The document provides an overview of Ethiopia's government accounting system reforms and budget process. It discusses the objectives of reforming the accounting system to a double-entry system and improving various aspects like transparency, controls, and information reporting. It also describes the key stages of Ethiopia's annual budget cycle/process culminating in legislative approval. Various accounting classifications and codes used in the budget are defined, including codes for jurisdictions, expenditure type, functional classifications, and other categories.

1. CHAPTER ONE
Introduction
1

2.  1.1. Historical overview of Ethiopian Government
Accounting System
 The FGE accounting system used up to GC 2002 was in
service for more than half a century.
 Government decided that there was a need to reform
the accounting processes as an integral part of the Civil
Service Reform.
2

3.  The reform on accounting process was made to achieve
the following set of objectives:
 Simplify the accounting system - by changing it from the
single entry bookkeeping system to the double entry
bookkeeping system.
 Improve disclosure of information to stakeholders - by
revising the chart of accounts and enhancing the reports
generated by the system to meet the information needs
of Government and its development partners.
3

4.  Improve internal controls - by reviewing the roles and
responsibilities of staff working in the accounts
department and introducing enhanced procedures to
capture and approve transactions as well manage and
control cash in safe and cash at bank.
 Improve cash and financial management practices - by
rationalizing the number of bank accounts and
minimizing the amount of idle funds.
 Improve budget control - by introducing procedures to
record and monitor commitments against the available
budget prior to the approving expenditure.
 Note: commitments is an amount of budgeted funds that
are reserved for a specific future expenditure.
4

5.  Produce accurate, timely and complete information
and improve the quality of information provided to
Government and its development partners to create a
platform that allows for better decision making based
on timely, accurate and comprehensive information.
 Enhance transparency - by implementing a system
that is understandable to key stakeholders and meets
international standards in terms of the accounting
principles and policies employed and the automation
of the accounting system.
5

6.  1.2. FGE chart of account
 A chart of accounts is a system of coding used to identify
and classify financial entities and events.
 The classification is structured in a systematic manner
and facilitates the recording of transactions and the
reporting of information in accordance with the budget.
 The chart of accounts treats all detailed account codes
as temporary accounts and permanent accounts.
 Temporary accounts - begin each year with a zero
balance.
 Permanent accounts - whose balance at the end of a
year becomes the balance in the account at the
beginning of the next year.
6

7.  The summary of the account codes for the chart of
accounts is as follows:
 Domestic revenue =>1000-1799
 External assistance => 2000-2999
 External loans => 3000-3999
 Transfers => 4000 up to 4099
 Assets => 4100 up to 4999
 Liabilities => 5000 up to 5599
 Net assets/equity => 5600 up to 5699
 Expenditure => 6000 up to 6999
 Revenue, expenditure and transfers are temporary
accounts, whereas Assets and liabilities are permanent
accounts.
7

8.  Assets:
 Assets are resources controlled by an entity as a result of
past events and from which future economic benefits or
service potential are expected to flow to the entity.
 The categories of assets in the accounting system are:
 Cash and Cash Equivalents: Cash is cash on hand and at
bank. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known
amounts of cash and which are subject to an insignificant
risk of change in value.
 Receivables: Receivables are amounts owed to a
government unit by another government unit, a person,
or a non-government entity except public enterprises.
Salary advances to employees and advances to suppliers
are two examples of receivables commonly occurring.
8

9.  Goods in Transit: Goods in transit are goods that are
owned by the government but not yet in its physical
possession.
 Stocks: Stocks are goods that are expected to be
consumed within one year
 Fixed Assets: Fixed assets are physical items that are
expected to have a useful life of longer than one year and
have a certain minimum value.
 Loans Receivable: Loans receivables are amounts due
from public enterprises (organizations in which
government invests capital and owns controlling interest)
over a period of time exceeding one year.
 Investments: Investments are FGE investments in public
enterprises and private organizations that are held for
more than one year.
9

10. Liabilities
Liabilities are present obligations of the entity
arising from past events, the settlement of which
is expected to result in an outflow from the entity
of resources embodying economic benefits or
service potential.
The categories of liabilities in the improved and
expanded accounting system are:
10

