MZUMBE UNIVERSITY

SCHOOL OF BUSINESS (SOB)

NAME: NYEME PRINCE

REG.NO: 1201244/T.13

COURSE: BAF- BS 1

SUBJECT: GOVERNMENT ACCOUNTING

CODE: ACC 182

NATURE OF WORK: INDIVIDUAL ASSIGNMENT

LETURER: Mr. ROCKE ALEX MUHABE

DATE OF SUBMISSION: 01/09/2014

QNS:

“One of the important information produced by fund accounting is fund balance.” Discuss the
importance of this information in assessing the performance of local government authority.
TABLE OF CONTENTS

ITRODUCTION:

 Local government authority.

 Fund.
 Fund Accounting.
 Fund balance.

MAIN BODY:

 Reasons for negligible fund balance and its effect on the performance of local
government authority.
 Reasons for alarming fund balance and its effect on the performance of local
government authority.
 Importance of fund balance information.

CONCLUSION:

REFERENCES:
 ABSTRACT:

This assignment is about discussing the importance of fund balance in assessing the
performance of local government authorities. Whereby introduction part we are going to see
various key points from the assignment and having to know what they mean. These key
points include Local government authority, Fund, Fund accounting and fund balance. After
introduction then we will go direct to the main body. The main body will be divided into
three, first is the reasons for negligible fund balance and its effects on the performance of
local government authority, second reasons for alarming fund balance and its effects on the
performance of local government authority and third is the importance of fund balance. Then
lastly I will conclude by generalising and giving out suggestions concerning the fund balance
on assessing the performance of the local government authority.
 Local government authority; Is an administrative organ (sub-government) such as
city, municipality, town or district for a particular local area. Its main core function is service
provision in sectors/areas like education, health, water, feeder roads, extension services and
much more whereby all of which benefit the local community.

Fund; is “a fiscal and accounting entity with self-balancing set of accounts,

recording cash and other financial resources together with all related liabilities and residual
equities or balances and changes therein which are segregated for the purpose of carrying
on specific activities or attaining certain objectives in accordance with special regulations,
restrictions or limitations”(Jones& Pendlebury,1992)

“fund is an independent fiscal and accounting entity with a self-balancing set of

accounts recording cash and/or other resources together with all related liabilities,
obligation, reserves and equities which are segregated for the purpose of carrying on
specific activities or attaining certain objectives in accordance with special regulations,
restriction or limitations.”(Kerrigan, 1969, p.475)

Fund accounting; is the method of segregating resources into categories so as to

identify both there source of funds and the use of fund. This is such as specific fund for
construction of dam, whereby the source of its revenue is shown and estimated expenditure to
be incurred in its’ construction through the fund accounting.

Fund balance; It a carryover balance (unused fund) to the next financial year from
the previous financial year. Also it is the difference between the current assets and the current
liabilities in the general fund accounting equation. It’s also known as working capital in the
commercial operating business entity. Fund balance may be in two forms negligible or
alarming balance. Negligible is when the fund balance is zero or almost to zero when
compared with the executed budget on expenditure. While alarming balance is a huge amount
unused when compared with the executed budget on expenditure.
Reasons for negligible fund balance and its effect on the performance of local
government authority:

Full implementation of the goal set; whereby when the fund issued is used all or
nearly all on the project stated, then it implies that the objective set or goal concerning the
budget executed is achieved by the local government authority. By this it implies how well
the local government authority is performing in meeting the goal set by themselves and the
central government.

Quality and efficiency; whereby meeting the goal and using all executed budget does
not disclose, to whether the money was used efficiently or not by the local government
authority at the spot. This can be measured from the project itself by observing how it
operates, duration it’s going to exist and much more as time goes on. Example is construction
of roads, it hard to know if the actual budget executed was full used in the construction
efficiently. But this can be measured by observing how long the road will last without default
as time goes, then from there we can judge to whether money was used efficiently.

