Chapter

3
Governmental Operating Statement
Accounts; Budgetary Accounting

McGraw-Hill © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

 Learning Objectives

After studying Chapter 3, you should be able to:

 Explain how operating revenues and expenses related
to governmental activities are classified and reported
in the government-wide financial statements
 Distinguish, at the fund level, between Revenues and
Other Financing Sources and between Expenditures
and Other Financing Uses
 Explain how revenues and expenditures are classified
in the General Fund

3-2
 Learning Objectives (Cont’d)

 Explain how budgetary accounting contributes to

achieving budgetary control over revenues and
expenditures, including such aspects as:
 Recording the annual budget.
 Accounting for revenues.
 Accounting for encumbrances and expenditures.
 Accounting for allotments.
 Reconciling GAAP and budgetary accounts.

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 Learning Objectives (Cont’d)

 Describe computerized accounting systems

 Explain the classification of revenues and expenditures
of a public school system
 Describe brief history of Governmental budgeting in
Ethiopia
 Explain budgetary accounts of Ethiopian Government

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 Introduction
 The fund-based reporting model used for decades by
state and local governments meets reasonably well the
fiscal accountability needs of users for information
about the current financial position and flows of current
financial resources through the governmental funds.
 However, that model falls far short of meeting users’
needs for information about the medium- to long-term
impacts of the government’s current operating and
capital decisions, as well as information about the costs
of conducting the government’s functions and
programs.
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 GASB Statement 34

 Tomeet users’ broader needs for operational

accountability information, the GASBS 34 reporting
model requires—in addition to traditional fund-based
financial statements—a management’s discussion and
analysis (MD&A) and two government-wide financial
statements:
 a statement of net assets or a balance sheet (a statement
of financial position) and
 a statement of activities (an operating statement).

 Thischapter focuses on the latter statement as well as

on the operating statement prepared for governmental
funds.
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 Government-wide Statement of Activities

 The format prescribed for the government-wide statement of

activities displays the net expense or revenue of each function or
program reported for the governmental activities of the government.
Expenses should be reported by function or program.
 Direct expenses - those associated with a function or program

 Indirect expenses - those that are not directly linked to an

identifiable function
Revenues should be distinguished between
 Program revenues - reported in the program/functions section of the
statement
 General revenues - not directly linked to any program/function and
reported in a separate section at the bottom of the statement

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3-8
 The GASB encourages governments to provide
additional information for more detailed programs if
such information is useful and does not detract from
readers’ understanding of the statement.
 Some readers might find it surprising that depreciation
expense often is reported as a direct expense.
Depreciation expense for capital assets that are clearly
identified with a function or program should be included
in the expenses of that function or program.
 Similarly, depreciation expense for infrastructure assets
(such as roads and bridges) should be reported as a
direct expense of the function responsible for the
infrastructure assets (for example, public works or
transportation).

3-9
 Depreciation expense for shared assets should be
allocated to functions on an appropriate basis (for
example, square footage of building use).
 If a government opts to report unallocated depreciation
expense as a separate line item, it should indicate that
the amount reported on that line does not include
depreciation expense reported as part of direct expense
of functions or programs.
 To achieve full costing, some governments allocate to
service functions or programs certain central
administrative costs that other governments may report
in the general government function.
 If such expenses are allocated to service functions,
 The allocated expenses should be reported in a separate
column from the direct expenses, so the direct expenses
will be more comparable with the direct expenses of
similar functions of other governments.
3-10
 Government-wide Statement of Activities
(Cont’d)
 Reporting
in the net (expense) revenue format requires
a government to distinguish carefully between program
revenues and general revenues.

 Program revenues are reported in three categories:

 Charges for services
 Operating grants and contributions
 Capital grants and contributions

A net expense or revenue format is used in the top

section of the statement of activities:
Expenses - Program Revenues = Net (Expense)
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 Charges for services include charges to customers or
others for both governmental and business-type
activities.
 Charges for services within the governmental activities
category include items such as
 licenses and permits (for example, business licenses and
building permits),
 fines and forfeits, and

 operating special assessments sometimes charged for

services provided outside the normal service area or
beyond the normal level of services.
 Charges to other governments for services, such as
incarceration of prisoners, also are reported in the
Charges for Services column.

