1.

Introduction
ii) Cash control
Ø Maintaining the balance of cash at bank and cash in safe in
a general budget.
Ø Clarifying the responsibilities and duties of the cashier and
the accountant for cash at bank and cash in safe.
Ø The cashier handles cash in safe, while the accountant is
assigned overall responsibility for cash in safe and specific
responsibility for the checkbook and cash at bank.
q Using on impress system to control cash in safe.
ü In an imprest system, the can safe is from the safe is
documented.
ü The cash in safe is periodically reimbursed, based on
vouchers, for the exact amount necessary to restore the
original cash balance deposited in the bank intact.
Ø Each accounting unit maintains a general ledger for
each source of funding, so each unit maintains a
balanced and continuous record of its responsibilities
and performance.
qCreating the ability to record and report on any
assets and liabilities using a cost method of valuation.
Ø The FGE accounting system included
in a set of
registers and in a general ledger that is independent of
accounting for transactions using
q Cash and cash equivalents: Cash is cash on hand and cash
at bank.
v Cash equivalents are short-term, highly liquid investments
that are and
which are subject to an insignificant risk of change in value.
q Receivables: receivables are amounts owed to (given to) a
government unit by another government unit, a person,
or a non-government entity except public enterprises.
v Salary advances to employees and advances to suppliers
are two examples of receivables commonly occurring in FGE
transactions.
q Goods in transit: Goods in transit are goods that are owned
by the FGE but not yet in the FGE's possession.
 PART 2

Overview of Financial
Administration in FGE Accounting
System
i)
Ministry of Finance and Economic Development

Public Body

Budgetary Institution:
Sub-Project or Sub-Sub-
Agency
Figure 2.2: Structure of financial administration within public
Body

Head of Budget and Accounts

General Services
& Administration

Budget Section Accounts

section
Ø Handles cash flows:
ü For one or more than one BI, and From one source of
financing (domestic, assistance or loan) and also For more
than one type of budget (capital/recurrent).
q An accounting unit is the unit that initially captures and
records transactions into the accounting system.
q If a BA handles cash for only one BI(BI/BA),

ØProcesses transactions for the BI/BA,

ØMaintains registers for the BI/BA,
ØMaintains a general ledger for the BI/BA.
Ø Maintains subsidiary ledgers for:
üAsset accounts , Liability accounts, Letters of credit.
üPrepares a monthly report for the BI/BA.
 prepare
an expenditure report for each BI.
q

.
oEach PB is responsible for organizing assistant and
main cashiers.
o However, some general principles apply.
vAssistant cashiers are responsible for:
• Collection of Cash
• Issuing deposit and/or receipt vouchers
• Making deposits at Bank
vThe main cashier is responsible for:
• Reconciling cash and vouchers for each assistant
cashier
– Depositing cash in the bank
– Disbursing cash for the proper functioning of the PB
– Managing the petty cash
FGE budget process
Definition and importance of budget
• The word budget was originally derived from French
word “bougette” which means “small bag” or the
public purse which serves as a container for revenues
and expenditures of the state.
• Budget is the most important tool for the government
of the nation economy.
• It serves as an instrument to allocate the scarce
resources among the different computing unlimited
needs of the society.
• It is a document Containing planned program which
planned ahead to reach objectives and targets
 Classifications of budget
• The government budget in Ethiopia is classified into: -
1.revenue budget 2. Expenditure budget
1.Revenue budget:- is usually structured into three major
sources:
a.Ordinary revenue b. external assistance and c.
capital revenue
- consists of both tax and non-tax
revenues. The tax revenues includes:
1.The of ordinary revenue consists of:
 - these could be from domestic
(sales of movable properties and collection of loans),
external loan from multilateral and bilateral creditor
mostly for capital projects.

Ø Government expenditures for administration and

developmental activities are handled through the
expenditure budget.
Ø These expenditures are categorized into:
is structured by
implementing agencies(public bodies) under four
functional categories.
i.Administrative and general services includes such
activities as:
Ø Council of representatives and ministers, ministers,
defense and so on.
ii.The economic services includes:
ØAgricultural, industrial and service sector activities
iii.The social service includes such activities:-
ØHealth, education and culture
iv.Other expenditures includes: -
Ø pension payments, repayment of public debts etc.
-
Ø is usually made on acquisition and improvement in to
fixed asset and consultant services.
q It is grouped under three headings;
1.Economic development includes: - production activities
in the agricultural and industrial sector, economic
infrastructure in mining, commerce and communication.
2.Social development includes: - education, health, urban
development and welfare etc.
3.General development includes:-general governmental
activities.
The budget process in Ethiopia
Budgeting from the initial stage of forecasting the
annual revenues and expenditures, to the final stages of
approval of the annual budget by the council of people
representatives, passes through a sequential and an
interactive process.
The budgetary process of FGE involves the following
steps:

