating the general policies and guidelines relating to public sector procurement for the approval
of NCPP;
(b) Publicising and explaining the provisions of the Act;
(c) Certifying Federal Government procurement prior to the award of the contract;
(d) Supervising the implementation of established procurement policies;
(e) Monitoring the prices of tendered items and keeping a national database of standard prices;
(f) Publishing the details of major contracts in the procurement journal;
(g) Publishing paper and electronic editions of the journal and maintaining an archival system for the
procurement journal;
(h) Maintaining a national database of the particulars and classification and categorization of Federal
contracts and service providers;
(i) Collating and maintaining in an archival system, all federal procurement plans and information;
(j) Undertaking procurement research and surveys;
(k) Organising training and development programmes for procurement professionals;
(l) Periodically reviewing the socio- economic effect of the policies on procurement and advice NCPP
accordingly;
(m) Preparing and updating standard bidding and contract documents;
(n) Preventing fraudulent and unfair procurement and where necessary to apply administrative sanctions;
(o) Reviewing the procurement and award of contract procedures of every entity to which the Act applies;
(p) Performing procurement audits and submits report to the National
Assembly bi-annually;
(q) Introducing, developing, updating and maintaining related database and technology;
(r) Establishing a single internet portal that shall serve as a primary and definitive source of all information
on government procurement containing and displaying all public sector procurement information at all
times;
(s) Co-ordinating relevant training programmes to build institutional capacity;

FUNDAMENTAL PRINCIPLES OF PUBLIC PROCUREMENT

All public procurements must be conducted:

(a) subject to prior review of thresholds set by the Bureau.
(b) based only on procurement plans supported by prior budgetary provisions/appropriations and a
“Certificate of `No Objection’ to Contract
Award” from the BPP;
(c) by open competitive bidding;
(d) in a transparent, timely and equitable manner which will ensure accountability and conformity with
the Act;
(e) with the aim of achieving value-for-money and fitness for purpose;
(f) in a manner which promotes competition, economy and efficiency;
(g) in accordance with the procedures laid down in this Act and as may be specified by the Bureau from
time to time.

Procurement Methods (Goods and Services)

All procurements of goods and works by all procuring entities should be by open competitive bidding.
Open competitive bidding is a process by which a procuring entity effects public procurements by offering
to every interested bidder, equal and simultaneous information and opportunity to offer the goods and
works needed.

Invitation to Bids

This could be by (1) National or (2) International Competitive Bidding.

➢ National Competitive Bidding

The invitation for bids must be advertised on the notice board of the procuring entity, on any official
websites of the procuring entity, in at least two national newspapers and in the procurement journal not
less than six weeks before the deadline for submission of the bids.
➢ International Competitive Bidding
Bid Opening

The procuring entity shall:

(a) Permit attendees to examine the envelopes in which the bids have been submitted to ascertain
that the bids have not been tampered with
(b) Cause all the bids to be opened in public, in the presence of the bidders or their representatives
and any interested members of the public
(c) Ensure that the bid opening takes place immediately following the deadline stipulated for the
submission of bids or any extension thereof
(d) Ensure that a register is taken of the names and addresses of all those present at the bid opening
and the organisations they represent which is recorded by the secretary of the tender board
(e) Call-over to the hearing of all present, the name and address of each bidder, the total amount of
each bid, the bid currency and shall ensure that these details are recorded by the secretary of the
Tenders Board or his delegate in the minutes of the bid opening

CONDITIONS FOR BID REJECTION

The following are major deviations which may result in a rejection of bids and returned to such bidder.
They are:
 ➢ The bidder is ineligible or not pre-qualified or uninvited
➢ The bid documents are not signed
➢ The bid is received after the date and time for submission stipulated in the solicitation document
or submitted at the wrong location
➢ Clauses in an offer were not adhered to e.g, issue of unacceptable sub-contracting, or alternative
design or price adjustment.

