ASSESSMENT OF BUDGET UTILIZATION AND CONTROLLING A CASE

OF BURIE TOWN FINANCE AND BUDGET ADMINSTRATION OFFICE

RESEARCH PROPOSAL
SUBMITTED TO DEPARTMENT OF
ACCOUNTING AND FINANCE FOR
THE PARTIAL FULFILLMENT OF BA
DEGREE IN ACCOUNTING AND
FINANCE
PREPARED BY
1. YASAB FIKIR………………………….. 933
2. ABAYNESH MEZGEB………………….911
3. TANGUT KINDE…………………….….203
4. ADISE MEHARI………………………...910

ADVISOR GETNET. H (PHD)

SUBMITTED DATE
BURIE DAMOT, ETHIOPIA

1
Table of Content

Contents Page
1.2 STATEMENT OF THE PROBLEM.....................................................................5
1.3 OBJECTIVES OF THE STUDY..........................................................................6
1.3.1 GENERAL OBJECTIVE...............................................................................6
1.3.2 SPECIFIC OBJECTIVES..............................................................................6
1.4 SIGNIFICANT OF THE STUDY........................................................................6
1.5 SCOPE OF THE STUDY.....................................................................................6
1.6 LIMITATION OF THE STUDY..........................................................................7
1.7 ORGANIZATION OF THE PAPER....................................................................7
2. LITERATURE REVIEW...........................................................................................8
2.1 Introduction..........................................................................................................8
2.2 Definition of budget..............................................................................................8
2.3 Historical development of modern budget...........................................................9
2.4.1 Historical development of Ethiopian budget..................................................9
2.4 Time coverage of budget......................................................................................9
2.5 PURPOSE OF BUDGET...................................................................................10
2.6 THE ROLE OF BUDGET..................................................................................10
2.7 IMPORTANCE OF BUDGET...........................................................................10
2.8 CHARACTERISTICS OF BUDGET.................................................................11
2.9 CLASSIFICATION OF BUDGET.....................................................................11
2.10 THE BUDGET PROCESS...............................................................................12
2.10.1 BUDGET PREPARATION........................................................................13
2.10.2 BASIC STEPS IN BUDGET PREPARATION.........................................13
2.11 BUDGET ALLOCATION AND UTILIZATION.............................................14
2.12 BUDGET ADMINISTRATION.......................................................................14
2.13 THE PROBLEM AREAS OF BUDGE UTILIZATION..................................15
2.14 CONTROLLING BUDGET UTILIZATION...................................................15
2.14.1 PERFORMANCE EVALUATION AND MANAGEMENT CONTROL. 15
2.14.2 BUDGET EVALUATION..........................................................................16
2.14.3 BUDGET CONTROL TECHNIQUES......................................................16
3. RESEARCH METHODOLOGY.........................................................................17

2
 3.1 RESEARCH APPROACH.................................................................................17
3.2 Types of data.......................................................................................................17
3.3 SOURCES OF DATA.........................................................................................17
3.4 TARGET POPULATION...................................................................................17
3.5 METHOD OF DATA COLLECTION................................................................18
3.6 PROCEDURE OF THE STUDY.......................................................................18
3.8 TIME SCHEDULE AND PROPOSED BUDGET.............................................18
3.8.1 TIME SCHEDULE......................................................................................18
3. 8.2PROPOSED BUDGET................................................................................19
REFERENCES.............................................................................................................19

