LAGOS STATE GOVERNMENT

Ministry of Economic Planning and Budget

FINAL REPORT ON ANNUAL BUDGET

PROCESS IMPROVEMENT IN LAGOS
STATE

May 2010
1

Acknowledgement
This report was made possible through Technical Assistance from: United Kingdom Department
for International Development (DFID) State Partnership for Accountability Responsiveness and
Capability (SPARC) Programme.

Content List
Abbreviations and Acronyms ........................................................................................................4
Executive Summary ......................................................................................................................5
1.0

Background and Introduction ........................................................................................... 6

1.1

Background.................................................................................................................. 6

1.2

Introduction .................................................................................................................. 6

1.3

Objective of the Assignment ........................................................................................ 7

1.4

Approach & Methodology ............................................................................................. 7

1.5

Scope of Work ............................................................................................................. 8

2.0

Activities and Work Completed ........................................................................................ 9

2.1

Overview ...................................................................................................................... 9

2.2

Annual Budget Call Circular ......................................................................................... 9

2.3

Capital Expenditure Work Plans................................................................................... 9

2.4

Budget Cycle Guide Book ...........................................................................................10

2.4.1 Purpose of the Guide Book ...........................................................................................10

2.4.2
2.5

Scope of the Guide Book .........................................................................................10

The Budget Process Cycle in Perspective ..................................................................10

3.0

Conclusion .....................................................................................................................13

4.0

Recommendations .........................................................................................................14

5.0

Next Steps......................................................................................................................15

Annex 1: Sub-Terms of Reference ............................................................................................16

Appendix One: Draft Budget Cycle Guide Book ........................................................................18
Appendix Two: Draft Template of Annual Budget Call Circular ..................................................28
Appendix Three: Draft Template of Capital Expenditure Work plan for MDAs ...........................37

Abbreviations and Acronyms

CMA
DFID
DMO
LMDGP
LSG
MTEF
PEFA
PEM
PF
PFM
SLGP
SMA
STO
WB
WMA
AGO
BCC
BCGB
BSG
CEWP
DFID
DB
EXCO
IGR
LASEEDS
LMDGP
MDA
MEPB
MoF
MTEF
MTFS
MTSS
PS
SPARC
STO
ToR

Centre Moving Average

Department for International Department
Debt Management Office
Lagos Metropolitan Development and Governance Project
Lagos State Government
Medium Term Expenditure Framework
Public Expenditure and Financial Accountability
Public Expenditure Management
Public Finance
Public Financial Management
State and Local Government Programme
Simple Moving Average
State Treasury Office
World Bank
Weighted Moving Average
Accountant Generals Office
Budget Call Circular
Budget Cycle Guide Book
Budget Sub-Group
Capital Expenditure Work Plan
Department for International Development
Director of Budget
State Executive Council
Internally Generated Revenue
Lagos State Economic Empowerment Development Strategy
Lagos Metropolitan Development and Governance Programme
Ministry, Department and Agency
Ministry of Economic Planning & Budget
Ministry of Finance
Medium Term Expenditure Framework
Medium Term Financial Strategy
Medium Term Sector Strategy
Permanent Secretary
State Partnership for Accountability Responsiveness Capability
State Treasury Office
Terms of Reference

Executive Summary
The report documents the approach and methods adopted in support Ministry of Economic
Planning and Budget (MEPB) to strengthen the annual budget process and system leading to
the production of the key pieces of documentation.
The overall objective of the assignment is to provide technical support to the MEPB to improve
annual budget system in the State Government. The envisaged support is geared towards
strengthening the annual budget planning, preparation, management and monitoring processes
with a view to achieving better outcome. The specific objective of the assignment is to assist in
producing a comprehensive Annual Budget Call Circular, Annual Budget Cycle guide book,
Capital Expenditure Work Plans template.

Findings
The course of this assignment it was noted that the World Bank MTBF project team has
produced a budget manual which was being reviewed. The manual is essentially a description
of the existing budget rules and procedures and the manual is a reference document.

Recommendations
This assignment primarily aimed at improving the annual operating budget process and system
so that basic characteristics of sound budgeting system can be enhanced including
transparency, accountability, comprehensiveness, predictability and credibility. On the basis of
the work undertaken and findings the following recommendations are put forward in order to
achieve improved budgeting system in Lagos State Government:
There is the need for training for budget and planning staff of the MEPB and MOF as
well as line ministries to enable them keep abreast of best practices.

There is the need for the DB and the Budget Sub-Group (BSG) to develop templates of
the budget documentation, which will include Budget Policy Statement, Economic and
Fiscal Up-date, Annual Marco-economic Analysis Statement as well as quarterly budget
performance reports (with emphasis on sector budget outcomes).

1.0
1.1

Background and Introduction

Background

The Lagos State Government conducted a Public Expenditure and Financial Accountability
(PEFA) self-assessment in May 2009. The PEFA process used the three fiscal years from 20062008 as basis for the assessment.
In summary the PEFA outcome shows that the Lagos State Government posted very strong
performances in many aspects of payroll controls, revenue collection, accounts preparation, and
external auditing. Through Oracle Financials, the LSG has achieved integration of the payroll
and nominal rolls. Internal controls to changes on the personnel database are strong and payroll
audits regular. Taxpayers pay directly into Treasury Bank accounts. The quality of final accounts
is good and their preparation is timely. Similarly, audit reports are very timely and cover all of
Governments operations, including non-budgetary funds and operations.
However, the PFM system showed particular weaknesses in fiscal discipline, especially in the
credibility of the budget. Budget planning and implementation processes are also weak. In
particular, planning and budgeting do not use multiyear forecasts or sector strategies; although
some work has been undertaken to strengthen these areas. Budget execution does not rely on
reasonable forward cash forecasts and cash planning. Finally, the procurement process is
particularly weak and insufficiently transparent.
Since 2008 a number of PFM reforms have been supported, both through the DfID SLGP
programme in particular support to the Office of the State Auditor General, the PFDMO and
budget and planning; and through the WB LMDGP which has provided support to medium term
budget planning and MTEF.
Following the PEFA self-assessment report the LSG embarked on a plan to improve PFM
performance, including improvement in budgeting, accounting, revenue administration, debt
management, procurement, external audit, internal audits and inter-governmental fiscal
relations. The same PEFA self-assessment identified some areas of concern in the existing
Budget Classification & Chart of Accounts (BC&COA) system.

