Now, about twelve years since Nigeria commenced the implementation of IPSAS and nine years after the take-off of the Accrual IPSAS, most government ministries, agencies and departments (MDA) at the Federal, State, and Local Government level are still operating manual Cash-based accounting. Therefore, those planning or handling the Accrual IPSAS implementation project should discount any leverage or expected gain from the Cash-based IPSAS adoption of 2013 to 2015 in Nigeria. That means the IPSAS transition programme should make provisions for transition from manual Cash-based accounting (instead of Cash-based IPSAS) to Accrual IPSAS.

Nigeria’s public sector accounting system has known nothing other than Cash-based accounting since its inception more than sixty years ago. The Nigerian Generally Accepted Accounting Principles (NGAAP) for public sector financial reporting, derived from UK accounting standards and International Accounting Standards (IAS), were largely based on Cash Accounting. Transactions were recorded only when cash was received or paid. It has been that way since Nigeria’s Independence, and even to this day, despite IPSAS adoption.

This incomplete record bookkeeping method has been ingrained in the psyche of public sector employees to the extent that they do not even think any change is possible. That is why the Accrual IPSAS implementation strategy must adopt a change management approach with the following components (which I have covered in detail in my book IPSAS IMPLEMENTATION AND THE SYSTEM CHALLENGE: THE NIGERIAN EXPERIENCE):

• Changing the hearts and minds of the people.
• Changing business processes and workflow.
• Changing the solution techniques, algorithms and tools.
• Tackling the challenge of resistance to change and managing the change.

The government’s failure to intentionally adopt this proactive approach in its IPSAS implementation project is the reason behind low IPSAS adoption and compliance by public sector entities in Nigeria. Resistance to change and a lack of political will to enforce IPSAS are the major reasons why about 80% of public sector entities in the country are still running on cash-based accounting.

WHAT IS CASH-BASED ACCOUNTING?

This is not a forum to offer a lesson on Cash-based accounting. However, I will highlight some important features of cash-based accounting that may help us understand the defects and inadequacies of this method of accounting and why Accrual IPSAS provides the gold standard for public sector accounting.

Cash-based accounting provides for the classification and recognition of Income and Expenditure (Receipt and Payment) only. That leaves the other two classes of accounts—Assets and Liabilities in limbo. The immediate implication of Cash-based accounting is that since everything is classified as either Income or Expenditure, all the assets acquired by the government and liabilities to third parties have no entries in the General Ledger. However, under IPSAS Financial Reporting Under the Cash Basis of Accounting requirements, these assets and liabilities are expected to be measured and disclosed as Notes to the Statement of Income and Expenditure.

The biggest defect and deficiency in Cash-based accounting comes from its recognition policy. Income and Expenditure are only recognised after cash payment. For example, if a public sector entity purchases a vehicle today, the cost of that vehicle will only appear in the financial statement when payment is made (Cash is credited and Expenditure is debited), even though the vehicle may have been delivered and deployed for operation. The most bizarre part of Cash-based accounting is that at the end of the year, irrespective of the cost of the vehicle or the time its payment was made, that vehicle will be written off as an expense to begin the new accounting year with zero opening balance. Cash accounting recognises the initial measurement for all assets as expense, with no provision for subsequent measurement.

Think about that for a moment! Do you know this is the major reason our governments at all three levels do not have accurate figures for the Carrying Values of all their tangible assets? Think of all the vehicles, buildings, lands, roads, bridges, aircraft, plants, equipment, machinery, military hardware and other assets, etc. Without a proper method of measurement and means of accounting for these tangible assets, any figures the government tosses in as the values for its assets are guesswork. Lack of accounting records for assets under the Cash-based accounting system is also the reason government properties can easily disappear into thin air without a trace.

The shortcomings and defects in cash-based accounting are so blatantly glaring that the practice can hardly qualify as accounting. This is why the International Financial Reporting Standards (IFRS) neither recognises nor permits cash-based accounting. These are some of the defects that Accrual-based IPSAS is meant to address. I will examine accrual accounting for Non-current assets in detail in subsequent posts.

Administrative Defects and Constraints in Cash-Based Accounting

The practice of recognising purchases of tangible assets as expenditure under Cash-based accounting has given rise to a situation where vital assets of the government (especially non-current assets) are written off as expenses and cannot be accounted for after acquisition. The inability of the government to account appropriately for assets and liabilities has resulted in the following anomalies, among others:

• Writing off Non-current assets as Capital Expenditure has made it difficult to track and keep an accurate record of these assets and their Carrying Values. This situation easily creates room for the manipulation or mutilation of records and outright theft.
• Keeping records of long and short-term liabilities outside the normal accounting system opens the records to manipulation, mutilation and contention. It also makes it difficult for the government to accurately account for its liabilities to vendors and other third parties in real-time.

