PUBLIC SECTOR ACCOUNTING (BACT 406) Lesson 1: Overview of Public Sector Environment in Ghana • In this lesson we will: – Examine the nature and scope of public sector in Ghana; – Compare Public sector and the private sector – Examine the Composition of PSEs; – Justify the existence of PSE; – Examine the NPM in Ghanaian Public sector and – Identify ethical considerations in Public Financial Management. 2/14/2023 Redeemer Krah @ UPSA 2023 2 Nature and scope of Public sector • Public sector refers to that part of the economy which is significantly dominated by the activities of government and its entities • Nowadays, the term Public Service is mostly used in place of public sector. • There is no equity interest in these entities • PS does not exist for profit but rather to provide public services. • PS is broad in scope and divest. While some operate purely as non‐profit others operate on commercial lines such as GBEs/SOEs 2/14/2023 Redeemer Krah @ UPSA 2023 3 Nature and scope (cont) • PS entities demonstrate the following characteristics that separate them from commercial entities: – They are established by a specific Act of Parliament or Decree – They are not profit making – They are funded by government through taxes and other levies – They are accountable to parliament – They are usually engaged in the provision of public goods and services. • Public goods and services are non‐excludable, non‐rival and non‐divisible. – Marginal pricing or Subvented pricing is used to price their outputs. – Organizations take the form of Ministries, Departments and Agencies, Boards, Commissions, Authorities etc. 2/14/2023 Redeemer Krah @ UPSA 2023 4 Composition/structure of PSE • PSEs may the classified based on the mode of financing or based on the powers and operations. • Regarding financing, PSE may be classified as: – Ordinary entities, which are funded wholly by national budget. E.g MDAs – Subvented entities, which are funded partly from government subvention (budget) and partly from their IGF. E.g. Public universities like UPSA. – Self‐funding entities obtain their solely funds from their activities. Eg GBEs, Authorities like GHAPOHA, VRA, etc. 2/14/2023 Redeemer Krah @ UPSA 2023 5 Composition (cont) • Covered entity under the PFM Act 2016: – the Executive, Legislature and Judiciary; – constitutional bodies; – Ministries, Departments Agencies and local government authorities; – the public service; – autonomous agencies; and – statutory bodies; Give some examples of each category of covered entity. 2/14/2023 Redeemer Krah @ UPSA 2023 6 Composition (cont) 2/14/2023 Redeemer Krah @ UPSA 2023 7 Composition (cont) • Characteristics of GBEs in accordance with IPSAS are: – They are granted the power to contract in their own name. – They are assigned financial and operational authority to carry on business – They sell goods and services in the normal course of business to other entities at profit – They do not rely on continuous government funding, and – They are controlled by a PSE. 2/14/2023 Redeemer Krah @ UPSA 2023 8 Justification of public Sector • What do you think will happen when there is no public sector other than the executive, legislature and Judiciary? – ……………………………………………………… – …………………………………………………….. – ……………………………………………………… – …………………………………………………….. – …………………………………………………….. 2/14/2023 Redeemer Krah @ UPSA 2023 9 Justification of existence of public sector – To provide basic goods and services at affordable prices to all citizens regardless of their pocket – To resolve inequality in service delivery across the country. – To ensure that certain goods and services are provided on consistent basis. E.g. defense – To assume control of certain key areas of the economy. – To substitute central planning in place of individual choices. 2/14/2023 Redeemer Krah @ UPSA 2023 10 New Public management (NPM) • NPM refers to the practices where proven business management practices are adopted in the public sector to improve economy, efficiency, and effectiveness in public service delivery. • There is a call on governments across the globe to improve efficiency and accountability in public management. • Therefore, the public sector is reaching out for business practices in various ways. • NPM is pivoted on Managerialism and Competition. • Managerialism deals with use of private sector management approach in public sector management, • Competition means removing monopoly in public service delivery and replace it with choice. 2/14/2023 Redeemer Krah @ UPSA 2023 11 NPM (cont) • NPM takes various forms and styles including: –Public‐private partnership* –Privatization or divestiture –Contracting out/ outsourcing* –Output based budgeting –Clientele service/ customer service –Professionalization –Increasing accountability and transparency in governance –Reforms/ change management 2/14/2023 Redeemer Krah @ UPSA 2023 12 NPM‐Outsourcing of public service delivery • Outsourcing Defined – It is also known as contracting out. – Outsourcing refers to the practice of contracting out to a private sector provider certain processes within the government entities. – Contracting out government projects from infrastructure constructions to consulting services – has been practiced with the growing popularity of the New Public Management (NPM) concept. Slides are developed by Redeemer Krah. All rights reserved @2023 Outsourcing (cont) –Outsourcing government contracts is one practice that is recommended by practitioners and advocates of NPM because this business model combines the use of technology with technical expertise –The financial and operational risk rest with the government entity. –The difference between outsourcing and PPP