By Kasie Eze
Government Owned Enterprises (GOEs) are established for purposes as stated in their enabling laws and policies. Government on behalf of the people invests public resources to set up GOEs, appoints their board and management who are virtually in the same position as the board and management of a privately owned company. The only difference is in their ownership and mandates as defined in their respective articles of association and enabling instruments. It is expected that if there should be profits or surplus arising from their operations, it should be remitted to the government which is the owner of the GOE.
The Fiscal Responsibility Act (FRA) in its explanatory memorandum charges the Fiscal Responsibility Commission (FRC)with the responsibility of monitoring and enforcing the provision of the Act to ensure greater accountability, transparency and prudence in the management of the nation’s resources by the Federal Government, Government-owned corporations or companies and agencies. Thus, the task of mainstreaming prudence, transparency and accountability is not only for ministries, departments and agencies of government but is also explicitly extended to GOEs by the FRA.
A key challenge for sustainability, transparency and accountability is the issue of operating surplus due to the Federal Government from GOEs. S.22 of the FRA provides that notwithstanding the provisions of any written law governing the corporation, each corporation shall establish a general reserve fund and shall allocate thereto at the end of each financial year, one-fifth of its operating surplus for the year.The balance of the operating surplus shall be paid to the Consolidated Revenue Fund of the Federal Government, not later than one month following the statutory dead line for publishing each corporation’s accounts. Furthermore, S.23 provides that a Corporation’s surplus shall be classified as a Federal Treasury Revenue; where a corporation’s result is in deficit, the deficit shall be classified as the corporation’s loss for the fiscal year and each corporation shall, not later than three months after the end of its financial year, cause to be prepared and published its audited financial reports in accordance with such rules as may be prescribed from time to time.
Government had spent trillions of naira in establishing these GOEs and as a minimum, returns are expected to the treasury commensurate to the investments. But on a yearly basis, the returns to the treasury from operating surplus have been a pittance compared to the investment. The board and management of these GOEs now see themselves as the ultimate owners and run GOEs in a way and manner that costs consume the bulk of any income while leaving little or nothing as operating surplus and profits.
Contracts are inflated in violation of the Public Procurement Act and their procurements, most times are not based on their needs, but simply on the idea that available resources must be fully expended. GOEs have been involved in creative and manipulative accounting to ensure that they leave little or nothing for their owners. This has shortchanged and denied government of revenue needed to run budgetary expenditure.
It was on the basis of this state of affairs that the Finance Act 2020 provided that the cost to revenue ratio of each GOE shall not exceed fifty percent or such other ratio as the Minister, upon the approval of the National Assembly, may approve for the particular GOE by way of an order published in the official gazette. This is a good legal provision which should be implemented to the letter.
The proposed amendment to the FRA that the Minister shall use every available tool including the Treasury Single Account (TSA), continuous monitoring and reporting to improve the budgetary process and control of the corporations is a step in the right direction. By introducing the transparency and accountability mechanism embedded in the TSA, and ensuring effective aggregate control over government cash balances, there will be effective reconciliation in the GOEs accounting systems and cash flow statements from the banking system to enable the federal government get an accurate picture of incomes and expenditure. Furthermore, if the budget is approved by the National Assembly and assented to by the President, the TSA follow up on expenditure will facilitate budget tracking.
Under this arrangement, it will no longer be a question of waiting for the GOEs to remit the surplus but the Minister can effect deductions at source subject to reconciliation in the event a GOE believes more money than should have been due has been deducted. There should also be a provision which penalizes and provides punishment for the manipulation of accounts, creative accounting, obstruction and refusal to provide information to the authorities in respect of the calculation of operating surplus.
Eze writes from Abuja