The invitation for bids must be advertised in at least two national newspapers, and one relevant
internationally recognised publication, any official websites of the procuring entity and the Bureau of
Public Procurement as well as the procurement journal not less than six weeks before the deadline for
the submission of the bids.

DUE PROCESS GUIDELINES ON GOVERNMENT CONTRACTS

The doctrine of Due Process is an assurance that there is compliance with the budgetary, procuring and
payment guidelines by all parties to government contracts.
The process ensures that:
(a) Competitive bidding has been conducted in line with the procurement and contract award procedures.
(b) The best evaluated bid is selected among the pre-qualified bidders.
(c) The cost is in conformity with comparable best value.

ACCOUNTING TREATMENT
S/N DETAILS REMARKS
A To Recognise Revenue Accruable
1 DR-Account Receivables To recognise the revenue accrued to the entity to
CR-Contract Revenue date(Using progress billing)
DR-Cash/Bank On receipt of the revenue
CR-Account Receivables
B To Recognise Cost of the Contract
2 DR-Contract Expenses To recognise the expenses incurred by the entity to
CR-Account Payables date
DR-Account Payables Upon payments of the contract expenses
CR-Cash/Bank
C Recognition of Advance Received
3 DR-Cash/Bank To recognise advance received in respect of
CR-Account Payable construction contract
DR-Account Payable To recognise utilisation of the advance payment
CR-Contract Revenue received

TOWARDS NATIONAL FISCAL RESPONSIBILITY

In order to strengthen the Nigerian economy, fast track the tempo of social economic development and
ensure value for all resources deployed into physical and intrinsic development, the Nigerian Government
has been enacting various laws and setting up various legally backed commissions.
FISCAL RESPONSIBILITY COMMISSION
This Commission was established by the Fiscal Responsibility Act, 2007 to carry out the following
functions, among others:
(a) monitoring and enforcing the provisions of the Act, thereby promoting the economic objectives of the
Nation.
(b) disseminating standard national and international practices that will ensure greater efficiency in the
allocation and management of public expenditure, revenue collection, debt control and transparency in
fiscal matters.
(c) undertaking fiscal and financial studies, analysis and diagnosis and disseminating the result to the
general public.

Composition of the Commission

The commission is to consist of:
(a) a chairman who will be the Chief Executive Officer and Accounting Officer of the Commission.
(b) One member representing;
(i) organized private sector;
(ii) civil society engaged in causes relating to probity, transparency and good governance;
(iii) organised labour;
(c) a representative of the Federal Ministry of Finance not below the rank of a Director;
(d) one member to represent each of the six geo-political zones; All the members of the Commission shall
be persons of proven integrity.

Powers of the Fiscal Responsibility Commission

The Act empowers the Commission to, among other matters,
(a) formulate and provide general policy guidelines for the discharge ofthe Commission’s functions;
(b) superintend the implementation of such policy guidelines;
(c) appoint employees to ensure proper and efficient performance of its functions; and
(d) determine the conditions of service of employees and fix their remuneration allowances and benefits.

MEDIUM-TERM EXPENDITURE FRAMEWORK

The Federal Government in consultation with the States would:
(a) prepare and submit to the National Assembly a medium-term expenditure framework for the next
three financial years on which the National Assembly will deliberate. This would have to be done not later
than six months from the commencement of the Act.
(b) subsequently, not later than four months before the next financial year,-commences a Medium-Term
Expenditure Framework for the next three financial years will be prepared for the National Assembly’s
consideration.

