ASSESSMENT OF BUDGET PREPARATION

AND PERFORMANCE EVALUATION

(IN CASE OF HARAMAYA UNIVERSITY)

PREPARED BY ANDUALEM CHERNET

ID NUMBER 2653(02

ADVISOR INSTRACTURT BELAYNEH

HARAMAYA UNIVERSITY COLLEGE OF BUSSINESS AND

ECONOMICS DEPARTMENT OF ACCOUNTING

JUNE/2012

HARAMAYA UNIVERSITY
 ACKNOWLEGMENT

All praise and thanks is to almighty GOD, the lord of existence, the
most gracious, the most merciful, for helping me throughout my life.

I would like to express my deep appreciation and gratitude to my

senior essay advisor instructor Belayneh who assist me in writing this
research paper through his valuable suggestion and guidance.

I am greatly indebted to my mother Stige Wendawuk, father ato

Takele Yimam and my sister Hayimanot Chernet for their moral and
financial support during my studies.

I am deeply in-depth to my friend Bethlehem Kassa for her great

support.

I would like also to extend my warrant tank to account payable team

workers of Haramaya University and especially for ato Abebe for his
cooperation during the data collection.

Last but not least, I would like to extend my heart felt thank to
student Adisu Abebe, who helps me in his effort in order to type this
research paper.
Table’s content page
3.1. Sex back ground

3.2. Educational background

3.3. Age groups

3.4. Field of study

3.5. Job tittle

3.6. Experience

3.7. Responsibility of budget preparation

3.8. Types budget approach

3.9. Computerized network usage

3.10. Budget awareness

3.11. Formal documents

3.12. Budget implementation

3.13. Schedule of problem encountered

3.14. Expenditure variance and performance of the last three years

3.15. Factor for variance

3.16. Impact of variance

3.17. The last three years performance

3.18. Response on the treatments of variance

3.19. Methods used to evaluate performance

Charts

Chart 3.1. The university usage of fixed and variable budget

Chart 3.2. Variance related with the three years

Content page
Chapter one

1. Introduction

1.1. Back ground of the study

1.2. Back ground of the organization

1.3. Statement of the problems

1.4. Objective of the study

1.4.1General objective

1.4.2. Specific objective

1.5. Significance of the study

1.6. Scope of the study

1.7. Limitation of the study

Chapter two

2. Review of related literature

2.1. Budget and budget concept

2.2. Major future of budget

2.2.1. Budget cycle

2.2.2. Advantage of budget

2.2.3. Characteristics of budget

2.2.4. Types of budget

2.2.4.1Static budget

2.2.4.2Flexible budget

2.2.5. Approach to budget

2.2.5.1. Zero base budgets

2.2.5.2. Line (base) budget

2.2.5.3. Computerized budgeting

2.2.6. The budget period

2.2.7. Requirement for effective budget

2.2.8. Administration of annual budget

2.2.8.1The budget committee

2.2.8.2Budget manual

2.2.8.3. Accounting staff

2.2.8.4. Budget directors

2.2.9. Budget and human behavior

2.3. Aspects of performance evaluation and practice

2.3.1. Determination of variance for performance evaluation practice

2.3.2. Selecting variance to investigation

Chapter three

3. Data presentation and analysis

3.1. Over view of budget in the university

3.2. Personal back ground of the respondents

3.3. Budget preparation procedures

3.3.1Responsibility of budget preparation

3.3.2. Computerized network usage

3.3.3. Personal awareness of budget

3.3.4. Formal written documents

3.3.5. Budget implementation

3.3.6. Problems encountered during budget preparation

3.4. Variance analysis

3.4.1. Expenditure variance and performance of the organization

3.4.2. Factors for variance

3.4.3. Impact of variance

3.5. Performance report

Chapter four

4. Conclusion and recommendation

4.1. Conclusion

4.2. Recommendation

Reference

Appendix

CHAPTER ONE
 1. INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Budget is financial planed list of all planned expense and revenue. It is a plan
for saving, borrowing and spending. In other term, budget is an organization plan
stated in monetary term.

The word budget mean the financial plan of a business enterprise for the period of
a year, predicting financial result and contents the financial statements over the
year to manufacturing and non-manufacturing companies .there for, budget is the
quantitative expression of a proposed plan of action by management for a future
time period. The budget system builds on historical or actual performance and this
budgeting process provides the vehicle for the exchange of ideas and objectives
among peoples in the variance organization segments.

The basic reason why special attention should be given to budget preparation and
performance evaluation technique is the art of budgeting is important to control
problems that face in the organization.

Hence, budget serves as realistic estimate of acceptable performance for an

entity.it is the crucial instrument to estimate the future event. Therefore, if the
budget is not used, there is no standard against which actual result can be
compared. The management performance in each budgeting entity could be
appraised by comparing actual Performance with the budgeted project.

