CHAPTER ONE

INTRODUCTION

1.1 BACK GROUND OF THE STUDY

Budgeting is important tool for archiving efficient and effective management of resources.
Budgeting is crucial for every organization. Government, business organization, non-profit
organizations and the like use budget as a means of planning, utilizing and controlling their
scarce resources so as to attain their goals effectively and efficiently. Moreover, budget should
serve to encourage and develop communication among departments. A forward-looking attitude
among staff also tends to develop and as a result, potential problem are often identified on time.
Budget is also an induction of good management practice. Due to growing of public demand for
improved government performance, innovative performance measuring systems are being
developed at all level of government. It is a plan of financial operation embodying an estimate of
proposed expenditure for given period of time and the proposed means of financing them.
(WILSON KETTELUR HAY, P-601)

A budget can function as advice not only for planning and co-ordination but also for control.
Whereas budgetary control is use of comprehensives system of budgeting to aid measurement in
caring out its functions of planning, co-ordination and control operations. A budgetary control is
one of the important tools of control. It involves a constant checking and evaluation take
corrective actions where ever necessary. (MOHD ARIT POSHA AND ALLAH BAKESK.S P-
510)

According to ICMA London, a budget “is a financial and/or quantitative statement, prepared and
approved prior to a definite period of time, of the policy to be pursue during that period for the
purpose of attaining a given objectives.’’ (P-511)

1.2 BACK GROUND OF THE ORGAINZATION

Aksum Araya Kahsu health science collage is one of the governmental health science colleges
giving training found in Tigray region. It is about 24 kilometers away from Mekelle capital city
of Tigray. The college was established in 1984 e.c as a health assistant school later in 1984 e.c a
junior or health professional training school and starting from 1996 e.c on wards the college was
completely upgrade to middle level health professionals training institute, i.e. admitting students
who copulated the general education and succeeded the iterance exam prepared by college and
regional health bureau.

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1.3 STATEMENT OF THE PROBLEREM
Budgeting is a key element for proper utilization of available resources. Using the budget is one
of the ways that enhance achievement of desired goals. However, budgeting is attached with
the phase of budgeting. Even though all phases have certain problems, the initial phase or
budget planning and formulation has a deep rooted problems. (L, Methur, 1996;20). No one is
perfect what will happen in the future due to uncertainty. According to budget and plane staff
members of axum araya kahsu health science college; there is a budget shortage and
inefficient. The system used to formulate the budget is dominated by the incremental
approach. Although this approach has certain strength its demerits out weight its merit. It does
not provided genuine information base for decision makers, it provides less attention to short
term birr input of specific departments and consequently that both long term consideration
and those relevant to the program of the organization as a whole receives in adequate
attention.
1.4 objective of the study
1.4.1 general objective
The main objective of the study is to analyze the budget utilization system in Axum Araya Kahsu
health center and to be conclusion and possible recommendation in order to tackle problems
attached to the budget system.
1.4.2 Specific objectives
 to analyze the budget procedure and problem faced with budget preparation,
 to make analysis of significance variance,
 to investigate the real cause for the variance,
 to identify and describe the budget approach, and
 to recommended the possible solutions for the observed problems.
1.5 Significance of the study
The paper may be used by the institution as a base to make further investigation regarding the
problems, which the institution is facing now on budget utilization. In addition, the paper is
significant to compare the theoretical aspects with practice in Axum Araya Kahsu health
science college and point out the major parts of the budget where management attention
deserves . finally, it is important in that it provides the possible remedies in order to tackle
problems so that the desired goal can be achieved.
1.6 Scope of the study
the study is conducted in axum araya kahsu health college. It is focuses mainly on the phases of
budget process, current expenditure allocation system. The data used in the study is three
consquentive years in actual performance and approved budget for the period.

1.7 Limitation of the study

So as to achieve stated objectives, the paper has been finalized through a better endeavors
made. In due courses, certain limitations has been encountered. This paper has limitation in
that it was costly and time consuming to gather data from axum araya kahsu health science
college. . the time allotted for this paper was also not sufficient to gather the data .and asses
the data from every direction. Being a student lack of money also one of the limitation for doing
research in detail.

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1.8 Research methodology
The possible method of achieved the objectives of the paper is to gather relevant information.

1.8.1 Source of data

For the success full accomplishment of the study, the researcher used both secondary and
primary data sources the primary data are collected through questioners. Whereas secondary
data are collected through financial document of the health science college .

1.8.2 Sampling techniques and size

The researcher used stratified, purposive and simple random sampling technique. First the
researcher first categorized in to four functional area using stratified technique, such as top
level administration, financial administrators, teachers and other workers. Then using purpose
the researcher select top level management and financial administrator. Using simple random
sampling technique the questioner is distributed to 5 of the 10 employee.

1.8.3 Method of data analysis

After the necessary data are collected from the organization, the paper has been organized,
summarized, processed, and interpreted by using tables and ratios.

1.9 Organization of the paper

The paper is organized in such a way that it have five four. The first chapter is an introduction
that consists of the back ground the study, statement of the problem, objective of the study
and methodology of data collection; it also cites limitation and scope of the study. The second
chapter consists of review of literature from different books. The third chapter is about
discussion and analysis. Finally, conclusions and recommendations are presented in last
chapter.

CHAPTER TWO
RELATED LITRATURE REVIEW

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2.1 INTRODUCTION

Budget Adoptability Government in democratic society seeks to adopt their polices to the
preferences of society, granting that in the process they exert substantial pressure up on the
nature of thus preferences. Given the lack of precise, clearly defined preferences schedules,
society through government must be the level of various activities and the exact amount to be
spent in each activities. The basic power expenditure rest with the legislative body as the
representative of the voters, but of necessity ,the chive executive and the administration exercise
great influence both in guidance legislative action and implementing polices within the frame
work of the broad guidelines established by the legislative. The government in practice primarily
the executive and the administrative organization select to be used to attain the goals of society
(John F. Due Friedlander’s 2006).

