Importance of Financial Accountability and Prudent Personnel Management to the Leadership Development of Nigeria in the Third Millennium

Mr John Chukwunyelu Uzokwe Bsc, Msc, ACCA, ACA, AMBIM

TABLE OF CONTENTS

ABSTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 FINANCIAL ACCOUNTABILITY - CONCEPTUAL AND THEORETICAL FRAMEWORK . . . . . . . . . . . .5 The concept of financial accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Origins of financial accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Scope of the Financial Accountability concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Variety of Financial Accountability mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Governance Conceptual and Theoretical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Governance and Transparency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 THE NIGERIAN STATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..13 The Nigerian Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .13 Nigeria: Resource Curse or Blessing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 FINANCIAL ACCOUNTABILITY FRAMEWORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Internal Financial Accountability Mechanisms Its Importance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Internal Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 THE NIGERIAN INTERNAL AND EXTERNAL FINANCIAL ACCOUNTABILITY MECHANISMS. . . . .21 Internal Financial Accountability Mechanisms. . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Budget Office of the Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 22 Federal Budget Preparation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 22 Office of the Accountant General of the Federation. . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .. . . . . . . 25 Modernisation of Internal Audit . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Financial Accounts and Consolidated Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 27 Audit Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 External Financial Accountability Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Parliament. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Central Bank of Nigeria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 28 The Media . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 External audit - Supreme Audit Institution and the Auditor General of the Federation . ... . . .. . . . . . 29

Supreme Audit Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Auditor General of the Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Report of the Auditor General for the Federation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Nigerian Extractive Industries Transparent Industries Act 2007. . . . . . . . . . . . . . . . . . .. . . . . . . . . . .35 NNPC: Process and Forensic Review Report by KPMG and SSA (Interim Report on Processes). .. 37 NNPC Newspaper Articles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 NEGATIVE EFFECTS OF THE LACK OF FINANCIAL ACCOUNTABILITY. . . . . . . . . . . . . . . . . . . . . . 43 Corruption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Systematic Approach to Anti Corruption Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Political Corruption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Corruption in Nigeria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Abstract
It is something of a paradox that a country categorised as one of the richest in human and material resources in Africa finds itself in this inglorious position. Nigerians and her well-wishers hoped that with the enormous resources, especially oil, the country would take off and achieve rapid economic and industrial transformation. But this was not to be as through the combination of mismanagement, poor leadership and incredible levels of corruption on the part of public officials, Nigerias fortunes have been squandered or siphoned off. (Wegh 2008) This paper addresses the importance of public sector transparency, accountability, in particular financial accountability, and prudent personnel management to meeting Nigeria's development aims. The lack of transparency and accountability, amongst a number of other issues, is the biggest drawback, preventing Nigeria from fulfilling her potential as one of Africas largest economies. Although corruption is not entirely restricted to Nigeria, its situation is distinctive in that it is yet to put in place a credible independent infrastructure for enforcing anti-corruption laws. The Government of Nigeria identified governance and corruption as issues that must be tackled in order to reverse economic decline, they passed an anti-corruption bill and an independent anti-corruption commission was created. It even reissued its financial regulations but there is no indication that they are being followed more closely than in the past. In fact, on the African continent, the calls for more public sector transparency and accountability is part of a set of endeavours aimed at solving the paradox of copious natural resources and increasing donor magnanimity, on the one hand, and seemingly intractable abject poverty, on the other hand. It is also aimed at addressing corruption, money laundering, and the theft of State resources (UNECA, 2005). This paper illustrates the current public sector Accounting and Governance systems present in Nigeria, the resulting implications on the economic development of Nigeria and highlights the urgency of resolution. It concludes with viable, constructive ideas for restoring Nigeria on the path of financial transparency, accountability and growth. The data for this paper was derived from the research and analysis of scholars, analysts and practitioners, government documents, and recent newspaper and journal articles. This is to say that the primary method of study was an extensive review of available literature for description and critical analysis of the importance of financial accountability in the Nigerian economy today. Discussions in this paper are limited to the Federal Government, with a few references made to State and Local Governments. This is not an indication that the other two tiers of government are not as important but rather due to the limited scope of the project itself.

Financial Accountability - Conceptual and Theoretical Framework

The Concept of Financial Accountability In the simplest terms, financial accountability is about responsible stewardship for the use of public money. Financial accountability is a means of ensuring that public money has been used in a responsible and productive way. It is about verification of legality and regularity of financial accounts, but also about making sure that value for money has been achieved in the use of resources. The concept of financial accountability, as a relationship in which citizens hold the Government to account for the stewardship of public money, is fairly complex and intricate. Establishing and securing an effective financial accountability relationship requires setting up of a network of internal and external financial accountability mechanisms, including adequate accounting, reporting and internal and external auditing. Financial accountability requires the Government to manage finances prudently and regularly inform the public what has been achieved with the use of public funds. Therefore, in procedures of both internal and external financial accountability, the emphasis is gradually shifting from the classical concern of regularity and propriety of public expenditure, to value for money investigations, which examines whether economy, efficiency and effectiveness in the use of resources has been attained. Growing attention has furthermore been paid to the establishment of systems of performance measurement within Government departments, which should enable the Parliament and the public to assess how well public money is spent and what has been achieved with it. Increasing attention has lately been paid to the regular reporting on the financial control findings to the public, which should attain greater transparency in the conduct of public finances and reinforce the level of trust between state and citizens when spending of public money is in question. Finally, it should be stressed that financial accountability mechanisms cannot be analysed as isolated phenomena, but as mutually interrelated elements, which are in the process of constant interaction, mutually supporting their structures and functions. Therefore, we can easily talk about financial accountability in terms of a system, which consists of different mutually related elements/mechanisms of financial accountability. It should be stressed that the effectiveness of financial accountability as a system depends mostly on the existence of a proper balance between its different supporting mechanisms, so that weaknesses in one form of financial accountability can be compensated for by controls through other mechanisms. Origins of Financial Accountability Accountability for the use of public money has always been at the centre of attention of politicians, philosophers, lawyers, economists as well as ordinary people. In the old ages, the Greek philosophers devoted considerable attention to handling of public money. Aristotle, thus, wrote: Some officials handle large sums of public money; it is therefore necessary to have other officials to receive and examine the accounts. These inspectors must administer no funds themselves. Different cities call them examiners, auditors, scrutinisers and public advocates.

The United States Constitution states that: No Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time. The French Revolution went much further and proclaimed a doctrine of popular sovereignty over finance: All citizens have the right to ascertain, either in person or through their representatives, the necessity for public taxation, to consent freely thereto, to observe its expenditure and to determine its apportionment, its assessment, its collection and its duration. Scope of the Financial Accountability concept. It could be argued that the financial accountability relationship, in its widest sense, encompasses two broad processes: 1) Adequate Income (including taxation, royalties, rent, etc) i.e. raising and collection of money from citizens and other institutions in an appropriate manner and 2) Adequate allocation and use of these resources. Although there is undoubtedly an integral relationship between these processes, financial accountability refers more to the second process, where the emphasis is placed on the responsible and productive use of public money, i.e. public expenditure. In this sense, it is useful to distinguish between several key stages of public expenditure management: 1. Expenditure planning by the executive 2. Parliamentary debate and approval 3. Spending of the money voted 4. Accounting for the money spent. Variety of Financial Accountability mechanisms. The Government can be held accountable by the Parliament and in the last resort, citizens, to ensure that money is spent in accordance with Parliamentary wishes. Financial accountability is primarily safeguarded by a number of different forms: - Parliaments activity, work of parliamentary investigatory committees, - Internal controls and reporting mechanisms within departments and - External audit With increasing devolution of managerial discretion and financial responsibility, ministries, departments and agencies face increasing pressures to show that their managers have used their money and other resources in a way that accomplishes their functions efficiently. The question that remains, however, is which type of system of internal control would be most suitable for transitional countries, like Nigeria, who are facing numerous

challenges in building new systems of financial accountability. The system should aim at achieving the following number of objectives: Giving a reliable account of the money spent and the income achieved Ensuring that there is probity and sound financial administration, including proper stewardship of public resources and compliance with regulatory standards. Ensuring the achievement of value for money, that is economy, efficiency and equity in how funds are used Identifying, evaluating and managing risk Supporting good decision making and assisting offices to properly assess the financial consequences of policy and other choices Enabling the Government to plan for the future and to align its resource allocation with its policy objectives Maximising Income sources Making it possible, from a financial Management point of view for organisational change to occur to meet new circumstances. Financial accountability forms one of the arms of the general term accountability, which in turn is interwoven with the concepts of transparency and good governance.

Governance
Governance Conceptual and Theoretical Framework During the post-colonial period, most Asian, African, and Latin American countries began to adopt the ideas, principles, and institutions of accountability representing the liberal democratic mode of governance found in advanced capitalist nations (Haque, 1994). One of the most crucial features of this liberal-democratic framework is the existence of certain basic mechanisms of accountability such as legislative committee, parliamentary debate, public hearing, ministerial control, ombudsman, and media scrutiny. Such democratic means have been quite useful to ensure government accountability in terms of delivering goods and services, addressing public needs and demands, maintaining neutrality and representation, ascertaining citizens entitlements, and guaranteeing equality and justice. However, in recent years, there has emerged a unique set of challenges to the realization of accountability due to the current changes in public governance under the rubric of reinventing or re-engineering government, which is often described as a marketcentred, neoliberal approach to governance (Haque, 1998a).

Although this businesslike approach to governance has been reinforced by internal economic and political forces in advanced capitalist nations, in the case of developing countries, it has been prescribed or imposed largely by international financial agencies (IMF imposition of Structural Adjustment Programme SAP, in Nigeria 1986). Some of these current reforms pose formidable political, managerial, and methodological challenges to accountability The traditional objectives and norms of governance (which emerged in advanced democracies and were followed in many developing nations) have been the achievement of socioeconomic progress, law and order, poverty alleviation, employment generation, and public well-being; and the maintenance of values such as impartiality, equality, representation, integrity, fairness, welfare, citizenship, and justice (Haque, 1996; Lewis, 1991). But with the recent paradigmatic transition in the mode of public governance, its objectives have shifted to economic growth and productivity, and its normative standards have changed toward efficiency, competition, profit, and value-for- money, although these standards are largely associated with business management (Clarke and Newman, 1997; Jann, 1997; Kickert, 1997). As Brereton and Temple (1999: 463) mention, it is uncontroversial to note that there is a consensus that the private sector ethos has invaded the public sector. Instead of being answerable for social welfare, citizens rights, poverty eradication, impartiality, fairness, representation, and justice, public governance is increasingly accountable for accelerating economic-growth rate, boosting efficiency and productivity, encouraging competition, maximizing profit, and ascertaining cost effectiveness. Thus, under the current mode of governance, the standards of public accountability have become instrumental in nature, especially in terms of an overemphasis on procedural, economic criteria (e.g. efficiency and productivity) rather than substantive public concerns (e.g. equality and representation). But since the early 1980s, this active, direct, and leading role of public governance has increasingly been replaced with a more passive, indirect, and facilitating role (Peters and Pierre, 1998), with implementation and monitoring of divestment and contracting out. When the public sector plays a direct role in providing goods and services based on concrete socioeconomic programmes and projects, its activities become more tangible and measurable, and thus, easier to scrutinize; whereas its indirect role to encourage and facilitate the private sector to deliver goods and services is relatively intangible, immeasurable, and thus, unverifiable. Thus, although it is possible to hold public agencies accountable for tangible performances such as the quantity and quality of services that they directly provide, it is not always possible to make them accountable for their intangible performances such as divesting resources, making business deals, and monitoring services contracts. In other words, the current transition in the role of public sector from rowing (direct production and distribution) to steering (indirect monitoring and evaluation) implies a challenge to the realization of its accountability.

Under the current paradigm of new public management, this redefinition of citizens as customers, represents an accountability challenge. Public governance is accountable for the effective delivery of its services to customers who can pay, while it may remain indifferent towards low-income citizens who are not in a position to use such services due to their financial incapacity. Beyond this market-centred redefinition of citizenship, a customer-oriented focus in governance has also been reinforced by the proliferation of user charges. This provision of user charges means that the recipients of public sector services have to pay according to the costs of delivering such services, and it often allows Government Agencies to determine the amount of charges without being subjected to legislative approval (OECD, 1998; Wilson, 1998). Such a provision is likely to weaken the legal protection of economically underprivileged citizens who often depend on the state for basic services. Thus, the principle of user charges implies that although public governance may be readily accountable to affluent customers, it is not obliged to show accountability to underprivileged citizens who cannot afford user charges and do not qualify as customers. Another manifestation of excluding common citizens from the equation of public accountability is the restructuring of the public sector in favour of the affluent business class at the expense of the poorer sections of the population. Under the current market-biased governance, in addition to the windfall gains received by the business elites from their purchase of privatized assets sold at nominal prices and their favourable deals in the contracted-out services (Haque,1996), the remaining public sector has also been restructured to the disadvantage of underprivileged citizens. Nigerians complain that the privatisation of government assets which former President Obasanjo undertook at World Bank direction has lacked transparency and that well connected Nigerians have grabbed the countries crown jewels at sale or give away prices. Governance and Transparency Governance is about people and how they organise themselves to achieve their common objectives. In a democracy, people are the ultimate source of constitutional and political legitimacy. They are the beneficiaries of good governance and victims of bad governance. To promote good governance and prevent bad government, people must be empowered with knowledge about the role and responsibilities of Government, their citizenship rights and obligations and the consequences if their rights are infringed upon or their obligations are not exercised. Empowered people are likely to call to account, those in authority and ensure that the institutions, principles and process that support checks and balances are strengthen. Good Governance entails inclusiveness, popularity, transparency and responsiveness to the public. Transparency is a prerequisite for good governance and sound financial regulation. It is a remedy for otherwise illegal or objectionable actions, an approach which has influenced todays anti-corruption Strategies: If the broad light of day could be let in upon mens actions, it would purify them as the sun disinfects (Brandeis).