Since, budget provides abases of evaluating performance, user use it to asses

wither resources were obtained and expressed as planned and weather stated
goals and objectives were achieved.

The experience in several countries and in any organization indicates that almost
all of the organization depends on budget. Therefore, deferent organization uses
deferent types of budget, from this the most important and dominant budget is
the master budget which summarizes all phases of company plan and goal of
future.

Budget often span a period of one year or less, but in the case of plant assets and
product change the period may span five or more years. The usual planning and
control is one year.

1.2 BACK GROUND OF THE ORGANIZATION

 Haramaya University formerly known as Alemaya University is one of the
oldest university in Ethiopia.it is located in alemaya, a town in the misraq
hararghe zone, about 20 kilometers from the city of Harare and 40 kilometers
from dire dawa.

The university was founded with the help of Oklahoma state university, accepting
the first students in 1954, and the new campus was opened in Jan, 1958, by
emperors Haile Selassie. Haramaya University promoted from a college with in
Addis Ababa University on May 27, 1985 to an independent university. For many
years the university had been limited to only an agricultural curriculum, but in
1996, the university was given permission to open other faculties and
departments.

In the last few years, the university has witnessed the mediums expansion in terms
of study. The university is running deferent programs with 50 degree ,50 masters
and 13 PhD programs. The university currently has 12 colleges, three institutions
and six centers.

Haramaya University is now functioning on three composes premises, the main

campus, where the first mile stone was laid, is Haramaya campus. This campus is
located 510 kilometers east of Addis Ababa, between dire dawa and harar town.
This is the nerves center of the university where the office of the management of
the institutionary located. Furthermore, the research and extension office, school
of graduates studies and the majority of the colleges location.

The second campus is harar campus which is located in harar town. On this
campus there are the college of health science and college of medical science.

The third and the latest branch is chiro campus which hosts institution of
technology for agro industry and forest development.

The university currently enrolls more than 31500 candidates in the regular,
summer in serves training, distance learning and continue educational program.
1.3 STATEMENT OF THE PROBLEMS
Budget is the vehicle for addressing objectives, goals and problems in
the most careful way. This is realized when it is integrated with companies
strategies. It also enables an organization manager to measure actual
performance against budgeted performance. Since budgets are regarded as an
expression of with full thinking, but rather as a description of an attainable
objective the organization become full of uncertainty. so, budget preparation
helps managers in dealing with this uncertainty and make the decision are more
effective . (Getu jamanha 1996.)

Budget also helps motivates managers to strive, to achieve the organization

goals in controlling g activities and in evaluating the performance of managers.
When actual performance fall shortage of budget or planed performance, it
prompts through full senior manager to ask question about what happened and
why and how performance can be improved in the future. The main problem
encountered during budget performance is lack of complete data and absence of
trained personals. (Horrengren 2009).

Without the annual budgeting process, the profession of day to day

operating problems may tempt managers not to plan for future operation. If
budget is effectively prepared in the organization, some difficulties face the
organization in coordinating the activity of the varies part of the organization and
insuring that the parts are in harmony with each other in communicating plans to
the varies center managers. In monitoring managers to strive to achieve the
organizational goal, in controlling activities and evaluating the performance of
managers. Therefore, this leads the organization sever loss and finally it will
become shutdown. But if budget is prepared in effective manner achieving the
goal and other activities of the organization is easy.
 Since, budget is the most widely used method, it is important for controlling
and planning. Therefore, this study is used to assess the following questions.

 Does the organization have manual budget?

 Does the organization implement its budget effectively?
 When compared actual result with budgeted estimate does
variance observed? If yes,

Therefore, this research tries to assess the budget preparation and

performance evaluation of the organization.
 1.4 OBJECTIVE OF THE STUDY
1.4.1 GENERFAL OBJECTIVE
The general objective of this study will be to assess the budget preparation
and performance evaluation of Haramaya University

1.4.2 SPECIFIC OBJECTIVE

 To look with due attention into the budget manual of Haramaya

university.
 To look in to any variance of the budgeted amount and actual performance
of haramaya university.
 To identify the impact of variance on the university.
 To identify weather the university effectively implements its budget or not
 To look over three consecutive years budget preparation and its
performance.
 1.5 SIGNIFICANCE OF THE STUDY

Most organization in Ethiopia not properly budgeted in good manner. This

paper establishes whether budget preparation has any effect on the performance
evaluation of the organization. More over the study identifies those aspects of
budget preparation that has the most and least contribution on the organization
performance.

Thus, the subject matter of this research and resulting lesson drawn from the
analysis are likely to benefit deferent classes of peoples. This study will be
significant for its contribution to.

The study will provides knowledge asserting ground to other researcher’s in

order to undertake intensive study on the budgeting and its impact on the
performance of the university.

The study finding and recommendation are highly important for managerial
decision making or to hype management of the organization ,because it draws
their attention to some of the point where corrective action are necessary and
enable them to make such correction.