2.2 DEFINITION OF BUDGET

Budget is a detail plane of financial operation expressed in quantitative terms. It is a short

term financial plan to serve as advice to aid and guide management towards proper utilization of
recourses and accomplishment of objective set prior by management.(Anthony and
Govindarajan, 1998;389)

Budget is not only the detail list of estimated expenditure for a given period of time, but
also embodies the proposed means of financing them(Ibid,389).

According to lynn and freeman budgeting is the general process of allocating scarce
recourses to unlimited human wants. More specifically a budget is a plan of financial operation
involving both expiration of activities in quantitative terms and specification of human
organization will acquire use recourses during particular period .

2.3 CHARACTERISTICS OF BUDGET

Measuring effectiveness and control

Most government and non profit organization provide, services, not tangible product’s.
This presents both operation and measurement or control difficulties. The problem of developing
measuring of effectiveness in providing services is particularly difficult for most non-profit
organizations.

Revenue Budget

In developing the budget government and non-profit organization often have an usual
difficulties in budgeting revenue. These primarily because of much revenue denote result from
the organization rendering of service to individuals. Even clients oriented institutions such as
hospitals and universities may have fear for service rotation rate artificial set at fixed level
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though out the year, despite the fact that they may incur significant unbudgeted cost in providing
these services .

Expense budget

The problem if estimated expenses are more manageable than budgeted revenue. It is
generally easier to record and classify expenses when they are actually incurred. Many times,
however it is virtually impossible to much expense incurred in providing a program service, or
operating department to any a specific revenue sources. In this case the budget will serve as tool
for controlling the program expenditure, but not for ovulating this effectiveness in meeting
members need.

Budget planning

Every government organization need to make basic about how it will allocate its
resources. The mechanisms of the market; however tends to simplify this task for profit oriented
organization than government and non-profit organizations.

Government and non-profit organization budget often is not easily adopted to change
circumstances during the courses of the year. One reason for this is many non-profit
organizations do not under go significance variation in the level of service they provide over the
course of the year. As other reasons are that there cost structure often contains many costs that
are considered fixed.

Budget Participants

Preparation of budget found to involve first about any one of important who is
associated with government and non-profit organizations. This usually include the top
administration of the organizations, the lead of department or program and the transfer or do not
need to face investors who expect a good return on their investment.

Budget are important tool for effective short term planning and control in
organization. An operating budget is allocation of the expected expense for the budget period.
(Ibid, 1998, 377)

Basically, the following features characterized on annual budget.

It estimate the profit potential of the business unit. It is stated in monitory term despite the
monitory amounts may be backed up by non-monitory amount (example; unit sold or produced).

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It generally covers a period of one year except in business that are strong influenced by resonal
factors where there may be two budget per year; a fall budget and a spring budget. (Ibid, 373-
374)

A list of characteristics of an effective budget has been affected by Meyers (1996) below. Table
1

CHARACTERSTICS OF AN EFFECTIVE BUDGET

Term Characteristics

Accountability Detailed control should be established which

have the goal of insuring that policy detectives
are carried out by manager of contracts and all
concerned parties.
Comprehensiveness Include all uses of government’s financial
resources.
Constraints Contains limitation on the amount of money
that need be dominant
Cooperation Budget should exist in harmony with the other
decision process and should not be dominant.
Honesty Contains un-biased projection

Judgments Encourage participants to seek the most

effective at the least cost.
Legitimacy The budget process should reserve the
important decision to legally appropriate
authorities.
Perception Consider both near and long term.

Responsiveness The budget must adapt policies that much

public preferences.
Time lines A budget should compete regular tasks when
expected.
Transparency The budget and budget procedures should be
understood by participants and outside stock
holders.
Source; Meyers, Roy T, 1996. Is there a key to the normative budgeting lock, the World Bank,
Washington D.C.

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Table 2;

Characteristics that adversely impact budget performance.

Term Characteristics

Extra-budgetary fund Extra-budgetary fund do not force tradeoffs

between competing priorities.
Extra-budgetary fund generally circumvent
central controls, there by violating the
comprehensiveness standard.
Earmarked funds (earmarking) Earmarked funds are dedicated to particular
uses or purposes. Agencies with Earmarked
funds may have title or no incentive to
economize. Earmarking may impede the
governments ability to be flexible in managing
it budget or in allocating resources.
Unpredictability In accurate budget estimates, arbitrary budget
cuts, and non-timely fund disbursement will
substantial budget Unpredictability.
Un reliable information In accurate and un-reliable information will
conspire against enhancing budget
performance.
Source; Meyers, Roy T, 1996. Is there a key to the normative budgeting lock, the World Bank,
Washington D.C.

2.4 PURPOSE OF BUDGET

The objective of budgeting and budget is to control the organization approved projects and verify
the annual budget to the extent of approval, and to examine carefully the evaluation and
utilization of those budget. A properly prepared budget provides government and other with
several benefits. The primary purpose of budget is to present and describe the financial
ramification of plan for the future. The budgeting process requires individual to consider future
courses of action and the resources needed to accomplish various activities. It also promotes
coordination and communication among divisions or departments within government function
effectively and efficiently there should be an interaction among departments and clarity of how
action alone affect another. Then, the manager must communicate their plant to each other in
order to coordinate the activities of the government as a whole. Moreover, budgeting also aids
allocation of limited resources by ensuring that information is available help managers determine
each activity should receive the limited resource of the organization.

A budget also serves a useful benchmark against which to evaluate and control actual
performance result to the budget to determine what area deviated from planed activities and
whether to take corrective actions. When actual budgeted results do not much, the financial and

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operating activities of the government needs to be adjusted, the budget may need to be revised,
or both by the responsible authority.

