PUBLIC SECTOR ACCOUNTING ASSIGNMENT

GROUP 1
SUBGROUP 4

MEMBERS
1. Dairo Oluwatomipe Nicholas -20/0011
2. Dauda Zainab Tolulope -20/0538
3. Ezeugwa Somtochukwu Blossom - 20/0892
4. Fajuyi Ebuniomo Boluwatife -20/1723
5. Falomo Sharon Simisola - 19/1307
6. Folorunsho Oluwatoyin Oreoluwa - 20/3331

PLANNING AND BUDGETING

A budget is a financial and or quantitative statement prepared and approved prior to a

defined period of time for the purpose of attaining a given objective. A budget is
normally prepared for one year. It is therefore a short-term plan. One of the primary
objectives of budget is to measure the profit of an organization. However, in the case
of government, , budgets are used:
(a) As a guide for the present and future;
(b) To plan, control and estimate the amount of receipts and expenditure during a
specified period;
(c) To distribute limited resources;
(d) To motivate managers towards the achievement of corporate goals;
(e) As a means of evaluating performance;
(f) To inform managers about the operations and results of their areas of
responsibility; and
(g) As a standard of measurement for the purpose of controlling on-going economic
endeavors.

Government units that generate revenue through taxes and other sources use the
budget to control their operations. A government budget shows authorized
appropriations and estimated revenue. Many however, perceive budget as a
restraining or impending factor, hence, people seem to develop a negative attitude
towards budgeting.

Medium term Expenditure framework

The government's medium-term high-level strategic plan, or MTEF for short, is

typically three years in length in Nigeria. It serves as the foundation for yearly
budgeting, taking into account the legal requirement that spending cannot exceed
revenue by more than 3% of GDP. The focus of budgeting is shifted from "needs" to
"availability of resources"
It is also codified in the Fiscal Responsibility Act (FRA), Part II, Sections 11-17.
2007 that requires the Federal Government to create an MTEF for the following three
years and include a Fiscal Strategy Paper (FSP).
It aims to ensure that budgets reflect Government's social and economic priorities and
give substance to Government's reconstruction and development commitments. The
MTEF is one of the most important reforms of the budgetary process this Government
has introduced.

The benefits of the medium term expenditure framework are:

I . allocation of resources to priority services
II. more efficient planning and management
III. a framework within which policy proposals can be assessed;
IV. more transparency in government
V. a reduction in roll-overs
VI. a clear demonstration of how fiscal targets will be met.

Objectives of MTEF

The objectives of MTEF are:

1. To improve macroeconomic balance, including fiscal discipline through good
estimates of the available resource envelope, which are then used to make
budgets that fit squarely within the envelope;
2. To improve inter- and intra- sectoral resource allocation by effectively
prioritizing all expenditure (on the basis of the government's socioeconomic
program) and dedicating resources only to the most important ones;
3. To increase greater budget predictability as a result of commitment to more
credible sectoral budget ceilings
4. To increase greater political accountability for expenditure outcomes through
legitimate decision making
5. To make public expenditure more efficient and effective, essentially by
allowing line ministries greater flexibility in managing their budgets in the
context of hard budget constraints and agreed upon policies and programmes.

Content
The MTEF shall contain the following:
A. A macro-econonic 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 prioritics of government for
the next three financial years;
IV. An explanation of the financial objectives, strategic, economic, social and
developmental priorities and fiscal measures:
C. An expenditure and revenue frameworks which 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 cach of the next three financial years;
III. Minimum capital expenditure projection for the Federation for each of the next
inrce 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 - i) 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.

Annual budgets 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 targets 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.

Preparation of the Medium-term expenditure framework

In line with the Part II, Section 11-17 of the Fiscal Responsibility Act (FRA), 2007,
the MTEF shall contain the following for the next three financial years

(i) A Macro-economic framework,

(ii) A Fiscal strategy paper,
(iii) An expenditure and revenue framework,
(iv) A consolidated debt statement and
(v) A statement on contingent liabilities

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, organisations,
group of citizens, etc.
The Minister shall seek inputs from the following organisations:
(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.