1.2

Introduction

Lagos State Government is a major beneficiary of development partners public sector reform
n, allocation and service delivery. Although the State is slowly but surely, moving in the right
direction, much more needs to be done towards sustaining the on-going donor-driven public
sector reforms, of which the present DFID/SPARC-assisted Public Finance Management (PFM
reform is a critical component.
For instance, according to the States 2009 Public Expenditure Financial Accountability (PEFA)
assessment report, the States Public Financinitiatives in the last ten years. One of such support
interventions was the 2008/2009 DFID-SLGP Programme which helped to strengthen the
capacity of the Office of the Auditor General, the State Treasury Office and the Payroll System.
More recently also is the State-wide infrastructural development programme, the World Bankassisted Lagos Metropolitan Development and Governance Programme (LMDGP). The
programme has, among other things, provided support for the development of a medium-term

expenditure framework for the State which aim is to further strengthen the annual budget
process.
However, despite these giant strides, the State still has a long way to go towards achieving the
set goals and targets contained in its poverty reduction and development strategy papers, the
LASEEDS and 10-point Agenda. The main vehicle for transforming the States policy
prescriptions into measurable inputs, outputs, outcome and impact, is the annual budget
process. But this process must be credible, comprehensive, predictable, inclusive and above all,
transparent, if it is to serve as a reliable guide to resource mobilizatioe Management System
(PFM) System is presently threatened by several challenges, especially in the areas of budget
planning,, preparation, management and control, procurement, debt management, accounting
, internal audit, to name a few. Essentially, this assignment is one of several improvement
measures recently initiated by the DFID/SPARC to further strengthen the States Public Finance
Management (PFM) System, especially the annual budget process which is the focus of this
assignment.
1.3

Objective of the Assignment

The overall objective of the assignment is to provide support to the States Government through
the Ministry of Economic Planning and Budget (MEPB) to improve annual budget processes.
The envisaged support is geared towards strengthening the annual budget planning,
preparation and management processes with a view to achieving better outcome. The specific
objective of the assignment is to improve the current Annual Budget Call Circular, Budget Cycle
timing schedule, Capital Expenditure Work Plans and to produce a Budget Cycle Guide Book
for the MEPB.
1.4

Approach & Methodology

The approach and methodology for the assignment are as follows:

Obtain and review the relevant documents and reports on this subject;
Meet and interview key officials at the relevant central/sector ministries
Present the draft outputs for comments of the key officials and other stakeholders,
including SPARC programme management;
Incorporate the comments of the key officials and other stakeholders;
The Consultants collected and reviewed relevant documents and reports, such as, the 2009
Budget Call Circular, 2008 and 2009 budgets, World Bank Budget Manual for the State,
Standard Budget Call Circular and Capital Expenditure Work Plan model, etc.
Several meetings were held with key officials of the MEPB during the course of the assignment.
The purpose of the first meeting was to enable the Consultants collect relevant inputs from the
Ministry of Economic Planning and Budget (MEPB) and the STO that would facilitate their
assignment. The second meeting was to enable the Consultants present the Zero Draft copies
of their deliverables (Improved Budget Call Circular, a uniform Template of Capital Expenditure
Work Plan for MDAs and a standard Budget Cycle Guide Book) to the DB and other members
of the Budget Sub-Group for their review and comments.

1.5
Scope of Work
The scope of the assignment is limited to Budget Process Improvement, covering the core
budget sub-processes of the annual budget process, namely annual budget planning, annual
budget preparation; budget management and control; monitoring and evaluation; audit,
reporting and publication. The Consultant(s) were expected to review and document the
activities and steps in the annual budget process to determine areas that would need to be
strengthened. The consultant(s) in the course of this assignment would generate
aggregate/sector budget performance data for 2007/08/09 to up-date the SPARC PFM
database.

2.0
2.1

Activities and Work Completed

Overview

The activities undertaken by the Consultants started with a preliminary meeting between the
DFID/SPARC team and the MEPB team held on the 22nd of February, 2010 at the Budget
Directorate of the MEPB, Lagos. The aim of the meeting was to discuss the assignment ToR to
ensure that all parties to the assignment were starting on the same page. This is with a view to
having a shared understanding of its contents, especially the required inputs and the State
officials/MDAs that should take responsibility for providing such inputs within the assignment
time period to enable the Consultants add value to them and deliver as expected. Another
meeting was held on the 3rd of March, 2010 to present the Consultants preliminary findings and
zero drafts of the expected deliverables to the DB and his team. The said deliverables are the
zero drafts of an improved annual budget call circular, a uniform template for MDAs capital
expenditure work plans and a standard budget cycle guide book.
2.2
Annual Budget Call Circular
The Consultants collected and reviewed the States 2008/2009 Budget Call Circulars and
compared them with that of the Federal Government and the World Banks guidelines for
preparing a standard budget call circular. For example, the current Lagos State Budget Call
Circular did not contain any summary of a quantitative medium-term fiscal framework for
estimating the total forecast resource envelope and the economic assumptions behind forecast
revenues and expenditure projections for the next three years, starting with the fiscal projections
for the coming budget year. Consequently there was no link between policy objectives and
priorities of the government (as stated in LASEEDS and 10-point Agenda) and the annual
budget The implication of this disconnection between policy formulation and budgeting will be
an approved budget that was prepared by simply marking up the previous years budget based
on some percentage, making it to be less than a suitable guide to resource allocation. The Call
Circulars did not contain the States aggregate spending limit and sector indicative ceilings for
the budget year to be distributed among the MDAs under each sector to guide them preparing
their budget estimates. Consequently, MDAs budget proposals were made without reference to
the Governments policy objectives, direction, priorities and most importantly, the States ability
to pay. The Consultants are optimistic that these problems would be resolved when the ongoing attempt at implementing a pilot scheme of a MTSS and an MTFF at Sectoral budget
group and State level, respectively is completed and implemented.
However, haven noted the above input content limitations of the States current annual BCCs,
the Consultants went ahead to develop a Standard draft annual Budget Call Circular which was
presented to the DB and other members of the budget sub-group for their review, comments
and possible adoption when preparing the 2011 BCC .
2.3
Capital Expenditure Work Plans
All efforts made by the Consultants to get the current MDAs Capital Expenditure Work Plans
proved abortive. The Plans were supposed to have guided the State Treasury Office (STO) in
forecasting the MDAs quarterly or seasonal capital expenditure cash needs. In the same vein,
the STO could not accede to the Consultants requests for the States current Cash Flow Plan of
the State as the financial management system was said to be having some problems. Also, for

