• 20 Marks

PSAF – May 2023 – L1 – SA – Q3 – Pension Accounting in the Public Sector

Outline PTAD's functions and National Pension Commission's powers over PTAD as per the PRA 2014.

a. Sections 42 and 44 of Pension Reform Act (PRA) 2014 established Pension Transitional Arrangements Directorate (PTAD) for public service of the Federation and Pension Transitional Arrangements Directorate (PTAD) for the Federal Capital Territory (FCT) respectively.

Required:

i. Identify SEVEN functions of the PTAD as contained in PRA (2014). (7 Marks)
ii. Identify THREE powers which National Pension Commission has over Pension Transitional Arrangements Directorate for public service of the Federation and Federal Capital Territory. (3 Marks)

b. Two accountants in the Ministry of Finance of Welfare State were in a debate as to which basis of accounting for revenue and expenditure should be adopted in the state. Five bases of accounting for the finance of the state were put forward: accrual basis, cash basis, modified cash basis, modified accrual basis, and commitment basis.

Required:

As a student of public sector accounting, explain any FOUR bases under the following headings:

i. Concepts of the FOUR bases.
ii. THREE merits of cash basis.
iii. THREE merits of accrual basis. (10 Marks)

a. Functions of PTAD as per PRA 2014:

  1. Manage the pension funds for public service employees in line with PRA guidelines.
  2. Verify and validate eligible pensioners before payment.
  3. Process and pay monthly pensions directly to retirees under the defined benefit scheme.
  4. Ensure prompt and regular payment of pensions to retirees.
  5. Handle and oversee the pension funds for military and paramilitary employees.
  6. Provide regular updates and reports on pension funds management to relevant authorities.
  7. Settle any pension liabilities that predate the reform or restructuring of the pension system.

Powers of the National Pension Commission (PenCom) over PTAD:

  1. Oversight on compliance with pension regulations.
  2. Approval authority over PTAD’s operational and payment procedures.
  3. Power to review and amend the operational guidelines of PTAD.

b. Four Bases of Accounting in Public Sector Finance:

  1. Accrual Basis:
    • Concept: Records revenues when earned and expenses when incurred, regardless of cash transactions.
    • Merits: Provides a realistic financial picture, aligns with matching principle, facilitates comprehensive decision-making.
  2. Cash Basis:
    • Concept: Recognizes revenue and expenses only when cash is received or paid.
    • Merits: Simple to understand, eliminates receivables/payables, allows easy budget comparison.
  3. Modified Cash Basis:
    • Concept: Accounts remain open after the year-end for a short period to capture outstanding transactions.
    • Merits: Adds flexibility, allows reconciliation with actual year-end figures, simple to apply.
  4. Commitment Basis:
    • Concept: Recognizes expenses when commitments are made via contracts or purchase orders.
    • Merits: Prevents overspending, closely links budgeting with financial controls, promotes better resource planning.
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