In the aftermath of the financial crisis, transparency has become a priority and agenda of regulators around the world. Some see Transparency as being embedded in the broader contents of lawful and ethical behaviour e.g. Swiss code of ethics. The principles for transparency developed in constitutional law are also applicable to financial regulation which proposes a comprehensive, rule-based rather than a purely processed oriented approach and suggests a three dimensional concept of transparency in financial regulation. The first dimension refers to institutional aspects i.e. procedures and decision making. By providing legal certainty, transparency serves as an anchor for financial regulation. It is the basis for establishing trust, which is the key element in any financial system. Once rules are published and transparent, holding those who are bound by those rules accountable for violations is a logical consequence. Accountability therefore becomes part of the concept of transparency. In its second dimension, transparency is understood as the substantive backbone of financial regulation. It lays open the values and goals of financial policy and regulation. The third dimension is accountability of actors as an essential element for rebuilding confidence in the financial system. Nigeria faces several daunting challenges in its efforts to improve governance in a nation of 150 million people. The socioeconomic and political challenges have remained perpetually unresolved because of bad governance, and it has seen its institutions deteriorate due to decades of military dictatorships and corrupt and visionless leaders. Some of the outstanding governance issues include: the need for rules for withdrawing funds from the Excess Crude Oil Account, the ability of the legislature to scrutinize the Federal budget, as well as a legal and judiciary system that is run-down, and above all, the embedded nature of corruption in the country and its institutions. Obasanjo presided over a few notable and well publicised economic successes. In 2003, he entrusted economic policy making to a team of energetic young technocrats he referred to as his apostles, several were recruited from overseas, most notable, finance minister Ngozi Okonjo Iweala, who had previously served as a vice president at World Bank, and more recently, Managing Director of the World Bank. Okonjo Iweala and her colleagues set out to implement an ambitious reform programme that would strive for transparency in financial matters and due process in the awarding of government contracts. In 2006 Okonjo Iweala, helped by the US treasury department persuaded the Paris Club to forgive some 18 billion dollars of Nigerias foreign debt. In recognition of the importance of these issues, reforms and measures put in place to improve transparency and governance include:

a.

The adoption and effective implementation of the Nigeria Extractive Industries Transparency Initiative (NEITI) to improve governance of the oil and gas sector and provide a legal basis for collecting and publishing oil revenue data. The FGN continues to regularly provide information on revenue allocations to the three tiers of the government (federal, state and local) in widely circulated newspapers and also on official websites.

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b. c.

the adoption of the National Economic Empowerment and Development Strategy (NEEDS) Fiscal Responsibility Act 2007; this law formalizes fiscal rule, a budget process around a mediumterm fiscal framework and fiscal transparency and reporting standards has been approved by both houses of parliament The Fiscal Responsibility Act was passed in 2007with the objective of introducing financial accountability, probity and Transparency in the management of public funds, it also set up the Fiscal Responsibility Council., which was empowered to enforce the compliance of the dictates of the act (attached in Appendix 1.2).

d.

the establishment of a computerized federal payroll management system; The establishment of the Economic and Financial Crimes Commission (EFCC); established in 2002, enforces laws relating to banking, money laundering, advance-fee fraud (also known as 419 fraud) and other laws relating to economic and financial crimes. and,

e.

f.

the introduction of a Value for Money audit in government procurement contracts; The rolling out of Accounting Transactional Recording and Reporting System (ATRRS), resulting in timely availability of fiscal data;

There has also been a Growing International Focus on Transparency, which is amply demonstrated by the proliferation in recent years of initiatives aimed at directly and indirectly promoting and enforcing transparency practices. These include: The United Nations convention against corruption articles 9 to 14 The International Monetary Funds Code of Good Practices and Fiscal Transparency The Organisation of Economic Co-operation and Development (OECDs) Best Practices for Budget Transparency The Global Reporting Initiatives Global Transparency Initiative The Extractive Industries Transparency Initiative (EITI) The Save the Childrens UK Publish What you Pay The George Soros Open Society Institution The Global Witness The Catholic Agency for Overseas Development (CAFOD) The OECDs Project on Revenue Transparency The IMFs Guide on Resource Revenue Transparency The Basel III 2010 United Nations Economic Commission for Africa African Governance Project The Democracy Index Of the Institute for Democracy in South Africa The Worldwide Governance Indicators Dataset of the World Bank Swiss Code of Ethics

Critical areas of transparency clarity of roles and responsibility, public availability of information, open budget preparation, execution and reporting, independent assurances of integrity. The extent to which these are

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practised in Nigeria fiscal transparency and accountability, deluge of new laws and regulations of international standard especially the passage of Fiscal Responsibility Act 2007, demonstrates that the nation is making progress towards trying to improve corporate governance, however implementation shortfalls of these laws, lingering capacity constraints, lack of political will and commitments, endemic corruption, have hindered any progress in good governance. Equally, without core economic and fiscal reforms put into practice, no amount of legislation can extricate the country and her people from economic mismanagement, corrupt practices and the dire poverty plaguing the country. Against the backdrop and realisation that economic development and the fight against poverty can effectively be enhanced under good governance and fiscal responsibility, some elites and citizens, civil society organisations and NGOS are still demanding transparency in budgeting, reporting and oversight functions of the legislature and emphasising their rights to know and determine how public funds are collected and spent. There have been various studies, essays, and researches focusing on governance in Nigeria. All reveal a country bugged down by a myriad of problems, including abject poverty of the generality of the citizenry, abysmal performance by both political class and public office holders, declining agricultural productivity, high illiteracy (Some Nigerian graduates cannot spell Polytechnic), gross indiscipline, very low purchasing power of the Naira and high inflation.

*Please read the attached Appendix 1.1 Abridged Story of Nigeria which gives an insight as to why the
Search for a Lasting Federation) has been elusive, due to the fundamental North South Dichotomy, which has allowed corruption and bad Governance to take root in Nigeria.

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The Nigerian State

The ABC of Jonathans Transformation Agenda is lucid, pungent, and relevant and addresses the major and key priority needs of the nation and holds a key to the transformation of Nigeria economically and socially. The Problem is in its implementation.

The Nigerian Experience Nigeria is a country blessed with rich human and natural resources. The country has the largest population in Africa of over 150 million, and great diversity of cultures, cities and terrain. Her wide span of land includes large quantities of some of the most valuable mineral resources in the world. Given the volume, value and varieties of available natural resources, Nigeria should be ranked among the richest countries of the world. However, Nigeria typifies the paradox of poverty in the midst of plenty. At the dawn of the Third Millennium, approximately 70% of the population still live on less than US$1 a day, an indication of extreme poverty. Annual Real Gross Domestic Product (GDP) growth has remained sluggish (especially during the military regime), but has improved during the last few years, currently averaging 7% per annum (OECD, 2010). However, the high growth rates do not seem to have translated into equitable distribution of wealth. The current Nigerian investment rate is unlikely to reach the minimum investment rate required to achieve the Millennium Development Goals (MDGs) by 2015. Most of the Foreign Direct Investment (FDI) into the country is directed at the oil, gas and extractive sectors. Thus, the economic structure remains undiversified and oil exports account for 95% of total export earnings, while the manufacturing sector accounts for less than one percent (UNDP, 2004). As at 2007, life expectancy was 46.9 years. Nigeria: Resource Curse or Blessing? According to Wegh 2008 It is something of paradox that a country categorised as one of the richest in human and material resources in Africa finds itself in this inglorious position. Nigerians and her well-wishers hoped that with the enormous resources, especially oil, the country would take off and achieve rapid economic and industrial transformation. But this was not to be as through the combination of mismanagement, poor leadership and incredible levels of corruption on the part of public officials, Nigerias fortunes have been squandered or siphoned off. A statement as true in 2008 as it is today. Countries that are rich in natural resources are often poor because of the resource curse associated with this natural endowment. With specific reference to the curse of corruption, exploiting natural resources tends to take precedence over good government. Auty (1997), for instance, examines the relationship between broadly defined resource-rich groups of countries over the period between 1960 and 1990. Sachs and Warner (2000)

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show a robust inverse relationship between growth and resource riches for a sample of 97 countries over the period 1970-1989. Hausman and Rigobon (2003), while supporting the generally inverse relationship, pointed out that oil-rich countries performed well economically in the 1980s when oil was doing well. Equally, most Arab oil producing and exporting countries have not overheated their local economy with oil money, rather, they have invested wisely and widely in international companies and real estate and they have also played the Ace game with their robust currency reserves. In an attempt to explain Africas performance with growth and investment regressions, Mkandawire and Soludo (1999) find that while the Dutch disease syndrome, caused by large natural-resource endowments, constitutes serious impediment to investment and growth in Africa, other factors also exist to explain her underdevelopment. Competing oil and mining companies, backed by their Governments, are accused of a willingness to deal with anyone who can assure them of a concession. This has bred corrupt and repressive governments and armed conflict, leading to economic and social problems characterizing resource-rich countries in Africa today. Very large, quickly growing, but time-limited production and revenue flows, combined with a high degree of volatility as a result of fluctuating world prices, when combined with weak administration, ownership of such wealth provides ample scope for inefficient policies, discretionary behaviour, and outright corruption. For countries like Nigeria, the problem is how to turn this resource curse into a blessing. Owning resources may not be a curse in itself but the problem seems to lie in the institutional factors inherent in the management of these resources. Transparency has been propagated as a fundamental first step to lifting the curse and effective Resource Management would also be essential. These can be achieved with a conscious commitment and effective institutional creation and implementation, of a framework, that is able to reconceptualise and bring about development. With 80% of its public revenues dependant on oil, Nigeria's reliance on oil production for income generation clearly has serious implications for its economic policy management (World Bank, 1995). In addition, the country faces daunting challenges of re-building a country badly damaged by decades of military misrule and a fragile democracy. In an effort to avert the resource curse, Nigeria could start by enabling other streams of resource revenues to promote economic growth and poverty reduction. This could be achieved by departing from a consumption oriented economy to a production oriented friendly country and restoring basic industries such as:

Agriculture - including cocoa, palm oil, palm kernel, cotton, groundnut, timber, etc. These agricultural

industries sustained the Nigerian economy before the military takeover, during which period, Nigeria was ranked as one of the fastest growing Economies in the world. Rehabilitation of moribund (associated) processing industries including the textile mills in Kaduna and

Lagos, Palm Oil processing mills in the South East, South South, Delta and Edo states,

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Resuscitation of the Car/Truck assembly plants (with proper, monitored, legal binding frameworks for

the assembly plants to attain at least 50% local content production within 10 years). The Automobile Industry is one of the main barometers with which to measure the industrial activities of a nation, especially with its attendant multiplier effect and employment generation.

The need to decongest the courts is more than imminent. A situation where litigants have to wait

between 10 to 15 years for judgement to be passed by the respective judges could be termed justice delayed is justice denied

The gap in the power sector has far reaching implications for improving the business climate,

sustaining economic growth and the social wellbeing of Nigerians. About 45% of the population have access to electricity with only about 30% of their demand for power being met. The power sector is plagued by recurrent outages to the extent that some 90% of industrial customers and a significant number of residential and other non residential customers provide their own power at a high cost to themselves and to the Nigerian economy. In a country where electricity is said to be about 40 per cent cost of production (Daily Sun, June 7, 2010), reasoned macroeconomic policy and investment in electricity would lure lucrative industries into the society and wake up the sluggish economy.

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Financial Accountability Framework

The question of public accountability has become more significant due to the growing challenge to various means of accountability posed by recent changes in governance. The major means of accountability that are traditionally practiced include the following: 1. external-formal mechanisms, including legislative instruments (legislative committees and parliamentary questions), executive means (controls exercised by political executives over public agencies), and judicial or quasi-judicial processes (administrative courts and ombudsmen); 2. external-informal mechanisms, such as public hearings, interest groups, opinion polls, and media scrutiny; 3. internal-formal means, including officials rules, codes of conducts, official hierarchies, segregation of duties, supervision of work, and performance reviews; and 4. internal-informal mechanisms, such as organizational culture, professional ethics, and peer pressure (DeLeon, 1998; Haque, 1994; Heeks, 1998). . The viability of these established and widely practiced means of public accountability is affected by the emerging neoliberal mode of governance, which has brought new sets of institutions, structures, and norms, and expanded the scope for administrative politicization, managerial autonomy, and publicprivate partnership. First, one of the basic prerequisites for public accountability in democracies is the political neutrality of career public servants, which has come under challenge due to the growing power of ministers or political executives to exert influence on the public service. In this regard, it has been pointed out by Rhodes (1997: 46) that in countries such as the UK, this is an era of macho-ministers in terms of expanded ministerial power to make decisions related to the appointment, dismissal, and retirement of top civil servants. These decisions are increasingly based on the political considerations and personal preferences of ministers. The rise of ministerial power to politicize the civil service has contributed to blurring the professional lines traditionally drawn between politicians and civil servants (Rouban, 1995: 50). The politicization of civil servants by ministers which violates the principle of political neutrality, and thus public accountability, of public employees has become much easier due to the recent policy to eliminate permanent tenure of senior public servants and introduce temporary contract-based appointments. Such a policy makes these public servants more vulnerable to political executives who now exercise control over their job contracts and careers For example; the tenured heads of government agencies have been replaced with the so-called chief executives appointed for five years based on individual contracts; In Nigeria, the Permanent Secretaries are now legally required to serve a maximum term of 5 years. These changes are not conducive to accountability because the means of accountability, such as ministerial control or supervision over

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public servants, is meaningful only when public servants are politically neutral, and when they enjoy such immunity from political influence due to their merit-based selection and job permanence When senior public servants are already politicized especially because their appointments are on short-term contracts decided by ministers as the political heads the ministerial control as a means of accountability may not only make these public servants extremely loyal to their respective ministers while ignoring their accountability to the general public, it may also expand the power of ministers to the extent that they themselves become less accountable to the public. Equally, there have been changes in the criteria to evaluate program and performance in the public sector as a means to ensure its public accountability. More specifically, under new public management, many countries have shifted from process-oriented to result-oriented performance with an increasing focus on outcomes rather than inputs public agencies and employees are supposed to be accountable for policy outcomes rather than policy processes. As far as accountability is concerned, this result-oriented mode of governance is likely to render the existing means of accountability ineffective. Internal Financial Accountability Mechanisms Its Importance Internal Audit Internal audit is another valuable tool in securing financial accountability. Internal audit could be defined as independent, objective assurance and consulting activity designed to add value and improve an organizations operations. Historically, internal auditing has solely focused on financial systems and financial controls within an organization. However, the role of internal audit has been changing and widening over time. These changes form a continuum from pre-audit, through regularity or compliance audit, to risk-based audit as well as reviewing the adequacy of the underlying activities to manage those risks. The origins of internal audit dated back from internal checking on the accuracy and validity of all payments made by an organisation (pre-audit). No payments could be made without them first being reviewed and stamped for payment by the staff of the internal audit section. Internal audit practice now forms a spectrum from this, original role of pre-audit, to risk-based audit. The latter consists of internal audit reviewing the risk management and internal control systems and processes with only limited testing of internal controls to ensure that they are actually applied as required. The role of the internal audit in financial matters has remained quite valuable and very important for building reliable new transitional systems of financial accountability.