The research could be used to establish a frame work for subsequent studies
that can work more comprehensive data sets furthermore it could stimulates
further research , thus keeping sustained interest in the area of budget
preparation and their use in improving university performance.

The finding g and recommendation of the study are highly important for
policy makers, because, it draws their attention to some of the points that needs
corrective measures on their side.
 1.6 SCOPE OF THE STUDY
This study is an assessment of budget preparation and performance
evaluation of Haramaya university .this study will be limited to the accounting and
the management procedures related to budget in Haramaya University.

This study will be limited to three consecutive year’s budget preparation and its
performance.
1.7 LIMITATION OF THE STUDY

There are certain limitation that would be affect the research study, some of these
limitation that encountered during the study of the research are.

 Time constraints
 Lack of administrative fund
 Lack of experience
 Lack of data availability
 Incorporation of workers related with the data
 Chapter two
2. REVIEW OF RELATED LITRATUR
2.1. BUDGET AND BUDGET CONCEPT

This chapter tries to review the nature and importance of budget as well as
its measurement system. Virtually every one has heard the term budgeting and
has concept of its meaning. Like many accounting terms, budgeting is used in our
daily language. For example every one might have heard that the mass media
report, budget of administrative regions, budget of federal government, budget of
private company and budget of deferent government units. This concept is raised
for the purpose of introducing the basic framework of budget.

Deferent scholars define budget in different manners. How ever, most of

them have come up with similar connotation of budget and budgeting. Some of
the definitions selected represented presented below.

To deal with it’s important to begin on the meaning of the essence and
purpose of budget. The word budget derived from the French word “baguette”
meaning a small bag or pouch. The oxford dictionary defines a budget as “a
statement of the probable revenue and expenditure for the ensuring year with
functional proposal funded there on” .it is also defined as a financial or qualitative
statement prepared prior to definite period of time. (Hinnies r.) And Edward
r.s:1964)

Another scholars defines the word “budget” originally meant the money buy
or the public purpose (small bag), which served as receptacle for the revenue and
expenditure of the state. (JESSE BURSE Heda).

Budget is a plan showing the organizations objectives and how management

is intended to acquire and use resources to attain objectives. Budget preparation
has been used successfully in many organizations, it does not work always studies
have shown and that in many organizations budget preparation failed to make
employees more motivated to achieve budget goals.

This means that the term budget has negative connotation for many
employees who feels they are subject to a budget. Often in the past management
have imposed a budget from top without considering the opinion and the
personnel affected. This problem can be minimized through effective budget
preparation. (Herman son, p.1110)

2.2. MAJOR FUTURES OF BUDGET

2.2.1. BUDGET CYCLE

Well managed organizations usually have the following budget cycle.

1. Planning the performance of the organization as a whole as well as its sub

units. The entire management team agrees as to what is expected.
2. Provide a frame of reference, a set of specific expectation against which
actual result can be compared.
3. Investigating variation from plans. If necessary, corrective action follows in
investigation.
4. Planning again, considering feedback and changed conditions.
(horngren,2009)
 2.2.2 ADVANTAGE OF BUDGETS
Budget is an integral part of management control system when administered
through fully by management budget (Charles.horngren, 2009).

 Promote coordination and communication among sub units with in the

organization.
 Provide a framework for budgeting performance and facilitating learning.
 Motivate a manager and other personnel’s.
 It provides managers with a way to formalize their planning effort.
 It compels managers to access their financial strength and to look for
alternative source of financing their expenditure.

2.2.3. CHARACTERSTICS OF BUDGET

Budget can be characterized in different ways in varies organization, among

this;

 Budget is quantitative.
 Budget stated in monitory terms, although the monitory terms may be
backed by non-monitory accounts.
 Budget if future oriented.
 Budget deals with specific entities.
 Generally budget cover a period of one year. ( Zewde asefa,2007)
 2.2.4. TYPES OF BUDGET

There are two types of budget depending up on the activity level the budget
covers,

1. Static budget

2. Flexible budget

2.2.4.1. STATIC BUDGET

Static budget is based on the level of out put planed at the start of the
budget period. (Horngren, 2009)

A static budget is a budget prepared for only single level of activities. A typical
example of astatic budget is master budget. Master budget summarizes the
objective of all sub units of an organization.it quantifies the expectation regarding
future in come, cash flows, financial position and supporting plans. (Gata,
jemanha, 1996)

There are three category of master budget

I. Budgeted financial statement; - often called preform financial statement,

shows how the organization financial statement will appear at specified
time if operation prosed according to planed. Budgeted financial statement
includes a budgeted income statement, budgeted balance sheet and
budgeted statement of cash flows
II. Capital budget;- is a plan for the acquisition of capital assets ,such as
building and equipment.
III. Cash budget;- every organization prepares a cash budget. This budget
shows an expected cash receipts, as a result of sailing a good or service and
 planned cash. Disbursement to pay the bills incurred by the organization.
(getu jamanha,1996)

2.2.4.2. FLEXIBLE BUDGET

Flexible budget can be seen as an extension of the master budget. It also

differs from static budget, in that they show the estimated amount of revenue and
costs that are expected at verities of level of activities. Static and flexible budgets
are based on the same per unit’s standard amount and the same fixed cost. (getu
jamanha, The deference between the two budgets steams solely from the different
volume used to compute the budget amount.

