BUDGET PADDING IN NIGERIA

 

BUDGET PADDING IN NIGERIA

INTRODUCTION

The budgetary process in Nigeria since 1999, at all levels is based on the so-called envelop system, has always been a work of ‘guessed estimation' and at best based on pseudo-estimates. A sum of money is arbitrarily allocated to various sectors and budget heads, and pseudo-planners then in turn arbitrarily sub-allocates these to different line items and sub-heads. The only empirical input into all of these is the estimation of revenue accruable to the federation each year, and the share of it going to the Federal government in accordance with the revenue allocation formula.

 

Budgeting is the property of accounting, and political rhetoric or hocus-pocus cannot separate them. In this context, budget padding is not only fraudulent, it is also a destructive crime against the future of the people. In fairness to the people, and in line with our orchestrated “change” and  the “fight against corruption” mantras, perpetrators of high-profile padding-being economic saboteurs and betrayers of public trust – must not go unpunished.

 

It is a process that allows for not only chaos, but also serial padding. It is why anyone knowledgeable about the budget process in Nigeria, anyone who has ever attempted to undertake the analysis, tracking and monitoring of the budget, anyone who has engaged with the budget process will be quick to point out their frustrations with the budget process.

 Logically, “padding” in whatever form, is one of the elements of corruption. Although like so many other English words, “padding” has several meanings. Its literal interpretation in accounting is “false entry”. Its applications by those who have a penchant for corruption are opaque and varied in nature. It could be used to manipulate census figures, contract values, workforce (“ghost” workers), electoral figures, goods and services, etc (Tunde T. 2016).

 

Budget Padding takes place when legislators resolve to rewrite the budget by introducing new items outside the estimates prepared and presented to them by the president. The controversy over the padding of the budget was laid to rest with the enactment of the Fiscal Responsibility Act, 2007 which has imposed a duty on the finance minister to source input from certain institutions, including the National Assembly during the course of preparing the national budget. That is when negotiations and horse trading with the Executive by the legislators is allowed. But neither the Constitution nor the Fiscal Responsibility Act has empowered the National Assembly members to rewrite the national budget by including constituency projects whose costs are arbitrarily fixed by the legislators (Femi F. (SAN), 2016).

 

Under section 81 of the Constitution, the president is given the exclusive power to cause the budget to be prepared. Upon the preparation of the budget by the Executive, it shall be laid before or presented to the National Assembly by the president. In debating the Appropriation Bill, the legislators may reduce the estimates if there are errors or inflation of the cost of items or if certain items provided for have been purchased before or for any other genuine reason. But the National Assembly cannot increase the budget in any manner whatsoever. So the unilateral introduction of constituency projects is totally illegal and unconstitutional (Femi F. (SAN), 2016).

 

By introducing new items, the National Assembly has usurped the powers of the president to prepare the budget. In other words, the legislators would have prepared the budget and laid it before themselves and then passed it. That is a negation of the doctrine of separation of powers. The Appropriation bill or amended Appropriation bill is not like other bills. Whereas other bills shall emanate from either of the two houses, money bills shall emanate from the president. So a money bill is a special bill which cannot be subjected to additions by the National Assembly because it has no power to prepare it (Femi F. (SAN), 2016).

Padding is an unconstitutional infraction when the estimates are increased on the floor of the House. The infraction becomes criminal when the Appropriation Bill is altered by a few legislators after it had been passed by both houses of the National Assembly. In the instant case, Honourable Jibrin is alleged to have altered the budget by inserting projects worth N4 billion, while a handful of other legislators led by the Speaker are alleged to have included 2,000 items in the budget. Since the president was then misled to sign it as the Appropriation Bill properly passed by both houses, the principal officers of the National Assembly cannot turn round to seek protection under the Legislative Houses Powers and Privileges Act. (Femi F. (SAN), 2016)

 

OBJECTIVES

The aim of this seminary is to review budget padding Nigeria. effort will be made to examine the impact of budget padding on Nigeria budgeting systems and its over all effect of national development

 

SCOPE

The scope this budget shall be limited to the incidence of budget padding in Nigeria since 2016 till date. Emphases on 2016 budget shall be made with respect to existing pool of literature, this study intends to contribute to the body of knowledge in two ways, first, to examine the budget padding, the ethical and moral implications, and lastly the probable consequences of the act to Nigerian development.