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The objective of internal audit should be to help to ensure that the internal control system of an entity is adequate and effective. Adequate can be construed as meaning fit for purpose, so in the context of internal controls, that the controls are appropriate for the risks which the organisation faces and that they are actually implemented on a routine basis. The term effectiveness demands more than this and infers an interest in the actual outcome of the controls, for example ensuring that the transactions are actually appropriate, accurate and valid. As a result, if internal audit is to conclude on whether the risk management and internal control systems are effective, it should undertake at least some substantive testing to confirm whether or not the internal controls have operated as expected and thus ensured that the transactions are accurate and valid. Pre-payment audit checks (or pre-audit for short) are examinations of payment vouchers and other documents before the associated payments are made. The objective of pre-audit is to ensure that payments made are: Valid Necessary and accurate; and Expenditure is in line with the approved budget.

The advantages of pre-audit are said to be that it can help to: ensure that all expenditure is necessary and appropriate ensure that all payments are properly authorised before being made ensure that expenditure is in accordance with relevant laws and regulations prevent management fraud reduce the incidence of fraud or irregularity confirm the accuracy of the classification and the coding of expenditure ensure arithmetical accuracy of the transactions which are checked.

The pre-audit approach to internal audit is found in many African governments and many other continental European countries with a legal tradition based on the Napoleonic Code. As far back as September 1974, the Udoji Commission report had queried the cost effectiveness of the pre-audit. The report recommended that: A move be made towards eliminating the prepayment or 'internal check' function of internal audit to comply with Financial Instruction. Secondly, if this were done, internal audit would have more time to pursue its intended functions, which should not be part of the day-to-day control system but rather an independent review of the day-to-day controls, so as to be able to advice management on their effectiveness and means of improvement. Ex ante checking, whether it be universal or on the basis of sampling, is unlikely to be a cost-effective process: the effort put in to checking all transactions is clearly disproportionate, while sampling is unlikely to have sufficient dissuasive effect. The second, and fundamental, principle is that any retention of ex ante control runs up against the crucial objection that, de facto if not de jure, it displaces responsibility for financial regularity

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from the person actually managing expenditure onto the person approving it. This displacement of responsibility, meaning in effect that no-one is ultimately responsible. Effective internal control systems should not only include suitable checks and other control procedures, but they should also include review processes to ensure that the checks and controls are actually implemented and complied with. Managers who see internal audit's role in compliance terms believe that they can rely on internal audit to ensure that controls are actually reliably followed in all circumstances. Managers should be responsible for implementing effective control systems. They should also be responsible for ensuring that these control systems are routinely complied with. A comprehensive set of instructors and regulations are developed and reviewed by internal audit to ensure all existing risks will be avoided. All that is then required is for a regular check that these instructions are followed by all staff at all times. The Key areas of the Internal Audit functions now include: Internal control evaluations aimed at monitoring the effectiveness of internal Control Management and Operations audit aimed at risk assessment and Management Process System Assurance aimed at Procedural compliance including Information Technology system Integrity Operation Strategic Risk Assurance aimed at Audit committee briefs Internal Consultations aimed at Corporate Governance issues Frequent reporting with a view of ensuring compliance with established policies and regulations

Other issues concerning the internal audit operations include: Earning Measurement issues Asset Valuation Disclosures Capital write offs and write ins Confidentiality Issues

These issues require a systematic and disciplined approach to be adopted by the internal auditor to ensure effectiveness of internal control, risk management process, promoting open dialogue and communication. Effective internal control systems will not only include checks that regulations are complied with, but also periodic review of these regulations to ensure that they remain valid. Internal auditors have a professional responsibility to ensure that these regulations are regularly reviewed and amended as appropriate. The Federal Government of Nigeria introduced revised Financial Regulations which were applicable from 1st January 2000. The full benefits of internal audit can only be achieved if managers and internal auditors share the same perception of their mutual responsibilities. The view of internal auditors as only compliance auditors may

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indicate a limited understanding of the roles of internal audit and also a lack of understanding of the full range of responsibilities that managers themselves should have. Internal auditors should work with managers to facilitate the implementation of effective control systems. Internal auditors should also advise on the appropriate controls, compliance checks and review procedures that they should adopt. The Internal Auditors are in positions of trust and must be seen to maintain integrity, independence, good relationship with management and should have good accounting and audit experience. The internal audit functions should be both ex ante and post ante.

*Please read the attached Appendix 1.2 For Objectives of Internal Control and Examples of Control
Procedures for different Accounting Systems

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The Nigerian Internal and External Financial Accountability Mechanisms

It is worthy of note that during the first republic i.e. after independence, both the Federation and the regions had a high reputation for efficiency and Integrity and were visibly transparent. Consequently financial accountability, at the time, rested on disciplined implementation of General Orders (GO) and Financial Instructions (FI). It is interesting to note that effective high scores in real sector development including infrastructural development, higher educational standards, health, and agriculture were contemporaneous with the First Republic. The Federation Accounts are prepared under a Cash rather than Accrual Accounting basis. Under cash based accounting, transactions and events are recognized when cash is received or paid as opposed to the Accrual based Accounting system where transactions or events are recognised at the time economic value is created, transformed, exchanged, transferred or extinguished and when all, not only cash flows, are recorded. The Federal Government has introduces Medium Term Sector strategies, under the Ministry of Finance, with the objective of ensuring consistency between sectoral spending plans, existing government Development priorities and envisaged resource envelopes. Internal Financial Accountability Mechanisms One of the key instruments of internal financial accountability mechanisms is the strength of Internal Checking mechanism in which an officials work is independently checked by another official. For example, this system ensures that the same person cannot make orders, verify, check deliveries and make payments. Internal Financial Accountability Systems are based on the delegation of Financial Controls by the Hon. Ministry of Finance to heads of Line Ministries (Permanent Secretaries) or officials in the budget and finance department of these ministries. The role of the ministry of finance is one of monitoring co-ordination, but it remains responsible for the overall effectiveness and consistency of the system. There are a number of internal controls whose aim is to ensure compliance, and lay in force, financial accountability including financial accounting and reporting, accounting controls, procurement controls, fiscal controls, performance management and internal audit. In Nigeria, virtually all of the Internal Financial accountability mechanisms rest with the Minister of Finance; the very able, qualified, amiable, intelligent and one of the new generation technocrats in Africa - Ngozi Okonjo Iweala, the former Managing Director of World Bank, who also doubles as the Economic Minister, with the daunting mission of ensuring Accountability, Probity and Transparency in the Public Sector Management. However there are serious and disturbing leakages within the whole system, including system updates, accounting mechanisms and internal checking system, management inefficiency and problems with built in internal controls.

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The following are the functions of the Federal Ministry of Finance: Preparing annual estimates of revenue and expenditure for the Federal Government: Formulating policies on fiscal and monetary matters; Mobilizing domestic and external financial resources through both internal and external financial institutions, for development purposes. Maintaining adequate foreign exchange reserves aimed at Ensuring a healthy balance of payment position; Maintaining the internal and external value and stability of the Nigerian currency; Monitoring government revenue from oil and non-oil resources; Supervising the insurance industry; Managing revenue allocation matters; Relating with relevant international organization and financial institutions, such as the Economic Commission for Africa, World Bank, International Monetary Fund (IMF). United Nations Development Programmes (UNDP), Commonwealth Economic Committee, European Union/Africa. Caribbean and Pacific, Economic and Social Commission of the AU, ECOWAS, etc. Under the Finance Ministry are two key departments: 1. Budget Office of the Federation

Budgets Niskanem 1971 established an influential and enduring model of bureaucrats as budget maximizers. He described bureaucrats as actors who pursued Budget maximising strategies for a number of different internal motivations including salary, prerequisites of the office, public reputation, power, patronage and other personal gains. These Bureaucrats are further classified as a). climbers, b). conservers (protective type), c). Advocates (zealots, statesmen oriented towards effective service delivery with public interest at heart) d). Altruistic and Aggrandizers There are also minority groups of civil servants (not necessarily in Nigeria) who uphold professional ethics that include service to the citizenry as opposed to service to self. If the preparation of the budget is transparent, its implementation enhances financial accountability. Federal Budget Preparation Process Two of the three arms of the Nigerian Federal Government, the Executive and the Legislature Share the responsibility for the Federal Budget. The President is required under the Constitution to submit a budget for the next financial year to the National Assembly, for approval. By law, it covers a stated period, called a financial year, which in the Nigerian case, runs from the 1st of January to the 31st December every year. Therefore, the Executive is responsible for preparing the Federal Budget while the Legislature approves it.

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There have been significant improvements to the preparation and submission of the budget. The Budgets give high hopes of expectations to the citizens which are subsequently dashed due to dismal performances. The President gives directions to the Minister of Finance and the Budget Office of the Federation to prepare the Budget in line with the governments vision and direction for Nigeria which is currently contained in the 7 Point Agenda and the Vision: 2020. The Budget Office of the Federation, in consultation with the revenue generating agencies of the Federal Government (which includes NNPC and the Central Bank of Nigeria) project estimates of oil and non-oil revenue (including Value Added Tax allocation, customs and exercise, licenses and internal revenue, direct taxes, fees, mining royalties, earnings and sales, armed forces revenue, interest and repayment (general), interest and repayment (state), reimbursements; rent on government property; statutory and non statutory financial transfers and miscellaneous revenue). Once the underlying assumptions are agreed, they are then used to estimate the amount of total revenue that should accrue to the Federation Account. The share of the Federal Government is then determined. In addition to the annual estimates, the Government prepares medium and long term revenue framework which forms the guiding framework for the annual budget. The next step is to determine the Governments Expenditure Profile for the Financial Year under various expenditure Heads and Subheads. The fiscal rule being observed under the Fiscal Responsibility Act 2007 stipulates that total spending should not exceed total revenues by more than 3% of GDP (Gross Domestic Product). The Difference between the Total Revenue and Total Expenditure is referred to as the Budget Deficit or Surplus, as the case may be. The Aggregate Expenditure Ceiling (the maximum amount of total spending in the budget) is then sub-allocated among the three major heads of expenditure, that is, Statutory Transfers, Debt Service and the MDAs Expenditure. The Frameworks are then presented at the Stakeholders Consultation to different Stakeholders (including the National Assembly, the organised private Sector, Civil Society and the Public Sector) for their input and buy- in. For the National Assembly, every ministry, department and agencies are called upon to defend their budgets and the consultations are more rigorous and continuous as their input is particularly taken into account in preparing the Budget. The Budget estimates is then presented to the two houses of the National Assembly. The Medium-Term Revenue Framework, the Medium-Term Expenditure Framework and statements of how the Federal Government proposes to conduct its fiscal affairs for the next three years are summarised in a Fiscal Strategy Paper. The Fiscal Strategy Paper is then presented to the Federal Executive Council, along with the Medium- Term Expenditure Framework, for consideration and approval, so that required spending tradeoffs can be properly debated and agreed. Once approved by the Federal Executive Council the Medium-Term Expenditure Framework and the Fiscal Strategy Paper are shared with the National Assembly.

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The next stage is the issuance of the Budget Call Circular by the Minister of Finance. The Budget Call Circular gives detailed instructions to the MDAs on how to prepare and submit their expenditure estimates in accordance with governments priorities and within the limits of their Expenditure Ceilings. MDAs then prepare their budget proposals in accordance with the Budget Call Circular and within their Expenditure Ceilings, and submit same to the Budget Office of the Federation. The draft Budget is then presented to the President for approval. Once approved by the President, the Budget and other supporting documents are formally presented by the President to the National Assembly for consideration and appropriation. The Budget is presented at a joint session of the Senate and the House of Representatives. Following the presentation of the Budget to the joint sitting of the National Assembly, the Budget is debated. Both the Senate and House of Assembly are given the right to make amendments to the budget framework, mandated to reallocate apportionments between the various programmes which constitute a particular mission. Increase or decrease allocations of any particular project playing a much more substantial role in public finance expenditure strategy and stating priorities of policy objectives in order to strengthen the link between budget execution and parliamentary authorisation. In order to strengthen the links between budget execution and parliamentary authorisation, Parliament has the right to supervise the movement of appropriations such as credit transfers, carry over to the next budget/brought forward from previous budget, advances and cancellations on any particular expenditure item. Members of the houses are provided with much better information on the overall economic, social and financial situations of the country at the time the budget is discussed. Detailed economic and fiscal policy guidelines broken down by main functions are debated at many sessions of the two houses. The essence of the financial accountability relationship lies in the parliaments authorisation of the public revenue and expenditure plans. By authorising revenue and expenditure, legislation provides a framework of law, which is the basis for calling the government to account for its actions. Statutory approval of revenue and expenditure thus provides a good foundation for exercising financial accountability which in its most basic form consists of a comparison of submitted accounts to those initially approved by parliament. This ex-post financial accountability starts only after revenue and expenditure have been appropriately planned and authorised by parliament. Once the Budget has been approved, the Executive is authorised to spend. Equally, the budget office continues to monitor budget implementation exercises throughout the MDAs and produce quarterly Budget implementation reports. The write-up and the reports included in these publications in themselves are very impressive and thorough. The problem is What Happened behind the figures? Improvements have been made in the budget process in Nigeria such as increasing the levels of transparency in its preparation and widespread consultations including consultations with civil society. This process, however, could be enhanced by strengthening the institutional capacity of the responsible authorities.