The Minister shall before the end of the second quarter of each financial year, present
the Medium Term Expenditure Framework to the Federal Executive Council for
consideration and endorsement. The Medium Term Expenditure Framework as
endorsed by the Federal Executive Council shall take effect upon approval by the
National Assembly.
Any adjustment to Medium term expenditure framework shall be limitedto:
i. The correction of manifest error; and
ii. Changes in the fiscal indicators, which in the opinion of the president are
significant.

Risks of MTEF
1)Global Development- Fragile Economic Recovery and the emergence of new
political risks
2)Persistence of Oil Price Decline- Low oil prices expected to remain in the medium
term
3)Oil Production and Oil Sector Management- Oil production be devilled by crude oil
theft and oil pipeline vandalism
4)Non- Oil Revenue Risks- Due to low remittance by Government’s Owned
Enterprises into Treasury due to lack of Transparency e. g Operating Surplus.

OBJECTIVE ANFD PURPOSES OF BUDGET

The budget is created by the executive branch and sent to the legislative branch for
approval, review, and amendment in all governmental entities. The approved budget
serves as a basis for the activities of that government unit for the fiscal period under
review. The budget of the government serves four major functions. These could be
listed in the order below:
(a) A budget is an economic and financial document: It highlights government
initiatives that are aimed to encourage economic growth, full employment, and
improve citizens' quality of life.
(b) It is a useful guide for the allocation of available resources;
(c) Through the legislature, the executive arm uses the budget as a means of
accountability for the fund earlier entrusted and the newly approved appropriations;
and
(d) A budget is a request from the executive arm of government to the legislative arm
to collect and disburse funds.

USES OF BUDGET

Budgets are used for the following:

(a) PLANNNING
Budgets are used to plan. Budgets are plans in which monetary values are ascribed to
what is to be accomplished in a predetermined future time, such as a year.

(b) COMMUNICATION
Budgets help to communicate horizontally and vertically. When budgets are being
developed, individuals, groups, towns, and associations will notify the government of
their areas of interest. This is "upward communication." When the budget is adopted,
the government reads it to the general public and publishes it in newspapers. This is
called 'communicating downwards'.

(c) MOTIVATION
A budget is a target to be achieved. The government motivates employees with
promotions and better working circumstances in order to help them complete and
successfully implement the budget.

(d) STANDARD DOR MEASUREMENT OF PERFORMANCE

Since a budget is a target, it is a measure of performance. What is achieved is
recorded and compared with the target of performance set. The process of
implementation draws management attention to problem areas.

(e) EVALUATION OF ECONOMIC AND SOCIAL POLICY

Budgets are used to solve the economic problems such as inflation and social
problems such as unemployment.

(f) COST REDUCTION TECHNIQUE

The evaluation of operations and procedures may result in cost savings.

Preparation and Appraisal Of Budge

A. Traditional/Line items/Incremental budgeting

The traditional budgeting method, which is also called ‘incremental budgeting’,
involves using last year’s figure as a base and adding a percentage to it to arrive at
this year’s budget. The percentage added is based essentially on three factors,
namely:
(a) Trend of economic event;
(b) Inflation; and
(c) The available funds.

Budgeting in government is made up of two main elements. The first is the

procedure of budgeting, which consists the practices, documentations, and norms,
which govern the preparation, approval, implementation, and review of the budget.
The second is the budgeting system, which has to do with the management process.
This provides for the purchase, allocation and use of available resources by setting
in advance operational criteria, which result in the achievement of corporate goals.

The line item budgeting system has the following features:

(a) The budget gives prominence to the Ministries and Extraministerial

departments for which the budget is beingprepared,
while little or no attention is given to the end results for which the
funds are provided;
(b) The current year’s budget is arrived at through routine and
incremental reasoning, and not by scientific analysis; and
(c) The main thrust of the budget is the achievement of control and
accountability.

Advantages of line-item budgeting method

These include:
(a) It is simple to understand and operate;
(b) It suits the country’s level of development, where there is paucity
of data;
(c) It is cheaper to produce;
(d) It encourages the continuity of projects;
(e) The method ensures that budget is translated in monetary language
and relates to the relevant activities/operations; and
(f) Allocations into heads and sub-heads facilitate the monitoring of
performance.

