New Budget Questioned Based on Auditor’s Report

It was not business as usual when Abdulaziz Mohammed, minister of Finance & Economic Cooperation made his maiden budget address at the hearing of the budget bill in Parliament last week. As DAWIT ENDESHAW, FORTUNE STAFF WRITER reports, he was not let off the hook by the Members of the House, who demanded action for accountability issues.

Abdulaziz Mohammed, minister of Finance & Economic Cooperation, made his first budget speech since he took office from his predecessor, the long-service former finance minister, Sufian Ahmed. However, the budget debate immediately drifted back to the recently heard General Auditor’s report on inappropriate budget use by a number of public institutions. The new Minister came with an increase of 23pc from the big leap Sufian took last year. This year’s budget, presented to Parliament on the morning of June 7, 2016, was 274 billion Br.

After his speech, Abdulaziz was bombarded with questions on the causal connection and impact of audit reports in budget allocation.

Members of Parliament (MP) also recounted the Ministry’s failure to take measures against institutions that fail to use their budgets appropriately, as reported by the Auditor General. The Minister’s answer, a promise to focus on a preventive approach – training and supervision – was easily rebaffled by the MPs who seems to be driven by a “that’s it – enough”, stand.

“Our conversation has to go beyond principles and promises,” said Abebe Godedo, MP. “What we are asking for is specific measures – what have you done to reprimand the Universities and others?”

Regarding public universities, it was reported earlier in May, by the Auditor General, that the way a number of universities handle their budgets is seriously flawed. This has been the same line he has brought to Parliament’s attention for so long.

The report on the 2014/15 fiscal year identified a total of 6.3 billion Br in inappropriate losses from the public account. Public universities contributed to 31pc – 1.94 billion Br, of this total. Breaking it down further to specific universities, Haromaya University had the major share, causing a reduction of 0.7 billion Br, or 12pc of the total amount. For this budget year, the federal government has allocated 1.14 billion Br for both capital and recurrent expenditure to the university.

The Ethiopian Revenues & Customs Authority (ERCA) closely followed the universities, causing half a billion Br in reductions from the public account.

Last year, the total annual budget of the nation was 178.6 billion Br. Five years ago, the reduction was reported as 2.6 billion Br. This reduction was largely attributed to failures within budgetary institutions to collect accumulated revenues.

In line with this,3.3 billion Br in revenue was left uncollected – largely by offices, such as the ERCA, the Ministry of Education, and the Public Procurement & Property Disposal Service. This figure represents the highest sum in the trend of the past five years. In 2012/13, it was just 1.3 billion Br.

This is not to mention revenue that was found to be unrecorded in financial reports for 2014/2015. In this regard, 77 million Br in revenue was collected but not reported. Looking back at 2013/14, this indicates a 5.5pc increase.

The last category of revenue is that which offices reported they had collected, but for which they have no documentary evidence. Close to 135 million Br in revenue could not be backed by evidence.

Mesfin Cherinet (Amb.) MP, chairperson of the Standing Committee for Public Account Affairs, pointed out that over time the number of offices having unacceptable reports is increasing. In 2010/11, there were just 11 offices that came under this category; now, there are 37.

His position as Chairperson gives him the chance to hear the audit reports of all public offices. He acts on behalf of Parliament to oversee the way the budget is being utilised.

“The trend is becoming worse,” he told Fortune.

Sharing his comrades’ view, he posed the same question on the measures being taken, also enquiring whether this budget would consider all the findings of the audit report.

High on the agenda, the issue of public universities almost completely dominated the discussion points. Gemechu Dubiso, auditor general, suggested the establishment of a specific entity as a remedy for this persistent problem. This separate entity could be mandated to handle all the purchases and infrastructure demanded by the universities.

His Office’s report has usually come to public attention over the years. The history of the Auditor General’s Office can be traced back to the 1930’s, when Ethiopia’s Supreme Audit Institution (SAI) was established, and in 1944, when the office was re-formed as a Commission. It gained its current form in 1997, through proclamation 68/1997. It was later re-established as the Office of the Federal Auditor General (OFAG) in 2010.

