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Assessment of budget preparation and implementation of Ethiopian institute of agricultural researcH-debre zeit research center
a research REPORT submitted to THE DEPARTMENT OF ACCOUNTING AND FINANCE in partial fulfilment FOR THE requrements of ba DEGREE IN ACCOUNTING.
PREPARED BY: mikyas negash
ADVISOR: AREGA SEYOUM (phD)
Jimma university
Business and economics college
DEPARTMENT OF Accounting & Finance
JUNE, 2013
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JIMMA, ETHIOPIA
Acknowledgement
First of all, I would like to thank my almighty lord JESUS for all his support in my life. Next, my heartfelt appreciation goes to my advisor Dr. Arega Seyoum for his constructive comments and advises throughout the preparation of this research report.
I also would like to use this opportunity to thank my parents and relatives for all of their supports till now.
abstract
The general objective of this study is to assess the preparation and implementation of budget in case of Ethiopian Institute of Agricultural Research- Debre Zeit Research Center. To attain the main objective of the study, primary data were be collected by the means of interview and questionnaire from manager and employees of finance department; and secondary data will be collected from different books, reports of the organization. The collected data will be analyzed in different method like tabulation, percentage. The major findings of the study are:- because the agricultural research activities are very difficult, the budget system is also complicated. There is also lack of clear definition of procedures and responsibilities, inappropriate use of budget among departments, less control on the performance of each department
Contents Table of Contents Page
Questionnaire Prepared for Employees of the Organzation…………………………………………………… 34
Chapter one
1. Introduction
Budget is a plan expressed in dollar amount that acts as a road map to carry out on organization’s objective, strategies and assumptions. (blog.Accountingcoach.com)
many associate the word “budget” with “dread” or “drudgery” perhaps the word budget should be avoid altogether word like ‘financial maps” or “Operational guide” might be suitable alternatives. No doubt, some employee will question the need for a budget. The process of budget preparation is sometimes seen as painful, and it is not always clear how the effort that is required leads to any productive outputs (www.principleofaccounting.com)
Furthermore, budget can be seen as imposing constraints that are hard to like with and establishing goals that are hard to meet. Despite these dismal remarks, it is important that organizations carefully plan their financial affairs to achieve financial success. These plans are generally expressed as “budget”. Therefore, a budget is a detailed financial plan that quantifies future expectations and actions relative to acquiring and using resources. Additionally, the ability to budget effectively is very important part of being successful. A budget can be useful in setting standards of performance, motivating boards and useful in setting standards of performance, motivating boards and staff members, and providing a tool to measure results fulfilling the organization’s mission is the main goal, and budgeting makes it possible (www.alpern.com)
Finally, a well managed organization has the following budgetary cycle:-
- Planning the performance of the organization as a whole as well as it part the enterer management team agrees as to what expected
- Providing a frame work reference, a set of specific expectation against which actual result can be compared.
- Investigating variance from plan, corrective actions follows investigation.
- Planning again considering feedback and exchange condition (DATAR M. ARORA 2003)
Ethiopian Institution of Agricultural Research Debre Zeit Research Center (EARDRC) was founded in 1953. The institute is found in Oromia region state in east Showa in ad’a woreda in Debre Zeit town. It has a distance of 52 km from the capital city of Ethiopia (Addis Ababa).
The institute is specializing in agricultural researches which include acting as the national center for research to improve the yield of Teff, Lentils, Chickpeas and poultry.
Most of the world’s organizations weather they are constituted for profit or not, they prepare budget and also implement. This is because there are no organizations which are performing their activity smoothly without preparing, and implementing a budget. Therefore, budget preparation and implementation is important tool in every organization because it primarily involves identification and stetting budgetary thrusts and policies based on the developmental plan. But in most of developing countries, even though nowadays there are astonishing changes in budgeting, any significant improvement on budget preparation and implementation are not seen. (www.academicjournls.org)
Thus, organizations which are also found in Ethiopia are facing poor budget preparation and implementation. This is due to different problems such as complicated budgeting system and techniques, lack of a clear definition of procedures, responsibilities and appropriate timing program, lack of coordination between the budgeting and other departments. (www.academicjournls.org)
Therefore, although previously many researches have been done on the budget preparation and implementation of Ethiopian. Institute of Agricultural Research Debre Zeit research center, the organization is still facing some of the identified problems. Thus, this study recommended possible solutions for the existing problems. Based on the identified problems, the study answered the following research questions:-
1. How and what techniques are used to prepare budget?
2. What are the procedures followed in approving and authorizing budget in the organization?
3. What are the problems and causes that are facing during budget preparation & implementation?
4. What measures have been taken for the variance of actual performance with the expected in the implementation?
1.4.1 General Objective
The general objective of the study was to assess the budget preparation and implementation of Ethiopia Institute of Agricultural Research Debre Zeit Research center.