3-12
 Grants and contributions restricted by other
governments, organizations, or individuals for the
operating purposes of a particular function or program
are reported in a separate column from those restricted
for capital purposes.

 GASB requires that multipurpose grants and

contributions be reported as program revenues if “the
amounts restricted to each program are specifically
identified in either the grant award or grant application.”

 Otherwise,multipurpose grants and contributions should

be reported as general revenue.

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 Earnings from permanent funds, endowments that are
restricted for a specific public purpose in the
Unrestricted endowment contract or agreement, should
be reported as program revenue in the appropriate
grants and contributions category.

earnings from such sources should be reported as

general revenue.

 In
addition, all taxes, even those specified by law for a
particular use (for example, motor vehicle fuel taxes that
can be used only for road and bridge purposes), should
be reported as general revenue.

3-14
Government-wide Statement of Activities
(Cont’d)

Extraordinary items, special items, and transfers are

reported as separate line items near the bottom of
the government-wide statement of activities
 Extraordinary items are items that are both unusual
in nature and infrequent in occurrence, and usually
are beyond the control of management

 Specialitems are either unusual or infrequent, and

must be within the control of management

3-15
The General Fund

 The General Fund has long been the accounting entity of a state or
local government that accounts for current financial resources
raised and expended for the core governmental services provided
to the citizenry.
Purpose
 Used to account for the general administration and most traditional
services of government
Examples of traditional services
 Public safety (e.g., police and fire)
 Public works (e.g., maintenance of buildings,
roads, and bridges)
 Culture and Recreation (e.g., promotion of
the arts, parks, and youth activities)
 Health and welfare (e.g., public health, food facilities inspection)
3-16
 The General Fund accounts for financial transactions
during a fiscal year in operating statement accounts
classified as Revenues, Other Financing Sources,
Expenditures, and Other Financing Uses.

 Revenue is defined as increases in fund financial

resources other than from financing sources such as
interfund transfers and debt issue proceeds.

 Transfersinto a fund and debt issue proceeds received

by a fund are examples of inflows classified as other
financing sources of the fund.

 Expenditure is a word that represents the cost to

purchase a good or service, whereas expense
represents the cost of a good or service consumed
during the period.
3-17
 Otherfinancing uses, or transfers of financial
resources from one fund to another fund, have the
same effect on fund balance as expenditures:
 Both decrease the fund balance at year-end when the
temporary accounts are closed.

 Infact, the word expenditure is defined as a decrease in

a fund’s current financial resources other than from
interfund transfers.
 As an example, interfund transfers occur in those
jurisdictions where a portion of the taxes recognized as
revenue by the General Fund is transferred to a debt
service fund that will recognize an expenditure for the
payment of interest and principal on general long-term
debt.
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 Budgetary Accounts

Purpose
 Used to record the budgetary inflows
and outflows estimated or authorized in
the annual budget
Accounts
 Estimated Revenues, Estimated Other
Financing Sources
 Appropriations, Estimated Other
Financing Uses
 Encumbrances
3-19
 Fund Equation for the General Fund

ASSETS = LIABILITIES + FUND BALANCES

Balance
Sheet Reserved + Unreserved
Accounts Fund Balances Fund Balance
(permanent)
Budgetary/
Operating Budgetary Accounts Operating Accounts
Statement
Accounts
(temporary)
3-20
Budgetary and Operating Statement Accounts
(Cont’d)
 Distinguish between Revenues and Other
Financing Sources and Expenditures and
Other Financing Uses
 Other Financing Sources represent operating
transfers in from other funds and proceeds of
long-term borrowing
 Other Financing Uses represent operating
transfers out to other funds

3-21
Budgetary and Operating Statement Accounts
(Cont’d)
 Revenues and Other Financing Sources
increase fund balance when closed.
Recognized on the Modified Accrual
basis—when measurable and available to
pay current period obligations
 Expenditures and Other Financing Uses
decrease fund balance when closed.
Recognized on the Modified Accrual
basis—when incurred, if expected to be
repaid from currently available resources

3-22
3-23
 In order to achieve budgetary control, only three general ledger
budgetary control accounts are needed in the General Fund (and
other funds for which a budget is adopted):
 Estimated Revenues,

 Appropriations, and

 Encumbrances.