is who bears the financial and operational risk of the activity. Slides are developed by Redeemer Krah. All rights reserved @2023 Outsourcing (cont) • Type of services outsourced – Data management – Recruitment process – Revenue mobilization – Application development and management – Customer support – Security – Infrastructure Slides are developed by Redeemer Krah. All rights reserved @2023 Outsourcing (cont) • Benefits of outsourcing – Improve efficiency in public service delivery – Strengthens the public institutions politically through public approval of the people as result of improve service delivery – It supports the idea of private sector participation in the state governance process – It serves as catalyst for expanding service provider capabilities and intellectual capital for future use Slides are developed by Redeemer Krah. All rights reserved @2023 Outsourcing (cont) • Challenges of outsourcing –It endangers privacy and security of government systems –It may be the means of “shipping work abroad”. –Limited number of companies that has the capacity to participate –It may result in over dependence of government entity on the private sector Slides are developed by Redeemer Krah. All rights reserved @2023 Outsourcing (cont) • Factors to consider in outsourcing – Issue of conflict of interest – The capabilities and expertise of the entity’s party to the contract – The legal and government policy on outsourcing of certain services – Availability of potential service providers – National and organizational security – Relevance of the activity to the organisation‐ “core” or “peripheral” – Cost savings. Slides are developed by Redeemer Krah. All rights reserved @2023 NPM ‐ Public Private Partnership (P3) • Broadly, PPP refers to arrangements, typically medium to long term, between the public and private sectors whereby some of the services that fall under the responsibilities of the public sector are provided by the private sector, with clear agreement on shared objectives for delivery of public infrastructure and/ or public services. • The traditional role of the Government as the primary infrastructure and public service provider is gradually being supplemented with private sector expertise and financing. 2/14/2023 Redeemer Krah @ UPSA 2023 19 Types of PPP Arrangements • There are several forms of PPP and the most common ones are: – Maintain and Operate (O&M) – Build –Operate ‐Transfer (BOT) – Build‐Transfer –Operate (BTO) – Build‐Own – Operate (BOO) – Rehabilitate‐Operate‐Transfer (ROT) – Design‐Build –Operate (DBO) – Concession 2/14/2023 Redeemer Krah @ UPSA 2023 20 • Maintain and Operate – Here the private sector is allowed to manage and operate public sector facility or service for a fee. • BOT – Here the private sector finances public infrastructure and allowed to operate the facility for an agreed period and thereafter transfer ownership to the government. • BTO – Is similar to BOT except that the infrastructure is transferred upon completion to government and the private sector is allowed to operate it thereafter 2/14/2023 Redeemer Krah @ UPSA 2023 21 • BOO – Here an infrastructure that needed to be provided by government is given to the private sector to build, owned and operate it for the public benefit. • DBO – Here, the public sector provides the funding and the private sector is engaged to design the project to meet expected standards, build it and operate it. • Concession – gives an operator the long term right to use all utility assets conferred on the operator, including responsibility for all operation and investment. Asset ownership remains with the government. 2/14/2023 Redeemer Krah @ UPSA 2023 22 Objectives of PPP • PPP policy of a government has the following objectives; – Encourage and promote increase private sector participation in development – Increase availability of public infrastructure at least cost to government – Leverage public assets with private sector resources local and international market – It ensure risk sharing between the public sector and private sector or risk transfer to the private sector – Improves the quality of public service delivery by private expertise – Sharing of mass expertise of the private sector which is lacking in the public sector. 2/14/2023 Redeemer Krah @ UPSA 2023 23 Principles of PPP • Guiding principles include: –Value for money –Risk allocation –Ability to pay –Local content and technology transfer –Safeguarding public interest and consumer rights –Environment, climate and social safeguards. 2/14/2023 Redeemer Krah @ UPSA 2023 24 1. Value for Money • Value for money is paramount and PPPs should give greater value for money than the best realistic public sector project designed to achieve similar service outputs. • Achieving value for money is a key requirement of government at all stages of a project’s development and procurement and is a combination of the service outcome to be delivered by the private sector, together with the degree of risk transfer and financial implications for government 2/14/2023 Redeemer Krah @ UPSA 2023 25 2. Risk allocation • An efficient risk allocation is vital in determining whether value for money can be achieved in PPP projects. • Government’s principle with regards to risk allocation shall be used to optimise, rather than maximise, the transfer of project risks to the private party. Risks will therefore be allocated to the party best able to control and manage them in such a manner that value for money is maximised 2/14/2023 Redeemer Krah @ UPSA 2023 26 3. Ability to Pay • End user ability to pay shall be a key consideration for all PPP projects. • The PPP option must demonstrate long‐term affordability to the public and overall Government budgetary sustainability, forward commitments in relation to public expenditure and the potential for returns on private sector investment, given other priorities and commitments. 