1.4.2 Specific Objectives
The specific objectives of the study were:-
- To identify the procedures followed in approving and authorizing the budget of the organization.
- To identify how the organization prepare budget plan
- To assess what measures have been taken for the variance of actual result from budgeted.
The study provide information mostly useful to management, by suggesting appropriate methods of laying out budget and assist the organization to use a better way of controlling budget performance than before. It also helps the organization to allocate resources to programs and projects designed to achieve government goals and policies.
1.6 SCOPE & limitation of the study
1.6.1. Scope of the study
Even though the budgeting and implementation activity is different and wide from one organization to another, this study focused on the strengths, procedures, techniques and problems in budget preparation and implementation of Ethiopia Institute of Agricultural Research- Debre Zeit Research center.
1.6.2. Limitation of the study
The limitations which faced this study were:
- The difference in the knowledge of the respondents.
- In availability of managers in their office.
- Fearing of respondents to give information.
- Inappropriate documentation of the organization data.
1.7 ORGANIZATION OF the paper
This paper have five chapters; chapter one conveys an introduction part that tries to give overall facture about the study; chapter two deals with literature review chapter three discuss about research design and methodology; chapter four is about data presentation, analysis and interpretation. And the last chapter deals about conclusion and recommendation
Chapter two
2.1 overview of budget
Budget is a detailed plan for acquiring and using financial and using financial and other resources over a specified time period it represent a plan for future expressed informal quantitative terms. Budget is a comprehensive and co-ordinate plan expressed in financial terms for the operations and resources of enterprises for some specified pained in the future. It is a plan of management intimations of attaining specified objectives the commitment of management is a key to the success in preparation and implementation of budget.
The basic elements of budget are:-
1. It is a comprehensive financial and co-ordination plan.
2. It is a plan for the firms operation and resources.
3. It is a future plan for specified period.
Budget is referred to as a plan for acquiring of financial and other resources commonly known as a revenue budget and the proposed used of this resource is common called expenditure budget. Other a specified period of time, budget contains information about the type and amount of a proposed expenditures.
The reason or purpose for which these expenditure are to be made and the proposed means of financing them. A budget may be stated interims of quantity money or both and is prepared for definite time period in generally terms budget serves several purpose in the following.
- It is quantitative expression of management plan as a result it provides a means of communicating to concerned parities.
- It provides a means of allocating scares resource of the activities.
- It serves as a bench mark or standard against which actual performances are compared a budgeting system composes the procedures used to develop a budgeting system.
(Lynn& Freeman, 1995)
2.2 Objectives of budgeting
Budget may be the most important responsibility of a government legislator or managers, citizens expect government leaders to prioritize community proportion and service goals authorize the expenditure of resource to meet the goals company with law’s over spending a proportion, improve the quality of service in their term and demonstrate towards relationship for public fund in the long term budget embodies management plans to meet public expectation.
Robert banks deceive the complex set of budgeting objectives are:-
- The budget document and its preparation and adoption express the basic political values of a government.
- Budget reflects the compromise, negotiated in the contentious process of a budget adoption.
- Budget guide public administrator, defining, governments, economic political role in a community and sectioning as well as limiting, administrative action.
- Budget not only represent plan for the future, they also mold that future by the policies they contain.
- The budget is a tool for holding administrators accountable for performance expectation (Mohammed A. Riff Pasha, 2006).
Budget may be regarded as a drive to avoid management in operating an organization more effective by government build budget to demonstrate compliance with laws and to communicate performance effectiveness. Budgetary principles were established by the national committee on government reporting guide referred to GAAFA or the blue book.
Budgeting, budgetary control and budgetary reporting principle provide the following (Early. R.Wilson, Jacque lire L.Rock, 2006).