the same reason, there was no information on actual revenue and expenditure for 2008 and
2009. These data and the current MDAs Capital Expenditure Work Plans (CEWPs) which the
Consultants could not access are the main inputs for preparing a standard cash forecasting
model for the State for purposes of estimating the quarterly cash requirements of the MDAs
which is a critical function of the STO. The Budget Directorate of the MEPB is only required to
guide the MDAs to ensure that they have a standard template for preparing their CEWPs.
Despite these limitations, the Consultants presented a sample of such template to the DB and
other members of the budget sub-group for their review, comments and possible adoption.
2.4
Budget Cycle Guide Book
After a study of the States current budget cycle and document review, including review of the
2009 draft Budget Manual produced with the assistance of the WB MTEF project team for the
State, the Consultants produced a draft copy of a standard and comprehensive Budget Cycle
Guide Book for the State. The draft copy of the guide book was discussed and presented to the
DB and other members of the BSG for their further review, comments, consultation with the
leadership of the MEPB and possible adoption. The guide book is portable and is recommended
as an appendix to the Budget Manual which the staff of MEPB can rely on for quick references
in their daily assignments. The Budget Process Cycle is a series of activities and procedures
through which the economic and fiscal policy objectives of the government are actualized in a
calendar year. A typical Budget Cycle comprise of Annual Budget Planning; Annual Budget
Preparation; Budget Management and Control; Budget Monitoring and Evaluation; Audit,
Reporting and Publication. The guide book is structured into five sections called Sub-processes
that constitute the core budget sub-processes of the budget process cycle as explained earlier
above.
2.4.1 Purpose of the Guide Book
The Guide Book was specially designed for Lagos State and it is intended to serve as an
operational manual for the staff of the States MEPB, the Budget Committee and Budget Subgroup when discharging their daily official duties and tasks.
2.4.2 Scope of the Guide Book
While contemporary budget cycle includes policy formulation, institutional arrangements and
strategy development (e.g. LASEEDS and the States 10-point Agenda), the Guide Book covers
only the core budget sub-processes of Annual Budget Planning; Annual Budget Preparation;
Budget Management and Control; Budget Monitoring and Evaluation; Audit, Reporting and
Publication
2.5
The Budget Process Cycle in Perspective
The guidebook is divided into five sections called sub-processes that constitute the core annual
budget sub-processes of the Annual Budget Cycle (ABC) as explained below:
Sub-Process 1: Annual Budget Planning
This sub-process begins with a review of the performance of the States economy as well as the
budget performance in the past six months (mid-year review of the current years budget
performance). Essentially, it entails, updating of annual budget outturn data in the past six
months, noting revenue, expenditure and any financing gap and how such gap was financed.
The MEPB, in collaboration with other relevant agencies, such as, the MoF and STO, etc, is

responsible for this sub-process. This planning stage may be more detailed as to include the updating of the 3-year Fiscal Framework.
In such situation, the annual budget planning sub-process will involve the collection and
analysis as well as up-dating fiscal targets. This sub-process would lead to determination of
Annual Fiscal Targets, Aggregate Spending Limit and Sector Spending Ceilings, which would
be contained in the Budget Call Circular.
The Fiscal Framework gives direction to the Budget Policy Statement which forms, content and
timing differs from one State to another. A typical Statement will contain the States broad
annual goals and objectives, fiscal targets, sector priorities and their justification, annual
aggregate spending limits(including contingency and planning reserves) and MDAs spending
limits; contingencies reserve; equity and gender mainstreaming of social issues. The budget
policy statement in turn gives direction to budget preparation.
Sub-Process 2: Annual Budget Preparation
The issuance of the Budget Call Circular (BCC) by the MEPB to all MDAs in July kick-starts the
budget preparation sub-process. This is followed by preparation of budget proposals, bi-lateral
discussion, consolidation and review of the Budget by EXCO and the Treasury Board,
presentation to SHA, review and approval by SHA, assent by the Governor, budget analysis and
dissemination. The BCC is a key component of this sub-process which includes the following
activities:
Economic and Fiscal outlook of the State for the fiscal year
Aggregate spending limit (stating planning and contingency reserves)
A summary of State Budget Policy Statement
Government-wide priorities
Explanations and guidelines on admitting capital projects and programs into the budget
Sector spending ceiling
Form and Format the Budget estimates would take
Input spending boundaries (e.g. capital versus recurrent and personnel versus overhead
costs)
Guidelines for preparing recurrent expenditure (particularly personnel costs)
Budget Classification and Chart of Accounts
Instructions for completing the budget forms
Detailed timetable for submission of proposal/defence
Sub-Process 3: Budget Management and Control
Budget Management and Control start with the call by the STO for MDAs Work Plan for the
implementation of capital projects and programmes, soon after the budget is passed.
Authorization and Release of Funds for capital spending involve a series of activities that starts
in January, soon after the budget is passed into law, It begins with the issuance of a capital
work plan circular (not the BCC) to all MDAs, requesting for their capital expenditure work plans.
The Plans are the basis of quarterly cash budget. The returns by the MDAs are to determine the
capital projects & programs cash needs of the MDAs which in turn will enable the State
Treasury Office (STO) allocate funds to them in line with the criteria set by the Treasury Board,
taking due cognizance of State priorities and resource constraints.
This sub-process relies on the budget classification and chart of accounts for effective resource
allocation and recording of transactions. Generally, the budget is executed by spending units
classified as administrative entities under sectoral budget groups. Other activities under this