Content of the Medium-Term Expenditure Framework

(a) a macro-economic framework setting out the three financial years, the underlying assumptions and an
evaluation and analysis of the macroeconomic projection for the preceding three financial years.
(b) fiscal strategy document setting out:
(i) Federal Government’s medium-term financial objectives;
(ii) the policies of the Federal Government for the Medium Term relating to taxation, recurrent
expenditure borrowings, lending and investment and other liabilities;
(iii) the strategies, economic, social and developmental priorities of government for the next three
financial years;
(iv) an explanation of the financed objectives, strategic, economic, social and developmental priorities
and fiscal measures;
(c) An expenditure and revenue framework which will set out:
(i) estimates of aggregate revenue for the Federation for each financial year, based on the pre-determined
commodity Reference Price adopted and tax revenue projections;
(ii) aggregate expenditure for each of the next three financial years;
(iii) minimum capital expenditure projection for the Federation for each of the next three financial years;
(iv) aggregate tax expenditure projection for the Federation for each of the next three financial years.
(d) a consolidated Debt Statement indicating and describing the fiscal significance of the debt liability and
measures to reduce the liability;
(e) a statement on the nature and fiscal significance of contingent liabilities and quasi-fiscal activities and
measures to offset the crystallization of such liabilities;

The estimates and expenditure in (c) (i-iv) above should be:

(i) based on reliable and consistent data;
(ii) targeted at achieving the macro-economic projection;
(iii) consistent with and derive from the underlying assumptions contained in the fiscal strategy document.

Preparation of the Medium-Term Expenditure Framework

The Minister will be responsible for preparing the Medium-Term Expenditure Framework. In doing this he
may hold public consultations on:
(i) The macro-economic framework.
(ii) Fiscal Strategy Document.
(iii) The strategic, economic, social and developmental priorities of Government.
(iv) Such other matters as he may deem necessary.

The consultation should be open to the public, the press, the citizens, organizations, group of citizens, etc.

The Minister shall seek inputs from the following organizations:

(i) National Planning Commission.
(ii) Joint Planning Commission.
(iii) National Commission on Development Planning.
(iv) National Economic Commission.
(v) National Assembly.
(vi) Central Bank of Nigeria.
(vii) National Bureau of Statistics.
(viii) Revenue Mobilization Allocation and Fiscal Commission.

AGGREGATE EXPENDITURE CEILING

The estimates of aggregate expenditure and the aggregate amount appropriated by the National
Assembly for each financial year shall not be more than the estimated aggregate revenue plus a deficit
which must not be more than 3% (three percent) of the Estimated Gross Domestic Product or any
sustainable percentage as may be determined by the National Assembly for each financial year.

Aggregate expenditure for a financial year may exceed the ceiling indicated above if in the opinion of the
President there is clear and present threat to national security or sovereignty of the Federal Republic of
Nigeria.
APPLICATION OF THE ACT TO THE STATES AND LOCAL GOVERNMENTS
States and Local Governments which desire shall be assisted by the Federal Government to manage their
fiscal affairs within the medium-term framework.

ANNUAL BUDGET AND THE MEDIUM-TERM EXPENDITURE FRAMEWORK

The Medium-Term Expenditure Framework shall be the basis for the preparation of the estimates of
revenue and expenditure to be presented to the National Assembly.

The annual budget must be accompanied by:

(a) a copy of the underlying revenue and expenditure profile for the next two years;
(b) a report setting out actual and budgeted revenue and expenditure with a detailed analysis of the
performance of the budget for the 18 months up to June of the preceding financial year;
(c) a fiscal target broken down into monthly collection targets;
(d) measures of cost, cost control and evaluation of result of programmes financed with budgetary
resources;
(e) a fiscal target document derived from the underlying Medium-Term Expenditure Framework setting
out the following targets for the relevant financial year:
(i) target inflation rate
(ii) target fiscal account balances
(iii) any other development target deemed appropriate.
(f) a Fiscal Risk document evaluating the fiscal and other related risks to the annual budget and specifying
measures to be taken to offset the occurrence of such risks.

BUDGETARY EXECUTION AND ACHIEVEMENT OF TARGETS

Matters to which attention should be focused here include;

Annual Cash Plan: The Accountant-General of the Federation shall draw up an Annual Cash Plan in each
financial year, setting out projected monthly cash flows.
This shall be revised periodically to reflect actual cash flows.

