What is Treasury Single Account (TSA) & its Benefits of in Nigeria?
Treasury Single Account (TSA) is a financial policy in use in several countries all over the world. It is a policy where all government funds are collected in one account.
Treasury Single Account (TSA) was introduced in Nigeria in 2012. The federal government of Nigeria under the Jonathan Administration in 2012 designed, proposed and partially implemented Treasury Single Account (TSA) and almost fully implemented by the Buhari Administration.
As at the time of this post, there are still Federal Government agencies in Nigeria that have not fully migrated to Nigerian federal government Treasury Single Account (TSA). E.g Offshore Safety Permit fees under Department of Petroleum Resources (DPR) still go to separate bank account.
As they say, the only thing that is permanent in life is CHANGE. Federal Government of Nigeria ministries, departments and agencies (MDAs) wake up in 2015 and saw change in the handling of government money.
Treasury Single Account (TSA) in Nigeria & Benefits.
Efficient management and control of government’s cash resources rely on government banking arrangements. Nigeria, like many low income countries, employed fragmented systems in handling government receipts and payments. Establishing a unified structure as recommended by the IMF, where all government funds are collected in one account would reduce borrowing costs, extend credit and improve government’s fiscal policy among other benefits to government. The IMF also recommends the establishment of a legal basis to ensure its robustness and stability.
The introduction of the Treasury Single Account policy therefore was vital in reducing the proliferation of bank accounts operated by ministries, departments and agencies (MDAs) towards promoting financial accountability among governmental organs. The compliance of the policy in Nigeria created challenges for majority of the MDAs.
Commercial banks in Nigeria remitted over 2 trillion Naira worth of idle and active governments deposits with full implementation of this policy in 2016. Meanwhile, the bankers committee of the country has declared their support for the policy.
An online system call remita was set up to manage the system. Through Remita, the integrated electronic payments and collections platform developed by a company called SystemSpecs, the TSA initiative has enabled the Federal Government of Nigeria to take full control of over 3 trillion Naira ($15 billion) of its cash assets as at the end of the first quarter of 2016.
Reactions to the introduction of Treasury Single Account
The operation of the Treasury Single Account in Nigeria has not been without controversies. On Tuesday, 10 November 2015, Dino Melaye, a Nigerian senator representing Kogi West in Nigeria, raised a motion that the operation of the treasury single account (TSA) be investigated for possible corruption. He claimed that “the appointment of REMITA, an e-collection agent, is a gross violation of section 162 (1) of the Nigerian Constitution and the banks and other Financial Institutions Act.” He claimed the constitution only recognised a banking institution to be the collector of government funds, that Remita was not a bank. The provision of the Constitution cited by Melaye states, “the federation shall maintain a special account to be called the federation account into which all revenues collected by the government of the federation except the proceeds from the personal income tax of the personnel of the Armed Forces of the Federation, the Nigeria Police Force, the ministry or department of government charged with foreign affairs and the residents of the FCT, Abuja.” According to Melaye, the total inflow of 1% commission charged and received by SystemSpecs for all revenue collected on behalf of the government from the various ministries, departments and agencies to be 25 billion Naira as of November, 2015 was fraud and must be returned to the account of the Central Bank of Nigeria.
The senate consequently ordered its committee on finance and public accounts to “commence an investigation into the use of Remita (which it erroneously described as an e-collection agent) since the inception of the TSA policy.
Ayo Fayose, Governor of Ekiti State, introduced a political angle to the controversy when he alleged that the funds collected through of TSA were used to finance governorship elections in Bayelsa and Kogi States by the All Progressives Congress, apart from enriching “a single company in one month. “Billion Naira is the negotiated commission of one per cent of 2.5 trillion Naira – total amount of monies collected by Remita for the Federal Government of Nigeria.
However, the Federal Government of Nigeria through the office of The Minister of Information and Culture Lai Mohammed debunked the opinion that the TSA policy was not intended to loot the Nigeria treasury. The minister in his statement attempted to absolve the administration of President Muhammadu Buhari when he claimed that the TSA contract was signed during the administration of President Goodluck Jonathan.
The CBN in an attempt to justify their position released a letter to the press titled “Commencement of Federal Government independent revenue collection under the Treasury Single Account (TSA) initiative”. In the letter, the CBN debunked all the allegations made by Melaye as being misleading. At the height of the controversy, the Central Bank of Nigeria (CBN), instructed SystemSpecs to return of all the revenues made so far on the contract, a directive, which SystemSpecs obeyed without delay as a “business decision”.
In a letter reportedly written to President Muhammadu Buhari by John Obaro, Founder and Managing Director of SystemSpecs, developers of the Remita application, the allegation that SystemSpecs pocketed 25 billion Naira was refuted. Obaro explained that the one per cent commission was negotiated prior to the signing of the contract; and the one per cent commission was shared by SystemSpecs, participating commercial banks and the Central Bank of Nigeria in the ratio of 50:40:10 respectively.
According to findings by PremiumTimes,’Remita’ is not “an agency” but an application/software for executing payment instructions and collection of government revenue. The software facilitates the payment of government revenue from financial institutions to a TSA in the CBN.
The report cited holes in Melaye’s accusations and termed them “misleading. The Joint Senate investigative committee absolved SystemSpecs of any wrongdoing as “the committee could not ascertain the deduction/collection of twenty-five billion Naira (N25 billion) by SystemSpecs as 1% fee charged for the use of its Remita platform within the period under investigation.” This was contained in section 6.1.16 on pages 16 and 17 of the committee’s report.
Major benefits of Treasury Single Account (TSA) in Nigeria
16 months after TSA implimentation, Nigeria has derived numerous benefits from its implementation. Here are the major benefits;
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.
It Help to Discover Several Hidden Accounts Operated by MDAs
17,000 commercial bank accounts operated at 0% interest rate discovered and now closed. For the first time in a long run, the federal government could know where its funds held by various MDAs were kept…at 0% interest rate. All these accounts have now been closed and the balances moved to the CBN for effective control and management by Government.
It has saved FG of Nigeria over N3 trillion: According to high-ranking officials of federal government, especially the Ministry of Finance and the CBN, more than N3 trillion has been mopped up from the over 17,000 bank accounts formerly maintained by MDAs in commercial banks.
Improves appropriation control. The TSA ensures that the MoF 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.
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.
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).
It MDA borrowing from Banks:
Are you surprised or just can’t understand it? Let me break it down for you. Before TSA, all MDAs collected their budget allocations and stashed in their own names in different commercial banks. This meant that while one MDA could have funds, another who did not have and needed to money urgently had to borrow from commercial banks at ridiculous commercial rates – almost always at over 20% interest!
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.
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.
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.
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.