Reasons for alarming fund balance and its effect on the performance local government
authority:

Late release of fund by treasury: whereby when the treasury delays to release the fund
then this may affect the performance of the local government authority in its performance. By
this it may lead failure to meet its goal on time as stated or planned causing the fund account
end up with an alarming fund balance. They late release of fund by treasury maybe caused
by,

 Late approval of the national budget by the parliament; whereby this can be
observed in Tanzania from the last year National budget approval. Last year national
budget approval by the parliament took place from June to August while the financial
year starts on July. So by the time the financial year was starting the budget was still
in the process of approval thus affecting the performance of local government in
meeting it plans on time. But there has been an improvement, whereas from this year
2014 national budget is approved from April to June. By that the execution of budget
is done on July as the financial year start.
  Late release of fund by the donor as prescribed in the national budget; whereby
most of the development expenditure estimated in the national budget is expected to
be financed by the foreign aids and grants. When it happen some of the projects to be
covered by the local government authority fall in the promised foreign aids and
grants, and it happens the donors delay to provide those fund then it may lead to late
implementation of the projects. By this the year may end with a number of unfinished
projects causing alarming fund balance.

Late implementation by the local government authority; whereby the other reason for
obtaining alarming fund balance is the late implementation by the local government
authority. This is to say the local government authority may obtain the fund on time but fail
to implement it as required and on time. This can be because of the following,

 Weather condition; that is to say the local government may fail to implement the
projects planned on time due to weather condition. This maybe as follows, example if
it happens that the local government has planned to construct a road of 12 kilometres
that will take 12 months. Then it happens that the rain rains for about 5 months
nonstop. This will lead to the failure of the local government authority to achieve its
goals and therefore leading to alarming fund balance by the end of the year for the
unused fund on construction of road.
 Lack of common interest; whereby it may happen that the treasury has released
some fund for a certain project. But due to differences in interest among those who
are suppose to authorise the implementation of the project in the local government
authority level, then it may course late implementation of the project thus leading to
alarming fund balance. These differences in interest maybe due political interest,
example a fund maybe issued for improving roads destroyed by floods and other
things, now every person would want the fund to repair the road of his or her own
place of residence. So due to limited fund amount, reaching final decision which road
of which area to start with first may take time. By that it may lead to late
implementation thus causing the alarming fund balance.
 Ability of the Local Government Authority in raising their own revenue; whereby
sometimes the local government authority may have numerous sources of raising their own
revenue, leading it to achieve a positive fund balance having it current assets being much
compared to its current liabilities. This may happen to local government authority located
mostly in cities, where there are numerous of business activities taking place. Whereas the
local government may collect charges, fees, penalties and also engaging in various economic
activities such as house renting and running other business. By doing all this, the local
government authority may obtain positive fund balance. Achievement of this will indicate
how the local government is efficiently performing.

Importance of fund balance information:

Helps in evaluating the implementation of the executed fund on projects set;

whereby through the fund balance information, it helps the assessors to find out at what
extent was the project set achieved. Whereas if the whole fund was used in the
implementation of the project such as construction of Dam leading to negligible fund balance.
This at first sight it may show that the local government authority performed well. But when
a detailed trace is done on how the money was used it may happen that it was used
accordingly and no frauds. On the other side it may happen that the cost of constructing the
dam was less than the estimated expenditure, therefore the remaining amount of fund
disappeared on air.

Helps to measure the ability of the treasury in releasing fund on time; whereby
the earlier the treasury release the fund, the timely local government authority expenditure are
met. By that at the end of the year the general fund accounting ends up with negligible fund
balance. But if it happens the treasury release late the fund needed by the local government
authority for covering its estimated expenditure, then this may lead to late implementation by
the local government authority. This may result to alarming fund balance at the end of the
financial year

Helps to measure the ability of the local government authority in raising their
own revenue; whereby when it happen that the local government authority has numerous
ways of raising its own revenues and it perform the collection work efficiently, this may lead
to positive fund balance. This is because of the excess of current assets over current liabilities
in the general fund accounting. This may happen to the local government authorities that are
mostly situated in Cities and Towns, where there are numerous sources of revenue.

Conclusion:

Fund balance at first site when the information is observed by any one, it may not
reveal the rational truth. Such as when it happens that there is alarming amount. This may
imply that the local government authority is inefficiently in its performance. But if you go
further in tracing the reason for the alarming fund balance, you will find out other reasons
that were externally caused and not caused by the local government authority. This is maybe
because of late implementation due to weather condition. So when assessing the performance
of local government authority basing on the fund balance, it’s better to go further deep and
find out the reasons to why is so. By doing so it will help to make right and rational decision
concerning how the local government is performing.
REFERENCES:

Kerrigan, Harry.D (1969) Fund Accounting, McGraw-Hill, New York, USA.

Jones, R& Pendlebury, M.(1992) Public Sector Accounting, 3rd edition, Pitman, London