A. Annual budget should provide the basis for appropriate budgetary control.
B. The accounting system should provide the basis for appropriate budgetary supplementary information for the general fund and for each manager special revenue fund that has legally adopted annual budget. The budgetary companion scheduled are presented both.
i. The original
ii. The final appropriate budget for reporting period as well as
iii. Actual inflows, out flow and balance stated on government budgetary basis.
2.3 implication for government reporting for public budgeting
GASB does allow government to choose the budget any comparison schedules officer the notes to the financial statement, are required supplementary information, or as more traditional statements that compares budgeted to the actual operating performance with in the basic financial statements, the addition of accrual based government wide statement in GASBs 34 has a number of implication for budgeting as discussed in article by “Dr.James Chan” they include:
1. Emphasizing the long term perspective in building
2. Stressing budget as a tool for demonstrating public accountability.
3. Considering the government as a whole.
4. Activate the debate about accrual accounting
5. Raising the need to project financial position.
6. Critically opposing budget practice. Etc.
2.4 budgeting approach
Exhibit the perspective of the staff or area within the government with budget responsibility budget approaches are listed below.
1. Line item budgeting:- a traditional approach to budget and the one that is most likely present in some portion of every governments budget is line item or expenditures budget (Eary R. Willson, 2006)
2. Performance building:- the evaluation of the concept of budget from an estimate of proposed expenditures and the proposed and means of financing them to an operating plan was a mutual plan to the development of the concept professional management in public administration (Early .R.Wilson, 2006)
3. Program budgeting:- the full costs of programs of function without regarding to the number of organizational units that might be involved in performing the various aspects of a program.
4. Entrepreneurial budgeting:-in this approach strategic accountabilities are merged in to the budget and communicated to the citizens as a package.
2.5 budgeting process in state government
Budgeting governmental appropriation budget are an administration request for an authorization to incur liabilities for goods and services and facilities for specific purpose. The preparation and appropriation budget for any one year is related to the administration budget of revenue, since the revenue budget is the plan for financing the proposed appropriation (Early R. Wilson, 2006).
If in the judgment of the administration, the program should continued the appropriation level of activity and the appropriation level of resource must be determined. This determination takes for more political courage and management skill than the common practice of simply extrapolating the trend of historical activity and cost. If the administration is conceived that a program should be continued and the proper allocation of resource is reasonable, the preparation budget is delegated to the person in charge of the program in the case of new program, the administrative states the objective of the program and sets general guide lines for the operation of the program and the delegated of the budget preparation to individuals who are expected to be in charge of the program. When delegations authorization and appropriation are sourced state laws and local ordinances typically required that certain steps be followed in the budgeting process and prescribed by which steps must be completed. These requirements are referred to as budgeted calendar or cycle (Early. R.Wilson, 2006)
The technical assistance provides many in clerical assistance with budget computations as well as maintains file each program contains the following:
1st step: documents citing the legal authorization and directives
2nd step: relevant administrative policies.
3rd step: historical cost and work load data
4th step: specific factors affecting program cost and workload.
5th step: source of information to be used in projecting trends (Early R. Wilson, 2006)
Budget prepared by departmental administrators should be viewed by the central administration before submission to the legislature branches. Because the total of departmental request frequently exceeds the total of estimated revenues and it’s necessary to thing the requests in some manuals.
2.6 essential effects of budget
A budgetary control system can prove successful only when certain condition and attitudes exist. A balance of which will be get to a large extent the value of a budget system should in any business such condition and attitudes which are essential for effective of budget (Hilton Maber selto, 1999)
Pre- rquisite of budget
Successful and sound budgeting system is based up on certain prerequisites represents management attitude organization structure and managerial approaches necessary for the effecting and efficient appreciation of budgeting system the following are the major roles of budgets.
1. TOP management support
TOP management must be continued that it can predicted future with reasonable accuracy and that realistic objectives of goals can be predefined
2. Clear and realistic goals
Budget is a means to achieve a goal and objective all planning presupposes that objective and goals have been clearly and unambiguously established the enterprises objective and goals to be accomplished thorough budgeting should be reasonable and realistic they should be capable of attainment.
3. Goal conflict
The purpose of budgeting can be detected if carelessly set budget goal conflict with enterprise objectives.
(Early, R.Wilson 2006, Hilton Maher selto 199)
2.7 types of budget
Government entities prepare and implement several type of budget. Budget for governmental budget may classified as follows (early R. Wilson 2009, Jacquelin L.Reck 2001)
1. Operating Vs capital budget
The operating budget also called revenue budget deals with recurring expenditures such as supplies and means of financing expenditures such as salaries payment and supplies and a means of financing them.
