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Chapter 6

Financial Administration in FGE Accounting System

The financial administration in FGE mainly involves Ministry of Finance and Economic Development
(MOFED) and Regional Finance and planning offices and a Public Body.
Figure 6.1
Structure of Financial Administration in the Budget Process
Ministry of Finance and Economic Development

Public Body

Budgetary Institution:
Project or Sub-Agency

Budgetary Institution:
Sub-Project or Sub-Sub-Agency

Figure 6.2: Structure of financial administration within public Body


Head of public Body

Head of Administration and Finance

Head of Budget
and Accounts General Services
and Administration

Budget Section
Accounts section

Accountant Cashier

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The following are responsibilities of MOFED, Budgetary Institutions, Accounting unit, Reporting Entity,
Cashier and Accountant in the financial administration in the Budget process and within the Public Body

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 and distributes notification of approved federal budgets and
administers the budget.
 Central Accounts Department that receives monthly reports and compiles financial statements
for the federal government.
 Central Treasury Department that receives and distributes cash from central treasury.
 Credit and Investment Department that manages the federal government's investments and
debt.
This is not a complete description of MOFED or its departments. This is description of their roles and
responsibilities within the accounting system.

Budgetary Institution (BI)


Budgetary Institutions are defined as those institutions that are fully or partially financed by Government.
The budget process assumes the appropriation of budgets. 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

The federal government's portion of the appropriated budget is assigned to projects and sub-agencies
within PBs and broken down by sources of funding (domestic, assistance and loan). This is called the
approved budget. The approved and appropriated budget is published in the Negarit Gazeta.

A PB's entire approved budget is assigned to projects and sub-agencies under its immediate administrative
control. The budget of a PB is the total budget of its projects and sub-agencies.

A project or sub-agency may allocate any portion of its approved budget to sub-projects or sub-sub-
agencies. The budget of a sub-project or sub-sub-agency is called an allocated budget. A sub-project or
sub-sub-agency for which a budget is allocated is always at a different location from the project or sub-
agency. A notification of any allocation is sent to MOFED.

Projects, sub-agencies, sub-projects, and sub-sub-agencies are defined and coded in the chart of accounts.
Any entity that receives an approved or allocated budget from a PB's approved budget is called a
Budgetary Institution (BI). Generally:
 PBs are ministries, authorities, and commissions.
 BIs are projects, sub-agencies, sub-projects, and sub-sub-agencies.
 BIs are administered by PBs.
 The entire approved budget of a PB is assigned to BIs.

Figure 6.1 shows the structure of financial administration in the budget process. There are exceptions to
these generalities, but the majority of government is organized in this manner. The focus of budgetary
control is on the BI. PB's budgetary compliance can be computed by consolidating reports from all BIs
included in its approved budget.

Accounting Unit
For cash management, another entity is created: the Bank Account (BA). The BA is not coded in the
chart of accounts and does not receive a budget. However, it is important for cash Management and
control. The FGE accounting system includes the BA in the accounting system.

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A PB may administer many BIs and many BAs, or a PB may have only one BI and one BA. Each BA:
 Is managed by an accountant.
 May:
 Have its own cashier,
 Share a cashier with other BAs, or
 Have no cashier associated with it (like foreign currency bank accounts)
 Handles cash flows:
 For one or more than one BI, and
 From one source of financing (domestic, assistance or loan).
 For more than one type of budget (capital/recurrent).
Figure
An accounting unit is the unit that initially captures and2.2
records transactions into the accounting system.
Structure
If a BA handles cash for onlyof
oneFinancial
BI(BI/BA),Administration within a Public Body
the accounting unit:
 Processes transactions for the BI/BA,
 Maintains registers for the BI/BA,
 Maintains a general ledger for the BI/BA.
 Maintains subsidiary ledgers for:
 Asset accounts.
 Liability accounts.
 Letters of credit.
 Prepares a monthly report for the BI/BA.

A complete set of accounts and general ledger is maintained for each BI by bank accounts, because each
source of funding is budgeted distinctly, and the cash from each source is physically separated in distinct
bank accounts.

Each month, a monthly report is prepared from the general ledger for the Bank Account (BA). Cash
ledger cards in the general ledger control the cash balances in the bank and in the safe. If more than one
BI shares a single BA, the accounting unit:
 Processes transactions for all BIs.
 Maintains a register for the BA.
 Maintains a general ledger for the BA.
 Maintains subsidiary ledgers for:
 Items of expenditures by BI and by type of budget.
 Asset accounts.
 Liability accounts.
 Prepares a monthly expenditure report for each BI.
 Prepares a consolidated monthly Trial Balance for the BA.

One general ledger is maintained for the BA. The only records maintained for each BI are accounts in
subsidiary ledgers for items of expenditure. Monthly, the subsidiary ledger information is used to prepare
an expenditure report for each BI. These reports are consolidated with information from the general
ledger into a monthly report for the BA.

The balances of cash in safe and cash in bank are maintained in ledger cards of general ledger for the BA.

Reporting Entity
A reporting entity is the entity 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 entity may be the accounting unit or a higher level of authority (perhaps a PB).

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Each of the following may apply to a reporting entity:
 A reporting entity may be an accounting unit, and an accounting unit may consist of only one
BI. Therefore, a single BI may be a reporting entity.
 A reporting entity may be a PB that receives the monthly reports from several accounting
units.

Whoever sends the reports to MOFED is the reporting entity. Therefore, the reporting entity is not,
necessarily, an accounting unit.

Cashier and Accountant


In the FGE accounting system of cash control, the cashier's function and the accountant's function are
distinct. Cash consists of currency and checks. 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.

