ET Oromia Oct10 PFMPR SN Public 1

Federal Government of Ethiopia
Ministry of Finance and Economic

Development
OROMIA REGIONAL GOVERNMENT PEFA

ASSESSMENT REPORT
FWC Beneficiaries 2009 – Europe Aid/127054/C/SER/Multi

LOT No 11 – PEFA Ethiopia
October 17, 2010 (Final)
Programme financed by the European Commission Project implemented by
IDC - SAFEGE Group

Subsidiary of SUEZ
ENVIRONMENT
And
LINPICO (France)
Oromia Regional Government – PEFA Assessment
This report does not necessarily reflect the views of the EU, IDC, LINPICO or the views of
the PEFA Secretariat in Washington DC.
Page i
Table of contents
Abbreviations and Acronyms iv
SUMMARY ASSESSMENT 1
(i) Integrated Assessment of PFM Performance 1
(ii) Prospects for reform planning and implementation 4
1. Introduction 6
1.1. Objective 6
1.2. Process of preparing the report 6
1.3. Scope of the Assessment 7
2. Oromia Region Background Information 9

2.1. General Information 9
2.2 Description of Budgetary Outcomes 10
2.3. Legal and Institutional Framework for PFM 11
3. Assessment of the PFM Systems, Processes and Institutions 14

3.1. Introduction 14
3.2. Budget Credibility 14
3.3. Comprehensiveness and transparency 21
3.4. Policy based budgeting 35
2007 Regional PEFA Assessment 39
3.5. Predictability and control in budget execution 39
3.6 Accounting, recording and reporting 61
3.7. External oversight and legislative scrutiny 68
3.9. Predictability of Transfers from Federal Government 79
4. Government reform process 80

4.1 Recent and on-going reforms 80
4.2 Institutional factors supporting reform planning and implementation 80
Annex A: Calculation of Performance Indicator Two on Budget Variance 81
ANNEX B: Donor Loans and Assistance Template 85
Annex C: List of People Met 86
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CURRENCY AND EXCHANGE RATES

Currency unit = Ethiopian Birr (ETB)
th
€ 1 = ETB 22.59 (As of September 30 , 2010)
th
US$ 1 = ETB 16.39 (As of September 30 , 2010)
Government Fiscal Year (FY): July 8 – July 7
Ethiopian Fiscal Year (EFY) Gregorian (European year Equivalent)
1999 2006/2007
2000 2007/2008
2001 2008/2009
2002 2009/2010
2003 2010/2011
Page iii
Abbreviations and Acronyms

ORG Oromia Regional Government
ONRS Oromia National Regional State
BOFED Bureau of Finance and Economic Development
BPR Business Process Re-engineering
COA Chart of Accounts
CTA Central Treasury Account
CBE Commercial Bank of Ethiopia
CHT Compliance Handling Team
ETB Ethiopian Birr
EMCP Expenditure Management and Control Programme
FAPMD Financial Administration and Property Department
FINNIDA Finnish International Development Agency
GF Global Fund
IBEX Integrated Budget and Expenditure System
IAD Internal Audit Department
JBAR Joint Budget and Aid Review
MOFED Ministry of Finance and Economic Development
NBE National Bank of Ethiopia
ORAG Office of Regional Auditor General
PEFA Public Expenditure and Financial Accountability
PFM Public Finance Management
PBS Protection of Basic Services
PI Performance Indicator
PSCAP Public Sector Capacity Building Programme
SIDA Swedish International Development Agency
TSA Treasury Single Account
VAT Value-Added Tax
TOFED Town Office of Finance and Economic Development
WOFED Woreda Office of Finance and Economic Development
ZOFED Zonal Administration Office of Finance and Economic Development
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Oromia Regional Government– PEFA Assessment
SUMMARY ASSESSMENT
(i) Integrated Assessment of PFM Performance
This sub-section summarizes Chapter 3 in terms of the six core dimensions of PFM
performance and donor practices. The “Credibility of the Budget” core dimension
represents the “outcome” core dimension, reflecting the influences of the other five core
dimensions plus donor practices (as indicated in the flow chart in page 4 of the PEFA
Framework document). The indicator-by-indicator scores are reproduced in the
summary table at the end of this section. As measured under Performance Indicators
(PIs) 1-4, the budget appears to lack predictability and therefore credibility, with PI-2
scoring D. Even though the budget preparation process appears sound (PI-11), there are
significant deviations between actual and budgeted expenditures (according to the
approved budget) for many of the public bodies. A large salary contingency may be
overstating the situation, however (allocation of this to public bodies during the year has
little or no bearing on the quality of service delivery.
Strong positive factors in principle supporting budget credibility and predictability

are:
The Expenditure Management and Control Programme (EMCP), under which PFM
reforms have been designed and implemented over the last several years, focused on
putting in place the basic nuts and bolts of a well-functioning PFM system:
• Strengthened budget preparation, execution, revenue administration, cash

management, recording, reporting and accounting systems: PIs 11, 13-17, 19,
22-25.
• Tight internal control systems (PIs 18 and 20), preventing the emergence of
domestic payments arrears. Such arrears can erode credibility of the budget as
the unpaid bills eventually have to be paid off at the possible expense of service
delivery programmes. The emerging internal audit function (PI-21) is beginning
to play an effective oversight role in relation to internal control systems. (Given
human resource capacity constraints, as highlighted in a recent assessment of
EMCP, it is understandable that managers in line ministries perhaps have
accorded higher priority to strengthening the basic components of the PFM
system, as listed above, than to developing the internal audit function).
• Strengthening external audit function (PI-26)
Remaining Challenges.
A number of challenges, many of which are already being addressed, would help to
further strengthen the credibility and predictability of the budget. The basic “nuts and
bolts” of the PFM system are already in place, or close to being in place, as described in
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the previous paragraph, are helping to enable the addressing of the remaining
challenges:
(i) Strengthening Comprehensiveness, and transparency of the budget
• Including the elements under PI-6 (Comprehensiveness of information included

in budget documentation) that are not presently included in budget
documentation (e.g. macro-fiscal framework, historical and revised current year
revenue and expenditure figures, stock of financial assets, explanation of budget
implications of new policies). More comprehensive and analytical budget
documentation submitted to the Economics Committee in the Regional Council
would strengthen the Committee’s ability to determine the extent that proposed
budgets are consistent with public policy objectives and priorities. The Regional
Council (represented by the Budget and Finance Committee) is presented with
the draft budget proclamation consisting mainly of tables of disaggregated
estimates of revenue and expenditures for the coming fiscal year, with no
historical context provided and no explanation of how they were arrived at (PI-
27).
• Further increasing the proportion of donor-funded projects and programmes

funded through Channel 1 modalities and, within Channel 1, increasing the
proportion using the government’s budget classification system and other
elements of SNNPRG PFM’s system (budget execution mechanisms –
including procurement -- accounting and reporting, and external audit). While
donor project and programme funding is increasingly being integrated into the
budget preparation process (through increasing use of the Channel 1 funding
modality relative to the Channel 2 and 3 funding modalities), nevertheless, a
significant amount of public services appears to be funded outside the scrutiny
of the budget preparation process and is not being transparently reported on
(e.g. Global Fund, one of the largest sources of extra-budgetary funding) and
accounted for: PIs 7, D2 and D3.
• Further improving the comprehensiveness and transparency of information

provided to the public (i.e. meeting the currently unmet benchmarks listed
under PI-10, particularly the budget documentation submitted to the Regional
Council, timely provision of in-year budget execution reports and publication of
contract awards, audited financial statements and the audit reports on budget
entities). While comprehensiveness and transparency of information provided to
the public is strengthening, the ability of the public to demand accountability
from the government in the allocation of budgetary resources is still limited.
• Strengthening the transparency of the procurement system (PI-19): Systems

appear not to be sufficiently in place for the recording of, and reporting on,
contracts awarded according to the type of procurement method, and the
justifications for using restrictive competitive procurement methods instead of
open competitive bidding. Transparency of budget execution is diminished as a
result and the public and legislature are not assured that inputs are being
procured in the most cost-effective manner.
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(ii) Strengthening External Scrutiny:
Strong demand by the legislature for accountability supported by an effective

external audit function can help to induce a strengthened supply of accountability by
the executive branch of government (through submission of draft budgets that are
clearly consistent with public policy objectives and priorities and through more
accurate, comprehensive and timely budget performance reports and annual
financial statements. -- PIs 24-25):
• The quality of budget documentation currently submitted to the Budget and