1996)

The flexible budget can be used for planning and performance evaluation. For
example, managers maybe able to evaluate the adequacy of the company cash
position by assuming deferent level of activities.

2.2.5. APPROACHS TO BUDGETING

2.2.5.1. ZERO-BASE BUDGETING

Many organizations have attempt to measure discretionary costs through a
budgeting methods called zero-base budgeting.

Under zero-base budgeting, the budget for virtually every activity in the
organization is initial set to zero. The zero-based budgeting approach forces
management to re think each phases of organizations operations before
allocating resources. (Pyhrr, peter A, 1986).

2.2.5.2. LINE BUDGETING (BASE BUDGETING)

 Some organizations use base budgeting approach with out going to the
extreme of zero base budgeting, under this approach, the initial budget for each of
the organization department set in accordance with a base package, which
includes the minimal resource required for the sub units to exist at an absolute
minimal level. Base budgeting has been effective in many organizations because it
forces managers to take an evaluative, questioning attitude to and each of the
organizations programs. (Hilton 2000; 649)

2.2.5.3. COMPUTERIZED BUDGETING

In the past, budgeting was a task created by many management
accountants. In the real world the process is for complex and as the budget is
being form.

It is altered many times since many budgets are found to be out of balance
with each other. In today’s world budgeting is usually computerized using either a
computer program written specifically for the organization by numerical spread
sheet. The budget director should also supply executive with information
regarding past operations to guide in the preparation of new budget. (Horngren,
2003)

2.2.6. THE BUDGET PERIOD

Detail budget for each responsibility center is normally prepared for one year.
The annual budget may be broken down by months, for the first three months and
by quarter for the remaining nine months. The quarterly budget is then developed
on monthly bases as the year proceeds. (Getu jamanha)
 2.2.7. REQUIREMENT FOR AN EFFECTIVE BUDGET

An effective budget is defined as one with high probability of successful

implementation that will more the organization to words its long run goals .there
are a numbers of conditions that must be met if the budget is to be effective.
(zewde asefa, 2007).

 The organization must have a set of overall goals.

 The organization goal(s) must be decomposed in to meaning full sub goals.
 The sub goals must be congruent with each other.
 The sub goals must be congruent with over all goals.
 Employees must accept sub goals and not feel threaded by them.
 The budget must be tied to some feedback or performance evaluation
procedures.

2.2.8. ADMINISTRATION OF THE ANNUAL BUDGET

It is important that suitable administration procedures be introduced to
ensure that the budget process works effectively.

The following bodies are through which the budget is administered.(zewde

asefa,2007)

2.2.8.1. THE BUDGET COMMITTEE

 Should consist of high level executives who represent the major segment of
the organization. The normal procedure is for functional heads to present their
budget they will, for example ,circulate and advice on the instructions about
budget preparation ,provides past information that may be useful for preparing
the present budget, and ensure that managers submits their budget on time .

2.2.8.2. BUDGET MANUAL

Budget manual should be prepared by the accountant .it will describe the
objective and procedure involved .in the budgeting process and will provides
useful reference sources for managers responsible for budget preparation. In
addition, the manual may include a time table specifying the order in which the
budget should be prepared and the dates when they should presented to the
budget committee. The manual should be circulated to all individuals who are
responsible for preparing budget.

2.2.8.3. ACCOUNTING STAFFS

This will normally assists managers in the preparation of their budget they
will, for example, circulate and advice on the instructions about budget
preparation proves past information that may be useful for preparing the present
budget, and ensure that managers submit their budget on time.

2.2.8.4. BUDGET DIRECTORS

The budget director, who serves in the staff capacity, is usually the controller
or someone reporting to the controller. The budget director request estimate of
the cost of running each cost centers.
 2.2.9. BUDGET AND HUMAN BEHAVIOR
In preparing budget, the influence that is brings an individual cannot be
ignored. These are because there is people who implement the budget and it si
through budget that managers try to exercise controls over these people.
Budgeting is one of managerial control system and it is effective only if influence
behavior of an individual affected by the budgeting process in direction that will
advance the best interest of the firm. Budget should not be viewed as a restriction
from use of resources should not be felt as nickel-nourishing and should not be
considered as a hummer to demand. (Getu jamanha, 1996; 175)