11.  Payables: Payables are obligations to pay that are due
in less than one year. Examples of FGE payables are
deposits, salary payable, grace period payables
(amount due to suppliers at the end of the fiscal year
that is paid from recurrent and capital budgets during
the first 30 days of the next fiscal year) and treasury
bills.
 Long-term Debt: Long-term debt is an obligation to pay
that is due in more than one year.
 Net Assets/Equity
 Net assets/equity is the residual interest in the assets of
the entity after deducting all its liabilities. This balance
represents the equity interest of FGE.
11

12.  1.3. FGE Budget process
 There are ten major stages in the Budget Cycle/process up
to approval:
 Stage 1 – Budget preparation by public bodies (PB)
 Preliminary budget preparation work they can carry out
prior to receiving the official budget call letter.
 This preliminary work is dominated by the policy and
planning aspects of budgeting; that which differentiates
program budgeting from line item budgeting.
 Note: PB is an institution that has a legal mandate, receives
a partial or complete budget directly from the respective
finance and planning bodies, submits its final accounts
directly to MoFED, and is on the approved list of public
bodies issued by the Office of the Prime Minister.
12

13.  Stage 2 – Mid-year program review
 Regular reviews of organizational performance.
 Should be carried out by the end of January.
 Conducted in the context of the PB measurement
framework; the economy of inputs, the efficiency of
outputs and the effectiveness of impact.
13

14.  Stage 3 – Work plan preparation – redefined as program
construction
 Is prepared after the budget is approved.
 That is to say, the budget defines the total amount
of expenditure.
 The subsequent work plan defines ‘for what’ and ‘when’
the expenditure will be incurred within the year,
monthly.
 The work plan therefore takes on two roles:
 First is project management – when things will be
implemented, plus its monthly expenditure.
 Secondly is the quarterly budget review role,
through variance analysis.
14

15.  With this principle accepted, Stage 3 of the budget cycle
concerns program construction; introduced, from a
policy perspective.
 Program construction
 Is the core task in budget preparation.
 Concerns both capital and recurrent expenditure.
 Programs specify in detail, the targeted outputs, the
activities to achieve them, and their resource
requirements.
 Note: Program is the main objective of a PB as stated in
its establishment law.
15

16.  Stage 4 – Notification of annual subsidy
 Using the approved subsidy formula, MOFED prepares
the budget for the subsidies to regional governments
and administrative councils.
 It will be notified by February 8.
16

17.  Stage 5 – Issue of the budget call
 The Budget Call is a letter from MoFED sent to all public
bodies which provides them with the following:
1. Their ceiling for program expenditure for the coming
fiscal year;
2. The deadline for submitting their budget request;
3. A review of the policies that affect the expenditure of
public bodies;
4. General guidelines for the preparation of the program
budget submission; and
5. Detailed instructions and formats for preparing the
request for the program budgets.
 It will be issued to all public bodies by February 8 of each
year.
17

18.  Stage 6 – Budget Requests
 It begins when public bodies receive the Budget Call.
 The central task is to fit their request within the
budget ceiling issued in the Budget Call.
 To “fit” the request, two tasks have to be completed
by public bodies:
1. Adjust their PBs to the budget ceiling notified; and
2. Complete the necessary forms for submitting their
PB requests to MOFED.
18

19.  Stage 7 - Budget Hearings
 Conducted by MoFED after receiving the budget
requests from public bodies, and before preparing a
draft recommended budget.
 Are designed to respond to any issues raised during
MoFED’s initial review of any public body’s PB.
 Officials from each public body will be questioned
about their budget requests, and sometimes invited
to submit additional supporting information.
 The information obtained enables MoFED to proceed
to the preparation of a draft recommended budget.
19

20.  Stage 8 - Preparation of the draft recommended budget
 Is the consolidated budget that MOFED prepares and
submits to the Council of Ministers.
 During this stage, the budget requests from public
bodies are reviewed, adjusted and consolidated into a
single budget for capital and recurrent expenditure.
 The draft recommended PB budget will be finalized by
MOFED and printed from the (revised) computerized
budget system.
 MOFED is required to submit its draft recommended
budget to the Council of Ministers by May 23.
20