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2. Office of the Accountant General of the Federation

The Accountant General (AG) is fully responsible for the preparation of the Consolidated Accounts of the Federal Republic of Nigeria. In this respect he is also responsible for the Accounting and Financial Management of the Ministries, departments and agencies and he provides the system for monitoring the accounts for MDAs (Ministries, Departments and Agencies), provides accurate and timely financial information for planning and decision making. Other functions include: Fund Management - management of the treasury of the nation Revenue Monitoring and Accounting Cash Supply ( including cash-backing and control of banking operations for the Federal Government) Management and Disbursement of the Federation accounts on behalf of the three tiers of Government. Management of Federal Government Investments Collation and preparation of the Federal Government Statutory Accounts and Financial Statements. Inspection and Audit of the books, records and accounts of the Federal Ministries and Agencies Investigation of cases of Fraud and losses of funds and Stores Issuance of Federal Treasury Circulars to convey Financial Policy directives Servicing of external and internal loans of the Federal Government

The internal audit units in the Federal ministries have a direct line to the permanent secretary in their respective ministry. However, their independence is preserved, as it is the Accountant-General in the Ministry of Finance that controls their transfer rather than their home ministry. In addition, the head of each internal audit unit is required to report to the Accountant-General each quarter on the work they have undertaken and their main findings. However, their scope could still be restricted, as it is the permanent secretary in their ministries that endorses their annual plan. Internal audit in the Federal ministries also appears to have a reasonable level of independence. However, at state and local government council levels internal audit has limited independence. Various innovations have been introduced by the Federal Ministry of Finance in order to level up with international best practices in Public Finance and bring the nations Public Accounting systems up to the International Standards. Some of these reforms include: a. Implementation of the Interim Accounting Transactions Recording and Reporting System (ATRRS) This is an ICT Microsoft Access based software application which enables rapid improvements in Accounting and Reporting. b. Government Integrated Financial Management Information System ( GIFMIS) GIFMIS is the computerisation of Public Financial Management (PFM) processes from budget preparation, execution, accounting, and reporting, with the help of an integrated system for financial management of Line ministries, spending Agencies, and other public sector operations. c. Improving the Financial Reporting System through the conduct of IPSAS GAAP Analysis

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The international public sector Accounting Standards Board (IPSASB) is a standing board of International Federation of Accountants (IFAC). It issues high quality accounting Standards and other guidance relating to the financial reporting needs of National, Regional and Local Governments.

d. New Chart of Accounts

A multi-dimensional charter of accounts to provide a framework to align policy priorities with the budget and financial reports has been developed primarily for the implementation of (GIFMIS). The details of each transaction will include, not only the exact particulars of a given receipt or payment but also the unit and section of the MDA responsible for the transaction. e. The E-Payment One of the measures taken by the ministry to ensure transparency and accountability was the introduction of the E-payment. The E-payment covers all payments to contractors, service providers e.g. PHCN, staff and other Government Agencies such as FIRS Modernisation of Internal Audit Internal Audit and Inspectorate activities are strong instruments of Internal Control Systems designed to ensure that the accounting systems and other public financial management systems are functioning well and comply fully with extant regulations. There have been reforms to strengthen capacity in risk based audit and Modern ICT Internal Control Management. The office of the Accountant General of the Federation has, through GIFMIS project, gone into the restructuring and modification of the internal audit functions as core components for strengthening Internal Audit Functions. The office of the Accountant General of the Federation of Nigeria is both daunting and challenging and he holds the principle key to the Internal Financial accountability. The primary responsibility for financial records rests with the Accountant General and the Auditor General. However, there is no-one in either department who champions record management. The Department of Planning, Research and Statistics, although headed by a non-accountant, might be the appropriate location for this role. The Ministry has created the Directorate of Finance and Accounts for all Ministries, Departments and Agencies (MDAs) reporting directly to the Director of Finance and Accounts under the Ministry. The Directorate has posted/created Finance Departments as well as Internal Audit Departments for every MDA and these departments have Line relationship (i.e. report directly) with the respective Permanent Secretary/head of Department or Agency, and Staff relationship with the Director of Finance and Accounts in the Ministry. The Office of the Accountant-General of the Federation is structured into eight (8) Departments around its core functions. These departments include: 1. 2. 3. 4. 5. Audit Monitoring Administration Planning, Research & Information Technology Finance & Accounts Funds

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6. 7. 8.

Consolidated Accounts Inspectorate Revenues & Investment

Financial Accounts and Consolidated Accounts Whilst the Finance and Accounts Department deals with the accounts of the respective MDAs, Consolidated Accounts Department Deals with the consolidation of all the accounts within the MDAs which forms the consolidated account of the Federal Government of Nigeria. The accounts of Ministries, Departments and Agencies are subject to periodic accounting reports which should include: Statement of Financial Position at the end of the reporting period (Balance Sheet) Statement of Comprehensive Income ( Profit and Loss Account) Statement of Changes in Equity for the reporting period Statement of Cash Flows for the reporting period Notes to the Accounts Comprising a summary of Significant accounting policies and other explanatory information with corresponding figures for the previous accounting period. In some cases, accounting ratios are also included. Audit Monitoring The Audit Monitoring department is responsible for the Internal Auditing and periodic audit monitoring of internal audit of MDAs and FPOs. The Department is structured into two main Divisions namely: Ministries, Department and Agencies Division. Zonal Offices and Federal Pay Offices Division.

The functions of the Audit Monitoring department include: Reviews reports from Internal Audits in the field and draws the attention of AGF to significant issues arising from the reviews as well as advising the office on Audit matters. Provides feedback to Internal Auditors in the field as well as Accounting Officers where necessary and carries out follow-up Monitoring activity. Monitor Internal Audit Units in the MDAs/FPOs so as to provide assurance to the AGF that activities in the Internal Audit Units are being carried out in a manner to ensure complete and continuous audit including management Audit as well as provide safeguards for prevention and / or prompt detection of fraud and loss of government assets. Control the production, custody and issuance of audit stamps. Provides guidance, training direction of Internal Auditors in the field. Carries out special audit work as may be directed by the AGF.

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External Financial Accountability Mechanisms External Financial accountability mechanisms are means of holding the Government to account to Parliament and other institutions outside of the administration, such as the Public Complaints Commission and external audit. The main mechanisms of this category are scrutiny by legislative and investigatory committees, various public debates and, in the last resort, parliamentary elections. It may be argued that the main loci of financial accountability are external, since key financial accountability mechanisms are established outside the executives structure. However, since the executive can fulfil its external accountability responsibilities only if it is efficiently and effectively performing its internal duties, the financial accountability relationship is also established within its internal structure, between public officials dealing with public funds. Some of the key Mechanisms are include: 1. Parliament

The main function of the parliamentary oversight responsibilities rests on their judicial power to scrutinise and oversee the accounts and functions of ministries, departments and agencies to ensure that expenditure conforms to the appropriation rules and account for their stewardship of public money. A key weapon of the parliament in securing financial accountability is the work of its most senior and most formidable committee, the Public Accounts Committee. Its role is to examine whether public money voted by Parliament has been spent in accordance with Parliaments intentions, and with due regard to issues of regularity, propriety and value for money. Work of the Public Accounts Committee is substantively supported by the external audit institution, without whose professional assistance the Committees control would be almost impossible. On the basis of the external audit institutions reports, the Public Accounts Committee calls officials to account for misuse of public money and reports its findings to Parliament. The Committees reports and the governments responses to them are debated in Parliament and may be raised by Members of Parliament at any time. 2. Central Bank of Nigeria The Central Bank of Nigeria (CBN) under the current leadership of Sanusi Lamido Sanusi CON, one of the new generation African technocrats committed to transparency and Accountability receives money on behalf of the Federal government of Nigeria, for the Federation Account and passes same to the Accountant General of the Federation. The objectives of the CBN are as follows: - ensure monetary and price stability; - issue legal tender currency in Nigeria; - maintain external reserves to safeguard the international value of the legal tender currency; - promote a sound financial system in Nigeria (e.g. Banks); and - act as Banker and provide economic and financial advice to the Federal Government.

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The bank is responsible for monetary policy, which should aim to achieve reasonable price and exchange rate stabilization over a medium term. It is given sufficient independence to attain the above objectives for which it is held responsible and expected to inform the public of its decisions under the above enumerated responsibilities. 3. The Media

Special investigation commissions appointed by the Central Government, NGOs and other organisations, play a significant role as a watch dog for the efficient and effective utilization of public funds by the government. The involvement of Special Investigative Commissions, Unions, NGOs and the Media in covering national budgeting processes and potential corruption also results in important avenues for citizens access to information. Although many reporters cannot make an informed analysis of budgetary policies, the media can be an effective ally in sparking debate among the general public and eliciting responses from the government. Trade Unions can also determine, change and influence government accountability of public funds.

4. External audit - Supreme Audit Institution and the Auditor General of the Federation
Supreme Audit Institution Supreme Audit Institutions ( SAI) are watchdog agencies that carry out external audits of expenditures, incomes and assets of all government institutions, ensuring public sector transparency and financial accountability with functional, institutional and financial independence. They have essential legal powers and tools in order to audit all public funds, resources and activities and report audit findings to parliament so as to reinforce parliamentary oversight over the executive and publicise them. They have judicial powers to audit the accounts of Government institutions and put emphasis on compliance audit (i.e. Auditing compliance with laws and regulations). They serve as an independent body to report to parliament, supporting financial accountability and transparency for the sake of a strong financial management system. In so doing they ensure that all transactions regarding expenditures and income comply with laws and regulations and that public resources are expended efficiently, effectively and economically. Regular and well designed audits provide the opportunity to discover the weaknesses and loopholes in internal controls, as well as inefficient and ineffective use of public funds. In Nigeria, the structure discussed above under the external financial accountability mechanism is fully established. The external audit is under the responsibility of the Auditor General of the Federation. Auditor General of the Federation The 1999 Constitution provides for an Office of the Auditor General for the Federation. The office is an independent entity whose existence, powers, duties, and responsibilities are specified in the constitution. The Public Accounts of the Federation and of all Offices and Courts of the Federation should be audited and reported on by the Auditor General (AG). The AG is required to report the findings to the Public Accounts Committees of both houses of the NASS within 90 days of receipt of the Accountant Generals The AG or any

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person authorized by him has access to all the books, records, returns, and other documents relating to those accounts. The main function of the Public Accounts Committee is to review whether public money was spent for approved purposes and with due regard to efficiency. Strengthening the functions of this office by the current administration will contribute immensely to the governance efforts of the country. Finally, even though Auditor-Generals in Nigeria at the Federal and State levels have a reasonable degree of independence, it could be greatly enhanced if at the Federal level, their budgets were not decided directly by the MOF but by the parliament. The Auditor-General should also be allowed to promote and dismiss their staff. At the local and State level, they have limited independence. Reading through the report of the Auditor General for the year ended December 2008 (the most recent published report available), a conclusion could be drawn, that the Auditor General of the Federation demonstrates high professional integrity in his report which is both LUCID and PUNGENT. The report is replete with disturbing errors of omission and commission in the accounts of every ministry, department, and agency. Examples of such issues include: non-compliance with procedures insufficient documentation supporting purchases incomplete reconciliations failure to account for items properly weaknesses in documentation which permits and in some instances highlights fraudulent activity Below are extracts of some of the few, random samples of the Auditor Generals report which highlight some of the issues mentioned above: Report of the Auditor General for the Federation Annual Report on the Account of the Federal of Nigeria for the Year Ended 31st December 2008 Page 56, Section 3.05: The records made available by the Funds department showed that the sum of NAIRA5 Billion for Group Life Insurance was cash backed in 2008in favour of the office of the Head of Civil Service of the Federation (OHCS). However it was observed that the sum of NAIRA4 Billion was reflected in the Financial Statements and in the Consolidated Transcripts of the OHCS, whereas, Note 4 which is the List of Closing Cash Book balances as at the 31st of December 2008 showed the closing balance of OHCS to be Nil. This balance did not account for the NAIRA1 Billion difference between the cash backed figure of NAIRA5 Billion and NAIRA4 Billion reflected in the Financial Statements and the transcript of the accounts. The Accountant General has been requested to account for the difference of NAIRA1 billion. Comments: On the surface, it would appear that there is an account reconciliation problem or more seriously, an error of Commission. Whatever the situation, it demonstrates deficiencies in the accounting system. The

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accounts should be reconciled to explain the NAIRA1Billoion difference. This indicates lapses in the accounting system. Page 57, Section 3.07: In the audit examination of the subheads relating to the Service Wide Vote, the sum of NAIRA25,614,551,162.00 made up of two tranches of NAIRA13,239,551,162.00 and NAIRA12,375,000.00, was released to the office of the Accountant General of the Federation for the payment of Terminal Benefits of 13.722 disengaged staff of various parastatals. It was however observed that the sum of NAIRA25,614,551,162.00 was not reflected in the financial statements. The Account General of the Federation has been requested to provide names of the Banks, the Account numbers and Bank Statements in which the sum of NAIRA25,614,551,162.00 was paid into. The balances from the various loans as at the 31st of December should also be provided. Comments: What is the External Accounting Mechanism within the Department or Ministry that allows these lapses? The local Departmental or Ministerial internal and external auditor should have picked up on these discrepancies and carried out their own investigation on the differences. Is this an error of commission or error of omission? It is hoped that the Public accounts Committee would have waded into this issue to investigate the discrepancies in the money received and the actual payments made. Page 59, Section 3.13: It was observed overtime, that there was a serious cash management problem in the consolidated Revenue Fund Account, this problem arose from the various Debit Interest and Sinking Fund which ran into billions of Naira being debited into CRF account, and many a time, without the advance knowledge of the Accountant General of the Federation. The reason being that there were no mandates, no known programme or projection for daily, monthly, quarterly, and plans for these kinds of Debits prior to their being brought to the CRF account. This had created serious cash flow in billions of Naira out of the CRF Account without a prior projection. A sample audit examination of the CRF Bank Reconciliation statements showed the sum of debits charged to CRF account for: i. Debit Interests = 183,456,910,913.16

ii. Sinking Fund = 11,255,171,560.64

194,712,082,474.70 It is of concern too, that accounts where the credits for the sampled Debit Interests of NAIRA183,456,910,913.16 and Sinking Fund of NAIRA11,255,171,560.64 were not known. Also of concern is that the criteria for determination or calculation of the debit Interests and sinking Funds for this large sum of funds in billions of Naira was not known; for one to determine the correctness of these debits charged to CRF.

