Public Sector Accounting In Nigeria

Public Sector Accounting In Nigeria

Accounting is the book keeping which enables one to keep records of assets, liabilities, capital, income and expenditure of an individual or business organisation. 

In accounting, when we say public sector, it comprises of the government, governmental organizations, parastatals and non-governmental organizations etc. Therefore, accounting of the organizations mentioned above is known as Public Sector accounting.

What Is The Scope Of Public Sector Accounting?

There are so many purposes or objectives of public sector accounting, some of them are:
● To determine the legitimacy of transactions and their compliance with the statues and accepted norms. Disbursement of funds in public sector should be in agreement with the provisions of the appropriation Acts and Financial Regulations.
● Providing Evidence of Stewardship: The act of rendering stewardship means to be able to account transparently and diligently for resources entrusted. Government officials are constrained to displace due diligence and sense of honesty in the collection and disposed of public funds.
● Planning, Assisting and Control: planning prevents organizations from drifting. Control measures are adjusted to skillful planning plans of actions provide focus of activities which are being pursued. The occurrence of unforeseen is built into plans in order to prevent or at least reduce corporate failures.
● Public sector enterprises must act in accordance with the mandate theory of governance.
● Ensuring Timely Reporting and Objectivity: The users of public sector accounting such as the executives (President, Governors, Chairman of LGAs, Federal Ministers and State Commissioners), Legislatives (National and state Assembly members) and members of the public are anxious to know what the Government is doing. They will appreciate prompt, timely and accurate statistics to evaluate the performance of Government they elected into power.
● Examining the costs incurred and the benefit derivable:
It is no easy to measure costs and benefits in financial terms in public sector organizations. Providing essential services to the citizens is the key and paramount issue. The analysis of cost-benefit assesses the economic and social advantages (i.e. benefit) and disadvantages/inconvenience (cost) of alternative of actions.
● Other objectives of public sector accounting includes:
  1. Providing a medium by which actual performance may be compared with the budget or target set at the beginning of the fiscal year.
  2. Providing information of outstanding long term commitments and financial obligations
  3. Proffering solutions to the various problems identified.
  4. Making sure that costs are matched by at least equivalent benefits accruing.
  5. Identifying the sources to which capital projects are being funded.
  6. Examining the economy, efficiency and effectiveness with which Public Sector Organization Pursue their aims and objectives.

Regulatory Framework Or The Legal Basis Of Public Sector Accounting In Nigeria

The regulatory framework of public sector accounting in Nigeria  is also known as the legal basis of public sector accounting in Nigeria. They include Nigerian Constitution (1999), Finance/ (Control And Management) Act Of 1958, pension Reform Act 2004 and the independent corrupt practices and other related offences (ICPC) Act 2000.

The legal basis of public sector accounting in Nigeria are explained in details below:

1. Nigerian Constitution (1999)

In Nigeria, the 1999 constitution is one of the legal frameworks that regulates the receipts and payment of public funds. Some specific sections of the constitutions are highlighted below:
  • Section 80: Establishment of the Consolidated Revenue Fund (CRF)
  • Section 81: Authorization of expenditure from the CRF
  • Section 82: Authorization of expenditure in default of appropriations.
  • Section 83: Establishment of the Contingencies Fund
  • Section 84: Remuneration of Statutory Officers
  • Section 84 (4): Comprehensive list of Statutory Officers
  • Section 85: Audit of Public Account
  • Section 86: Appointment of the Auditor – General for the Federation 
  • Section87: Tenure of Office of the Auditor-General for the Federation
  • Section 88: Power to conduct investigation by the National Assembly.
  • Section 89: Power as to matters of evidence
  • Section 149: Declaration of assets and liabilities and oaths of office
  • Section 153: List of Statutory Commission
  • Section 162: Establishment of the Federation Accounts
  • Section 163: Allocation of Other Revenue
  • Section 164: Federal grants - in – aid of state revenue.

