The FAAC Sub-Committee on IPSAS did an excellent job in their overall performance, preparing Nigeria for the takeoff of IPSAS. The present coding and structural errors in the National Chart of Accounts are some of the inevitable consequences of relying solely on the manual method in the practical implementation of such a massive data-driven project.  That is why the Office of the Accountant General of the Federation (OAGF) must do away with manual methods for the maintenance and update of the National Chart of Accounts and opt for a custom automated tool.

The IPSAS National Chart of Accounts is a huge document, comprising about 900 line items, laid out in three columns, each for the Federal, State, and Local governments. The accounts are systematically coded in a way that makes it possible for successive account codes to be generated algorithmically. However, the codes were manually prepared. This manual preparation of the National Chart of Accounts made us suspect the possibility of human errors when we first received the National Chart of Accounts in 2015.

After we figured out the algorithm upon which the chart of accounts is based, we decided to incorporate it into the module of our ExpressBook PSA IPSAS-compliant accounting software, meant to import the National Chart of Accounts from Microsoft Excel. This enabled us to test the integrity of the National Chart of Accounts, after it was officially released by the Office of the Accountant-General of the Federation (OAGF) in 2015.

Our test revealed gaps in the National Chart of Accounts that could leave many accounts orphaned in financial statements. We quickly collated the list of the affected accounts and submitted them to the FAAC Sub-Committee on IPSAS. However, by the time we called their attention to more errors, the National Chart of Accounts had already been released to the public. During our first implementation of IPSAS for one of the federal ministries, we discovered those errors were still there, and they were still there in the 2020 updated version. We have rectified these errors in our copy of the National Chart of Accounts because it is not possible to produce accurate financial statements without fixing these errors.

In fairness to the FAAC Sub-Committee on IPSAS, they did an excellent job overall in preparing Nigeria for the takeoff of IPSAS. The coding error we discovered is one of the inevitable consequences of relying solely on the manual method in the practical implementation of such a massive data-driven project. With our IPSAS software solution, it is possible to generate and update the National Chart of Accounts with little or no human intervention within seconds, and with zero errors.

IMPLEMENTATION ISSUES AND CHALLENGES

Apart from the coding error highlighted above, the National Chart of Accounts has many other shortcomings that need to be addressed.

One of the significant challenges with the first National Chart of Accounts, released for 2013 Cash-based IPSAS, was the absence of CURRENT/NON-CURRENT classification for Assets and Liabilities. IPSAS demands that such classification must be present, even if you are implementing the Cash-based Standard only. The accrual IPSAS National Chart of Accounts has corrected this. However, this correction comes with even more omissions and discrepancies than the first chart of accounts.

Below are some of the serious challenges we have encountered with the National Chart of Accounts during our IPSAS implementation.

Omission of Cash and Cash Equivalents Classification

The Cash and Cash Equivalents class, which was present in the first chart of accounts, has been removed from the revised one, even though this is one of the mandatory disclosure requirements under IPSAS. In its place are Cash/Bank Balances Held by the AGF (3101), Cash and Bank Balances Held by MDAs (3102), and Internal Cash Transfers (3104). These three groups should have been sub-classes under the Cash and Cash Equivalents group. However, the Cash and Cash Equivalent classification is retained in the STATEMENT OF FINANCIAL POSITION report. In the absence of direct correspondence between the National Chart of Accounts and the Financial Statements, one is left with the onerous task of hard-coding the reports.

Omission of Revenue from Exchange/Non-Exchange Transactions Classification

IPSAS classifies revenue into two major categories: Revenue from Exchange Transactions (IPSAS 9) and Revenue from Non-Exchange Transactions (IPSAS 23). The Standards also require the disclosure of these two categories of revenues separately in the Statement of Financial Performance. These classification criteria have been flouted in the National Chart of Accounts, making it difficult to satisfy the IPSAS disclosure requirement.

Omission of Direct Cost (Cost of Goods)

Unlike the first National Chart of Accounts, there is no distinct class or line item for Direct Cost or Cost of Goods in the current chart of accounts. It appears everything has been lumped in Materials and Supplies—General under Overhead Expense.

Although IPSAS (unlike IFRS) do not require mandatory and explicit disclosure of the Cost of Goods on the face of the financial statement, it does recommend the disclosure of all significant classes of revenue and expense.  Besides, the omission of the Cost of Sales could create a problem for those government institutions and agencies that provide goods and services in exchange for money, as it will make it difficult for them to track the cost of their goods and compute the net revenue resulting from the goods they dispense. This applies to institutions, such as hospitals and other government agencies, that carry out exchange transactions involving goods.

Specifically, hospitals should be able to separate the amounts they spend on dispensable drugs from the money they spend on running the hospital, even if the drugs are free. Classifying everything under Overhead Expense may obscure the net income generated by the hospital.

Even the provision of service under Non-Exchange Transactions could attract costs other than the salaries paid to employees. Would it not be good for us to know, for instance, how much the government is spending to generate tax revenue? Such information will enable us to know the effectiveness of the government’s tax drive strategy, so that if the cost is more than the tax revenue, it will be clear that such a strategy is a failure.