Capital program shows detail of longer facilities of government unit plans to acquire over a relatively long period of time such as fire to ten to twenty years. Comparable program budget in case of Ethiopia is the public investment program which is other year rolling financial plan for capital expenditure capital program are broken down into annual budget known as the current budget.
2. Tentative Vs Enacted budget
It refers to budget which in not yet presented to and approved by legislative body. Budget request prepared by a division on department of a government entity may be treated as a tentative budget because it may clamped or revised several times before it’s included in the budget request to be presented to the legislator for approval.
3. Fixed Vs flexible Budget
Fixed budget is a budget for specific of fixed total amount may not be exceeding that may not be due to change in the demand for government goals and service. This budget is prepared for specific planned of an activities and is not usually adjusted according to the level of activity actually demanded. Flexible budget is a budget which fixes expandable resources per unit of good and service whose total varies with the change in the demand for governmental goods and service.
4. Government budget
The budget of government is a summary or plan of the intended revenue and expenditure of a government budget. A governmental budget is a lgal document that is often used by the legislation and approved by the chief of executives or presidents. Only certain types of revenue may be imposed and collected property tax is frequently municipal and country revenues, which sale tax and by income taxable. The basis for state revenues the two basis elements of any budget are the revenue and expense in the case of the government revenue are delivered primarily from taxes. Government expenses include spending on current goods and service which economist call government on summation, government spending investment such as infrastructural investment of research expenditure and transfer payment like unemployment retirement benefits budget have an economical, political technical basis unlike a pier budget they are not entirely designed to allocate scarce resources.
5. Other types of budget
- Sales budget: is an estimate of future sales often broken down in to with units and dollars, it’s used to create company sales.
- Production budget: product oriented companies create production budget which estimates the number of units that must be manufactured to net the sales goal. It estimates the various cost involved with manufacturing those unit including labor and material (www.wikipedia.com)
2.8 advantages and disadvantages of budget
2.8.1 Advantages of Budget
Organization relates many benefits from budget among these benefits are enlisted below:
- Budget communicate plan throughout the organization
- Budget force a manager would spend allocating of their time dealing with daily emergence.
- Budget process provides a means of all resources to those parts of the organization where they can be used most effectively.
- Budget coordinates the activities of the entire organization by integrating the plan of its various parts.
- Budget help to insure that everyone in the organization is pooling in the sum of direction.
- Budget defines and objectives that can source as benchmarks for evaluating subsequent performance (M.N ARORA 2003)
2.8.2 Disadvantages of Budget
The following are source of disadvantage of budget
- The management judgment: budget is not exact science; its success depends up on the precession of estimate, estimates are based on fact and managerial judgment of consumer from subjective and personnel basis.
- Continuous adoption: in salvation of perfect system of budgeting is not possible in a short period. Therefore, budgeting program should be continuously adapted.
- Unnecessarily details: budgeting will be ineffective and expensive if it is inculepinary detailed and complicated. (Lynn& freeman, 1995)
2.9. Approaches to governmental budgeting
There are several approaches to governmental budgeting which different in the level emphasis. They give to planning, controlling and evaluating the financial affairs of a governmental entity. The most common approaches to budgeting for operating expenditure include the following.
2.9.1 Objective of Expenditure Budgeting
It is also called traditional approach or lien time budgeting, focus on controlling expenditures. Under this approach the budget process starts from the simplest unit of governmental entity such as section, department or division. The budgeting is sated interns of expenditure such as salaries, supplies, utilities etc and threatened amount of resources ragged in the traditional approach to be budgeting the government unit start with last year’s budget and simply make some judgment to the amount related to each or some expenditure item on the budget according to the anticipated changes on demand for goods & services (Jones pendle Butty, 2001)
2.9.2 Performance Budgeting
It focuses on the performance of activities or program which resources are requesting rather than or more determination of resources to spend it tries to evaluate the efficiency with which existing activities are basing carried out. Besides, it attempt to identify reason why the governmental unit asks for appropriations, kinds and volume goods and services the unit offers to justify for the budgeting preparation.
