Treasury single account-: pains, gains

For years, the Treasury Single Account (TSA) existed only in the history books. But in September, last year, the Federal Government mustered the political will to fully implements the controversial policy. The TSA has made many banks to cry; Ministries, Departments and Agencies (MDAs) to groan and government's coffer to burst. COLLINS NWEZE unveils the TSA and what its full implementation means for businesses and control of government's cash resources.

It's nearly a year of pains for the Federal University of Agriculture, Abeokuta (FUNAAB) since its $2 million grant from the Bill and Melinda Gates Funded Cassava Adding Value Project (CAVA) was trapped in theTreasury Single Account (TSA), the pool account for all government's revenues.

The institution has been haggling with the Office of the Accountant-General of the Federation (OAGF) on how to resolve the quagmire while the projects the funds were meant to be channelled are suffering.

The FUNAAB Vice-Chancellor, Prof. Olusola Oyewole admitted that the TSA is impeding research in universities as institutions cannot access their grants on time, while several funds from donor agencies were diverted to countries with less transactions difficulties.

"You can imagine the shock that our universities have, waking up one day to find out that our funds have been moved away from the commercial banks to an account that we can't even identify," he lamented.

But the OAGF seems helpless with the situation, insisting that the policy must take its course despite the implications on the institution.

The CAVA funds, The Nation further leant, had finally been lodged at the Standard Chartered Bank in London, by the Central Bank of Nigeria (CBN) on behalf of FUNAAB, while the institution said it was still trying to access the fund, as at press time.

Welcome to TSA, Nigeria's new accountability and most feared sheriff in town.

For decades, many emerging markets and low-income countries have fragmented systems for handling government's receipts and payments. In these countries, the ministries of finance/treasury lack a unified view and centralised control over government's cash resources. The cash lies idle for months in different bank accounts held by spending agencies while the government continues to borrow to execute its budget.

That was the case with Nigeria until September 2015 when the Federal Government began the full implementation of TSA. And since then, the policy has come with pains, gains and controversies depending on which side of the divide it was viewed.

The TSA is a bank account or a set of linked bank accounts through which the government transacts all its receipts and payments and gets a consolidated view of its cash position at any given time.

But for commercial banks which had for years relied on cheap government deposits to post huge profits, universities that secure foreign grants for research, and Ministries, Departments and Agencies (MDAs) which have to suffer delays in getting transactions, the TSA remains a nightmare.

The lenders have since the full implementation of the policy began, lost huge revenues and deposits that threatened the continued existence of many mid-tier banks.

Confirming the pains of TSA on banks, CBN Director, Banking Supervision, Mrs. Tokunbo Martins, agreed that the TSA regime precipitated some unintended consequences, affecting the operations of banks, especially regarding deposit depletion, asset quality, decrease in revenues and liquidity stress.

She said the aggregate deposit transferred to the CBN from the inception of the TSA regime to March 2016, was N2.67 trillion. This sum, which represents 15.14 per cent of the total deposits of commercial banks of N17.63 trillion as at April 30, constitutes the volume of deposits "lost" by banks as a fallout of the implementation of the TSA regime.

"This loss impacted banks differently in line with the proportion of their balance sheet that was sustained with Federal Government of Nigeria (FGN) deposits. Due to its large size and low cost, Federal Government of Nigeria deposits were a huge source of revenue for banks. Although specific data on revenue attributable to FGN deposits is not available, a good proxy is the yield on Treasury Bills, which is currently around 14 per cent," she disclosed at the CBN-Financial Institutions Training Centre (FITC) continuous education programme for Directors of Banks and Other Financial Institutions, held in Lagos at the weekend.

Mrs Martins said assuming the entire government deposits were invested by the banks in Treasury Bills, at the current yield of 14 per cent, it would generate interest income of about N374 billion for the banks. This figure, she said, provides an indication of revenue that is no longer available to commercial banks due to introduction of TSA.

She explained that based on the large quantum of revenue earned from government deposits, majority of commercial banks had created teams with responsibility for mobilising public sector funds.

"These teams, which were large and significant, were in some cases directly supervised by top management staff. The introduction of the TSA regime and resultant depletion in government deposits and related revenue has made these teams unprofitable and their existence untenable. Therefore, most banks had scaled back or disbanded the teams and, in extreme cases, released staff deployed to the teams," she said.

The CBN director said the TSA regime impacted the liquidity level in the banking system due to the attendant remittance of cash, which constitutes a major portion of banks' liquid assets to the apex bank. "Furthermore, as part of risk management, banks with large government deposits mitigated their positions by investing the liability in T-bills and FGN bonds. These banks had to liquidate these investments in order to comply with the TSA regime, thereby further reducing their stock of liquid assets," she said.