F The macro-economic forecast gives the forecast of gross

domestic product based on past experience and estimates for
future years.
FFiscal forecast establishes the level of total resources
available for expenditure, it provides a more detailed
forecast of revenue (both federal and regional), and
projection of expenditure.
FOnce prepared by the concerned coordinating ministry, i.e
MoFED.
FIt will be reviewed and approved by the prime minister’s
office (pmo).
4.Budget call and ceiling notification
Ø Mofed issues detailed budget preparation guidelines to
spending public bodies along with the ceilings provided
to each line institution. Mofed will send the ceilings for
each sector.
5.Budget request – is prepared by PB’s by depending on
the budget ceiling to fit budget request to mofed.
6.Budget review by MOFED:
Ø Prior to a formal budget hearing, spending public
bodies will submit their budget proposals to the
MOFED-budget department.
Ø The sector department of the mofed reviews the budget
requests from different public bodies.
9.Submission to the council of ministers:-
10.Submission of budget to house of people
representatives:-
vOnce approved by the council of ministers, the
prime minister will present both budget to HPR.the
budget then will be debated based on recommended of
the budget of the committee and approved.
11.Notification and publication
Ø The approved budget will then get the legal status
through the publication in the” Negarit gazeta’.
Ø Spending public bodies will then formally be notified
of their approved budget by line of items from
MOFED for recurrent and capital budgets, respectively.
Ø MOFED will notify spending public bodies.
12. Supplementary budget: -
vIn the course of budge t ye a r , supple me nt a r y
(additional) budget will be proclaimed when necessary.
vFollowing almost same process as the initial budget
preparation.
v Likewise budget reallocation will be made mainly
based on performance.
vBudgetary process of regional level
vIt is quite difficult to present the budget process at the
regional level in the way in the discussed for federal
budget.
v At present the budget process followed by regional is
not uniform.
?“ S u p p l e m e n t a r y B u d g e t ” m e a n s a
budget approved in situations

is not
sufficient
?Or where a budget is required for an
activity of the Government to which
budget is not appropriated or where the
expenditure budget appropriated for an
activity is not sufficient;
Ø The process is more or less a mirror image of the
federal budget process.
Ø In place of MOFED, the regional finance bureau
(RFB) is responsible for the preparation of the
recurrent budget.
ØWhile the regional planning and economic
development bureau (RPEDB) is responsible for the
capital budget.
Ø At the higher level the regional councils, the one
responsible for the appropriation of the region’s
budget.
Ø One significant deviation is the regional budget process
starts at the woreda level and goes up to zone and
regional level
o.Budget Control in FGE Accounting System
vApproved Budget
vA t a n a t i o n a l l e v e l , C o u n c i l o f P e o p l e ' s
Representatives approve budget and the total budget is
published in Negarit Gazet both for capital and
recurrent budgets.
vThe approved budget is the detailed breakdown of the
appropriated budget by: Sub-Agency or project, and
Source of finance.
vThe budgetary institution is notified of its approved
budget on Me/Be/Ma 4 Recurrent Budget Notification
for Sub-Agency and Ka/Be/Ma 4 Capital Budget
Notification for project at the beginning of a fiscal year.
qAdditions/Reductions to Approved Budget
Ø During the year, the approved budget may be revised in
two ways:
q Budget supplement: A budget supplement is an
additional appropriated budget.
Ø The supplementary amount increases the approved
budget.
Ø Notification of budget supplement is made on
Me/Be/Ma 6 for recurrent budget and Ka/Be/Ma 6 for
capital budget.
Ø An addition to one budget item and a corresponding
reduction to the budget of another item of
expenditure:
Ø There are two processes for accomplishing this transfer:
qProcedures to achieve budget control
ØB u d g e t c o n t r o l i s a c h i e v e d t h r o u g h a
combination of commitment accounting and
expenditure approvals at the Budget Section.
ØEach of these processes is described below.
Commitment Accounting
ØA commitment is a way of marking part of the
budget that has not yet been spent but that is
obligated for a specified expenditure.
Ø After the budget has been approved, the BI may
enter into contracts or issue purchase orders.
Ø If the uncommitted balance is reduced to zero or if
the budget is not available to meet planned
expenditure, no further spending will be
approved.
Ø Commitments are a budgetary control device.
Ø Because the Budget Section must approve
spending requests, they also serve as a budgetary
control measure
Ø The Budget section records the commitment and
signs the source document as evidence of recording
the commitment in the budget ledger card and
confirming that budget is available for spending.
Ø As an additional control measure, when expenditures
are to be incurred by a BI, all payment vouchers are
verified by the Budget Section prior to approval for
payment by the Accounts Section.
Ø The Budget Section approves all expenditures to
verify that expenditure remains within the budget.
Ø Prior to signing the payment voucher, the Budget
Section verifies that:
Ø The amount of the purchase order for the expenditure
has been committed in the same amount as the actual
expenditure,
Ø If the amount of the expenditure has not been
committed,
Ø The available (uncommitted) budget is sufficient to
cover the expenditure,
ØT h e c o m m i t m e n t i s r e c o r d e d , a n d t h e
uncommitted balance is updated.
Ø If the commitment is already recorded, the Budget
Section verifies the recording of the commitment
and signs the payment voucher.
Ø If the commitment is not already recorded, the
Budget Section records the commitment and signs
the payment voucher.