 

 

LITERATURE REVIEW

Concept of Budget and Budget Padding

Perrin (1958) opined that the word budget originated from the French word “bougette” (little bag). In Britain, it was used to describe the leather bag in which the chancellor of the exchange carried to parliament the statement of government needs and sources (Burkhead, 1956). According to CIMA (Chartered Institute of Management Accountants) a budget could be defined as a plan stated in quantitative monetary terms which is prepared and approved prior to a defined period of time usually showing planned income to be generated and, or expenditure to be incurred during that period and capital to be employed to attain a given objective.

 

Budget shows a quantitative expression of a proposed plan of action by management for a specified period and an aid to coordinating what needs to be done to implement the plan (Horngren, Stratton, Sutton, and Teall, 2004). Budgets are central to the process of planning and control which are major activities of management in all organizations (Okpanachi & Muhammed, 2013). According to Kpedor (2012) budget as a profit planning device sets standard of performance for managers. It is seen as a document which predicts revenues and expenditures of a particular economic entity, for a specified period (Ahmed, Suleiman & Alwi, 2003). The major objective of budgeting is to keep control of the activities done in an organization by providing a roadmap for future activities and setting a series of goals to be achieved and the means to achieve those (Abdel-Kader & Luther, 2006).

 

Falana (2016), Padding takes place when legislators resolve to rewrite the budget by introducing new items outside the estimates prepared and presented to them by the president. Neither the Constitution nor the Fiscal Responsibility Act has empowered the National Assembly members to rewrite the national budget by including constituency projects whose costs are arbitrarily fixed by the legislators. According to Falana (2016), about 20 legislators in both chambers of the National Assembly altered the budget by inserting constituency projects worth N100 billion in the Appropriation Bill. Both the Senate and the House allocated to themselves N60 billion and N40 billion respectively. If it is established that the alterations were effected after the passing of the budget by both chambers, the issue at hand goes beyond padding and become a clear case of conspiracy, fraud, forgery and corruption. Padding is an unconstitutional infraction when the  estimates are increased on the floor of the House. The infraction becomes criminal when the

Appropriation Bill is altered by a few legislators after it had been passed by both houses of the National Assembly.

 

According to www.premiumtimesng.com, Honourable Jibrin admitted to some criminal conspiracies jointly perpetrated against the Nigerian people by both chambers of the National Assembly, under his supervision as the Chairman of House Committee on Appropriation. For the fact that budget frequently form an important part of performance evaluation, human behavior suggest that participants in the budget process are going to try to create breathing room for themselves by overestimating expenses and underestimate sales. This deliberate effort to effect the budget is known as creating budget slack or padding the budget. This is done in an attempt to create an environment where budget goals are met or exceeded. However, this does little to advance the goal of the organization.

 