Mrs Martins explained that with the introduction of the TSA regime, easy and risk-free revenue that was hitherto available to banks via investment of FGN deposits in Treasury Bills and Government Bonds had been restricted.

"Therefore, banks must become innovative in generating revenue to support their operations and provide returns to their shareholders. This development also presents an opportunity for banks to return to their traditional role of savings aggregation and financial inter-mediation. Banks should thus strive to increase the size of their loan books in order to increase their interest and fees income," Mrs Martins said.

Managing Director, Wema Bank Plc, Segun Oloketuyi also recounted the impact of TSA on banks' profitability and deposits. "I think over N2 trillion left the banking system for CBN. Without doubt, TSA has impacted the volume of deposit in the banking system. As you know, deposits are our raw material. Certainly, if the sector lost N2.1 or N2.2 trillion, it will definitely impact on the sector; you will see the impact of the liquidity on every institution. It is going to impact us differently. Wema Bank lost almost N50 billion to TSA, but if you look at our annual report in 2015, we grew deposit despite the loss.

''We recorded between 10 and 15 per cent growth in our deposit compared to 2014. TSA started in September 2015, but we were still able to grow; so, what that means is that we would have grown higher," he said at a meeting with financial journalists in Lagos.

"Our deposit still grows, if I have the N50 billion or thereabout in the system it would have helped my growth better than it was, but the impacts were not such that we were not able to meet our deposit obligation, neither were we short on the liquidity ratio required of the bank. Certainly, we lost some money to TSA that would have otherwise helped the performance of the bank better than we recorded in 2015," he added.

CBN's fines hit banks

Aside the loss of deposits, many commercial banks had been sanctioned for breaching TSA rules. FirstBank, United Bank for Africa, Skye Bank had all been fined by the CBN for non-compliance with the TSA rule.

The CBN had fined FirstBank and UBA the sum of N4.819 billion. The CBN imposed a penalty of N1.87 billion on FirstBank, UBA was fined N2.94 billion. FirstBank allegedly concealed N37.5 billion belonging to the Nigerian National Petroleum Corporation's (NNPC) while UBA concealed N58.8 billion instead of remitting it to the TSA as directed.

The CBN has also imposed a fine of N4 billion on Skye Bank for concealing funds belonging to Ministries, Departments and Agencies (MDAs). Skye Bank allegedly failed to report MDAs' balances amounting to N40 billion as at October 23, last year, more than a month after the TSA deadline had expired on September 15.

The CBN defended N8.819 billion fines slammed collectively on three lenders.

CBN Director, Corporate Services, Adebayo Adelabu who made the apex bank's position known during the Bank Directors' Association of Nigeria (BDAN) stakeholders' forum held in Lagos, said some penalties for regulatory breaches are at the discretion of the CBN, saying the regulator acted based on the gravity of the offence committed by the lenders.

Speaking on the theme: Oversight functions of the board: Effectively managing key external relations, he explained that although the Bank and Other Financial Institutions Act (BOFIA) stipulates specific penalties for offences, the law also makes room for open-ended penalties, where the CBN is allowed to act based on what it thinks is the right punishment for offenders.

"Some of the offences are open-ended depending on gravity of offences but it is left at the discretion of the regulator. But the CBN has been considerate in fining the banks," he said.

There were also controversies concerning fees charged by stakeholders implementing the TSA project. SystemSpecs, the owner company of Remita, the e-payment and e-collection software deployed by the Federal Government to drive the TSA said only N7.62 billion was taken as fees by the three implementers of the project against N25 billion claimed by some legislators.

In a document obtained by The Nation, the firm also described the N2.5 trillion transaction volume as false, saying only N1.36 trillion passed through 20 participating banks from inception of the project to date.

The top executive said that at the commencement of the project in May 2012, it was agreed that one per cent of the sums collected from MDAs would be deducted and shared between SystemSpecs, the affected banks and the CBN in ratios of .5 per cent, .4 per cent and .1 per cent respectively.

A copy of the service agreement between SystemSpecs Limited and CBN dated December 2013, read in part: "SystemSpecs and CBN are entering into a mutually beneficial relationship for the purpose of deploying and integrating Remita e-Payment platform and T24 Banking application to facilitate and support electronic payments and revenue collection of Federal Government Ministries, Departments and Agencies (MDAs) through seamless interface with Government Integrated Financial Management Information System application in accordance with the terms and conditions set out in this agreement".

