BUDGET ADMINISTRATION PERFORMANCE ANALYSIS CASE

STUDY ON ETHIOPIAN ELECTRIC POWER CORPORATION

RESEARCH PAPER SUBMITED TO THE DEPARTMENT OF

ACCOUNTING PARTIAL FULFILLMENT OF BACHELOR OF ARTS
IN ACCOUNTING

BY
ABDELA MOHAMMED

ADVISOR:
ESHETU YADECHA (MBA)

JIMMA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCUNTING

MAY, 2011
JIMMA, ETHIOPIA
 ABSTRACT

This research paper are conducted and evaluate the budget administration
performance analysis case study on Ethiopian Electrical power corporation for
the problem identified feasible solution would be recommended. In order to
achieve the derived objectives the study assess the organization over all budget
administration performance analysis for obtaining the information both
primary and secondary data were used. Primary data would conducted
through interview question. The secondary data obtained by referring the
organization produce manual documents and other related reports. The data
were processed analyzed interpreted in away that help the organization.
Finally the study would be concluded and possible solution are recommend.

This study is organized into four chapters with different characteristics. The
first chapter deals with introduction parts that include background statement
of the problem and objectives of the study. the second chapter deals with both
the theoretical and empirical literatures reviewed. The third chapter is where
the major objective of the study discussed and hence it deal with graphical and
tubular reparation where take place. The last chapter for consist of summary
conclusion and recommendation

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 ACKNOWLEDGEMENTS

Prior to any thing I thank the almighty Allah for giving me each units of
seconds, holy will and strength to prepare this research paper.

Second I am so indebted to my Essay Eshetu Yadecha for his unreserved

advice and invaluable comments through the whole process till the paper are
finalized.

My special heart-felt gratitude goes to all Ethiopian electric power corporation

stuff members, particularly to the department planning and program, as well
as. operating department. Who have provided all necessary material for may
paper. yet I sincerely express my indebtedness to my brother Mohammed
Hassun and to my sister W/ro Fatuma Mohammed for their deeds worth
lasting through my life

Finally my special gratitude goes to my secretary W/r Almaz Abebe for patient
and skill full typing of the paper

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 TABLE OF CONTENT
Title Page
Abstract.................................................................................................................... I
Acknowledgements.................................................................................................... II
Table of content ........................................................................................................ III
CHAPTER ONE
Introduction............................................................................................................... 1
1. Background of the corporation.........................................................................1
Background of the study ................................................................................................,..2
Statement of the Problem........................................................................................... .........3
Objective of the Study........................................................................5
Significance of the study............................................................................6
Scope of the Study.....................................................................................6
Data source......................................................................................................................... 6
Methodology of study.......................................................................................................... 6
Organization of the study.................................................................................................... 7
Limitation of the study........................................................................................................ 7
CHAPTER TWO
Literature Review........................................................................................................ 8
2.1 Budget and Budgeting concept......................................................................8
2.1.1 Administration of budget......................................................................9
2.1.2 Characteristic of budget........................................................................10
2.2 Historical development of modern government budget....................................11
2.2.1 Historical development of Ethiopian budget...........................................11
2.3 The power of budgeting..................................................................................12
2.4 Budgeting objective and obstacles..................................................................13
2.5 Performance evaluation and management control...........................................15
2.5.1 Performance reported and communication...........................................15
2.5.2 Adapt performance reports to requirements of user..............................16
2.5.3 Management follow-up procedures......................................................17
2.5.4 Technical aspect of control reports.......................................................18
2.6 Studding Revenues.........................................................................................18
2.7 Study expenditure..........................................................................................19
2.8 The importance budget classification..............................................................20
2.8.1 Budget classification............................................................................21
2.8.2 line item budgeting (traditional budget0...............................................25
2.8.3 Performance budget.............................................................................25
2.8.4 Zero base budget.................................................................................26
2.8.5 Master budget.....................................................................................26
2.8.6 Fixed versus flexible budget................................................................27
2.9 Analysis of budget variance............................................................................29
2.9.1 Analyzing variances...............................................................................29
CHAPTER THREE
3. DATA ANALYSIS AND INTERPRETATION ................................................................ 30
3.1 Budget Preparation ........................................................................................... 30
3.1.1 Operating Budget Preparation .................................................................. 30

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 3.1.2 Capital budget Preparation ...................................................................... 32
3.2 Performance measurement ................................................................................ 33
3.3 Revenue of the corporation ................................................................................. 34
3.4 Master budget ............................................................................................................ 34
3.5 Revenue collection ..................................................................................................... 35
3.6 Building power generation station ............................................................................. 38
CHAPTER FOUR
4. Summary, Conclusion and Recommendation..........................................................43
4.1 Summary of findings.................................................................................................. 43
4.2 Conclusion ............................................................................................................ 44
4.3 Recommendation ................................................................................................. 45
Reference ............................................................................................................
Interview Question...............................................................................................

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 CHAPTER ONE
INTRODUCTION
1. Background of the corporation
The Ethiopia electric light and power authority (EELPA) which was
established in 1956, after having under gone restructure have been
recognized as Ethiopia Electric power corporation (EECPO). As every
body observed. Electric power is one of initial pre-requesting for one
country development. The corporation also take this basic issue in to
consideration and utilize, its full financial and fiscal potential to satisfy
the Electric power need both in town and rural of the country. The
corporation (EEPCO) is responsible for generating, transmitting
distributing and selling of electricity to notional wide presently the
corporation maintain different power supply systems namely, the
interconnected system (ICS). which is mainly supplied from hydropower
plants, and the self contained system (SLS) which consists of mini
hydropower plants and a number of isolated diesel generating units that
are widely spread all over the country when it can be describe in terms of
coverage, the majority part power supply is come from the interconnected
system (ICS). It can be cover 98% the country power and 2% the power
supply is come from the self-contained system (SLS).

The objective of Ethiopia Electric power corporation (EEPCO) on:

- Job opportunity for citizens
- Attract foreign investor by facilitate
- The infrastructure of Electric power need
- To satisfy its customer by distributed electric power in town and
rural.
Make the country to computer global market by using recent technology
It also save the country capital amount that spend for the propose of
purchase substitute electric power (like generator)

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1.1 BACKGROUND OF THE STUDY
Budget is statement of future expenditures and revenue that help
managers plan and control the use of financial and other resources.

Budget is a quantity of future plan of action and aid to the coordination

and implementation of plan. It is a systematic and formalized approach
for stating and communicating the firm's expectations. A budgeting
system builds on historical or actual performance. Budget is the most
widely used method of its unique feature in controlling financial
resources. Because of is unique feature in controlling financial
resources preparation of an annual or other wise budget is mandatory.
In most of the organization it can quantity the planned financial effects of
activities of continuous improvement and cost reduction. It serves as an
important mechanisms for achieving predetermined your in every kind of
organization including private profit matching companies, governmental
not for profit-unit. The experience in several countries and in much
organization indicates 90% of organizational activity depends an budget.

