The Government of The Gambia has for the 1st time (at least to the best of my knowledge), publicly produced a variance (expenditure) report on the 1st quarter (January-April) of 2018. This is GOOD! A good democratic government ought to report to the sovereign people on who’s consent governing powers/authorities are derived from.
WHAT IS AN ACCOUNTING VARIANCE (EXPENDITURE) REPORT?
Is a management CONTROL TOOL that:
- Ensure adherence to Appropriation Bill (budget)
- Inform inter-cost-center transfers/adjustments (spending approvals/disapprovals)
- Detect abnormalities such as fraud, overspending, underutilization, etc
- Match cash-in and cash-out (fund availability)
- Inform future planning accuracy (better forecasting)
Now let us examine what is in (or not in) this report with a view to determine if it serves the above purposes.
REVENUES/CASH AVAILABILITY TO SUPPORT THESE EXPENSES WASN’T REPORTED: The report failed to show how much taxes, non-taxes, other revenues and sources that supported the D4.025b overhead expenditures. The question remains how much money our government received for the period under review and from what sources. We don’t know and needed that information.
What we know for a fact. Government estimated an annual tax revenue of D9.5b and non-tax revenue of 0.9b. That totals to D10.4b. The source of these figures is 2018 Appropriation Bill.
On average 1 quarter collection should amount to ONLY D2.6b. In real life everything doesn’t work on averages but as a working assumption it is a good tool to see what might be going on.
Now with a total government spending of D4.025b of which D1.045b is personnel emolument, Debt interest services is D1.275b, goods & services (what is it) is D0.960b, subvention to SOEs (Wow! Who would have thought we’re still doing that after all these years) is D0.575b and capital development (what is it) is D0.167b. These are all overhead cost centers. Over D4b expenditure is about 155% of estimated average national revenue for the period under review. Where did the D1.425b overspent came from?
- Begging (grants)?
- More than average of taxes/non-taxes were paid in?
None of the above sources are good scenarios. Contracting more loans means more debt interest servicing burden that will overtime likely consume all of our national revenue. The annual budgetary debt interest servicing is D4.222b for 2018. That means we still have D2.725b debt interest servicing liability to be paid by December 2018. Continuing on that path is not sustainable.
Already our 2018 total debt interest liability (D4.222b) is about 38% of our estimated national revenue (D10.4b). Our total national debt currently stands at about 130% of our GDP. That’s roughly GMD61.412b. This is the fastest route our governments are impoverishing our nation and her people. The average Gambian lives shorter, poorer and sicker today than in 1965, yet we’ve GMD61.412b national debt handing around our neck. In simple terms this means each of the 2m Gambians owed GMD30,706.00.
Begging, what we nicely called grants are limited both in source and volume. Proudly making it a sustained means of livelihood is impoverishing our people and as well mortgaging their pride and dignity. Any proceeds from these sources may temporarily patch up some immediate needs/wants but neither a solution no medium/long-term solution of our needs/wants nor a means to prosperity. Immediate adoption of self-reliance/sufficiency measures is the only path to independence and prosperity.
It could be more than average taxes were paid in the first quarter is the explanation for governments able to pay for D4.025b. That’s D1.425b more than the expected average D2.6b for a quarter. If that’s true, it could indicate an economy good enough people have enough disposable income to pay their tax obligations ahead of time. As good as that may seem, it will eventually mean less tax income at later stages of the year. Simply because more money is received this quarter should not automatically result to over-spending in this quarter.
INAPPROPRIATE/BAD COMPARISON OF BUDGETARY NUMBERS: Comparison is a means to understand trends. Thus, for usefulness corresponding numbers and periods should be compared and/or some other factors should be use to account for the influences of any differences.
Instead of comparing this quarters expenses to the budget for the quarter the report is comparing the expenses to 2017 1st quarter. This defeat all the control values of expenditure report.
The primary purpose of monitoring expenses is to comply with the budget and not to compare what happened the same period the previous year. There could be some many reasons why last year 1st quarter will be totally different from current year’s.
A policy position on cost center(s) should inform budgetary allocations. Therefore, expenses on such cost center is more a function of such policy (management decision) than period correlation or causation. For instance, as a generate matter, every investment wants to lower cost, it shouldn’t be surprise overhead costs of 2018 are lower than those of 2017. Although, there are other reasons overheads go up in absolute terms but low relative terms. Either way variance (expenditure) report is not the appropriate place to capture that information.
Meaningless or inappropriate comparisons are enduring problems in management of public national resources by our governments. For instance, in budgeting they continued to compare projected revenues of coming year to projected revenues of previous year when the actuals are (supposed to) available. Common sense dictates that using the actuals of previous year would help in forecasting the following year.
WHAT DID OUR PEOPLE GET FOR THEIR TAXES? OR HOW MUCH WAS SPENT ON THE PROVISION OUR COMMON WELFARE NEEDS/WANTS? The report did not say. So, we don’t know. What we know as a fact. We were supposed to pay in D2.6b for this period on average. Our government end up spending D4.025b. Where did they get the additional money to overspent by D1.425b? More importantly though, of this spending we know nothing was spent on:
- Refuse/waste collection
- Water supply
- Hospitals and health care
ALL OF THE OVERSPENDING WAS OVERHEADS. Is this what we need/want government for? The primary purposes of taxes are to pay for our collective needs/wants. Affording employment (paying wages and other lifestyles such as handing out loans to employees is a by-product. It’s importance ALWAYS comes secondary to our common welfare needs/wants.