Thus, the evaluation process serves to control operation by determining when and where a
company did not achieve planed results. (Anisworth, 1997; 145-146)

2.5 ROLE OF BUDGETING

The role of budgeting is greatly for governmental and non-governmental organizations, and not
for profit organizations ,and not profit organizations . it is useful in key managerial function
such as planning coordinating and indicates the society concerned what decisions have made of
the organizational objectives (Anthony and Govindarajan,1998;375).

Planning

A budget that provides a detailed action plan for organization enable the manager to anticipate
the organizational emergencies long before they arises .Then manager seek solution through
careful study and think a head to prepare for anticipated problem or condition. (ibid ;375).

Organization

One of the main function of budgeting is to increase efficiency. Budgeting, especially program
budgeting reveals the fact described be Neath ; which operational department or program or
responsibilities centers exist only for historical reasons, whether the department are
accomplishing activities for which they are responsible , and whether interdepartmental
communication is minimal or non-extent of all. Thus, the economical method to accomplish the
objectives should be used; diseconomies can be identified in organization under budget. This
contributes to great deal of efficiency to the organization.(Anthony and Govindarajan,1997;376)

Coordination and cooperation

Budget control promotes better coordination among different level of departments in their effort
so that the objectives of the organization as a whole harmonize with objectives of its part. For
any organization That is each have specific ,well defined responsibility and all activities are
organized along program liner. Interdepartmental program are designed so that each participant
is fully aware of its role. Thus, budgeting through managerial participation in the budget
preparation, pools together the plan of each manager in an organization and cooperation.
(ibid;376)

Resources allocation

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Organizational resources are generally limited with alternative set of computing uses.
Budgeting provides a wise means of allocating the resources among those uses in accordance
with their priority goals.(Thomas,1978;250)

Control

Control is necessary to ensure that plan and objective as laid down in budget are being achieved .
control as applied to budgeting, is systemized effort to keep management informed of where
planed performance is being achieved or not. For their purpose, comparison should be made
between planes and performance. The difference is reported to decision makers of taking
corrective action or for deciding on incentives to those who perform well. Thus, control is by
no means possible with out budget.(Drebin,1978;66-70)

2.6 Classification OF BUDGET

2.6.1The rational for budget classification

A primary purpose of budget classification is to control expenditure in terms of approprions. It

also serve to secure information that w ill be helpful in the preparation of the budget ‘for
succeeding periods. It also insures that money is expanded economically and is also used to
prepare financial statement. More over it also used for comparative purpose.(Tenner and
Lynn,1960;106)

2.6.2 Types of budget classification

The purpose of budget classification to some extent influences the type of budget classification
used. As a result, budget can usually be classified on the basic of three different but not
necessarily exclusive criteria.

1. Based on time range

A. Capital budget; obviously deal with the acquisition of fixed asset. They are usually prepared
separately from the operating budget and by different people. They are likely to approved by
legislative body year at a time. But it is very helpful for wise of management\of a resource to
plan to acquisition of aeixed asset or project several years in advance this is so called the capital
program.

B. Operating budget; are a concerned with the current year expenditures. They are sometimes
called recurring expenditure because similar sort of expenditure needed year after year.

2. Based on the phase of progress

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A Tentative budget ; are budgets that have not yet been officially approved but are still in
process.

B Enacted budget; budgeted that have been officially approved and are a binding legal
document .

3. Based in behavior of expenditure

A. Fixed budget; are a expenditure requests that are affixed in total dollar amount can not be
exceeded .

B. Flexible budget; are expenditure request that are fixed as per unit cost o periodically (i.e
Fiscal year). recurrent periodically (i.e Fiscal year). recurrent periodically (i.e Fiscal year).
recurrent good and service and can increase it changes in circumstance in indicate more unites.
(Lynn and Freeman;1974,55-58)

2.7 TYPES OF BUDGET

2.7.1 Recurrent budget (operating budget)

It is defined as all non-discretionary expenditure payment of salaries ,debit payment, legal

obligation and other office expenditures that are incurred periodically (i.e Fiscal year).
Recurrent budget are used by government organization to formalize their activities of a given
period usually fiscal year. They included estimates of the resources expected to be available
during the year and projection of how those will be expended. For many governments
organization requires the use of and operating budget. By the beginning of each fiscal year a
balanced budget( on in which a total of the estimated funds available the project revenues and
fund balance must be sufficient to meet the anticipated expenditure) be approved by their
legislative bodies.(Babunakes,micheal;1976)

2.7.2 CAPITAL BUDGET (CAPITAL PROGRAM)

The capital budget is defined as discretionary expenditure of economic development activities

with clear defined time table. This are the planes expenditure and the means of financing thus
expenditure expected to be made for long leaved or capital asset such as land, buildings and
equipments. The usually cover more than one year period.

2. 8 bases for budgeting

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In well-established program, previous year’s budget with variance is usually ground for the
preparation of budget. If on the other hand, the program is new, the preparation of effective
budget requires much deviation to working with carful research to produce realistic estimator of
both revenue expenditure. They should be planed to maximize service output without producing
a surplus or a deficit. To consider past budgets as a base of preparation, it should be understood
that conforming to a budget is not necessary good, and departure from a budget (deficit or
surplus) is not necessarily bad. Because budget are set based on circumstances that were believed
to exist, a manager who discovers a better way of operating than stated in the budget should
operate in that fashion. (Douglar, 1995; 622-628)

2.9 approaches to government budgeting

A government budgeting system should be designed to fit its environmental factor. Some of
which way be unique. Its system should provide a planning and control balances that are
approprarite to its circumstances. The several approaches to government budgeting have marked
different on their emphasis on planning, controlling and evaluation. The approaches are
performance approach, planning programming budgeting approach, zero base budgeting
approach and objective of expenditure approach. The Trist three approaches are known as
modern approach were as the last are is called traditional approach.