System Specs was engaged to provide the Payment Gateway for TSA in 2011. While the payment leg of TSA began in January 2012, the collection component did not start as scheduled due to the resistance from a number of quarters and the absence of the political will to push this through.

Besides the issue of fees on transactions, there were also complaints that the Remita platform delays the payment plans of MDAs and other government agencies that rely on it to initiate and approve payment transactions.

"Once the transactions are finalised, MDA funds at CBN are accessed and the transfer of funds to beneficiary accounts in various financial institutions begins. Unfortunately, the RTGS server at CBN has experienced some issues recently, which has substantially impaired the settlement of transactions across multiple payment platforms (as all banks are aware), one of which is Remita. CBN has been managing the situation and providing updates on service status to stakeholders. The delay in consummating transactions at CBN has inadvertently increased transaction time on the platform, causing interference to efficient service that Remita users have become accustomed to," an industry source who understands the workings of the platform, but not in a position to speak on the matter, told The Nation in confidence. "Remita continues to deliver on its mandate and objective of ensuring convenient, secure and efficient payment transactions (Inflows and Outflows). However, Remita is part of a financial ecosystem, and like other service providers, relies on collaboration with other partners (CBN, Commercial Banks, Card Scheme issuers/operators, Payment Services Providers among others," the source said.

CBN Director, Banking and Payments, 'Dipo Fatokun, said there are no exemptions given to any MDA on TSA implementation. "On the issue of whether there are exceptions on the TSA or not, for the Federal Government, there are no exemptions. All MDAs are expected to be part of the TSA but we need to clarify something. Even under TSA, banks customers are not expected to walk up to the CBN to make deposits. So even under TSA, the deposit money banks still have a role to play, the only thing is that they are not expected to keep those balances, they still have those accounts," he explained during a conference on e-payment in Lagos.

He said that cash deposits, or transfers can be made by companies or individuals into an MDA account in a commercial bank and the fund is subsequently swept to a designated account of the Federal Government in the CBN. The commercial bank is expected to transfer that money to the account in the CBN, having deducted its charges which have not been agreed on.

He disclosed that the Federal Inland Revenue Service and Customs had their accounts with the CBN, long even before the commencement of TSA. "So, if you go to a bank and make payment to for Customs duties, the money does not sit in the bank, it actually flows into the CBN, same with the FIRS and that is why even when the TSA was deployed, there was little or no noise about these organisations because all their revenues have actually been coming to the CBN," he disclosed.

The CBN, he said, was also monitoring the banks to ensure full compliance with the TSA rule. "We are checking the banks. We have about four departments checking on the banks. For TSA specifically, we have the Other Financial Institutions (OFIS) and Banking Supervision, Financial Policy and Regulation, Consumer Protection departments monitoring the banks. They monitor various assets and operations because these are related and management is informed. And I know that with the penalties and sanctions that the banks have suffered for breaching the TSA, I do not think any of them would want to dare us," he asserted.

Other stakeholders speak

TSA gains

By March 2016, President Muhammadu Buhari said the Federal Government had mopped up over N3 trillion as revenue accruals since the TSA policy began. Other stakeholders have also listed the gains of the policy since inception.

Confirming the development, SystemSpecs CEO, John Obaro, said the funds came from 17,000 MDAs' accounts under the TSA project. He said the funds came from deployment of Remita, the software powering the TSA to which has reduced the government's debt servicing costs, lowered liquidity reserve needs and boosted effective use of surplus cash.

Obaro said his firm would continue to deliver on the TSA service terms of contract with the CBN despite being owed all of its earned fees on e-collections since March 2015.

He disclosed that some bank branches have started to turn down collection of government deposits due to the non-payment of these agreed fees. "From our end, we have continued to provide and support the Remita platform, 24 hours a day and seven days a week, for use by citizens for all their payments to the Federal Government. Our continued support for the TSA is fueled by our belief in the enormous benefits the Remita software brings to the implementation of TSA to the average citizen," he said.

"We must admit though that we are excited and further driven by the fact that our indigenous Remita software has succeeded in powering the technological backbone for such a successful and strategic national initiative, along with other well meaning Nigerians, we do not want this to fail".

In a report obtained by The Nation titled: Treasury Single Account: A Catalyst for Public Financial Management in Nigeria presented by Prof. Stephen Ocheni of Public Sector Accounting, Kogi State University, Anyigba, at a workshop organised by the OAGF and the World Bank in Abuja, he said a great challenge facing most parts of the world and particularly the developing countries like Nigeria is how to achieve efficient allocation of resources as well as stabilisation of the business cycles.

