OROMIA STATE UNIVERSITY

SCHOOL OF ACCOUNTING AND TAX ADMINISTRATION

DEPARTMENT OF PUBLIC FINANCIAL MANAGEMENT

(MA PROGRAM)

PUBLIC SECTOR ECONOMICS (PFM 501)

Individual Assignment: Assessment of East Shoa Finance Economic Cooperation Office

Budgeting System

Group: Members ID No:

1. Amana Kemal

Submitted To: Wakitole Dadi

FEBRUARY 2020 GC

ADAMA

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Table of Contents Pag

e
1. Introduction...............................................................................................................1

2. Brief Description About office..................................................................................2

3. Assessment of Budget................................................................................................3

4. Conclusion..................................................................................................................7

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 1. Introduction
1.1. Definitions and concepts of Budget
The English word budget stems from the French word bougette and the Latin word bulga,
which was a leather bag, or a large-sized purse, which travelers in medieval times hung on
the saddle of their horse. The treasurer’s “bougette" was the predecessor to the small leather
case from which finance ministries present their yearly financial plan for the state. So after
being used to describe the word wallet and then state finances, the meaning of the word "
budget" in the 19th century slowly shifted to the financial plan itself, initially only for
governments and then later for private and legal entities (Banovic, 2005). In a broader
definition, different scholars define a budget from the government side in different ways. For
instance, according to Vennekens and Govender (2005, p. 4), a 'government budget is a
public document that outlines how a government proposes to collect and spend money.'
Budgeting is the process of making a plan to spend your money. This expenditure plan is
called a budget. Creating this spending plan allows you to determine in advance whether you
will have enough money to do the things you need to do.
In general, a government budget is the financial plan of a government for a given period,
usually for a fiscal year, which shows what its resources are, and how they will be generated
and used over the fiscal period. The budget is the government's key instrument for promoting
its socioeconomic objectives.
1.2. Recurrent and Capital Expenditure
Recurrent or consumption expenditures incurred on the day-to-day activities of the
government. It is paid for salaries and operating expenses in providing peace and security,
other general, economic and social services. This type of expenditure is of recurring type,
which is incurred year after year.
Capital expenditures are incurred on building durable assets, like highways, multipurpose
dams, irrigation projects, buying machinery and equipment. They are the non-recurring type
of expenditures in the form of capital investments. Such expenditures are expected to
improve the productive capacity of the economy.
1.3. Importance of Budget in Terms of Ensuring Efficiency and Equity
Efficiency in government is the result of balanced budgets, rational spending, and the
elimination of waste and duplication. Streamlining government ensures that every birr is
spent where it is needed most.
The capacity to establish priorities within the budget and to distribute resources based on the
government's priorities and program effectiveness.

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In allocating resources, the government must decide both the relative size of public service
provision, as well as how available resources are divided among the various government
functions (e.g. social development, health, and defense), policies and programs. Allocations
to certain functions, policies and programs might benefit some groups, particularly vulnerable
groups, more than others.
The government’s concern could relate to as of budget Equity and Equality the budget should
be governed by the principles of equity, equality, and non-discrimination. Public allocations
should be fair and just and should be available to all citizens equally, without discrimination
based on gender, ethnicity, social class, age, etc. Particular steps should be taken to ensure
that vulnerable sectors of society are not discriminated against in the budget
2. Brief Description About office
2.1. The mandate of East Shoa Finance Economic Cooperation Office
 Mission
The mission of the East Shoa Finance Economic Cooperation Office is "To improve the
standard of living of the people through the utilization of the region's resources in a
coordinated, transparent and efficient manner.
 Vision
The vision of East Shoa Finance Economic Cooperation Office as leading institution to
manage and guide the economy of the Region is “to the average 2017 to see the
region people freed from absolute poverty where working culture develop and its resources
utilized efficiently"
 Objectives of The office  
  Planning and administering the economic dev
  Administering the region's resources, expenditure payments
  Developing and controlling accounting principles
2.2. Total Employees Educational Status & Professional Relevance

Level of Education Total

High
  school level Diploma Degree Masters No %
Gende Male 2 3 4 26 1 37 51.39
r Female 3 4 3 26 0 35 48.61
Total 5 7 7 52 1 72 100
10
Total % 6.9 9.7 9.7 72.2 1.4 0  