Finance Committee in the Regional Council (PI-6) could be further
strengthened in order to support meaningful debate on the draft budget. At
present, the documentation is mainly a list of revenue and expenditure
estimates. Another challenge is to allow more time for legislative debate on
the draft budget proclamation; the time currently allowed is far less than the
one month that is supposed to be provided. More comprehensive and
analytical budget documentation submitted to the BFC, and more time to
review the draft budget would go some way towards the approval of an
annual budget to which the actual expenditure outturn bears a greater
resemblance. (PI-27).
• As provided for by legislation, the BFC has an official ex-ante role in

assessing draft supplementary budgets (leading to further reallocations and
an increase in total expenditure), but in practice this is an ex-post role
undermining the fundamental role of the legislature to approve proposed
appropriations before the money is spent (PI-27).
• The quality of the legislative scrutiny of external audit reports (PI-28)

appears to have diminished in recent years, as indicated by the relatively
low scores for the extent of hearings on key findings of audit reports and the
extent that recommendations on corrective actions are issued to the
executive branch of government and implemented. Strengthening the ability
of the Regional Council to demand accountability for the efficient use of
public funds would have a beneficial influence on the credibility of the
budget. The recent establishment of a Public Accounts Committee
(separating the function from the Budget and Finance Committee) is a
positive step forwards.
(iii) Strengthening the medium-term perspective to the budgeting process:
While costed strategic plans have been prepared, the linkages to the annual budget are
limited. Preparation of forward spending estimates that could help inform the rational
setting of annual budget ceilings is still in its early stages. Forward spending estimates -
- perhaps in a programme budgeting framework that currently is being prepared by
MOFED -- would support more accurate budgeting for the provision of public services
under existing policies, provide a basis for introducing new policies consistent with
fiscally realistic costed strategic plans, and strengthen linkages between proposed
capital expenditure and the future recurrent costs associated with this: (PI-12).
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(ii) Prospects for reform planning and implementation
The PFM reform process has been underway for several years, through the Expendiure
Management Control Programme and the Public Sector Capacity Building Programme.
The emphasis has been on getting the basics of PFM right in terms of the mechanics of
budget preparation, revenue administration, budget execution, internal controls, cash
management and accounting and reporting. These mechanics are now more or less in
place, thereby facilitating the addressing of the remaining challenges, as recognized by
the Government. These include – as elaborated on above -- the strengthening of the
linkages between public expenditure and policy objectives and the strengthening of
transparency and accountability.
Summary of Performance Indicator Ratings
Note: Shaded areas represent M2 scoring methodology Overall I ii iii Iv
A. Credibility of the Budget
PI-1 Aggregate expenditure out-turn compared to original
B B
approved budget M1
PI-2 Composition of expenditure out-turn compared to original
D D
approved budget M1
PI-3 Aggregate revenue out-turn compared to original approved
A A
budget M1
PI-4 Stock and monitoring of expenditure payment arrears M1 B+ A B
B. Comprehensiveness and Transparency
PI-5 Classification of the budget M1 B B
PI-6 Comprehensiveness of information included in budget
D D
documentation M1
PI-7 Extent of unreported government operations M1 D+ D B
PI-8 Transparency of inter-governmental fiscal relations: M2 B+ B B A
PI-9 Oversight of aggregate fiscal risk from other public sector
A A A
entities M1
PI-
Public Access to key fiscal information M1 C C
10
C ( i) Policy-Based Budgeting
PI- Orderliness and participation in the annual budget process
B+ A A C
11 M2
PI- Multi-year perspective in fiscal planning, expenditure policy
D+ D NA C C
12 and budgeting M2
C ( ii) Predictability and Control in Budget Execution
PI-
Transparency of taxpayer obligations and liabilities M2 A▲ A B▲ A
13
PI- Effectiveness of measures for taxpayer registration and tax
B▲ B B▲ C▲
14 assessment M2
PI-
Effectiveness in collection of tax payment M1 C+ AS C B
15
PI- Predictability in the availability of funds for commitment of
C+ B A C
16 expenditures M1
PI- Recording and management of cash balances, debt and
B NA B NA
17 guarantees M2
PI- Effectiveness of payroll controls M1 B+ B A A B
18
PI- Competition, value for money and controls in procurement
C D C B
19
PI- Effectiveness of internal controls for non-salary expenditure
B B B B
20 M1
PI-
Effectiveness of internal audit M1 C+ C A C
21
C ( iii) Accounting, Recording and Reporting
PI-
Timeliness and regularity of accounts reconciliation M2 B+ B A
22
PI- Availability of information on resources received by service
C▲ C▲
23 delivery units M1
PI-
Quality and timeliness of in-year budget reports M1 C+▲ C▲ A B▲
24
PI- Quality and timeliness of annual financial statements M1 C+ B B C
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Note: Shaded areas represent M2 scoring methodology Overall I ii iii Iv

25
C ( iv) External Scrutiny and Audit
PI-
Scope, nature and follow-up of external audit M1 C+ C A C
26
PI- C C D D
Legislative scrutiny of the annual budget law M1 D+
27
PI- A C▲ C▲
Legislative scrutiny of external audit reports M1 C+▲
28
D. Donor Practices
D-1 Predictability of Direct Budget Support M1 NA NA NA
D-2 Financial info provided by donors for budget, reporting on
D+ C D
project, programme aid M1
D-3 Proportion of aid that is managed by use of national
D D
procedures M1
HLG
Predictability of transfers from Federal Government to ORG A A
-1
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1. Introduction
1.1. Objective
As stated in the terms of reference (TOR) issued by the EU, the objective of the PEFA
assessments is to gauge the quality of PFM at federal and sub-national level in Ethiopia.
As noted in the TOR “Aside from providing donors with an assessment of Ethiopia’s
PFM, it is intended that the information/analysis included in this PEFA will be of value
to the GoE in its own ongoing efforts to reform and improve the quality of its financial
management systems”. Oromia Region is one of the sub-national governments selected
for the study. The Ethiopian Government agreed to carry out the assessment in 2010 as
part of the dated covenants for the next phase of the donor-supported Protection of
Basic Services (PBS) project. A PEFA assessment of PFM performance in Oromia was
also conducted in 2007, so another purpose of the 2010 assessment is to track progress
in PFM system performance since 2007.
1.2. Process of preparing the report
A consultancy team of four was contracted to conduct PEFA assessments of the Federal
Government, Addis Ababa City Government, and five regions, including Oromia. Two
of the consultants (Peter Fairman, international consultant and team leader, and
Getachew Gebre, local consultant) conductedthe Oromia regional assessment (also
Amhara and Southern Nations and Nationalities Peoples’ Region). The team visited
Oromia Region during 3-5 March, 18 March, 22 March and intermittently during the
week of 12-16 April (when Peter Fairman made a second visit to Ethiopia in relation to
the JBAR conference being held that week). The main contact point was the Bureau of
Finance and Economic Development (BOFED) and most of the meetings were held
there. The team also met the Office of Regional Auditor General, the Revenue
Authority, the Bureau of Education and the Regional Council.
The first draft of the report was submitted to the EU on 26 April, 2010. Some
information gaps remained, and these were mainly filled during the JBAR conference.
A second draft was submitted to EU on 8 July, 2010, along with the second drafts of the
reports of the other regions covered by the PEFA exercise and the integrated regional
government report that the team leader prepared during June. Detailed comments on the
Oromia report were provided by the World Bank on 6 September (the Bank and African
Development Bank also provided some general comments on all the reports in early
August), and by the Oromia Regional Government and PEFA Secretariat on 13
September.
The team leader visited Addis Ababa during September 15-17 in order to take part in a
2 day workshop organized by the federal government Ministry of Finance and
Economic Development (MOFED) to discuss the federal, Addis Ababa city and the five
regional government assessments. He made a presentation, summarizing the main
findings of the regional government assessments. During the workshop he met with
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regional government representatives to discuss their comments and fill in remaining

information gaps.
1.3. Scope of the Assessment
The assessment covers the regional bureaus in the Oromia Regional Government, as
well as the Office of the Regional Auditor General (ORAG) and the Oromia Regional
Council. A later study will assess the PFM systems in the woreda governments.
Regional bureau expenditure comprises about 40 percent of consolidated regional
bureau and woreda government (abbreviated as Oromia National Regional State –
ONRS) expenditure. Under some of the indicators it is not possible to separate out ORG
expenditure from ONRS expenditure: PI-5, PI-25 and PI-26. Furthermore, in relation to
donor-financed operations, it is not always easy to distinguish donor spending at
regional bureau level from spending at woreda government level.
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2. Oromia Region Background Information

