UNITY UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPAERTMENT OF ACCOUNTNG AND FNANCE
FEDERAL GOVERNMENT OF ETHIOPIA (FGE)
ACCOUNTING MANNUAL

03/08/2024 1
 CHAPTER ONE

Introduction to Federal Government of

Ethiopia Accounting and Financial
Management
Chapter objectives and Content

Historical overview FGE Accounting system

FGE Chart of accounts
FGE Budget Process
Fundamentals of FGE program budget
Budget ledger card
Basis of accounting
Legal Framework of FGE Financial Administration
 Introduction
Accounting provides critical information for good
financial administration system of organizations.

Government money is a public resource which the

government has to spend as per clear directives and
procedures. The accounting system has to control this
resource through a budget control.

The overall objective of this course is therefore to

capacitate students on understanding basic concepts and
principles of FGE accounting and reporting system, budget
preparation, financial reporting and control mechanisms.
 Historical overview of Federal Government
Accounting System

Single entry accounting has been employed by the

FGE till 2002 G.C•

It is a method of bookkeeping relying on a one sided

accounting entry to maintain financial information.
 Cont.....
The most significant problems associated with a
single entry system include :

Data may not be available to management for effectively

planning and controlling the business,

 inefficient administration and reduced control over the

affairs of the business

Assets are not tracked, so it is easier for them to be lost or

stolen.

It is impossible to obtain an audit opinion on the financial

results of a business using a single entry system,
 Cont....
It is much easier to make clerical errors in a single
entry system, as opposed to the double entry
system, where separate entries to different accounts
must match.

Liabilities are not tracked, so you need a separate

system for determining when they are due for
payment, and in what amounts.

There is much less information available upon

which to construct the financial position of a
business, so management may not be fully aware of
the performance of the business.
 Objective of the Reform
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.
 Cont...
Expand the current accounting system
•By changing the basis of accounting from cash basis
to a modified cash basis of accounting

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.
 Cont...
 The MoFED at federal level and BoFED at regional level
leaded the reform undertakings in the government
accounting and financial management.

 The FGE accounting system is prepared by ministry of

Finance and Economic Development and in the financial
law of Ethiopia, is applicable in all Public bodies (PB).

 Public Bodies(PB) are those government institutions which

have got legal mandates to receive their partial or full
budget from the government to discharge their
responsibilities.

 These Public Bodies are also required to submit their reports

to ministry of Finance and Economic Development at Federal
and Regional level (BOFED).
 Accounting Cycle
Source Documents

Payment Vouchers Receipt Vouchers Journal Vouchers

Book of Original Entry Transaction Register

Ledgers
General Ledger Budget Ledger/ Expenditure Subsidiary Ledger

Revenue Report
Transfer Report Trial Balance Expenditure Reports
Receivable Report
Payable Report Monthly Reports

Post Closing Trial balance

Summary Income and Expenditure Statements

Detailed Income and Expenditure Statements Financial Statements
Cash Flow Statement
Balance Sheet
03/08/2024 12
 Goals achieved by FGE Accounting System

1. Transaction Processing
2. Budget control
3. Cash control
 Single Pool and Single Treasury System at Zones and Weredas

The region is organized into different tiers of

governments that include jurisdiction zones and
weredas.

One feature of the single treasury system is the

single pool system.

The single pool system means that at all zones and

weredas the accounting staff is located only one
single location - the Finance Office.
 Cont.....
The accounting staff located at the Finance Office
maintains budget control, disburses payments, collects
revenue and maintains the books of accounts and produces
reports on behalf of all the sector offices at the zone or
wereda.

However, all expenditures are authorized by individual

sector offices but disbursed, accounted and reported on
behalf of the sector office by the single pool of accountants
located at the Finance Office.
 The single Treasury System

The single treasury system

Means that each zone and wereda finance office maintains
a single bank account to execute its capital and recurrent
budget where the source of financing is treasury. The
benefits of the single treasury system are as follows:
Improved cash management within the region by
reduction of bank accounts
Improved control over bank accounts by reducing
the operational time and effort required to manage
excessive bank accounts.
Reduction in costs of idle funds, borrowings and
bank charges.
 Zero Balance System at Federal Level

In 2004, the following key changes were made to

the disbursements process:

Zero balance drawing limit accounts were

introduced at the National Bank of Ethiopia for
Public Bodies located in Addis Ababa.
 FGE Chart of Accounts

• Temporary accounts are accounts that begin each

year with a zero balance.

• Permanent accounts are detailed account codes

whose balance at the end of a year becomes the
balance in the account at the beginning of the
next year.
 Chart of Temporary Accounts

Revenue, expenditure and cash transfers are

temporary account code categories. Account codes
in these categories:
 are always treated as temporary accounts, and
 begin each year with a zero balance.
 Cont....
Chart of Temporary Accounts
.
Items of domestic revenue using account codes
1000-1799,

External assistance using account codes 2000-

2999,

External loans using account codes 3000-3999,

Transfers using code numbers 4000 through
4099, and

Items of expenditure using account code 6000-
6999.
 Chart of Permanent Accounts

Assets, liabilities and net asset/equity are

permanent account code categories. Account codes
in these categories:
 are always treated as permanent accounts, and
 begin each year with the account balance as long
as they had at the end of the previous year. In
other words, these accounts are not closed.
 Cont......
Chart of Permanent Accounts

 Assets using code numbers 4100 through 4999.

 Liabilities using code numbers 5000 through

5499.

 Letters of Credit using code numbers 5500

through 5599.