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The accountant General of the Federation has been requested to disclose the beneficiaries of various debits, in respect of the Debit Interests in Floatation, Stock, Bonds, Treasury Bills, and Sinking Fund accounts that are credited. Page 69, Section 3.34: A loan of US $40,000,000 was granted to the republic of Ghana on the 3rd of August 2004 for financing Ghanas interest in West African Gas Pipeline Project at a zero interest rate. The loan agreement indicated that it would be repaid in five equal instalments of US $8,000,000.00 bi-annually. The figure for this loan was not reflected in the note 6 of the Financial Statements. Page 69, Section 3.35: Similarly a loan of US $ 5,000,000 was granted to Sao Toure and Principe by the Federal Government of Nigeria to enable the Democratic Republic of Sao Toure and Principe achieve the objective of establishing the treaty in the Exploitation and Development of Resources in the joint Development Zone (JD2). This Loan was also not reflected in the Statement The Accountant General of the Federation has been requested to furnish my office with the present position of the repayment of the loans totalling US $45,000,000 as at the 31st of December 2008 for examination. It should also be noted that this issue has been subject to my reports since 2004 to 2007 without any response Comments: The Loan Servicing Department is charged with the responsibility of looking after Loans, whether given or received by the Federal Government. This is clearly a lapse in their responsibilities as this issue has been reported yearly through the periods 2004 to 2007. The Public Accounts Committee should also have looked into and resolved this issue considering the length of time it has been ongoing. Page 69, Section 4.02: At the office of the Accountant General of the Federation, it was observed from the component statements of 2008, the Joint Venture Cash Calls (JVC) of the sum of NAIRA579,126,900,000.00, Excess Crude of the sum of NAIRA1,728,448,746,760.92 and Petroleum Product subsidy of the sum of NAIRA360,184,606,409.99 were deducted from the proceeds of Crude oil sales, while the sums of NAIRA706,033,086,799.17 and NAIRA247,561,015,590.23 were excess proceeds deducted in respect of Petroleum Profit Tax (PPT) and Royalties respectively. These deductions were made before the Net Revenues were paid to the Federation Account, contrary to the provisions of Section 162(i) of the 1999 Constitution of the Federal Republic of Nigeria, which requires all such revenues to be paid directly into the Federation Account. This anomaly has been brought to the attention of the Accountant General of the Federation for Prompt action. Extracts of the Auditor Generals Report on the NNPC and Petroleum Products Pricing and Regulating Authority Page 78, Section 4.12:

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At NNPC, it was also observed that the Corporation had US $10,720,573.37 debt outstanding against some Crude Oil Debtors age analysis of the debtors range between eight (8) and twenty (20) years further enquiries revealed that most of these Debtors were no longer trading with NNPC. The comment of the Group Managing Director (NNPC) has been sought, on the efforts being made to recover the debt Page 79, Section 4.13: Audit examination of the accounting and other records revealed that interest payable on delayed payments by crude oil customers was US $28,636780.00. This action contravenes the provision of the contract agreement between NNPC and the Crude oil customers, which requires that interest based on London inter Bank Offer Rate (LIBOR) are charged on customers who failed to settle their crude oil costs after the payment due date. The comment of the Group Managing Director (NNPC) has been sought on the efforts being made to recover the debt Comments: Existence of potential bad debts to be written off due to the lack of adequate credit control Mechanisms Page 79, Section 4.14: Further Audit scrutiny of the records of the NNPC showed that a total of NAIRA450,776,350,457.00 realised from domestic sales of crude oil and gas were not remitted to the Federation account by NNPC. The attention of the Group Managing Director of NNPC has been drawn to this anomaly through the Accountant General of the Federation and has been requested to refund NAIRA450,776,350,457 to the Federation Account. Page 79, Section 4.15: Audit examination of the accounting and other records revealed that Crude oil and gas Sales to US $435,915,548.44 which appeared on the Crude Oil Profiles could not be traced to the Statement of Account of Crude Oil and Gas proceeds with J P Morgan Chase. Also, Sale proceeds amounting to US $97,902,712.75 as stated in the Statement of Accounts of NNPC oil and Gas sales proceeds with J P Morgan Chase New York could not be traced to the Crude Oil and Gas Receipts and payments statements. The attention of the Group Managing Director NNPC has been drawn to these anomalies through the Accountant General of the Federation and has been requested to investigate these anomalies. Page 79, Section 4.16: Audit examination of the Joint Venture Cash call records at NAPIMS, Lagos revealed that an amount of US $100,000,000 was irregularly diverted in the year under review to execution of security payment for the month of month of May 2008 which was not included in the approved budgets of the Joint Venture Operations. The Group Managing Director (NNPC) had been requested to produce the authority for the fund diversion of US $100,000,000; otherwise refund the sum to the Federation Account. Extracts of the Auditor Generals Report on the Department of the Petroleum Resources (DPR)

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*Page 80, Section 4.20: During the audit examination of accounting and other records at the Department of Petroleum Resources for the Federation Account Revenue, it was observed that the computation of royalties payable by the oil companies was based on actual Crude oil lifted by them and not calculated on actual production figures contrary to the provisions of the MOUs with the relevant oil companies : The MOUs provide that payment of royalties should be based on production volume multiplied by the prescribed royalty rates *Page 80, Section 4.21: Furthermore, the department of Petroleum Resources (DPR) has since shirked its responsibility of raising the assessments on royalties and sending the demand notices to the various oil companies for prompt settlements. Rather the Oil Companies are allowed to engage in the self-assessment of royalties payable by them. This compromise obviously is detrimental to the interest of the country. The Director of Department of Petroleum Reserves has been informed of this anomaly through the Accountant Genera of the Federation and he is requested to ensure that computation of royalties is based on the production as contained in the MOUs for the benefits of the country This situation is gravely collaborated by the article of the Daily Sun, March 13, page 6, with the heading: DPR accuses IOCs of frustrating gas monitoring installation which accused International Oil companies (IOCs) of refusing the DPR to install equipments that will monitor the production and utilisation of gas Page 81, Section 4.23: Audit investigation revealed that a sum NAIRA1,203,815,367.00 for penalty on Gas flared, US $586,202,836.00 on royalties or Crude oil and US $ 857,921.28 on Concession Rentals owed by various oil companies were outstanding as at December 2008. Extracts of the Auditor Generals Report on the Federation Ministry Works, Housing, and Urban Development Page102, Section 6.52: 5 cash withdrawals totalling NAIRA7,269,000.00 were made in June and August 2008 from the Fertilizer account maintained with a commercial bank. The authority and purpose of the withdrawals were not explained. No paid voucher or receipt was produced to justify the abnormal withdrawals, I have asked the Permanent Secretary FCTA to investigate and explain the abnormal withdrawals Extracts of the Auditor Generals Report on the Federal Ministry of Finance Page114, Section 6.76: Similarly the sum of NAIRA215,000,000.00 donated by the World Bank was released to the Ministry through Authority to incur Expenditure dated 05/05/08 for the purpose of meeting the counterpart funding requirements for some Donor-Assisted Project. The 4 beneficiaries shared the allocation as follows:-

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Economic Management and Capacity Building Project (EMAP) NAIRA115,000,000.00 Economic Reforms and Government Project (ERGP) State Governance and Capacity Building Project (SGCBP) African Capacity Building Fund (ACBF) NAIRA50,000,000.00 NAIRA25,000,000.00 NAIRA25,000,000.00 NAIRA215,000,000.00 However, none of them acknowledged receipt of those amounts of money, the payments were not properly accounted for and details of expenditure were not produced for examination and verification Extracts of the Auditor Generals Report on the Embassy of Nigeria, Paris, France Page132, Section 6.129(a): The sum of 1,273,059.60 (NAIRA271,810,855.20) was collected as revenue by the embassy. Instead of remitting this amount to the Federal Government Independent Revenue Account, at J.P. Morgan Chase Bank, New York, the mission spent it on Sundry items. This is a contravention of extant regulations Extracts of the Auditor Generals Report on the Federal Government Press Page142, Section 6.152(e): The contract for the supply of 3 electricity transformers to the new office was awarded a sum of NAIRA23,194,500.00 on the 8th of October 2008. Full payment for the contract was affected on 22nd December 2008. Audit verification however revealed that only one transformer worth NAIRA3,712,500 was supplied, but it was yet to be installed and tested by PHCN as contained in the contract agreement. The other 2 transformers were not supplied. The permanent Secretary Ministry of Information and Communication has been asked to recover the sum of NAIRA19,482,000.00 being the cost of the 2 transformers not supplied from the contractor or those who processed the upfront payment These extracts represent small sample numbers taken at random. The full Auditor Generals report was so replete with numerous errors of commissions and omissions that one should be concerned with the Parliamentary oversight functions (Public Accounts Committee) especially when significant numbers of these issues have been around for some years. The Auditor Generals findings in his report corroborate with the recent (2011) Process and Forensic Review of NNPC by KPMG and SSA, appointed by the Federal Ministry of Finance. A sample of which is also listed below: Nigerian Extractive Industries Transparent Industries Act 2007 As a follow up to the announcement of the Extractive Industries Transparency by Tony Blair; the then British Prime Minister at the World Summit on Sustainable Development in Johannesburg, South Africa in September 2002, and the general impression that widespread Corruption and Discrepancies characterised by Nigerias Oil and Gas sector, Nigeria signed on to the initiative (the NEITI was enacted in 2007). A 28 man National Stakeholders working group (NSWG) was inaugurated by President Olusegun Obasanjo to oversee its

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implementation. To achieve its objective the NSWG engaged the services of an international audit company, the Hart Group, made up of Nigerian and British firms with the Mandate to perform a process, financial and physical audit of all extractive companies. The auditors were also required to prepare a credible Annual Statement of all revenues received by the Government from 1999 when civilian government was restored to 2004 and annual basis thereafter. The report involved looking at the books of relevant government agencies that have a role to play in collecting revenues in the form of royalties, taxes etc. from the extractive sector, as well as the Central Bank, where the funds were deposited in government accounts. Some of their findings included:

1. ADDITIONALTIES OF $510 MILLION NOT YET FINALIZED: The DPR in 2004 set up a joint review
team comprising the Federal Inland Revenue Service (FIRS) and the Nigeria National Petroleum Corporation (NNPC) in respect of Royalties calculations by the OPCOS. The result of the exercise was additional charges on 11 oil companies of roughly $510 million. Hart Group needs to establish how this is finalized.

2. MANAGEMENT OF CASH CALL ACCOUNT: There is a cause for concern where transfers between JP
Morgan NY to CBN Accounts sometimes differ and require reconciliation. A situation where $248 million transferred was received as $291 million in CBN gives a funny feeling. And NAPIMS who operate this account receive their management fees of 50 to 60 million dollars from this account? If the Account as published represent what is on ground Hart Group must do more than they have done adopt or make government adopt what is current best practice in other oil-producing countries. President Olusegun Obasanjo had to stop the presentation of their report to the Federal Executive Council (FEC) midway as the presenter mentioned various discrepancies unearthed by the Hart Group in the course of its work. An infuriated Obasanjo had directed the auditors to go to the roots of the audit and trace where the alleged missing funds went to. The Federal Government of Nigeria has also noted that, despite the increase in international oil prices and Nigerias export volumes, there has not been a commensurate improvement in the Countrys external reserves position. This has been further aggravated by allegations of unauthorised changes made in the management of foreign bank accounts used for the receipt of the national crude oil and gas sales proceeds by the NNPC, as these sales are said to be received into NNPC managed foreign bank accounts. Furthermore, there are concerns that the procedures for managing and reporting the countrys crude oil and gas revenues are opaque and characterised by gaps, overlaps and inconsistencies in the role of key parties responsible for the assessment, collection and reporting of these revenue streams. Against the above backdrop of these, the Federal Government, through the Federal Ministry of Finance, engaged KPMG and SSA to carry out a process and forensic review of NNPC. The following are a few extracts of a random sample of their process review report (process only).