Recent literature has reviewed the motivations of budget slack practices, but very scanty literature is available in budget padding. Budget padding has been very rare occurrence in the developed economies and also in developing economies like Nigeria. Researchers see budget padding as the result of information asymmetry due to conflict of interest between the subordinate and the superior, between the principal and the agent and like in the Nigerian perspective, between the legislative who has the privileged and insider information taking advantage against the Nigerian masses. Young (1985), opined that budgetary slack or budget padding take place when a some staff underestimate their level of productive capabilities in order to make certain that they achieve the standards set in the budget by the top management. Meanwhile, Kren & Liao (1988); Douglas & Wier (2000) postulate that when supervisors use budgets to appraise performance, there are chances that subordinates might try to falsify information in their budgets to increase the possibility of achieving that target to their unacceptable and unfair advantage. On their part, Luft & Shields (2003) said that budget slack is synonym with budget padding as the one of the controversial work widely researched in management accounting; yet no generally accepted sources of this slack and the better means to reduce or avoid it. In the study of Ozer & Yilmaz (2011), the found out that, trust in supervisors and target commitment influence the correlation between justice perception and propensity to create budgetary padding. In the same manner Staley & Magner (2007) stated that trust in supervisor is a key variable that affects superiors‟ opinions of budgetary procedures fairness, but it needs a deeper knowledge about it regarding the specific mental processes by which budgetary padding or slack is bred. Our study tries to align some non-economic variables like trust, confidence and misuse of them as catalyst of budget padding.

Ita (2016) opined that special attention being accorded to sectoral allocation in the country’s annual budget, leaving other details in the hands of appropriation committees of the legislature to handle and approve for government agencies and parastatals, was responsible for padding. He said: “There is also the common practice that after bills may have been passed by the Senate and the House of Representatives; the legal department now re-drafts the bills, perhaps, changing certain words to give them a presentation in a legal draftsman’s perfect legislative draft. This, in my view, is inconsistent with the provisions of the law.” According to him, the practice must stop, if padding of the budget must be brought to an end.

 

From the theoretical perspective, budget padding can result due to information asymmetry existing between the Nigerian executive, the legislature arm and the masses; the economic conflicting interest between the government and the masses; the government’s opportunism or the economic self-interest. This is in line

DISCUSSION OF FINDINGS

The research (seminar) has shown that the reasons for budget padding are as follows:

i.              It creates illegal funds for Preparers and Beneficiaries: Apart from their allowances and salaries it helps them with extra funds to continue to keep their political structures and remain ‟powerful”.

ii.            Padded funds can also be laundered: Since budget padding involves secret insertion of line items so it creates an avenue for such funds to be diverted without anyone noticing.

iii.         Excess funds are shared at the end of the year: The budget padding is done by group of lawmakers secretly without the knowledge of their colleagues. So this caucus now shares the infused funds among themselves and they tend to repeat this year after year.

iv.          Padded funds are not returned to the treasury: Since these funds are used for phony projects which do not exist, it provides an avenue for lawmakers to divert the funds for private use.

v.            Extra money is used for patronages: Excess funds from budget padding are now dispensed as political patronages. So when you hear different organizations pay courtesy visits to politicians they don’t go empty handed.

vi.          It is a source of easy money for civil servants: Civil servants see the budget as an avenue to enrich them by inflating the budget for their ministries. Some of them do this in connivance with the lawmakers.

vii.       Budgets are padded to anticipate a downward review by the appropriation committee: Budget is sometimes padded by ministries to enable them to have access to funds after it is been slashed.

viii.    It has been institutionalized: It has become a norm among lawmakers who now see this inappropriate way of laundering money as the in-house legislative culture.

ix.          It is typical of Nigerians to generally pad their expenditures: It has become a culture for Nigerian ministries and parastatals. Finally, insatiable greed of Nigerian politicians: The average lawmaker earns well. They also have the privileged of attracting projects to their

The research also shows the effect of budget padding on economic growth and national development:

i.         Budget padding can impede and retard Nigerian economic growth and development.

ii.       Budget padding may be likened to corrupt practices.

iii.    Deprived government funds, thereby reducing public spending on socio-economic infrastructures, social services, poverty oriented programs.

iv.     It has appearance of criminality and financial embezzlement

v.       It tends to diversion and misappropriation of public funds.

vi.     Antidevelopment to the extent that it reduces the amount of funds available to be used for developmental purposes. Funds that should have been used to better education, health, infrastructure and other items needed to encourage a good life of Nigerians are stolen by a microscopic few.