2.9.3 Planning Program Budgeting
The main focus of this approach is establishing relationship between expenditure and objective to achieve so as to allocate resources in such a way that they will produce greaten possible benefit. It includes the following procedures:
- Determine the overall activities of the government
- Determine the program that might be undertaken to achieve the objectives
- Determine the benefits and cost associate with each program elements (Jones and Pendle Butty, 2001)
2.9.4 Zero- Based Budgeting
Resources are allocated in accordance with previous period pattern and official and manager each governmental entity are required to annually refortify each time of expenditure activity or program. This approach involves the following basis procedure:
- Identify decision units which referred to program activities or relatively lower level unit of governmental entity.
- Develop the decision package which referred to descriptions of the objectives or purpose of the decision unit and the alternative actions that could be taken to achieve them.
- Determining the tangible benefit expected from performing each decision package and resources required interns of cost of labor, national and etc to implement.
- Dividing the selected decision packages in to lends of service to be provided. (Lynn& Freeman, 1995)
2.10 procedures for budget preparation
- Identifying the objectives or goals of the government unit plan to achieve.
- Identifying the investigate and measure existing activities or program which the government unit under take to achieve
- Determine the unit of source the governmental entity plan to a given time period.
- Determine the budgeted amount of resources needed by multiplying the expected unit of service by the cost per unit of service. Prepared budget should also include fire description of each planned activity, the enacted budget in rowed somewhat or performance contact between the leg is latria body& administration(www.nelfraglled.com)
2.10.1 The Budget Committee
A standing of budget committee usually responsible for overall policy relating to the budget program and for coordinating the budget itself. This committee may consist the president, vice president in charge of various factory difficulties and disputes relating to the budget committee. Approve the final budget and receives the periodic reports on the programs of the organization in attaching budget goals. Disperse can be attempt over budget matter because budget allocation resource is the budgeting process to large extent determinants which departmental more resource (www.netfragled.com)
2.10.2 Budget Utilization
The primary goal resource s are to ensure that your company is properly utilized. Utilization according to units o=project management glossary is the extent to which some thing is turned to practical use of accountant to rely evaluate why any utilization was low? Was it due to under changing of was it due over serving? As it turns out is actually combating the two but what was in portal was acknowledging that over servicing. (www.netfragled.com)
3.1 Research design
The research used descriptive survey method. This method was because it helped the researcher describe the data using parentage.
3.2 Sources of data and data collection method
The study used mostly primary and a little bit secondary data. Primary data are those data which have been collected directly from firsthand experience. Therefore this study collected these data from the managers and concerned employees of the organization by the means of interview, survey and questionnaires. Secondary data are data that have been already collected by and readily available from other sources. Thus, these data have been collected from books, actual and past reports, and relevant documents by means of analysis.
3.3 target population and sampling method
The total populations of this study were managers and employee who are working on the area of budget preparation and implementation in the fiancé department. Therefore the total numbers of employees are 23. Thus, the sampling method that was used is purposive or judgmental sampling method. This is because the researcher chooses the sample based on who would be appropriate for the study ducted to limited number of people that have expertise in the area being researched. Therefore the samples which have been taken from the target population were 18 in number.
3.4 Method of data analysis and presentation
After the relevant data collected, they were analyzed and presented using appropriate tables and percentages to present the research findings. This was because most of numerical data are analyzed on the way listed above.
CHAPTER FOUR
4 DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction
This chapter provides assessment of budget preparation and implementation in case of Ethiopian Agricultural Research-Debre Zeit Research Center specifically on the finance section and data were gathered from both primary and secondary sources. The researcher used descriptive type of data analysis. Data are classified into their characteristics so as to make analysis and interpretation more suitable and clear. Interpretation is made for each question within data.
Table 4.1 Characteristics of respondents
Description | No of respondents | Percentage (%) | |
Gender | Male | 10 | 55.6 |
Female | 8 | 44.4 | |
Total | 18 | 100 |
Source: survey study, 2013
The above table indicates that the general characteristics of respondents composition of gender. Regarding their gender composition, 55.6% of the respondents are male and the rest 44.4% of the employees are female.
This shows the involvement of female who are employed in the organization, specifically in finance section, is less than the No of male employees. Although their No is less, the presence of females in the organization finance section, is good in the preparation of budget; because, females are good in the wise use of resource, specifically financial resources.