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NNPC: Process and Forensic Review Report by KPMG and SSA (Interim Report on Processes Only) Identification of gaps / issues to the processes and proffers recommendations to bridge identified gaps: *Page 17 Section 4.1 Findings: Poor data management, no centralised location for storing electronic copies of historical production and allocation data. This information is stored on Personnel (individual) workstations Implications: Potential loss of historical production information in the event of staff turnover or system failure. Difficulty in retrieving prior documents/reports Recommendations: - Documents should be maintained in a central location - Implement procedures for ensuring effective and timely filing / storage and backup of documents - Ensure periodic system backup to minimise data losses Page 18 Section 4.1 Findings: Currently, determination of Official Selling Price (OSP) is performed by using different variables (dated Brent DB, differentials-D and Premium-B) i.e. OSP = DTB + D + P.A model was developed but is not currently being utilized based on its lack of robustness Implications: Lack of a standard model could result in incomplete evaluation of OSP variables such as freight costs seasonal influences and operational challenges Recommendations: - Implementation of a robust and scalable pricing model to ensure a complete, consistent and systematic approach for determining OSP Page 18 Section 4.1 Findings: We observed variances in crude sales price especially with regards to domestic sales in PPMC. Crude sales to NNPC were at lower prices (lower than approved OSP) than to other off-takers which is not in compliance with Government directive it appears that there is no formal documentation to support this decision/practice Implications: - Sub- optimisation of crude oil sales Revenue / potential loss revenue loss to the federation - Non compliance with laid down policies and procedures - Potential conflict of interest with Com D acting as Agent to Government and being under NNPC who is also its customer Recommendations: - Review and update policies on crude sales to ensure that external off-takers and PPMC are invoiced at a uniform price

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Page 19 Section 4.1 Findings: NNPC is invoiced in the US Dollars for domestic crude allocations but is expected to remit the equivalent Naira value to the Federation account. However we observed that exchange rates used by NNPC were lower than the average exchange rates published by the CBN during the review period. Exchange rate variations for 2007, 2008, 2009, were estimated at NAIRA25.7bn, NAIRA33.8bn, NAIRA26.7bn respectively (using CBN Rates for the months of the transaction). NNPC claimed they obtained the exchange rates from CBN via phone but there was no document to substantiate the claim. Implications: - Significant underpayment of domestic crude cost to the Federation account Recommendations: - Enforce policy to ensure NNPCs exchange rates are consistent with CBNs published rates - Supporting documents regarding applicable exchange rates should be obtained from CBN and filed appropriately for record purposes Page 23 section 4.1 Findings: - Non Compliance with guidelines relating to detained margin of error on L.C. Value (+/-5%) - Variation between the invoice value and LC value exceeds the defined 5% error margin. Examples include invoice number Cos\02\PPMC\026\08 (Difference of 10.8% i.e. Cargo valuation and LC value are $95,396,587 and $85,000,000 respectively) Implications: - The risk exists that the quality of crude lifted by off-takers would exceed the contracted volumes. Recommendations: - Update and enforce policies to ensure actual lifting volume and value do not exceed defined LC margin of error - Conduct periodic reviews of LCs against cargo valuation to proactively identify the need to update LC value *Page 24 Section 4.1 Findings: We observed that oil sales and collections are not promptly captured on the accounting system. Typically, these transactions are captured in the accounting system after the transactions have been approved at FAAC meeting which is typically two (2) months in arrears Implications: - Inaccurate sales and collection information on the financial systems and multiple data sources as data is predominately managed outside the system. - Tracking and aging of receivables would be performed manually - Late detection of errors and absence of relevant audit trails. - Root cause analysis of adjustment not adequately determined or resolved

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Recommendations: - Review billing and revenue accounting processes to enable real time processing of transactions - Explore the possibility of system generated invoicing. *Page 28 Section 4.1 Findings: Delays in Discharging of products result in significant demurrage payments. Based on our analysis of product importation profiles between January 2008 and June 2010, average demurrage days were estimated at 31 days Implications: - Demurrage payments are made by NNPC. We observe that NNPC was liable to pay an average demurrage of $198 million during the review period translating to an average of $6.6 million per month Recommendations: - Review and update the planning process for receipt of product imports to enable more efficient planning of cargoes and minimise delay - Explore long term solutions to resolve jetty facility constraints - Upgrade of Jetty facility products, specifically with regards to drafts. - Improve local production of petroleum products Page 29 Section 4.1 Findings: - Non integration of inventory, procurement and accounting system - Currently crude oil receipts as well as the production, verification and evaluation of refined petroleum products are managed on MS Excel Implications: - Lack of end to end reconciliation of inventory to product sales. - Increased possibility of manual errors - Late or non detection of inventory losses/reconciliation issues - Inaccurate Inventory records resulting in misstatement of financial records Recommendations: - Deploy an inventory system that supports the refineries supply chain processes - Currently NNPC is in the process of implementing an EPR solution (SAP) which is expected to address the challenges being faced with non integration / stand alone system. - There is a need to ensure that functional requirements meet and address the issues currently faced before the implementation can be successful. *Page 33 Section 4.1 Findings: - There are instances of delay in receipts of subsidy advice from PPPRA resulting in the estimation of subsidy claims by NNPC, which results in over / under deductions from proceeds of domestic crude sales

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- For example, NAIRA25bn was deducted as subsidy estimate for September 2009 from domestic crude sales proceeds while PPPRA approved subsidy of NAIRA23.8bn - NAIRA35bn was also deducted as subsidy estimate for November 2009 but PPPRA approved a subsidy of NAIRA21.36bn - Over deduction for these two months amounted to NAIRA14.00 bn. However only NAIRA4.2bn was swept into the Federation account by NNPC as adjustment for subsidy claimable in the two months Implications: - Under remittance of domestic crude sales proceeds into the Federation Account - Based on our analysis subsidy over deduction for 2007, 2008, 2009 was estimated at NAIRA2.0bn, NAIRA10.36bn, and NAIRA16.2bn respectively - High risk of loss of subsidy adjustments trail, specifically in instances of under remittance. Recommendations: - Define and reinforce deadlines for submission of subsidy advice by PPPRA - Deduction from the proceeds of domestic crude sales by NNPC should be solely based on the amounts advised by PPPRA *Page 38 Section 4.1 Findings: - Delays in capturing sales transactions on the Sun accounting system - As at August 2010, we observed that transaction entries relating to payment and product lifting by coastal marketers for June and July 2010 have been captured onto the system Implications: - Inaccurate financial records - Long cycle time for the preparation of management reports due to reconciliations - Increased and cumbersome reconciliation Recommendations: - Redesign process to ensure real time capture of transactions on the accounting system - Define and implement timelines for the posting of transactions as KPIs for process operations - Explore opportunities to generate system invoices / receipts *Page 39 Section 4.1 Findings: - Poor Data Management we observed that documents are not adequately filed and some documents are stacked in bags Implications: - Difficulty in retrieving supports for past transactions - Increased risk of misplacement of documents - Lack of supporting documents to present in cases where transactions listed on invoices are disputed by Marketers

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Recommendations: - Implement procedures for ensuring effective and timely filing/storage and back up of documents - Explore implementing a document management system to reduce the use of paper in the process flow - Timelines for filing all documents should be clearly defined and monitored to ensure compliance - Ensure periodic system back-up to minimize data losses. NNPC Newspaper Articles Article: Daily Sun, Tuesday March 13, 2011, Page 6 - DPR ACCUSES IOCS OF FRUSTRATING GASMONITORING INSTALLATION How can Nigeria talk of accountability when we cannot metre the basic source of our income oil? Nigeria may be losing billions of naira in revenue following the refusal of International Oil Companies (IOCs) to allow the Department of Petroleum Resources (DPR) install equipment that will monitor the production and utilization of gas. The Department of Petroleum Resources (DPR) told the Senate Committee on Gas that IOCs had frustrated the Federal government efforts at installing equipment to monitor the production and utilization of gas real time measurement. Deputy Director Technical Services of DPR, Mr. Dozie Irrechukwu, said this at an interactive session with the Senator Nkechi Nwaogu-led committee in Abuja on Monday. He specifically fingered Shell Petroleum Development Company (SPDC), Chevron and Mobil as using some techniques to slow down the installation of the real time units that would give accurate measurement of gas production and utilization. He said the companies had refused to shut down to allow the contractors survey and design the appropriate technology to be used. Irrechukwu said the project had only attained 8.3 per cent completion even after the contract for the device was awarded in 2009. He explained that Gas Real Time measurement was an electronic device used to monitor the quantity of gas produced at any particular time. Irrechukwu noted the IOCs were still using manual measurement, which, he said, was far below the level of gas being produced and utilized. There was, however, cheery news as Irrechukwu noted that some processes had been completed with the exception of installation of the real time units. Managing Director of Riverman Technologies Limited (contractor handling the project), Kingsley Itoro, and corroborated Irrechukwu. He told the committee that all efforts to access the facilities of the IOC's had largely been unsuccessful. In her response, Nwaogu accused the DPR of not living up to their policing role in the oil industry, adding that it was appalling that after the government had decided to separate gas from oil production to generate additional revenue, the project had not seen the light of day four years after. She lamented that of the 166 terminals that required real time measuring equipment only 10 representing 8.3 per cent had been completed.

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The Sunday Sun - 29th January 2012 Asked about the way out of the crisis facing the oil sector, this is what Chief Frank Kokori, former General Secretary of National Union of Petroleum and National Gas workers (NUPENG) had to say about NNPC That is another long story and it would take a day to talk about the rot in the oil sector and the close shop by the Nigerian National Petroleum Corporation (NNPC). You do not know what is happening there. And they were able to run a close shop because they have the support of the Federal Government which uses the NNPC as a honey pot. They go there, dip hands into funds and use the money for undercover jobs. They have not been able to open their books to the public and even the National Assembly who are supposed to enforce it have not been able to do that for about 12 years. But there is a lot of rot in the oil sector. On Corruption he stated: But the crux of the problems of this country is just being scratched at the surface. The root cause of the whole problems in this country is corruption and if you cannot wipe out corruption, then there is a problem. There is no way you can say you are reforming anything in a country like Nigeria where corruption is so rampant. That is the problem. I am saying that until Jonathan decides to face the issue of corruption headlong, I do not see Nigeria moving forward. People who are not even corrupt will now see it and start saying what about those who are corrupt. Those who are corrupt are milking the people dry. The so-called fat cows are milking the people dry and government is doing nothing about it. So, when you start preaching that you want good governance, you want the people to be good and that you want to carry out reforms, where are the reforms when corruption is eating up everybody? At the end of the day, what reformation are you doing when corruption is so blatant? I think that until that is done; the people would not even be satisfied. If you are corrupt and government is serious about fighting corruption, the government would go in and within six months, people have been caught, prosecuted, sanctioned with heavy punishment. As long as we do not fight this octopus they call corruption, Nigeria would have a long way to go and we would be a laughing stock in the comity of nations.

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Negative Effects of the Lack of Financial Accountability

The main negative effect of the lack of Financial Accountability is corruption.

Corruption Corruption is a worldwide phenomenon that occurs in various ways and forms throughout the world regardless of development level of countries. The inherent system of internal checking determines the level of deterrence. It is considered as a hazardous virus that undermines political culture of nations, fair allocation of resources, well being of societies and the trust of citizens in their government. Controlling corruption is therefore nothing less than promoting economic development, increasing countries competitiveness, improving social conditions, improving employment opportunities and reducing poverty. The nature of corruption makes it very complicated to come to a mutual understanding and it is as old as human beings. Corruption generally refers to abuse of public power for personal gain or for benefit of a group to which one owes allegiance. It also involves behaviour on the path of officials in the public and private sectors in which they improperly and unlawfully enrich themselves and / or those close, share or induce others to do so by misusing the position in which they are placed. It covers embezzlement, extortion, favouritism, gift giving, graft, kickback, money laundering, nepotism, etc. It may be sporadic or systematic, bureaucratic, or political corruption, grand or petty, active or passive corruption. It is a cancer that is detrimental to people. Corruption is not an inescapable destiny but an outcome of systematic or sporadic abuse of power and can only be avoided by maintaining systematic, coherent and nationwide anti-corruption policies. Systematic Approach to Anti Corruption Efforts Corruption should be dealt with in an all round approach involving all efforts to deter it owing to the fact that it is multidimensional. Active participation of Government, legislature, oversight, judiciary, agencies, international organisations, civil society, media and citizens to stave off the existence of corruption in every segment of the social and political systems. Approaches Penal Administrative approach offers to strengthen national law and administrative structures in order to unveil leakages from the system, betterment of institutional tools and firm punishment of offenders by strict laws and regulations. Economic Based Approach Pursuing all economic reforms needed in a determined manner (IMF). National Integrity system Concept suggested by Ibrahim Seushi, President of transparency International, Tanzania, in 1998 referred to 8 institutions which pursue the war against corruption in an independent manner and lack or weakness of any of these would increase the burden of the other pillars of integrity. These institutions are political will, administrative reforms, watch dog agencies

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(anticorruption commissions, supreme audit institutions), ombudsmans office, parliaments, public awareness/involvement, the judiciary, the media and the private sector

Anti corruption efforts can be evaluated in 3 inter-related levels: International Level State level Civil Society Level

Political Corruption Political corruption is the misuse of political power for private benefit (personal or group gain), in particular the benefits of power, status and wealth. Status and self-indulgence Maximising wealth (pecuniary profit) Private and collective benefits (individuals, parties, governments) Preservation and extension of power Political corruption usually involves a violation of existing laws and regulations, but it is not restricted to illegal acts. It is also political corruption when national laws and regulations have loopholes and are deliberately sidestepped, ignored and custom-made. Political corruption must necessarily include or promise some sort of material inducement, such as money and monetary equivalents like goods and favours. Political corruption takes two basic forms. One is corrupt accumulation and extraction (from private sector and national wealth). This takes place mainly where politics and business meet (in the political-private sector nexus, and where corporate money is involved). The other form is corruption for power preservation and expansion (favouritism and patronage politics). This takes place in political decision-making and electoral processes. Corrupt accumulation and extraction include Bribes, commissions and fees taken from private sector businesses Fraud and economic crime Politically created rent-seeking opportunities Politically created market favours benefiting businesses owned by political elites Off-budget transfers, manipulated processes of privatisation Extorting party and campaign funding from the state, private sector and voters Corrupt means of power preservation include Buying political support and majorities from other parties and politicians Co-optation and maintenance of patron-client networks Buying decisions from parliament, judiciary, control and oversight bodies Favouritism and patronage in allocation of government resources Buying voters and votes, electoral fraud Use of public money for political campaigns Buying off media and civil society

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Corruption in Nigeria Corruption in Nigeria today appears to be Genetic. Corruption and its ancillaries bribery, graft, fraud and nepotism has severely impacted Nigerias growth and development efforts. It has become so deep-rooted in the social fabric of country that it had stunted growth in all sectors and has been one of the primary reasons behind the countrys high incidence of poverty. Transparency International (TI) ranks Nigeria among the five most corrupt nations in the world. Corruption undermines economic growth, jeopardizes financial stability, and undermines confidence in government institutions. It also leads to criminality that has corrosive effects on governance and the rule of law. Federal and state governments are reported to have lost about US$380 billion since the advent of the oil windfall to corruption. Although corruption is a global scourge, Nigeria appears to suffer the most from it because the leaders are pathologically corrupt. Everyone appears to believe that the nation has a culture of corruption (Smith, 2008). Over the years, Nigeria has earned huge sums of money from crude oil, which has gone down the sinkhole created by corruption. In an article, Nigeria was described as a rich nation floating on oil wealth but almost none of it flows to the people (San Francisco Chronicle, March 11, 2007). Top public servants are very rich because they harbour the mentality that public money belongs to no one. The problem with Nigeria is that the system lacks checks and balances (or mechanisms) to control the autocratic tendencies in government and to hold political actors accountable for their actions. Also, the politicians do not practice ethical politics and their actions do not add values to the system, lack of ethical politics and values (Dike, January 15, 2007) and politics of hate and destruction contribute to the economic and political hiccups in the society. However, the people should not just sit there and hope for the best; they should be politically active to get the government and the politicians to listen and act right. Political pressure from the people could determine the type of policy the government would choose for execution. Corruption is however, a greater part of the problems facing Nigeria as it leads to poor governance, which hampers socio-political and economic development. The EFCC Act mandates the EFCC to combat financial and economic crimes accompanied by high-level support from the Presidency, the Legislature, and key security and law enforcement agencies in Nigeria. The Commission is empowered to prevent, investigate, prosecute, and penalize 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 as well as being the key government agency responsible for fighting terrorism. The EFCC and ICPC have since their inception only been able to bring a few corrupt public officers to justice. The governments campaign against corruption is also enhanced by the setting up of the Due Process Office.