 Subsidiary ledger accounts should be provided in whatever detail is

required by law or for sound financial administration to support
each of the three control accounts.
 Budgeted interfund transfers and debt proceeds may be recorded
in two additional budgetary control accounts:
 Estimated Other Financing Sources and

 Estimated Other Financing Uses.

 Again, these control accounts should be supported by subsidiary

detail accounts as needed.

3-24
3-25
Budgetary and Operating Statement Accounts
(Cont’d)
 An appropriation is a legal authorization
granted by the legislative body to incur
liabilities for purposes specified in the
appropriation act or ordinance
 An encumbrance is an estimated amount
recorded for purchase orders, contracts, or
other expected expenditures chargeable
to an appropriation

3-26
3-27
 Budgetary Control—Expenditures

 Budgetary control of expenditures is achieved

by:
 ensuring that a valid appropriation exists prior to
recording an encumbrance or expenditure, and
 periodically comparing encumbrances and
expenditures to appropriations to prevent
overspending
 Comparison is enhanced by using the same
account classification scheme for appropriations,
encumbrances, and expenditures

3-28
 Classification of Expenditures
and Appropriations

 Fund
 Function or Program
 Organization Unit
 Activity
 Character (Current, Capital, Debt Service)
 Object

3-29
 What Purpose is Served by Each
Classification?
 Fund—Denotes which fiscal and accounting entity was affected.
The primary classification of governmental expenditures is by
fund, since a fund is the basic fiscal and accounting entity of a
government.
 Function or Program—Assists in budgeting resources for
carrying out major areas of service activities or goals.
 Functions group related activities that are aimed at
accomplishing a major service or regulatory responsibility.
 Programs group activities, operations, or organizational units
that are directed to the attainment of specific purposes or
objectives.
 Organization Unit—Assists in enhancing managerial control and
responsibility accounting.
 Classification of expenditures by organization unit is considered
essential to management control.
3-30
 What Purpose is Served by Each
Classification? (Cont’d)
 Activity—Assists in assessing performance on specific lines of work
and determining cost of activities
 Character—Assists in evaluating which period is benefited by an
expenditure: past, current, or future. A common classification of
expenditures by character recognizes three groups:
 Current expenditures
 Capital outlays
 Debt service
 Object—Assists in determining how much was expended for specific
things.
 Object classes may be viewed as subdivisions of character
classifications. One scheme of object classification includes the
following major classes:
 Personal services
 Capital outlays
 Supplies
 Debt service
 Other services and charges 3-31
 Budgetary Control—
Expenditures (Cont’d)
Accounting Control over Expenditures
 Three control accounts (Appropriations, Encumbrances,
and Expenditures) are used to control similarly named
columns of the detail budget accounts in the subsidiary
ledger
 The detail account totals for Appropriations,
Encumbrances, and Expenditure in the subsidiary
ledger must equal the corresponding general ledger
control account balances

3-32
 Budgetary Control—Revenues

 Periodically compare actual revenues (or

actual other financing sources) to
estimated revenues (or estimated other
financing sources)
 Use a common classification scheme for
revenues and estimated revenues

3-33
Budgetary Control—Revenues (Cont’d)

Accounting Control over Revenues

 Two control accounts (Estimated Revenues
and Revenues) are used to control similarly
named columns in the detail accounts in the
revenue subsidiary ledger (see Ill. 3-7)
 The sum of the Estimated Revenues and
Revenues account balances of the subsidiary
ledger must equal the general ledger control
account balances for those accounts

3-34
 Classification of Revenues and
Estimated Revenues

 By fund
 By source
 Taxes (Ad-valorem and self-assessing)
 Special Assessments
 Licenses and Permits
 Intergovernmental Revenues
 Charges for Services
 Fines and Forfeits
 Miscellaneous Revenues

3-35
 Revenues—Taxes (Ad valorem and
Self-assessing)

 Ad valorem taxes are assessed on the value of

underlying property—e.g. personal and real
property taxes

 Self-assessing taxes are based on income or

sales. Taxes due on sales or earnings that
have occurred but are not yet reported at the
end of an accounting period are usually
estimated and accrued

3-36
 Revenues—Property Taxes (Cont’d)

 If rates are below the statutory limit,

property taxes may be viewed as a
residual source of revenues.
 The gross tax levy is calculated as
the amount of revenue required
from property taxes divided by the
estimated collectible portion of the
levy.