In his interview with Fortune, Gemechu described the way these institutions received a budget, via a block grant, as ambiguous.

“Board members and administrators are not giving due attention to issues like handling their finances and managing their budgets,” he said, adding, “There has to be a new adjustment.”

For instance, when budgets are allocated for programmes, the money is being disbursed without a detailed assessment of how it is being allocated, and without stating specific targets and outcomes.

Over the years, these institutions have been getting billions of Birr allocated to social services. In 2013/14, out of 24.5 billion Br allocated to education, close to 22 billion Br went to the universities.

The same goes for the most recently tabled budget bill. The universities get around 34 billion Br, of the total 39 billion Br allocated to education.

“In relation to procurement, I don’t think the problem is happening because of not knowing the law, but rather it is due to negligence,” Gemechu stated.

Proclamation No. 650/2009 on Higher Education states that public institutions shall be funded by the federal government or states through a block grant system based on strategic plan agreements.

Most of the money spent violates the very legal framework that guides the procurement process and instances of spending beyond the budget were significant. In this regard also, universities played a big role.

Expenses, in this context, were arranged within the Auditor’s report in five categories, with universities coming in as the front runners.

Unnecessary expenditure took the lead. It is reported that institutions spent 868.4 million Br in unnecessary expenditure – a 147pc rise in comparison to the preceding fiscal year. Unsurprisingly, public universities were responsible for 96pc of that spending. Haromaya University alone unnecessarily spent 717.3 million Br of taxpayers’ money.

Over the past five years, however, the maximum sum recorded was 981.8 million Br in 2010/11. On the other hand, the lowest sum during the five-year period was 350.5 million Br.

The second aspect within these categories is money that was recorded as expenditure but for which there was lack of evidence. Within the era of the GTP I (2010/11-2014/15), there has been an annual average of 1.44 billion Br in undocumented expenses. Within these years, the maximum sum of 3.6 billion Br was recorded in 2011/12, while the lowest sum, 293.56 million Br, was recorded in 2012/13. In 2014/15, it reached 332.5 million Br, with 76.3pc of this total coming from public universities.

The aspect of completely unaccounted expenses is one that has emerged from not adhering to the terms of various proclamations and directives – more specifically, during the procurement process. This year, that category was reported as 607.45 million Br. Looking back, in 2012/13, the money involved was almost one third lower than current estimates. A record high over the past five years was registered as 1.01 billion Br. Half of the spending goes to universities.

The last case involves expenses that are unrecorded in the financial statements. Within this category, the maximum amount recorded was 107.9 million Br in 2013/14. This then declined by 84pc the following year, reaching 16.9 million Br – the lowest level since 2010/11.

These issues led to the overuse of budgets, with institutions, on average, spending 393.4 million Br beyond their budget on an annual basis. From 2011/12 up to 2014/2015, the reported trend is growing fast. Overspending which amounted to 212.4 million Br has now reached 746.1 million Br.

Explaining the trend, Gemechu said that there seems to be a common understanding that audit reports must be taken seriously. On the other extreme, the money involved and the gaps are becoming wider and more serious.

“For me, this is a complete paradox,” he said. “I have no guarantee that this will not happen again next year but the pushes from the government may somehow bring about a change,” he added.

In tabling the budget bill, Abdulaziz told the MPs that his Ministry is preparing a new legal framework designed to help hold institutions and their officials accountable. The proposed bill will have both administrative and legal penalties on to those that fail on their reports.

The new bill will also make the internal auditors of public institutions directly accountable to the Ministry to ensure their autonomy.

“It is just one solution, it does not stand alone,” Gemechu advised.

This will not only give the auditors more autonomy, but will ensure that their capacity will be upgraded. Moreover, the office under the Ministry, where internal auditors submit their reports, has to be strengthened. These offices should not just get the reports and sit on them; rather, they have to be active in following their activity.

Mesfin, the committee chairperson agreed.

“One of major emphases we have to give and discuss will be how to match up these findings to the budget we have for the coming fiscal year,” he told Fortune.

The budget bill will be presented to the MPs and standing committees for detailed discussions over the coming weeks.






Published on Jun 14,2016 [ Vol 17 ,No 841]



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