2.1. General Information 1
Oromia is the largest and most populous regional state in the country. It has a land area of
359,620 square kilometers, straddling the middle of the country, and has a very varied
topography (high mountains, valleys, rolling plains and lowlands, including part of the Rift
Valley). Reflecting its geographical diversity, rainfall varies considerably from 400 mm a
year in the south to 2,400 mm a year in the Western Highlands. Fifty percent of the country is
at least 1,500 metres above sea level, the variety of heights also causing a wide range of
temperatures around the region (reflected in tropical, sub-tropical and temperate zones).
Oromia shares borders with most of the other regional states (except Tigray and Harari) and
with Kenya and Sudan. Based on the 2003/04 Population and Housing Census, the population
of the region was estimated at 28,098,000 in 2004, accounting for over 35 percent of the
population of the country. The urban population is estimated at 12.8 percent of the population.
Oromia’s economy is based on agriculture (mainly rain-fed, subsistence), accounting for 69

percent of Oromia’s GDP and employing 89 percent of the labour force. Oromia accounts for
a large proportion of Ethiopia’s agricultural exports: coffee, hides and skins, pulses and oil
seeds. Increases in agricultural output and productivity are constrained by several factors,
including traditional farming methods and rapid population growth, which is causing
fragmentation and reduction of farm sizes and contributing to natural resource degradation.
Development of irrigation systems is a high priority of the Oromia government. Oromia also
has significant water (lakes, rivers, energy, mineral, wildlife and historical and cultural
resources. Oromia accounts for nearly 100 percent of Ethiopia’s hydro power generation and
has considerable potential for further hydro developments. Once large forest resources are
being rapidly depleted.
The Oromia Regional Government (ORG) is geographically divided into 17 zonal
administrations, which function as deconcentrated agencies of the regional bureaus (Bureau of
Finance and Economic Development – BOFED – and the sector bureaus) headquartered in
Addis Ababa. Within the geographical area of each zone administration fall several woreda
governments and urban administrations, which, under Ethiopia’s decentralized system of
government, have their own governing councils. The zonal administrations in effect act as an
intermediary (for example, for the channeling of budget performance reports) between the
woreda governments and the ORG bureaus. Altogether there are 301 woreda governments
(262 rural, 39 urban).
The structure of government is similar at all the different levels of government. The regional
equivalent of the federal Ministry of Finance and Economic Development (MOFED) is the
BOFED, located in Addis Ababa. The zonal administration equivalents are known as offices
(ZOFEDs). Similarly, sector ministries at federal level have their equivalents at regional
government level in the form of 35 sector bureaus/authorities located in Addis Ababa and
their offices in the zones. Woreda governments form the level of government immediately
below the regional government level. The Woreda Office of Finance and Economic
1
This section is extracted from the Oromia BOFED’s website (www.oromiabofed.org), which also contains a very comprehensive regional atlas
(both physical and social geography).
Page 9
Development (WOFED) forms the equivalent of BOFED, while sector offices at woreda level
form the equivalent of sector bureaus at regional government level.
Similarly, the external audit and legislative oversight function is broadly the same as at
federal government level. The external audit function is conducted by the Office of the
Regional Auditor General (ORAG). The ORAG covers woreda governments as well as ORG.
The legislative oversight function is conducted by the elected Regional Council.
As with other regions, the Oromia Government takes its lead from the Federal Government in
relation to economic development strategies and government reform programmes. The overall
development strategy of the Federal Government is the “Plan for Accelerated and Sustained
Development to End Poverty, (PASDEP), 2005/06-2009/10”. A follow-up is currently under
preparation. Oromia sector bureaus base their sector development strategies on sector
ministry strategies (particularly education, heath, agriculture, water resources and roads),
themselves based on PASDEP.
Implementation of development strategies requires effective government, for which a well-

functioning PFM system and a capable civil service are pre-requisites. The Expenditure
Management and Control Program (EMCP) and Public Sector Capacity Building Programs,
led by MOFED and Ministry of Capacity Building respectively, which have been in existence
for several years, are the main vehicles for implementing PFM reform and strengthening
capacity.
2.2 Description of Budgetary Outcomes

Table 1: Summary of ONRS
Budgetary Operations
ETB millions 2006/07 2006/07 2007/08 2007/08 2008/09 2008/09
Budget Actual Budget Actual Budget Actual
Total Financial Resources 3728 3739 5519 5829 6724 7250

Region's Revenues 600 763 700 1088 950 1358
Federal Government Subsidy 2975 2975 4600 4601 5571 5656
External Assistance & Loans 153 2 181 103 203 232
Subsidy from Loan 37 37 4
Total Expenditures 3803 3803 5626 5480 6932 7161

Recurrent 3083 3196 4491 4412 5218 5401
Admin. & General Services 770 864 1180 1258 1438 1594
Economic Services 510 522 739 783 767 941
Social Services 1637 1810 2118 2370 2839 2866
Contingency 165 0 455 0 174 0
Capital 721 607 1135 1068 1714 1760

Admin. & General Services 40 44 42 89 125 146
Economic Services 469 374 698 566 961 929
Social Services 212 189 394 413 628 685
Balance -76 -63 -107 349 -208 89

Use of Retained Earnings 76 63 107 -349 208 -89
Note: Budget refers to approved budget
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Source: Budget Proclamations, IBEX tables, trial balance sheet for end-2008/09 (from BOFED
Table 1 shows the revenues, grants and expenditures for the Oromia National State Region
(consolidated regional bureaus and woredas, with subdidies to woredas netted out). Unlike
what is shown in the summary tables in the Budget Proclamations, the use of retained
earnings from the previous year is shown as a “below-the-line’ financing item (consistent
with Government Finance Statistics – GFS-methodology).
Table 2 summarises expenditure by broad economic classification.
Table 2: Economic Classification of

ONRS Expenditure
ETB millions 2007/08 2008/09
Actual % Actual %
Total Expenditure 5480 100.0 7166 100.0

Personnel Services (61) 3441 62.8 3800 53.0
Goods and Services (62) 810 14.8 1252 17.5
Fixed Assets & Construction (63) 1052 19.2 1810 25.3
Subsidies, investments & Other Payments (64) 178 3.2 305 4.2
Source: IBEX tables and end-year trial balance sheets.
2.3. Legal and Institutional Framework for PFM
Legal framework for PFM
The legal framework for PFM is based entirely on the Federal government legal framework for PFM:
Financial Administration Proclamations (the latest for Oromia is 2002/03 – EFY 1996), accompanying
Financial Regulations, Annual Budget Proclamations (including proclamations for supplementary
budgets), Tax proclamations, Procurement Proclamations and Proclamations concerning the Office of
the Auditor General (ORAG). These are all referred to Section 3 under the relevant indicators.
Institutional Framework for PFM
Tax System: The regional government shares some taxes (described in Section 3 under PI-13)
with the Federal Government. No revenue raising powers are assigned to woreda
governments, but woreda revenue bureaus collect revenues on behalf of the regional
government and retain a portion of them through revenue sharing agreements. A revised Tax
Code Proclamation came into force in 2002/03.
Internal and External Audit