Disadvantages of the ‘line-item’ budgeting method

The drawbacks of ‘line-item’ budgetingare:
(a) The method allows past errors to be carried forward. It is therefore
not efficient in its operations;
(b) Detailed scrutiny is not contained in the budget. The budget
preparation is consequently not well researched;
(c) It fails to clarify the cost of alternative methods of achieving
programmed objectives;
(d) It results in continual growth budget totals leading to inflation, as
opposed to serious economic needs;
(e) It fails to fund new programmes of high priority on a sufficiently
reasonable scale; and
(f) The method does not clearly spell out the relationship between
capital and recurrent expenditure. The approach is based on
organisational set-ups rather than programmes.

B. Planning, programming and budgeting system (PPBS).

Planning, programming and budgeting systems is a budgeting approach, which is

based on systems theory, output and objective orientation, with substantial emphasis
on resource allocation based on the principle of economic analysis. The
technique is not based on the traditional organisational structure but on programmes,
which involve grouping of activities with common objectives.
The resources, which are available to public sector organisations, are limited,
when compared with the demands for them. Consequently, choices have to be made
to ensure that the meagre resources are distributed fairly to maximise benefits.

The main steps in PPBS

(a) Identification and enumeration of goals and objectives of the
organisation.
(b) Defining the total system in detail, including objectives, environment,
available resources, the programmes and their objectives, etc.
(c) Planning and analysis: These involve continuous process of developing,
comparing and analysing alternative programmes, so as to evolve the
most appropriate package for the organisation.
(d) Development of the appropriate measures of performance for the
programmes of the organisation.
(e) Programming and budgeting: The agreed package of “programmes”
complete with resource requirements and expected results are expressed
in the form of “programmed budgets”.
(f) Reporting and controlling: planning, programming and budgeting system
requires sophisticated information service, which is able to monitor the
progress made towards meeting the organisational objectives. Performance
evaluation, therefore, emphasises the attainment or nonattainment of the desired
objectives, rather than the amount spent, which is the focus in traditional budgeting
system.
(g) Development in each year, of a multi-year programme and financial plan.

Advantages of PPBS
The advantages of the technique are:
(a) Provides information on the objectives of the organisation;
(b) Lays emphasis on long-term effects;
(c) Achieves effective use of budgeted resources and anticipated
performance;
(d) Ensures rational decision-making and forces those seeking budgetary
allocations to consider alternatives; and
(e) Leads to rapid economic development.

Disadvantages of PPBS
(a) Makes budgeting complex and confusing.
(b) Problem arises when multipleobjectives of a program
thatinvolves different agencies.
(c) Emphasizes physical andfinancial resources, not onqualitative performance
(d) Lack of uniformity.

C. Zero-based budgeting (ZBB)

This a method of budgeting where all expenses, regardless of their historical rate,
must be explained from scratch for each new budgetary cycle. Zero-based budgeting
requires that every expense be assessed from scratch, starting at zero, in relation to
traditional budgeting techniques that use the previous budget as the foundation and
only make small adjustments from there.
Zero-based budgeting (ZBB) makes use of a number of techniques to guarantee an
accurate evaluation and verification of costs for every budgetary cycle. The following
are some key methods that are frequently used in zero-based budgeting:
● Activity Analysis:
This technique involves breaking down organizational activities into separate
duties or components and examining the expenses related to those
components. It helps determine which resources are required for each task and
examines how well they match with company objectives.
● Prioritization and Ranking:
Expenses are arranged in order of importance and align with the goals of the
organization. The possible benefits of each expense in relation to its cost are
determined using methods like value analysis, ROI, and cost-benefit analysis.
● Resource Allocation:
Each expense item receives a certain number of resources according to its
reason and priority. Strategies like cost allocation, cost-volume-profit analysis,
and sensitivity analysis make ensuring that resources are distributed as
efficiently as possible among various departments or activities.
● Cost-Reduction techniques:
The application of cost-reduction techniques and the identification of cost-
saving opportunities are encouraged by zero-based budgeting. Methods
including restructuring processes, outsourcing, evaluation, and vendor/supplier
negotiation are used to cut costs without affecting performance or quality.
Some of the steps in zero-based budgeting (ZBB) are as follows:
● Analysis of Decision Units:
In order to understand its goals, purpose, and resource requirements, each
decision unit is thoroughly examined. This procedure involves breaking down
the unit into the individual jobs, activities, or cost centers that make it up.
● Ranking and Prioritization:
Decision units or activities are ranked and prioritized according to their
importance and contribution to organizational objectives after cost
justification. This helps to ensure that resources are first allocated to the most
important tasks.
● Performance Evaluation:
Each decision unit or activity's performance in achieving its goals is evaluated
using performance metrics. This procedure finds opportunities for
improvement and provides information for decisions made on the distribution
of resources in future budget cycles.
● Cost Calculation:
All expenses associated with each activity or decision unit are calculated
separately, without reference to budgetary history. In this step, costs for labor,
supplies, machinery, and other resources required for efficient operation of the
business are determined.