3
 CHAPTER ONE

1. INTRODUCTION
1.1 Back ground of the budget utilization and controlling
Budget is a detailed plan for acquiring financial and other resources over a specified
period of time. It is a quantitative expression in a specified period of time for future
plan of action management (Charles, and Hongren, 1994).
Today budget is described in a broader meaning and has been defined by various
authors in different ways.
Budget serves as evaluating performance coordinating, motivating authorized
activities in governmental or not for profit organization (Hongren, 2008).
The purpose of budget is to implement the policies formulated by the management for
attaining the given objectives of the organizations. It is a useful device for motivating
managers to perform actions in a line with the organization objectives (Dunk, 2010).
According to Lyno (1983), the primary purpose of budget is to present and describe
the financial ramification of plan for the future. A good budget is one which is able to
satisfy certain objectives and is formulated according to a certain well drawn
principles. Budget is a key element for proper utilization of public resources in the
way proper use of budget for the planned activities which can be performed in the
budget year.
Budget control is applied to system management and accounting control by which all
operations and outputs are forecasted as for a head as possible and actual results as
well as the establishment of budget in relation to the responsibilities of executives to
the requirement of the policies and the continues comparison of actual budget with
planned budget (Garrison, 2007).
According to Ethiopia regional public finance management performance report
(2007), there are different government organizations which face problems in budget
utilization. Some organizations face budget deficit due to improper budget preparation
and allocation to utilize it. On the Other hand, some other organizations unable to use
the approved and allocated budget fully due to weak communication among sectors

4
how to perform activities timely, weak budget preparation, inefficiency to use all
internal revenue sources of and weak communication among sectors of the
organization to evaluate overall performance of each sector at appropriate time.

1.2 STATEMENT OF THE PROBLEM

The study is supposed to help the researcher to find out the factors which affect the
budgeting process in the organization. The study also indented to find out whether
there is proper preparation of budget or proper implementation of budget and to find
out the problems relating to budgeting process in assess the government budget
utilization and control mechanism in case of Burie Town Finance and Budget
Administration Office. Not only this but also this study gives suggestion and
solution for the Following problems.
Firstly, poor budget preparation, weak commitment to actions, unable to use all
internal revenue sources of the town, weak communication among sectors of the
town, Shortage of available cash fund at the appropriate time, and weak plan of the
office how to utilize the planned budget. Secondly, the budget administration system
of the office is not well planned for budget utilization and not adequately motivate
employees concerned how to improve their skills about budget issues. (Employee of
The organization).
This research answers the following questions.
1. What problems face the office during budget utilization?
2. What seems like the budget administration system of the office?
3. What seems like the budget utilization trend of the office?

1.3 OBJECTIVES OF THE STUDY

1.3.1 GENERAL OBJECTIVE

The general objective of the study will have focused on assessment of budget
utilization and controlling a case of Burie Town Finance and Budget Administration
Office.

5
1.3.2 SPECIFIC OBJECTIVES
1. To evaluative the importance of budget for the organization.
2. To assess budget effecting process or practically.
3. To assess how budget is prepared and implemented.
4. To indicate the organization properly manages the budget.

1.4 SIGNIFICANT OF THE STUDY

The main significance of the study is to utilize the available budget in order to achieve
the proposed goal. Especially the study significance can be on the following areas:-
1) It supports to the budget problem faced by the organization and help the
management to make corrective action and improve efficiency when actual result are
unsatisfactory.
2) It strength public about budget process and budget implementation.
3) It enhances the organization to continue preparing budget with budget committee.
4) It enhances financing office to manage short term, long term and medium term of
financing budgeting needs.
5) It may support possible solution and recommendation with regards to.

1.5 SCOPE OF THE STUDY

The study addresses the nature of budget with a relative steps. Budget control is over
view in relation to budget process. To get a real process of budget sampling assess the
government budget utilization and control mechanism and also sampling some sector,
the study is limited only to in case of Burie Town Finance and Budget Administration
Office

1.6 LIMITATION OF THE STUDY

The limitation of the study is that finding is depending on the data.