Ethiopian Electric power corporation is also one kind of the above list
types of organization, which indicates that 90% of its activities depend on
this budget.

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1.2 Statement of the Problem
A budget is a plan that outlines an organizations financial goals. So a
budget may be thought of as an action plan, planning a budget helps a
business allocate resources, evaluate performance and formulate plans.

While planning a budget can occur of any time, for many business's
planning a budget is an annual task where the past years budget is
reviewed and budget prosection save made for the next three or even five
years.

Budget is a financial document used to project future income of

expenses. The budgeting process may be carried out by individuals or by
companies to estimate whether the person/company can continue to
operate with its projected in come expenses.

Each budget center prepares its own budget by estimation. Were as,
budget should not be regarded as expression of wish full thinking but
rather as a description of an attainable objective. This the real fact that
motivate we to study the problem that attach with budgeting control and
evaluation activities that take place in Ethiopian Electric Power
Corporation.

This is an obstacle for the company to attain its objective. In addition to

this the Ethiopian Electric power Corporation is one of governmental
organizations in the country.

which under take varies activities. In order to achieves theses activities

effectively and properly budget is important instrument for the
corporation (EEPC).

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By understanding this we need to investigate the following problem in
addition to above mentioned.

There are like:

 What amount (%) budget sends from federal government budget?
 How allocate these budgets to its different activities of the
corporation?
 How to report the company's performance in relation to budget
utilization and distribution?
 Which part is responsible for the preparation and presentations of
performance reports are presented?
 Which method of budget system is used and preferable during
several year experiences?
 When the performance report presented to responsible center, if
there was a significant variance where shown with in the report.
What measurement should be taken by corporation manager to
determine the underling causes. What about the correction action
to be taken.
 What is the basis of budget allocation to varies unit
 How to administer a given budget to its different activities of the
corporation

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1.3 Objective of the Study
The over all objective of this study to examine budget and budgeting
related concept line: budgeting administration; budgeting control and
performance evaluation of the Ethiopian Electric power corporation
(EEPC)

The specific objectives of the study are:

1. To look, with due attention in to the budget of EEPC, which actually is
send to them by government.
2. To identify in to the budget system that adopted by the EEPC.
3. To identify in to any variance for 5 years of the budget amount and
actual performance of EEPC and the reason for the implied division
between the budgeted and actual figure.
4. To identify in to the preparation of performance report of the company
(EEPC).
5. At end to analyze and recommend the company (EEPC) performance
based on the available data.

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1.4 Significance of the study
Budget play a significant role by controlling and protecting the over and
understatement of revenue and expenditure of different company and
government units. But much emphasis doesn't given by these entities.
There for the study tries to address the area where emphasis doesn't give
with (EEPC) corporation. Look with due attention, where the problem of
over and under statement where take place within the corporation
(EEPC). Then the study highlights the solution to control these issues by
using budget.

1.5 Scope of the Study

The main concern of this study is to see the importance of budget for
administration and control varies activities within the corporation
(EEPCO). More over the study assess the corporation performance
evaluation, reporting and its presenting to expecting focus group.

1.6 Data source

In organizing the study and mainly to come up with some empirical
results, annual data for sequence of 5 years are collected, internet
different pamphlet and from various books. The main source of the data
for accomplishing the study is Ethiopia Electric power corporation
annual reports. It also uses other different research paper for the
purpose of full up of the procedure and system they design.

1.7 Methodology of study

The study uses both primary and secondary sources of data for the
primary data like. Interview and observation are conducted. Regarding

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 secondary source of data available of organization documents. Federal
budget report and international Journal some of this source. Regarding
the analysis part where accomplished through the data that are collected
from primary and secondary sources. These data are organized in
quantitative and qualitative method. For the quantitative data the
analysis part is conducted through percentages and tables regarding the
qualitative types of data the explanation take place briefly and sequential
manner.
1.8 Organization of the study
The study is organized into four chapters with different characteristics.
The first chapter deals with introduction parts that include background
statement of the problem and objectives of the study. the second chapter
deals with both the theoretical and empirical literatures reviewed. The
third chapter is where the major objective of the study discussed and
hence it deal with graphical and tubular reparation where take place.
The last chapter for consist of summary conclusion and recommendation

1.9 Limitation of the study

One of the limitations that this study faced is in related with time and
cost. Since Ethiopian Electric power corporation is the largest having
branch in the country. It is time taking and costly to collect all branch
budgeting data.

Another limitation of study concerns with related to data collection. The

study uses only 4 (four) year budgeting data. This happens because of
difficulty to collect every year budgeting data, as well as, to arrange the
data properly and timely. The study selects these years data. The above
two limitation occurred because of the reason that are beyond the
researcher's capacity.

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 CHAPTER TWO

Literature Review
2.1 Budget and Budgeting concept

This part tries to review the nature and importance of budget, as well as,
its measurement system. Virtually every one has heard the term
budgeting and has concept of its meaning. Like many accounting terms;
budgeting is used commonly in our daily language. For example every
one might have heard that the mass media reports budgets of
administrative regions, budget of Federal government, budget of private
company and budget of different government units. This concept is
raised for the purpose of introducing the basic frame work of the budget.
More about budget can be defined by different scholars. Different
scholars defined budget in different managers. However most of them
have come up with similar connotation of budget and budgeting some of
the definitions selected represented below.

To deal with, it is important to begin on the meanings of the essence and

purpose of budget. The word budget is derived from the French word
“boguette” meaning a small bag or pouch. The oxford dictionary defines
a budget as “a statement of the probable revenue and expenditure for the
ensuring year with functional proposal funded there on” it is also defined
as a financial or quantitative statement prepared prior to define period of
time.

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 A budget is a plan showing the company’s objectives and how
management is intend to acquire and use resources to attain objectives.

Another scholar defines the word " budget" originally meant the most buy
of the public purse (small bag). which served as a receptacle for the
revenue and expendiare of the state. Jesse burse Head. Government
budgeting

Budget participation has been used successfully in many companies, it

does not always work, studies have shown that in many organizations
budget participation failed to make employees more motivated to achieve
budgeted goals. (Her manson princ:pie of accounting P. 1110).