Development of the internal audit function is one of the components of the EMCP. It is
described more fully under PI-21 in Section 3. A new proclamation with regard to the
external audit function was approved in 2005 (referred to in PI-26).
Sub-National Governments
A new decentralized system came into force in the 1990s. The fiscal transfers aspect of this is
covered under PI-8 in Chapter 3.
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Procurement
The responsibility for procurement was largely devolved to line ministries/bureaus in 2002/03
through proclamation. Procurement is discussed in Section 3 under PI-19.
Planning and Budgeting
Under the DSA project in the early 2000s, a new budget manual was prepared, based on the
Federal Government Manual. It finally came in effect in December 2007 (discussed further in
Section 3 under PI-11).
Budget Execution, Cash and Debt Management, Reporting and Accounting

Use of IT in PFM systems has gathered pace. It started out in the early 2000s through the
development of a computerised Budget Information System (BIS) for reporting on budget
performance and a Budget Disbursement and Accounting System (BDA) at MOFED and
BOFED level, both systems being stand-alone. These two modules were then merged under
the umbrella of an Integrated Budget and Expenditure Management (IBEX) system,
consisting of the following modules: budget, accounts, budget adjustment, budget control,
accounts consolidation and administration. The accounts module manages the tracking of
revenues and expenditures of public bodies: specifically, it records the financial transactions
of budgetary institutions, captures the aggregated monthly accounting reports and provides
accounting reports in the form of ledgers, financial statements, management reports and
transactions listings.
In recent years IBEX was rolled out to BOFEDs and during 2008/09 and, in particular, since
the beginning of 2009/10, it has been further rolled out to regional sector bureaus. With
regard to ORG, electronic linkages between these bureaus and BOFED have not, however,
been developed yet and financial information is still transmitted by the bureaus to BOFED
through hard copy (CDs). Roll-out to 20 woredas was planned to start during 2009/10 through
the oversight of zonal administrations.
In the meantime, the donor-financed IT project team located in MOFED is preparing an

upgrading of IBEX to IBEX 2. This has entered the testing phase. It is more user friendly than
IBEX 1.3. Roll out of the system to woreda governments is envisaged. A further upgrading
of IBEX 2 to an IBEX 3 is currently being discussed, through the introduction of a
performance program budgeting module, but, as the introduction of programme budgeting is
currently stalled, this would probably only happen in the medium term.
PI-18 in Chapter 3 discusses budget execution control processes and issues in terms of
management of the payroll. PIs-16-17 discusses processes and issues in terms of cash flow
forecasting and cash management. PIs 22, 24 and 25 in Section 3 describe the reporting and
accounting systems and issues thereof.
Business Process Re-engineering (BPR)
A major exercise during 2007’08 and 2008/09 was studies in all bureaus to determine how to
improve administrative efficiency in support of strengthened PFM. Implementation of the
recommendations of BPR (contained in various manuals, that can be read on the Oromia
BOFED website in Oromian language) commenced in 2008/09 and is still ongoing.
Implementation activities so far have included:
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• Re-organisation of bureaus; e.g. in BOFED, the procurement, property management

and financial administration departments were combined, to form the Financial
Administration and Property Management Department, and departments have been re-
designated as “business processes” for the core functions, such as budget preparation
and financial administration, and “supportive processes” for supporting functions such
as human resource management;
• Reduction in the number of signatures required for the implementation of a process,

such as procurement; (referred to under PI-20 in Section 3); and
• Increase in the numbers of positions in internal audit departments in order to increase

their effectiveness (referred to under PI-21 in Section 3).
Donor Funding modalities
Donor funding to Oromia is provided in the following ways:
• Through the PBS project: the funds are essentially budget support to the federal
government, which is then incorporated into the federal government block grant
transfer to regional governments.
• Channel 1: Donor funding for projects/programmes is channeled through MOFED to

BOFED, or is provided straight to BOFED, which then allocates the funds to sector
bureaus and woredas. Excluding Global Fund (a Channel 2 programme) the bulk of
funding for projects/programmes is now provided through this modality, the
proportion having increased markedly in recent years.
• Channel 2: Donor funding for projects/programmes is channeled through federal

government line ministries to the corresponding sector bureau at regional government
level, or is provided straight to the sector bureau.
• Channel 3: Donors (including NGOs) fund projects directly, by-passing both BOFED
and sector bureaus.
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3. Assessment of the PFM Systems, Processes and

Institutions
3.1. Introduction
The following paragraphs provide the detailed assessment of the PFM indicators contained in
the PFM PMF framework. The summary of scores is based on actual performance and is
shown in the Summary Assessment above. The scoring methodology does not recognize
ongoing reforms or planned activities but these are summarized at the end of the discussion
on each section.
Each indicator contains one or more dimensions in order to assess the key elements of the
PFM process. Two methods of scoring are used. Method 1 (M1) is used for all single
dimensional indicators and for multi-dimensional indicators where good performance on one
dimension of the indicator is likely to undermine the impact of good performance on other
dimensions of the same indicator (in other words, by the weakest link in the connected
dimensions of the indicator). A plus sign is given where any of the other dimensions are
scoring higher.
Method 2 (M2) is based on averaging the scores of individual dimensions of an indicator. It is

prescribed for multi-dimensional indicators, where a low score on one dimension of the
indicator does not necessarily undermine the impact of a high score on another dimension of
the same indicator. A conversion table for 2, 3 and 4 dimensional indicators is used to
calculate the overall score. In both scoring methodologies, the ‘D’ score is the residual score
if the requirements for any higher score are not met. The PEFA handbook (“PFM
Performance Measurement Framework, June 2005, www.pefa.org) provides detailed
information on the scoring methodology.
3.2. Budget Credibility
Good practice in public financial management emphasizes the importance of the budget being
credible so that planned Government policies can be achieved. Budget credibility requires
actual budgetary releases to be similar to voted budgets and requires appropriate fiscal
discipline to be in place. The indicators in this group assess to what extent the budget is
realistic and implemented as intended, particularly by comparing actual revenues and
expenditures with original approved ones, and analyzing the composition of expenditure
outturn. The matrix below summarizes the assessment of indicators relating to budget
credibility.
Page 14
Assessment of Performance Indicators of Budget Credibility

No. Credibility of Budget Score Dimensions Scoring
Methodology
PI-1 Aggregate expenditure outturn compared to original
B (i) B M1
approved budget
PI-2 Composition of expenditure outturn compared to original
D (i) D M1
approved budget
PI-3 Aggregate revenue out-turn compared to original approved
A (i) A M1
budget
PI-4 (i) A
Stock and monitoring of expenditure payment arrears B+ M1
(ii) B
3.2.1. PI-1 Aggregate expenditure out-turn compared to original budget
The ability to implement the budgeted expenditure is an important factor in supporting the
government’s ability to deliver the public services for the year, as expressed in policy
statements, output commitments and work plans. The indicator reflects this by measuring the
actual total expenditure compared to the originally budgeted total expenditure (as defined in
government budget documentation and fiscal reports), but excludes two expenditure
categories over which the government will have little control: debt service payments and
donor-funded project expenditure.
In the case of Oromia Regional Government (ORG), debt service payments are zero as the
stock of debt is zero; the Financial Administration Law does not allow ORG to borrow.
Investment expenditure is divided into three categories: domestically financed, externally
financed through grant assistance and externally financed through loans.2 The budget and
budget performance tables prepared by ORG clearly distinguish between the three different
types of investment expenditure financing, so adding domestically-financed investment
expenditure to recurrent expenditure is straightforward.
Annex A shows the original budgets for the ORG bureaus (including the zonal
administrations), as approved by the Oromia Regional Council, for 2006/07, 2007/08 and
2008/09 and the actual outturns for these years. The ORG’s financial statements for 2008/09
have been submitted to the Office of the Regional Auditor General (ORAG) for audit.3 Total
primary expenditure excludes fiscal transfers to woreda governments from ORG; as
deviations of actual transfers from budgeted transfers impact on the predictability of the
woreda budget rather than the regional bureau budget; in practice, however, actual transfers
are very close to budgeted transfers.4 Table 2 is extracted from Annex A and shows the
aggregate deviation (in absolute terms) in terms of percentage of the approved budget.
2
It should be noted that externally-financed investment expenditure may include recurrent expenditure elements due to the nature of some
projects. The justification for excluding such expenditure from aggregate expenditure for the purposes of calculating PI-1 and PI-2 still holds,
however, as ORG still has less control over this type of expenditure than its own expenditure.
33
The years shown correspond to Ethiopian Fiscal Years (EFY) 1999, 2000 and 2001.
4
Subsidies to woreda governments from ORG were budgeted to comprise 54%, 55% and 56% of total ORG expenditures (primary, as defined
above, plus transfers) in 2006/07, 2007/08 and 2008/09 (EFY 1999-2001). External assistance and loans were budgeted to comprise 4%, 2% and
4% of total ORG expenditures in these same years respectively (as reported in the budget proclamations).
Page 15
Table 3: ORG Regional Bureau Aggregate Expenditure Outturn and Approved Budget 1/
ETB millions 2006/07 2006/07 2007/08 2007/08 2008/09 2008/09

