INTRODUCTION

1. 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 EVALUATIONORGANISED BY THE BUDGET OFFICE OF THE FEDERATION IN COLLABORATION WITH THE WORLD BANKHeld at Transcorp Hotel, Abuja on Monday 30th - Tuesday 31st March, 2009.

2. 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 society’s 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:

3. 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)

4. 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 By the provision of S.81 of the Constitution no monies can be withdrawn from the account for any

5. 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.

6. 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.

7. 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 MDA’s Account, MDAs are required to: • Obtain approval from AGF for banking relationship with any bank before account is opened

8. 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.

9. 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).

10. 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

11. 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.

12. 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 government’s 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.

13. 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;

14. 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.

15. 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;

16. 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

17. 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

18. 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 MDA’s 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;

19. 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.

20. 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; • MDA’s 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;

21. 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.

22. 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;

23. PROPOSALS FOR IMPROVEMENT OF CASH MANAGEMENT CONTD. • Proper coordination of all agencies involved in the cash management process; • Capacity building and an integrated computerisation

24. 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.