This means that the term budget has negative connotaions for many
employees who feel they are subjected to a budget. oftern in post
management has imposed a budget from top without considering the
opinion and feeling of the personnel affected. This problem can be
minimized through administration of budget. (Ibid, p. 1110)

2.1.1 Administration of Budget

Budgeting take a lot of management time top managements want lower
level mangers have valuable knowledge about the day to day aspects of
running the business. Participation also creates greater commitment
and responsibility to ward the budget among lower level managers. The
widespread prevalence of budgets indicates that the advantages of
budgeting systems out weigh their costs. This can be observed from
survey company practice. Budgeting management at all levels of the
company should understand and support the budget and all aspects of
the management control system. Top management support is critical for

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 obtaining active line management participation in the formulation of
budget and for successful administration of the budget. (Chaples,
J.Horngren 2003)

2.1.2 Characteristic of Budget

Budget can be characterized in different way in varies organization. From

this some of the lists are:
 Budget is quantitative
 Budgets are stated in monetory terms, although the monetary terms
may be backed by non-monetary amount.
 Budget is future oriented
 Many financial figures are meaningless unless they are associated to
specific time reference.
 Budget deals with a specific entity
 Generally budget cover a period of one year.
The purpose of budget is earning a reasonable return on resources used is
a primary company's objective. It is one of the measure purposes of
budget, there are also some list of purpose:
 Shows management's operating plans for the coming period (S)
 formulizes management's plans in quantitative terms.
 Forces all levels of managemnt to think a head. anticipate results
 May also be used to motivate individual so that they strive to achieve
stated goal. (jet manson, principle of accounting p. 112-13)
 Well-managed organization usually have the following budgeting
cycle
 Planning the performance of the organization as a whole as well as
its subunit
 Providing a form of reference, uses of specific expectation again
which actual result can be compared

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  Investigating variation from plans. If necessary corrective action
follows investigation (Charles, J.Horngven 203)
 Planning against, considering feedback and changed condition

2.2 Historical Development of Modern Government Budget

Historical the practice of budgeting generally originated in the central
government of great Britain at the year of 1217. However an entirely new
approach to government budget was initiated during the year 1930's economic
depression in the advanced capitalist countries. During that period, new
possibilities of using financial measures to regulate the level of employment
one economic activity were recognized. (Hiness, JJ and Edward R.J. 1954)

The historical development of modern budgeting suggests two significant

generalizations concerning the distribution of budgetary responsibility.

The budget system developed as an instrument for democratic control over the
executive. The power of the purse comes to raised in the legislature in order
arbitrary tax payments in his subjects. The budget is an expression of ultimate
legislative authority.

The pattern of responsibility which characterizes the budgetary process may

be examined from a number of stand points.
o As a legal institution, the budget is an expression of the constitution
and statutes of a government.
o Viewed interms of organization
o As a matter of procedure, the budget is the product of a time
sequence of decisions made in an organization as context. ( Jesse
Burkhead 2001)
o
2.2.1 Historical Development of Ethiopian Budget

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 Ethiopian starts the practice of government budget early at the regimes of
Hailesilase. However, at the beginning, it was not structured in such a way
as to permit efficient financial administration, but through time period
continuous modification of the budget system was made before it attained its
present status.
The budgetary system varied in diffident regimes based on the administrative
structure each government followed. In centralized system, resource
allocation and financial administration is the major responsibility of central
government. The budget would be formulated and resources allocated by the
central government. The entire spending process was also under a closer
supervision of executive bodies at central government.

In a decentralized governmental structure on the other hand, the

responsibility of financial administration is developed in to autonomous and
semi-autonomous governmental unit like ministry offices, regional and local
governments.

Ethiopians budgeting systems reach to this current situation, after a number

of modifications. This modification were approved by the constitution of the
country. The Federal Democratic Republic of Ethiopia (FDRE) constitution
defines the budget system and its structure briefly under article 65 and
proclamation No.1/1995, 57/1996 and 17/1997.

2.3 The power of Budgeting

Budgeting can be the vehicle for addressing objectives, strategies and
problem in the most intelligent way. It should be the vehicle which gives
reality to the company’s objectives and strategies and should reflect the
organizations considered decision on strategies, courses of action and
responses to problems.

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 Further, it should consistently communicate all these things to the entire
organization. Finally it is the only vehicle that can accomplish all these
things, because it expresses the decision, responses, and action with
numerical specificity in relation to time and is subsequently used to
measure the performance of the company and its component department
(Robert G. Firuny, p.5)

In addition to this budget play significant guideline for the organizations

in overall aspect. Budget when approved by the authorized, it become
standard against actual operation. It also thus the critical managerial
tool of execution both guiding the organizations operations and ensuring
that spending does not exceed appropriations. It can be used as control
standard, as well as, it is carrying the status allows. Other element of the
execution process measure actual performance against that standard
and implement control system to correct the variance. It can be set the
maximum limit for spending (Tesfaye Tadese 2006: 3)
2.4 Budgeting objective and Obstacles
The superficial purpose of the budgeting process is to predict the result
of the following year. In reality, however there are a number of valid
objectives and the problem is that they differ from participant to
participant. A single owner of business wants a budget that plans the
best prefix realistically achievable; the main concern of the lowest level
functional managers is to know what is expected to them and to give
enough resources to accomplish it.

To be successful, the budgeting process is just responsive to the needs of

all participants. Fortunately the goals of the different participants are
similar enough that a realistic composite set of objectives can be
formulated and used as a basis for budgeting requirements. These
composite objective are a budget that:
 realistic, accreted and consistent

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  Plans the best results achievable consistent with acceptable risk
and long term health.
 Contains the information must useful to management
 Is consistent with strategy
 Facilitates goal setting and measurement at all levels.
 Communicates strategy, plans and required out put to the
organization.
 Will be beaten

Unfortunately, there is a significant conflict between two of the budgeting

objective: the contradiction between planning the best result achievable
and budget that "will be beaten" this conflict of objective is the first of the
inherent problems, the budgeting obstacles that are fundamental to the
activity of budgeting and can not be avoided or removed.

Other inherent problems are that performance is measured against the

budget the future is uncertain, the outside environmental is
uncontrollable and budgeting is fundamentally a psychological process.

The fundamental problem of budgeting can be summarized from the

obstacles. The budget deals with next year. Many thing about next6 year
are uncertain because.
1. it is in the future and
2. Much it is uncontrollable

Of the part that can be known the people who know best the functional
management directly on the firing line are not motivated to be realistic in
their budgeting submissions. The finished budget is then (usually cost in
concrete and (always) used to measure the participants (wakjira, P. 11)

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2.5 Performance evaluation and management control
The purpose that need performance report performance reporting for internal
management use is an important part of a comprehensive profit planning and
control system. the performance reporting phase of comprehensive significantly
Influences the extent to which the organization's planned year and objectives
are attained.