Advantages of Zero-Based Budgeting

For enterprises, zero-based budgeting (ZBB) offers a number of advantages:
● Increased Cost Awareness:
 ZBB requires departments and units to justify every expense, which promotes
a more efficient approach to spending and greater awareness of costs. A more
efficient use of resources may arise from this greater cost awareness.
● Alignment with Strategic Goals:
ZBB requires validation of operations based on corporate objectives, ensuring
that budgetary allotments are closely related to strategic priorities. This
improves the effectiveness and alignment of the organization as a whole.
● Improvement of Communication and Collaboration:
Since ZBB requires input from multiple departments and levels of the
organization, it can improve communication and cooperation in a variety of
situations. Better decision-making and a more coordinated organizational
strategy may arise from this.
● Flexibility and Adaptability:
Zero-based budgeting (ZBB) allows firms to quickly adjust to changing
priorities and circumstances, while traditional budgeting techniques can
strengthen traditional spending patterns. It is simple to reallocate resources to
take advantage of new opportunities or overcome obstacles.
Disadvantages of Zero-Based Budgeting
Zero-based budgeting (ZBB) has a number of shortcomings, such as:
● Time-Consuming Process:
ZBB implementation takes a lot of time and work because every expense has
to be validated from beginning to end. Resources may be separated and
attention may be diverted from other important tasks as a result.
● Disruption to Operations:
The adoption of ZBB could cause a temporary disruption that affects
productivity and might require more management resources while departments
and units adjust to the new budgeting framework.
● Sustaining Cost Reductions Can Be Difficult:
Although ZBB can initially reduce costs by identifying inefficiencies, it might
be difficult to keep these reductions over time. In the absence of regular
surveillance and control, expenses can gradually rise once more.
● Opposition from Staff and Managers:
Because ZBB enforces more accountability and investigation, staff members
and managers may rebel against the company. They might feel like it's
violating their privacy and be hesitant to defend each spending, which could
cause opposition and conflict within.
D. Performance budgeting
This can be defined as a technique used for presenting public expenditure in form of
functions or projects to be undertaken, highlighting the cost involvement. The
anticipated costs are compared with the expected income. The focus of the techniques
is on results or output achieved, rather than how much has been expended.
Features of performance budgeting
The classification of budgets in terms of functions and activities
The measurement of work done or output provided by each activity
Expression of the budget in a way which allows direct comparison between a project
cost and the anticipated income or benefit
The monitoring of actual cost and performance against the budgeted results or
expectation

E. Rolling plan or continuous budgets

This can be defined as the continuous updating of a medium-term plan spanning a
specified period of time. It is a financial planning and budgeting approach that
involves continuously updating the budget to reflect any changes in the business
environment, forecasts or shifting priorities. Rather than creating an annual budget
that remains fixed for the entire year, a rolling plan involves creating a budget for a
shorter time frame (typically three to six months) with a set of assumptions and
predictions related to sales, revenue, expenses, and other relevant factors
Benefit of using a rolling plan or continuous budgets
The flexibility to adapt to changing business conditions
Improved accuracy of budget forecasts
Timely identification of potential problems
Better alignment of resources to address changing business priorities
Quicker turnaround time for decision making based on the latest data and
information.