Budget Outturn Budget Outturn Budget Estimate
Total Primary Expenditure 2/ 3/ 1594 1549 2391 2126 2683 2677

Deviation (%) -2.8% -11.1% -0.2%
1/ Years correspond to EFYs 1999-2001.
2/ Defined as total recurrent expenditure, less ORG budget subsidies to woreda and urban administrations, less interest
payments (which, in any case, are zero) plus domestically-financed investment expenditure.
3/ ORAG audit of 2007/08 statements nearing completion. 2008/09 statements have been submitted to ORAG.
Source: ORG BOFED Accounting Department,
Table 2 indicates a significant aggregate negative deviation in 2007/08 and small negative
deviations in 2006/07 and 2008/09. The reasons are unclear as revenue collection sharply
exceeded budgeted revenues in these two years (PI-3).
The assessment team also rated PI-1 for ONRS as a whole (consolidated regional bureaus plus
woredas). The rating was A, with deviations of 4.1%, 1.2% and 3% for the three years under
review.
Score Minimum Requirements Justification Information Sources
B i) In no more than one out The deviations (in absolute terms) were ORG BOFED Accounting
of the last three years has 2.8%, 11.1% and 0.2% in 2006/07, Department. Tables generated from
the actual expenditure 2007/08 and 2008/09 respectively. IBEX.
deviated from budgeted
expenditure by an amount
equivalent to more than
10% of budgeted
expenditure.
2007 Regional PEFA Assessment

The rating for ONRS (consolidated regional bureaus and woreda governments) was also A
(deviations in absolute terms of 4.5%, 1.3% and 8.9% for 2003/04, 2004/05 and 2005/06,
corresponding to EFYs 1996-1998).
3.2.2. PI-2 Composition of expenditure out-turns compared to original approved

budget.
Where the composition of expenditure varies considerably from the original approved budget,
the budget may not be a useful statement of policy intent. Measurement against this indicator
requires an empirical assessment of expenditure out-turns against the original budget at a sub-
aggregate level. The PI-2 indicator measures the extent to which reallocations between budget
lines have contributed to variance in expenditure composition beyond the variance resulting
from changes in the overall level of expenditure. The first step is to calculate the average of
deviations between actual allocations and budgeted spending at ministry/agency level as a
percentage of total budgeted expenditure. The second step is to subtract from this the
aggregate deviation, as measured in PI-1 (aggregate expenditure must be the same in both
cases).
Page 16
The composition of budgeted and reported expenditure by administrative agency is shown in

detail in Annex A for 2006/07-2008/09. Table 3 shows the measurement of PI-2, extracted
from Annex A. 56
Table 4: ORG Regional Bureaus: Expenditure Composition Variance in Excess of Total Expenditure Deviation
Year For PI-1 Total expenditure deviation Composition For PI-2

expenditure variance
Variance > total deviation
2006/07 2.8 % 26.5 % 23.7 %

2007/08 11.1 % 15.1 % 4%
2008/09 0.2 % 20.9 % 20.7 %
Source: ORG BOFED. Deviations shown in absolute terms.
Deviations, both positive and negative, tend to be significant, reaching to over 20 percent of
total primary expenditure each year. Out of the twenty largest budget institutions (BI:
bureaus, authorities, offices/institutes), the only BI that spends more than its originally
approved budget in all three years is the office of the Regional State President. ORG BIs that
spend less than their approved budgets in each of the three years are: Agriculture Research
Institute, Water Resources Bureau, Rural Roads Authority, Public Organisation and Social
Affairs Bureau, and Legal Research and Training Institute.
Apart from transfers from BIs (those with negative deviations) to other BIs (with positive
deviations), the contingency item (listed as public body 460 in the budget classification
system helps to finance positive deviations. The approved budget for the contingency,
representing up to just over 9 percent of total primary expenditure, is shown in Table 4. The
contingency has been spent in its entirety every year through re-allocation to public bodies
(and therefore shows as zero in the budget performance reports).
For the last two completed fiscal years, the salary contingency has comprised practically all
the total contingency. The salary contingency represents a reserve for a total budgeted salary
increase, but for which the allocation by public body is not yet determined. The salary
contingency cannot be said to add to budget unpredictability, as its allocation merely adds to
each employee’s salary, with no adverse consequences on service delivery (particularly as
employees presumably know they will receive a salary increase during the year, thus not
detracting from the incentive to work); i.e. it represents a price adjustment rather than a
quantitative adjustment. Thus, the allocation of the salary contingency tends to overstate the
unpredictability of the budget, as measured under PI-2,7 though, the reallocations between
public bodies (excluding the contingency) appear to be the dominant factor in assessing
budget predictability, as indicated by several negative deviations.
5
The deviations are explicitly shown for the largest 20 bureaus/offices, including “Compensation to Individuals and Institutions”
(expenditure code 6416), in compliance with the PEFA Framework methodology. The deviations for the other 22
bureaus/offices are aggregated together as the 21st item in the table. The scores would likely differ if the extent of
disaggregation was different (i.e. fewer or more than 20 bureaus/offices explicitly shown). The composition of the 20 largest
BIs changed slightly over the three years; for example, the Regional Council, Culture Bureau and Irrigation Development
Authority are shown in the table for 2006/07 but not in the tables for the other years, while the Legal Research and Training
Institute and Urban Development and Work Bureau are not in the table for 2006/07 as they had not yet been created.
6
It should be noted that PI-2 in the PEFA Framework document is to be revised to take into account methodological issues that
have arisen, particularly in the cases when nearly all deviations have the same sign and the contingency is relatively large.
A revised methodology might result in different scores for ORG (mainly because of the contingency issue; public body
deviations are both negative and positive).
7
In addition, the allocation of the contingency arguably overstates the extent of unpredictability, as the deviations are counted
twice, once from the contingency to recipient public bodies and once for the corresponding increase in spending of the
public body in relation to its approved budget. The contingency was the sixth largest item of expenditure in 2008/09 and
thus is of significant size.
Page 17
Table 5: ORG Contingency Expenditure

ETB Budget % Total Budget % Total Budget % Total
mills. 2006/7 Primary 2007/8 Primary 2008/9 Primary
Expend. Expend. Expend.
Salary 70 5.0 95 4.0 136.8 5.1
contingency
(code 6111)
Non-salary 80 4.4 5 0.2 7.2 0.3
contingency
(code 6415)
Total 150 9.4 100 4.2 144 5.4
Contingency
Source: ORG budget performance tables.
The resulting score is shown below.
Score Minimum Requirements Justification

