Cash Planning Tool (Revenue and Expenditure Profiling)

Many Nigerian state governments are not pro-active in managing their cash, which results in short-comings in the budget release system which subsequently affects the predictability in the flow of funds to the MDAs to enable them to plan the execution of their budgets. MDAs do not have information as to when and how much will be released to them by the treasury.

Timely and reliable information to MDAs on availability of funds is very important for an effective budget execution.

Depending on the state, fund release could be quarterly or monthly. At the Federal Government level, funds are released quarterly to MDAs through the issuance of warrants. However, in many states, the system can be as simple as the Governor approving cash releases based on a list of amounts against expenditure heads prepared by the Treasury at the end of the month.

Such a list may not necessarily reflect the budget priorities or the full commitments on the ground. Generally, in most states there is no established cash planning system at the Treasury that forecasts with any predictability the cash flow for financing the budget.

Greater predictability can be achieved through effective planning, monitoring, and managing of cash flows – i.e. accurate forecast of cash availability and the profiling of the revenue and expenditure budgets. With such a system in place, surplus and shortfalls in cash can be identified and better managed, and the budget delivered in a more effective and efficient way.

It is also a key requirement in the proposed or enacted state Fiscal Responsibility legislation that a cash-plan is prepared as soon as the budget has been passed.

To this end, SPARC has supported the production of a 'Revenue Profiling model' that can be used by state (or local) governments to assist in cash planning. The model has been extended to incorporate expenditure profiling, thereby giving an overall picture of profiled cash flows, and used to determine and update cash plans.

In several states supported by SPARC, the use of the model has been institutionalised within the Cash Management Committees (Revenue Profiling and Cash Planning specifically) who are responsible for preparing the annual cash plan.

The models supporting revenue and expenditure profiling have two main purposes:

Initial Revenue Profile

The initial revenue profile shows the in-flow of revenues (recurrent and capital) on a monthly basis for the budgeted revenue figures and statistical trends for historic recurrent revenue items.

This can be compared to the expenditure profile and remedies (borrowing, investing or saving) during periods of deficit or surplus.

Initial Expenditure Profile

The initial expenditure profile shows the out-flow of cash on recurrent and capital expenditure on a monthly basis for the budgeted expenditure, based on prior trends of expenditure for recurrent, and on capital project work-plans for capital expenditure.

Cash Plan

The initial revenue and expenditure profiles can be compared and remedies (borrowing, investing or saving, shifting of expenditure) proposed during periods of deficit or surplus.

In-Year Performance Assessment and Re-Forecast

The model can also be used to assess in-year performance and make adjustments to the cash-flow forecast at the appropriate time. As actual monthly data is entered, the model will show the performance (both monthly and cumulative year-to-date) as a percentage of the projected revenue inflow, and by value. The performance will be highlighted using a RAG (red, amber, green) system; specifically, cells in which the performance data is shown will be highlighted green if performance is 100% or better, amber if performance is 90–100%, or red if it is less than 90%. This provides clear visual indicators.

The model also provides an estimated "re-forecast" based on the current cumulative performance level so that states can identify potential short-falls in their budget at an early stage in the budget year and take necessary action to adjust expenditure.

Cash Planning Model User Guide.pdf
Cash Planning Tool v1.xlsx
Cash Planning Tool v1 Example for Wazobia State.xlsx