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Source: East Shoa Finance Economic Cooperation Office
Total Employees Educational Status & Professional Relevance As can be seen from the
above table the number of Male employees is 37 (51.39%) while; on the other hand, the
remaining 35(48.61%) were Female employees. Therefore, the number of males was greater
than the number of female employees by two (2.78%). Furthermore, the majority of
employers‟ educational level was the first degree. As shown in the above table 1 (1.4%) of
employers are master’s degree holders, 52 (72.22%) of employers are first-degree holders,
while 7 (9.7%) of them are diploma holders, while 7(9.7%) of employers are level certified
and 5 (6.9%) of employers are high school students.
Therefore, since the education levels of employees are in line with the minimum requirement
for the profession; it is possible to assume that they are professionally related.
3. Assessment of Budget
3.1. Analysis of 5 Years Total Budget
East Shoa Finance Economic Cooperation Office 5 Years Budgets
Budge Approved Adjusted Actual Over / Under
t Year Budget Budget Expenditure
2007 549,471,103.00 630,500,727.92 588,724,951.13 41,775,776.79
2008 590,867,066.00 620,406,301.98 563,067,646.55 57,338,655.43
2009 678,128,286.00 723,963,821.88 663,711,156.27 60,252,665.61
2010 744,003,116.00 780,103,772.41 747,314,312.35 32,789,460.06
2011 805,028,433.00 866,104,158.64 819,823,329.43 46,280,829.21
Total 3,367,498,004.00 3,621,078,782.83 3,382,641,395.73 238,437,387.10
Source: East Shoa Finance Economic Cooperation Office
As clearly described in the table above from (2007 -2011) was written on the document in
detail description forms; However, for our assessment purpose, we have taken the general
expenditure area. The first point to notice in this study is that some of the adjusted budgets
have variance when compared with utilization, the office budget adjusted in each year are
classified for different purposes, So The total adjusted budget for the year 2007 was
630,500,727.92 (six hundred thirty million five hundred thousand seven hundred twenty-
seven and ninety-two hundredths) birr; from this 588,724,951.13 (five hundred eighty-eight
million seven hundred twenty-four thousand nine hundred fifty-one and thirteen hundredths)
was used, but 41,775,776.79 (forty-one million seven hundred seventy-five thousand seven
hundred seventy-six and seventy-nine hundredths) was determined as unused budget.
Additionally, The total adjusted budget for the year 2008 was 620,406,301.98 ( six hundred
twenty million four hundred six thousand three hundred one and ninety-eight hundredth) birr,
from this, 563,067,646.55 (five hundred sixty-three million sixty-seven thousand six hundred

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forty-six and fifty-five hundredths was used, but 57,338,655.43 (fifty-seven million three
hundred thirty-eight thousand six hundred fifty-five and forty-three hundredths) was
determined as unused budget. The total adjusted budget for the year 2009 was
723,963,821.88 birr(seven hundred twenty-three million nine hundred sixty-three thousand
eight hundred twenty-one and eighty-eight hundredths), from this 663,711,156.27,( six
hundred sixty-three million seven hundred eleven thousand one hundred fifty-six and twenty-
seven hundredths) was used, but 60,252,665.61 (sixty million two hundred fifty-two thousand
six hundred sixty-five and sixty-one hundredths) was determined as unused budget. The total
adjusted budget for the year 2010 was birr 780,103,772.41,( seven hundred eighty million
one hundred three thousand seven hundred seventy-two and forty-one hundredths) from this,
747,314,312.35 (seven hundred forty-seven million three hundred fourteen thousand three
hundred twelve and thirty-five hundredths) was used, but 32,789,460.06 (thirty-two million
seven hundred eighty-nine thousand four hundred sixty and six hundredths) was determined
as unused budget. Finally, in 2011 the total budget adjusted for the office was birr
866,104,158.64,(eight hundred sixty-six million one hundred four thousand one hundred
fifty-eight and sixty-four hundredths) from this 819,823,329.43,(
eight hundred nineteen million eight hundred twenty-three thousand three hundred twenty-
nine and forty-three hundredths) was used, but 46,280,829.21 (forty-six million two hundred
eighty thousand eight hundred twenty-nine and twenty-one hundredths) was determined as
unused budget.
Generally, anyone can understand from the above manual report; the East Shoa Finance
Economic Cooperation Office faces the problem of underutilization of the budget for
different years, Even if there were no particular year; in which the region 100% efficiently
utilize its budget. The result indicated that there is a weakness in the regarding budget
utilization; which directly related to budget management practice in the office.