The following overview of financial reports indicates the extensive reporting

requirements needed by business firm. Those are:

1. Special external reports

These are reports to government agencies regulatory commissions
creditors, investigative agencies, and other groups external to the active
management
Such reports are costly and involve significant management attention.
2. Report to owner
These reports by and large are based on "GAAP" foot not and generally
report data that have been subject to an audit by an independent CPA.
3. Internal report: These confidential reports are prepared within the
company for internal use only this report is subdivided into three
different sub classification
a. Statistical report
b. Special report and
c. Performance report

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 All companies, regardless of their size, have reporting requirements for
all the categories listed above. (Glenna welshe and et alp. 543)

2.5.1 Performance Report and Communication

In most business, management must rely to a great extent upon
information contained in reports developed with in the business. These
internal reports serve as an important means of communication.

Reports that communicate effectively to all levels of management

stimulate action and influence decisions. (Glnna Welsch P. 542-43)

It has been agreed that a business firm focus difficulties in making

capital budgeting decision under uncertainty. Methods that employee
with risk adjusted discount ration or dolar risk premium suffer from a
large of normative theory. There has been non theoretically accepted
method proposed for a business man to apply in determining the amount
by which the time value of money should be adjusted for risk or the site
of the dollar risk premium that should be deducted from the net present
value of an investment that has been computed by using a defult. free
discount rate as the time value of money (Journal of finance Vol.20 No.
51-2 1973)

2.5.2 Adapt Performance Reports to requirements of User

The extent to which the various managers use their performance `reports
depends on many factors some behavioral and some technical one
important factor is the extent to which the performance reports serve the
measurement and decision making a needs of the users communication
is a suitable management problem and it is facilitated by performance
reports it the difference needs and experiences of the users are taken in
to account.

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 Different managerial levels have their own duty and responsibility like:
 Top management
 Middle management
 Lower-level management (departmental supervisors)

The ways of communicating financial information can be broadly

classified as follow:
1. Written
a. Formal financial statement
b. Tabulated and statistics
c. no published and written expositions
d. Ratio and other performance indicators
2. Graphical
a. Charts
b. Diagrams and pictures
3. oral
a. Group meetings
b. Conferences with individuals

A company should use a variety of ways for communicating information to

management. In most company, on the ways listed above should be used from
time to time. (Ginna walsch. p. 550)

2.5.3 Management Follow up Procedures

Well-managed companies use monthly performance report covering call
aspects of operations. This reports give favorable and unfavorable
variances between actual and planned performance for the month just
ended and cumulatively for the year to date. Take place for different

17
 company according to there preferred other in written or by conferences
to discuss the causes and corrective action to be taken follow-up
procedures should begin at the top management level to discuss and
analyze both unsatisfactory and satisfactory conditions.

Satisfactory condition should be analyzed in order to

 To determine whether the goals were realistic
 To comment those responsible for high performance and
 To transfer some "know-how" to other responsibility centers

Full-up procedures should embody contractive action to correct

unfavorable conditions rather than punitive actions for failure, the
result of which obviously cannot be raised. (Ibid p, 554)

2.5.4 Technical Aspect of Control Reports

The primary value of performance report is in the comparison of the
actual result with budget objectives and in the analysis of the resulting
variances.
2.6 Studying Revenues
Budget contains both revenue and expenditure. Revenue considerations
will enter into budget making at numerous points. If the classification of
revenues and expenditures presented here is used in the budget, it will
cable administrative officials to fix a definite goal, establish a means of
control and secure coordination of activates.

Revenues should be shown by source and funds. Accurate revenue

estimates are dependent up on a source classification because factors

18
 which determine the amount of revenue do not affect each source
uniformly. The revenue side of budget is more likely to be realized if
estimates are segregated by sources and controlled accordingly.

The annual forecast of revenue to be raised by government through

taxation and other discretionary measures amount of revenues raised
this way differ from country to country both in magnitude and structure.
(Standard classification of nominal accounts no, 17 in series of
publication July 1953)

Some government made corrupt by misstated budget Governments were

supposed to underestimate their revenue and overestimate their
expenditures. Then when reality caught up with the estimators, there
would be an automatic budget surplus in order to protect this some
governments the revenue estimating application of this principle written
in to budget low.

In France as early as 1823 "the rule of penultimate year" was adopted.

This required that revenue for the budget year must be forecast as
identical actual revenues for the fiscal year lost ended (Jesse Buiz head
government budget).

2.7 Study Expenditure

Expenditure should be show in the budget classified by the funds from
which they are paid by the departments, bureaus, divisions or other
agencies spending the many by the object of the expenditure are made
and by the activities for which the expenditure. The object classification
provides greater detail top judging and controlling estimates but greater
emphasis should be land on activity than on object. (A standard
classification of municipal account no.17 in series of publications July
1953)

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 In preparing the expenditure the aim was to estimate probable
developments, including those resulting from the effort of government to
promote a desirable rate of growth but not all government programs are
included that might be considered desirable in the interest of economic
growth or of social objectives or that have been recommended by various
gropes of knowledgeable and responsible export (Gorhord calm and peter
WAGNER)

2.8 The importance of Budget classification

Budget classification is a means to observation and gives to information
on government operations the form and structure which is essential for
analysis and inference.

Budget classification may serve more than one purpose but the
usefulness of classification techniques can be judged only in relation to
their operational character. Their ability of facilitate the decision making
that characterizes and comprises the various phascs of the budget
process.

These decisions determine the role, scope, and complexity of

governmental operations, and the activities which must be classified and
budgeted.

Classification is the structural key to conscious and rational government

budgeting. The manner in which the items of revenue and expenditure
are grouped will be determined by and also will determine, the character
of the decisions that can be made in the budgetary process. This decision
result from a constant interplay of questions and answers among level in
the hierarchy of government.

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 Meaningful and adequate classification of budget data is the basis for the
adjustment process. the general purpose of classification budget
includes;
- Budget account should to arrange to facilitate program
formulation.
- It can show clearly the program decisions that have been made
and the changes recommended from year-to-year
- Budget account must be established in such a way as to
contribute to effective budget exclusion
- Budget classification used as control of accountability it is a
means of accountability that for specific organizational units and
specific person within these units must be charged with
responsibility for each classification of budget.

Therefore budget accounts and the responsibility fixed there by must be

arranged so that they can be effectively checked by persons other then
those who have immediate legal responsibility.

It can be use to analyze the economic effect of governmental activities

(Burkhed, Government Budget p.110-13)

Follow-up is key phase of effective control: some companies require wanton

explanations of significant variances. full-up procedures were

2.8.1 Budget classification

Budget can be classified indifferent way based on the time span they
cover the purpose they serve and the specific level of government or
business to which they apply.
They are many classification
o The strategic budget

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 o The long range budget
o The capital budget
o The short term budget
o Continuous budget
o The master budget
Budget also classified based on specific level of governmental organization.