Table 4.2 Age of respondents
Description | No of respondents | Percentage (%) |
20-25 | 3 | 17 |
30-40 | 7 | 39 |
Above 40 | 8 | 44 |
Total | 18 | 100 |
Source: Survey study, 2013
The above table reveals that the age of employees in the organization finance section and it shows that 17% of the employees are under 20-25, 39% are from 30-40 & finally 44% of the employees are above 40. Therefore, they are fully responsible to perform the preparation and implementation of budget.
Table 4.3 Educational status of the respondents
Description | No of respondents | Percentage (%) |
Degree | 7 | 39 |
Diploma | 11 | 61 |
Total | 18 | 100 |
Source: Survey study, 2013
From the above (table 4.3), the educational qualification of the employees who are employed in the finance section, most of them are diploma holders; means they occupy 61%. The other 39% are degree holders. From this study knew that the employees who are in the finance are not more qualified in their education. This leads them to participate in the budget preparation & implementation with no more educational knowledge.
Table 4.4 Position of employees
Description | No of respondents | Percentage (&) |
Employees | 14 | 78 |
Managers | 1 | 5 |
Professions | 3 | 17 |
Total | 18 | 100 |
Source: Survey study, 2013
As we can see from the above table 78% of the respondents are employees & professions of the employees are 17%. The remaining 5% are managers.
Table 4.5 The respondent year of experience
Description | No of respondents | Percentage (%) |
Below 2 year | 3 | 16.7 |
Between 2-5 year | 6 | 33.3 |
6& above | 9 | 50 |
Total | 18 | 100 |
Source: Survey study, 2013
Regarding the year of experience, out of the staff respondents 16.7% are below 2 year, 33.3% of the respondents are between 2-5 year, the rest 50% of the respondents are 6& above year of experience. From this one can possibly that workers of finance section have adequate experience that enables them to provide sufficient & competent evidence about the existing condition that affect the effectiveness of budget preparation & implementation.
Table 4.6 Sharing experience with other organizations
Do you think that your organization share experience from other organizations? | Description | No of respondents | Percentage (%) |
Yes | 16 | 88.9 | |
No | 2 | 11.1 | |
Total | 18 | 100 |
Source: Survey study, 2013
As can be observed from the above table, 88.9% of the respondents replied that the organization shares experience from different organizations mostly with universities like Haramaya, Addis Abeba, Jimma & so on. Therefore, this helps the organization to know what better procedures, techniques and steps are using in the other organizations to prepare and implement their annual budget in effective manner.
Table 4.7 Necessity of motivation
Do you think motivation is necessary for employee to change formulated budget in to action? | Description | No of respondents | Percentage (%) |
Yes | 15 | 83.3 | |
NO | 3 | 16.7 | |
Total | 18 | 100 |
Source: Survey study, 2013
Regarding motivation, 83.3% of the respondents were responded that motivation is necessary to enhance commitments of employees to do their work well. The remaining 16.7% of the respondents indicates that motivation is not a basic factor to enhance commitment of employees rather employee’s internal feeling or intention is the satisfactory to accomplish their work well. Therefore, from the above motivation is important tool for implementation of the formulated budget because it puts human resource in to action, improves level of efficiency of the employees, leads to achievement of organizational goal and so on.
Table 4.8 Major sources of revenues & expenditures of the organization
1. What are the major sources of revenue for your organization?
Description | No of respondents | Percentage (%) |
From federal gov,t | 16 | 88.9 |
From other sources | 2 | 11.1 |
Total | 18 | 100 |
Source: Survey study, 2013
2. What are the major sources of expenditure for your organization?
Description | No of respondents | Percentage (%) |
For agricultural research | 15 | 83.3 |
For employee salary | 3 | 16.7 |
Total | 18 | 100 |
Source: Survey study, 2013
As can be shown in table 4.8 above, 88.9% of the respondents answered that revenue from federal government is the major source. This includes the annual budget that is budgeted to the organization. The rest 11% of the employees replied the organization has other revenue sources like selling of specialized agricultural products for different farmers.
On the expenditure side around 83.3% of the respondents answered that the major types of expenditure is for agricultural research activity. The rest 16.7% of respondents revealed that the other major expenditure of the organization is for employee’s salary. For example, when we look the budgetary report of the organization for 2004E.C. out of 49,459,700 birr, around 43% & 35% of the expenditure was for agricultural research activity & employees salary.
