TSA and challenge of resource allocation

There is no doubt that developing countries like Nigeria are facing one of the greatest challenges of efficient allocation of resources as well as stabilisation of the business cycles. Of course, an important factor for efficient management and control of government’s cash resources is a unified structure of government banking. Such banking arrangements should be designed to minimize the cost of government borrowing and maximize the opportunity cost of cash resources. The arrangement should ensure that cash received is available for government’s expenditure programmes and for making payments in a timely manner. But many emerging market and low-income countries have fragmented systems for handling government receipts and payments.

In these countries, the ministry of finance/treasury lacks a unified view and centralized control over government’s cash resources. As a result, the cash lies idle for extended periods in numerous bank accounts held by spending agencies while the government continues to borrow to execute its budget. Most of the times, it has become a deal instrument between the government officials and the financial institutions.

A Professor of Public Sector Accounting at Kogi State University, Stephen Ocheni, said these observation are the basis for the current global revolution in government accounting, which Nigeria seems to be following through its Treasury Single Account (TSA) policy, among other economic policies designed to tame corruption.

Other reforms aimed at improving the quality of the nation’s Public Financial Management (PFM) systems are Government Integrated Financial Management Information System (GIFMIS); Automated Accounting Transaction Recording and Reporting System (ATRRS); Integrated Payroll and Personnel Information System (IPPIS); and International Public Sector Accounting Standard (IPSAS).

The Federal Government had started the implementation of TSA with the e-payment component since 2012, while the e-collections components of commenced in January 2015. The first Treasury Circular on e-Collection was issued on the 19th of March 2015. The effective implementation of these policies is yet to happen until recently.
“Treasury Single Account is an important factor in managing and controlling government’s cash resources. It ensures that all tax and non-tax revenues are collected and payments are made correctly in a timely manner and that government’s cash balances are optimally managed to reduce borrowing costs.
“Non-implementation of TSA in a country breeds corruption in multiple regressions because of fragmented government banking arrangements that allows for institutional deficiencies in multiple ways,” the don said.

In his lecture at a workshop jointly organised by the Association of National Accountants of Nigeria (ANAN), International Federation of Accountants (IFAC), the Office of the Accountant-General of the Federation (OAGF) and the World Bank in Abuja, titled: “Treasury Single Account: A Catalyst for Public Financial Management in Nigeria,” he noted that there has been mixed feelings about the effects and consequences of the TSA among banks, ministries, departments and agencies, as well as government business operators.

However, they failed to understand that fragmented system of handling government receipts and payments through the banking system has attracted institutional deficiencies in multiple ways.

First, the idle cash balances in banks failed to earn market related remuneration. Second, the government, being unaware of these resources, incurs borrowing costs. Thirdly, idle balances are used freely by commercial banks, even to extend credit to the owner- government.

He corroborated other experts, who posited that TSA facilitates better fiscal and monetary policy coordination, reconciliation of fiscal and banking data and improves the quality of fiscal information. Finally, the establishment of an effective TSA significantly reduces the debt servicing costs and eradicates financial misappropriation in the public sector. It should, therefore, receive priority in any PFM reform agenda.

TSA is a bank account or a set of linked bank accounts through which the government transacts all its receipts and payments and obtains a consolidated view of its cash position at the end of each day.

Ocheni maintained that prior to the implementation of the TSA, government was incurring finance cost on debit balances in some MDA’s accounts, while it was earning close to nothing on the credit balances of other MDAs.

“While it is necessary to distinguish individual cash transactions for control and reporting purposes, these objectives are achieved through the accounting system and not by holding and/or depositing cash in transaction-specific individual bank accounts. This enables the ministry of finance/treasury to delink management of cash from control at a transaction level,” he said.

With the TSA, the net balances on all the MDA accounts will now reside with the Central Bank, hence the government will avoid incurring interest costs while in positive net position and eradicates loss and leakages of legitimate revenue meant for the Consolidated and Federation Accounts.

Another academic, Mr. Awogbemi, noted that TSA is specifically scripted to promote transparency and facilitate compliance with sections 80 and 162 of the 1999 Constitution.

“This system of account would end the previous public accounting system characterised by the existence of several fragmented accounts for government revenues, incomes and receipts, which in the recent past has meant the loss or leakages of legitimate income meant for the Federation Account,” he said.

Besides the benefits associated with TSA implementation, its objectives, among others, include the enthronement of a regime of effective budgetary control through close monitoring of budget execution of MDAs and the support for monetary policy implementation.

But how will banks fare under the scheme? Ocheni said the full implementation of the TSA will not be hurting banks, but only establishments that “purport and pretend to be banks but have failed, refused and neglected the need to understand banking and do what bankers do elsewhere.

“It is an opportunity for banks to refocus on the original purposes for which they were set up to collect depositors’ funds, keep them safe; engage in intermediation to create wealth and jobs for the economy and in the process earn profit for themselves,” he said.

Thus, beyond transparency and accountability, the TSA will introduce economy and efficiency into overall management of public finances and this will in the long run lead to effectiveness of government spending since it places government in a better position to realize overall policy goals.

Ocheni also noted the implementation of IPPIS as a centralized computer based payroll and management system aimed at eliminating payroll fraud, with focus on the determination of the actual personnel cost at a glance, ensuring data integrity towards establishing that personnel information is correct and intact.

This, he said, has as objectives, the centralization of data base of public servants; reduction of ghost worker syndrome; ensuring integrity of employees data; minimize wastage of public funds; ascertain actual personal emolument of Federal Government staff and facilitate easy storage, updating and retrieval of personnel records for administrative and pension purposes.

The accounting expert listed necessary conditions that must be in place for TSA to succeed in Nigeria to include a complete inventory of existing bank accounts; political support for reform of government banking arrangements; the technological feasibility and capacity of the banking system; and review of legal/regulatory framework.
The Managing Director, Nigeria Deposit Insurance Corporation (NDIC), Umaru Ibrahim said that the full implementation of the TSA was a signal that the era of arm-chair banking in Nigeria was over, adding that the TSA policy had presented banks with an opportunity to diversify their sources of deposit mobilisation.
He stressed that the implementation of the policy should not be strange to the banks, because, according to him, they (the banks) had been warned about three years ago to take steps that would make them not to over rely on government deposits.

Arguing that TSA initiative is good for the economy, Ocheni recommended that henceforth, government agency should not be allowed to operate bank accounts without the oversight of the treasury, while the coverage of the TSA should be comprehensive and encompassing all government cash resources.
He said banks should formulate sound personnel policies to attract people with good morals and knowledge of banking, as presently TSA is affecting banks’ liquidity and employment because they failed, refused and neglected the duties bankers do elsewhere.

Meanwhile, former Chairman of Independent National Electoral Commission (INEC), Prof. Attahiru Jega, has cautioned that implementation of the Treasury Single Account (TSA) policy of the Federal Government will be a recipe for disaster.