1.7 ORGANIZATION OF THE PAPER

This paper includes 5 chapters. Introduction part, literature review, methodology of
the study, discussion/finding, conclusion and recommendation

6
 CHAPTER TWO

2. LITERATURE REVIEW

2.1 Introduction
Budgeting is a plan of resources which is available to a person or an organization and
how it was spent over a particular period. Budget is a planning process that involves
making decision under condition of uncertainly and has consequences for period of
time. The main objective of the study is to assess the government budget utilization
and control mechanism in case of Burie Town finance and economic development
office

2.2 Definition of budget

Budget is a detailed plan for acquiring financial and other resources over a specific
period of time. It represents a future plan of action and is the most accounting tool for
planning and controlling organizations budget system that managers are able to
anticipate and correct potential problems when necessary (Berewer,2006).
The word budget has been derived from French word which means small bag. It
expresses the bag containing financial proposal. It means that budget is a quantitative
expression for a set of time period of the proposed future plan action management.
Budget is not only detail list of estimated expenditure for the given period of time but
also embodies the proposed means of financing (Houlton, 1982).

2.3 Historical development of modern budget

Budget serves as an aid to the coordination and implementation of plans and it is a
process of allocating scarce resources to unlimited demands in the operation for
specified time period. It is prepared prior to the specified time. Historically the
practice of budgeting generally originated in the central government of Great Britain
at the year 1217. However, the entirely new approached to government was initiated
during the year 1930s, economic depression in advanced capitalist countries. During
that period new possibilities of using financial measures to regulate the level of

7
employment as one economic activity was recognize (Edward, 1954)

2.4.1 Historical development of Ethiopian budget

Ethiopian started the practice of modern budget early at the regime of Haile Selassie.
However, at the beginning it was not well structured in such a way as to permit
efficient financial administration, but through time a continuous modification was
made before it attained its present status. The budget system was varied in different
regimes based on the administrative structure of each government followed. In
centralized system resource allocation and financial administration was the
responsibility of central government. Budget was formulated and allocated by central
government. The entire spending process was also under close supervision of
executive bodies at central government. Ethiopian budget system reached to the
current situation after a number of modifications were approved by the constitution of
the country (WogeneYirko, History of the post war, Ethiopian financial system).

2.4 Time coverage of budget

Budget typically has set a time period such as monthly, quarterly and yearly. The most
common and frequently used budget period is one year. The annual budget is often
divided by months for the first quarter and other quarter's for remaining of the year
(Garison, 2007).

2.5 PURPOSE OF BUDGET

Budget is a management tool that involves a systematic approval to identify
department goals and actions to be performed by various segments and individuals as
well as resources to be used in a given period for future. The purpose of budget is for
statement of goals and it sets department and individual goals and commonly in a firm
goal with unambiguous term. It serves as a device and enables to communicate
management intentions to the employees and it enforces coordination among different
departmental activities to common goals (Anderson, 2008).

8
2.6 THE ROLE OF BUDGET
Budget plays a vital role in economic management and measurement of public
sectors.
According to Omolehinwa (1980), the roles of budget are grouped in to three
categories as follows.
A. distribution of resources; through national budget, resources can be distributed in
to different public sectors and process goods and services.
B. Allocation of resources; as, resources are limited and human wants are unlimited at
a time, government identifies the most relevant activities to be done first and allocate
the necessary resources.
C. controlling activities, government taxation and spending influences the nation’s
economic activities. When tax revenue is less than or greater than the spending of
government activities, the situation has its own impact in economic conditions of the
country. So, according the situation, government makes an adjustment when
necessary. As such a case budget is a mechanism of controlling and establishing
economy.

2.7 IMPORTANCE OF BUDGET

Budget has different importance’s for goal achievement of different organizations.
According Garrison (2006) budget has the following importance’s in different and
diversified organizations.
1. Budget communicates management plan throughout the organization.
2. Budget forces managers to think a head about and plan for future.
3. Budget provides a means for allocating resources to organizations.
4. It coordinates the activities of entire organization to enable achievement of
objectives.
5. Budget helps to insure that everyone in the organization is pooling in the same
direction.