2.3. ASPECTS OF PERFORMANCE EVALUATION AND PRACTICES

The aspects of performance evaluation and practice is one of the

important way to analyses the variance of the organization, particularly
for the university of haramaya. The deferent aspects are presented as
shown below

2.3.1. DETERMINATION OF VARIANCE FOR PERFORMANCE

EVALUATION PRACTICE
One means of evaluating managerial performance is to compare standards
amount with the actual result. The deference between standards and actual are
called variance. This variance can be either favorable or unfavorable. When
managers wants to maximize revenue ,a favorable sales variance occure,when
actual sales revenue is higher than expected (standard) revenue and unfavorable
sales variance occurs when managers wants to minimize cost, then it is the
reverse of revenue maximization.(horngren1999).
 2.3.2. SELECTING VARIANCE TO INVESTIGATION

Experience plays a significant role in deciding which variance merit

investigation. However, there are several factors that influence the decision. There
are the materiality concept, frequency of occurrence, capacity to control and the
characteristics of the item. A material variance is a one that affects decision
making .the need to material variance applies to favorable as well as unfavorable.
Therefore, the capacity to control refers to management’s ability to take
corrective actions. If utility rates causes variance between actual and standards
overhead cost, management has little control over this variance. Managers should
concentrate on controllable variance to maximize their utility to the organization.
(I so, Abdu, 2007).

The characteristics of effective performance report assist in moving the

organization to words its goal by motivating employees to adjust and /or plans
when divisions from plans occur.to be effective performance report must
be ;behaviorally sound ,relevant timely, accurate and cost effective.
(iso,abdu,2007).
 CHAPTER THREE
3. DATA PRESENTATION AND ANALYSIS

Analysis and presentation of the data collected will be presented in this sub
section of sub chapter. This analysis tries to assess budget preparation and
performance evaluation of Haramaya University. The data presentation would be
focused on the data collected through questioner, interview and also other
secondary data that is collected directly from the financial workers. The data
presentation proves for the accuracy of the data collected and through which it is
analyzed. The data presented in this manner also analyzed using deferent
techniques .this techniques are; using deferent tables and graphs. To give more
information and in order to give clearly present data .this analysis also uses
percentages and frequency (number of respondents .this also contribute for the
clearness of data presentation and analysis methods used, in addition to using
tables and graphs, there is an interpretation for each tables and graphs including
their implication of the figure showed in the tables and graphs. This data
presentation and analysis would present as follow.

3.1. Over view of budget in the university

It is known that budget is a summary statement of expenditure, revenue,

capital acquisition and the financial passion of the organization. It provides a
means factory management to optimize those benefits obtainable from current
opportunity and provides recognizable yardstick for performance evaluation.

As the interview conducted d with personnel in account payable team, indicates

that the organization has been preparing budget since it was established and
started education.as it earns; establishment, the presentation of budget in the
organization was not well organized and facilitated. This problem also seen in
present time, this was due to lack of experience, and because of each department
don’t give due attention for their budget preparation and not consideration of
current situation of business as well as operation environment .now it is
implementing its budget preparation in accordance with the procedural steps and
approach outlined.in the organization budget are prepared by each departments
for approval.

3.2. PERSONAL BACK GROUND OF THE REPONDANTS

The employee of any organization has its own personal back ground in terms of
sex, educational back ground and field of study as well as experience and age
groups.

Table 3.1 sex background

Sex Frequency Percentage

Males 6 60%

Females 4 40%

Total 10 100%

(Data collected through questioner)

Table 3.1 indicates that 60%of respondents are male and 40% of respondents are
female.

Table 3.2 educational background

Level of education Frequency Percentage

Certificate 0 0%

Diploma 1 10%

Degree 9 90%

Masters 0 0%

Total 10 100%

(Data collected through questioners)

Regarding educational level as it is shown in the above table 3.2, 10% of the
respondents are diploma

, 90% are degree holders and neither masters and nor certificate in the
respondents.

This implies that the majority of the finance office workers are degree holder’s
even if there is a presentation of diploma holders. This will contribute for the
accuracy of budget preparation and evaluation of the organization.
Table 3.3 ages

Age groups Frequency Percentage

Below 25 4 40%

26-35 4 40%

36-45 2 20%

46-55 0 0%

Above 56 0 0%

Total 10 100%

(Data collected through questioner)

As indicated in the above table 3.3, 40% of the respondents are falls between
below 25 and twenty six up to thirty five, 20% of the respondents are grouped in
to thirty six to forty five, neither of the respondents are included in the age group
of forty six up to fifty five and fifty six and above.

This shows that the university have a well experienced and comparative to more
comparative there is also not well experienced worker so this will affect the
budget performance of the university.
Table 3.4, field of study

Qualification Frequency Percentage

Accounting 10 100%

Management 0 0%

Others 0 0%

Total 10 100%

(Data collected through questioners)

Table 3.4 indicates that 100% of respondents are accounting and no one (0%) of
management and other field of study.