D i) Variance in expenditure Variance in expenditure composition is calculated on the basis of the sum of
composition exceeded overall the absolute differences between actual allocations and budgeted
deviation in primary expenditure expenditures of each regional government bureau/office/zonal administration
by 10 percentage points in at in 2006/07, 2007/08 and 2008/09, as indicated in Annex A, using information
least two out of the last three provided by BOFED, extracted from IBEX. The excess of the variance over
years. the total expenditure deviation exceeded 10 percent in two out of the last
three years. The much smaller excess variance in 2007/08 reflects the much
larger aggregate expenditure deviation that year. The large salary
contingency may overstate the variance.
The assessment team also rated PI-2 for ONRS as a whole (consolidated revenue bureaus plus
woredas). The rating was also D, with variance in expenditure composition exceeding overall
deviation by 16% and 16.7% in 2006/07 and 2007/08 respectively (by 7% in 2008/09).
In discussing these tables with the BOFED authorities (and with those in other regions
covered by this study), the issue was continuously raised that the “adjusted” and not the initial
approved budget should be the reference point for comparison. The reasoning was that the
amount of financial resources available for the new budget year was not known with certainty
at the time of budget preparation because: (i) revenue estimates and projections of donor
financing were not fully firmed up; and (ii) end-year revenue and expenditure performance
was not fully known while the budget was being prepared and thus the retained revenue
available for use in the new financial year was not fully known.
The assessment team stressed that the initially approved budget should be the reference point,
not only because this is required by the PEFA Framework methodology, but also because
sector bureaus should ideally be confident at the beginning of the year that the approved
budget is a reliable guideline for indicating the financial resources that will be allocated to
them for implementing the approved budgets. This facilitates better planning for the delivery
of public services smoothly during the year. Revising the budget after the new fiscal year has
started reduces the length of the planning period, with possible adverse impact on the quality
of the public services that the bureaus are planning to deliver.

Oromia scored C for PI-2 (the report incorrectly shows a D score), so predictability of the
budget has not improved (though, the 2007 assessment covered woreda government
expenditures – comprising more than half of total regional state expenditure -- so the two
situations are not directly comparable). The list of public bodies shown is somewhat different
(the 12 largest are shown, rather than the 20 largest, as required under the PEFA
Page 18
methodology), also hindering comparability, but the organs of state show positive deviations
for each year, while health BIs show negative deviations for each year, as under the 2010
assessment.
3.2.3. PI-3: Aggregate revenue out-turn compared to original approved budget
Accurate forecasting of domestic revenue is a critical factor in determining budget

performance, since budgeted expenditure allocations are based on that forecast. A comparison
of budgeted and actual revenue provides an indication of the quality of revenue forecasting.
The macro-fiscal department in the ORG BOFED, in consultation with the Revenue Bureau
(that was separated from BOFED in 2001/02) is responsible for revenue forecasting, using the
Federal Government’s projections for inflation and real GDP growth (the macro-fiscal
department has yet to develop its own macro-fiscal capacity).
The summary of revenue performance provided in Table 4 (details in Annex 1) indicates

revenue performance far higher than the approved budget for all revenue components, despite
large year-on-year increases budgeted for, partly reflecting strengthened tax administration.
The large over-performance indicates a combination of inadequate forecasting (partly because
ORG is using Federal Government projections for GDP growth, which may not be fully
applicable to Oromia), inherent uncertainty of forecasts in an economy where weather-
dependent agricultural activities play a large role, and conservatism in forecasting.
Table 6: Oromia National Regional State: Revenue Performance
2006/07 2006/07 2007/08 2007/08 2008/09 2008/09

ETB million Budget Outturn Diff. Budget Outturn Diff. Budget Outturn Diff.
Tax revenue 477 561 18% 566 807 43% 781 935 20%
Direct taxes (personal income, profits, cap. gains) 447 520 16% 504 748 49% 737 864 17%
Indirect taxes (excise, VAT, turnover, sales) 30 41 39% 62 59 -6% 44 71 62%
Non-tax revenue (recurrent & capital) 123 202 64% 134 281 110% 169 423 150%
TOTAL REVENUE 600 763 27% 700 1088 56% 950 1358 43%
Source: ORG BOFED, Accounts Section, Financial Administration and Property Management Department.
Note: This indicator has been assessed on a consolidated regional bureau plus woreda basis, rather than on a regional bureau basis.
This is because the regional bureau approved budget is not recorded in IBEX, only the ONRS approved budget. This is not an issue
as the woreda governments do not earn their own revenues, but share regional government revenues.

A i) Actual domestic revenue collection was below The figures, taken from revenue performance tables and trial
97% of budgeted domestic revenue estimates in balance sheets provided to the assessment team by BOFED
no more than one of the last three years. Accounts Department.
The consolidation of regional bureau and woreda government revenue indicates an A rating,
with revenue performance exceeding the budget estimates in two out of the three years and
was only marginally below the estimates in the other year. The report notes a general
weakness in forecasting revenue, with projections being based on federal government
projections.
Page 19
3.2.4. PI-4: Stock and monitoring of expenditure payment arrears
This indicator is concerned with measuring the extent to which there is a stock of arrears, and
the extent to which the systemic problem is being brought under control and addressed.
A strong culture of paying bills on time (i.e. before they become overdue) is apparent in
Ethiopia, at both federal and regional level (at least in the case of the regions covered by the
team), in marked contrast to some other African countries. All wages and salaries are paid on
the 24th of every month and invoices submitted by suppliers of goods and services are paid
within a few days (providing sufficient supporting documentation is provided, for example,
signed delivery receipts). Utility bills are paid on time, otherwise the utility companies cut off
the services.
At the end of the financial year, it may be the case that invoices were received too late to be
processed by year-end or have not yet been submitted, though the goods and services have
been delivered. In this case, a “grace period” of 30 days is formally provided in respect of
capital expenditures (Code 5001 in the Chart of Accounts and Section 34 in the 2009
Financial Administration Proclamation), during which time the invoices are paid. If they are
not paid by the end of the grace period they are deemed to be in arrears (i.e. overdue
payments). As indicated in the trial balances for ORG for 2008/09, grace period payables at
the end of 2008/9 amounted to ETB 97.8 million, representing 5.4 percent of regional bureau
2008/09 expenditure (ETB 92 million at the end of 2007/08 and EB 55 million at the end of
2006/07). The trial balances are shown on a consolidated regional/woreda government basis
(i.e. the figure includes woreda government grace period payables), so this proportion is
probably lower in terms of regional bureau grace period payables alone. By the end of
August, 2009 (September 10, according to the Ethiopian calendar), these payables had fallen
to ETB 3.1 million, representing only 0.2 percent of total expenditure. By the end of
September, 2009, the figure was zero.
Table 7: Oromia Regional Government 1/: Grace Period Payables

End- End- End- End- End-
2006/07 2007/08 2008/09 Aug/09 Sept/09
Stock of Payables 54.5 92.2 97.8 3.5 0
(ETB mill.)
% Actual Expend. 3.6 4.3 5.4 0.2 0
1/ Stock of payables refers to combined regional bureau and woreda governments. Expenditure defined on same basis as PIs 1and 2.
Some grace period payables may be unpaid after 30 days (and thus are arrears), but this is the
case only in the unlikely event that suppliers have not yet submitted their invoices, even
though they had already delivered the goods and services prior to the end of the financial
year, or if there is a dispute over whether the delivered goods and services met the contractual
requirements. In either case, the unpaid grace period payables will show up in the trial
balances of future months, as was the case at the end of 2008/09 (for July and August, 2009).
Apart from the grace period payables, the trial balances contains other types of accounts
payables, as coded in the Chart of Accounts: sundry creditors (code 5002), pension
contributions payable (code 5003), salary payable (code 5004), other payroll deductions (code
5005) and withholding tax payable (code 5006). Accounts payables in these other categories
amounted to EB 22.9 million at the end of 2008/09 (1.3 percent of expenditure) and EB 28
million at the end of the first quarter of 2009/10.
Page 20
The system does not, however, permit the reporting of the age profile of these payables in the
IBEX system (although the source records would contain the data). In the absence of an age
profile, it is not possible to make inferences about accumulation of arrears by comparing the
stock of accounts payables at the end of a month with that at the end of the previous month
(e.g. it is possible that all accounts payable at the end of the previous month were paid during
the current month, and that the accounts payables at the end of the current month are all
“new”);.
The roll-out of IBEX to the regional bureaus is enabling quicker and more accurate recording
and reporting of accounts payables.
Score Minimum Justification Information sources