Table 4.9 Accounting basis
What type of accounting basis your organization currently used? | Description | No of respondents | Percentage (%) |
Cash basis | 13 | 72.3 | |
Accrual basis | - | ||
Modified basis | 5 | 27.7 | |
Total | 18 | 100 |
Source: Survey study, 2013
As can be shown in table 4.9 above, 72.3% of the respondents of the study confirmed that the organization uses cash basis of accounting. This means, the revenue is recognized (recorded) when cash is received and expenditures are recorded when cash is paid out. The other 27.7% of the respondents said that the organization modified basis of accounting. Means that revenues are recorded in the period they become available and measurable and expenditures are recognized in the associated liability is incurred.
Table4.10 who is responsible to prepare & approve budget
Description | No of respondents | Percentage (%) |
Managers | 3 | 16.7 |
Budget committee | 12 | 66.6 |
Finance members | 3 | 16.7 |
Totals | 18 | 100 |
Source: Survey study, 2013
As can be seen in the above table, 66.6% of the respondents answered that budget committees are responsible to prepare budget. The other 16.7% have said it is prepared by managers & finance members respectively. This means the organization has around 5 departments, each department heads are members of budget committee. Therefore, the budget committee includes managers of the organization, department heads & some finance workers and also experts in order to prepare budget.
Table 4.11 Techniques to& procedures to prepare & approve budget
Description | No of respondents | Percentage (%) |
By determining annual expenditures | 17 | 94 |
By setting monetary goals | 1 | 6 |
Total | 18 | 100 |
Source: Survey study, 2013
As can be seen in table 4.11 above, 94% of the respondents have said the organization prepares budget by determining annual expenditures for the newly operating year. The rest 6% of the respondents answered as budget is prepared by setting monetary goals. As one can understand from those of 94% of respondents, the organization firstly has budget committees. Therefore, each department head who are members in the committee brings their proposed future expenditures to the committee members. Then after each of them discussed on it and reached to the final point, the proposed budget will be sent to the main organization which is found in Addis Ababa. Then after the proposed budget passed many stages, it will be sent to Ministry of Finance and Economic Development (MOFED). After the ministers reviewed it, the proposed budget will be sent in birr amount to the main organization and then to the branch.
Table 4.12 How the organization finance budget deficit
Description | No of respondents | Percentage (%) |
From government | 10 | 55.6 |
Searching for an aid | 5 | 27.8 |
By borrowing | 3 | 16.6 |
Total | 18 | 100 |
Source: Survey study, 2013
From the above table one can understand that the organization finance its deficit by asking the government. Also it has a relationship with many foreign organizations; it gets a financial aid from them.
The other thing is departments within the organization borrow from each other. This means there is miss utilization of financial resource & problem on the budget implementation. Means, one department finishes its budgeted amount when the budget year does not come to end.
Interview analysis
What problems and causes that are facing the budget system?
As the manager answered that because agricultural research activities are very difficult from year to year, the budget system is also coming complicated. There is also lack of a clear definition of procedures & responsibilities. Even on the implementation, the organization distributes the budgeted amount to each department according to the standard. But, some departments finish the given amount when the budget year does not come to end. This means there is miss appropriation & miss use of budget. Also there is less control l in order to check whether those departments are using their budget efficiently & in a good manner.
What measures are taken when there is a variance of actual performance with the expected in the implementation?
As the manager replied, accuracy in the initial budget process is a way organization can avoid vast income or expense variances. Therefore, to avoid those variances, the organization makes initial estimates as close to actual experience as possible. They also rely on past experience & relative conditions for reasonable situations. Also they use prior year budget information to use a starting point for a solid budget.
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion
Depending on the analyzed & assessment, the conclusion for the conducted study is as follows:
- Employees in the finance section are not more educated. This means they are participating in budget preparation & implementation with no more knowledge.
- Even if the organization has a relationship with other organizations, its connection is mainly focused on agricultural matters rather than finance.
- The motivation that is given to the finance workers is too less. This has an effect on the workers not to do the budgeting activity interestingly.
- The organization currently uses manual system to process budgeting data. This is due to shortage of computers that the organization faced.
- There is also less control within the departments in order to see whether they are using their budgetary resources effectively.
- Currently the organization uses cash basis of accounting; but, most federal & governmental entities use modified basis of accounting.