21.  Stage 9 - Recommended budget reviewed by council of
ministers
 The Council of Ministers receives and carries out its
own review of the draft recommended budget.
 The review is made from the 3rd week of May to the
first week of June (15 days).
 The Council of Ministers may ask MoFED to make
adjustments or revisions to the draft recommended
budget before the Council ‘recommends’ it to the
House of Peoples’ Representatives.
 Must be submitted to the House of Peoples’
Representatives no later than June 7.
21

22.  Stage 10 – Legislative approval and appropriation of
the budget
 The recommended budget will be presented in a
Budget Speech by the Minister of Finance, to the
House of Peoples’ Representatives (HPR), on a
designated date.
 After consideration, HPR will send the budget
document to the Permanent Budget Committee (PBC)
for further scrutiny.
 PBC, in the presence of MoFED officials, will then
invite selected stakeholders to finalise consultation on
the annual budget.
22

23.  Once approved by the House of Peoples’ Representatives,
the ‘recommended budget’ becomes the ‘approved
budget’.
 However, the expenditures proposed in the approved budget
cannot be implemented until an appropriation law is also
proclaimed by the House of Peoples’ Representatives.
 It is important to distinguish between the approved
budget and the annual appropriations.
 The budget that is approved by the House of Peoples’
Representatives is a detailed budget.
 An appropriation is a legal mandate to spend money out of the
consolidated fund.
 The HPR is required to vote on the annual appropriations
for the approved budget no later than July 7.
23

24.  The appropriation Proclamation will specify the following:
 First, for government as a whole:
1. Total revenue source; both domestic and external;
2. Total federal recurrent expenditure;
3. Total federal capital expenditure;
4. Total of all subsidies to regional governments and
administrative councils; and
5. The total subsidy for each regional government and
administrative councils.
 Then, for each public body:
1. Total budget for each public body;
2. Total budget for each program;
3. Total budget for each output; and
4. Source of funding for each output.
24

25.  The approved budget includes the appropriation
Proclamation, as well as more detailed schedules of the
budgeted allocations to and within each public body,
and of forecast revenue collections by each public body.
 The approved budget and the annual appropriations can
now be referred to as the Proclaimed Budget, and is
published in the Negarit Gazeta – ready for
implementation.
 Copies are distributed to all public bodies and made
available of the MoFED website.
25

26.  1.4. Fundamentals of FGE program Budget
 Purpose of PB
 PB allocate resources to outputs, in a program
structure.
 The program structure is the analytical core of PB.
 It is the key to linking not only planning and budgeting
but also, capital and recurrent expenditure.
 The program is also the means for delivering and
measuring the results.
 In many countries, PB is known as performance
budgeting.
26

27.  Development
 The demand for infrastructure and services confronts
every government in the developing world.
 Such governments are therefore faced with the enormous
challenge of finding ways to provide infrastructure and
services, within their eternal (endless) financial
constraints.
 The fundamental importance of access to infrastructure
and services, as a means of supporting both economic
development and poverty reduction, is now accepted as
common understanding.
 PB has the advantage of not only ‘measuring’ such
provision but also, encouraging sound practice in its
‘delivery’.
27

28.  Measurement and accountability
 PB measures performance.
 This is through the economy, efficiency and
effectiveness of infrastructure and service delivery.
 It also supports public accountability.
 PB can encourage program managers to be more
accountable for expenditure to achieve results.
 PB can therefore be seen as the foundation for
individual performance assessments.
28

29.  Budget Classification scheme, Budget Categories and
their standardized codes
 There are eleven budget categories in the budget
classification scheme presented below.
 The presentation of codes in the budget begins with the
"head" class of accounts that are assigned to the budget
categories of functional classification, sub-functional
classification, and public body. Public Bodies have the
discretion to code their programs, sub-agencies, sub-
programs and projects. Each Public Body in consultation
with MOFED does the coding of these budget
categories.
29