9
2.8 CHARACTERISTICS OF BUDGET
According to Houlton (1982), budget has the following characteristics.
1. Budget is primary serves as planning and controlling device for actions to be done
in the budget year.
2. Budget is prepared in monetary term and/or quantitative terms.
3. Budget indicates planned income and expenditure for defined future period.
4. Budget is prepared for defined future period.
According to Kenis (1979), good budget is characterized by the following points.
1. Budget participation; which shows the involvement of manager in determining and
preparing budget in department under his or her responsibility.
2. Budget goal clarity; it shows the extents of objectives of budget that is clearly
defined and specified.
3. Budget feedback; budget is obtained on the level of achievement of predetermined
objectives and it can be adjustable to the appropriate conditions depends on situations
and goals to be achieved.

2.9 CLASSIFICATION OF BUDGET

Different scholars classified budget in different categories in different ways.
According to Hongren (2002), budget can be classified in to groups as follows.
A. Financial budget; financial budget refers to the financial decision of the firm in a
budget structure.
B. Operational budget; operational budget consists of sales budget, production budget,
ending inventory budget, cash receipt budget, direct labor budget, direct material
budget, manufacturing overhead budget, selling and administrating budget.
According to Jayamah (2012), budget can be classified as operating versus capital
budget as follows.
1. Operating budget: this budget type deals with the recurrent expenditure such as
supplies and means of financing expenditures like salary payments, supplies, and
means of financing.
2. Capital budget: on the other hand, capital budget is a means for building capital

10
projects and facilities including building, machines, and means of financing it. Capital
budget is used for accomplishing a long term programs.
According to Houlton (1982), budget can be classified as tentative and enacted budget
as follows.
A. Tentative budget; is a budget which is not yet presented and approved by
legislative body. This budget is subject to change.
B. Enacted budget; on the other hand, enacted budget refers to officially approved
budget by legislative body.
According to Silva (1982), budget can be classified as fixed and variable budget as
follows.
1. Fixed budget: is a budget for specific expenditure and the total amount may not be
greater than or cannot be changed in the demand government goods and services. This
budget type is prepared for specific planned activity and usually not be adjusted
according to the levels of economic activity.
B. Flexible budget; is a budget type which fixes expendable resources per unit of
goods and services whose total varies with the change in the demand for social goods
and services.

2.10 THE BUDGET PROCESS

Budget as a process pass a series of steps to prepare budget in the budget year as
follows.
1. Estimate revenue; expenditure planning is not possible unless there is a revenue
estimate from different sources. Therefore, possible revenue sources must be known
and revenue should be estimated based on taking steps to expenditure planning.
2. Expenditure planning; is considered as more round activity which includes the
following steps.
A. Communication of budget institution; this instruction of budget includes statement
of broad goals. Policies expected and other appropriate comments from executives to
department heads.
B. Identification and organization units; involves determining which departments will

11
responsible for each function.
C. Estimate of others; involving expenditures notified to specific departments and not
done by department heads. This expenditure estimate is done by Budget officer of
financial head.

2.10.1 BUDGET PREPARATION

Budget participation is an essential not only to drive expenditure pronunciation but
also able to advise policy makers on feasibility and desirably of specific budget
process from macroeconomic and micro economic prospective. Budget preparation
and planning are the hearts of good public expenditure management system and
requires the following forms of fiscal and financial disciplines.
A. Control of aggregate expenditure to ensure that Budget consistency with macro-
economic constraints.
B. Effective means for achieving a resource allocation to be used to reflect
expenditure policy priorities.
C. Effective delivery for public services or production efficiency.
D. Minimization of financial cost of budgetary management that is effective Budget
execution and cost management practice (Harper, W, 1999).

2.10.2 BASIC STEPS IN BUDGET PREPARATION

According to Polun (2000), Budget preparation system has the following six steps.
1. Determination of macroeconomic frameworks for the budget year and ideally at
least for two years.
2. Allocation of total Budget among lines of minister by setting a frame for separate
planning and contingency reserve.
3. Giving instructions to lines of ministers with the indicative aggregated spending
ceiling for minister of finance.
4. Submission of bides through lines of ministers to Budget department, once received
there may be a need to challenging within Budget department to test the costing of
existing and any new policy proposal.
be sent to the Parliament. Then the parliament approve budget at federal level.

