Blocking Leakages in Government Finances and Activities – Ngozi Okonjo-Iweala

NgoziOkonjo-Iweala: Blocking Leakages in Government Finances and Activities
The former Minister of Finance  Dr. NGOZI OKONJO-IWEALA delivered a lecture titled "Blocking Leakages in Government Finances and Activities" at the Catholic Secretariat of Nigeria (CSN) Forum, 
Durumi, Abuja, on February 17, 2015. READ .........
1. Protocol
2. Your Graces, Distinguished ladies and gentlemen, it is with great pleasure that I stand before you this day to honour the invitation to speak at this CSN Forum and I want to thank the trustees of Caritas Foundation Nigeria for this wonderful opportunity. I also want to commend the Foundation for all its efforts in addressing the developmental challenges confronting this great nation of ours. Despite its short existence (established in September 2010), the Caritas foundation’s work in health, particularly supporting those living with HIV/AIDS, Education for the less privileged, assisting communities affected by natural disasters, and so on, has not gone unnoticed. This is a great example of the active role the church should play in our society nowadays.
3. This is a forum for promoting good governance and today I’ve been asked to speak about “blocking leakages in government finances and activities”. I want to use this opportunity to enlighten the Nigerian public on what the Administration of President Goodluck Ebele Jonathan has done in this regard. But before I start, it is important for people to understand that not all leakages in government are due to corrupt practices, as is often suggested in the media. Some leakages are also caused by inefficiencies in existing government systems but these also need to be tackled.
4. That said, the issue of corruption is a challenging one that did not start with this administration as is sometimes portrayed. I share His Holiness, Pope Francis’s view that “sometimes negative news does come out, but it is often exaggerated and manipulated to spread scandal….which is a sin that taints all men and women, that is the tendency to focus on the negative rather than the positive aspects”. We know we need to deal with impunity but we need to adopt a different approach.
5. The fight against corruption must go beyond the fight against symptoms of corruption, such as the identification and prosecution of corrupt acts. The fight must now focus on dealing with the root causes of corruption which essentially are the missing institutions, processes and systems that should prevent the perpetration of corrupt acts in the first place. Luckily, technology is providing an avenue to leapfrog. We need to do what other nations are doing using technology platforms to solve the problem. This is the basis of the government’s strategy. President GEJ is taking an institutional approach, ensuring that we put in place the right institutions, systems, and technological tools to check corrupt practices and we have made good progress.
6. First, I want to talk about the series of reforms and systems we have put in place at the government’s treasury to curb leakages and improve governance and the efficiency of the federal government’s financial systems and processes using technology platforms. These platforms, being implemented at the Budget Office of the Federation, and at the Office of the Accountant General of the Federation (OAGF) include:
a. The Government Integrated Financial Management Information System, otherwise known as GIFMIS, which went live in April 2012. GIFMIS is designed to modernize our fiscal processes, and aims at improving the acquisition, allocation, utilization and conservation of public financial resources for enhanced, accountable, transparent and cost effective public service delivery. Prior to GIFMIS, government budgets were prepared on Microsoft excel programs with little information from previous budgets. So there was no way of ensuring the accuracy and reliability of the budget. The old system also allowed MDAs to use resources in ways that are not aligned to the budget. In other words, payments could be made for items or work not in the budget, and payments were made manually made. All these encouraged leakages in the system.
b. But the implementation of GIFMIS has brought a paradigm shift that has resulted in a new way of doing business in government. We now have a system for preparing government budgets that is reliable and accurate, having created budget history over the last three years. This system has greatly helped to have the budget ready on time. In addition, there is fiscal discipline, as MDAs cannot make payments outside of what is approved in the budget. For instance in December, attempts to do this with salary payments resulted in 14 agencies of government being locked out of the GIFMIS system, helping us to block the misuse of resources.
c. Also with GIFMIS, manual payments are no longer possible. All payments are electronic and are made directly to beneficiaries and this has helped clean up key sectors like Pensions, which I will talk about later. As at today, there are 551 MDAs (from 93 when we launched it in 2012) currently processing their transactions on GIFMIS. However, 100 percent of government resource planning, budgeting and warranting are done using GIFMIS.