3.2. Comparison of the proportion of capital and recurrent budget

Adjusted Budget from 2007-2011

Budget Total Budget Recurrent budget Capital budget

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 Percen
Year Amount t Amount Percent
2007 630,500,727.92 352,190,872.32 55.86 278,309,855.60 44.14
2008 620,406,301.98 379,407,699.25 61.15 240,998,602.73 38.85
2009 723,963,821.88 489,674,294.48 67.64 234,289,527.40 32.36
2010 780,103,772.41 564,937,227.41 72.42 215,166,545.00 27.58
2011 866,104,158.64 659,961,420.24 76.20 206,142,738.40 23.8
Total 3,621,078,782.83 2,446,171,513.70 67.55 1,174,907,269.13 32.45
Source: East Shoa Finance Economic Cooperation Office
The total adjusted budget for the year 2007 is 630,500,727.92, out of this (55.86%) Recurrent
budget and (44.14%) is capital budget and the total adjusted budget for the year 2008 is
620,406,301.98, out of this (61.15%) Recurrent budget and (38.85%) is capital budget and
the total adjusted budget for the year 2009 is 723,963,821.88, out of this (67.64%) Recurrent
budget and (32.36%) is capital budget and the total adjusted budget for the year 2010 is
780,103,772.41, out of this (72.42%) Recurrent budget and (27.58%) is capital budget and
finally the total adjusted budget for the year 2011 is 866,104,158.64, out of this (76.20%)
Recurrent budget and (23.8%) is capital budget.
Generally, a Comparison of the proportion of capital and recurrent budget Based on the
above table indicates a general decreasing and increasing trend for recurrent and capital
appropriations respectively. Accordingly, the recurrent budget has been indicated a rapid
increment from 55.86% in 2007 to 76.20% in 2011 budget years. The capital budget has been
a proportion of 44.14% in 2007 and declined year to year to 23.8% in the 2011 Ethiopian
budget year.
However, East Shoa Finance Economic Cooperation Office has less focused for infrastructure
and developmental activities, the fact and the office annually report indicate but there is a
problem on project implementation and control, on the other hand, there is huge amount of
increment of budget instead of this there is an increment of budget difference comparatively
to recurrent budget.

3.2.1. Recurrent budget

Recurrent Budget from 2007-2011
Budge Approved Adjusted Actual Over /
t Year Budget Budget Expenditure Under
2,545,000.0
2007 287,455,638.00 352,190,872.32 349,645,872.32
0

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 1,200,500.0
2008 348,895,518.00 379,407,699.25 378,207,199.25
0
2009 409,133,950.00 489,674,294.48 488,953,394.48 720,900.00
1,005,200.0
2010 534,945,082.00 564,937,227.41 563,932,027.41
0
3,725,000.0
2011 618,846,455.00 659,961,420.24 656,236,420.24
0
2,446,171,513.7 9,196,600.0
Total 2,199,276,643.00 2,436,974,913.70
0 0
Source: East Shoa Finance Economic Cooperation Office
From the above table the total recurrent adjusted budget for East Shoa Zone in 2007 was
(352,190,872.32) birr;from this (349,645,872.32) was used, but(2,545,000.00) was
determined as unused budget . Additionally, and for the year was 2008; (379,407,699.25)
birr, from this, (378,207,199.25) was used, but (1,200,500.00) was determined as unused
budget, the total adjusted budget for the year 2009 was 489,674,294.48, from this
(488,953,394.48) was used, but (720,900.00) was determined as unused budget. the total
adjusted budget for the 2010 was birr (564,937,227.41) from this, (563,932,027.41) was used,
but (1,005,200.00) was determined as unused budget. Finally, in 2011 the total adjusted
budget was birr (659,961,420.24) from this (656,236,420.24) was used, but (3,725,000.00)
was determined as an unused budget. Generally; recurrent unused budget has been indicated a
rapid increment and there is idle budget in the budget in five Ethiopian fiscal years.
3.2.2. Capital budget
Capital Budget from 2007-2011
Budge Approved Adjusted Actual
Over / Under
t Year Budget Budget Expenditure
2007 262,015,465.00 278,309,855.60 253,483,086.12 24,826,769.48
2008 241,971,548.00 240,998,602.73 202,562,068.96 38,436,533.77
2009 268,994,336.00 234,289,527.40 191,884,442.82 42,405,084.58
2010 209,058,034.00 215,166,545.00 204,162,718.08 11,003,826.92
112,568,572.3
2011 186,181,978.00 206,142,738.40 93,574,166.05
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1,168,221,361.0 1,174,907,269.1 229,240,787.1
Total 945,666,482.03
0 3 0
Source: East Shoa Finance Economic Cooperation Office
From the above table the total adjusted capital budget for East Shoa Zone in 2007 was
(278,309,855.60) birr ; from this (253,483,086.12) was used, but(24,826,769.48) was
determined as unused budget .The total adjusted budget for the year 2008 was;