2.9.1 The performance approach

Performance approach, according to lynn and freeman, is concerned with an expression in

financial terms of the major activities or functions of unit ,(1982 p62). The description of each
program is based up on the object of expenditure which are regard to do it. Such a budget
expresses the operation of the a government in term of out put of service performed for the
public rather than in term of input, that is, manpower to be hired ,service to be paid, or goods to
be bought.

The performance approach focuses on classifying budgetary account by functions, activities and
organizational unit and objective of expenditure. It also lays attention on investigating and
measuring existing activities in order to obtain maximum efficiency and to establish cost
standard and others. Moreover, the most important contribution of this approach ; both input
and output are measured and the result of each activities formally monitored as are costs
incurred in obtaining this results, its emphasizes up on the inclusions with in the appropriated
budget of a narrative description activities with requests to supported by estimate of cost and
accomplishment in quantitative term. (Tanner and Lynn, 1997; 62-63)

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The performance approach assists both the legislative and the public in understanding the muter
of activities under taken by executive branch. It provides the legislator additional freedom to
reduce or expand the amount requested for particular function of activities. This approach also
provide the chief executive with additional revenue of control over his subordinates rather than
being restricted only to how much his/her subordinates spend, and he/she may evaluate the
performance of activity in terms of both birr and activity unit standard. (Ibid,63-64)

The performance approach according to Tenner and Lynn is most popular over other
approaches for the following reasons. It prints the legislative body to make balanced decisions
provides answers to areas such as agencies, the reason for asking appropriations, the type of
services the agency rendered to justify its existence, the type of programs or activities the
agency to achieve its objectives the volume of work regulated in each activity the level of
service the legislative and tax payers expects if the required amount are appropriated.

2.9.2 PLANING-PROGRAMING-BUDGETING APROACH (PPB)

PPB approach emphasizes broad policy, goals, strategies and objectives rather than details of
spending. It considers long rang planes and then evaluates costs and benefiters of different ways
of meeting the goals and objectives. It also emphasize the governments over all programs rather
than specific departments.

PPB approach has many contributions mostly it is on planning process ( i.e. the process of
making programs and policy decisions that leads to a specific budget and specific mult-year
plan). However, it does not replace need for the carful budget analysis to ensure that approved
carried out in an efficient and cost conscious manner; nor does not remove the need for the
preparation for the detailed and types of information support budget submission.

The main peculiar characteristics of PPB are; it focuses on identifying the objective of the
government and the relating all activities these regardless of organizational placements, future
year implications are explicitlt identified, all pertinent costs are considered ,and systematic
analysis of alternatives is reformed.(Ibid ;67)

2.9.3 ZERO-BASE-BUDDGETING APPROACH (ZBB)

One methods of continually evaluating programs and services is ZBB approach. It’s primarily
idea is that each program must justified its existence every year. No program is assumed to be
continual from one year to next. The starting point for the budget each year is zero.

The essential idea of ZBB is that the continued existence of programs or activities is not taken
for granted; each service must be justified in its entirely every year. It is designed to force
annual revises of programs, activities and expenditures to save money by identifying out dated
programs and unnecessarily high level of services to concentrates the attention of officials on the
cost and benefits of services, to cause a search for new ways of providing services and achieving

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objectives to improve the objectives of the managements to plan and evaluate to provide better
justifications for budget and finally, to improve decisions made by the executives and
legislatives branches of the government. On the other hand, ZBB is time consuming and an
pleasant from point view of managers where operations are being review. (Lynn & Freeman )

2.9.4OBJECT-OF-EXPENDITURE APPROACH

Object of expenditure approach also called traditional approach has an expenditure control
orientation. It continues to the most widely used. Object of expenditure approach is simply list
expected expenditures and say how much is required for each one. The amount of expenditure
required spend will be depend in how much control the budget authority wants to exercise over
the department head. The level of details on such approach detail of expenditures, there is more
exercise over the department head control and less flexibility and vise versa. (Lynn &
freeman,1982;60)

This approach becomes popular as the bases for legislative control over the executive branch. It
involves; subordinate agencies submitting budget request to the chief executives in term of
expenditures to be made that is, the number of people to be hired in each specified position and
salary levels, and specific goals or services to be purchased during the up coming period, the
chief executive compiling, modifying and submitting an overall request for organization to the
legislator in the same object- of- expenditure terms, the legislature making line items
appropriations, possible after revising the requesting along the objective of expenditure input
lines, and a great degree of legislative control will be typified if appropriations are stated in
terms of the most detailed levels. (Ibid, 60-61) .

2.10 BUDGETARY PROCESS

The budget process refers to a complete cycle of activities of the government and it has come in
to use describing the complete cycle of activities of the government. It includes budgetary
planning and preparation of requests or appropriations, executive branches reporting on budget
execution, and consideration by the legislative body of manner in which its authorization has
been carried out.

2.10.1 BUDGET PREPARETION

Financial planning requires that the preparation of budget should be stated in time for its
adoption before beginning of the period to which it applies. To ensure the adequate time will be
allowed, a budget calendar is frequently prepared lasting each step in the budgetary procedure
and the time allowed for its completion. The budget officer considers series of steps, to prepare
the yearly budget. This includes musrevenue estimate, expenditure planning and preparing the
budget document.

1. REVENUE ESTIMATES

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Unless there is possible source of revenue estimates from different sources, expenditure planning
is not possible. Therefore the possible source of revenue have to be known and the revenue
should estimated based on them before taking steps to expenditure planning. According to
Tenner &Lynn (1960;15) the budget officer must have an excellent idea of the revenue which
taxes currently provided by law will yield at current rates. Having produce that such an
estimate, the budget officer and the chief executive can compare it with their knowledge of
change demand on the government. Such a comparison should provided an impression of the
adequacy of the estimated revenue to meet the need of expenditure. Thus, before taking any steps
to expenditure planning, the possible source of revenue has to be known and the revenue should
be estimated based on the possible sources.