Over the past many years a variety of budget types and formats have been
utilized governmental organizations. the development of more advanced budget
philosophies reflects growth in both scope and complexity of government
operations and the need for systems which are capable of translating the
variety of policy decisions into financial plans. The budget that currently being
used by various government organs are:
a. Line-it cm or "traditional" budget
b. performance budgeting
c. Planning programming and budgeting (PPB). and
d. Zero-base budget

Lets us tries to see some of the

A. The strategic budget
The strategic budget is forward looking type of budget, which sets the
woverall goals and objectives of the organization. Some businesses
analyses do not classify the strategic budget as an actual budget, though
because it does not deal with a specific time fram, and it does not
produce forecasted financial statements.

B. the long range budget

The strategic budget lead to long-range budget which produces,
forecasted financial statements for five to ten year periods. long-term
budgets are prepared to quantify formally the longterm goals and

22
 determining the means to achieve them. The financial statements are
estimates of what management would like to see in the company's future
financial statements. Long-term plan are cooidnated with capital budgets
that contain detail of the planned expenditures for facilities, equipment,
new products and other long-term investment.

long-range plans and budgets give the company direction and goals for
the future, while short-term plans and budgets guide day-to-day
operations. (Grennu welshe p. 556)

C. Capital budgeting
Capital budgeting is the process of considering alternative capital
projects and selecting those alternatives that provides the most profitable
return on available fund. In addition to this capital budget contain the
plans and resource allocations for capital acquition to support the
program of the organization. It often governed by low and regulation
capital budgets involve multi-year expenditure projections with approval
for current year expenditure.

- Unlike operating budgets, capital budgets on non-recurring goods .

land and Building are well known capital goods

Capital budget also consider alternative to purchase, build. lease, or

renovate buildings, equipment, or other long range. major items of
property, based on the input available on his had managed give decision.
The type of the decision that launch by manager can lead the
organization to be profitable or loss poor capital budgeting decision lead
the company:

23
  To lose all or part of fund the funds originally invested in the
project.
 It can be harm the company's competitive position
 Workers who were hired for the company might be laid off if the
project fails, thus creating unemployment and moral problems
 At the end it can lead the company automatically swiched (Her
manson p. 1112-38)

D. Short Term budget

Short term budget is prepared to formally express the short term plan in
quantities terns usually a year is considered as short-term plan period
short term planning addresses broader issue such as developing new
product line replacement of plans and equipment and other issues.

Which require year of advance planning Long-term budgets therefore.

could have a time from 5 year to 10 years even more range

Depending upon the seasonal patterns of business firm might develop

budgets quarterly, monthly, or even weekly for some important factors. A
typically short term budget would then divide into monthly budgets.
Then, towards the end of the succeeding quarter, the next quarter budget
will be divided into monthly segments postponing the division of
quarter's budget into months lead to more exact results because more
recent data are available by the time the monthly figures are prepared
(Tesfaye Taddese, 2006)

E. Ending Inventory Budget

This budget reflects the inventory of the firm
 Manufacturing overhead budget

24
  It is a summary of overhead material need to product the quantity
of finished products indicated in the production budget
 This budget is a schedule presenting a summary of marketing and
cost related that the company incurs over the budet period.
 Budgeted income statement: this is a performances statement that
presents a summary of the above separate schedules.
 Financial budget

Focuses on the effect of those operational budgets and other plans such
as capital expenditure and repayment of debt will have on case on the
other hand finical decision center focus on how to obtain the fund to
acquire those available resources. (Horgren, 2003)

2.8.2 Line Item budgeting ( Traditional Budget )

Line budgeting is a way of allocating fund in a very detailed way. It also a
budget list in vertical columns, each of the government organizations
revenue sources and each of the types or classes of items the government
organization will purchase during the Fiscal year.

This system has the meant and demerits some of the merits are listed
below:
- After the simplicity is take place, this form is case for preparation
are recognizational by all involved in the budget development
process
- It can be allow for the accumulation of expenditure data by
organizational unit for use intend or historical analysis
- It can be a good for accountability

25
 However, its demerits lies on the fact that if fails to make any
relationship between the goods and services provided and the over all
program. (Ibid, p.17)

2.8.3 Performance Budget

Performance budget is management oriented type of budgeting. It has
been utilized since 1949 G.C. The focus of this approach is on efficiency
(based on the measurement of the cost and standard process input) and
the budget is considered a “performance contract” between the superior
and his/.her subordinate”.

Performance budgeting must appropriately associated with a budget

classification that emphasizes the things which government does, rather
thing which government buy. Performance budget shifts emphasis from
the mean of accomplishment to the accomplishment itself. Some
characteristics of performance budget are listed:
- It stresses on the end product
- It stresses on relationship between input and out put
Resources are allocated based on the functions and activities of
the government
- It presents the purpose and objectives for which funds are
required. Generally its method is particularly interested in
reducing work cost. blcsse burkhead p. 133)

2.8.4 Zero Base Budget

Zero base budget is an emerging process adopted by variety of industrial
organizations, as well as municipal governments in the USA, Governor
Jimmy) curter of Georgia first adopted Zero Base Budget (ZBB) in
government for preparation of fiscal 1973 budget .Zero-base budgeting
has many interpretations.

26
 "Zero base" means the evaluation of all programs under ZBB all
programs and expenditure are re evaluated every year. (Ibid P.133)

2.8.5 Master Budget

Master budget is a comprehensive expression of managements operating
and financial plan for future time period ( usually a year) that is
summarized in a set of budgeted financial statements. The master
budget is a network consisting to many separate budgets which are
interdependent. The master budget can be classified just like impact. It
means that as operational budget and financial budget.

Operational budget: it focuses on operational activities of the firm

incase of operating decisions it can be focus on identified of scarce
resource operational budget are accompanied by the following schedule.

Sale budget: it is a schedule that presents a summary of the quantity of

items to be sold along with their sales birr or dollar over spocific period of
time.

- Production budget
It is a schedule which presents the amount of units of product that must
be produced over a specific period time
- Purchase budget
Is a schedule that presents a summary of the quantity of each row
material and/or finished product that must be purchased over a specific
period of time.
- Labor budget
It is a budget schedule to provide summary of the time of each class of
labor required to produce the desired quantity of output envisaged in the
production budget.

27
2.8.6 Fixed versus flexible Budget
Fixed budget is a budget for a specific or total amount may not be exceeded
due to changes in the demand for governmental goods and service. The
budgets that are pul together on the basis of a number of assumption like.
- The state of the economy over the planning horizon
- Plan for adding, deleting, or changing product lines;
- The nature of the industry’s competition and so on
- The effects of existing or possible program regulations

Are some of the assumption that give the name called flexible budget
after all they are called plans.

