Financial Management

Financial Management

Financial management is concerned with the planning organizing, procurement and utilization of government financial resources as well as the formulation of appropriate policies in order to achieve the aspiration of members that society.

Premchand (1999) sees public financial management as the link between the community‟s aspirations with resources, and the present with future. It lies at the very heart of the operations and fiscal policy of government of government.

The Stage of Financial Management

1) Policy Formulation: policy formulation is one of the most important stages in financial management structure according to Premchand (1999), the transformation of the society‟s aspirations into feasible policies with well recognized financial implication is at the heart of financial management.

Issues not well addressed during policy formulation tend to grow in magnitude during implementation and may frequently contribute to major reversals in the pursuit of policies or major slippages that may lead to contrary results”.

Financial management should be designed to achieve certain micro and macro economic policies. It entails a clearly defined structural and articulated system that moves to promote cost-consciousness in the use of resources.

The government needs to have an estimate of revenue and expenditure to achieve the policy objective of government.

2) Budget formulation: the budget formulation is the step that involves the allocation of resources before the submission to the legislature for review and final approval.

According to Appah (2009), in Nigeria the budget formulation involves the articulation of the fiscal, monetary, political, economic, social, and welfare objectives of the government by the president; based on these,

I. The department issues policies and guidelines which form the basis of circulars to ministries/departments requesting for inputs and their needs for the ensuring fiscal periods.

II. Accounting officers of responsibility units are required to obtain and collate the needs of their units.

III. Accounting officers of ministries in this case the permanent secretaries are required to collate these proposals which would be defended by units‟ heads before the supervising minister.

1) Budget structures: according to Anyanwu (1997), a budget structure addresses the question of how the budget is or should be composed. In Nigeria, budgets have revenue and expenditure sides. According to prenchard (1999), many governments have yet to put in place cash management systems, which would pave way for coordinated domestic management.

The practice of limiting outlays to collected revenues has exacerbated this problem. He, further argued that there is a massive underfunding of programs and projects provided for in the budget.

2) Payment system: This involves the operational procedures for receiving monies for the public and for making payment to them. In Nigeria, government makes payments using a variety of procedures. These include book adjustments, issue of cheques, and payment authorities and electronic payment systems.

3) Government accounting and financial reporting: this is a very important component of the public sector financial management process in Nigeria. As Adams (2001) noted that government accounting entails the recording, communicating, summarizing, analyzing, and interpreting financial statement in aggregate and in details.

In the same vein, premchand (1999) argues that government accounts have the dual purpose of meeting internal management requirement while providing the public with a window on government operations.

Government financial reports should be prepared with the objective in mind of providing full disclosure on a timely basis of all material facts relating to government financial position and operations (A chua, 2009).

Financial reports on their own do not mean accountability but they are as indispensible part of accountability.

4) Audit: One of the fundamental aspects of public sector financial management in Nigeria is the issue of audit of government financial reports.

Audit is the process carried out by suitably qualified Auditors during the accounting records and the financial statement of enterprises are subjected to examination by the independent auditors with the main purpose of expressing an opinion in accordance with the terms of appointment.

The purpose of expressing an opinion in accordance with the terms of appointment. The high level corruption in the public sector of Nigeria is basically as a result of the failure of auditing.

As prenchand (1999) put it “many audit agencies are legally invented from reviewing policies. Most of them cannot follow the trail of money, as they do not have the right to look into books of contractors, and autonomous agencies”. One fundamental failure of audit is the absence of value of money in the Nigerian public sector.

5) Legislative Control: Nigeria is expected to perform this very important task of controlling and regulating the revenue and expenditure estimates in any fiscal year.

It is the responsibility of the members of the national assembly to ensure that the budget estimates are properly scrutinized to ensure accuracy, effectiveness and efficiency of government revenue and expenditure.