3-37
Revenues—Special Assessment Taxes

 Levied against certain properties that

receive a particular benefit that not all
taxpayers receive.
 Examples include street repair,
street cleaning, or snow plowing
for taxpayers who live
outside the normal service area.

3-38
 Revenues—Licenses and Permits

 Includes items such as vehicle licenses,

business licenses, liquor licenses,
marriage licenses, animal licenses,
building permits, zoning variances, etc.

 Ordinarily not measurable in advance of

transactions; thus, recorded when received
in cash

3-39
 Revenues—Intergovernmental

 Includes grants and other financial

assistance from higher levels of
government
 Intergovernmental revenues such
as grants are normally not
recognized until all time and
eligibility requirements have been
met. Expenditure-driven
(reimbursement-type) grants
typically require qualifying
expenditures be made before
recognizing revenues 3-40
 Revenues—Charges for Services

 Many governments have shifted

much of their revenues from taxes on
all taxpayers to charges to recipients
of services, including charges for
recreational services, building
inspections, etc.
 Accrue if billings for service occur
before receipt of cash

3-41
 Revenues—Fines and Forfeits

 Fines are amounts assessed by the courts

against those guilty of statutory offenses and
neglect of official duties
 Forfeits arise from deposits or bonds made
by contractors, accused felons, and others to
assure performance on contracts or
appearance in court
 Accrue if the amount is known prior to the
receipt of cash

3-42
 Revenues—Miscellaneous

 These are revenues that do not fall into

one of the other categories, such as:
 proceeds from the sale of government
assets (if small in amount; OFS otherwise)
 investment income
 Accrue if the amount is known prior to the
receipt of cash

3-43
Examples of Budgetary Journal Entries

Budget Approved on 1-1-2008: Dr. Cr.

Estimated Revenues 500,000
Appropriations 450,000
Fund Balance 50,000
Estimated Revenues Ledger:
Taxes 300,000
Licenses and Permits 50,000
Intergovernmental Revenues 50,000
Charges for Services 50,000
Fines and Forfeits 25,000
Miscellaneous Revenues 25,000
Appropriations Ledger:
General Government 120,000
Public Safety 150,000
Public Works 100,000
Culture and Recreations 80,000
3-44
Subsidiary Ledgers for Budgetary Control

Revenue Subsidiary Ledger

Acct No. XXX
Account Name: Charges for Services

Estimated Actual
Revenues Revenues Balance
Date Explanation Folio DR CR DR (CR)
1-1-2008 Budget authority GJ71 50,000 50,000
1-31-2008 Various items CR82 4,000 46,000
2-28-2008 Various items CR87 5,000 41,000

3-45
Examples of Budgetary Control

Example: City Clerk's office orders a new printer on

January 2, 2008 which had a list price in the
vendor's catalog of $500.

Entry in the General Fund General Journal:

Dr. Cr.
Encumbrances—2008 500
Reserve for Encumbrances—2008 500

3-46
 Examples of Budgetary Control

Printer is received on 1-15-2008, including

shipping charges of $15:

Entry in GF General Journal:

Dr. Cr.
Reserve for Encumbrances—2008 500
Expenditures—2008 515
Encumbrances—2008 500
Vouchers Payable 515

3-47
Subsidiary Ledgers for Budgetary Control

Appropriations/Encumbrances/Expenditures
Subsidiary Ledger
Acct No. XXX

Account Name: General Government, City Clerk , Equipment

Available
Appropriations Expenditures Encumbrances Balance
Date Explanation CR (DR) DR (CR) DR (CR) CR (DR)
1-1-08 Budget authority 1,500 1,500
1-2-08 P.O. No. 98-41 500 1,000
1-15-08 Voucher No. 1125 515 (500) 985

3-48
 Accounting for Allotments

 Allotments are internal allocations of funds by

executive management to quarters or other
time periods
 Some modification of the appropriations
subsidiary ledger is required to add an
Unallotted Appropriations column in each
detail account (See text)

3-49
 Computerized Accounting Systems

Computerized accounting systems have

evolved to meet the fund accounting
needs of government
 Revenue and expenditure classifications
are achieved through the use of an account
number having different segments or fields
 A current challenge is redesigning fund-
based accounting information systems to
accommodate the government-wide
accounting and financial reporting required
by GASBS 34

3-50
 Ethiopian Federal Budget

 Identifiesbudgeted expenditures and budgeted revenues

for the upcoming fiscal year (Hamle 1 to Sene 30)
 Each category will have its own subcategories

 Budgeted expenditures include captal and revenue

expenditures as idnetified by Financial Proclamation No.
57/1996 and Financial Regulation No. 17/1997
 The tables below listed budgeted capital and revenue
expenditures over the years 1994 to 1997.