These are some of the assumption that considered about the future. After
all they are caooed plan. They are said to be flexible budget for the most
part, these budgets are treated as fixed for the period that they cover.
This is important in order to establish effective cash control witching the
period. to assign responsibilities and authorities to spend with some
certainty for individual and for using the budget as tools to assess
organizational and personal performance at the end of the period.
(Ginna, Welsch 1976)

28
2.9 Analysis of Budget Variance
A basic future of performance reports in the reporting of variances between
actual result and planned or budget goals. If a variance is significant careful
management study should be made to determine the underlying cause. The
underling causes, rather than the actual results, should lead to remedies
through appropriate corrective action by management.

2.9.1 Analyzing variances

In studding and evaluating of a variance to determine the underlying
causes. The following possibilities should be considered
- the variance is immaterial
- The variance was caused by reporting errors. Both the planned of
budget goal and the actual data provided by the accounting

29
 department should be examined for clerical errors. The variance was
caused by a specific management decision
- Many variances are explainable in terms of the effect of un
controllable factors that are identifiable.
- Those variances for which the underlying causes are not known
should be of primary concern and should be carefully investigated.

These are the exceptions that usually require corrective action. (Ibid
1976)

CHAPTER THREE
DATA ANALYSIS AND INTERPRETATION
3.1 Budget preparation
In budget period the Ethiopia electric power corporation plans to perform
deferent physical work. This work can be done in order to increase the power
generation capacity of the corporation and in order to enhance the revenue
generation come that from the sales of electric. In other was the corporation
spent his useful time to over come the shortage of electric power in rural and
towns. The kind physical work that the corporation done are:-
- Build power generation station
- Build distribute channel station
- Distribute wire expansion

30
 - Corporation capacity building
- Research and development.
From the list physical work we can take the power generation station with
revenue. Generally the corporation have two types of budget system. This are:
1. Operating budget
2. Capital budget.

3.1.1 Operating budget preparation

This operating budget procedure and step applies to all staff and work unit of
the corporation (EEPCO) responsible for operating controlling and reporting of
operating budget. All work unit of the corporation prepare their own operating
budget proposal supported by annual work program. This budget proposal
should be supported by the respective forms.

The summers of the proposed budget is singed by the agent who prepared it
and approval by head of work unit.

The estimated budget calling proposal shall be forwarded to the executive

management for acknowledgement in Tir every year.

Budget developed by work units shall be reviewed against the work program for
their achievability and realisticness up to department level. The budget
reviewed and summarized up to department level shall be reviewed with
finance group budget division in mazia every year.

The consolidated master budget shall constitute the budget profit and loss
statements budgeted statement of the pervious year financial performance.

Generally the budget preparation for operation budget is range from Tir 1 up to
seen 30.

31
 Preparation budget
Schedule for both types of budget: Table 1
No Task Responsible parties for Month Sumbit to
preparation
1 Notify budget Corporate planning of of Ginbot -
division file every year
2 Reminder budget Budget divisional work Tir -
preparation unit
3 Operating budget All concerned Yekatit- -
preparation department megabit
4 budget review and Budget division Miazia 1st -
budget devotion

32
 5 Regional budget Finance group 1st miazia -
shall be made ready
6 Consolidated master General manager 15th sene Executive
budget review management
7 Consolidated master Budget division Before sene Management
budget approved 30 board
8 notified the Treasury department Ginbot -
approved budget

3.1.2 Capital budget preparation

Capital budget prepared for long last plan and programs. This long last
plan has under gone as project building in the regional or in the center of
Addis. This work unit has prepared capital budget by consider the
amount of power. The project can be generated in kilowatt/ megawatts.
The office of planning and programming send expert in order to support
these work unit at the time of preparation budget.

The prepared budget must be consistent with previous year budgeted.

This can be done order to assure the present budget not exceed by 10%
of the previous year budget. This mean that it is preparation based on
last year approved budget. The proposed budget form can be send to the
corporation planning and programming department through the
corporation net work system. This form contains the budget amount is
mended for the project building. The deportments see the proposal with
in relation to the power expected to generate. After this the departments
send the proposed budget form with attaching their opinion to the
management board of the corporation. The board can analyze the opinion
that is sends from department with the proposed budget form in order
assure its fairness. Then if they can believes that is fair they can a
proved the request amount of budget by their signature then the signed

33
 form can be submitted to finance department in order to disburse the
required amount of budget.

The time range is similar with operational budget preparation for more
information see at table 1.

3.2 Performance Measurement.

The overall budget in EEPCO is prepared as an obligation action for each
department and work unit the budget prepared as a mechanism and
useful device in measuring the performance of the corporation when they
are measuring the process of performance they take different tools such
as financially tools that one applied by the financial department and the
quantity amount that generate power in megawatt or kilowatt, applied for
planning and programming project department.

Performance report is provided to the corporation general manager on

quarterly bases. This means that (1 st quarter 2nd quarter, 3rd quarter for
past 9 months and 4th quarter for the whole year. This show that they
measure their performance in quarterly basis which mean (4 time in
year) and at the end of the year corrective measure will be taken for any
deviation which is incurred in that year. The corporation board of
management department gates the planned figure from the planning and
programming project department then they can compare with actual
performance in order to take corrective action over the deviation.

The Ethiopian electric power corporation used to measure performance

is:
Supply of electric power:- this is the major income generator of the
corporation so the amount power generate by the corporation is better
measure corporation performance.

34
3.3 Revenue of the corporation
The general revenue of the corporation come from the sales of power in
megawatt / kilowatt). This sales done based on the approved Ethiopian
power system master plan. In addition to the sales, the corporations also
have other revenue generation source like loan and Aid customer
contribution and from government. In order to determine the sales of
Electric in birr amount the corporations use the formula that is set by
master plan office is

The average tariff shall be determined by the treasury department of the

corporation. When we come to expense the corporation recognized as an
expense like cost incurred for the purpose of fuel and lubricant
production for material repair and maintains for station are some of the
expenses that the corporation recorded.

3.4 Master Budget

Ethiopia electric power corporation use master budget uses as the bases
for estimating for the long run project planning. This means that the
corporation (EEPCO) achieved the long rang plan in year by year step. In
addition to this the corporation use this master budget for the purpose of
planning the amount power it can generation in kilowatt/ megawatt. It
also use as an instrument for estimating the amount of profit and cost it
can be incurred.

3.5 Revenue collection

During the four budget period EEPCO planned to collected revenue from
different sources. The major source of revenue consider by the
corporation are:
- From the sales of electric power.

35
 - From the loan and Aid
- From the customer contribution and
- From the governments.
The total generation amount of revenue can be distributed to different
department and work unit of the corporation. This like:
- For building of power generation station
- For expanding channel station
- For increasing and development
- Fore research and development
- For corporation capital building

These considered by the corporation basic activities for over all budget year.
The revenue distribution process to this different department and work unit
can be take place through the established policy and procedures of the
corporation.