sub-process include, but are not limited to, payroll, vote book management, procurement
(tendering and award of contract) and debt management.
The Budget Management and Control also includes, accounting, recording and internal audit
(pre-payment audit) of all financial transactions of the Government.
Sub-Process 4: Monitoring and Evaluation
Each MDA is expected to monitor and report on its monthly actual expenditure against the
budget. At the State level, the MEPB is also expected to monitor, collect and report on the
consolidated actual expenditure against the budget and communicate Monthly Budget
Performance Report to the EXCO with definite recommendations. The reports should show the
variance in revenue from IGR and other sources as well as the variance in expenditure
(personal cost, overhead and capital costs), against the budget, including reasons for variances
and solutions. M & E is at two levels. The first, is the monitoring of committed inputs against
expected outputs (Technical M&E) while the second is the monitoring of committed inputs
against expected outputs, outcomes and impact (Strategic M&E). All MDAs (especially the M&E
Department of MEPB), members of the SHA and external stakeholders are responsible for
M&E/reporting.
Sub-Process 5: Audit, Reporting and Publication
The Directors of Finance and Administration (DFA) of MDAs are required to submit monthly
transcripts to the STO. But under Public Sector Budget Module in Lagos State Government, the
MDAs are expected to upload the budget transactions only regularly basis. Monthly Transcript
is the summary of total receipts and payments of a self-accounting or sub-self accounting MDA
as posted in the cash book, extracted and forwarded to the AGO. Such data are the basic inputs
for the preparation of the States Final Accounts. They are also among the source documents
required by the Office of the State Auditor General when discharging its statutory functions,
which involve the examination of all accounting books and financial records of the government.
Another imperative of this sub-process is the reporting of all financial transactions of the
Government as prescribed by Law (Finance Control and Management Act, CAP,144, LFN,
1990). It stipulates that, financial statements, such as, the Accountant Generals Statement of
Financial Responsibility, Statement of the Auditor Generals Opinion, Cash Flow Statement,
Statement of Assets and Liabilities, Statement of Consolidated Revenue Fund, Statement of
Capital Development Fund, including Notes to the financial statements should be published and
made accessible to all stakeholders and the public annually. Lastly, the annual reporting/
publication of the Governments financial transactions as prescribed by law, is the responsibility
of the Accountant General.

3.0

Conclusion

The assignment has focused on the basic budget process improvement leading to the
production of three key outputs, which would be presented to the stakeholders for review and
approval before they would be introduced into the operating budget system. However, in order
to achieve improved budget outcomes a number of reports would need to be generated from the
various annual budget sub-processes and the reports and statements have been outlined in the
annual budget cycle guide book. The process of generating the required information and
reports would endanger improvement in the annual budget system.

4.0

Recommendations

This assignment primarily aimed at improving the annual operating budget process and system
so that basic characteristics of sound budgeting system can be enhanced including
transparency, accountability, comprehensiveness, predictability and credibility. On the basis of
the work undertaken and findings the following recommendations are put forward in order to
achieve improved budgeting system in Lagos State Government:
There is the need for training for budget and planning staff of the MEPB and MOF as
well as line ministries to enable them keep abreast of best practices.

There is the need for the DB and the Budget Sub-Group (BSG) to develop templates of
the budget documentation, which will include Budget Policy Statement, Economic and
Fiscal Up-date, Annual Marco-economic Analysis Statement as well as quarterly budget
performance reports (with emphasis on sector budget outcomes).

5.0

Next Steps

The following steps have been discussed with the key officers of the MEPB as necessary to
ensure that the objectives of improved budget outcomes are achieved:
a) Review and approval of the consultancy assignment outputs, the outputs had been
presented to workshop of senior officials of the key ministries and comments were taken
and reflected the final outputs;
b) Introduction of the key outputs particularly the Comprehensive Annual Call Circular
2010;
c) Development and adoption of key operating budget report templates.

Annex 1: Sub-Terms of Reference

SPARC TOR: LAG-PFM-01
1. Name of Consultant:

Andrew Oliko

2. Overarching TOR Ref:

LAG-PFM-O1

3. Overarching TOR
Version:

(Attached)

4. Contribution to specific Dimension outputs

The specific Dimension outputs within the overarching TOR which this input will contribute
towards:
3. New Call Circular developed, based on standard formats and set out a clear and
achievable budget calendars and incorporating clear frameworks and responsibilities for
budget coordination.
Revised work-plan to be used and submitted in accordance with agreed timetable in 2/3
pilot sectors to reflect profiled and seasonal resource needs. AG able to prepare cash
forecasts based on profiled work plans.
5. Clear rules for budget reallocation are defined and complied with.
The following are the specific assignment outputs expected from this input and should to be
presented to the relevant central ministry/agencies for review and comments before the
conclusion of this input:

Draft Budget Cycle Guide Book

Draft Annual Call Circular
Draft Quarterly Work Plan

5. Activities
The anticipated activities needed to deliver the outputs, consistent with overarching TOR:
3. Support for budget processes, budget calendar and call circulars
Support the development of new budget preparation instructions for MDAs and review of
budget processes and timescales for budget activities, and the adoption of a timely Budget
Calendar and issuance of Budget Call Circular (for recurrent and capital estimates) by July.
Capital Expenditure work-plans
Support to produce and issue a guideline, formats and timetable for the submission by
MDAs of capital expenditure work-plans to reflect seasonal resource needs.

5. Budget reallocation processes support

Support to revise and update guidelines for budget reallocation by MDAs.
Required tasks

Review and Document the current budget cycle and all existing manuals and produce a
guide book consisting of activities, outputs and timeline for annual budget process made
up of: ANNUAL BUDGET PLANNING, ANNUAL BUDGET PREPARATION, ANNUAL
BUDGET EXECUTION/CONTROL AND ANNUAL BUDGET
MONITORING/EVALUATION;
Review, Document and Prepare a draft Annual Call Circular
Review and document the current quarterly work plan and produce an improved
template

6. Inputs and Deadlines

The anticipated inputs/resources needed to implement the activities, together with deadlines for
delivering the stated outputs.
National Consultant to be engaged for 10 days, (February 22 5 March, 2010).
The Technical Lead would guidance, support and backstopping during the input to ensure
quality control.