"An important factor for efficient management and control of government's cash resources is a unified structure of government banking. Such unified banking arrangements should be designed to minimise the cost of government borrowing and maximise the opportunity cost of cash resources. This requires cash received is available for carrying out government's expenditure programmes and making payments in a timely manner," he said.

Nigeria initiated and implemented the TSA and other series of economic policies to assist in the better management of national resources and help fight corruption. Besides the TSA, government also instituted the Government Integrated Financial Management Information System (GIFMIS), Automated Accounting Transaction Recording and Reporting System (ATRRS), Integrated Payroll and Personnel Information System (IPPIS), International Public Sector Accounting Standard (IPSAS) among others to promote public financial management systems.

The Federal Government of Nigeria commenced the implementation of TSA with the e-Payment component in April 2012 while the e-collections components of TSA began in January, 2015. The government also set September 15, 2015 deadline for full compliance.

Ocheni said the TSA facilitates better fiscal and monetary policy coordination as well as better reconciliation of fiscal and banking data, which in turn improves the quality of fiscal information. The TSA also cuts the debt servicing costs and eradicates financial misappropriation in the public sector.

"The full implementation of the TSA will not be hurting banks. It will only hurt establishments that purport and pretend to be banks but have failed to understand banking and do what bankers do elsewhere. It is an opportunity for banks to refocus on the original purposes for which they were set up to collect depositors' funds, keep them safe; engage in intermediation to create wealth and jobs for the economy and in the process earn profit for themselves," he said.

Beyond transparency and accountability, the TSA introduces economy and efficiency into overall management of public finances and this will in the long run lead to effectiveness of government spending since it places government in a better position to realise overall policy goals.

He believes that for TSA policy to be maximised, it needs to be accompanied with the Fiscal Sunshine Bill, which if enacted will open up the financial activities of government in a way that there will be no more hiding place for those who divert or loot government money.

For instance, with Fiscal Sunshine Act in place, budgeting process and implementation, including contract awards, should be in the open for Nigerians to see both how revenues are generated and how public money is being spent by those in government, and why.

"The TSA enhances the transparency of the government's banking arrangements by ensuring that all end-of-the-day balances are electronically swept into the TSA. Establishing a TSA may require hard decisions, such as closing the existing bank accounts of spending units, therefore for a successful TSA implementation, explicit and strong support for reform of government banking arrangements by the Federal Government is recommended," he added.

Tertiary institutions

confronts TSA

Tertiary institutions are already feeling the pangs of TSA. The policy stipulates that all the money they get must be centrally collected and withdrawals approved by the CBN. Under the TSA regime, institutions no longer have direct access to their funds, including research grants from international donor agencies.

At a press briefing in Lagos last month, ASUU President Prof Biodun Ogunyemi, complained that the TSA was retarding the progress of universities and promised to fight the government on the matter.

"As we have consistently argued, the implementation of the TSA is inimical to the well-being of universities. The policy has made it impossible for universities to draw research grants, run programmes based on endowment and transfer funds earmarked for staff development in universities locally and overseas.

"All our appeals to government to exempt universities from the TSA regime have fallen on deaf ears. Because of our abiding commitment to defending and protecting the university system, ASUU will go to any length to resist the continued implementation of TSA in our universities," he said.

In response to enquiries, the Office of the Accountant General of the Federation, clarified the Outstanding issue of Federal University of Abeokuta's grant for the Bill and Melinda Gates Funded Cassava Adding Value Project (CAVA) in which the institutions grant was delayed and moved to a foreign account due to TSA.

It explained that in line with the operational guidelines of the implementation of the TSA as approved by the Federal Government, the CBN opens a domiciliary account in favour of an MDA upon receipt of mandate from OAGF.

It is the CBN's decision to choose in which bank to open the account based on agreed criteria and list of foreign correspondence banks. "Such funds that are domiciliary in nature are only kept by the foreign banks on behalf of the concerned MDAs. The process for opening foreign bank accounts may take up to four weeks in line with the terms and conditions of the foreign bank including and the banks Know-Your-Customer (KYC) requirements," it said.

It said the OAGF and CBN are in the process of automating the payment and receipt processes of foreign components of TSA. "The new process shall empower each MDA to be able to access its domiciliary account through electronic channels as is currently done for all local payments. The new process shall be communicated to all MDAs as soon as it is finalised and the systems have been put in place."

"It should be noted that the OAGF had since processed the Federal University of Abeokuta's grant from Bill and Melinda Gates Fundemmmkkllkk Cassava Adding Value project (CAVA). The institution should accordingly follow the approved process to access the funds," it said

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