When we can look in to each budget year revenue collection unit it can be
observed as follow:

During 1999 budget year the corporation planned to generate 2,332, 699.47.
This total planned amount can be collected from the sales of electric power
1,731, 048.57 from loan and aid 524, 601.13 and from customer contribution
77,049.77. Having this planned amount the corporation actually collected
1244979.61 this amount also collected from the sales of electric 753, 029.57
from the loan and aid 402,156.43 and from the customer contribution
89793.61. There is a deviation of 1,087,719.86 between the planned and actual
collation unit.

36
This can happen due to several reasons. When it expressed in percentage,
EEPCO attained 53.37 of the planned revenue leading to 46.63 unfavorable or
inefficient collections for more clarification see table 3 and 4.

During the 200 budget year EEPCO planned to collect 2,722, 298.4 revenue
amounts from sales electric 2,104 783.2 from loan and aid 515, 122.7 and
from customer contribution 102, 292.5. Having in this planned amount the
corporation actual collected 1761 804.8 from the sales of electric 1,396 881.3
from the loan and aid 280 076.2 and from customer contribution 84,847.3

There is a deviation of 960,393.6. This can be occurring terms of percentage

amount the corporation planned to collect by 100% from this accouter collected
65% percent from the planned amount.

There is a deviation 35% when we can compute the performance of with related
to the 1999 budget year. The corporation shows increasing collection amount
with in the two year. This mean that increasing collection amount where
launch from 1999 to 2000 respectively. For example the actual collection
amount in 1999 where 53.37 but for 2000 are 65% the show that the 2000
budget year lead by 11.63 the 1999 budget year when we express in terms of
monetary amount the corporation collect almost similarly with the pervious
year percentage amount for more qualification see table 3 and 5.

When we come to the 2001 budget year the EEPCO planned to collect from
similar source of the pervious budget year are 448,1601.2. The corporation was
able to collect 3770078.8 birr amount from the planned

There are 711522.4 deviations between the planned and actual collection in it
when we can expressed in terms of percentage amount the corporation planned
by 100% actual it can collect 84% of the planned amount when we compute

37
with related to first (1999 and 2000 actual performance. The 2001 collection
amount exceed both budget year 19% respectively of (1999 and 2000). This
indicates that the corporation to radically increase revenue collection amount
through year to year bases for both monitor amount and percentage unit for
more information see table 3 and 6.

Finally when we can observe the 2002 budget year the corporation planned to
collect 6,949,508.02 amount of many from the sales of electric power
1,999,610.22 from the loan and aid 1,427,931.3. From the customer
contribution 2,054,484.4 and finally from government 1,467.482.1

From this planned amount the corporation actual connected 4,398,045.8 from
loon and aid 414,870.5 from customer contribution 1,044,482.3 and finally
from government 937,145.2.

There is a deviation of 2,551, 462.22 between the planned and actual collection
unit. This can be happened due to several reasons. When we can expressed
interim of percentage the corporation planned to collected revenue by 100%
from this actual collected 63.28%. There is a deviation of 36.72% when we look
with due attention the four year budgeting performance the corporation
increase its collection amount decrease with in related to the 2002 budget year
(1999, 2000, 2001). This can be due to several reasons them most critical for
this reason is economic instability of the country in for more information see to
table 3 and 7

Generally the reasons that make deviation between the planned and actual
collection amount in common areas follow
- Economic instabilities
- Lack of willingness from donor and contributor
- Absences of proper collection electric fee from customer

38
3.6 Building Power Generation Station
During the four fiscal years the corporation planned to build power generation
station at different locations of the country. The planned was done in
compatible with corporation long and short run objective. This objective is set
to satisfy the customers power need both in towns and rural of the country.
When we can observe the 1999 budget planned data with related to the actual
performance. The corporation planned to build power generation station at
different location by 100% actually the corporation able - to achieve 34.15% of
the planned account. During the some year the corporation planned to spend
for building of power generation station 957391.6 birr amount there is
327,001.57 deviation between the planned and actual spend unit. This indicate
that the corporation spends above its planned amount by deviation amount.

When we come to 2,000 budget year data the corporation planned to build
power generation station with in this fiscal year by 100%. Have the planned the
corporation actually perfumed 58.4% this leads or indicates that the
corporation face to 41.6% deviations between the planned to spend and actual
performance. When we can interpret in terms of monetary amount the
corporation planned to spend 1,169314.1 amounts. From this the corporation
actually spends 683007.25 birr.

There was 486,306.85 birr deviation between the actual and planned amount
when we can compute with 1999 fiscal year budget data the corporation does
not spend above its planned amount. This show that corporation controlled its
spending amount in proper manner in the 2,000 fiscal year.

During 2001 fiscal year the Ethiopia electric power corporation planned to
bulled power generation station by 46.29% from this the corporation actually
achieved or builds 37.63% of the planned percentage. This fiscal year the
planned amount where different from the first two fiscal year budget data This

39
can happen because of the corporation in ability to planned 100%. When we
can see the deviation between the planned and actually performance there is
no significant amount can be observed.

This indicates that the corporation actual build power generation station
almost equivalent to the planned amount with same ear the corporation
planned to spend 1,992,156.4 birr to this activity (For building power
generation station).

Having the planned the corporation actual spend 1,838,546.6 birr. There is a
deviation of 153,609.8 birr between the planned and actual spend amount.
This indicate that the corporation properly spend a given amount of many to
build the corporation power generation station when we can compare to the
previous fiscal years budget data.

Finally when we look at the 2002 fiscal year budget data the corporation
planned to build power generation station by 100%. From this the corporation
actually performed 30% from the 100% planned amount.

This indicates that the corporation dose not build half of the planned amount.
This make different from the previous three (1999, 2000, 2001) fiscal year
budget data. This mean that these the three budget deviation no significant as
2002 budget deviation the monitory amount that the corporation spent for this
activates looks as follow.

The corporation planned to spend 3469884.98 birr but due to several reason
the corporation actually spend 1041945.47 birr deviation between the planned
and actual spending unit when we can look with due attention these the four
fiscal year spending amount the corporation where increase its spending
amount year to years bases. For more information see table 2.