Disbursement Schedule: The Minister shall, within 30 days of the enactment of the Appropriation Act,
prepare and publish a disbursement schedule from the Annual Appropriation Act.

Appropriation Act: Use of Appropriation: Sums appropriated for specific purposes shall be used solely for
those purposes specified in the Appropriation Act.

Virement Approval: The Ministry may, in exceptional circumstances and in the overall public interest,
recommend to the National Assembly for its approval, virements from one sub-head account to another
within the same Head and without exceeding the amount appropriated to such head of account.

MONITORING BUDGET IMPLEMENTATION

The Minister of Finance, through the Budget Office of the Federation, shall monitor and evaluate the
implementation of the Annual Budget, assess the attainment of fiscal targets and report to the Fiscal
Responsibility Commission and the Joint Finance Committee of the National Assembly. In implementing
their annual budgets, State and Local Governments may adopt those provisions.

IPSAS 12: INVENTORIES

This standard deals with the valuation and presentation of inventories in the financial statements in the
context of historical cost system, the most widely adopted basis on which financial statements are
presented.
The standard does not deal with inventories accumulated under long-term construction contracts. It
provides guidance on the determination of cost and its subsequent recognition as an expense, including
any write-down to net realizable value. It also provides guidance on the cost formulas that are used to
assign costs to inventories.

The IFRS on which the IPSAS is based is IAS 2 on Inventories:

Contents of the Standard
In accordance with IPSAS 12.9, inventories are assets:
(a) Held for sale in the ordinary course of business;
(b) In the process of production for such sale or distribution;
(c) To be consumed in the production of goods or services for sale;
(d) In the form of materials or supplies to be consumed or distributed in the rendering of service;
(e) Held for sale or distribution in the ordinary course of operations.

Inventories also include goods purchased for resale, such as merchandise purchased by a retailer and held
for resale, or land and other property held for sale. Inventories also encompass finished goods produced
or work-in-progress being produced and include materials and supplies awaiting use in the production
process.
Specifically, in the public sector, inventories also comprise goods purchased or produced by the entity
that are distributed to third parties for no charge or for a nominal charge. An example would be children’s
books produced by a ministry of Children Affairs for donation to schools. Other examples of inventories
in the public sector given in IPSAS 12.12 include: “ammunitions, maintenances materials, spare-parts,
strategic stockpiles (e.g. energy reserves or medicine in government hospitals and clinics) stocks of
unissued currency, stamps, work-in-progress and property held for sale.”

Exceptions From The Provisions of IPSAS 12

IPSAS 12 applies for all inventories except for:
(a) Work-in-progress arising under construction contract;
(b) Financial instruments;
(c) Biological assets related to agricultural activity and agricultural produce at the point of harvest;
(d) Work-in-progress of services to be provided for no charge or nominal consideration directly in return
from the recipients.

IPSAS 12 does not apply for the measurement of the following inventories:
(a) Producers’ inventories of agricultural or forest products, agricultural produce after harvest, and
minerals and mineral products, to the extent that they are measured at net realizable value in line with
well-established practices in certain industries. When such inventories are measured at net realizable
value, changes in that value are recognized in surplus or deficit in the period of change.
(b) Inventories of commodity broker-traders who measure their inventories at fair value less costs to sell.
When such inventories are measured at fair value, less costs to sell, changes in that value are recognized
in surplus or deficit in the period of change.

Measurement of Inventories
Inventories should be measured at the lower of cost and net realizable value, except where IPSAS 12.12
applies. Inventories should be measured at the lower of cost and current replacement cost where they
are held for:
(a) Distribution at no charge or nominal charge;
(b) Consumption in the production process of goods to be distributed at no charge or for a nominal charge
in line with IPSAS 12.17.