30. Table 1.1
Budget Classification Scheme
Budget
Category
Jurisdiction
Type of Budget
Functional classification
Sub-Functional classification
Public body
Programs
Sub-Agency
Sub-Program
Project
Item of Expenditure
Source Finance
Class of
Account
Head
Head
Head
S-Head
S-S-Head
S-S-S-Head
S-S-S-S-Head
Item
Item Source
Code
(#Of digits,
Standardized or
Discretionary codes)
2, Standardized
1, Standardized
1, Standardized
1, Standardized
1, Standardized
2, Discretionary
2, Discretionary
2, Discretionary
3, Discretionary
4, Standardized
4, Standardized
30

31.  Note:
 Standardized means that all public bodies, regions and
weredas must use the codes defined by the Budget
Department and the Central Accounts Department of
MOFED.
 Discretionary, means that public bodies, regions and
weredas can assign their own names and codes for these
budget categories (limited by the number of digits
available for that field or category).
 The naming and coding of these budget categories is done
by each public body in consultation with the Ministry of
Finance and Economic Development (MOFED).
31

32.  The eleven budget categories listed in the table above are
defined as follows and the codes for the categories that are
standardized are to be discussed and listed below.
 Jurisdiction:
 Jurisdiction is the government level to which the budget
applies. There are twelve jurisdictions that include the
Federal Government, nine Regions and two
Administrative Councils (Addis Ababa and Dire Dawa).
The code for jurisdictions is a standardized two-digit
code.
 Type of Budget:
 There are two types of expenditure budgets: recurrent
and capital. The code is one digit and standardized.
32

33.  Functional classification:
 Functional classifications are the broad areas of
expenditure that are used for analysis and national
accounts.
 There are four functional classifications of
expenditure: Administrative and General, Economic,
Social, and Other.
 The "Administrative and General" functional
classification covers expenditures for the following
services: executive, legislative, judicial, financial and
fiscal affairs, defense, public order, general services
(personnel management, and standards).
33

34.  The "Economic" functional classification covers
expenditures that directly deliver economic services
or provide services that enable economic services.
 The "social" functional classification covers
expenditures that deliver social services and includes
the sub-areas of education, culture and sport and
health.
 The "Other functional classification covers
expenditures that are not classified by the other three
categories and includes transfers.
 The Functional classification code is one digit and
standardized.
34

35.  The Other functional classification coded with the 400
series includes four sub-functional classifications: transfers,
debt, contingency and miscellaneous.
 Transfers include the subsidies to regions; debt includes
domestic and external obligations; contingency covers past
commitments and write-offs, and miscellaneous can
include items such as duty drawbacks and capital
contributions.
 The functional classification is the first digit of the three-
digit head code. For example, the functional
classification code for economic expenditure is 200.
 The second digit of the three digit code is the sub-
functional classification and the third digit is the public
body code.
35

36.  Programs:
 A public body may have programs that are broad
objectives of expenditure. Programs are a sub-head
class of account and are coded with one digit assigned
by the public body in consultation with the MOFED.
 Sub-Agencies:
 A public body is often divided into administrative
units of sub-agencies. Sub-agencies are usually the
departments of a public body. Sub-agencies are a
sub-sub-head class of account and are coded with a
unique two-digit number assigned by the public body
in consultation with the MOFED.
 Sub Agencies - An administrative unit of a PB that
receives an approved budget.
36

37.  1.5. Budget ledger card
 Purpose:
 The purpose of the budget ledger card is to maintain a
continuous and updated record for each budgeted item
of expenditure by BI and source or finance with respect
to:
 Approved budget.
 Additions/reductions to the approved budget.
 Revised budget.
 Payments received for budgeted expenditure.
 Amount remaining to be requested
 Commitments.
 Balance in the revised budget that is not committees.
37

38.  Completion
 The budget ledger card is divided in to two parts:
 The Top of the card contains information to identify the
 BI,
 Type of budget, and
 Item of expenditure.
 The table on the card contains detailed information
about each budget transaction
38