5.2 RecommendationS
Based on the identified problems and conclusion given later, the study recommends on some points as follows:
- Because most of finance members are not good in their educational level, it is better for the organization to hire more educated & experienced employees and also giving training & providing necessary manual that describes interaction, principle & directives to perform budget activity have a great role to increase the performance of employees on budget preparation & implementation.
- It is advisable to employ qualified internal auditors in order to control the performance of each department that is found within the organization and also to have a better budget implementation. Also to detect frauds & embezzlement, the contribution of internal auditors have a great role.
- To solve delay of accessing timely information related to budgetary data, it is better to use a computerized system by seeking donation to alleviate the shortage of computers.
- The management of the organization should create floodable work environment that enable for workers which create easy communication to avoid information gap between employees & managers of the organization have to meet regularly to sort out budget related problems & other difficulties.
- It is advisable to the organization to use modified basis of accounting rather than using cash basis of accounting. The former accounting records recognize the revenues & expenditures that affect an organization’s financial operating statements i.e. assets, expenses, gains & losses. Due to this, most organization prefer to use modified basis than cash basis of accounting.
- Finally it’s better to make strong super vision on the day to day activities of the employees and departments because this can make possible to take corrective action for the daily default before it create significant defect on budgetary activity of the organization.
To sum up recommendation, the educational level of the finance members, the less motivation given to workers, the manual system that the organization use for budgeting activity, the less control given to each department performance has a negative effect on the strengths, procedures techniques of the organization’s budget preparation & implementation.
- Datar M. Arora. (2003), Cost Accounting 12th edition.
- Early R. Wilson. (2006), Accounting for Governmental & Nonprofit org.
- Hilton Maher Selto. (1999), Cost Management 3rd edition.
- Jones & Pendle Butty. (2001), Cost Accounting 6th edition.
- Lynn & Freeman. (1995), Managerial Accounting 4th edition.
- Mohammed A. Riff Pasha. (2006), Cost Accounting 4th edition
Online sources:-
- Blog.accountingcoach.com
- Www.academicjournals.org
- Www.principlesofaccounting.com
JIMMA UNIVERSITY
COLLEGE OF BUSINESS & ECONOMICS
Department of Accounting & Finance
Questionnaire prepared to employees of the organization
Dear respondents first of all I would like to thank you for your comparativeness interims of receiving these questionnaires to fill it by devoting your precious time. Your valuable information helps me for successful computation of my study. Therefore, please respond it honestly & trustily.
General information
- Please don’t write your name
- Please use a tick mark (√ ) for your answer
Personal information1. Sex: Male Female
2. 
Age: 1. Below 18 3.30-40
Age: 1. Below 18 3.30-40
2.20-25 4.above 453. Educational background
1. Illiterate 2. below grade 8
3. between 8-12
4. Diploma 5. Degree 
6. Above
4. Where is your position to you assign?
Employee Professional Manager5. Year of experience
Below 2 years between 2-5 years 6 &above 6. Do you think your organization share experience form other?
Yes No7. If your answer is yes in question number 7, from which organization____________________________________________________
8. Do you think motivation is necessary for employee to change formulated budget in to action or to achieve organizational goods?
Yes No9. What are the major sources of revenue for your organization?
From federal government
From other aids If other specify____________________________________________
10. What are the major types of expenditures in the organization?
Employee salary Research & science
If other specify____________________________________________
11. What type of accounting basis your organization use?
1. Accrual basis Modified basis 2. Cash basis
12. is there separation of duties between recorder and authorized person? Yes No13. Who is responsible to prepare & approve budget?
Managers Budget committee
Finance members Specify if any____________________________________________________
14. How and what techniques are used to prepare budget?
By determining monthly and annual expenditure
By setting a monetary goals
Specify if any_____________________________________________________
15. What are the procedures following in approving and authorizing budget in the organization?
By special budget meeting with entire board
By establishing budget committee
The manager himself
Specify if any
16. Where do you finance the budget deficit?
From government
By searching for an aid
By borrowing
Specify if any
APPENDIX B.
JIMMA UNIVERSITY
COLLEGE OF BUSINESS & ECONOMICS
Department of Accounting & Finance
Interview Questions prepared for Managers of the organization.
1. Who are members of budget committee?
____________________________________________________________________
____________________________________________________________________
2. What problems & causes that are facing the budget system?
____________________________________________________________________
____________________________________________________________________
3. What measures are taken when there is a variance of actual performance with the expected in the implementation?
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
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