Note that the cost of inventories comprises:

(a) All costs of purchase;
(b) Costs of conversion; and
(c) Other costs incurred in bringing the inventories to their present location and state (IPSAS 12.18).
The costs of purchase of inventories comprise:
(a) The purchase price;
(b) Import duties and other taxes;
(c) Transport, handling and other costs directly attributable to the acquisition of finished goods, materials
and supplies.
Trade discounts, rebates and other similar items are deducted in determining the costs of purchase;
The costs of conversion of inventories in accordance with IPSAS 12.20 include full production-related
costs.

The formula for arriving at the costs of conversion of inventories is as follows:

Direct costs + fixed production overheads + variable production overheads + other costs = costs of
conversion.

Costs of Conversion
The costs of conversion of inventories include costs directly related to the units of production, such as
direct labour, a systematic allocation of fixed and variable production overheads that are incurred in
converting materials to finished goods.

Fixed production overheads are those indirect costs of production that remain relatively constant
regardless of the volume of production: Examples of such costs are depreciation and maintenance of
factory buildings and equipment, and the cost of factory management and administration.

Variable production overheads are those indirect costs of production that vary directly, or nearly directly
with the volume of production, such as indirect materials and indirect labour.
Other costs included in the costs of inventories only to the extent that they are incurred in bringing
inventories to their present location and condition.

Exceptions to the Costs of Inventories

The following costs are excluded from the cost of inventories and recognized as expenses in the period in
which they are incurred:
(a) Abnormal amounts of wasted materials, labour, or other production costs;
(b) Storage costs, unless those costs are necessary in the production process prior to a further production
stage;
(c) Administrative overheads that do not contribute to bringing inventories to their present location and
conditions;
(d) Selling costs.
Cost of Inventories of a Service Provider
The cost of inventories of a service provider consists primarily of the labour and other costs of personnel
directly engaged in providing the service, including supervisory personnel and attributable overheads. The
cost of labour not engaged in providing the service are not included. Labour and other costs relating to
sales and general administrative personnel are not included but are recognized as expenses in the period
in which they are incurred.

Cost Formula
When applying IPSAS 12.28, an entity should use the same cost formula for all inventories having similar
nature and use to the entity. For inventories with different nature or use, different cost formulas may be
justified. A difference in geographical location of inventories (and in respective tax rules), by itself, is not
sufficient to justify the use of different cost formulas. The cost of inventories, other than those dealt with
in IPSAS 12.25, should be assigned by using the first-in, first-out (FIFO) or weighted average cost formulas.
The FIFO formula assumes that the items of inventory are sold on first-come, first-serve basis.
Consequently, the items remaining in inventory at the end of the period are those most recently
purchased or produced. The weighted-average cost formula make for the cost of each item determined
by adding the purchase cost of a given item at the beginning of a period to the purchase cost of the item
at the end of a given period and divide by two to give a weighted average cost. However, such average
can be calculated on periodic basis, or as each additional shipment is received, depending upon the
circumstances of the entity.

Net Realisable Value

This is the estimated selling price in the ordinary course of operations less the estimated costs of
completion and the estimated cost necessary to make the sale, exchange or distribution.

Recognition of Inventories as an expenses

i. When inventories are sold, exchange or distributed the carrying amount of those inventories
should be recognised as an expenses in the period in which the related revenue is recognised
ii. If there is no related revenue, the expenses is recognised when the goods distributed or related
service is rendered
iii. The amount of any write-down of inventories and all losses of inventories should be recognised
as an expenses in the period the write-down or loss occurs.
iv. The amount of any reversal of any write-down of inventories should be recognised as a reduction
in the amount of inventories recognised as an expenses in the period in which the reversal occurs.

Disclosure
✓ The accounting policies adopted in measuring inventories, including the cost formula used
✓ The total carrying amount of inventories and the carrying amount in classifications appropriate to
the entity
✓ The carrying amount of inventories carried at fair value less cost to sell
✓ The amount of any reversal of any write-down that is recognised in the statement of financial
performance in the period
✓ The circumstances or events that led to the reversal of a write-down of inventories.