By Dr. Innocent Okwuosa
In a meeting between the World Bank representative in Nigeria and the Institute of Chartered Accountants of Nigeria on ICAN Accountability Index in 2021, it was made clear that the Bank will support states in Nigeria that score high in public finance accountability and transparency. One way through which accountability in Public Finance Management (PFM) has been measured internationally is the Public Expenditure and Financial Accountability (PEFA) framework.
The PEFA framework is therefore a tool for assessing public financial management so that leadership can demonstrate to the citizens and business partners alike that they do what they promise they will do when it comes to public finance. This is the foundation of trust in government.
Citizens and business partners repose trust and confidence in any government that subjects itself to accountability. Through accountability, disclosures are made and these disclosures lead to transparency, which is why international multi-lateral financial institutions like the World Bank, African Development Bank et cetera place a lot of emphasis on accountability and transparency.
Emerging trends in public finance accountability and transparency
Accountability and transparency aid Public Finance Management (PFM). The centrality of good PFM for global development has been acknowledged by Effective Institutions Platform – “an alliance of over 60 countries and organisations that support country-led and evidence based policy dialogue, knowledge sharing and peer learning on public sector management and institutional reform”. For example, in the Addis Ababa Action Agenda of July 2015, participants, mostly representatives of governments, agencies and multi-lateral organisations all committed themselves to addressing the challenge of financing posed by lack of accountability in public financial management.
In accordance with widespread international agreement on the importance of PFM, the Public Expenditure and Financial Accountability (PEFA) programme was initiated in 2001 by seven international development partners: The European Commission, International Monetary Fund, World Bank, and the governments of France, Norway, Switzerland, and the United Kingdom. In 2019, the Ministry of Finance of Slovak Republic and the Ministry of Finance of Grand Duchy of Luxembourg joined the PEFA partnership program. PEFA began as a means to harmonize assessment of PFM across the partner organizations. It was created to establish a standard methodology and reference tool for PFM diagnostic assessments.
Since 2001 PEFA has become the most widely acknowledged standard for PFM assessments. More than 600 PFM assessment reports from 151 countries have been completed as at October 1, 2019. PEFA 2016 is the latest framework and has seven pillars as follows:
| PEFA 2016 Framework | ||
| Pillar | Details | Objectives |
| 1 | Budget reliability. | Government budget is realistic and is implemented as intended |
| 2 | Transparency of public finances | Information on PFM is comprehensive, consistent, and accessible to users. |
| 3 | Management of assets and liabilities. | Effective management of assets and liabilities |
| 4 | Policy-based fiscal strategy and | Alignment of fiscal strategy and the budget |
| Budgeting | ||
| 5 | Predictability and control in | The budget is implemented within a system of effective standards |
| budget execution. | ||
| 6 | Accounting and reporting | Accurate and reliable records are maintained |
| 7 | External scrutiny and audit. | Public finances are independently reviewed and external follow-up exists. |
In Nigeria, poor accountability and transparency culture in public finance management is a major barrier to effective donor support. This is because multi-lateral agencies look up to accountability and transparency as a yardstick for dealing with governments. To address this problem, the Institute of Chartered Accountants of Nigeria (ICAN) introduced the ICAN Accountability Index (AI). The ICAN AI mirrors PEFA but adapted to suit the local environment has 5 pillars as follows:
| ICAN AI Framework 2021 | ||
| Pillar | Details | Indicators’ No |
| 1 | Policy-based Fiscal Strategy and Budgeting | 5 |
| 2 | Budget Credibility | 6 |
| 3 | Management of Assets and Debts | 3 |
| 4 | Control in Budget Execution, Accounting and Reporting | 8 |
| 5 | External Audit and Legislative Scrutiny | 3 |
| Total Indicators | 25 |
Awareness of accountability through ICAN AI.