12
2.11 BUDGET ALLOCATION AND UTILIZATION
After budget is prepared and approved by Parliament, it must be allocated to wards
lines of sectors based on the budget preparation proposal for expenditure needs to be
utilized by responsible bodies in each sector for respective sectors development
activities. Budget utilization is important means of performing activities based on the
allocated budget for the planned activities properly in the specified time to recognize
the achievement of desired goals

2.12 BUDGET ADMINISTRATION

Organizations use organizational Budget team throughout the organization for good
Budget administration and utilization of the allocated budget.
According to Garrison (2006), organizations for good budgetary utilization and
controlling purpose have to involve the following components.
A. Budget committee: this component involves members of senior management such
as Chief executives, Chief operational officer. This committee performs a vital role
such as review, adjust, and approve Budget.
B. Budget officer: this component of the organization controls the overall budget
administration through dealing budgetary controllers, educating Budget controllers
about Budget control, and the deadline is met.

2.13 THE PROBLEM AREAS OF BUDGE UTILIZATION

According to Horngren (2000), the following are the main problems for Budget
utilization.
1. Budget is based on estimate in preparation; actually budgeting is essentially based
on estimate and forecast in relation to future and estimates are never be perfectly
accurate since future is within full of uncertain. So, the estimated budget may not be
available and utilized to the extent of estimated amount.
2. Lack of balanced Budget; Government expects to promote development, to
provided social service, to reduce unemployment level and for social security which
require large amount of budget. So, Budget that can be allocated to be utilized may be
unable to meet and satisfy the desired goals at full level and many organizations faced

13
budget deficit.

2.14 CONTROLLING BUDGET UTILIZATION

The Budget plan and budget are subject to change in circumstances comparison of
planned budget with actually used amount. The actually used amount of budget is a
measure of performance and helps to evaluate effectiveness of organizations.
Controlling is necessary to ensure the achievement of objectives by management in
utilizing the allocated budget. In controlling budget utilization, every respective
person in the organization is responsible (Robert, 2007)

2.14.1 PERFORMANCE EVALUATION AND MANAGEMENT CONTROL

Performance report by responsible body to management at appropriate time is a very
crucial issue for organization’s to evaluate the overall performance of each sector and
for controlling purpose by management. The performance report significantly shows
the extent to which activities are done and enables management to understand strength
and weakness of the reporting entity as the evaluation means and to take timely
adjustment if necessary. Report that communicates effectively to all level of
management stimulates action and influence decisions (Glamour, 2005).

2.14.2 BUDGET EVALUATION

Budget evaluation is an analysis of alternatives especially full cost and benefits that
can reasonably be expected from each option seeking to satisfy objectives. It is a
systematic method of examining specific problems and finding alternative solutions
while identifying expenditure and benefits of each solution. Budget evaluation
provides a meaningful alternatives and priority in decision making. It helps to
determine whether resources are allocated in the best way to be effective in achieving
objectives and is a measure of progress towards achieving those objectives (Balmori,
2004).

14
2.14.3 BUDGET CONTROL TECHNIQUES
Budget control is a technique management control of budget.
According to Allen (2001), budget control techniques are classified in to legislative
and administrative controls.
1. Legislative control: is a parliamentary process appropriating the amount of
expenditure and areas or purposes as well as approving the sources and and levels of
revenue through hearing of reports of the auditor general and prescribing corrective
actions.
2. Administrative control: this control technique comprises the plans of organizations
that are concerned mainly with operational efficiency. This control technique is
applied through inspection, performance report, and statistical analysis. Under this
technique Budget is allocated monthly, quarterly, and other intervals for the following
reasons.

15
 CHAPTER THREE

3. RESEARCH METHODOLOGY
This portion of the study provided an over view research methods which consists of
research approach, sources of data, types of data, target population, methods of data
collection, and methods of data analysis. Sample size determination was not involved
in this study because the researcher used all target population due to small in size.