The contribution for good budget preparation the existence of accountant is

preferable not only preferable it is must, so the university finance workers are
accountants so; it helps for good performance evaluation purpose.

Table 3.5, job title

Job title Frequency percentage

Accounting clerk 2 20%

Senior accountant 1 10%

Higher accountant 2 20%

 Unknown 5 50%

Total 10 100%

(Data collected through questioners)

Table 3.5 indicates that20% of the respondents are accounting clerk,10% of the
respondents are senior accountant ,20% of respondents are higher accountant
and those who don’t specify their job tittle which is unknown is 50% of the
respondents.

Table 3.6, experience back ground

Experience(years) Frequency Percentage

1-3 5 50%

4-6 4 40%

7-10 1 10%

Above 10 0 0%

Total 10 100%

(Data collected through questioners)s

This table indicates that 50% of the respondents have an experience of

between one year to three years, 40% of respondents are between four and six
years ,10% of respondents are between seven and ten years and 0% of the
respondent’s is above ten years’ experience.

According to the above table most of the workers are experienced so this wills
contribute for good performance of the budget and good preparation procedure.

3.3, BUDGET PREPARATION PROCEDURES

 It is known that budget is the major important financial report procedure
and preparation of annual budget is mandatory in most of the organization. There
for, the study tries s to assess some important issues about budget preparation
procedures in the university.

3.3.1. RESPONSIBILITY OF BUDGET PREPARTION

Giving responsibility for budget preparation is the most important factor for
the achievement of the budget objective.

Table 3.7, responsibility of budget preparation

Description Frequency Percentage

The responsibility of
budget preparation
and performance
evaluation been
properly determined

Yes 6 60%

No 2 20%

I don’t know 2 20%

Total 10 100%

(Data through questioners)

The above table 3.7 indicates that 60% of the respondents are replied that
the organization give responsibility ,20% of the respondents are do not replied and
20% is I don’t know answer is replied.
 This shows that the organization give responsibility, so this also contribute like
the above good things this is also contribute for the good performance of the
budget.

Table 3.8, types of budget approach

Description Frequency Percentage

What types of budget

approach is used by
the organization

Flexible budget 9 90%

Fixed budget 1 10%

Other O 0%

Total 10 100%

(Data through questioners)

Table 3.8 indicates that 90% of the respondents agree with flexible budget, 10% of
respondents relied on fixed budget approach and no one is other.

Chart 1. Shows the university usage of fixed and flexible budget

 fixed budget

fixed budget
flexible budget

The above chart shows 90% of respondents replied that the university uses flexible budget and 10% of the
respondents respond shows the university uses fixed budget.

The usage of flexible budget is good for performance measurement through adjusting current situation with
the budgeted amount so, the university is in a good track in the usage of the flexible budget and for performance
measurement purpose.

3.3.2. COMPUTERIZED NET WORK USAGE

In an organization which uses computerized accounting procedures is the
important aspect of budget preparation and performance evaluation in speedy
and accuracy manner.

Table 3.9, computerized network usage

Description Frequency percentage

 Do the office use
computerized
network system

Yes 10 100%

No 0 0%

Total 10 100%

(Data through questioners)

The above table indicates that 100% of respondent’s agrees that the
organization uses and no one (0%) is not agreed or not replied.

Using computerized network to undertake the given task will contribute for
efficiently and effectively implement the budget, so this will help the university to
its effectiveness in the budget preparation as well as its performance.

3.3.3. PERSONNEL AWARNESS OF BUDGET

When an organization prepare budget, the personnel who are in deferent
division awareness is help the budget effectiveness.

Table 3.10, budget awareness

Description Frequency percentage

Have all personnel in

 the office have
awareness of the
budget

Yes 5 50%

No 5 50%

Total 10 100%

(Data through questioner)

The above table 3.10 shows that 50% of the respondent’s agree that as all
personnel awareness of budget.

Creating awareness between the personnel about budget is important in its

way of accomplishment of the budgeted amount and its reasonableness.

3.3.4. FORMAL WRITTEN DOCUMENTS

In any organization the purpose, authority and responsibility of budget

preparation helps the organization in order to achieve its determined budget
efficiently and effectively.

Table 3.11, formal documents

Description Frequency percentage

 In the organization,
the purpose, authority
and responsibility of
budget preparation
and performance
division head is
defined in formal
written document?

Yes 7 70%

No 3 30%

Total 10 100

(Data through questioner)

The above table 3.11 shows, 70% of respondents are positively implied and
the remaining 30% of respondent’s not implied. In any organization the purpose,
authority and responsibility of budget preparation can have positive purpose like
awareness about the budget that in each division tries to achieve the budget in a
good manner.

