PFM Suite Overview
The Public Financial Management (PFM) Suite pulls together various tools and guides, prepared by SPARC, to support key activities of the medium term budget cycle. These include:
- Forecasting resource envelopes and sector ceilings (both within State and Local Governments);
- Determining sector allocations (based on political priorities which are set out in the States Development Plan and medium term sector strategies);
- Preparing costed medium term sector strategies and the subsequent annual budget;
- Profiling revenue and expenditure budgets and subsequent cash forecasts and plans;
- Budget performance reporting and monitoring; and
- Financial Reporting, based on International Public Sector Accounting Standards (IPSAS).
Complementary policy and strategy guides support the earlier stages of preparing policy and state development plans, which both start the cycle, and, through annual reviews, advise the following year's policy priorities and strategic objectives which are then reflected in the annual (and revised forward) budgets.
The PFM Suite Tools available to support the budget cycle are shown in the diagram below:
Essentially, the various tools developed by SPARC, when combined, provide the foundations for the key business processes that comprise what is sometimes referred to as a 'Medium Term Expenditure Framework'.
The following section highlights the PFM suite tools and guides which support budget cycle business processes.
Business Processes Supported by the PFM Suite
The forecasting of aggregate resource envelopes is the first stage in the annual budget process and should be based on sound macro-fiscal assumptions and fiscal rules. For state and local governments, a large part of the resource envelope will come from recurrent revenues sources, such as statutory allocation, Value Added Tax (VAT) and Internally Generated Revenue (IGR), and hence accurate forecasting is critical. Realistic revenue projections are a core building block not only for the annual budget process, but also for the purposes of medium-term strategic planning. Three tools have been developed to support governments in this area.
The Government Resource Estimation and Allocation Tool (GREAT) provides a framework for estimating revenue and expenditure of government in a rational manner. The tool comprises the key documents of the top down budgeting process, namely: the Economic and Fiscal Update (EFU), Fiscal Strategy Paper (FSP), and Budget Policy Statement (BPS). Taken together, the EFU, FSP and the BSP documents should help to strengthen top down budgeting and comply with some of the requirements of fiscal responsibility legislation. The tool is aimed at assisting states achieve the following objectives:
- Overall, better linkage between policy, planning and budgeting;
- Improved aggregate fiscal discipline where budget size is consistent with macroeconomic stability and debt sustainability, and where budget execution is credible such that outturns do not deviate significantly from planned amounts;
- Improved strategic allocations such that over time the pattern of resource allocation in the budget is better aligned with the Government's policy priorities for socio-economic development; and
- Resources provided on a more predictable basis enabling budget managers to plan and execute budgets with greater confidence, thereby delivering services more efficiently and effectively.
This Guide provides an overview of the Tool and detailed guidelines on how to produce the relevant documents and templates that constitute it.
The Local Government Revenue Estimation Tool (LgRET) and Guide are designed to help Local Governments (LGs) in recurrent revenue performance analysis and forecasting.
The related guide advises on the use of the tool and covers sources of Revenue to LGs; Fiscal Performance Analysis; Concepts underpinning the forecasting model; Structure of the Local Government Revenue Estimation MS Excel model; and using the Forecasting model (including sources of data). The local government recurrent revenues covered in this tool are Statutory Allocation, VAT, Excess Crude and Local Government (LG) internally generated revenues.
The guide explains the sources of data (global, national, state) for the revenue estimation, how to present the data in graphical format in MS Excel, the key in-year data collection from the monthly FAAC pack, as well as the MS Excel templates to accompany the guide.
The Tool and Guide will be useful to officials of government responsible for local government revenue, budgeting and general financial management functions; as well as civil society organisations interested in local government financial management.
SPARC has also developed a Revenue Projection Tool that can be used by any stakeholder in the public financial management system – government officers, civil society, the private sector, donors and aid agencies.
However, the revenue projection tool is generic, and should be used only as a 'reference point'. It may support, but should not be used instead of the more rigorous top-down budget process, which is supported by GREAT and LgRET.