d. Next is the Treasury Single Account, which focuses on cash management. For long, government’s ability to finance its budget has been greatly hampered by an inefficient, wasteful and chaotic banking arrangement. This was characterized by (i) billions of idle cash being warehoused in hundreds of bank accounts operated by some MDAs while government borrows to finance other MDAs; (ii) non-remittance of revenues collected by MDAs and their agent banks into government coffers; and (iii) inability of government to generate timely and accurate report of its operations, and to know its cash balance.
e. As a result, a FGN cash management policy was developed to mitigate the glaring inefficiencies in the manner government cash resources were being managed, and at the heart of this policy is the adoption of a unified banking arrangement known as Treasury Single Account (TSA) which took effect in January 2012. The TSA is domiciled at the CBN and serves as the common bank account of all participating MDAs for receipts and payments using the GIFMIS e-payment functionality. This system has greatly improved the government’s ways and means, and has cut down inefficiencies in cash management. We have implemented it for the capital budget and what is left now is for the recurrent budget still held in commercial banks. Crucially parastatals are not yet included.
f. Next, I want to talk about the Integrated Payroll and Personnel Information System (or IPPIS for short). IPPIS is an ICT system for human resources and payroll management with a view to improving effectiveness and efficiency in the storage of personnel records and administration of monthly payroll so as to enhance confidence in staff emolument costs and budgeting. The idea is to collect biometric data of staff on payroll and use that data to weed out ghost workers that plagued public service, draining billions of naira from government coffers each year. As at 31st December 2014, there were 263,385 active users spanning 362 MDAs on the IPPIS platform. We have saved about N208.7 billion and eliminated 62,893 ghost workers from the system. Dossiers on these cases of ghost workers have been sent to the ICPC for further action, and we hope to place all MDAs on IPPIS within the short-term.
g. Let me briefly mention that some of the challenges we face in our revenues flow can be linked to low Internally Generated Revenue (IGR) performance. We have experienced difficulties in collecting internally generated revenue into government coffers with MDAs spending their IGRs at source or remitting far less than what is expected. In similar spirit, Government Business Enterprises and the likes incur expenditures that are not wholly, reasonably, exclusively and necessarily made, in other to report low operating surplus. To devise better ways of enhancing IGR collection, this administration commenced the implementation of e-collection of government revenue in January 2015. With e-collection, we expect government revenues to increase by about N100 billion in 2015.
7. In addition to the aforementioned, President GEJ’s Administration has also taken a series of steps to block leakages in tax collection since 2011 with various instruments. To briefly mention a few, the government through the FIRS, introduced the use of Pay-Direct system which captures and monitors all tax payments online in real-time. This has eliminated leakages from non-remittance of tax payments or diversion of tax payments by banks. We integrated FIRS platforms with sister agencies like Nigeria Customs Service and Corporate Affairs Commission, which has enabled data sharing to identify and bring in non-compliant taxpayers into the tax net. We implemented the Direct/Auto VAT Collection and E-tax pay channel for efficient and direct collection of taxes which minimizes leakages in the collection of VAT and Withholding taxes. We carried out a nationwide taxpayer segmentation to achieve a more granular segmentation of taxpayers. We now have Large Tax Offices, Government Business Tax Offices, Medium Tax Offices and Micro and Small Tax Offices dedicated to each class of taxpayers. This has improved access to tax offices, made our services more efficient and improved taxpayer supervision.
8. We created a Tax Investigation and Special Enforcement Department dedicated to identifying and prosecuting tax offenders, and also created a Debt Enforcement and Special Prosecution Unit with a specific mandate to identify and collect tax debts and prosecute recalcitrant tax debtors. We commenced work with McKinsey last year to improve our tax revenue collection by fixing loopholes in tax administration, and as a result of this effort, an extra N110 billion was collected as tax revenue in 2014 and we expect an additional N460 billion over the period 2015 to 2017.
9. Part of the measures to improve on our revenue collection in Budget 2015 will also involve a review of tax waivers and exemptions. Analysis shows that about 30 percent of those that received tax waivers from government especially under the pioneer status scheme now abuse the system. As a short-term measure, Government has commenced a review of the implementation of pioneer status exemptions which is expected to unlock up to N36 billion of additional tax revenues in 2015.
10. All in all Your Graces, distinguished ladies and gentlemen, I want to let you know that our tax collection system has undergone a transformation since 2011, and this Administration intends to do even more.