2. Financial Regulations Or Accounting Manuals

In Nigeria, financial regulations are strong control tools used in the Public sector fund management. They are the accounting manual of the three tiers of Government (Federal, State and Local Government) designed to guide the management of public funds. These regulations ensure good accountability, prevention and early detection of fraud and other financial crimes. The rules deal with the procedures to be adopted for the receipts and disbursement of public funds and how to ensure accountability by government. Financial regulations is an accounting manual of Government as they state all the guidelines, rules and instructions to be followed in order to ensure legal and wise spending.

3. Financial/treasury Circulars

These are administrative tools used to amend the existing provisions of financial regulations, public service rules and the introduction of new policy guidelines.

4. Finance/ (Control And Management) Act Of 1958

This governs the management and disbursement of all government funds. It regulates the accounting system, the books of accounts to be followed in the preparation of accounts and financial statements.

5. Others

Other laws guiding public sector accounting and finance in Nigeria include the pension Reform Act 2004 and the independent corrupt practices and other related offences (ICPC) Act 2000.

Bases Of Public Sector Accounting

There are three bases of public sector accounting, which are:

  1. Cash Basis
  2. The accrual basis
  3. The commitment basis

1. The Cash Basis

The cash basis of accounting state that revenue are recorded only when cash is received and expenditures recorded only when cash is paid, irrespective of the fact that the transactions might have happened in the previous accounting periods.

2. Accrual Basis

In accrual bases, revenues are recorded when earned and expenditures acknowledged as liabilities when known or benefits received, notwithstanding the fact that the receipts or payment of cash have taken place wholly or partly in other accounting years. Accrual accounting is mainly practiced in the private sectors due to its profit maximization, where it is important to estimate how much profit has been earned in a period so as to make periodic distributions to shareholders by way of dividends and keeping invested assets intact.

3. Commitment Basis

Commitment account is kept on a memorandum basis and takes care of only two areas or contract for the supply of goods or services.

People who love this method believe that commitment is regarded as a charge, which has been made on a budget provision. In Nigeria, Government records all financial transaction on cash basis contrary to accrual basis in the private sector.

Basic Terminologies In Public Sector Accounting And Finance

Some of the terminologies in public accounting and finance are:

1. Vote Book

A vote book in public sector accounting is a memorandum accounts book which is used for monitoring the expenditures of government and ensures that there is no extra-budgetary spending. Extra-budgetary spending is the money that government spent which wasn't budgeted for.

Reasons For Keeping A Vote Book

  1. To make sure that there is no extra-budgetary spending
  2. Effective monitoring of the expenditures of government
  3. To ensure that there is availability of funds in the appropriate head and sub-heads to meet payments due
  4. To show uncommitted balance at a glance
  5. To know Government creditors/liabilities.

Public Sector Accounting In Nigeria

2. Above The Line Accounts

These are the expenditures budgeted for in the estimate. These can be determined as at the time of preparing the budget as to the exact amount of incomes receivable and expenditures incurable. Examples of budgeted cost are salaries and over head expenses; revenues anticipated include collections from the customs and excise duties and other government revenue generating agencies.

3. Below The Line Accounts

These are accounts which are established and controlled by the Accountant General of the Federation (AGF) of which the exact amount of incomes receivable and expenditure incurable cannot be determined as at the time of budget preparation. Examples of such include:
  1. Touring advances
  2. Spectacle advances
  3. Loans and deposit
  4. Money held on behalf of third parties
  5. Remittance and cash transfers in respect of the Nigerian Army, Police, Para-Military organizations.

4. Federal Pay Officer

This is an officer who is in charge of a Federal pay office in different States across the country. The Federal pay officer is saddled with the responsibilities of handling the processing of all financial transactions between the Federal, State Governments, the Local Government Councils and all branches of the Federal Government Ministries located in the State Concerned.