SUMMARY

Budget padding is done with intent to cheat, defraud the country and enrich some few elected principal officers through manipulation of budget numbers and yet try to legalize the act. By introducing new items, the National Assembly has usurped the powers of the president to prepare the budget. In other words, the legislators would have prepared the budget and laid it before themselves and then passed it. That is a negation of the doctrine of separation of powers. The Appropriation bill or amended Appropriation bill is not like other bills.

 

CONCLUSION

This seminar paper to a large extent has review budgetary padding with specific consideration of 2016 Nigerian budget in perspective. Budget padding can result from two sources: forecast inaccuracy, which occurs as a result of unintentional estimation errors and changes in efficiency; and intentional manipulation which occurs when the efficient accomplishment of a budgeting process depends on obtaining information from subordinates who are in close proximity to resource usage.

 

The Nigerian experience in 2016 budget padding saga is quite unfortunate incident and the most disheartening, as the value of development assistance that flowed into the country for socio-economic development was squandered by our political leaders/elites. No doubt budget padding is nothing but corruption and corrupt practices in Nigeria which had resulted in undermining the growth and stability of Foreign Direct Investment (FDI) impede Nigeria’s ability to attract oversea capital and investors. Undoubtedly, Nigeria is one of the world and largest producer and exporter of crude oil, a country endowed with abundant natural and human resources unfortunately still has more than 60 percent of its population living below the poverty line. Conclusively budget padding could affect productivity, output, exports, and balance of payment, foreign exchange, Gross Domestic Product (GDP) and foreign reserve negatively.

 

 

RECOMMENDATION

Based on the findings of this seminar, the researcher put forward the following recommendations:

1.     In line with the anti-corruption stand of the Nigerian current administration, all abuse of powers and privileges by public and elected officials should be made to face the law irrespective of status or position.

2.     The executive should adopt a yearly publication of the appropriation bills before sending to the legislative arms.

3.     The Presidency should engage a reputable consulting firm to guide and audit the Appropriation bill process, to ensure credibility of the budget.

4.     Lastly, this paper recommends that it is high time the citizens, speak out and collectively hold their elected representatives accountable, since we are all stakeholders in Nigerian project and as a nation.

 

 

REFERENCES

Abdel-Kader, M. & Luther, R. (2006). Management Accounting Practices in the British Food And Drinks Industry. British Food Journal, 108 (5), 336–357.

Ahmad, N. N. N., Suleiman, N., and Alwi, N. M. (2003). Are budgets useful? A survey of Malaysian Companies. Managerial Auditing Journal, 18 (9), 717–724.

Akpata, U. (2016). Impact of Corruption on Nigeria's economy. Pricewaterhouse Coopers http://www.pwc.com/ng/en/press-room/impact-of-corruption-on-nigeria-s-economy.html Accessed 30/10/2016

Aziken, E. (2016). Budget Padding: The road to constitutional dictatorship.Read more at: http://www.vanguardngr.com/2016/07/budget-padding-road-constitutional dictatorship/, Accessed 25/10/2016

Douglas, P., Wier. B (2000). “Integrating ethical dimensions into a model of budgetary slack creation”, Journal of Business Ethics, Vol. 28, pp. 267 – 277.

Falana, F. (2016). The Criminality of Budget Padding. http://opinion. premiumtimesng. com/2016/08/14/criminality-budget-padding/ Accessed 31/10/2016

Ita, E. (2016). How to Stop Budget Padding. Paper presented at Legislative Lawyers Forum, LLF, during 2016 Nigeria Bar Association, NBA, in Port Harcourt, Rivers State.

Kpedor, G. (2012). Budgeting, Budgetary Control and Performance Evaluation: A Case Study of  Alterain Service Group. A Published Thesis Commonwealth Executive Master of Business Administration, Kwame Nkrumah University of Science and Technology

Merchant, K. A. (1985). Budgeting and the propensity to create budgetary slack. Accounting, Organizations and Society, 10(2), 201-210.