3.3.5. BUDGET IMPLIMENTATION

The prepared budget is implemented in order to get the desired goal with in
implementation all things are realized.

Table 3.12, budget implementation

Description
 Is the budget
personnel
Frequency percentage
implemented to the
planed goal?

Yes 10 100%

No 0 0%

total 100 100%

(Data through questioners)

Table 3.12, indicated that 100% of respondent’s says yes and no one (0%) of
respondent’s says no.

3.3.6. PROBLEMS ENCOUNTRED DURING BUDGET PREPARATION

When an organization prepares the budget many problem is encountered during
budget preparation.

Table 3.13, schedule of problem encountered

Description What problem?

Response Is there a problem encountered The worker estimate the

the office during budget budget on the past year
 preparation? experience

frequency Percentage frequency Percentage

Yes 6 60% 6 60%

no 4 40% 4 40%

total 10 100% 10 100%

(Data through questioners)

The above table 3.13, shows that 60% of the respondent’s replied the problem
and 40 % of the respondents are not replied, and 100% of the respondents agree
the problem and no one (0%) of the respondents are answer no.

3.4. VARIANCE ANALYSIS

Comparison of actual expenditure with budgeted expenditure has been
emphasized as an integral part of the control process.

3.4.1EXPENDITURE VARIANCE AND PERFORMANCE OF THE

ORGANIZATION
Table 3.14, expenditure variance and performance for the last three years

2001 2002 2003 Average

Currency in birr Currency in birr Currency in birr Currency in birr

Budgeted 218,863,600.0 101,257,500.0 143,670,820.0 154,597,307.0
expenditure 0 0 0 0

Actual
expenditure
235,672,541.4 202,658,710.3 129,785,676.7 189,438,976.0
0 0 0 0

Variance

170,089,41.40 106,401,210.3 138,851,43.30 457,650,98.30

0

Expenditure
plan
107% 200% 90% 123%
performanc
e

(Data, account payable team)

The above tables show that the three years budgeted amount of expenditure,
actual expenditure and its performance as well as parentage of usage for the
three years.

Chart 2. Variance related with the three years

 variance(000,000)

20
0
2001 2002 2003
-20
-40
variance(000,000)
-60
-80
-100
-120
-140
-160
-180

Thus the above shows that, in the year 2001 and 2002 the university
faced budget deficit which is the actual expenditure of the two years is more than
the two year budget, but in 2003 the university is in a good way in implementing
its budget.

3.4.2. FACTORS FOR THE VARIANCE

Planned expenditure is an estimate of expenditure for the budget year
and actual expenditure is the amount of expenditure expended in the budgeted
year. The deference between the budgeted expenditure and the actual
expenditure is called the variance. Therefore, there are many factors for the
variance of the budgeted and the actual expenditure, response on what is the
factor for the variance is summarized in the table below,

Table 3.15, factors for variance

Lack of experience Problem on Problem on

preparation implementation
respondent
s

frequenc percentag frequenc percentag frequenc percentag

y e y e y e

Agree 3 30% 5 50% 6 60%

Disagree 7 70% 4 40% 3 30%

I don’t 0 0% 1 10% 1 10%

known

total 10 100% 10 100% 10 100%

(Data collected by survey)

Table 3.15, indicates that,30% agree and 70% do not agree with lack of
expriance,50% of respondent’s agree and 40% of respondent’s disagree and 10%
are says I don’t know for a problem on preparation, 60% of respondents
agree ,30% do not agree and 10% are says I don’t know for the problem on
implementation.

3.4.3. IMPACT OF VARIANCE

 Variance is the deference between actual expenditure and budgeted
expenditure amount that have its own impact .this impact may be favorable or
unfavorable for the organization and these impacts are summarized in table.

Table 3.16, impact of variance

Description frequency Percentage

Do you agree that,

the variance is
favorable?

Yes 3 30%

No 7 70%

Total 10 100%

(Data through survey)

Table 3.15 shows that 30% of respondents agree and 70% of the respondent’s
don’t agree with the favorability of variance observed. Since the variance is not
favorable so, this will affect the performance of the budget of the university.

Table 3.17the last three years budget performance

 Description Frequency Percentage

Do you agree that the 100%

last three years
0%
budget performance
is good?

Yes 10 100%

No 0 0%

Total 10 100%

(Data through questioners)

Table 3.17, shows that 100% of respondent’s agree and no one (0%) is agreeing
with the three years budget performance.

Even if the figure above shows the budget of the two years are negative the
respondents are not agree with that figure according to their response. This may
affect the performance of the budget of the organization negatively.

3.5. PERFORMANCE REPORT

Objective is not effective unless there is continues flow of reports. These
report should be prepared at a regular interval to show comprised of actual with
that of budgeted, such reports shows favorable (fair) or unfavorable (unfair)
variance from budgeted figure.