This incomplete bookkeeping practice lacks consistency and transparency, and it is what easily gives rise to missing files, missing billions, stolen government properties and related assets, and other forms of financial improprieties in our public sectors. Besides creating a fertile environment for corruption, cash-based accounting makes it difficult for governments to know their true net worth. Without accurate accounting for Capital (which falls under liabilities) and Non-current assets, our GDP figures are nothing but phoney.

Cash-based accounting has also created a situation where financial data for assets and liabilities is kept in silos. Keeping financial data in silos has made it almost impossible for most public sector entities to carry out financial measurements and produce financial reports in real-time. We build roads and bridges, but nobody seems to care about the depreciation on them; nobody makes provision for sinking funds for their maintenance or replacement. Under the cash accounting system, everything is written off at the end of every year, to begin a new round of budgeting and spending sprees.

Besides providing a veritable environment for corruption, Cash-based accounting and our lackadaisical approach to financial record keeping are expensive and prone to errors that could jeopardise our financial planning and forecasts. In 2015, a former Governor of the Central Bank once raised the alarm over a missing $20 billion from the coffers of the Nigerian National Petroleum Corporation (NNPC). However, an audit by PricewaterhouseCoopers (PwC) appeared to have contradicted the allegations. Proper and diligent implementation of accrual-based IPSAS could address and eliminate some of these problems.

Under the chaotic milieu in which the public sector operates, auditing becomes an expensive business. Auditors are supposed to rely on financial statements prepared by the entity, but in most cases, such statements do not exist in the public sector. Therefore, Auditors must first collate fragmented data from various sources to prepare these statements before they can do what they are supposed to do.

But what is preventing us from doing proper accounting in the public sector? Accrual accounting is not Rocket Science. The top layer of the problem is the lack of executive will to enforce IPSAS, despite the leverage at their disposal. At the sub-layers are the people, and there is a lack of access to the right tools, the skill and the discipline to use the tools. Not every government programme should be politicised or subjected to the avarice of public sector officials. In the procurement of accounting software, government officials are not looking for the best IPSAS-compliant software that can solve their problems—they are only interested in whatever their friends and cronies can provide and what goes into their pockets. Getting the job done correctly is not their primary consideration.

More than once, I have found myself in a situation where some top public sector employees in the Finance and Admin department (in collusion with the IT department) did everything possible to sabotage my effort to implement IPSAS for government agencies because they could not get what they wanted. They did not even care about how the software had solved their monumental problems and corrected some of their errors, and even as the rest of the staff were so happy and excited about the system that had brought so much relief to their jobs. They tried to kill the software by awarding a contract for the supply of another software, but the staff held on to it because what they brought did not meet the IPSAS requirements. This was my most bizarre encounter with the realities of the public sector in Nigeria. Since then, I have learnt not to get involved directly. Give the job to anyone, and I will handle the implementation. But leave me out of the tender process.

These are some of the challenges the government must rein in or mitigate before Nigeria’s public sector can transit from the present chaotic, inaccurate, and old-fashioned Cash-based manual and semi-manual accounting to the modern, automated Accruals IPSAS-compliant environment.

And here is something important those still resisting IPSAS adoption, covertly or overtly, in Nigeria’s public sector need to understand: IPSAS has come to stay as the de facto accounting standard for the public sector in Nigeria. The Nigerian Generally Accepted Accounting Principles (NGAAP) for public sector financial reporting no longer exist. It died with the adoption of IPSAS and the replacement of the Nigerian Accounting Standards Board (NASB) with the Financial Reporting Council of Nigeria (FRCN). Since no country can operate without accounting standards, it is imperative for everyone in the three tiers of the public sector to get on board the IPSAS train, with a whole-hearted commitment to make it work.

And my message for those who have institutionalised manual accounting because of their fear of losing their positions or leverage is that you are hurting yourself and the system. You cannot stop change from taking place in the fast-moving, technology-driven world. You are too insignificant to do that. IPSAS has come to stay. The present government may be fully committed to it now, but one can never be certain of what happens next. The best you can do for yourself is to roll up your sleeves and get on board.

Finally, we must all understand that nobody can implement IPSAS without tailored IPSAS-compliant accounting software. That is why we have developed ExpressBook PSA—IPSAS-compliant accounting software, customised to implement accrual IPSAS based on Nigeria’s domestication requirements.