The SPARC Revenue Projection Tool uses the basic principles of forecasting (moving averages and elasticities) with a set of historical data from the Federation Accounts Allocation Committee (FAAC) pack to forecast the revenues which will accrue into the FAAC for a given macroeconomic (oil) scenario. The tool then uses the sharing ratios to estimate the individual allocation for any state or local government.
Many Nigerian state governments are not pro-active in managing their cash, which results in short-comings in the budget release system and 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 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.
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:
- Firstly to provide a monthly profile of Revenue (Recurrent and Capital Receipts) and Expenditure (Personnel, Overheads and Capital) as the basis for the cash in and out flow; and
- Secondly, to provide a basis for in-year Revenue budget performance tracking and re-forecast.
The Budget Performance Reporting Tool (BPRT) is an MS Excel spreadsheet-based tool designed to be used by Nigerian State Governments, to assist with preparation of budgets and recording of transactions using the multi-dimensional new National Chart of Accounts (NCOA). The tool comprises the MS Excel templates, User Manual and Training Guide. The Template can be used by the State Government as a whole or by individual MDAs or projects for some or all of the following purposes:
- Preparation of the annual budget, incorporating the dimensions of the NCOA;
- Generation of budget reports, analysing the budget by each chart of accounts dimension including Administrative, Economic, Functional, Programme, Fund and Geo Code;
- Recording individual transactions, incorporating the dimensions of the NCOA;
- Generation of information suitable for incorporation into the performance reports and statistical reports required by the Nigeria Cash Basis IPSAS guidelines; and
- Learning and training in any of the above tasks.
The SPARC General Purpose Financial Statement (GPFS) template is meant to aid states using the NCOA and wishing to produce its GPFS. The template allows the automatic and speedy creation of a State's four main statements of the GPFS on IPSAS Cash Basis including the Cash Flow Statement, a Statement of Assets and Liabilities, Statement of Consolidated Revenue Fund (CRF), and a Statement of Capital Development Fund (CDF) which are presented in a report referred to as 'The Final Accounts' or 'The Accountant General's Report'.
The template has been developed in Microsoft Excel in line with the FAAC IPSAS Sub-Committee prescription, and is predicated on the basis that the state government is able to generate a trial balance at the end of the financial period for which the financial statements are meant. In addition to producing the four Main Financial Statements, the SPARC template produces reconciliations which are necessary to ensure the integrity of the accounts, including the CRF and CDF opening and closing balances, debt, assets and liabilities, and sinking funds.
The template is accompanied by a User Guide and Training Manual and will be useful to officials in the state's Finance Ministry or Treasury that are responsible for the production of final accounts and the General Purpose Financial Statements.
The SPARC PFM database stores financial data for each SPARC state and enables easy retrieval for PFM analysis. The PFM database helps in the analysis and reporting of different PFM indicators, including sector expenditure and revenue performance, among others, across several years.
The PFM database has two versions which serve two different purposes. These are the Access database, which is a user-friendly management information system. It can perform some pre-programmed analyses and serves as a quick source for management decisions. It is easy to understand and access because it is like a 'form'. The second version is the Excel spreadsheet, which is meant for users who want to undertake more in-depth analysis or to manipulate the data differently. It requires a basic knowledge of how to work with Microsoft Excel pivot tables.
This guide provides users with information on how to navigate the PFM database for basic analysis and data retrieval from either the Access or the Excel versions.
How to prepare Realistic Budgets – a step-by step guide
This Guide describes processes, documents and tools that Nigerian state governments can use in developing reliable, comprehensive, transparent and realistic budgets. It follows a step-by-step, and easy to follow approach in the preparation of a credible budget that matches the state's spending plans with its revenue and executive capabilities. Besides having sufficient revenues to meet expenditure expectations, the state must consider its carrying or absorptive capacity in making its budgets. In other words, a realistic budget is one that a state can fund sufficiently, and is able to implement in an orderly manner within the budget period.