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Nigerian and Overseas Newspaper Headlines are awash with incidences of Corruption and Fraud perpetuated by Politicians and Senior Government Officials, a few of which are highlighted below:

Daily mail London, Tuesday February 28th 2010 Headline: Thief in Government House, Wickes Cashier becomes a 250 Million Playboy Fraudster. The article went on to describe how Ibori, a 5,000 a year cashier at Wickes was found guilty of stealing goods from the Wickes store he worked at in Ruislip in 1990, and was also convicted for handling a stolen credit card, moved back to Nigeria and worked for its President, Sani Abacha, as a Policy Consultant

Daily Trust, March 20 2012, Page 1 Headline: NAIRA14 Billion Pension Fraud, Permanent Secretary 7 to Face Trial

Daily Trust March 20 2012 Page 1 Headline: NAIRA44 Million Bribery Scandal: Ad hoc Panel Takes over Probe

The Saturday Sun, March 17 2012 Page 13 Headline: Nigeria is Failed State What Remains is Its Disintegration Eleazu - Former Director / Coordinator of National Policy Development Centre (Think Tank)

Daily Trust, March 21 2012, Page 1 Headline: Itembe Resigns Alleges: Oteh offered me NAIRA30 Million Bribe

Daily Sun, March 19 2012, Page 1 Headline: Police Pension Fraud: Perm Sec Caught with NAIRA2 Billion Cash, 3 Estates, and 2 Filling Stations, Recovered in Abuja Alone What type of Financial Accountability would allow an officer to embezzle such an amount? Where are the internal checking systems, payment authority schedule, Internal Audit and the External Auditors, especially in their value for money audit? 2 Billion Naira represents the employment of 10 highly qualified professional Accountants for 50 years, on annual total emoluments of 5 million naira a year each.

Daily Sun, February 23 2012, Page 6 Headline: FCDA awards NAIRA300 Billion contracts to Fake Firms

Saturday Independent, March 17 2012, page 1 Headline: NAIRA44 Billion Allegations: ICPC to Probe Reps, EFCC Keeps Mum.

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Daily Sun, February 15 2012 Headline: NAIRA1 Trillion Fake Projects Smuggled into 2012 Budget Loans

Daily Sun, February 15 2012 Headline: President Seeks Senate Approval for $1 Billion Loan (To Finance Pipeline Projects) Comment: Nigeria had recently exited from the Paris club loan. It is very disturbing that the country is again increasing our loan portfolio. One would have expected that with the quantity of crude oil and gas currently exported from Nigeria, it would have been involved in accumulating reserves / Foreign investments in Bonds and Real Estate so that future generations of Nigerians could benefit from the windfalls of this Wasting Asset (Oil which will run out at some point).

Daily Independence, March 9 2012 Headline: Pension Probe: Police Unveil NAIRA21 Billion Fraud as Committees Order Mainas Arrest

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Conclusion Painting an unrealistic rosy picture of a bad situation is deceptive. Rhetoric cannot develop Nigeria. Nigerias problems require a realistic solution. But it lacks the institutions and infrastructure to transform itself from a consumer society to a producer nation. The writer of this paper, remembers with nostalgia, when as a child in the late 1950s, there used to be a second collection after Liturgical Mass to help the hungry and dying Chinese. He also remembers, some twenty years later, in the early 1970s, when Julius Nyerere (one of Africas greatest leaders), said that he had visited some Western industrialised factories and was perplexed with the gigantic and complex structures rising to the high heavens. He later toured China and was astonished to find that, small buildings, similar to those in Tanzania, were turning out the same quality products (in millions) as those from western gigantic factories. He then said if China could do it, we can do it Within a period of less than 40 years, China has transformed from a hungry and pitiable nation to the fastest growing economy in the world. The Chinese leadership steered the country on the path of development with total dedication and commitment and today the country is playing a leading role in turning the global economy around, from recession. More importantly, the country in recent years has claimed to have lifted over 300million of its citizens out of poverty as a result of the boom in its manufacturing sector and the economy in general. Even the United States of America has been humbled in her relationship with China, the arrogance has disappeared. History has offered the world a wealth of information on how economies grow and thrive as well as how economies collapse. But the leaders of Nigeria have refused to utilize the wisdom of history and follow the paths taken by leaders of developed and prosperous nations. The leaders of Nigeria are deceptive. Obasanjo promised to give corruption a bloody nose yet corruption blossomed under his watch. Chinua Achebe in his book, The Trouble with Nigeria, states clearly that the bane of Nigerias development is as a result of poor leadership and this factor continues to plague the nations polity. We continue to have leaders who do not have the interest of the country at heart; leaders who aspire for public office, not to render service to the country but to themselves, close relatives and friends. The reason for running for public office has been distorted by past and present leaders in Nigeria (now a commercial venture based on profit Maximisation) and because of this very unfortunate distortion, Nigeria continues to fare very badly in all development indices. Nigeria is yet to occupy her rightful place in the committee of nations all thanks largely to lack of financial accountability in the practices of both the political and economic leaders. Their inability to subject themselves to financial probity is a major obstacle to Nigerias socio-political and economic development. Those at the helms

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of the countrys political and economic transformation must change the way they run the affairs of the country if the country is to make any head way in this millennium. The absence of financial accountability gives room for widespread corruption. Both political and economic leaders must fight, with sincerity of purpose, this hydra-headed monster corruption. The governed must not be left out in this fight to rid the country of corruption if we are to move the country forward. Brazilian scholar, Antonio Maria Costa, in 2005 wrote that fighting corruption is a pre-condition for good governance and the foundational stone for sustainable development in any country and of course, Nigeria is no exception. There are sufficient reasons to conclude that, the major hindrance to Nigeria reaching her full potential, is basically heaped on the head of corruption, and this is because corruption is human in the sense that it is the people and not the country that is corrupt. Corruption attacks the relevant structures that aid the development processes. Absence of financial prudence nurtures rampart corruption as it is the case in Nigeria today and that in turn, translates to underdevelopment in the social and human development sectors such as in health, education, power and the provision of infrastructure. The political class in Nigeria have repeatedly failed to fulfil the yearnings of the people since independence. The countrys ruling classes in the words of Achebe are aggressive millionaires, more concerned with sharing the spoils of office than the selfless leaders of their people. This sort of mentality encourages the mismanagement of the nations abundant natural resources and woeful implementation of government policies which have been the trade mark of political office holders in Nigeria. There is a huge disconnect between government and the governed. Financial accountability as it relates to political leadership in the view of George Kopis is an attitude of openness toward the public at large, about government structures and functions, policy intentions, public sector account and projection; ready access to reliable, comprehensive, timely, understandable information on government activities so that the electorates and financial markets can accurately assess governments financial position and the true costs and benefits of governments activities. It is widely accepted that financial accountability is very important in a true democracy because it creates an atmosphere of trust and shared aspirations between the leaders and the led. The people will definitely line up behind government policies since they will consider themselves as stake holders in the unfolding socio-political and economic drama of the country. But when political leaders fail in the articulation of the expectations of the people due to inept management of funds, the resulting consequence is what we experience in Nigeria today. The leadership class must show financial accountability for the steady growth of the country. They must keep faith with the dreams of the people and they should not be swayed by financial impropriety for the sake of national development. When you consider the state of affairs in Nigeria, the importance of financial accountability is paramount if the people are to benefit from the dividend of democracy. Lack of financial accountability among the political elites is the main reason why corruption continues to thrive unabated in the country. If Nigeria is to be well governed, then the political leaders must as a matter of national urgency inculcate the spirit of financial accountability in

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the way government business is conducted at all levels. When there is no transparency in the way government is run, the attendant result is that every good policy will not be properly implemented and the lives of the citizen will remain the same. According to Chinua Achebe when there is an absence of transparency in the way the affairs of a country is conducted the state of things in that country inclines towards disorderly growth which is very true of the realities in Nigeria. Mrs. Diezani Alison-Madueke in her previous sojourn as the Minister of Works wept profusely when she went for the inspection of Benin-Ore road that has claimed and continues to claim the lives of many Nigerians, but since that for-the-screen performance about five years ago, the state of the roads remain the same. Perhaps the reason for this is that, according to another former Minister for Works, money approved is not money released. We all know how things are done in this country. The contract for the rehabilitation of that road must have been given many times but the state of the roads stay the same. The Benin-Ore situation is a paradigm of the state of development in Nigeria. No strong system in place devoid of government interference to apportion punishment for financial dishonesty because those awarded the contracts are the protgs of those in power who feel they can do anything and get away with it. The sad thing is that thousands of Nigerians continue to die because of the lackadaisical posture of the leaders to submit themselves to the tenets of good governance of which financial accountability is major factor. The negative effect of lack of financial accountability is that money earmarked for social and infrastructural development will be diverted for personal use. Recently, the Writer heard of the pathetic story of a secondary school girl involved in an accident who died at one of our teaching hospitals because there was no bed space for her. The Writer believes the funds for the provision of beds must have ended up in someones pocket. No wonder a past leader of this country referred to Nigeria hospitals as mere consulting clinics. The very unfortunate thing is that our leaders travel to Western countries for medical attention and see how things are done but because of financial recklessness they cannot replicate the same thing here. The political class must gauge the pulsation of the people when coming up with policies. The people must be consulted before embarking on any major policy that affects their lives. One perhaps unintended consequence of the Nigerian governments decision to remove the putative subsidy on imported petrol has been to stimulate a debate about the whys and wherefores of political and economic choices and its implications for the dynamic relationship between the leaders and the led. In the aftermath of the January 1st announcement of an increase in the pump price of petrol, there was considerable sound and fury in the commentaries and on the streets; pitting those on the one hand who asserted that the Jonathan administration had been right to cut the subsidy payments, since this would free up a huge chunk of revenue for investment, in a dizzying array of welfarist projects; and on the other hand, those who challenged the very existence of a subsidy in the first place. It is because of this latter camp that the writer decidedly referred to the subsidy as putative; for them, the very word was a symptom of the malaise which it purported to assuage, namely, financial malfeasance.

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A recurrent theme in the Nigerian body politic as was mentioned earlier, is the manifest lack of financial accountability by leaders at all levels of government and the weakness or nonexistence of institutions invested with the power of oversight. Economic commentators like to draw attention to such notorious instances as the perennially ignored recommendations of the Pius Okigbos panel report, which highlighted gross irregularities in the management of the twelve billion dollar Gulf war windfall which disappeared mysteriously. Also, the power supply in Nigeria remain very erratic indeed if when the Obasonjo administration purportedly spent sixteen billion to get it working and the report of the House of Representative panel chaired by someone, who was accused of financial infidelity is completely forgotten. Episodes like these, with the strong hints of official opacity in financial matters, have only served to erode public confidence in political leaders and reinforce the international image of Nigeria as a haven of corruption. Nigeria will continue to shy away from reaching her full potential if financial accountability does not become the hallmark of governance. The economic leaders are also guilty of financial impropriety. The recent bubble in the banking sector buttresses this point. We had bank chiefs who were richer than the banks they head. These once thought untouchables appropriated depositors funds to the tune of billions. They rubbished the concept of financial accountability to the point that what happened was simply inevitable. We are still experiencing the after effects of that unfortunate financial bubble as Intercontinental Bank and Oceanic Banks were bought by Access Bank and Ecobank respectively. Intercontinental Bank relieved one thousand five hundred of the staff of their work in an already saturated labour market. What this means, is that more people are rendered financially handicapped and if this trend persists then it will not augur well for the development of the country. The furore sparked off by the petrol price increase and the street protests across the country have prompted the ongoing hearing by the House of Representatives into the propriety of accounting practices across a range of government parastatals like the NNPC, the customs, the ministry of finance and the Central Bank, inter alia. The proceedings from the panel, hit one as a scene from the theatre of the absurd. Imagining NNPCs inability to give accurate number of barrels of crude oil produced per day is anything but funny. Government agencies are giving conflicting figure of the true state of affair in the petroleum sector. They have exhausted the falsehood that they have been dishing to the people. One major argument for the increment in the pump price of PMS by government was to curb corruption perpetuated by government officials who collude with independent marketers who defraud the state of billions. What the House hearings have churned out is that there is no financial accountability in the petroleum sector and so how do we attract foreign investors into our country? The lack of financial decency in Nigeria has all but driven away investors to country such as Ghana. Nigeria is now Siberia, a place that is known to many but where no one wants to go. A foreigner once referred to Nigeria as a sinkhole that swallows their money with little or no return. Nigeria needs foreign investment to realize rapid development in this millennium, but if we keep distorting figures that goal will remain elusive.

