CASH MANAGEMENT : THE FLOW OF FUNDS FROM WARRANTS RELEASE TO CASHBACKING A PRESENTATION BY I' H' DAN

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CASH MANAGEMENT THE FLOW OF FUNDS FROM WARRANTS
RELEASE TO CASH-BACKINGA PRESENTATION BYI.
H. DANKWAMBO, OONACCOUNTANT-GENERAL OF THE
FEDERATIONAt theWORKSHOP ON BUDGET
IMPLEMENTATION, MONITORING AND EVALUATIONORGANISE
D BY THE BUDGET OFFICE OF THE FEDERATION IN
COLLABORATION WITH THE WORLD BANKHeld at
Transcorp Hotel, Abuja on Monday 30th - Tuesday
31st March, 2009.
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INTRODUCTION

• Budget is a veritable means for delivery of
  services in order to achieve the fundamental
  objectives and directive principles of state
  policy enshrined in the Constitution of the
  Federal Republic of Nigeria, 1999. It is a
  financial mirror of societys economic and social
  choices. Actualising the budget requires that
• Revenues from all sources are planned, promptly
  collected and remitted into the appropriate
  accounts
• Cash are allocated and utilised responsively,
  efficiently and effectively
• While funds availablity as and when required is
  critical to budget implementation, it is
  pertinent to note that a good public expenditure
  management stand on a tripod

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INTRODUCTION CONTD.

• Allocation of resources in line with policy
  priorities like the seven-point agenda
• Fiscal discipline (Expenditure control) and
• Good operational management (the people
  in-charge)

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FUNDS RELEASES (CASHBACKING)

• The AGF is guided by the following
• Appropriation Act and Supplementary Appropriation
  Act as the case may be
• Warrant Releases or AIE in some cases and
• Cashflow (Inflows).
• (a) Appropriation
• The Appropriation Act and Supplementary
  Appropriation Act are the Legal instruments for
  funds releases from the Consolidated Revenue Fund
  (CRF) account. By the provision of S.81 of the
  Constitution no monies can be withdrawn from the
  account for any

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FUNDS RELEASES (CASHBACKING) CONTD.

• expenditure without National Assembly approval.
• (b) Warrants and Authority to Incur Expenditure
  (AIEs)
• Warrants are issued by Budget Office and signed
  by the HMF as authority to the AGF to disburse
  monies specified from CRF for the purpose of
  carrying on the services of Government. Where
  expenditure is considered urgent, the HMF may
  approve the issue of AIE.
• No Monies can be disbursed by the AGF without
  these instruments of authority.

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FUNDS RELEASES (CASHBACKING) CONTD.

• (c) Cash Inflows
• Government ability to fund the expenditure budget
  depends greatly on the realisation of the revenue
  budget. The efforts of Revenue Agencies (NNPC,
  DPR, NCS, FIRS and even MDAs) to collect the
  appropriate revenues as budgeted and remittance
  of same into a designated bank account is
  critical to budget implementation.

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FUNDS RELEASES (CASHBACKING) CONTD.

• Cash-backing
• The OAGF on receipt of appropriate authority,
  check for availability of funds in CRF account
  at CBN before mandate instruction is sent to CBN
  to effect cash-backing. This is paid into the
  bank accounts of MDAs which are with commercial
  banks (Recurrent expenditure) and Central Bank
  (Capital Expenditure) based on the warrants/AIEs.
  
• To facilitate cash-backing into the MDAs
  Account, MDAs are required to
• Obtain approval from AGF for banking
  relationship with any bank before account is
  opened

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FUNDS RELEASES (CASHBACKING) CONTD.

• Forward account details to the AGF when
  opened. For 2009 Capital operations , accounts
  have been opened for all MDAs at CBN in their
  operational location.
• It is important for MDAs to obtain copy of their
  appropriation, warrants issued (monthly for
  personnel, quarterly for overhead and capital
  expenditures) and relevant mandates to guide
  their operations.

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CASH MANAGEMENT

• Cash, like other resource, is scarce and it may
  not flow-in as envisaged in the Revenue Budget.
  The current crash of crude oil price and the
  Niger Delta crisis are obvious cases. Cash inflow
  may therefore be a major threat to budget
  implementation. A concerted cash management
  strategy needs to be instituted not only to
  ensure that the cash inflows are planned,
  monitored and evaluated from time to time but
  that the outflows (Expenditure) are aligned with
  the Cash Inflows (Revenues).

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CASH MANAGEMENT CONTD.

• It allows funds to be channeled to priority areas
  of Government. The primary goal of cash
  management is to ensure that the right amount of
  cash is available at the right time at the
  lowest possible cost.
• Cash management encompasses strategies and
  associated processes put in place to ensure

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CASH MANAGEMENT CONTD.

• that cash is available as and when needed and
  that there is adequate plan to meet any resource
  gap and invest surplus.
• Essential here is cash planning. This will
  maximize inflows, control outflows, avoid
  discretionary spending, minimize deficit and
  borrowing within limits as well as investment of
  excess and/or idle funds.