WHY SUBVENTIONS FOR SOEs? By late 70s our government was abysmally failing in almost every aspect of her expected roles. Rice was in short-supply. Gasoline was in short supply. Social-services such as Radio frequency, roads, telecommunication, waste management, electricity, water, space running out at cemeteries in urban population centers, etc. were in poor state imaginable.
IMF/World Bank came to our rescue with conditions to get rid of areas overburdening and are not necessarily core functions of government. Our government eventually agreed on setting public businesses currently known as State Owned Enterprises (SOEs) on a Performance Contract Agreement.
A Managing Director and Board of Directors were picked and were tasked to provide competitive services, grow/expand coverage and yield sizeable profits. They have enhanced remunerations, bonuses and other incentives as determined by management and board as rewards for good work. From their meager profits they were required to pay dividend to government as every business owner expect a profitable venture do
In 2018 (over 30 years later), Barrow administration reported they paid D0.576b subvention to the SOEs between January to April 2018. That’s about 5.5% of 2018 expected national revenue. Extrapolating that for the whole year it will amount to a little over 22% (GMD2.31b) of expected annual national revenue. Why are we doing? The SOEs should instead be paying dividend to us and not us giving them more money?
These businesses are not working and will not work. We ought to cut our losses. I’m on record that we ought to divest all these SOEs. To provide electricity or telecommunication services are no longer viewed as a necessary function of good democratic government.
Private investors are better at handling such investment. They provide better product at a competitive price while paying taxes into the public coffer. None of our SOEs have attained even ½ nationwide coverage after more than 30 years of operations, some are hardly better than the day they became SOEs (eg. NAWEC) and others have even disappeared in thin air (do you remember GPTC, Gambia River Transport Authorities, GPMB, Sea Gull, etc.).
VI ANNEX: This matrix attempts to do fundamental comparison of expenditure report – that’s budgeted versus actuals. This is good except the variables in the matrix are impossible to compare to other parts of the reports. For instance, there is no way of knowing what’s personnel emoluments in VI Annex matrix.
The matrix also shows approved budget numbers but failed to specify whether those are for the period under review (January-April) or for 2018 as a whole. Notwithstanding 29.75% spending is only about 6% over quarter – but that’s meaningless for management purposes unless compared to the budget of the period. Notice that some cost centers are 100% overspent, some about 50% spent and others at about 44/45% spent. Yet we are only ¼ of the year. Expenditure reporting is supposed to control these abnormalities and as well inform next planning.
Observations/Suggestions: The bases of my observations and suggestions are to ensure attainment of the very purposes of variance/expenditure report. Hereunder these considerations will make Variance (expenditure reporting worthwhile:
Budget: The portion of the Appropriation Bill (budget) under review is the bases of expenditure review/reporting. All expenses are approved based on plans and budget and as well fund availability. Everything else revolve within that bracket. For instance, you may move funds from one cost center to another because of changes on the ground. This would mean overspending here and underspending there as long as funds are available and the appropriate authority approves.
The expenditure report should clearly show all budget cost centers with the approved numbers. Expenditure reporting should as well show what was utilize in each of those individual cost centers to enable decision makers and as well the public to understand what transpires on their behave. Without this fundamental comparison all other control purposes of expenditure reporting are unattainable – hence a futile exercise.
Overspending: A budget is a plan to project revenue and expenditures, inform decision making and help monitor performance. Because is a projection, it is mostly likely than not to differ from the reality. Yet good plans and budgets are overtime close to actuals within acceptable margin of error.
Total quarterly overspending of 155% shows managers/controllers are not relying on plans and budget or simply willfully ignorance. Both should be punished including with termination of employment. Whether or not cash was readily available to pay for these overspending is one thing but another is our nation may run out of cash at any of the remaining 3 quarters of the year.
Poor cashflow management can be prohibitively costly when is easily avoidable with basic management controls. An over/underspending of 5% is usually considered acceptable. Anything above/under that range, especially your 155% is reflection of poor planning or no planning – unacceptable.
Comparing 1st quarter of 2018 to 1st quarter of 2017 has no or little value for budgeting control purposes. All comparison should be made to the budget to support compliance or not and why. That inform necessary adjustments and timely corrective actions. Comparing to previous year maybe relevant if we are interested in trend of movement of particular cost centers. That’s an important information for management but expenditure report is not the right tool to capture such information. For instance, it might be policy goal of government to reduce overhead costs by some desired percentage. This is not attained by expenditures, instead the plans and budgets reflect that policy goal. Suffice, to say if managers/controllers follow the budget – it automatic such policy goal is being attained. So, there is hardly a good reason for this endless verbiage of irrelevant percentages in this report and appropriation bills other than confusing ordinary readers. As a rule of thumb, every public document should be simple and precise as can be for the most ordinary user to comprehend.
Subventions to SOEs: Although not a matter for this report, the revelation that Gambia Government is still making subventions to SOEs is very troubling to know. Our nation has set up these businesses over 30 years ago to provide competitive services, expand goods/services, pay dividend into the public coffers and reward employees for job well-done. If these SOEs are not on the path of achieving those goals after over 30 years we should do something else but not throwing people’s money onto bad ventures.
My solution is to divest them to the private sector. The other observation on this matter is that there was no mention of such subventions anywhere in the 2018 Appropriation Bill – why are we undertaking an expenditure not approved by lawmakers?
God Bless The Gambia
To The Gambia Ever True