Only the cashier can receive currency and checks and make disbursements in currency. Daily, the cashier
should count cash on hand and reconcile ending cash on hand to the cash book.

The cash in safe is controlled by an Imprest system. When cash is received as per the budget or other
sources, the cashier will:
 Issue a cash receipt,
 Segregate the cash received from cash available to disburse,
 Deposit the cash received intact in the bank as soon as practical, usually daily, and
 Surrender copies of all cash receipts and a copy of the bank deposit slip to the
accountant.

In the imprest system, a balance is established for cash in safe. The accountant issues this amount of cash
to the cashier using a check. When cash is disbursed to establish the Imprest Fund, the cashier will issue
a receipt voucher. If the amount of cash in safe is to be replenished, the cashier will surrender all
payment vouchers to the accountant. The accountant will replenish the cash in safe by issuing a check to
the cashier for the total amount of the payment vouchers that are surrendered. The replenishment should
return the balance of cash in safe to the established level.

The accountant's responsibility for cash is to maintain a record of the total cash position of the entity,
including cash at the bank and cash in the safe. The accountant records cash movements that flow
through the cashier and cash movements that flow directly through the bank. Direct cash movements
through the bank normally include bank transfers and charges, checks written, and any other transactions
that do not require cash handling by the cashier.

When a PB has more than one cashier, one cashier is designated as the main cashier. The other cashiers
are designated as assistant cashiers. Each PB is responsible for organizing assistant and main cashiers.
However, some general principles apply.

Assistant cashiers are responsible for:


 Collection of Cash
 Issuing deposit and/or receipt vouchers
 Making deposits at Bank
The main cashier is responsible for:
 Reconciling cash and vouchers for each assistant cashier
 Depositing cash in the bank
 Disbursing cash for the proper functioning of the PB
 Managing the petty cash
To accomplish these responsibilities, most PB s with multiple cashiers are organized as follows:

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Each assistant cashier:
 Collects revenue and issues receipt vouchers
 May summarize receipt vouchers on Model 16
 Sends a copy of receipt Vouchers and Model 16 to accounts
 Sends cash to main cashier
 Receives Model 64 as receipt from main cashier
The main cashier:
 Collects cash from cashiers
 Verifies cash with accounts
 Verifies the amount on receipt vouchers equals cash received
 Verifies amount for each revenue account
 Completes Model 64
 Gives the copy of Model 64 with the deposit slip to accounts
 Gives a copy of Model 64 to assistant cashiers
 Deposits cash in bank
 Attaches the deposit slip to Model 64
 Gives the copy of Model 64 with the deposit slip to accounts
The accountant:
 Receives receipt vouchers and Model 16 from assistant cashiers
 Verifies accounts and amounts on receipt vouchers
 Dispatch the documents to the main cashier
 Receives Model 64 with deposit slip attached from main cashier
 Records Model 64 in the transaction register and ledgers

Public Bodies with Branch Bank Accounts


Some PB s establishes operations or branches in more than one location, and opens a bank account at
each branch. These branch bank accounts do not receive or send transfers directly to MOFED.

The public Body uses Branch bank accounts for operations within the Public Body. They are blocked at
the end of the year. Some public Bodies maintain other types of bank accounts for special purposes, such
as deposits. These are not blocked at the end of the year and are not considered branch bank accounts.
Depending on the capacity of the PB, accounting for the branch bank account can be handled in one of
the two ways:
 If there is sufficient capacity, each branch bank account can be treated as an accounting unit.
 If there is no sufficient capacity, each branch bank account can be treated as a safe.

Branch Bank Account treated as Accounting Unit


If the branch bank account is treated as an accounting unit:
 A general ledger is established for the branch bank account
 Cash movements between the main bank account of the PB and the branch bank
account are recorded as transfers,
 Subsidiary ledgers are established for each BI receiving funds from the branch
bank account, and
 A monthly report is prepared and sent to the accounting unit of the PB's main bank
account

The accounting unit of the PB's main bank account consolidates the monthly report from the branch bank
account with the monthly report of the main bank account. The consolidated monthly report is sent to
MOFED. This process is shown in Figure 2.3.

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Figure 6.3
Branch Bank Account Treated as Accounting Unit

 This is an Accounting Unit


 A general ledger is maintained
 Subsidiary ledgers are maintained for each BI using this account
 Transfers are recorded for funds sent to other bank accounts
 A subsidiary ledger is maintained for the transfer account
 Monthly reports are received from other bank accounts
 Monthly reports are combined into one monthly report for MOFED

Cash is transferred Monthly report is sent

Branch Bank Account


 This is an Accounting Unit
 A general ledger is maintained
 Subsidiary ledgers are maintained for each BI using this account
 Transfers are recorded for funds received from PB bank account
 Monthly report is prepared sent to main bank accounts accounting unit

Branch Bank Account treated as a Safe


If the branch bank account is treated as a safe:
 A cash book is maintained for the branch bank account, and
 Receipt and payment vouchers are given to the main bank account's accounting unit.
The accounting unit of the PB's main bank account does the following:
 Cash movements between the main bank account of the PB and the branch bank
account are recorded as advances, and
 Receipt and payment vouchers received from the branch bank account are recorded
in general and subsidiary ledgers.
The Process is shown in Figure 2.4 below.
Figure 6.4: Branch Bank Account Treated as Safe

PB Main Bank Account


 This is an Accounting Unit
 A General Ledger is maintained
 Subsidiary Ledgers are maintained for all BI under this PB

Cash is Sent Vouchers are sent

Branch Bank Account


 A Cashbook is maintained
 Receipt and payment vouchers are sent to the main bank account's
BAU
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