Classification of Personnel Expenditure

Personnel Expenditure requires more sub-classification to bring it closer to the disclosure requirements of IPSAS 25 (Employee Benefits). However, this situation can be remedied by creating sub-ledgers that feed Personnel Cost with relevant data and provide detailed disclosure as Notes to the financial statement.

Classification of Non-current Assets

The messiest thing about the National Chart of Accounts is the asymmetric listing of line items in the chart of accounts under the Non-current Assets group. While the classification of Non-current Assets looks good, the chart of accounts is overcrowded with details that should have been confined to the Non-current Assets Register. For example, the following items are listed separately with unique account codes: COMPUTERS, PRINTERS, SCANNERS, FAX MACHINES, PHOTOCOPIERS, TYPEWRITERS, SHREDDING MACHINES, PROJECTORS, BINDING EQUIPMENT. All these are supposed to be represented by one line item, OFFICE EQUIPMENT, while the details of each item are kept in the Non-current (Fixed) Assets Register for disclosure as Notes to the financial statements.

Also, the following are listed as separate line items in the National Chart of Accounts under the Non-current Assets: CHAIRS, TABLES, SAFES/FILE CABINETS/CUPBOARDS, TELEVISION SETS, RADIO SETS, AIR CONDITIONERS, STOOLS, SHELVES, CEILING FANS, REFRIGERATORS. These items are supposed to be assigned to FURNITURE AND FITTINGS as a single line item in the chart of accounts, while each specific item is confined to the fixed asset register. Plant and machinery, which are also unbundled into several different items, require the same treatment. Apart from bloating the National Chart of Accounts, this balkanization has made recording transactions quite challenging, especially during the First-time adoption of IPSAS.

One thing I find so ludicrous about the National Chart of Accounts is that there is an entry for Typewriters (items that are hardly in existence and with no significant value today) in the National Chart of Accounts, while there are no entries for telecommunication equipment and devices, such as telephones, handsets, UPS, and backup storage devices, which are so ubiquitous and relevant in our modern IT-driven work environment.

No Provision for State Withholding Tax Account

The Nigerian tax law recognises two types of Withholding Tax: Withholding Tax for State governments (deducted from registered business names) and Withholding Tax for the Federal government (deducted from incorporated companies). Despite this, the National Chart of Accounts has no provision for State Withholding Tax liability. This will present reconciliation and remittance challenges for Federal MDAs operating in different states of the federation.

Absence of Payroll Clearing Account

Although salary is prepared outside the framework of IPSAS, accounting for salary on an accrual basis is impossible without the payroll clearing account (or some temporary account). Unfortunately, there is no such account in the National Chart of Accounts. To enable us to carry out our IPSAS implementation using ExpressBook PSA accounting software, we had no choice other than to create a temporary account (41050102) for payroll clearing, to enable us to carry out the task of accounting for salary on an accrual basis.

Existence of Orphaned Accounts

This is due to the coding gaps I have already mentioned at the beginning of this report. The presence of orphaned or disjointed accounts makes it impossible to auto-generate reports, such as the Trial Balance and other financial statements, directly from the chart of accounts without hard-coding.

Disparity Between Accounts and Budget Codes

There is a disconnect between the codes in the National Chart of Accounts and those used for budgeting. It appears the Budget Office is still working with the pre-2015 codes for cash-based IPSAS. This may not be considered a serious issue because IPSAS allows the use of different bases for the Budget and Financials. However, these disparities pose a serious implementation challenge that could seriously impact the reliability of budget reports and financial statements for those who may not know how to map these accounts.

This is a serious lapse that requires urgent attention. The Budget Office and the Office of the Accountant-General of the Federation need to work out the mapping template between CAPITAL EXPENDITURE (Code 23) in the old chart of accounts, which has now been replaced with NON-CURRENT ASSETS (Code 32) in the current accrual chart of accounts.

MAINTENANCE ISSUES AND CHALLENGES

The National Chart of Accounts provides a good working template but requires regular review and maintenance to address its shortcomings. Such a review should not aim at altering or replacing existing codes but should be geared toward incorporating new items and classifications into the existing structure.

It is necessary to do everything possible to protect the integrity of the National Chart of Accounts and to ensure uniform compliance throughout the three tiers of government. However, the government should not see the National Chart of Accounts as a static document; it should be subjected to periodic review and updates to meet new requirements and exigencies as we continue implementing IPSAS. Any new update should be promptly made available to all the stakeholders, including software solution providers.

Finally, to ensure the integrity of the National Chart of Accounts and the ease of its maintenance, the Office of the Accountant General of the Federation must do away with manual methods for the maintenance and update of the National Chart of Accounts and opt for a custom automated tool. While it might be possible to spot structural and classification errors through visual examination and correct them manually, it is almost impossible to spot coding errors through observations to correct them promptly. Only an intelligent automated tool can promptly detect coding errors, which could undermine the integrity of the financial statements.