39. 39
BUDGET LEDGER CARD
Page No:
Name of Public Body Code:
Name of Program: ______ Code:
Name of Sub Agency: ___ Code: Type of Budget: Code:
Name of Sub program: Code: Item of Expenditure: Code:
Name of Project: ______ Code:
Source of Finance ______ Code:
No Date Description Reference
No
Approved
Budget
Addition to
Budget
Reduction to
Budget
Revised
Budget
Payment
Received
Unpaid
Balance
Commitment Balance
not
committed

40.  Purpose of Each Field in the Budget card
 Top of the Budget Ledger Card
 Name of Public Body and Public Body Code: The field is
to identify the PB to which the budgeted expenditure is
related.
 Name of program and program code: The field is
identify the program to which the budgeted expenditure
is related.
 Name of sub Agency & Sub program Code: The field is
to identify the PB to which the budgeted expenditure is
related.
40

41.  Name of sub program and sub program code: The field is
identify the sub program to which the budgeted
expenditure is related.
 Name of project & project Code: The field is to identify the
BI to which the budgeted expenditure is related
 Source of Finance & code: The field is to identify the source
of funding that is recorded on the ledger card.
 Page Number: The field identifies the page number of the
budget ledger card.
 Type of budget and Code: The field is to identify whether
the item of expenditure is a part of the recurrent or capital
expenditure budget.
 Item of Expenditure & code: The field is to identify and
describe the item of expenditure by its budget code.
41

42.  Table on the Budget ledger card
 Number: The sequential number of the transaction.
 Date: The date of the transaction.
 Description: A brief narrative of the description of the
transaction.
 Reference Number: The reference number of the source
document to the transaction.
 Approved Budget: The field identifies the amount of
original approved for the item of expenditure.
42

43.  Additions /Reductions to Approved Budget: The fields
are used to track changes to the approved budget and
provide information to computer the revised budget.
 Revised budget: The field contains the approved budget
adjusted for any additions or reductions. The revised
budget is key for budget control. An item of expenditure
must not exceed its revised budget.
 Payment received for Budgeted Expenditure: The field
is used to record payments received (whether as cash or
non-cash) from the appropriate source of funding and
assists in keeping track of the amounts of money
received for item of expenditure.
43

44.  Unpaid Balance: The field is the different between the
revised budget and the amount of funds received
(whether as cash or non-cash) to meet the budget
expenditure and assists in keeping track of the
remaining amounts of money that may be requested for
an item of expenditure.
 Commitment: The field is used to record current
commitments and assists in identifying the balance
available in the budget for expenditure.
 Balance not commitment: The field contains the
difference between the revised budget and the
commitments. The balance not commitment is the
available budget for future spending. Once the
uncommitted balance is reduced to zero, the Budget
Section will approve no further spending.
44

45.  Note:
 Revised Budget = Approved budget+ Additions to
budget-Reductions to budget
 Up paid Balance=Revised Budget-Cash and Non cash
payments received to date
 Balance Not Committed = Balance carried forward from
the balance not committed-current Commitment +
commitment Cancelled+/- Additions to/Reduction from
Approved Budge
45

46. 46
Examples of typical transaction
A set of six transactions is detailed below to illustrate the process of completing the budget
ledger card for each transaction. The examples are not intended to be comprehensive or include
all possible types of transactions, but only to serve as an illustration for users.
Transaction # 1: MoFED is notified of its approved recurrent budget on Me/Be/Ma 4 at the
beginning of a fiscal year. The Me/Be/Ma 4 dated July 14, 2001 contains the following
information for the sub-agency Administration & General Service:
 The reference number of Me/Be/Ma 4 is N/94
 The name of the public body is MoFED-code 152 and the sub-agency code is 01
 The approved budget for stationery is Birr 250,000
 The item of expenditure if office supplies-code 6212
 The source of funding is treasury-code 1800
This information is used to complete the identification information required at the top of a
budget card, and to record the first transaction in the table on a budget card.
Transaction # 2: The procurement section approves a purchase order No. PO/1/94 dated August
2001 for Birr 150,000 for purchase of stationery. The approved purchase order is taken to the
budget section for recording the commitment.

