Treasury Single Account: Buhari's Bold Step and the Journey So Far

Treasury Single Account: Buhari's Bold Step and the Journey So Far

“Our adoption of the Treasury Single Account has resulted in the blocking of financial leakages in the public sector, making more funds available for the business of governance and ensuring the welfare of our citizens" President Muhammadu Buhari, 13th November, 2015

Treasury Single Account (TSA) is a public accounting system under which all government revenue, receipts and incomes are deposited into one single account or a network of accounts with one control. TSA is usually maintained by the country’s Central Bank and all payments are done through this account. The primary purpose of TSA is to ensure accountability of government revenue, enhance transparency and avoid misapplication of public funds. The maintenance of a Treasury Single Account helps to ensure proper cash management by eliminating idle funds usually left with different commercial banks and in a way enhance reconciliation of revenue collection and payments of government finances. Control of finances centrally ensures transparency and accountability in governance in addition to blocking of financial leakages, which end up in private pockets.   TSA is simply a strategy for government financial management of public funds and is being practiced in some countries because of the apparent benefits.  There are many advantages of TSA as outlined in the IMF 2010 paper titled "Treasury Single Account: Concept, Design, and Implementation Issues". Some of the benefits are:

1. Allows complete and timely information on government cash resources. In countries with advanced payment and settlement systems and an Integrated Financial Management Information System (IFMIS) with adequate interfaces with the banking system, this information will be available in real time. As a minimum, complete updated balances should be available daily.
2. Improves appropriation control. The TSA ensures that the Ministry of Finance has full control over budget allocations, and strengthens the authority of the budget appropriation. When separate bank accounts are maintained, the result is often a fragmented system, where funds provided for budgetary appropriations are augmented by additional cash resources that become available through various creative, often extra-budgetary, measures.
3. Improves operational control during budget execution. When the treasury has full information about cash resources, it can plan and implement budget execution in an efficient, transparent, and reliable manner. The existence of uncertainty regarding whether the treasury will have sufficient funds to finance programmed expenditures may lead to sub-optimal behavior by budget entities, such as exaggerating their estimates for cash needs or channeling expenditures through off-budget arrangements.
4. Enables efficient cash management. A TSA facilitates regular monitoring of government cash balances. It also enables higher quality cash outturn analysis to be undertaken (e.g., identifying causal factors of variances and distinguishing causal factors from random variations in cash balances).
5. Reduces bank fees and transaction costs. Reducing the number of bank accounts results in lower administrative cost for the government for maintaining these accounts, including the cost associated with bank reconciliation, and reduced banking fees.
6. Facilitates efficient payment mechanisms. A TSA ensures that there is no ambiguity regarding the volume or the location of the government funds, and makes it possible to monitor payment mechanisms precisely. It can result in substantially lower transaction costs because of economies of scale in processing payments. The establishment of a TSA is usually combined with elimination of the “float” in the banking and the payment systems, and the introduction of transparent fee and penalty structures for payment services. Many governments have achieved substantial reductions in their real cost of banking services by introducing a TSA.
7. Improves bank reconciliation and quality of fiscal data. A TSA allows for effective reconciliation between the government accounting systems and cash flow statements from the banking system. This reduces the risk of errors in reconciliation processes, and improves the timeliness and quality of the fiscal accounts.
8. Lowers liquidity reserve needs. A TSA reduces the volatility of cash flows through the treasury, thus allowing it to maintain a lower cash reserve/buffer to meet unexpected fiscal volatility.