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(240,998,602.73) birr, from this, (202,562,068.96) was used, but (38,436,533.77) was
determined as unused budget, the total adjusted budget for the year 2009 was
(234,289,527.40), from this (191,884,442.82) was used, but (42,405,084.58) was determined
as unused budget. The total adjusted budget for the year 2010 was birr (215,166,545.00) from
this, (204,162,718.08) was used, but (11,003,826.92) was determined as unused budget.
Finally, in 2011 the total adjusted budget for the office was birr (206,142,738.40) from this
(93,574,166.05) was used, but (112,568,572.35) was determined as an unused budget.
Generally, the above table less focuses on developmental infrastructure from 2007-2011 E.C
budget years. There is an idle budget in the capital budget rather than recurrent budget.

4. Conclusion
Reason for Variations between Budgeted and Actual Expenditure As per Omitoogun and
Hutchful (2006), several factors can explain why Actual expenditure deviates from the levels
approved at the beginning of the financial year in any sector. The reasons for deviations may
vary over time. Some of the more common causes are deviation in aggregate expenditure;
reallocation of the fund during budget implementation; policy changes during the year; an
inability to implement policies, program, and projects; and a lack of financial discipline
contribute for variation in budgeted and actual expenditure
Therefore, the budget expenditure of both budget types of east shoa indicated
decreasing & increasing trend all over the periods. The reasons for such kind of variation is
lack of preparing annual plan based on strategies document and also lack of reliable and
reasonable estimated cost to properly prepare the budget. In addition to this, there a tendency
of submitting a budget without a plan. Additionally, there is high budget transfer requesting
& there is no implement properly a control system; that‟s why some budgetary organizations
fail to submit reports timely and lack of complete recording.
It is found that; there has been a practice of preparing budget without considering the current
market price at the beginning of the budget year and without the basis of reasonable estimates
and data. There is an idle budget in the capital budget rather than recurrent budget. Recently
the annual report of the East Shoa Finance Economic Cooperation Office 2011 E.C shows
there is a lack of capital budget utilization and controlling due to weak project management.
Additionally, it was confirmed that; budget users were provided new duties outside of their
annual plan to be executed from the existing budget without supplementary funds.
It was some problems that; there were budget users that spent their budget below and above
the appropriation; for this purpose, it was disclosed that the occurrence of idle cash at the

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bank or in safe due to the lateness in payments until purchase, processes are finalized. The
nonexistence of strict accountability was one of the main reasons for the occurrence of budget
implementation weaknesses.
Therefore, to some extent, the East Shoa Finance Economic Cooperation Office
budget allocation efficiency faces the problem of underutilization of the budget. The
priorities to ensure social satisfaction was may decline due to inefficient allocation on the
capital budget because the society needs benefits from the capital budget and the that is
consumed on recurrent is only satisfying civil servants at all and to distribute resources based
on government's priorities and program effectiveness is under question.
As we concluded that, from 2007-2011 E.C the total adjusted budget
3,621,078,782.83 (three billion six hundred twenty-one million seventy-eight thousand seven
hundred eighty-two birr and eighty-three cents) about 6.6% total unutilized in those five
years. The causes for the total of unutilized budget mainly due to inefficient allocation, the
lack of consistent purchase programs, which lead to rush expenditure towards the end of the
budget year.
Finally, No incentive mechanism is employed for good performers, and punishment as well
for poor achievements unlike what is observed in other counterparts.