47. 47
Transaction # 3: On 1 September the BI requests Birr 150,000 for stationery from MoFED from
the request for the unused balance of stationery stocks from the previous year. The actual
payment received by the BI is Birr 130,000.
Note: The BI will record the payment received as Birr 130,000 for the actual cash received the
non-cash transfer of Birr 20,000
Transaction # 4: The procurement section approves a purchase order No. PO/2/94 dated 2
September 2001 for Birr 100,000 for purchase of stationery from another supplier. The approved
purchase order is taken to the Budget section for recording the commitment.
Transaction # 5: On September 10, the procurement sections cancel purchase order no. PO/2/94
dated 2 September 2001 for Birr 100,000 for purchase of stationery. The purchase order is
marked VOID by the procurement section and is taken to the Budget section for canceling the
commitment.
Transaction # 6: Notification of a budget supplement is made on Me/Be/Ma 6 dated 15
September 2001 with reference number RC/1/94. The notification adds Birr 50,000 to the
stationery budget.

48.  1.6.1. Overview of IBEX
 The Integrated Budget and Expenditure System (IBEX) is
a financial information system that has been designed
and developed to automate and support public finance
in Ethiopia.
 It is comprised of different modules including a Budget,
Accounts, Budget Adjustment, Budget Control, Accounts
Consolidation, Disbursement and Administration
Module.
48

49.  Budget Module
 This module executes all the budget preparation
activities performed by government financial offices.
 Accounts
 This module executes all the budget execution activities
of government budgetary institutions. More specifically,
the accounts module records the financial transactions
of the budgetary institutions, records the aggregated
monthly accounting reports and provides accounting
reports for ledgers, financial statements, management
reports, transactions, expenditures and revenues.
49

50.  Accounts Consolidation
 This module consolidates the budget and accounting
data for the entire country. This module allows for the
generation of regional and national consolidated
reports.
 Budget Control
 This module manages the activities of recording budget
commitments and disbursement payments in order to
enable budgetary control over expenditures.
50

51.  Budget Adjustment
 This module provides the functionality to address
changes to the approved budget during budget
execution. It specifically enables the recording of budget
transfers and budget supplements and the subsequent
production of the adjusted budget.
 Disbursement
 This module manages the public treasury functions
associated with cash management and disbursing funds
between public financial institutions.
 Administration Module
 This module provides an interface to manage users and
user’s profiles that interact with the IBEX system.
51

52.  1.6.2. Overview of IFMIS
 The Integrated Financial Management Information
System (IFMIS) is an integrated public financial
management system being implemented by Federal
Government of Ethiopia (FGE) to improve the public
expenditure management processes, enhance greater
accountability and transparency across Federal
Ministries, Agencies, Regions, City Administrations,
Zones and Woredas.
 It is designed to make use of modern information and
communication technologies. The IFMIS implemented
by FGE is the latest version of Oracle E-Business Suite
(EBS) comprising the following 9 modules.
52

53. 53

54.  1.7. Basis of Accounting
 There are four bases:
 Cash Basis
 Modified Cash Basis
 Modified Accrual Basis
 Accrual Basis
54

55.  Base of Accounting used by FGE
 The cash basis of accounting is a basis of accounting that recognizes
transactions and other events when cash is received or paid. The FGE
accounting system employs a modified cash basis of accounting.
 The modified cash basis of accounting in FGE means that cash basis
applies except for recognition of the following transactions:
 Revenue and expenditure are recognized when aid in kind is received.
 Interest on salary advances is recognized as revenue when the salary
advance is made.
 Expenditure is recognized:
 When payroll is processed.
 At the end of the year when a grace period payable is recognized.
 When goods are received or services are rendered if payment for the
goods or services was rendered in advance.
 Intergovernmental transfers are recognized in the absence of actual cash
movement.
 Transactions resulting from salary withholdings are recognized in the
absence of actual cash movement.
 Amounts due on treasury bills and direct advances to Government from
the National Bank of Ethiopia are recognized as current liabilities
55