40
The over all reason for deviation of planned with the actually amount are as
follow:
- Seasonal fluctuation
- Lack of financial resource timely and appropriately
-Shortage of skilled man power
- Increase in the prices of row material that used for the building
(specially in 2002 fiscal period)

Building of power generation Table 2

year planned Actual Deviation In birr amount Deviation
Planned actual
1999 100% 34% 64% 957391.6 12844930 327001.57
2000 100% 58.4% 41.6% 1166934.1 683001.25 486306.85
2001 46.29% 37.63% 8.65% 199256.4 1248546.6 743609.8

41
 2002 100% 30% 70% 3469884.95 1041945.47 1467939.51

Revenue collection Table 3

year planned Actual Deviation In birr amount Deviation
Planned actual
1999 100% 53.37% 46-63% 1332699.47 1244979.61 108,7719.8
6
2000 100% 65.% 35.% 2722198.4 1761804.8 960393.6
2001 100% 84% 16% 4,481,601. 3770078.8 711522.4
2
2002 100% 58% 42% 6949508.02 4398045.8 2551462.22

Revenue collection 1999 Table 4

Source In percentage In birr amount Deviation
plan Actual Deviation Plan Actual
From sales of electric 100% 43.5 56.5 1731048.57 753029.57 978019
power
From loan and aid 100% 77 23 524601.13 402156.43 122444.7
Contribution from 100% 16.5 16.5 77049.77 89793.61 12,743.84
customer

Budge year 2000 Table 5

Source In percentage In amount Deviation
Revenue plan Actual Deviation Plan Actual
From sales of electric 100% 66.37 33.63 2104783.2 1396881.3 707901.9u

42
power
From loan and aid 100% 54.4 45.6 515122.7 280,076.2 235046.5U
Contribution from 100% 83 17 102292.5 84,847.3 17445.2u
customer

Budget year 2001 Table 7

Source In percentage In birr amount Deviation
plan Actual Deviation Plan Actual
From sales of electric 100% 83 17 3121292.5 2582,858. 538434.1
power 4
From loan and aid 100% 14 86 1183419.4 165037.4 1018382
Contribution from 100% 84 16 176889.3 148183 28706.3
customer

Budget year 2002 Table 7

Source In percentage In birr amount Deviation
plan Actual Deviation Plan Actual
Sales of electric 100% 53 47 199961022 1001547.8 945125.82
Loan and Aid 100% 24.5 75.5 1424931.3 414870.5 1010060.8
From customs 100% 51 49 2054484.4 1044482.3 1,010,002.1
contribution
From the 100 63.86 36.14 1467482.1 937.145.2 530,336.9
government

CHAPTER FOUR

SUMMARY, CONCLUSION AND RECOMMENDATION

4.1 Summaries of Findings
The major findings of the study are summary: zed as follow:

43
 In budget period the Ethiopia Electric power corporation plans to
perform deferent physical; work this work can be done in order to
increase the power generation capacity of the corporation and in order to
enhance the generation came that from sales of electric.

 The corporation have two types of budget system this are operating
budget and capital budget. Operating budget procedure and step applies
to all staff and work unit of the corporation (EEPCO) responsible for
operating and reporting of operating budget.
 All work unit of the corporation prepare their own operating budget
proposal supported by annual work program
 Capital budget prepared for long last plan and programs.
 This long last plan has under gone as project building in the regional or
in the center of Addis
 The Ethiopia Electric power corporation used to measure performance is
supply of eclectic power.
 The general revenue of the corporation come from the sales of power in
megawatt/ Kilowatt, from the loan and Aid, from customer contribution
and from the governments.
 Generally the corporation revenue collation make deviation between plan
and actual collation amount the common reason of this devotion is
economic instabilities, lack of willingness from donor and contributor,
Absences of proper collection electric fee from customer.

4.2 Conclusion
Budget is extremely important and effective tool for managing,
administrating and control the overall activities of the corporation.
However to prepare, a meaningful budget the corporation must know the

44
proper application rule and regulation of budget that set by international
rule that describe about budget. Once prepared, the budge must be
compared to actual result on timely basis through out the year, to insure
that the board management knows where deviations are occurring. The
board managers take effective actions through strong and effective
controlling system when the problems occurred.
Budget is important instrument to control the corporation achievement
in the area that resources are adequately protected and utilized
resources are acquired economically and used efficiently or cost
effectively and activities of the corporation are in compliance with
applicable with law, policy, plans, standards and procedures. While the
study on the data analysis of budget indicates that, there is a bridge
between policy planed and actual performance measurement of the
corporation. Budget inessential to make the policy benchmark reality
rather.

4.3. Recommendation

45
 Based on the conclusion from the existing system of Ethiopia Electric
power corporation the following recommendation followed. Spending
units and budget approved department (project planning and
programming department, planning and programming department,
operating budget department) should link the request budget with their
work plan in order to justification and priority.

The corporation budgeting policy and procedure should be modified in

order to utilize its resources appropriately and effectively. For example
the corporation policy determines that every year budget proposal can
not exceed the previous year budget by 10%. This discourages the
corporation working power for highly achieving goal.
Zero- based budgeting approach is appropriate for the Ethiopia Electric
power corporation rather than master budget this method starts with
base budget of zero and calculates the cost of running each program
from the scratch. Each cost associated with running a program is
justified be for it included in the budget. The advantage of this approach
raised in the extensive review of each program and reveal operating
inefficiencies and weaker program.

But carrying out every year zero based budgeting covering all programs
could be expensive. In The previous year case of master budget simple
copying the precious year request modification this approach can not
recover the cover the previous year weakness, because of this we can
recommend to use zero base budget for successfully achieved their goal.

The budget and planning office should analyze in detail the request
budget before approved the corporation should employee external expert
for analyze the proposed budget should prepared fairly.

46
There should be adequate budget control and monitoring system at each
stage of expenditure cycle (commitment, verification and payment). This
will be achieved by using the excision corporation computer network
system and for remove project area by sending expert timely bases.

There should be comprehensive review and analysis of budget

expenditure of the past year to improve budget efficiency of current year
as well as it must be supported by plan research and development for
newly established project budget requirement. To be useful at the time
budgets being prepared plan must be sufficiently tangible to be relation
financial requirement. Then budget serve as standard against which the
actual performance can be compared and measured.

Budget plan must be periodically evaluate in order to protect the over

and under stinting spent amount of the corporation research. The
corporation budget system should be used to compute. It's performance
through year to year bases.

47
 INTERVIEW QUESTION

1. When was the corporation established?

2. What is the major objective of the corporation?
3. What kind of service can be provided to its customer?
4. The service coverage can be given to outside Ethiopia?
5. The corporation should be used formal budget rule?
6. What is the bases budget for the corporation?
7. Where is the source of budget amount?
8. How to allocate the given to each department and work unit?
9. How to evaluate the given budget it's effectiveness?
10. Do you have separate kind of budget system?
11. how do you evaluate the planned budget with actual performance?
12. Who was responsible for the preparation of performance report?
13. If there is a significant variation between the planned and actual
performance who was responsible take corrective action?
14. How may step can be proceed in order to approve budget request?
15. How do often the corporation department and work unit present
performance report to responsible sector?
16. What kind of tools they can employ when they measure
performance?
17. How look like the 4 (four) year budget performance of the
corporation?

48
 REFERENCE
A. prenchand (1959). Government budgeting and expenditure controls-
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