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The late American economist Mancur Olson described a phenomenon he called princely consumption exemplified by such infamous scenarios as Imelda Marcos 3000 pairs of shoes and Fidel Castros spur-of-the moment decisions to pave roads and build dams. These projects, whether sartorial in the case of Mrs. Marcos or infrastructural in the case of Castro, were inevitably a drain on the financial resources of the nation and done palpably without regard for priorities or accountability. It seems fair to argue here that there seems to be a similar lack of accountability in Nigeria at least until the early years of this decade, when the Obasanjo administration established the ICPC in 2000 and the EFCC in 2002. The country was consistently ranked high in the index of most corrupt countries and was included in the list of non-cooperating countries and territories by the Financial Action Task Force. The success recorded by the EFCC in particular in recovering plundered wealth and prosecuting guilty parties played a role in overturning the international perception of Nigeria as an unwelcoming investment area. Yet it must be admitted too that it has been selective in its pursuit of financial impropriety across all spheres of Nigerian society; that it is a cats paw of political players seeking to intimidate and victimize opponents; and that it has collaborated with a compromised judiciary in handing out, by means of plea bargains and such criminally lenient sentences to financial criminals in the highest echelons of politics and business. The ongoing House hearings will only reinforce the general perception that there is a lack of political will to deal with the issue of financial crime and that the government and by implication the EFCC, like to blow hot and cold while claiming to uphold justice and instil deterrence. It was astounding to hear the Deputy Controller of Customs announce that his service had no way of accurately gauging the volume of refined petrol imported into Nigeria by the NNPC, since the latter agency, as a matter of course, chose to berth its super tankers in Lome or Cotonou and provided the customs only with the documentation for the smaller ships which went out to offload the product. It was equally shocking to hear the Deputy Governor of the Central Bank tell the House committee that contrary to the figure of N 1.3 trillion claimed by the Ministry of Petroleum as subsidy payment for the financial year 2011, the true sum was in the range of N 1.76 trillion. Perhaps the most disconcerting aspect of the Deputy Governors testimony was the fact that he could not explain this huge discrepancy, although he admitted that the fault lay in likely manipulations. All of the foregoing indicates that one of the great challenges faced in this millennium by Nigeria is that of creating a climate of fiscal responsibility. Elsewhere in his analysis of the relationship between politics and economics (contained in his final book, published posthumously, Power and Prosperity) Mancur Olson alludes to the electoral incentive for efficiency essentially the understanding by a government that it may and will be punished by a dissatisfied electorate if it is perceived to be financially irresponsible or encouraging unaccountability at any level, or indeed selective in its obligation to redistribute equitably the wealth of the nation. It goes without saying that in Nigeria we deserve a leadership sensitive to its duties and able to galvanize everyone in the task of nation building and fulfilment of our much vaunted, long suppressed potential.

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Appendix
Appendix 1.1
Abridged Nigerian History Amalgamation is not a new concept in the formulation of nations, both in Western Europe, America (North and South) and Africa In Western Europe, the United Kingdom is an amalgamation of many nations. Britain in an amalgamation of a). England ( made up French William the Conqueror from Normandy in France (of the Battle of Hastings 1066), Germans in Southern England and Vikings in Northern England. b). Scotland c). Wales The United Kingdom is made up of an amalgamation of the British Nation and Northern Ireland (British Orange men and the Irish people) The United States is made up of Red Indians, the Irish, the British, Other Europeans, Asians and Africans. Coming closer to home In Africa, Tanzania is an excellent example of an amalgamation that works (it has all the different elements that are very similar to the Nigerian situation; religious, tribal, language and cultural differences). It is an amalgamation of two distinct nations a). Tanganyika (made up of Africans, mostly Christians, with different tribes and languages), and b). Zanzibar (Typical Arabs, mostly Muslims). This amalgamation was free from coercion. It was a voluntary union of these two nations, determined and committed and contracted by the consent of all stakeholders, in good faith , under the pioneering leadership of Julius Nyerere; one of the greatest African heroes and icon. Conversely, the Nigerian Amalgamation in 1914 was forced on the throat of the people of Nigeria by Imperialist Britain. It was incorporated by Frederick Lugard (Later Lord Lugard) who forcefully, for selfish economic

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reasons, amalgamated the two British protectorates of Southern and Northern protectorates, and the crown colonies of Lagos, into one Single Entity. The Primary reason for the Amalgamation was economic rather than political. The Northern protectorate had annual budget deficits whilst the southern Protectorate had surpluses. To eliminate the subventions from the British Treasury, the two budgets were integrated. Unlike the Tanzanian case, the Nigerian integration was forcefully done for the economic convenience of the Imperial Britain. While the British officials ruled southern Nigeria directly, in the North they adopted the policy of indirect rule, where they operated through the Emirs. The process of unification was undermined by the persistence of different regional perspectives of Governance. In the early 1940s, political movements started sprouting in Lagos e.g. Nigerian Youth Movement and Nigerian National Democratic Movement, whose activities were confined to Lagos, with the return of Dr. Nnamdi Azikiwe from America and his establishment of a chain of newspapers, coupled with the demobilization and return of Nigerian soldiers who fought on the British side in the Second World War. Political consciousness took a leap in Nigeria and Nationalists started thinking of Self Government. In 1944 the National Council of Nigeria and Cameroun (NCNC) was formed under the leadership of the doyen of Nigerian politics known as Herbert Macaulay with Zik as the General Secretary. In 1947, this new party took a nationwide tour of the country to collect the mandate of the people of Nigeria and demand the abrogation of a constitution which the then British Governor Arthur Richards sought to impose on the country and which the nationalists described as obnoxious. Nationalists who took part in this tour included Herbert Macaulay, Nnamdi Azikiwe, Mrs Funmilayo Ransom Kuti, Ibiyinka Olorun-Nimbe, M.A.O Imoudu and others. Herbert Macaulay, then in his 80s, died midway into the nationwide tour, and after his funeral, Dr Nnamdi Azikiwe was elected the National President and Leader of the party NCNC. After collecting the mandate of the people, both south and north, the NCNC delegation went to London to demand from the Colonial office, the abrogation of the Richards Constitution. Although the British Government did not accede to the request, they became aware of a new political consciousness in Nigeria. In 1946, a radical youth organization, known as the Zikist Movement (Vanguard), was formed under the leadership of M.C.K. Ajuluchukwu and Kola Balogun. Others included Mokwugwo Okoye, Abiodun Aloba, Nduka Eze, Harry Nwana, Oged Macaulay, and Raji Abdallah, with a programme for positive action to attain self governance. Following a lecture delivered at Tom Jones hall, Lagos in October 1949 by Osita Agwuna, under the chairmanship of Tony Enahoro, leaders of the movement were rounded up and sentenced to various terms of imprisonment. The Movement itself was banned by the Imperial Government in 1950. The British Government then knew that a serious situation was developing in Nigeria and quickly withdrew Governor Richards and replaced him with John McPherson who quickly called a conference of politicians, chiefs and other leaders to consider his own draft Constitution. In place of the rejected obnoxious Richards Constitution, his Constitution proposed 3 regions, namely, the Northern, Eastern and Western Regions in response to the fundamental ethnographic and cultural configuration of the Nigerian society. It was also an impetus for further ethnicization of politics. It was at this stage (1950), that two other political parties emerged; the Northern People Congress

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(NPC) under the leadership of Alhaji Ahmadu Bello, Sardauala of Sokoto and Action Group, under the leadership of Obafemi Awolowo. The NPC had the policy and slogan ONE NORTH. They said that they were not interested in the south and refused to change their name to Nigerians People Congress or canvas for membership in the South. The Action Group, AG, had the policy and slogan WEST FOR WESTERNERS, EAST FOR EASTERNERS, NORTH FOR NORTHERNERS, NIGERIA FOR ALL. The NCNC under the leadership of Dr Nnamdi Azikiwe, had its policy and Slogan of ONE NIGERIA. Hon. Chief Mbuzulike Amechi, one of the few surviving naturalists and Nigerias First Minister of Civil Aviation, in his publication THIS UNION, stated that on the 1st of April 1953, Tony Enahoro tabled a private members motion in the house of Representatives calling on the house to accept as a primary political objective, the attainment of self government for Nigeria in 1956. In a powerful and lucid argument of his motion Enahoro explained that this motion is an invitation to the honourable members of the House to associate the highest legislature of our land with the expressed desire of the people of the country ., for political autonomy in 1956. After the nation motion had been duly seconded in accordance with parliamentary practice, the leader of the Northern People Congress, Ahmadu Bello, promptly moved an amendment seeking to substitute the words in 1956 with the phrase as soon as practicable. The ensuing debate was heated and bitter with NCNC and Action Group members supporting self government in 1956 and NPC members firmly in support of their leaders amendment. As a result of this fundamental disagreement, internal self government was thus granted to the Eastern and Western regions in 1957 while the North had its own in 1959. The Nigerian history is the search and struggle for an enduring Federal formula which continues till today. The North-South and regional dichotomy has plagued all attempts for true federation and unity. Till today there is continued debate and negotiation over the division of authority and the allocation of revenue. More significantly, the military regime centralized the fiscal system and whittled down areas of autonomous decision making on the part of the regions (later known as states). Search for a Sustainable and Lasting Federation i. Constitutions:

In the search for a lasting federation, Nigeria has had 9 constitutions with two amendments in 2011. She had four constitutions before independence 1922, 1946, 1951, and 1954 and has since had 5 constitutions since Independence: 1960 (Independence Constitution) 1963 Constitution (First Republic) 1979 Constitution (Second Republic) 1993 Constitution (Third Republic) 1999 Constitution ( Fourth Republic) 2011( 2 amendments of the 1999 Constitution) The Search Continues

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This search and dichotomy is the principle root of Nigerias problems and has allowed corruption and other associated bad governance to take root. Honourable Chief Amechi continued Ahamadu Bello approached the Colonial Secretary and told him bluntly if you want us, the North, to be part of the Nigeria you have in mind then we want, at least, 50% of the Membership of the National Assembly. This was accepted by the colonial Secretary and given effect in the Jerrymander, which British Officials weaved into the Delimitation of Constituencies for the House of Representatives, whereby the following strange results were obtained in the 1959 elections that preceded Independence. The NCNC NAPU alliance, scored a total of 2,595,577 votes to capture 90 seats. Action Group UMBC alliance scored a total of 1,922,364 votes to capture 73 seats. The NPC scored a total of 1,992,178 votes to capture 142 seats. Whilst October 1st 1960 had been agreed during a series of Constitutional conferences at Lancaster House in London, the Colonial office entered a caveat and proviso that if any region, objected at any stage to independence on October 1st 1960, the grant of Independence would be postponed indefinitely. The North took advantage of the clause and demanded that if a Northerner was not appointed Prime Minister, they would opt out of the October 1stdate. Without minding that the Northern Peoples Congress scored.., the British Governor, in Nigeria, announced the appointment of Abubakar Tafawa Belewa as the Prime Minister without consultation with the NCNC and the AG. The Nationalists of the South had to swallow the bitter pill of the injustice, because they did not want the October 1st date of the Independence to be postponed indefinitely. ii. Year Region and State creation Number of Regions or States 1914 1954 1963 1967 1976 1979 1991 1996 1999 2 3 4 12 19 19 31 36 36 Extent Of regional or State Autonomy Very High Very High High Low Low Medium Low Very Low Medium and Rising Regime Type Colonial Colonial Democratic Military Military Democratic Military Military Democratic

iii. Federation Account Allocation Formula Year Commission FGN 1958 1968 1977 1982 1989 Raisman Dina / Gowon Aboyade Okiabo Babangida (%) 40 80 75 55 50 Allocation of the Federation Account States (%) LGAs (%) Special Derivation 60 20 22 32.5 24 0 0 3 10 10 Project (%) 0 0 0 2.5 11 Formula (%) 50 10 10 10 10

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1995 2001

Abacha Abacha

48.5 48.5

24 24

20 20

7.5 7.5

13 13

Appendix 1.2
OBJECTIVES OF CONTROLS Internal controls strive to ensure that: C -all transactions are complete A -all transactions are accurate V -all transactions are valid E -recorded assets exist. FINANCIAL ACCOUNTING CONTROL PROCEDURES (TO ACHIEVE SPECIFIC OBJECTIVES) CONSIST OF: Physical access to asset/s Approval and Control of documents Controls over computerised applications including data encryption. Checking of Arithmetic accuracy of records Maintaining and Reviewing Control Accounts and Trial balances Performing Accounting Reconciliations Comparing records with physical counts

PURCHASES CYCLE Control examples to ensure that:

Requisition for valid business expense Authorised by second person. Stock check made to ensure goods not in stock and a purchase is required Ordering is efficient and cost effective Agree price to suppliers price list Only use approved suppliers All orders must be in writing on a serially numbered purchase order form Goods are not damaged/wrong items etc Agree goods received to purchase order Check goods for quality/damage on receipt Review unmatched purchase orders and follow up with supplier Raise a Goods Receipt Note (GRN) Suppliers do not overcharge e.g. fail to recognise discounts etc. Match invoice to purchase order Match quantity to GRN Arithmetical check Management has timely information concerning liabilities

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Record invoice promptly in Purchase day book Regular reconciliations of supplier statements Reconcile control accounts with ledgers Payments are made to bona fide suppliers for goods received Authorised cheque signatories For amounts >Naira x two signatures required Signatories must review underlying documentation before signing Requisition raised Orders Goods Invoice received Transactions recorded in books

CASH SYSTEM Control examples to ensure that: Payments are only requested for valid business expenses Standardised cheque requisition Supporting documentation Payments are accurate and take advantage of credit terms Departmental/buyer approval Agreement to supplier statements Cash/cheques are not misappropriated Safe custody of cheque books Invoices/requisitions stamped paid Customer signature as proof of delivery Matched with customer order Management has accurate timely info re cash position Segregation of duties Monthly bank reconciliations Payment authorisation Request for payment Payments and receipts Payment made Receipt

Appendix 1.3
FISCAL RESPONSIBILITY ACT 2007 ENACTED by the National Assembly of the Federal Republic of Nigeria: PART 1 ESTABLISHMENT, FUNCTIONS AND POWERS OF THE FISCAL RESPONSIBILITY COMMISSION

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i. compel any person or government institution to disclose information relating to public revenues and expenditure; and ii. cause an investigation into whether any person has violated any provisions of this Act. 2) If the Commission is satisfied that such a person has committed any punishable offence under this Act violated any provisions of this Act, the Commission shall forward a report of the investigation to the AttorneyGeneral of the Federation for the possible prosecution. 3. Functions of the Commission 1) The Commission shall: a. Monitor and enforce the provisions of this Act and by so doing, promote the economic objectives contained in section 16 of the Constitution; b. Disseminate such standard practices including international good practice that will result in greater efficiency in the allocation and management of public expenditure, revenue collection, debt control and transparency in fiscal matters; c. Undertake fiscal and financial studies, analysis and diagnosis and disseminate the result to the general public; d. Make rules for carrying out its functions under the Act; and e. Perform any other function consistent with the promotion of the objectives of this Act. 2) The Commission shall be independent in the performance of its functions. 3) The provisions of Public Protection Act shall apply to the members of the Commission in discharge of their functions under this Act.

References

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