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Throughout history, good accounting practices have powered nations, whereas poor accounting and the misuse of public money has led to financial chaos and fuelled civil unrest. The global economy is looking brighter and Nigeria has started the year stronger. As African economies continue to strengthen, it is important that arrangements for good governance and strong public financial management (PFM) are in place.
CIPFA, the Chartered Institute of Public Finance and Accountancy, recently gave a presentation on the development of a public financial management system as an essential component to building sustainable public services in emerging economies like Nigeria. At the Institute of Chartered Accountants of Nigeria (ICAN) UK District’s Building Tomorrow's Africa Today: Nigeria in Focus conference in March 2018, CIPFA detailed both the critical importance of strong PFM to any economy and specific successes and challenges in Nigeria.
CIPFA believes that a whole systems approach is essential to planning PFM reform. This whole system thinking provides a framework that covers all aspects of public financial management, including budget execution, financial reporting, and scrutiny to boost service delivery at the country, regional, and entity level. Making a step-change in government accounting and auditing is completely within politicians' control. Therefore, the well-rounded view that the whole systems approach promotes will enable public finance managers to understand where they need to focus their efforts to better leverage service delivery, transparency and accountability.
The Nigerian federal government has for a long time recognised the lack of progress in its economic development due to challenges of transparency, accountability, corruption, and poor service delivery. In 2004 Nigeria embarked on economic and governance reforms and are now introducing International Public Sector Accounting Standards (IPSAS) and an Accountability Index for the country. The challenges are still there, but Nigeria is fired up to overcome them, particularly on the anti-corruption front.
Good governance and following high-quality accounting standards are critical to strong PFM. Both encourage better decision making, lead to efficient and effective use of resources, and strengthen and improve accountability, leadership, and management. The IFAC/CIPFA International framework: good governance in the public sector explains that implementing transparency, reporting, and audit good practices delivers improved services and effective accountability. This in turn creates a stable business environment that provides better outcomes, improves people’s lives, and increases public confidence.
Strong PFM is essential because it boosts the public’s confidence and trust in government. Poor PFM allows waste, encourages corruption, reduces the ability to collect taxes, and has an adverse impact on services, the rest of the economy and investor perceptions of the country.
IPSAS are the only international recognised financial reporting standards for the public sector. They are set by an independent international board of public sector finance experts and help public sector entities address specific, key public sector issues.
Nigeria has been ambitious in setting out implementation plans that seek to introduce IPSAS across all three main levels of government. There has been increased awareness about IPSAS and increased demand for training, but progress is slow.
Strong PFM and IPSAS implementation in Nigeria will help strengthen the economy and increase sustainability. Public finance professionals will be key to ensuring the states achieve these goals. Good governance, high-quality accounting standards, and leadership will be critical in ensuring strong PFM.
This article first appeared in the International Federation of Accountants.