Table 3.18, response on the treatment of variance

Description Frequency Percentage

 By correcting deferent
accounts at the end of
the year

Agree 10 100%

Disagree 0 0%

Total 10 100%

(Data through questioner)

The above table 3.18 shows that 100% of the respondents agree with and no one
(0%) of respondent’s disagreeing. adjustment made at the end of the years is seen
in its materiality of the gap of the usage level and its budgeted amount so the
organization adjust its activity at the end of the year, this implies the university is
good in this manner.

Table 3.19, what method is used to evaluate performance

Description Frequency Percentage

 At the end of the year
there is under and
over usage of budget

Agree 4 40%

Disagree 6 60%

Total 10 100%

(Data through questioners)

The above table 3.19 shows that 40% of respondent’s agree and 60% of
respondents are disagree.

This implies that there is gap between the usage level and the budgeted
amount ,so this also affect the university budget negatively.
 CHAPTER FOUR

4 .CONCLUSSION AND RECOMMENDATION

4.1 CONCLUSION

Budgets are a summary statement of expenditure, capital acquisition,

revenue and financial position of the organization.

It provides organization management to optimize those benefits obtaining from

current opportunity and provides a recognition yardstick for performance
evaluation.

Haramaya University is one of the oldest universities in the country. As the

interview conducted with the personal in account payable team indicates that the
organization has been preparing budget since it was established and started
education process. The preparation budget in the university was not well
organized and facilitated. This problem is also present in current operation of the
university ,this is due to lack of experience which is the data collected shows that
50% of the respondent are between 1-3 years of experience and when the
university prepare budget each department do not give due to attention with the
current situation. In the university budget are prepared by each division and
department then present for approval of the budgeted amount. As the data
collected through questioners indicate that 90% of the respondents are degree
holders, this show that on the budget preparation procedure the budget
preparation will increase its accuracy .In the university, the finance workers who
participated in the data 100% are qualified by accounting and this indicated that
the problem in the budget preparation and performance evaluation mechanism is
minimized .The budget preparation procedure are given responsibility for each
department and according to 60% the respondent the university properly
determined the responsibility of budget preparation and performance
evaluation ,The university budget approve is flexible budget approach, According
to 90% of respondent .this indicate the using of flexible budget is important for
performance evaluation. In the university computerized network is used, based on
100% of respondents Agreement. This shows that the information is efficiently and
effectively transferred from one division to other division and one department to
another department and outside stock holders of the university. Within the
organization is medial manner that is based on 50% of respondents replied about
university budget .the creation awareness within the organization is medium
manner that is based on 50% of respondents relied that the university create
awareness about budget. This will provide giving of responsibility of the worker
and they try to perform with in the budget .Accordingly to 70% respondent s the
university uses formal written document for budget preparation and performance
evaluation based on the data collected through questioner that 100% of
respondent respond that the budget is implemented to the planned goal. this
indicate that the budget implementation effectiveness provides for good
performance of the budget preparation and performance evaluation of the
university . problem encountered during budget preparation shows 60% of
respondent .This shows that this will be negatively affect the organization
performance on the budget and 100% of the six workers implied that the problem
for budget preparation .the worker estimate the budget based past year
performance .accordingly to expenditure plans performance indicate in
expenditure and performance table 107%and 200% and 90% for the years of
2001,2002,and 2003 respectively and this shows that the first two years 2001 and
2002 are in unfavorable budget performance but in 2003 it is favorable budget
performance.

The factor for variance is luck of experience, problem on preparation and problem
implementation. 70% of respondents replied that impact of variance is not
favorable and also the last three years budget performance is good according to
100% of respondent even if it contradict with the data collected from secondary
source showed by the above table.
 4.2. RECOMENDATION
Based on the data finding and collection made, the research suggest the following
recommendation.

In the budget preparation procedures the university budget it’s budget based
on the division and department requisition .this requisition create a problem
on the budget performance so, the university have to give continues training
for departments in order to aware of budget dynamism. In the university, the
budget approach used is flexible budget approach, but some time fixed budget
approach is advisable for governmental institution and adjusts for its variance
on the budget. The personal a warrens about budget has to improve in order to
use budget in appropriate manner. Only using of formal written document will
contribute noting, so the universities have to put it into practice in order to
prepare budget. In order to prove problems encountered during budget
preparation the department have to avoid estimate the budget based on past
data rather they have to anticipate adjusting to current situation and using
analytical procedure to prepare and evaluate budget. The organizations have
to consider experienced personnel in the budget preparation time as well as at
the time of its implementation. The university also has to consider or have to
give more attention for budget preparation and implementation mechanism,
since they are the main points which problems are started or raised and affect
the university performance of budget. Since the impact of the variance is not
favorable so the universities have to consider different scenarios in order to
achieve its favorability. On the performance report using annual performance
measurement will not contribute for good performance of the budget, so, the
university have to measure its performance of budget monthly and( or)
quarterly.