3-51
Table 1: Ethiopian Federal Government Public Expenditures in millions of Birr

Ethiopian Fiscal Year 1994 1995 1996 1997

General Services 3450 3260 3326 3935

Economic Services 360 558 378 275

Social Services 806 786 625 695

Interest & Charges 1005 1219 1079 1011

Miscellaneous
17 59 59 243
Subsidies
1006 2890 699 722
3-52
Economic development 3925 4124 4773 7750

Social Development 1434 1745 223 3311

General Development 770 444 1265 454

Total Capital Expenditure 6,129 6,313 8,271 11,515

3-53
 Budgeted Revenues
 Tax Revenue: Includes the following:
 Revenue from Income Tax - the government may
impose different type of income tax which will be
discussed in the forthcoming topic. This revenue
includes all public revenues from income taxes.
 Revenue from Property Tax – it is the tax revenue
from properties owned by business and individuals
such as land use tax, building tax, inheritance tax,
 Revenue from Commodity Tax – it is a revenue
generated when government levies different taxes on
commodities.
3-54
 Non tax Revenues
 Administrative Revenues- These revenues include the following types
of revenues:
 Service Fees - compulsory payment made by the individuals who obtain
a definite service in return for the cost of administrative services
rendered by it such as court fee, registration fee, etc
 Licenses - A license fee is collected not for any service rendered, but
for giving permission or a privilege to those who want to do a special or
specified work.
 Fines and Penalties - Fines and penalties are imposed as a form of
punishment for the mistakes committed
 Forfeitures - the penalty imposed by the courts on the persons who
have not complied with the notice served by it
 Escheats - the property of a person having no legal heirs
 Special Assessment - a compulsory contribution to defray the cost of
the specific improvement to property

3-55
 Gifts and Grants

 Gifts are voluntary contributions from Non-

Government donors to the Government for
various purposes like drought relief, defense,
national relief, promotion of family planning,
etc.
 Grants are usually given by one Government to
another.
 For example, in a federal set up, the Federal
government provides grants to the state
governments to carry out their functions and
fulfillment of obligations.
3-56
 Revenue from Public Enterprises
 There is no pure market economy in the world.
 Government interferes in the economy so as to achieve
different social and economic objectives.
 In Ethiopia, there are about 140 public enterprises
before 2007.
 These public enterprises are required to declare 80%
state dividend once they achieved the target 10% legal
reserves.
 The Ethiopian Federal Government had the following
public receipts from Ethiopian Fiscal Year 1993 to
1997.

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Table 2: Ethiopian Federal Government Public Revenues in millions of Br
Ethiopian Fiscal Year 1993 1994 1995 1996 1997
A. Income and profits tax 2507 2979 2878 3131 3569
B. Rural land use fee 117 113 88 114 140
C. Urban land lease fee 123 28 44 186 221

D. Direct taxes (A + B + C) 2746 3,120 3,010 3,431 3,930

E. Domestic indirect taxes 1381 1498 1668 2200 2589

F. Import duties and taxes 3231 3280 3564 5276 5746

G. Export Duties 93 28 1 0 0

H. Indirect Taxes (E+F+G) 4705 4806 5233 7476 8335

I. Tax Revenue (D + H) 7452 7926 8243 10906 12265

J. Non-tax revenue 3147 2483 2906 3010 3212

K. Total revenue (I + J) 10599 10409 11149 13917 15476

3-58
 Public Debt (Borrowings)
 Itis a public receipt that includes internal debt and
external debt.
 Internal debt - Increasing need of government for funds
cannot be fully met by taxation alone due to limited scope
of taxation.
 Government therefore has to resort to alternate sources-
Rising of debt is one such source.
 Debt, though involves withdrawal of resources by
curtailing private consumption, has certain advantages.
 Transfer of funds from public to government is voluntary.

 Loans do not reduce the wealth of the lenders.