2/14/2023 Redeemer Krah @ UPSA 2023 27 4. Local content & Tech Transfer • PPP projects shall be structured to encourage the maximum use of local content and technology transfer. • As much as possible, the PPP arrangement shall facilitate the promotion of local industries and the private sector in Ghana. 2/14/2023 Redeemer Krah @ UPSA 2023 28 5. Safeguarding PI and CR • Government is committed to ensuring that each PPP project shall have positive impact upon the public interest. • The following principles shall be addressed in PPP transactions: – Safeguards to users particularly vulnerable groups; – Setting affordable user charges and tariff structures 2/14/2023 Redeemer Krah @ UPSA 2023 29 6. Env, Climate and Soc Safeguards • The Government shall ensure that PPP activities conform to the environmental laws of Ghana and the highest standards of environmental, climate and social safeguards. 2/14/2023 Redeemer Krah @ UPSA 2023 30 Ethical Consideration in PFM • Public financial management must be conducted in ethical and professional manner. • IFAC code of ethics gives five fundamental principles of code of conduct for professional accountants, by extension public financial management: Integrity Objectivity Professional competence and due care Confidentiality Professional behavior What do these Principles mean to you as an individual? 2/14/2023 Redeemer Krah @ UPSA 2023 31 Common offenses under PFM • S. 96 regards these as offenses: –unauthorised commitment resulting in a financial obligation for the Government, –failure to collect moneys due to the Government, – improper payment of public funds or payment of money that is not duly verified in line with existing procedures, –deficiency in or for the loss, damage or destruction of any public funds, stamp, security, stores any other Government property 2/14/2023 Redeemer Krah @ UPSA 2023 32 Offenses in PFM • Common offenses in PFM acceptance or receipt of money or valuable consideration for the performance of an official duty, wilful making or signing a false certificate, false return or false entry in a book, failure to report knowledge or information in respect of fraud committed by a person against the Government, contrary to any enactment related to public financial management, to the appropriate authority or law enforcement authority 2/14/2023 Redeemer Krah @ UPSA 2023 33 Penalties • Penalty for any of these commitments is: –liable on summary conviction to a term of imprisonment of not less than six months and not more than five years or to a fine of not less than one hundred penalty units and not more than two thousand, five hundred penalty units or to both 2/14/2023 Redeemer Krah @ UPSA 2023 34 Offenses relating to Excess Spending • A public officer who authorises an expenditure exceeding the approved appropriation in the relevant budget commits an offence. • Penalty liable on summary conviction to a term of imprisonment of not less than six months and not more than twelve months or to a fine of not more than the value of the assessed impact of the commitment or to both. 2/14/2023 Redeemer Krah @ UPSA 2023 35 Others offenses • A person who promises, offers or gives money or any other valuable consideration to a person engage in public financial management to influence him or her to take decisions or action or commit fraud against the government or to connive with fraud action commits an offense(S.96‐3). • Penalty liable on summary conviction to a fine of not more than three times the amount offered or accepted or a term of imprisonment of not less than six months and not more than two years or to both. 2/14/2023 Redeemer Krah @ UPSA 2023 36 Offense relating to Non‐compliance • S.98 provides that a person commits an offense when he: refuses or fails to produce or submit any information required under this Act, issues a local purchase order outside the Ghana Integrated Financial Management Information System or any other electronic platform in use by Government, misuses or permits the misuse of any Government property which results in a loss of public resources, contravenes or knowingly permits another person to contravene a provision of this Act or the Regulations, or instigates another person to contravene a provision of this Act or the Regulations 2/14/2023 Redeemer Krah @ UPSA 2023 37 Offense relating to non‐compliance • Penalty where no penalty is provided for the offence, is liable on summary conviction to a fine of not less than one hundred and fifty penalty units and not more than two hundred and fifty penalty units or to a term of imprisonment of not less than six months and not more than two years or to both. • Additional penalty: liable for any liability contracted on behalf of Government as a result of the contravention; and subject to disciplinary action by Government including dismissal, demotion or suspension. 2/14/2023 Redeemer Krah @ UPSA 2023 38 Trial questions 1. Give four differences between public sector and private sector. 2. Explain the three categories of public sector entities based on how they fund their operations. 3. Give four reasons for the existence of public sector in Ghana. 4. What is NPM? Outline its main objectives. 5. Explain managerialism and competition as tools for improving public sector management. 6. Outline four (4) objectives of PPP. 7. Explain five (5) key guiding principles of PPP. 2/14/2023 Redeemer Krah @ UPSA 2023 39 2/14/2023 Redeemer Krah @ UPSA 2023 40