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OBJECTIVES OF CASH MANAGEMENT

• To support budget execution so as to ensure that
  sufficient cash is available as and when needed
  to meet commitments to make payments
• Control aggregate cash flows within fiscal,
  monetary and legal limits
• improve the management of governments domestic
  borrowing programme
• Integrate policy priorities into annual budgets
  such that resources are allocated to priority
  areas
• Enhance operational efficiency through the
  provision of high quality services at minimal
  costs
• Investment of excess or idle cash
• Greater accountability for public expenditure,
  etc.

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OAGF CASH MANAGEMENT RESPONSIBILITIES

• The OAGF responsibilities includes
• To ensure that adequate cash is available to meet
  government obligations
• To ensure that all revenues are received and
  properly accounted for in a transparent manner
• To maintain adequate and proper records of all
  public funds
• To provide cash backing for approved allocations

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OAGF CASH MANAGEMENT RESPONSIBILITIES CONTD.

• To advise government on financial position
• To promptly reconcile bank accounts
• To produce budget performance reports and
  financial statements timely
• To ensure the safety and security of public
  funds
• To approve MDAs banking relationship
• To ensure that there are adequate controls for
  proper management of public funds
• To arrange for funds at minimal costs to meet
  financing gaps, etc.

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CURRENT REALITY OF CASH MANAGEMNT

• Warrant releases not aligned to MDAs cash flow
  plan
• DMO borrowings to fund financing gaps not aligned
  with cashflow projection but simply based on
  deficit financing arrangement contained in the
  Appropriation Act
• Low utilisation of capital allocations by MDAs
• Contracts provided for in the budget for which
  funds were made available were sometimes not
  completed for payment within the fiscal year
• Built-up of contractor arrears, project
  abandonment, etc

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CURRENT REALITY OF CASH MANAGEMNT CONTD.

• Inability to adequately control and monitor funds
  held in numerous bank accounts being operated by
  the MDAs
• Difficulty in recalling unspent balances at the
  end of fiscal year
• Low capacity in modern cash management
• Internally generated revenues of MDAs and donor
  funds are rarely disclosed
• Late passage of Appropriation Bill
• Lack of integrated computerised operations
• Lack of technical information and expertise for
  effective Monitoring of Oil Revenues

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PROPOSALS FOR IMPROVEMENT OF CASH MANAGEMENT

• A policy document on Cash Management to guide
  Federal Government in this direction prepared by
  my Office has been submitted to the HMF for
  consideration. Suffice to mention some of the way
  forward
• Passage of budget before the beginning of new
  fiscal year
• Commitment of Government to implementation of
  budget to engender confidence
• Ministers / Accounting Officers to be held
  responsible for their budget out-turn and
  sanctioned or celebrated appropriately

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PROPOSALS FOR IMPROVEMENT OF CASH MANAGEMENT
CONTD.

• MDAs capital budget proposal should be backed-up
  with a procurement plan and critical path
  analysis of the project
• Institutionalisation of Cash management. A
  Committee should be established in all MDAs to
  consider and approve the MDAs Annual Cashflow
  (Expenditure). The annual cash flow (expenditure)
  plan should be based on the approved budget
  broken into 12-calender months and submitted to
  BOF for collation

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PROPOSALS FOR IMPROVEMENT OF CASH MANAGEMENT
CONTD.

• Ministerial Cash Management Committee to consider
  and approve the Consolidated Cashflow Projection
  prepared by the AGF in conjunction with the BOF
  in line with priority of Government. The approved
  Projections should guide warrants releases and
  csahbacking
• There must be synchronisation of warrants with
  cash availability for effective funding of the
  budget.

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PROPOSALS FOR IMPROVEMENT OF CASH MANAGEMENT
CONTD.

• MDAs should render quarterly budget out-turn and
  this should inform further cash allocation by the
  Ministerial Cash Management Committee
• MDAs cash management committee should manage
  allocated funds and minimise build-up suppliers
  debt
• Projects not likely to be completed by year end
  should be identified early for roll-over to next
  budget to minimise rush of expenditure at year
  end

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PROPOSALS FOR IMPROVEMENT OF CASH MANAGEMENT
CONTD.

• All Government contractors should register with
  BPP and indicate their tax identification number
  for improved tax collection and suppliers data
  base
• BPP should provide price guide on commonly
  consumed goods of government as reference for
  MDAs
• DMO should be guided by the cashflow plan in
  raising funds to finance budget deficit etc.

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PROPOSALS FOR IMPROVEMENT OF CASH MANAGEMENT
CONTD.

•  Timely collection, banking and accounting for
  all revenues, grants and loans
• Better timing of decisions on large expenditure
• Rationalizing the number of bank accounts
  (Treasury Single Account)
• Managing cash pro-actively and having cash just
  in time through accurate forecasting and
  monitoring of needs and priorities

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PROPOSALS FOR IMPROVEMENT OF CASH MANAGEMENT
CONTD.

• Proper coordination of all agencies involved in
  the cash management process
• Capacity building and an integrated
  computerisation

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CONCLUSION

• It is my believe that moving away from ad hoc
  cash management practice to a more structured and
  robust system that is technology driven and
  guided by a policy will be a launch pad for
  better budget implementation. Each and everyone
  must take responsibility and be accountable for
  the performance of his/her MDA for every kobo
  made available by Government for delivery of
  items in the budget.