In Nigeria, the Operation of "Consolidated Revenue Fund of the Federation" similar to TSA is a constitutional issue because Section 80(1) of 1999 Constitution as amended states "All revenues, or other money raised or received by the Federation shall be paid into and form one Consolidated Revenue Fund of the Federation". However, successive governments have continued to operate multiple accounts for the collection and spending of government revenue in total disregard to the provision of the constitution, which requires that all government revenues remitted into a single account. Nevertheless, in 2012, the Federal Government operated a pilot scheme for a single account using 217 MDAs as test case. The pilot scheme was reported to saved Nigeria about N500 billion. Despite this success, the immediate past government could not continue with the policy.  It is true that the Peoples Democratic Party (PDP)  led government  under the  former President Jonathan formulated the TSA policy. However, due to weak regulations and high level of corruption of previous government, several Ministries, Departments and Agencies (MDAs) of that era refused to conform with the TSA policy. The truth of the matter is that former  President Goodluck Jonathan  lacked the political will and audacity to force the adoption of TSA policy in all the MDAs. The present government of Muhammadu Buhari came to power  with people mandate to principally fight corruption and move the country towards economic development and poverty eradication. Right from the time he was sworn in, President Buhari did not leave  anyone in doubt that he was truly out to fight corruption as part of the change he promised Nigerians during his electioneering campaign for the presidential seat. In Africa,  President Buhari has an unblemished reputation for integrity, due process, transparency and the rule of law (Digressing; I watched one of the candidates in Niger Republic using the picture of Buhari  during electioneering campaign). Thus, the issuance of Directive to all the MDAs for compliance to Adoption of the STA was among the first steps of President Buhari's government. The directive of the government that all revenues should be remitted to TSA is in compliance with the provision of 1999 Constitution.

The insistence by Federal Government on the adoption of TSA means fiscal discipline, efficiency, and accountability, on the part of government. In fact, this  TSA policy has certainly blocked government’s revenue diversion and looting in addition to leading to the consolidation of government revenues, incomes, and receipts, it might lead to the optimal utilization of government cash resources, including creative investment of public funds in the critical development sectors of the economy.

In spite of the immense benefits of TSA, the policy is fraught with apprehension especially in the banking sector. This is because of the fact that public sector funds constitute a large chunk of commercial banks deposit. Indeed, it is estimated that commercial banks hold about N2.2 trillion public sector funds at the beginning of the first quarter of 2015. The mopping of public sector funds from the commercial Banks as directed by the TSA policy has some negative implications to the Banking Industry. Banks enjoyed governments' funds deposit especially fixed deposits that help them to invest and reap hefty dividends.  Some of these funds are sometimes not withdrawn for six months or even more and banks trade with them and make profits. So, once this business angle is shut, certainly the banks will bleed, so Banks employees may be apprehensive about their future. TSA might have led to the closure of about 10,000 multiple bank accounts operated by MDAs in commercial banks, banks have to wake up from their slumber. The opinion of some financial experts  is that with full implementation TSA, the era when government’s money is either lent back to government or invested in forex speculations is over. With TSA, government can easily quarantine its revenues, with intended consequences including forcing interest rates to naturally nose dive, since no serious business should be ready to borrow at such double digit rates when the economy is struggling at between 4 and 5 percent. Consequently, the TSA has forced banks to leave their comfort zone caused by dependence on government money to now become as creative and innovative as it is the case in modern economies around the world where banks have to seek private deposits through investment in the real sector of the economy. This means that while TSA will ensure accountability on one hand, but on the other hand the banks have ready to recapitalize to stay afloat.

Another apprehension to the implementation of TSA in Nigeria is the engagement of the consultants named "SystemSpecs - Remita" as facilitators of the TSA implementation at the handsomely reward of 1 % of the funds deposited into TSA. This caused uproar at the Senate in November, 2015. Senator Dino Melaye moved a motion calling on the Senate to investigate the implementation of the TSA alleging that the company implementing it had made N25 billion for “doing nothing” Melaye observed that in the course of the operations of the TSA, the Federal Government on September 15, 2015 mopped up the sum of N2.5 trillion through Remita, which charges 1 per cent of all monies passing through it, amounting to N25 billion describing the 1 per cent charges by Remita as an attempt to rip Nigerians of taxpayer’s moneys. In addition, the Senate made an observation regarding the appointment of Remita-SystemSpecs, that the appointment was a gross violation of Section 162 (1) of the 1999 Constitution and the Banks and Other Financial Institutions Act 2007. Apparently, this debated issue at the floor of the Senate made Central Bank of Nigeria to issue a circular directing banks involved to refund N3.053 billion into government treasury while  Systemspecs, the consultants were similarly requested to refund N3.812 billion they collected as fees and charges on the operation of TSA as reported by Vanguard (To be continued next week).