2 Expenditure planning

Expenditure planning is considered as a year round activities that includes the following steps.

Step 1; communication of budget instruction . the budget instruction includes a statement of

broad goals, polices expectations and other appropriate comments from the executive to the
department heads. Practically should also include the budget calendar, supporting documents and
procedure for filling out any necessary forms.

Step2; call for department head ; collects estimates of expenditure from the sub-units revises
them and combines them in to determinant budget.

Step3; estimate of other charges;

Step4; revision of estimates; the chief executive with knowledge of priorities and total
estimated revenue revised department estimates .This is specially important if the expenditure
requests have exceeded the revenues estimated.

2 PREPARING THE BUDGET

The chief executive , after considering the requests and taking necessary action on them , prepare
the budget document to be selected to the legislative body for approval.(Lynnand free man.
1974;78-90)

2.10.2 BUDGET EXECUTION

Steps are taken to control the budget properly after appropriation ordinance are passed. Budget
execution refers to the implementation of plan of organizational unit in to real action and
includes every decision and transaction meet during the budget period. The budget execution
process includes allotment, accounting threatment,pre auditing and reporting activities .

ALLOTMENTTS
Appropriations ordinance or act does not specify the rate at which expenditure are to be made
through out year. Allotment is evident how ever that the follow of revenue and expenditure is not

14
unit for. Allotment are executive assignments of appropriated sums by time period or to
organizational unites or activities. (hay Wilson;1995,70)

Allotment is the allocation of the amount appropriated indicating the time appropriation is
consumed, the rate of usage and the organizational unit responsible for consumption. Unlike
appropriation which is made by legislative body and frecountly can be changed by that body
only, allotments are made by the chief executive and can be changed by his/her with out any
action of the legislative body.

The first step in expenditure control is a cable by the chief executive departmental allotment
schedule. At this, each department knows the maximum amount, which his department may
spend. His task now is determine how much of the appropriation is spend during each month,
quarter or other period; and must determine how the sum will be spread among his/her activities.
(tanner and lynn 1968,37)

The department allotment schedules together with any addition data supporting the remaining for
allotment such as work programs are submitted to the chef executive, which has received
statement from the budget officer showing estimated receipts by month, quarter for other periods
up on receipts of department allotment schedule, the total allotment are requested to each period
during the year, are tabulated and compared with the anticipated receipts as far as possible,
adjust are made to being expenditure with in the actual resources available for the particular
period. If the budget is effectively control, organizational unit must stay with in their
appropriation and the amount allotted to them for a particular period.

BUDGET ACCOUNTING

According to the tanner and Lynn, budgetary accounting is one of the principal devise through
which control of budget execution is exercise 1960,45). The estimated revenue and appropriation
in the amount approved by legislative body are actual recorded in the books where .they may be
compared with the actual development of the period. How ever the activities with which
appropriation account are set up depend on the detail with which approprion are made separate
general account are established for estimated and actual revenue. This separate accounts for
appropriation are set up in the general ledger manual.

 Appropriation account
 Expenditure account
 Encumbrance account

PRE-AUDITING

This refer to function of approving transaction be fore they have been takes place or recorded.
Responsibility for the function is always assigned to the chief accounting office through the large

15
department, who perform some or all of the pre-auditing function for revenue transaction, pre-
auditing include; verification of auditing, accuracy of task, revenue base, calculation,
classification and coding for entry in the recorded, from the expenditure side pre-auditing may be
directed toward prevention of miss appropriation of funds. Over spending of appropriation,
expenditure for illegal purpose and finally it ensure the use of proper method and procedure .

Control of miss appropriation of fund is exercised by combination of appropriation procedure,

pre-audit and post office accounting this is done under direction of the chief accounting officer
of the government to determine whether prescribed procedure have been followed. The
examination of the book of accounts by an independent past auditor is also a powerful tool for
identification of miss-appropriation. Further more the use of proper methods and procedure is an
integral part of the process of internal control.

Expenditure are illegal if they exceed the appropriation that authorized them or it they are made
for purposes not considered by the appropriations.

REPORTING

Reporting is an essential element of budget execution for which the executive branch all the
government is responsible. In performing this functions, the executive should meet the need of
many different ,group .the annual financial report is made to provide the legislative body ,
investors, public finance students, political scientists, and the general public is the information
which each group needs. The monthly statements are primarily designed to meet the need of
administrative persons such as the chief executive, supervisor at the general level of the
government and budget examiners. The principal part of the foreign budget report is to provide
information for action, solutions, and variation from the budget. The annual financial report is
prepared by the financial officers of governmental unit to show it is financial condition and
operation. (tanner and Lynn, 1960;347)

2.10.3 BUDGET LEGISLATION

After preparation of final budget officer, budget document including massage of chief executive
is termed over to a specially by committee, which make any investigation it deems necessary,
calls on departmental needs to justify their requests and on the chef executive to explain his/her
recommendation and conduct public hearings on the proposed budget. The committee then
makes it recommendations over to legislative body. After completing the budget hearing
investigation and considering the committee recommendations, the legislative body proceeds
adopt the budget through passage of un appropriation ordinance.(hay and Wilson,1991;68)

2.10.4 BUDGET EVALUATION

Budget evaluation is analysis of alternative specially the full costs of each and the magnitude of
benefit that can reasonably be expected, from each option seeking to satisfy one or more

16
objective. It is the systematic method of examine specific problem and finding alternative
solution while identifying the cost and benefit of each solution. It also provides meaning full
alternatives and priorities in decision making, beside trying to determine whether resources are
allocated in the best way to be effective in

achieving objectives, It also measures progress towards achieving there goals and help to test it
programs attaining there objectives. Furthermore, it can help administrators demonstrative to the
legislative body and the public that existing programs and planned further programs accomplish
their stated objectives. It act as catalyst in that it provided the estimation for change. That is
budget evaluation help to; make decisions, modify, expand, reduce, continue or terminate
programs. (Michael, babnakis,1976; 51-52)