 Debt raised for productive purpose will also not be a

burden on the economy.
3-59
 External Debt
 In under developed and developing countries, internal sources are
limited.
 Under developed and developing countries, therefore go for
external debt. The transfer of funds in the form of external debt at
international level may take the form of Foreign Debt and
Institutional Debt.
 The foreign debt is borrowing from other countries with which the
country borrowing has good relationship.
 The institutional debt includes borrowing from International
Financial Institutions like IMF, World Bank, African Development
Bank, etc.
 External debt is an immediate source of funds for development.
External inflows help to achieve faster development. However,
such debt has drawbacks such as political subordination; excess
supply of goods and services in debtor country; and other
obligations.
3-60
 Economic Reforms in Ethiopia (study in 2004 about
VAT)
 Since 1992/93, Ethiopia has made a major economic
policy shift from Central Planning to market oriented
economic system.
 In line with this change, a series of tariff and tax reform
measures have been taken.
 The reasons to these were:

 outdated tariff and tax laws;

 weak customs and tax administration;
 failure of the tariff and tax regime to attract
investment, to facilitate trade and to generate
adequate revenue to cover current and capital
expenditure, and finance development and poverty
reducing projects. 3-61
 The series of tariff and tax reform programs have helped to increase
national revenue.
 The Federal Revenue has increased to Birr 6.7 billion in 2002/2003
from Birr 2.54 billion in 1993/94 as the result of which federal revenue
as percentage of the GDP increased from 8.97% in 1993/94 to
11.87% in 2002/03. (REPIM, 2004).
 The increase in revenue mainly attributes to the modest increase in
both direct and indirect taxes, mainly the foreign trade taxes. As well,
National tax revenue as percentage of GDP has increased to 15.1%
in 2002/03 from 10.9 in 1993/94.
 Despite, the series of reforms and increase in revenue, the overall
budget deficit with and without grant has been increasing. For
example, the overall budget deficit without grants as percent of GDP
has increased from -5.2% in 1996/97 to -14.5% in 2002/03 (NBE,
2002/03).
 This shows that performance of revenue collection in Ethiopia has
been low compared to the rest of Sub-Saharan African countries
which is over 23% of the GDP.

3-62
The Trend of Government Revenue, Expenditure, Budgetary
Deficit and External Debt
1. Over the years 1993/94 to 2002/03, with growth in
the GDP, the amounts of tax, non- tax revenue and
grants were increasing.
2. Tax revenue increased from Birr 3 billion in 1993/94
to Birr 8.2billion in 2002/03; while the amount of
non-tax revenue and external grants increased from
Br 862.4 million to 1.7 billion and Br987.2 million to
2.45billion respectively over the same period.
3. This has increased total revenue and grants from
Birr 4.93billion in 1993/94 to Birr 13.6 billion in
2002/03.
4. However, the total revenue and grants couldn't catch
up with the increase in the amount of total current
and capital expenditure,

3-63
 Government revenue, Expenditure, Budgetary Deficit,and External Debt

70000

60000

50000 GDP at current Market prices

Tax Revenue
Income and Profit taxes
40000 Domestic Indirect Taxes
Foreign Trade taxes
Non Tax revenue
In Million Birr

30000
Total Revenue
External Grants
Total Revenue and grants
20000
Total Current Expenditure
Total capital expenditure
10000 Total Expenditure
Overall budget deficit including grants
Overall budget deficit excluding grants
0 External Debt(disbursed)
1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03

-10000

-20000
Fiscal Year
3-64
 A Study on Budgeting Transparency in Ethiopia
(2005)
 The word ‘budget’ used to turn off social activists and
development practitioners.
 Debate on the budget or public finance in general was
traditionally the domain of economists, academics and
researchers.
 Public expenditure analysis was mainly the domain of
government officials and academics.
 In recent years, however, the work of a few pioneering
NGOs has demonstrated how policy advocacy can be
strengthened by understanding, analysis and debate of
budgetary issues.

3-65
 Ethiopian Budget Transparency
 Whether the Ethiopian budget is transparent and
encourages participation of legislature and civil society in
government budget decision making.
 The analytical framework adapted by the Institute of
Democracy in South Africa (IDASA) in conjunction with
the International Budget Project (IBP) was used to guide
the review.
 The IDASA framework is based on the International Code
on Fiscal Transparency developed by the International
Monetary Fund (IMF) and Best Practice Guidelines of the
Organizations of Economic Cooperation and
Development (OECD).