Appendix One: Draft Budget Cycle Guide Book

LAGOS STATE GOVERNMENT

PROPOSED ANNUAL BUDGET CYCLE CALENDAR
SUB-PROCESS 1: ANNUAL BUDGET PLANNING
Activity
Activity Explanatory Note
s/n
1.1

Review Economic and

Fiscal Situation &
Updates

1.2

Preparation of a Fiscal
Framework.

1.3

Review of Annual
Budget Policy

A report of the broad economic

performance analysis, including a
review of the all key sectors of the State
economy. This report would include the
analysis of the fiscal policy and the
growth of aggregate demand in the past
year. And it would endeavor to provide
overview of the coming fiscal year
particularly the prospect of resource
availability
A formulation of multi-year fiscal targets
including projections of revenues and
expenditures. This statement depends
on the analysis provided in the
statement of economic & fiscal updates.
It serves as the basis for the Budget
Policy Statement and the Annual
Budget Call Circular.
The draft annual Budget Policy would
provide insight to government policy
thrust in the next fiscal year and set out

Responsibility
for Action
Ministry of
Economic
Planning and
Budget.

15th June

Aggregate Fiscal
Framework
Statement

MEP&B

3rd June

An Annual
Budget Policy
Statement

MEP&B

4th week June

Key Output
A statement of
economic & fiscal
updates

Timeline

procedures for allocation of resources

to sectors and spending ceiling in
consonance with the Policy direction.
This process would be carried out by
the MEP&B and submitted to the
Governor for review and approval. This
key activity would outline the rules for
next budget year with regards to
percentage of planning and contingency
reserves.
1.4

Preparation Draft
Annual Budget Call
Circular.

The MEP&B draws up a comprehensive

annual budget call circular including
budget preparation calendar, summary
of medium term fiscal targets,
instructions on up-dating MTSS, sector
ceiling and detailed templates of budget
proposals from the MDAs.

1.5

Preparation/Up-dating
Preparation/up-dating of the Medium
of Medium Term Sector Term Sector Strategy (MTSS). The
Strategy (MTSS).
MTSS is prepared by the sector
ministries based on the approved sector
policy document and translated in
costed operational plan (or action plan)
on the program budget structure.

Draft Annual
Budget Call
Circular with
Calendar and
Sector Ceilings.

MEP&B
(Budget
Department)

4th week June

MTSS with
realistic cost
estimates for
recurrent and
capital and based
on program
budget structure

MEP&B
(Macroplanning) and
MDAs.

4th June

1.6

Stakeholders
Consultation

Conduct pre-budget stakeholders

consultations (including key MDAs,
Legislators, OPS, Labor/CSOs and
CBOs) to deliberate on the proposed
budget thrust as document in the
Budget Policy Statement.

Report of the
Stakeholders
Budget Meeting

MEPB, Ministry
of Information
and Strategy
(MIS).

4th June

Approved Annual
Budget Call
Circular for the
year concerned.

MEPB

1st week July.

The Stakeholders Consultation would

provide feedbacks and contributions to
serve as inputs into budget preparation
process.

1.7

Consideration/Approval
of Draft Call Circular

The State Budget Committee would

review the draft Annual Budget Circular
submitted by the Budget Department
and recommend it for approval of the
Hon Commissioner (MEPB) and signed
by the Permanent Secretary (MEPB)
before circulation to MDAs.

SUB-PROCESS 2: ANNAUL BUDGET PREPARATION

S/No

Activity

Activity Explanatory Note

Output

2.1

Approval and
Circulation of Annual
Budget Call Circular
to all MDAs.

The MEP&B would issue the approved

Annual Budget Call Circular to the
MDAs and constitute a team of Budget
Officers to support the MDAs to comply
with the requirements of the Call
Circular.

2.2

Consultation between
EXCO and SHA

The Hon Commissioner, MEPB would Report of the

initiate and coordinate a meeting Consultations
between the members of the Executive
Council
and
the
Appropriations
Committee of the State House of
Assembly (SHA) to explain the States
fiscal policy direction and the thrust of
the proposed budget. This will improve
the understanding of the Honorable
members of the fiscal thrust. Political
engagement in Budget process helps to
improve acceptability and buy-in of
members of State House Assembly.

Budget Call
Circular

Responsibilit
y for Action

Timeline

Budget
Department of
the MEP&B

1st week July

Hon
Commissioner,
MEPB

August

2.3

Preparation of annual
budget proposals by
MDAs.

2.4

Submission of draft
budget proposals by
MDAs to the MEPB.
Review of Budget
Proposals by MEPB

2.5

2.6

Bilateral budget
discussions
(negotiation and
defense of MDAs
budget proposals)

All MDAs would be guided by the

Budget Call Circular (BCC) when
preparing their revenue and expenditure
estimates for the coming budget year.
The budget department would
constitute a team of officers to provide
support and backstopping to MDAs in
need of assistance.
MDAs complete the preparation and
production of their budget proposals
and submit them within schedule.
Preliminary review and exploratory of
the financial estimates to ensure that
the proposals substantially comply with
the requirements of the Budget Call
Circular including sector ceilings.
Budget Department would ensure that
all the forms annexed to the Circular are
properly completed. It would also
ensure that the projects and
programmes included in the proposals
comply with the States policy objectives
and priorities.

Draft MDAs
Budget Proposals

All MDAs

August

Draft MDAs
Budget Proposals

All MDAs

1st week
August.

Draft Budget
Proposals

MEPB

15th August

Budget proposals are corrected and

adjusted in line with the findings during
scrutiny and analysis of budget
proposals by MEPB. A Planning
Reserve would then form the basis of
any incremental adjustment of any
MDAs estimates. This underscores the
need to set aside a planning reserve of

Corrected Draft
Budget
Proposals.

MEPB and
Other MDAs

15th August to
15th September

2.7

2.8

,about 3% of total projected annual

revenues when formulating sector
ceiling for the MDAs. The same
argument applies to setting aside a
Contingency Reserve of about 5% to
fund any supplementary budget in the
event of unforeseen occurrences.
Collation, Analysis
This should be carried out by the
and Consolidation of
Budget Department in the MEPB,
draft budget
supported by members of the Budget
proposals.
Committee.
Presentation of Draft The draft budget at this stage will be
Consolidated budget reviewed and adjusted by the TB for
to Treasury Board consistency with the States revenue
(TB)
projections as per the MTFF.