5. Budgetary Control Concept

This concept states that Government should not undertake any action when it didn't budget for it. The concept assumes that all revenues and expenditures of the government must be budgeted for.

6. Modified Cash Basis

In modified cash basis, the books of accounts are left open for a maximum period of three months after the end of the year. This will enable the book to capture substantial amount of income/expenses relating to the previous years which had just ended.

7. Modified Accrual Basis

In modified accrual basis, both the cash and the accrual bases are used simultaneously where applicable in order to determine the financial viability of a specific Ministry/Extra-Ministerial Department.

8. Account Current

These accounts take care of transactions between the Federal Government and their agencies. It shows what will be given to States or Local Government Councils from the federal government.

9. Children Separation Domicile Allowance

The allowance is payable to a government officer if he is separated from his children as a result of the following developments
a. If he is an expatriate officer
b. Where an officer is being posted to serve abroad.

10. Compassionate Allowance

This is money paid to the family of an officer who died in active service in addition to the officer's normal official entitlement. The rate of such allowance has been standardized by the Federal Government.

Sources Of Government Revenue

The are different sources of government revenue. The diagram below illustrates how the Federal Government of Nigeria derives its revenue

Public Sector Accounting In Nigeria

The Federal Government Revenues are classified into two groups:
  1. Federation Account Revenue Heads and
  2. Federal Government Revenue Heads or Consolidated Revenue Fund Accounts (CRF).

Federation Account Revenue Heads

The Federal Account was created by section 162 of the 1999 Constitution of the Federal Republic of Nigeria. The Constitution made it clear that this account shall be paid all revenues collected by the Government of the Federation, except the revenues from the Pay As You Earn (PAYE) of the foreign service officers (Ambassadors etc), residents of the Federal Capital Territory (Abuja), the Nigerian Police Force and the personnels of the Armed Forces of the Federation. These account is a distributable pool account from which monthly allocations are made to the three tiers of Government via:
  1. Federal government
  2. 36 State of the federation plus Abuja
  3. 774 Local Government Councils
In such terms and condition as specified by law

Public Sector Accounting In Nigeria

Federal Government Account or Consolidated Revenue Fund

The CRF was established by Section 80 of the Constitution of the Federal Republic of Nigeria, 1999. See diagram below showing the funds paid into the CRF.

Consolidated Revenue Fund Account Diagram

Public Sector Accounting In Nigeria

All the revenues in the above diagram are paid directly into the Consolidated Revenue Fund and the right hand shows the charges thereon.

Development Fund

The development fund was established by section 25 of the Finance (Control & Management) Act of 1958 but was consolidated by the 1999 constitution of the Federal Republic of Nigeria. Development fund is created for the purpose of capital development projects. Sources of money for the development fund is as shown in the diagram

Development Fund in Diagram

Public Sector Accounting In Nigeria

Contingency Fund

The legality of the contingency fund was derived from section 81 of 1979 and 1989 constitutions and section 83 of 1999 constitution. Contingency fund is created to meet unforeseen and urgent situations such as natural disasters. A charge on this fund will arise in uncommon cases where virulent is impossible, and where an application for additional provision shows that the issue of funding cannot be delayed without causing serious injuries to members of the public.


Accountability is the main concept for governance. Accountability requires that those in positions of public office should account for their performance to the public or the citizens they are representing. Therefore, accountability implies that decision makers are monitored by, and are responsible to, others, each of whom is, in turn, responsible to the people of the country. In respect of public financial management, there are several means through which accountability is enforced such as the auditor general, public account committee, and the ombudsman. These accountability mechanisms must be strengthened to reduce the level of corruption in the country. The annual budget of a nation must be an instrument of accountability, a stewardship report of what was done during a given financial year and just a reflection of how money was allocated, spent, unspent and subsequently returned to the purse of the government or sometimes, even wasted. Therefore, we can say that accountability is the hallmarks for good governance in any country.
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