3.1 RESEARCH APPROACH

In this study the researcher uses both qualitative and quantitative data aspects. In this
study the researcher used both qualitative and quantitative data. In order to know
feeling, thinking, awareness and understanding of the target population of the study
the researcher uses qualitative aspect of data. From quantitative aspect, the researcher
will assess the audit budget document of the office in order to know the budget
utilization trend of this office by comparing the budget amount with actually used.

3.2 Types of data

The researcher uses both qualitative and quantitative data types according to the
nature of study conducted. Qualitative data were collected directly by distributing
questionnaires to target populations and by interviewing them. Quantitative data were
collected directly by referring audited budget manual of the office.

3.3 SOURCES OF DATA

The researcher will collect data from primary and secondary sources. Primary data
will collect from target employees of Burie Town Finance and Budget Administration
Office specifically from employees who participate in budget preparation, controlling,
financing, and purchasing departments including manager of this office. The
researcher will collect secondary data from audit budget document of this office up to
2014 E.C.

3.4 TARGET POPULATION

According to Finance and Budget Administration Office located in Burie Town

16
(2010), budget officer of the office M.s Yenguse said that employees who participate
in budget preparation, controlling, financing, and purchasing department with
inclusion of manager of the office, are twelve. So, these employees are target
population of the researcher study to conduct this study. Sample size determination
was not necessary for this small size target population. So the researcher used census
method. This method allows all target population to be involved in the researcher
study to give available information about budget issues.

3.5 METHOD OF DATA COLLECTION

To collect the available data, the researcher used interview and questioner data
collection methods. Primary data were collected by distributing questionnaire and by
interviewing target populations for the study in this office. Questionnaires include
open ended and close ended questions. Open ended questionnaire requires
encouraging respondents to share much information as much as possible in
unconstraint way while closed ended questionnaires involve questions that can be by
simply checking boxes from predetermined set of responses. Interview questions
involve structured and unstructured questions. The researcher also collected
secondary data from audited budget document of this office from 2012 up to 2014

3.6 PROCEDURE OF THE STUDY

In order to conduct the research paper, the researchers follow the following steps:
First, organize the questionnaire. Second, distribute the questionnaire to the
participant. Third, collects the questionnaire. Fourth, connects social data from
various source data analysis.
3.7 ETHICAL CONSIDERATIONS
To carry out this study the researcher will ask the University and College of business
and economics students thus, the collected data will be kept confidential from both
subject and clients. The researcher will not try to select only those data that are
consistent with his personal intention. The privacy right of research participation also
will be protected and finally, the participant will have the obligation to tell the truthful
information.

17
 3.8 TIME SCHEDULE AND PROPOSED BUDGET

3.8.1 TIME SCHEDULE

No. Activities Month
Sept. Oct. Nov. Dec. Jan. Feb. Marc Apri Ma Jun
h l y e
1 Title selection X
2 Literature search X
3 Proposal development X

3. 8.2PROPOSED BUDGET
No Item Quantity Unit cost Total cost
.
1 Paper ¼ pack 600birr 150birr
2 Pen 1 piece 25 birr 25 birr
3 Binding 1 pad 15 birr 15 birr
4 Internet in pocket money 55
5 Secretary and printing 20 pages 7 birr 140 birr
cost
Total 385 birr

18
 REFERENCES
 Degu (2001), Multiyear budgeting and investment journal management
accounting.
 Anderson (2008), managerial accounting, 4th edition
 Balmori (2004), development in management accountancy
 Berewer (2006), role of budgeting and budget process, 8th edition
 Burie Town Finance and Budget Administration Office (2010)
 Charles, and Hngren (1999), cost accounting, 10th edition
 Dunk (2010), budget phases, budgetary participation and managerial
performance
 Edward (1991), cost accounting 3rd edition.
 Ethiopian Regional public finance management performance report (April,
2007).
 Federal Democratic Republic of Ethiopia, minister of finance and economic
development program budget manual final version (3rd, September, 2010)
 Garrison, etal (2004), managerial accounting, 6th edition
 Glamour (2005), do private sector financial statement provide a suitable public
sector accounts

19