Consolidated
Draft Budget
Estimates

MEPB

3rd week of
September

Draft
Consolidated
Budget

Hon.
Commissioner,
MEPB

4th week of
September

2.9

Presentation of Draft
Consolidated Budget
to EXCO

Review, deliberation and approval by

members of the State Executive
Council.

Draft State
Budget Estimates

Executive
Council

1st week of
October

2.10

Presentation of Draft
Budget to the State
House of Assembly
(SHA)

Presentation of copies of the draft State

Budget Estimates by the Governor to
the Hon. Speaker of the SHA.

Annual
Appropriation Bill

15 October

2.11

Debate of the
Appropriation Bill by
the SHA.

Review of the draft State Budget

Estimates by the Appropriations
Committee of the House.

Appropriation Bill
passed for the
new fiscal year.

Governor,
accompanied
by the Hon.
Commissioner,
MEPB
SHA

November/
December

2.12

2.13

Governor Assents to
Appropriation Act

The Governor reviews the approved

Appropriation Bill

Appropriation Bill
signed into Law.

Governor

December

Presentation of the
Budget to the
general public

Governor presents the States Budget

at a press briefing, followed by
publication and dissemination of the
budget through the media and the
States web site.

Governors
Budget Speech.
Published Budget
Document.

Governors
Office
(supported by
the MEP&B)

First Week of
January

Output

Responsibility
for Action

Timeline

SUB-PROCESS 3: BUDGET EXECUTION AND CONTROL

S/No
.

Activity

Activity Explanatory Note

3.1

MDAs carry out

budget profiling of
both revenues and
expenditures

Each MDA would carry out profiling of Budget Profile

the approved budget estimates of both Report for 12
revenues and expenditures for 12 calendar months
months.

MDAs
coordinated by
the MEP&B

January

3.2

Request for Quarterly

Capital Project Work
Plan
Submission of
Quarterly Capital
Project Work Plan

The STO would request each sector

ministry to prepare and submit quarterly
work plan of its capital projects.
Each MDA would review its capital
expenditure component of the approved
budget (after budget profiling) and
prepare a quarterly capital project work
plan on the prescribed format.
Personnel
and
Overhead
Costs
(Monthly Recurrent Costs).

Quarterly Work
Plan Call Circular

STO/Budget
Department

2nd week of
January

Quarterly Work
Plan for Capital
Project

MDAs

4th week of
January

Monthly
Statement of
Recurrent
Expenditures

STO

Monthly

3.3

3.4

Monthly Release of
Funds for Personnel
and non-salary
recurrent costs.

3.5

Monthly Revenue &

Expenditure Returns

The MDAs would upload and prepare

monthly transcripts of revenues and
expenditures by line items and forward
to the STO and MEP&B

SUB-PROCESS 4: BUDGET MONITORING EVALUATION

S/No. Activity
Activity Explanatory Note

Monthly
Transcripts of
Revenue and
Expenditures

MDAs

Monthly (by
2nd week)

Output

Responsibilit
y for Action

Timeline

4.1

Monthly Budget
Performance
Review

Each MDA is would prepare detailed

budget performance review of revenues
and expenditures and compare and
contrast budgeted and actual figures and
provide explanation for variances.

Monthly Budget
Performance
Reports to
MEP&B

All MDAs,

Monthly
(second week
of the
following
month)

4.2

Monitoring of
individual Capital
Project &
Programme

Monitoring and evaluation of capital

programmes and projects to ensure that the
execution is in accordance with design
specifications, including review of inputs
and outputs. The reports are sent to the
Monitoring & Evaluation Unit.

Monthly Project
Implementation
Reports by
MDAs.

MDAs/MEP&B

Monthly

4.3

Consolidated
Budget
Performance

Third week of
following
Month

Consolidated
Project Monitoring

Consolidated
Monthly Budget
Performance
Report
Quarterly Project
Monitoring Report

MEP&B

4.4

MEP&B would retrieve performance reports

from the MDAs and compile the progress
reports and evaluate the resource inputs
and compare them with outputs.
Periodic Review of the Capital Project
execution undertaken by the MDA.

MEP&B (M/E
Unit)

Quarterly

SUB-PROCESS 5: AUDIT AND REPORTING

S/No
.

Activity

Activity Explanatory Notes

Output

Responsibilit
y for Action

Timeline

5.1

Preparation of
monthly internal
audit reports

Summary of internal audit activities at the

MDA produced by Resident Internal Auditor

MDAs Monthly
Internal Audit
Report

Resident
Internal
Auditors

Monthly (1st
week of the
following
Month)

5.2

External Audit
(Statutory Audit, ad
hoc, special,
interim and final
Audit)

Preparation of interim and Annual Audit

Reports as required by the Statutes.

Auditor Generals
Reports and
Statement

Office of the
State Auditor
General
(OSAG)

Quarterly/Ann
ually.

Reporting,
Publication and
Dissemination of
various reports.

Production and dissemination of various

reports from Approved Budget Estimates to
Consolidated Budget Performance Report,
Annual Audited Accounts.

The Approved
Budget
Estimates;
Consolidated
Budget
Performance
Report, Annual

MEP&B, MOF,
AuditorGeneral Office,
STO, Internal
Auditors Office.

5.3

Monthly,
Quarterly or
Annually

Audited
Accounts.1
.

See list of all other documents for publication and dissemination.

Appendix Two: Draft Template of Annual Budget Call

Circular
ANNUAL BUDGET CALL CIRCULAR 2011
1.0 Introduction
This Call Circular sets out instructions for submission of information and statistical data that will
be used to prepare the 2011 annual State Budget and 2011-2013 Medium Term Budget
Framework.
Each spending unit is requested to prepare and submit its recurrent and capital budget
proposals in accordance with the guidelines provided in this circular.
The Lagos State is continuing with MTSS, which would be based on Medium Term Budget
Framework (MTBF) along with new classifications of program budget structure beginning with
2011 fiscal year2. As a result of these fundamental changes in the public finance management
system each MDA is requested to study this call circular carefully so as to comply with all
provisions and requirements herein. Should you be in doubt about any provisions of this
Circular, you should be free to contact the Central Budget Department for clarifications and it is
envisaged that technical support would be available to assist any entity in complying with the
provisions of this Circular.