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 Focus of the Review
 The review focused on five basic areas of transparency:
 the legal framework,
 clarity of roles and responsibilities at national and regional
level;
 public availability of budget information;
 independent checks and balances of budget execution and
government data; and,
 budget decision making processes.
 The finding of the preliminary assessment draws heavily on desk
review. A few interviews were carried out with officials at the
Ministry of Finance and Economic Development (MOFED).
 The assessment is far from comprehensive and complete.
However, to inform its programmatic work on child rights and
economic policies, the African Child Policy Forum intends to carry
out a comprehensive research on the budget.
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 Budgetary Reform in Ethiopia

 Since 1997, the USAID has been supporting public

financial reform and fiscal decentralization in
Ethiopia through Harvard University’s the
Decentralization Support Activities (DSA) Project.
 Support for public finance management reform of
Regional States was piloted since 2000.
 As of September 2005, reform is being
implemented in the remaining one Regional State.

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 Continued…

 The Kennedy School of Government’s technical

assistance has been instrumental in helping to enhance
governmental transparency and accountability in Ethiopia.
 The DSA supports the Ethiopian government Expenditure
Management and Control (EMC) sub-program of the Civil
Service Reform, which is managed by Ministry of Finance
and Economic Development (MOFED).
 The Budget Information System (BIS) and the Budget
Disbursement and Accounts (BDA) System implemented
with MOFED produced the national budget in a timely
manner.

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 Continued…
 In 2004, the budget was ready six weeks ahead of
 deadline. When implemented nationally, the BIS/BDA
system will enable speedy consolidation of the national
budget and accounts, efficient tracking of sector
expenditures, and improve fiscal transparency nation wide.
 The United States government thorough its Agency for
International Development (USAID), Development
Cooperation Ireland (DCI), and the Netherlands Minister for
Development Cooperation have joined hands to support
fiscal decentralization in Ethiopia.

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 Does the Ethiopian Budget encourage
participation?
Legal framework for transparency
 Ethiopia has a well established legal framework governing its
budget system that derives from the 1995 Constitution.
 The Constitution clearly defines structure, division of powers
and responsibilities among the State organs.
 These are the structures of the organs of the Federal
Government and of the State members.
 Article 12 (1) of the Constitution, states that ‘the conduct of
affairs of government shall be transparent’. Sub Article 2 states
that any public official or an elected representative is
accountable for any failure in official duties.
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 Furthermore, Article 29 of the Constitution stipulates the
‘right of freedom to seek, receive and impart
information and ideas of all kinds, regardless of
frontiers, either orally, in writing, or in print, in the form
of art or through any media of his choice’.
 This also includes freedom of press and access to
information of public interest.
 Therefore, this article provides legal basis for any
individual, civil society organizations and other
stakeholders to access information on budgets and
budget processes.
 The Constitution provides the framework for people’s
participation through electoral representation.
 The Legislature has clear authority over the approval of
budget estimated and expenditure.

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 In general, the meetings of the House of the
Representatives are public. The law specifies
the condition and the process for having closed
sessions.
 The House shall have a closed session upon
the request of the Executive or members and
when supported by a decision of more than
one-half of the members.
 The legal frame work has made a provision for
the Legislature to maintain an oversight over
the Executive in the budget process. However,
the practice in Ethiopia remains to be studied.
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 The Office of the Federal Auditor General is
established by Proclamation No. 68/1997.
 The Auditor General upon the recommendation of the
Prime Minister is appointed by the House of Peoples’
Representatives.
 The office is responsible for the inspection of the
accounts of all government bodies. Its task is to
ensure that expenditures are made in accordance to
the approved allocation for the fiscal year and submit
report to the House.
 The Federal Ethics and Anti Corruption Commission
is established by Proclamation number 235/2001 as
an in dependant Federal Government body for
combating corruption, investigating and prosecuting.

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 Concluding Comments

 The General Fund and special revenue funds

usually require a legally adopted budget before
the government can collect revenues from taxes
and other sources and incur expenditures
 Legal penalties may exist for failure to comply
with the budget, so it is imperative that the
accounting system facilitate accounting for the
budget as well as all other operating
transactions.

END
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