Evaluation involve defined goals and specific measures of impact. This involves the
establishment of the unit of measures of productivity, cost and actual accomplishment. In other
words as a pre request, evaluation needed the availability of the feature or conditions associated
with performance and program budgeting system. (p 53)

The term “evaluation” has been expressed in a different way and has been variously described as
a performance auditing ,implementation review and program monitoring. Evaluation can be both
prospective and resprospective. Retrospectives refers to the assessment of progress and impact
analyzing the reason for success and failure and deriving lessons that in turn, could contribute to
the achievement of government objectives. Evaluation is not mare analysis of expenditure flow
but is wider than this. More specifically its feature are;

 An analysis of objectives of each program, the approach to their formulation and target
setting and the adequacy of the system evolved for their implementation.
 The examination of the effectiveness of the procedures and scheduled used for the
implementation of the budget.
 An assessment of the impact programs in the light of their objectives and analysis of the
flow of benefit and their use.
 To ascertain the wastage of man power, materials, and money.
 It increased economies, efficiencies and effectiveness in governmental operations.
 It provides justification for elimination of uneconomic project and programs.
 It provides the introduction of increased nationalities in to the decision making process

2.11 THE PROBLEM AREA OF BUUDGETING

The advantage derived from budgeting system are so obvious that there would hardly be concern
were the system is not in use in one form or the other. Despite, such a wide application, budget
have certain limitations, which would be kept in view and taken care of if full and effective use
of the budgetary system is to be made. The limitations are as follows;

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 A. budgets are based on estimate :
The budget are essentially based on the estimates and forecast. Estimates and forecast
relating to future can never be perfectly accurate since future is always uncertain. At
the time of interpreting the result , these limitations should be kept in view otherwise a
slight error may lead as to adverse situation.
B. Lack of balanced budget ;
Government is expected to promote development development, provide social, reduce
unemployment and even social security funds, which require large amount of budget
on the other hand, there is amarkable persistence in the nation that government budgets
ought to be balanced debts. And these two goals are critical problem in government
budgeting.
C. Time effective;
Budgeting is a length and time consuming process. The preparation and finalization
takes a lot of the time. During the periods, the organization conditions may change and
estimates may go wrong by that time.
D. Budgeting is not an authorized process;
Continues effort are necessary on the part of the officials responsible for the execution
budget. The successful operation and execution n of budget depend up on the
efficiency of the executive personal. They may vary in their efficiency. Moreover,
there may be tendency on the part of the executives concerned to show off and try to
pass on their mistake to other. Interdepartmental rivalries in getting a large share of
budgetary allocation often create special problems.
E. Rigidity in control;
The budgetary control system tends to bring about rigidity in control; it based on
quantitative data. On the other hand, organization conditions are dynamic which
require adjustment to change circumstance (L. Mathura, 1996;20)
F. Delay of budget;
Most of the time in our country budget is released at the middle and at the end of the
second quarter of the year. Until the requested budget is approved and released, the
office entitled to use of the last authorized budget. When it approved and released it
may not equal to that of the last year. This create difference problems on work plane
and finally it will be exposed for misuse.
G. Budgeting is not a substitute of management;

Budgeting is essentials a tool of decision making and it helps the management in

taking sound decision. However, it can not replace the management. The efficiency
and utility of budgetary system depends on the skill and experience of management. If
used cautiously, it can aid management in caring but decision.

2.12 BUDGETARY CONTROL TECHNIQUES

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Budgetary control is a technique of managerial control through budget. “the term budgetary
control applies to system of management and accounting control by which all operations and out
put are forecasted as far as possible and the actual results, when known, ,are compared with the
budget estimates.” Thus the tem budgetary control in designed to evaluate the performance in
terms of goals budgeted through budget reports. Budgetary control is categorized in to legislative
control and administrative control

2,12,1 LEGISLATIVE CONTROLE

It is through the parliamentary process of appropriating the amount of expenditure and the areas
or purpose of expenditure and approving the sources and levels of revenue through hearing
report of the auditor general and prescribing corrective action

2.12.2 ADMINISTRATIVE CONTROLE

Such a control comprises the plane of organization that are concerned mainly with operational
efficiency. It may include controls; such as time and motion studies quality controls through
inspection, performance report and statistical analysis. Administrative control has the following
aspects;

2.11.2.1the most government money does not flow automatically for agencies after legislative
approver appropriations the central budget office for at least three reasons allocate it monthly,
quarterly, or at other intervals.

 To avoid premature exhaustion of appropriation, necessary supplementary

appropriations .
 To keep the rate of expenditure in line with flow of revenue and
 To provide the fund agencies actually need in the course of budget implementation.
( Axelrod

2.12.2.1 CNTROL THROUGH ACCONTING PROCESS

The accounting system control actual expenditure from appropriations to allotment. Most
proposed expenditure must run through the accounting system to make certain that it complied
with the term of appropriation bill, the allotment and the financial law of the government. The
accounting and financial control includes control accounts bank reconciliation, self balancing
ledger and internal auditing etc… such control ensures accuracy and reliable of financial records
adherence to prescribed managerial polices and state custody over asset.

2.12.2.3 CONTROL THROUGH AUDIT

Auditing is an examination of records facilities, system and other evidences to discover or verify
desired information . auditing is of different types that are internal versus external and pre-
auditing versus post-auditing.