2.0 Medium Term Budget Framework

Since the introduction of Medium Term Fiscal Framework in the LSG in 2009, focusing on one
fiscal year revenues and expenditures alone has been found to be inadequate. Expenditure
planning should be extended beyond one year, not least to gain a full appreciation of the future
spending implications of present policy decisions. Nowhere is this more important than on the
recurrent costs of capital spending. In our budget system, such plans need to be integrated with
recurrent expenditures and into a multi-year expenditure plan that provides the basis for
establishing a realistic global budget. This approach is what is called Medium Term Budget
Framework. This essentially means translating MTFF into multi-year detailed budget for 2011
2013.
MTBF will assist in laying the foundation for a more unified multi-year budgeting and economic
planning. The MTBF will be up-dated annually and will involve:

Projecting revenues and expenditures for three year period;

Separate Guide Books would be issued for MTBF and BC&COA.

Keep spending within limits created by the ability to raise revenue and maintain debt
levels which are not prohibitively expensive to service;
Linking public expenditure to strategies outlined in the MTSS3;
Integrating recurrent and capital spending;
Advising the MDA on their expenditure envelopes (i.e. the amount that is available to
them for personnel, overhead and capital projects & programs that will enable them
meet their mandates) over the period.

The MTBF will enable the MDA know how much resources available for them from the State
Government budget over a three year period.

3.0 Economic and Budget Performance for 2010

INSERTION half a page, (summary of economic and fiscal up-date)
The preliminary budget performance data for the first half of 2010 is presented in table 1 below.
Table 1: 2010 (JANUARY-JUNE) FISCAL PERFORMANCE

1.0
1.1
1.2
1.3

2.0
2.1
2.2
2.3
2.4

3.0

ITEM
REVENUE
IGR
Federation Account
Capital Receipt
TOTAL
EXPENDITURE
Personnel
Overhead
CRFC
Recurrent
Capital
TOTAL
GROSS TOTAL

FEEDS would need to be up-dated

Budget

Actual

Variance

4.0 2011 - 2013 Fiscal Framework

The fiscal framework envisages improved efficiency in revenue administration and strict
expenditure control. Consequently, no spending unit would be allowed to deviate from its
resource envelope during the three year period.

4.1

Key Assumptions

Key assumptions underlying the preparation of revenue and expenditure under the MTBF (2011
2013) are set out in the table below. Since the federation account receipts do not dominate
the LASG budget and for which it cannot directly influence its performance, accordingly a large
proportion of the LASG recurrent revenues is subject to endogenous variables. This framework
has adopted the most plausible and conservative assumptions based on information available
from the federal fiscal and monetary authorities.
Table: to be reviewed in light of the economic events
Key Assumptions
2010
Average Oil Price per barrel
$55
Average Production (dppb)
2.75
Foreign Exchange
Stable

2012

2013
$65
2.85

Stable

$75
2.90
Stable

Given the key assumptions set out above and on the basis of time series data analysis,
revenues have been projected to grow at 10% per annum during the planning period of 2011
and 2013.
Aggregate revenue from all sources is projected at N458.117 billion for 2011 as computed in the
exhibit 1 below. The projected aggregate expenditure for 2011 is put at N4451.117 billion with a
budget planning and contingency reserves of N6.8 billion.

Table 2: FISCAL FRAMEWORK 2011 - 2013 PROJECTIONS

2011
2012
REVENUE
IGR
Federation Account
Capital Receipts
TOTAL

2013

EXPENDITURE
Personnel
Overhead
Total Recurrent
Capital
TOTAL
Planning/Contingency
Reserves

4.2

Aggregate Resources Envelope for 2011

4.2.1

Objectives of 2011 LASG Budget

Apart from the overall objectives of the MTBF articulated above, the objectives of State
2011 budget are:

Set the 2011 expenditure at sustainable level;

Ensure that 2/3rd of the total capital investment fund is directed to the government
priority areas
Build greater transparency, accountability and comprehensiveness into the
budget process;
Use budget to further the goals of job creation, poverty reduction and wealth
creation as articulated in the MTSS/MTBF document;

The 2011 budget preparation procedure is aimed at making the government's priorities clear
and at selecting, from the many budget requests by spending units, those which are really
important to the government. In principle that requires two elements. First, a budget policy
statement as determined at EXCO level, which determines (1) the affordable total, (2) new
policies to be accommodated, and (3) any changes in existing project provision. Second, each
spending unit and the central budget department as well as the treasury department meet to
discuss each entitys estimates. To accommodate new policies, the central budget department
requires each spending unit to prioritize its requests.

In introducing MTBF, the LASG has also introduced the concept of planning reserve, which is a
sum (three percent of total expenditure) not allocated in the budget policy statement and call
circular, which the ministry of economic planning & budget later intends to allocate to new
project/programs, if necessary above the sector ceilings during budget negotiations. In addition,
a contingency reserve is a reserve for in-year expenditures over and above appropriations for
handling genuine contingencies; it is modest in size (if too large, a bidding process from
ministries may quickly set in) and thus it does not exceed 5 percent of total expenditures. It is
under the control of the Ministry, and access would be granted by the EXCO only under
stringent conditions by way of supplement budget proposals.
The sum of N13.4 billion is set aside for contingency reserve for 2011 from the aggregate
resource envelope and another sum of N7.4 billion is set aside from the capital development
fund as planning reserve to be used by the government to augment compelling shortfalls in
sector/function allocations where there is a proven need backed with statistical data and
information. The contingency reserve would be used strictly for the following reasons:

Expenditure that could not be anticipated during the time of budget preparation;
Correction of genuine errors or/and omissions;
Cost of overrun or variations that could not be reasonably anticipated during the time of
the budget preparation;
Contingencies approved by the EXCO;