Requirements
B+
(M1)
A i) The stock of arrears The ORG has a culture of paying accounts payables on - Trial balance sheets for
is low (i.e. is below 2 time. end-2006/07-2008/09, trial
percent of total balance sheet for end of first
expenditure) Regional bureau and woreda government grace period quarter of 2009/10 and
payables (COA code 5001) at the end of 2008/09 amounted budget performance reports
to 5.4 % of total domestically financed regional bureau for these three years.
expenditure and this proportion is likely lower for regional Provided by Head of
bureau grace period payables alone. Grace period payables Accounting Division in
were 0.2% of end-2008/09 expenditure at the end of August, Financial Administration and
2009 (thus representing arrears) and were zero at the end Property Management
of September. Other accounts payable amounted to 1.3% of Department, Oromia
expenditure at the end of 2008/09 and 1.6% of expenditure BOFED.
at the end of the first quarter of 2009/10, but the age profile
is not known.
B (ii) Data on the stock of Arrears are only defined in terms of the grace period - As above.
arrears is generated payables (COA code 5001) that remain unpaid at the end of
annually, but may not the 30 day grace period. The grace period relates to
be complete for a few payments due for goods and services received before the
identified expenditure end of the year but not yet paid for (perhaps because the
categories or specified invoice has not yet been received or there is a contractual
budget institutions. dispute). The modified cash accounting system, associated
double entry book-keeping system and the roll-out of IBEX
to regional bureaus during 2008/09 and 2009/10 have
strengthened the reliability and timeliness of data on grace
period payables.
The accounting system does not as yet permit the age

profiling of accounts payables other than the grace period
payables. But these payables are usually paid on time, due
to the culture of compliance with regulations (and the threat
of cut-off of utility services) and thus ad-hoc periodic
assessments of the stock of arrears are not considered
necessary by BOFED.
This indicator was not scored. The data indicated an A rating for dimension (i), but the
assessment team was unable to validate the data..
3.3. Comprehensiveness and transparency
The indicators in the Comprehensiveness and Transparency dimension of PFM assess to what
extent the budget and fiscal risk oversight are comprehensive, as well as to what extent fiscal
and budget information is accessible to the public. The matrix below summarises the
assessment of indicators under this dimension.
Page 21
No. B: Cross-cutting issues: Comprehensiveness and Score Dimensions Scoring

Transparency
Methodology
PI-5 Classification of the budget B (i) B M1
Comprehensiveness of information included in budget
PI-6 D (i) D M1
Documentation
(i) D
PI-7 Extent of un-reported government operations D+ M1
(ii) B
(i) B
PI-8 Transparency of inter-governmental fiscal relations B+ (ii) B M2
(iii) A
Oversight of aggregate fiscal risk from other public sector (i) A
PI-9 A+ M1
entities (ii) A
PI-10 Public access to key fiscal information C M1
3.3.1. PI-5: Classification of budget
A robust classification system allows the tracking of spending on the following dimensions:
administrative unit, economic, functional and program.
The budget classification system at regional level is exactly the same as at the Federal level
(the Federal Government budget classification system is described in the Federal Budget
Manual, 2007, and the Federal Chart of Accounts manual, May 2007 and also in the Oromia
Budget Manual 2004), and so the score is the same as in the Federal PEFA assessment taking
place at the same time as the regional government assessments.8
The budget classification system at both Federal and regional level is on an administrative
basis grouped under three functions (Administrative Services (100), Economic Services (200)
and Social Services (300)), and, under each function, by sub-function (e.g. code 210
represents the sub-function of Agriculture and Natural Resources under the Economic
Services function and code 211 represents the Bureau of Agriculture and Rural Development
under this sub-function). The economic classification system (e.g. personnel emoluments) is
shown under each public body (and by sub-agency within each public body where relevant).
The budget classification system includes programme and sub-programme codes, though
these are not yet used, as programme budgeting has not yet been adopted.
The budget classification system does not correspond exactly to COFOG standards, but
broadly meets GFS standards (in terms of economic classification). A bridging table matching
MOFED budget classification codes to COFOG has not yet been developed, although the
IBEX system includes an application that would permit bridging; although the functional
codes and sub-functional codes differ from COFOG, the intent of public spending is indicated
in the codes and mapping to COFOG functions is clearly possible. Thus at least a B rating is
warranted. An A rating (mapping to COFOG sub-functions) may even be possible in
principle, but to determine this would have required the assessment team to review the IBEX
application and there was not enough time to do this.

B i) The budget formulation The budget classification system (as described in -- Federal Budget Manual,
and execution is based on the Federal Government’s budget manual and Chart January 2007
administrative, economic of Accounts manual) is on an administrative basis, -- Federal Accounting System
and functional with spending based on administrative units, the Manual, Volume 2, Chart of
8
The draft budget manual was prepared by the Decentralisation Support Activity Project in 2004.
Page 22
classification using at least economic classification under each administrative Accounts, May 2007.
the 10 main COFOG unit and with each administrative unit classified -- Oromia Region Budget
functions, using according to function (three functions) and sub- Guide, 2004, prepared by
GFS/COFOG standards or function. A bridging table has not yet been Budget Reform Team of
a standard that can developed to match the functional and sub- ORG and the donor-
produce consistent functional codes with COFOG, but the the codes supported Decentralisation
documentation according currently in use clearly reflect the intent of public Support Activity project.
to those standards. expenditure. In response to the 2001 GFS manual,
MOFED, with technical assistance support from
donors, developed an application under IBEX a few
years ago that would facilitate the preparing of a
bridging table. An A rating may be justified, but there
was not enough time for the team to review the
application..
Oromia National Regional State (ONRS) Government was rated A (the same as for the other
regions covered by the assessment). This seems too high as COFOG is not used, a bridging
table has not been prepared by MOFED and it is not clear that the sub-functional
classifications used by MOFED would be consistent with the COFOG sub-functions.
3.3.2. PI-6: Comprehensiveness of information included in budget
Annual budget documentation (annual budget and budget supporting documents) should
inform the executive, the legislative, and the general public and assist in informed budget
decision making and transparency and accountability. In addition to the detailed information
on revenues and expenditures, and in order to be considered complete, the annual budget
documentation should include information on the elements in the table below.
The only budget document submitted by BOFED to the Oromia Regional Council is the draft
budget proclamation. The detailed budget estimate document, which includes expenditure by
economic classification under each sub-agency falling under a public body, is not submitted.
Neither is Oromia’s regional development plan, which includes some macro-fiscal and budget
performance information (thus, including more information in the budget documentation
should be reasonably straightforward).
The main components of the draft budget proclamation (the approved one is more or the
same) consist of:
• Summary of appropriations according to regional bureau recurrent and capital

expenditure and subsidies to woredas (according to domestic and external sources of
financing;
• A summary table showing recurrent and capital expenditure according to the three
main functions (administration and general services, economic services and social
services), subsidies to woredas and contingency, and a summary of financing (tax and
non tax revenue, federal government subsidy, external assistance and loans, and
retained earnings);
• A summary table showing expenditure by function (3) and sub-function (16) plus
subsidies to woredas and contingency;
Page 23
• A table of estimated revenues by line item according to the budget classification

system (e.g. line 1101, tax on wages and salaries);
• A table of estimated external assistance and loans by donor agency.
• Recurrent budget tables according to public body and sub-agency (within each public
body) by source of funding (Treasury and own-source revenue), but not by economic
classification for each sub-agency within each public body.
• Capital budget tables according to projects under each public body/sub-agency.
The GFS format of presenting the summary fiscal picture is not completely followed.
Regional governments have no debt liabilities and are not allowed to borrow, so the issue of
the correct accounting treatment of debt amortization does not arise (it should appear ‘below-
the-line’ as a negative financing item, rather than as an expenditure item “above-the-line”).
The revenue estimates may include savings from the current budget year (“residual surplus” –
line 1461 in the budget classification system -- which is the excess of revenue and grants
inflows over expenditures), which is contrary to the GFS treatment, which classifies the use of
such savings as a ‘below-the-line’ financing item.9
During the budget preparation process, proposals for “new” expenditure initiatives (resulting
in new public services or expanded levels of services currently being provided) require
justification and, as part of this, projections of the future recurrent costs associated with
proposed new investments. But the budget documentation submitted to the Regional Council
does not mention new initiatives.
This indicator is assessed in terms of the following elements:
No. Item Available Source
ORG as yet does not prepare macro-fiscal