11. Now let me turn your attention to what this government has done to block leakages in activities in key sectors of our economy. Many who are conversant with our agriculture sector may recall the leakages in the old fertilizer and seeds regime and the associated difficulty of farmers to access these agriculture inputs. Prior to 2012, Government was involved in the direct procurement of these inputs for onward distribution to farmers, but many of these inputs ended up on the black market and only about 403,000 (or 11 percent of) farmers targeted got access to the inputs. But as part of the Growth Enhancement Support (GES) scheme under the Agriculture Transformation program of this administration, an Electronic wallet (e-wallet) was launched for farmers to receive subsidized inputs from private suppliers via an electronic voucher delivered to their cell phones.
12. For the first time in the history of our country, a database of 10.5 million farmers was developed to facilitate efficient delivery of agro-inputs, and as at the end of 2014, over 6 million farmers received inputs through the e-wallet system. This mechanism has saved the Federal Government about N28.5 billion that would have been lost to corruption and inefficiency in the old system. The farmer database has also been integrated with the National Identity Management Commission (NIMC) so that farmers can have on a single card their National ID and annual input subsidies. Your Graces, distinguished ladies and gentlemen, you will agree with me that this is indeed revolutionary. It is on the back of this GES e-Wallet that we are now experiencing improved productivity in the agriculture sector today.
13. Another area where we see radical reform today is in pensions. This administration established the Pensions Transitional Arrangement Directorate (PTAD) in 2013 in compliance with provision of the Pension Reform Act, 2004 now reinforced by the PRA 2014, to drive much needed transformation of pensions under the Defined Benefit scheme (DBS). Prior to PTAD, pension management under the DBS was characterized by corrupt practices and wide spread leakages. The management of pension by the erstwhile Police Pension Office left much to be desired, and the situation was not much helped with the intervention of Pension Reform Task Team which held sway between June 2011 to April 2012 and left taking all the records of pensioner rolls that they collected.
14. The rot in the pensions sector was brought to limelight by investigations carried out by the Administration supported by the probes carried out by the National Assembly. The level of corruption exposed by these probes was substantial. A total of about N32 billion was suspected to have been looted and a number of individuals have either been convicted or are now standing trial for pension fraud related cases. To clean up the system, the government established PTAD.
15. PTAD had been provided for in the 2004 Pensions Reform Act but its implementation had been blocked year after year by vested interests deep in the civil service who wanted to continue looting the system. President GEJ gave the go ahead implement it, giving a big boost to the efforts to reform our Defined Benefits Pension system.
16. Today, we can confidently say PTAD is living up to its expectations and has achieved a lot. More specifically, PTAD has been able to stop leakages of the pension funds by engaging in the payment of monthly pensions and other retirement benefits through GIFMIS. The biometric verification process involved has also helped to weed out ghost pensioners and added genuine pensioners to the system. In December 2014, PTAD successfully implemented 33 percent pension increment and paid all arrears for the year 2014. PTAD is just about a year since its establishment and I want to assure the pensioners, stakeholders and the general public of the continued support of the Federal Government to PTAD to ensure the pension transformation agenda of Mr. President.
17. This government has also blocked leakages is the petroleum subsidy regime. Many of you will recall that prior to the partial removal of petroleum subsidies in 2012, our oil subsidy regime had been fraught with endemic corruption and inefficiencies as a result of bogus subsidy claims which cost the government several billions of naira. By 2011, subsidy payments were consuming nearly a third of the Federal Government budget. In 2012, the Government set up the Aig Imoukhuede-led Presidential Committee to audit and verify subsidy-related transactions in the sector.
18. About N1 trillion in subsidy claims were audited and N232 billion was found to be questionable. As a result, the government tightened the payment regime to weed out corruption and through that process, withheld payments of about N50 billion fraudulently demanded by oil marketers. The government also reduced the number of marketers from 143 at the time to about 32 and embarked on a stronger system of verification by better and more independently witnessing the discharge of imported petroleum. The EFCC is already prosecuting several of those who defrauded the Federal Government and our efforts to tackle corruption in this sector will continue. One of the challenges we face in this country is that we need more reform of the judicial process to ensure faster, better, and more transparent justice.
19. Your Graces, distinguished ladies and gentlemen, the fact that our petroleum industry requires reform cannot be doubted. This Administration introduced the Petroleum Industry Bill (PIB) which is a new industry framework that serves to improve the current framework and would result in the overall growth of the sector. It would ensure efficient and effective regulatory agencies, in addition to the promotion of transparency and accountability. This Bill will encourage additional investments in Nigeria’s oil and gas industry, and ensure that the management of our petroleum sector is more commercially driven. The Bill is now being considered by the National Assembly and we plead with the National Assembly to conclude the process shortly.