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  Internal audit are those performed by professional employed by the organization being
audited.
 External audit are performed by out side professional independent from the organization
being audited.
 Pre auditing is an advance verification of legality of transactions before resources are
commuted on their completion.
 Post auditing is an examination of records and activities after they have already been
completed

Advantage of auditing

The following are the advantages of auditing;

 Audit account are more readily accepted as correct and authentic record of the
transaction.
 Error and Freud are detected on time
 Comparison can be made between the accounts of the current year and other year.
 As an appraisal function, audit previous the extent and operations of various controls in
the organizations and point out the weakness and adequacy in them.

2.12.2.3 INTERNAL CONTROL

It is a means of assisting modern organizations management in discharging its function. Internal
control is defined as the method procedure with in the agencies established to safeguarded asset,
check the accuracy and liability of financial and other data. Promote operational efficiency and
encourage adherence to the prescribed polices and procedures of the agency.

Objective of internal control are the following;

 To eliminate the act of Fraud and error

 To prevent the misappropriation of cash or goods
 To exercise more pressure over the staff members.
 To detect fraud or an error prompt .
 To ensure that the accounting system produces reliable information .

CHAPTRE THREE

DATA ANALYSIS &INTERPRETATION

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3.1 INTRODUCTION

The objective and responsibility of Axum Araya Kahsu health college is to provide necessary
technical assistance and controlling the budget utility process of the college. The institution
controlling whether the budget collected is used for component of the pre determined goals and
also tries to exercise the policy reform program in order to avoid rush of spending at the end of
the budget year by purchasing necessary material instead of returning the unutilized budget to
central government treasure. Therefore, this paper discusses the college budget implementation
and controlling problem, in Aray Kahsu health college.

The budgeting process in different public bodies and agencies of the government starts with
preparation of initial budget and terminated at the approval state before the budget can be
implemented. But my study focus on budget implementation and control problem.

Aksum Araya Kahsu health college is one of the governmental health college that mobilize the
middle amount of budget. Because of this feature from the beginning effective planning,
budgeting process and budget implementation or utilization of resources for the organizations
where the most important activity in the health college. Therefore, this paper discus the
implementation and control of Aksum Araya Kahsu health college.

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3.2 personal information

Table 3.1 personal information

Term Respondents Percentage

1 Sex ;
Female 2 40%

Male 5 60%
Total 10 100%

2 Age;
Less than 25 - -

26-35 3 60%
36-45 2 40%
Above 46 - -
Total 5 100%

3 educational level;
10-12 - -
Certificate - -
Diploma - -
Degree 4 80%
Master and above 1 20%
Total 5 100%

Source: Result of Survey

The above table 3.1 no 1 show that the sex of respondents. 60% of the total respondents are
males and the remain 40% of them are females. So this is better to the institution, because males
can perform well than females to the existing condition. Therefore, the institution can cure the
budget implementation mechanism with that male and any internal support from female workers.

the above table no 2 indicate that the age of the respondents. Most of the respondents are young.
So this show that the institution can implement and control the budget in successful manner with
being young workers and any important support from the old employees in terms of age. To
conclude the above table no 2 the institution is advantageous with 40% of old employees and
60% young employees.

The above table no 3 show that the educational levels of the respondents. The above table
indicate that 80%of the respondents are degree and the remain 20% are master. So the institution
is in a good position in implementing and utilizing the budget amount.
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 3.3 ANALYSIS OF BUDGET PROCEDURE AND PROBEM FACED WITH BUDGET
PREPARETION IN AXUM ARAYA KAHSU HEALTH SCINECE COLLEGE.

Table 3.2 budget approach

Question Respondent Percentage

Which budget approach do use in

your office?

5 100%
A traditional approach

B modern approach -
-

C others -
-

Total 100%
5

Source: survey study

The above table 3.2 show that the budget procedure used by the college is tradition approach.
This indicates that the organization is used budget forecast without considering output.

3.3.1 BUDGET PREPARETION

From respondents, the budget is prepared from different departments of Axum araya health
science college and at last combined together. While they make budget preparation in the
college, the college require a prior knowledge about the availability of revenue sources and
future expenditure type. The objectives and responsibilities of the college is to provide necessary
technical assistance and control the budget utilization process of the college.

Problems in preparation budget, from the respondents.

It is made through estimation,

It may not be balanced ,and
It is inefficient.
3.3.2 participant in budget utilization;
 budget and plane process,

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  outcome base process,
 financial and administration process,
 technology and transfer process,
 human resources development process and
 audit process

table 3.3;dely of budget

Question Respondents Percentage

Do you get the appropriate

budget on time?

Yes -
-

No 5 100%

Total 5 100%

Source; survey data.

The above table show that ,the institution does not get the appropriation budget on time and the
reason for not yet get at the time is delay of budge. So this leads the institution to not do the
necessary activity. Every governmental organization are performed through the budgeted amount
to specific activity, but if the budget is not on time it is a problem to the organization.

Table 3.4 target budget

Question Respondents Percentage

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 Is the budget is used for
intended target?

Yes 5 100%

No - -

Total 5 100%

Source; Survey data.

The above table 3.4 indicates that, the budget in Axum Araya health science college is used for
the intended activity. It is better if the budgeted amount is budgeted for specific activity. So to
conclude the above table the budget in Axum Araya kahsu health science college is used for
intended target.

Table 3.5 double entry

Question Respondents Percentage

1 do you use double entry

system?

5 100 %
Yes
No - -
Total 5 100%
2 what are the important
accounting format used
for receipts and
payments of budget?
A Hard copy 5 100%
B soft copy - -
C other - -
Total 5 100%
Source; Survey study

Table 3.5 show that the institution used double entry system and its accounting format is hard
copy. While record payment and receipts of budget the institution record on the debit and credit
side and the documents used to record the payment and receipts is hard copy. So to summarize
the above table the double entry and hard copy are the control mechanism of Axum Araya Kahsu

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health science college, since all respondents say “yes” (100%) in double entry and hard copy
(100%) in question two.