4.2.2. Sector/Function Spending Ceiling

To ensure that the budget maintains strategic equilibrium during the 2011 fiscal year,
government has stated and produced the resource envelope for each spending unit collectively
as sector/function (see table 3). The main entity within the sector/function would meet with all
its sub-organisations (INCLUDING THE PARASTATALS) to prioritize their needs and prepare
and present proposals within the resource envelope in accordance with the guidelines contained
herein. However, the subventions to the parastatals would be treated outside the sector/function
spending ceiling, each parastatal is expected to consult with the main entity in its sector or area
of operation.
Table 3: 2007 Resource Allocations by Sector/Function

SECTOR/FUNCTION
CABINET OFFICE
EDUCATION
HEALTH
AGRICULTURE
SOCIAL DEV
TRANSPORTTION
WORKS
RURAL DEVELOPMENT

2011

2012

2013

ECONOMIC PLANNING
LOCAL GOVERNMENT
HOUSE OF ASSEMBLY
JUSTICE
FINANCE
HOME AFFAIRS
COMMERCE & INDUSTRY
INFORMATION & STRATEGY
ESTABLISHMENTS &
TRAINING
WOMEN AFFAIRS
YOUTH & SPORTS

SCIENCE & TECHNOLOGY

GENERAL PUBLIC SERVICE
OTHER PARAST
sub-total capital cost
PERSONNEL
OVERHEAD
sub-total recurrent cost
PLANNING & CONT.
TOTAL
NOTES
Personnel increased by 5%
Overhead increased by 10%

5.0 Strategic Prioritization

The LASG does not plan to present a supplementary budget during the 2011 fiscal year except
in the event of unforeseen occurrences such as natural disasters and other compelling reasons.
Accordingly every spending entity is advised to ensure that all activities that are urgent and
important to them in 2011 are included in their 2011 proposals by way of strategic sector
prioritization within the allocated resources.
One of the key advantages of the MTBF is that annual budget would enhance predictability of
funding for MDA activities during the fiscal year. The government would aim to achieve not less
than 85% funding of capital projects and programs in the approved budget estimates for 2011.

The MDA must live within the allocated resource for 2011 and table 4 provides detailed
spending ceiling. It means that they have to provide for their personnel, overhead and capital
costs within these envelopes. It is therefore important that MDA achieve the right balance
among its competing needs. The table has set a ceiling on the amount to be spent on each
component of budget. Any MDA that succeeds in rationally reducing its recurrent costs would
have its capital cost enlarged by the same amount of savings.

6.0 Guidelines on Preparation and Submission of 2011 Budget

The 2011 draft Budget Proposals should be prepared using the code system. Please refer to
the Lagos State Guide Book on Budget Classification & Chart of Accounts.

6.1

Recurrent Revenue

The receipts from Federation Account would still be less than 25% of the recurrent revenue of
the LASG. The State Government expects internal revenue to continue to contribute
substantially to the total recurrent revenue in the 2011 fiscal year. Accordingly, the LAGS
expects all internal revenue generating entities to introduce the recently proposed strategies for
internal revenue administration to meet the internal revenue performance targets.
In order to meet internal revenue targets for 2011, the following strategies are to be adopted:
a. revenue budget for 2011 would be disaggregated according to the sources as outlined in
the Lagos State Guide Book for Budget Classification and Chart of Accounts;
b. there should be an realistic revenue budget in respect of assessment and collection
c. a detailed enforcement action plan should be formulated and implemented;
6.2

Expenditure

Budgeting for personnel and overhead costs must be done on the prescribed format. A guide
book on new Budget Classifications and Chart of Accounts (BC&COA) should be consulted
during budget preparation.
Debt incurred by the MDA up 31 December, 2009 should be listed separately, using the
prescribed debt schedule. Please note that this does not mean that the Ministry Economic
Planning & Budget or Ministry of Finance would take the debt from the MDA. The reasons for
requesting the information is to quantify the level of indebtedness as at the date and to ensure
that the treasury department would devise global strategy on how to address the internal debt
situation.

7.0 Budget Defence Plan and Schedule

The 2011 Budget defence would be carried out in systematic manner based on the newly
introduced administrative classifications (Main Org Codes and Sub-Org Codes). The defence
will be organized along the line of the Main Org with all its sub-organizations attending the bilateral negotiations on the same day(s), (see the budget defence schedule Annex I). The budget
defence schedule would facilitate effective negotiation and iterative sessions to ensure that the
proposals are comprehensive and reflect the priorities of the sector/function and it is inclusive.
Table 4: Proposed Budget Timetable
Activity
Collect and analyze half year economic and budget
performance data and produce a half yearly and 2010
perspective report.
-Preparation of Economic & Fiscal Update
Preparation of Fiscal Framework Revenues and
Expenditures Forecasts. (exhibit 2)
EXCO agreeing on Budget Policy Statement - A
statement of fiscal thrust including sector ceiling and
priorities.
Issuance of Call Circular reflecting agreed policy
priorities & resource allocations.
Stake holders consultations with CSOs, NGOs, CBOs,
OPS etc
Submission of Proposals by MDAs
Bilateral discussions and defense of proposals
Consolidation and Production of draft budget estimates
Submission of draft budget estimates to EXCO
EXCO approval of draft proposal
Presentation of draft budget to National Assembly
Assembly Approval
Governors Assent
Publication and Dissemination of Budget
Request for quarterly work plan from MDAs

July

Time

Responsibility
CBD

July

Treasury and CBD

July

EXCO Economic
Committee

1st August

CBD

August &
September
August 31st
September
15th
31
September
1 October
15th October
1st
November
30th
December
31st
December
5th January
5th January

CBD
MDAs
CBD
Treasury/CBD
Treasury/CBD
EXCO Secretariat
EXCO
SHA
Governor
CBD
Treasury/CBD

The 2011 budget marks the beginning of MTBF in Lagos State. Accordingly all entities are
required to provide detailed budget proposals for 2011 and provisional figures for 2012/13

The deadline for submission of all budget proposals is 4 p.m. August 31, 2010.
All enquiries concerning this Call Circular should be director to the Budget Director, Central
Budget Department, Ministry of Economic Planning & Budget, Block _ , Room _, State
Secretariat, Ikeja/Lagos.

Permanent Secretary
Ministry Economic Planning & Budget
Ikeja/Lagos State

Appendix Three: Draft Template of Capital Expenditure

Work plan for MDAs

www.lasg.gov.org