 Net Assets/Equity using code numbers 5600

through 5699.
 FGE Budget process

Preparation of Revenue forecast & Allocate federal

macroeconomic & expenditure budget & regional
3yrs fiscal frame ceiling expenditures

Budget review by Budget call Allocation of

MoF & MoED &ceiling recurrent &
capital budgets

Budget haring and Review and Submit to council

defense recommendation of ministers

Allotment of Notification & Submit to council

budget publication of of people’s
budget representatives
 Fundamentals of FGE Program Budget
The name ‘program budget’ is derived from the simple
fact that the planning process is organized by program rather
than by department of fiscal input or output.

Program budgeting is generally described as a planning-

oriented procedure.
Its chief goal, to rationalize policy-making by providing
(a) data on the costs and benefits of alternative ways of
attaining proposed public objectives and
(b) output measurements to facilitate the effective attainment
of chosen objectives.
 Overview of IFMIS and IBEX

 The introduction of Integrated Financial Management

Systems (IFMIS) has become a core component of financial
reforms to promote efficiency, security of data
management and comprehensive financial reporting.

 IFMIS provide an integrated computerized financial

package to enhance the effectiveness and transparency of
public resource management by computerizing the budget
management and accounting system for a government.
 Cont.....

 It consists of several core sub-systems which plan, process

and report on the use of public resources.

 The scope and functionality of IFMIS can vary across

countries, but sub-systems normally include accounting,
budgeting, cash management, debt management and
related core treasury systems.

 Some countries have chosen to expand their IFMIS with

noncore sub-systems such as tax administration,
procurement management, asset management, human
resource and pay roll systems, pension and social security
systems.
 CONT......
Integrated Budget and Expenditure System (IBEX)
Introduced in 2006 G.C/1998 E.C

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 and Administration Module.

 Budget Ledger Card

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 of finance with
respect to:
-Approved budget.

- Amount remaining to be requested.

-Additions/reductions to the approved budget.
-Commitments.
- Balance in the revised budget that is not committed.
-Revised budget
- Payments received for budgeted expenditure.
Completion
 Cont.....

The budget ledger card is divided into two parts:

The top of the card contains information to identify

the
BI,
Type of budget, and
Item of expenditure.
Source of Finance

The table on the card contains detailed information

about each budget transaction.
 Accounting Rules for Debits and Credits

Account Category Used for Normal Increase Decrease

Modified Cash Basis Balance Recorded as Recorded as
Revenue Credit Credit Debit
Expenditure Debit Debit Credit
Cash and cash equivalents Debit Debit Credit
Receivables Debit Debit Credit
Payables Credit Credit Debit
Transfers Debit or Credit depending on transfer type
Net assets/equity Credit Credit Debit
 Basis of Accounting

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 is recognized when aid in kind is received.

•Interest on salary advances is recognized as revenue when
the salary advance is made.
 Cont...
•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
 Legal Framework of FGE Financial
Administration
Financial administration system and a general description of
the roles and responsibilities within the assumed
administrative structure at the federal government.
Ministry of Finance and Economic Development (MOFED)
Central Accounts Department (CAD)
Bureau of Finance and Economic Development (BOFED)
Department of Finance and Economic Development
(DOFED)
Office of Finance and Economic Development (OFED)
Public Body (PB)/Region Sector Bureau (RSB)
 Cont.....

Budgetary Institution (BI)

Accounting Unit
Reporting Unit
Cashier and Accountant
 Ministry of Finance and Economic Development (MOFED)

MOFED administers the financial system for the

federal government and has the highest level of
administrative authority. MOFED consists of a:

Budget Department- that prepares, consolidates

and notifies the approved federal budgets and
administers the budget.
Central Accounts Department-records transactions
that are authorized at MOFED.
 Cont....

Treasury Department- that receives cash flow

requests from Public Bodies and sets drawing limits
at the National Bank of Ethiopia.

Credit Administration Department that manages

the federal government’s external and domestic
borrowings and provides on-lending to public
enterprises.
 Public Body

Public Bodies are the next level of financial

administrative authority in the federal government
after MOFED. Public Bodies are the institutions
that are entitled to request and receive a budget.
 Budgetary Institution (BI)

The budget process begins with the appropriated

budget. The appropriated budget is the budget
approved by the Council of People’s Representatives
(CPR). The appropriated budget is broken down by:

 Recurrent and capital expenditure for the federal

government, and

 Subsidy for each regional government.

Any unit that receives an approved budget from a
PB's approved budget is called a Budgetary Institution
(BI).
 Accounting Unit

For cash management, another unit is created: the

bank account (BA). The BA does not receive a budget.
However, it is important for cash management and
control.

The FGE accounting system includes the BA in the

accounting structure.
 Cont.....
A PB may administer many BIs and BAs, or a PB may
have only one BI and one BA. Each BA is managed by
a chief accountant and:

May have many cashiers

Handles cash flows for one or more than one BI,
from one or more source of finance, and for more
than one type of budget (capital/recurrent).
 Cont....

An accounting unit is the unit that captures and

records transactions into the accounting system.
The accounting unit:
- Processes transactions. Maintains a general ledger.
- Maintains registers. Prepares monthly reports.
- Maintains subsidiary ledgers for:
Asset accounts.
Liability accounts.
 Cont...
Reporting Unit

A reporting unit is the unit that sends monthly

reports to MOFED. Although the accounting unit
prepares monthly reports, every accounting unit may
not send monthly reports directly to MOFED. The
reporting unit may be:

•The accounting unit, or

•A higher level of authority
 Cont....

Cashier and Accountant

The cashier’s function is to maintain and control

cash in the safe.

The accountant’s function is to maintain and

control cash at the bank and cash in safe.
End of Chapter 1