3.4 ANALYSIS OF SIGNIFICANCE VARIANCE

Variance is the difference between budget and actual figures. A favorable exist when actual
expenditure is less than the budget or actual income is greater than the budget figure. The reverse
also will be true if unfavorable exist.

Breaking down of variance in to the smallest component of its part is very important to identify
the cause of variance and significant variance that deserve management attention.

In the following section of the discussion, the writer trays to show the trend of budget variances
in Axum Araya Kahsu health science college by taking the three consecutive year budget and
actual data from the reporting of budget expert and expenditure department .

Table 3.6 utilization budget

Budget amount Actual utilization Unutilization Utilization

budget percentage

Year (e.c)
1575655.12 1462684.96 112970.16 92.8%
2001

2002 2174155.44 1995827.32 178328.12 91.8%

3861589 3687530.93 174058.37 95.5%

2003

Source: Annual report of budget and actual utilization of Axum Araya Kahsu health Science
College 2001, 2002, & 2003)

As the recurrent budget utilization is clearly shown in the table 3.6 above, the total recurrent
budget authorized for the Axum Araya Kahsu health science college has increased from birr
1575655.12 during 2001e.c to birr 2174155.44 in 2002e.c. which indicates a great increase in

26
the amount of spending on personnel in the college. In addition ,it also indicates that the plan of
work for which the personnel assigned at the college level is increasing from time to time.

On other hand, the total recurrent budget (salary) authorized for the college department increases
from year to year. This indicates that there is a great increase in spending salary, wages,
allowance payment. See table 3.6 the amount total spending from 2001 to 2003 is going up.

When we examine the efficiency of the health since college departments as a whole in utilizing
its recurrent budget (salary) for budget 2001e.c, the authorized budget is birr 1575655.12 and the
actual budget utilized is birr 1462684.96 the difference is 112970.56. the college utilized 92.8%
of the authorized budget which indicates good utilization.

When we examine the efficiency of the college in utilizing its recurrent budget for the budgetary
period 2002e.c, the authorized budget is birr, 2174155.44 and the actual budget utilized is birr
1995827.32. the difference is 178328.12. the college utilized 91.8% of authorized budget, which
indicates good utilization of actual budget. And also when we examine the efficiency of the
college for the period of 2003e.c the authorized budget is birr 3861589.3, and the actual budget
utilized is birr 3687530.93 and the difference is birr 174058.37, comparing with the above
consecutive two years (2001-2002e.c) this period is excellent utilization of budget, since it
utilized 95.5% of its authorized budget.

To summarize the above table , the budget utilization of Axsum Araya Kahsu health science
college is excellent utilization of budget.

3.5 CAUSE OF VARIANCE IN AXSUM ARAYA KAHSU HEALTH SCIENCE

COLLEGE

Variance is the difference between the authorized budget and actual utilization of budget. The
cause for the difference in actual and authorized budget is;

A Revenue estimation

If there is no revenue, expenditure planning is not possible. Based on the revenue estimation
from different source, expenditure is planned. The budget officer must have an excellent idea of
revenue sources. Having produce such an executive can comper it with revenue and expenditure
of the prior year and with knowledge of chance in demand for the government such a comparison
should provided an impression of the adequacy of estimated revenue to meet expenditure.
Therefore, before taking any, to expenditure planning the possible source of revenue have to be
known and the revenue should be estimated based on the possible sources.

B Expenditure

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Expenditure planning activity accrued year after year. The budget officer and budget examiner
should be continued in the process of becoming acquaint with agencies, analysis of agency does
how does it.

From the table 3.7 below we can see the variance in the three consquentive years listed as
follows:

Table 3.7 variance

Year (e.c) Variance

2001 112970.16

2002 178328.12

2003 174058.37

Source: Annual report of budget and actual utilization of Axum araya kahsu health science
college.(2001, 2002, & 2003)

The above table 3.7 show that, the variance in the last three years is favorable variance since all
authorized budget for year 2001, 2002 and 2003e.c is greater than the actual utilization budget.
For detail information see table 3.8.

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Table 3.8 favorable verses unfavorable

Year Budgeted Actual utilization Variance Favorable verses

amount unfavorable

2001 1575655.12 1462684.96 112970.16 favorable

2002 2174155.44 1995827.32 178328.32 favorable

2003 3861589 3687530.96 174058.37 Favorable

Source : Annual report of budget and actual utilization Axum Araya Kahsu health college 2001,
2002, & 2003.

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 CHAPTER FOUR

CONCLUSION AND RECOMMENDATION

4.1 CONCLUSION

The utilization of budget in Axsum Araya Kahsu health science college during the last three
consecutive years (2001-2003e.c) as it is discussed in chapter three was not free from problems.
The budget utilization in the college is excellent, but the budgeted amount is short and
inefficient.

Mostly the budget preparation is based on the past year budget, that mean the college follow the
incremental approach of budget system. The current year budget is mostly developed based on
the last year expenditure trend of budget utilization.

In general, the result from the data analyzed show that during the last three budget years, the
implementation of budget, and as been taken problems specially budget shortage and
inefficiency

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4.2 RECOMMENDATION

As we observed some of the problems with regards to budget utilization Axum araya kahsu
health science college, the following suggestion are pointed out.

 As shown in discussion part mostly the authorized budgets are effectively utilized. So ,
to keep it up the college must be ask more budgeted amount by follow its respective plan
of operations.
 The variance shows in the data analysis and interpretation table is favorable, so the
organization must have follow the control mechanisms and plane of expenditure for the
last three years.
 To make better control in the finance, computerization must have to installed and start
work with the new system.
 Budget annual is very essential for any organization it consists of policies;
organizational structure, authority and responsibility put in writing and should be in
commonly used language. It tells what to do, how to do, when to do it and in which form
to do it. However, the college does not have an Amharic or English version budget
annual, so, the writer believe that the college should prepare an equivalent English or
Amharic version manual. So that any interested party can understand a lot about budget
and its implementation.

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