20. Let me take the opportunity to say that the implementation of the PIB will also help minimize allegations of “missing monies” in the oil sector, like we have seen in recent times. By the way, a lot has been said about the $49 billion or the $20 billion missing from crude oil sales proceeds under this administration. Meanwhile, very little has been said about the recently-released audit report by Price Waterhouse Coopers which found that only $1.4 billion dollars is yet to be accounted for by the NNPC. That any monies belonging to the Nigerian Public be missing or unaccounted for is unacceptable and we want all monies that belong in the treasury to return to the treasury. But we also need to be factual and realistic when allegations are made because this is not about President GEJ or the Minister of Finance, NOI. This is about Nigeria, and the way we portray our country in front of international media has a direct impact on how we are perceived by the rest of the World. The act of constantly scandalizing the government or the country should not be tolerated. Negativity must give way to positivism even as we make strong efforts at fighting corruption and curbing leakages.
21. Let me also inform you that steps are being taken to block leakages in the collection of import duties, taxes, and levies on goods, using technology platforms. This Administration introduced phase two of the Nigerian Integrated Customs Information Systems (NICIS) or “single window” platform, which is an electronic trade portal that connects all the stakeholders involved in the importation and exportation of goods in Nigeria in line with internationally recognized best practices.
22. In particular, the platform introduces an electronic system for the payment of appropriate import duties and taxes which were previously managed through a manual process that enabled importers to abuse the system. Now, payments must be received by the designated commercial banks and registered electronically prior to the processing of importers’ documents and this has helped to enforce the payment of monies due to the Government.
23. Moreover, the opportunities for fraudulent activities have been cut. Previously, the physical inspection of cargo and the manual processing of import declarations and supporting documents fueled an environment where corruption was rife. Importers had to interact with Customs Officers to assess their import duties and taxes, make payments, and clear their goods, which enabled fraudulent activities to flourish. The move towards a fully automated IT platform has significantly reduced the physical interaction between Customs and traders, thereby introducing greater transparency and limiting revenue losses stemming from collusion between the parties.
24. Your Graces, distinguished ladies and gentlemen, let me use this occasion to say that our drive to plug leakages in government financing is strongly motivated by the need to gather resources to support the poor and vulnerable in the Nigerian society. Consistent with the Human Capital Development pillar of the President’s transformation agenda and the National Social Protection Policy, this Government has prioritized social safety nets as a key strategy towards reducing poverty and vulnerability in the population.
25. The objective of the National Social Safety Net Program is to reduce extreme poverty within Nigeria through the establishment of a robust National Social Safety Net Program. The Program will comprise of three elements and will be implemented for 10 years in the first instance. These include (i) Establishing the right systems for targeting, working with the NIMC to ensure registration and credible enrollment and (ii) Implementing safety net interventions in targeted households and communities and (iii) Ensuring institutional policies and frameworks are in place.
26. The lead interventions will comprise Cash transfers to the poorest households, who will as a condition, be expected to have their children receive basic primary care services such as full immunization and also remain in school. This program will aim to reach up to 15 million individuals (3 million households) within a 10 year period), with each household receiving approximately N6,000 per month for a duration of 5 years. Towards the end of the program, the beneficiaries will be linked to other programs to enable them ‘graduate’ from this as part of an inclusion mechanism and exit strategy.
27. In conclusion, blocking leakages in government finances and activities is not an easy task particularly as it may require the dislocation of strong vested interests. But we now have the advantage of technology which has enabled us to leapfrog and put systems and processes in place that we could not previously. You will agree with me that this government has done a lot to reverse the tide but there is still a lot to be done. An interesting point to consider is that our scores on the Corruption Perception Index of Transparency International, which is globally accepted as objective, have actually improved. The index ranging from zero for the most corrupt countries to 10 for the least corrupt, shows our scores have improved from 2.4 in 2011 to 2.7 in 2014. While these scores can be better, let me point out that this is the highest our scores have ever been since 2001. So all the noise of worsening corruption under President GEJ have no legs to stand on, and are only politically motivated to tarnish the Administration’s image.
28. Let me assure you that this government has the best interest of Nigeria’s citizens at heart, and all hands are on deck to promote good governance and accountability in government financing to the benefit of ordinary Nigerians.
29. Thank you for listening