Budget Padding 101: For Beginners

Budget Padding 101: For Beginners

Every good “intellekshual” article should start with definitions. I’m afraid that, having said that, it’s all downhill from here on in. That’s because the term “budget padding” means different things to different people. However, we will start with the basics and take it from there, and see whether we can make some sense of this topic.

You see, when someone is appointed a Director-General, Executive Secretary or Permanent Secretary in Nigeria, it is a big deal that is sometimes celebrated with congratulatory advertisements in major newspapers. It is an achievement, not a call to service and sacrifice. To bring this home to you, when I was appointed DG, I remember complaining that my salary was not processed for the first 3 months and I didn’t know how to meet my bills. A senior civil servant looked at me, laughed and remarked: “See Oga o. You don’t know what God has done for you!” You see, as a Director-General. Executive Secretary or Permanent Secretary, you are an “Accounting Officer” and the way that government resources are expended is almost entirely within your gift. “What do you mean you don’t have money? Smh!”

With this mentality ingrained in the mind of the public servant, your officers then propose things to you that have monetary implications. Now, there is a practice of Accounting Officers cutting the money that their officers ask for. It looks good in the files, because any auditor can see that you have at least made an effort to be prudent. The public servants know this, so they will “beef up” the proposals to give the Accounting Officer something to cut. When, knowing that you bought 20 CD Roms and flash disks just last week, you cut those out as being necessary, un-budgeted-for or inflated, and you write “Not Approved”, the haggling begins. “Oga you can’t just write “Not Approved” na. Ok Oga, how much you wan approve?” If you were in Wuse Market, the question would be: “Oya, how much you wan pay?” The first definition of “budget padding” is then when officers inflate the costs of an activity, in the expectation that the Accounting Officer will cut it. Let’s call this “Budget Padding Type 1.”

Let’s go one level up. In the recent past, the Budget Office was also thought to have the same mentality. Whatever the Accounting Officer proposes, the Budget Office will cut it, whether or not it makes sense. Therefore, you could have a situation where the money approved is simply insufficient to deliver the activity. Rather than asking you to “build a smaller house”, they will cut the proposal such that you cannot do the decking or roof the building. Knowing this, many Accounting Officers similarly “beefed up” the cost, in the hope that when the budget is inevitably cut, they will at least have enough to deliver the project. Therefore, the second definition of “budget padding” is when the Accounting Officer “beefs up” the cost of a project in the expectation that the Budget Office will cut it. Let’s call this Type 2.

Even when costs are cut to a reasonable size, don’t forget that releases do not always come. For instance, during 2016, only 9 months of overheads was released and the first release of overheads for 2017 only happened in March 2017. By then, Accounting Officers were owing something like 6 months of arrears for things like cleaning, diesel and stationery. Knowing this then, many Accounting Officers will budget for 12 months but actualy realistically plan for 9 months worth of releases. It would, therefore, be prudent, when preparing next year’s budget, to plan to pay all your bills with 9 months worth of releases, rather than 12 months. If you like, you could define this as “Budget Padding Type 3.”

Different people take different routes to address this problem. BPSR chose to go and do speak “turenci” and do a presentation to the Budget Office, so that they can understand its work. Others went to beg in advance, and yet others relied on “personal contacts” in the Budget Office. This was the crazy system we had as at 2015. I will return to this presently.

The highest level up is when the budget proposal gets to the National Assembly. You see, it is the National Assembly that appropriates. All that the Executive submits is Budget Estimates. This is where it gets tricky. NASS members argue that they have a right to “insert” projects in the budget where they feel that the Executive has not done enough to reflect “the aspirations of the people” in the budget submitted. They, therefore, “insert appropriate projects” in the budget. While these should be within the overall resource envelope submitted by the Executive, it often isn’t and any increases are often expected to be funded with increases in the oil benchmark prices or upward adjustments to the exchange rate used by the Executive.

The rigorous macroeconomic modelling that the Ministry of Finance and the National Planning Commission used to arrive at the resource envelope is ignored. This is why various Presidents have refused to assent to the Budgets submitted to them by NASS. As time passes, they are under pressure from the public to sign. Therefore, in order not to plunge the government into further debt, the Budget Office chose what to fund and what not to fund, to ckeckmate the possibility of Accounting Officers approaching NASS to “positively influence” their budgets. Is this “Budget Padding Type 4” or “Insertions”?

The scenarios I outlined above is what happened with the 2016 “Budget Padding Saga.” It is for this reason that a number of officers in the Budget Office were removed and sanctioned following the 2016 debacle. You see, every effort had been made to break away from the past and produce a realistic budget, at least on the part of the Executive, with the introduction of the “Zero-Based Budget” (ZBB). The ZBB approach required Accounting Officers to justify every item of Capital expenditure, first to the Budget Office and the Ministry of Budget and Planning, and then to NASS. Unfortunately, some officers in the Budget Office thought they could go back to “business as usual.” This is why Accounting Officers whose budgets looked higher than what was submitted by the Executive were asked to explain the difference. Some could. Others couldn’t and were shown the door.

For the 2017 Budget, efforts were made to sanitise the Budget Office. That Office had 4 Directors-General in a 2 year period. For this year’s Budget, Accounting Officers were invited to bilateral talks to explain and justify their proposals in detail. Only what made sense was admitted into the Budget. To do so, Accounting Officers had to build up Capital costs from various linked templates. In some cases, the templates gave you fixed costs for things like lunch and tea break for conferences. The fixed costs were supplied by the Efficiency Unit of the the Federal Ministry of Finance. This is why the DG of the Budget Office could confidently declare recently that, from the side of the Executive, there was no padding in the 2017 Budget. He is likely to be right.

Budget Efforts are underway to introduce more fixed costs by collating the standard prices known by the Budget Office, the Presidential Initiative on Continuous Audit (for Personnel Costs) and the Bureau of Public Procurement (for goods and services and things like vehicles). The BPP database currenty has 22,000 items of standard costs but this has not yet been linked to the Budget template in the same was as refreshments were linked from the Efficiency Unit. We expect that the system will improve further for the 2018 Budget, particularly when we also introduce the ZBB approach to Recurrent items, not just Capital.

The budgeting system that we ran in Nigeria until recently was, in effect, a farce. The Capital component has improved, although no one can say it is now perfect. At least, there has been some improvement. Better estimation, using standard costs, will virtually eliminate the incidence of “budget padding” on the part of the Executive. “Insertions” by the National Assembly will be reduced by early consultations with NASS as to what should go into the Budgets of each Ministry, Department and Agency. This will give Nigeria a realistic budget, based on realistically available resources and government policy priorities. This is where government is going. It is determined to get there.

Categories: Governance.

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