Prior to the commencement of ICAN AI, in 2018 for 2017 fiscal year, the International Federation of Accountants (IFAC) and the World Bank, through the Department for International Development (DFID), endorsed the ICAN AI and IFAC partly provided the initial funds for its execution. Awareness was created among relevant stakeholders in the public sector to share the vision of the ICAN-AI. This included meeting with the then Honourable Minister of Finance, the Federation Accounts Allocation Committee (FAAC) and States’ Accountants-General. In addition, the President of the Institute formally wrote to the 36 State Governors informing them of the commencement of the assessment and soliciting their support as well as those of their officials. The result of the 2017 fiscal year assessment is as shown below:
Table 1: State Ranking and Information Availability
| Rank | Entity | % Score | % Information NOT Provided | Rank | Entity | % Score | % Information NOT Provided | ||
| 1 | Kaduna | 67.5 | 26 | 20 | Anambra | 208 | 71 | ||
| 2 | Jigawa | 60.4 | 24 | 20 | Cross River | 20.8 | 81 | ||
| 3 | FGN | 52.6 | 35 | 20 | Niger | 20.8 | 65 | ||
| 4 | Kebbi | 39.0 | 48 | 20 | Osun | 20.8 | 81 | ||
| 5 | Abia | 38.3 | 50 | 20 | Sokoto | 20.8 | 79 | ||
| 6 | Ekiti | 35.1 | 55 | 25 | Akwa Ibom | 20.1 | 84 | ||
| 7 | Bauchi | 29.2 | 60 | 26 | Borno | 19.5 | 79 | ||
| 7 | Enugu | 29.2 | 60 | 26 | Yobe | 19.5 | 79 | ||
| 7 | Lagos | 29.2 | 71 | 28 | Ebonyi | 18.8 | 85 | ||
| 10 | Benue | 28.6 | 73 | 29 | Katsina | 18.2 | 89 | ||
| 10 | Taraba | 28.6 | 68 | 30 | Delta | 17.5 | 89 | ||
| 12 | Kano | 27.9 | 76 | 30 | Gombe | 17.5 | 79 | ||
| 12 | Kogi | 27.9 | 65 | 32 | Nasarawa | 16.2 | 94 | ||
| 12 | Ondo | 27.9 | 68 | 33 | Imo | 15.6 | 82 | ||
| 15 | Bayelsa | 26.0 | 77 | 34 | Adamawa | 14.3 | 98 | ||
| 16 | Kwara | 24.7 | 74 | 34 | Edo | 14.3 | 95 | ||
| 16 | Plateau | 24.7 | 71 | 34 | Oyo | 14.3 | 90 | ||
| 16 | Zamfara | 24.7 | 55 | 34 | Rivers | 14.3 | 98 | ||
| 19 | Ogun | 22.1 | 76 | ||||||
The 2019 assessment covering the 2018 fiscal year produced results as shown below:
Table 1: State Ranking
The assessment was quite comprehensive for both years and Kaduna state came first for both years. Imo State remained in the bottom last three for both years. Although it can be explained that one of the reasons for the Imo State not doing so well is because of its failure to provide data/information required by assessors. However, multi-lateral agencies that partner with states like the World Bank, IMF, AfDB will see non-provision of data/information as lack of transparency. It must be noted that why Kaduna performed well is that it has implemented accrual International Public Sector Accounting Standard (IPSAS) and is about the only state that has done that conscientiously, although Lagos state has also.
By leveraging on the ICAN AI, a state governor can demonstrate to the citizens and business partners that he has done what he has promised he will do. This will at least enhance trust in governance and the government. Shortly after the release of the ICAN AI, a report written by Oxford Business Group showed that Kaduna State attracted $2.61 billion in Foreign Direct Investment (FDI) within the first six months of 2020 (see https://pmnewsnigeria.com/2020/09/21/how-kaduna-attracted-2-61bn-fdi-in-six-months-oxford-report/). Many people within the accountancy field in Nigeria knew that Kaduna state, through its accountability and transparency initiatives, has demonstrated to international business partners and multi-lateral funding organisations that it can be trusted. Kaduna state has also done very well in the World Bank’s State Financial Transparency, Accountability and Sustainability (SFTAS) initiative in which one of the Disbursement Linked Indicators is accountability. On account of accountability indicator, Kaduna state government comes top of states in Nigeria, collecting billions of naira from World Bank.
Imo State has also benefitted from SFTAS, but the state can do more – especially from other sources. It is our desire that Imo state will continue to improve in its accountability and transparency drive so that it can avail herself the opportunity to attract more public finance as discussed above.
What Imo State should do to tap into such public finance opportunities?
Our suggested action plan for Imo state to tap into opportunities for such public funds will be to first implement accrual based IPSAS. According to the Association of Certified Chartered Accountants (ACCA), “a key driver for IPSAS adoption is the importance of attracting investment into the public sector, particularly in emerging economies. Financial statements prepared in accordance with IPSAS provide confidence and comparability for investors at an international level. These investments potentially create spin-off benefits for the broader economy in terms of jobs, welfare and societal improvement” (see file:///C:/Users/User/Downloads/pi-IPSAS-implementation-current-status-and-challenges.pdf ). In addition, the state should work to improve on its performance in the next ICAN Accountability Index due this year by providing the information required, some of which are expected to be made available on its website. This is because the index is already influencing international donors’ perception of public accountability by states given their performance in the index. The implementation of these two action plans may be preceded by capacity building among the relevant staff underscoring the need for human capital development. It may also involve the engagement of professional accountants, as Lagos State has done.
Innocent Okwuosa PhD, CPFA, FCA, FCIB is a Visiting Associate Professor of Accounting at Caleb University, Imota Lagos and the 1st Deputy Vice President Institute of Chartered Accountants of Nigeria. He consults with Entop Consulting Ltd.