The Guide will be particularly useful not only to members of the executive arms of both federal and state governments, but also the legislature, as it describes government processes for planning, and important stages in preparing, implementing, monitoring and evaluating budgets; as well as the processes in legislative budgetary oversight, together with processes for monitoring and tracking budget performance to ensure transparency and accountability in the use of public resources. An understanding of the stages and processes involved in budgeting will help government officers to deliver budgets that are realistic, and that governments can effectively implement to achieve strategic objectives.
Readers can find further and more detailed information in documents and websites listed at the end of the guide.
|How To Prepare Realistic Budgets.pdf|
How to select and implement financial systems (IFMIS) – a step-by-step guide
The Guide describes approaches Nigerian states may wish to adopt in identifying, procuring and implementing computerised systems, especially Financial Management Information Systems (FMIS). The Guide provides step-by-step suggestions and tools to make the tasks easier. In order to make the guide useful, descriptions of the various process and tools are simple and straightforward.
This Guide identifies the important features of an integrated financial management information system, the key activities involved in identifying requirements, acquiring, selecting and implementing systems, including links to other key systems such as Human Resource Management Information Systems (HRMIS) and Tax (and Revenue) Management Information Systems.
|PFM Suite_9_How to Select and Implement Financial Management Information Systems (IFMIS).pdf|
Framework for Internal Revenue Enhancement (FIRE)
The Framework for Internally Generated Revenue Enhancement (FIRE) is intended to provide guidance based on lessons learned, and examples of key areas to be considered during the development of an Internally Generated Revenue (IGR) strategy.
An IGR Strategy is essential if a state expects to see improvement in its internally generated revenues. Such a strategy will incorporate requirements for systems to record and manage taxpayer assessments and collection, adequate process and controls over taxpayer registration, recording, tax collections and follow up, adequate trained personnel and relevant legislation.
This framework should be used as an initial guide in developing an IGR strategy in Nigerian states. It is intended to provide suggestions and considerations, rather than a total solution and panacea to solving the cash flows and financial position of a state. However, it can help to provide a 'roadmap' on how to go about developing an IGR improvement and maximisation strategy.
|Framework for IGR Enhancement (FIRE).pdf|
This Guide covers the step-by-step process of creating various models and graphs in MS Excel. It shows the process of building the elasticity and moving average based forecasting models used in GREAT and LgRET, and also how to build line graphs (for reviewing fiscal forecasts) and bar graphs as the basis for analysing prior fiscal performance. The tool contains a number of training spreadsheets which can help users go through the steps of building forecasting techniques.
Whilst the policy and strategy guide 1 is concerned with 'Preparing Policy', guides 2 and 3 provide guidance on the preparation of the SDP and MTSS. The MTSS guide, in particular, provides generic guidance for state governments (at a technical, executive and political level), legislatures and civil society in linking development plans and policy to budget.
Whereas state policies, as set out in the equivalent of a State Development Plan (SDP) define the big picture with long-term goals and outcomes, medium-term strategies set out specific inputs and activities to deliver specific outputs in the medium term. An MTSS is thus a road map for delivering the state plan that combines ambition and realism, and clearly plots priorities, deliverables and costs, and shows the chain of results that will achieve policy goals. An MTSS links policy, planning and budget.
The MTSS sets out the projects and programmes that will be carried out in a sector over a three-year period and addresses the policy goals and outcomes defined in the SDP, how much each programme and project will cost, where the money for them will come from and who will carry them out. The MTSS is therefore closely linked with the government resource envelope, and the guide demonstrates how MTSSs should be costed within the medium term expenditure cycle and how the costed MTSS subsequently supports the development of the annual budget. A generic costing template for the MTSS has been developed which should be based on the government's budget classification and chart of accounts, and provide costing details that can 'drop' into the annual budget.
|Policy and strategy how to guide 2 – Preparing a State Development Plan (SDP)|
|Policy and strategy how to guide 3 – Preparing a medium term sector strategy (MTSS)|