Macro-economic assumptions, including at
framework. As an approximate guide to
1 least estimates of aggregate growth, No
revenue forecasts, they use MOFED’s
inflation and exchange rate
macro-fiscal framework.
The ORG budget proclamation shows

“residual surplus’ or “retained earnings” as a
Fiscal deficit, defined according to GFS or
2 No revenue source, but, according to GFS, this
other internationally recognized standard
should be shown as a ‘below-the-line’
financing item.
Deficit financing, describing anticipated Accumulation of/use of retained earnings to

3 No
composition fund surpluses/deficits not explicitly shown..
Debt stock, including details at least for the Not

4 ORG does not borrow.
beginning of the current year applicable
Financial assets consist of cash on hand

and in the bank (COA codes 4101, 4103
Financial Assets, including details at least
and 4105), and accounts receivables (COA
5 for the beginning of the current year in a No
codes 4200-4299). Though reported on in
timely manner.
the trial balance sheets, they are not
mentioned in the budget documentation.
9
At first sight, it may seem inconsistent with GFS to show external loans as “above-the-line” rather than as financing items ‘below-the-line”, but the
loans are the liability of the Federal Government, not the regional government; the funds are transferred to the regional governments.
Page 24
No. Item Available Source
Prior year’s budget outturn, presented in

6 No
the same format as the budget proposal
Current year’s budget (either the revised

budget or the estimated outturn),
7 No
presented in the same format as the
budget proposal
Summarized budget data for both revenue

and expenditure according to the main
8 No
heads of the classifications used, including
data for the current and previous year
Explanation of budget implications of new

policy initiatives, with estimates of the Budget preparation process covers this
9 budgetary impact of all major revenue No issue but is not covered in the Budget
policy changes and/or some major Speech.
changes to expenditure programs

D i) Recent budget documentation fulfils none of the Explanation is provided above.
eight applicable benchmarks.
Scores A, mainly on the basis of the observation that the budget documentation does in fact
include information on the current year and previous year. The assessment team was not,
however, able to verify this (as time was very limited).
3.3.3. PI-7: Extent of unreported government operations
Annual budget estimates, in-year execution reports, year-end financial statements and other
fiscal reports for the public should cover all budgetary and extra-budgetary activities of
regional government to allow a complete picture of regional government revenue,
expenditures across all categories, and financing. This will be the case if (i) extra-budgetary
operations (regional government activities which are not included in the annual budget law,
such as those funded through extra-budgetary funds), are insignificant or if any significant
expenditures on extra-budgetary activities are included in fiscal reports, and if (ii) activities
included in the budget but managed outside the government’s budget management and
accounting system (mainly donor funded projects) are insignificant or included in government
fiscal reporting.
(i) Level of extra-budgetary expenditure (other than donor-funded projects), which
is unreported, i.e. not included in fiscal reports
It should be noted, in the context of the discussion below for both dimensions, that it is very
difficult to dis-entangle extra-budgetary operations (EBOs) at regional bureau and woreda
level. The budget proclamations show external assistance and loans for the consolidated
regional government. The regional bureaus receive the support but some of this may
transferred to woreda government level and spent at that level.
Page 25
Extra-budgetary operations (EBOs, excluding those of government-owned commercial

enterprises – only the Oromia Water Works Enterprise -- which fall outside the scope of this
indicator) comprise:
• The Roads Fund: a donor-supported Federal Government Fund, from which funds are
disbursed to Rural Roads Authorities in the regions for roads maintenance purposes.
This is a “Channel 2” fund: Channel 2 funds represent external funds channeled from
sector Ministries at federal government level (Ethiopian Roads Authority – public
body code 273 - to Rural Roads Authorities at regional government level). It is an
EBO, as its planned and actual incomes and expenditures are not included in the
Federal government budget, nor in the ORG budget (except for the recurrent
expenditures of the Roads Fund Office itself, as indicated under public body code
274).10 11, and thus the Fund constitutes an EBO at both federal and regional
government level. It also appears to be an unreported EBO at regional level; the ORG
BOFED has no knowledge of the Fund’s planned and actual incomes and
expenditures(in contrast to the situation in Amhara). At the federal level, it is not clear
if the Roads Fund operations are reported on by region.
• The Global Fund (GF) for HIV, Malaria and Tuberculosis, also a donor-supported
Federal Government programme under the Channel 2 aid disbursement modality
(National HIV/AIDS Prevention and Control Secretariat – code 345 – disburses
directly to health sector bureaus). The planned incomes and expenditures of the Fund
are not included in either the Federal or the ORG budget and thus the Fund constitutes
an EBO. It also appears to represent an unreported EBO. The ORG BOFED informed
the assessment mission that it does not receive any reports from the health bureau on
GF incomes and expenditures.
o The magnitudes of annual funds disbursed and spent are large, according to
various staff met by the team. The GF website (www.theglobalfund.org)
confirms this: over about 5 years, $811 million had been disbursed by the end
of 2009 over a number of “rounds”; the total amount approved is $1.3 billion.
The reports on the website do not provide an annual breakdown of expenditure
and do not indicate expenditure by region. As a very rough order of
magnitude, assuming that Oromia would receive about a quarter of the funds
(as it has one quarter of Ethiopia’s population), it might have received about
$40 million a year (= 800/5 *0.25) on average. Total region-wide ORG
expenditure (i.e. consolidated regional bureau and woreda government
expenditure; the GF funds are spent also at woreda government level)
amounted to about $250 million in 2008/09, indicating that they comprise
about 16 percent of expenditure. If this is correct then dimension (i) would
score D. By way of comparison, GF operations in Amhara Region amounted
10
“Channel 1” programmes, in contrast, represent channeling of external funds from MOFED to BOFED. They are reflected in
the ORG bureau capital budget, actual expenditures are reported on under IBEX and therefore are not EBOs; the
multilateral agencies are Channel 1 donors except for some EU programmes, such as its support for the Agriculture Support
Project. Bilateral agencies providing Channel 1 support include DFID. Channel 1 funds also represent funds directly
channeled to BOFEDs by donors, as is the case with UN ExCom funding (UNICEF, UNDP, UNFPA, WHO, though mainly
UNICEF). Donor support is focused mainly on the Water Resources Bureau, Education Bureau, Health Bureau, with Sports
and Youth Affairs Bureau and Youth and Social Affairs Agency receiving relatively small amounts.
11
Channel 2 funds also comprise funds disbursed by donors directly to sector bureaus at regional level, but these are apparently
insignificant in ORG.
Page 26
to just over 10 percent of ARG expenditures in 2007/08; GF was the largest

donor operating in Amhara.
• Other Channel 2 donor-supported expenditure: The budget proclamations include

Channel 2-type expenditure, but it will not necessarily be reported on, and thus
constitutes an unreported EBO. Projects falling under Channel 2 are not captured in
the Chart of Accounts and therefore cannot be reflected in the expenditure reports
generated through IBEX. The main example is the Agriculture Sector Support
Project, which appears in the 2009/10 Budget Proclamation (EFY 2002) as a one line
item mainly funded by donors, with no identification of the donors. Budget
performance reports may understate actual performance, because it hasn’t been
recorded.
Other Federal Government-funded programmes and funds that are partly implemented at
regional level include the Population Safety Net Programme (PSNP), the Food Security
Programme, the Public Sector Capacity Building Programme and the Water, Sanitation and
Hygiene Programme (WASH). The first three of these are part of the Federal Government
budgets and are reported on according to those budgets. BOFED and the Agriculture and
Rural Development Bureau are, in effect, acting as de-concentrated arms of the Federal
Government. The WASH programme is included in the ORG budget, the donor support being
provided through Channel 1.
Non-tax revenues: Unreported EBOs in some countries are reflected in the spending of Own
Source Revenues (OSR) collected by government agencies that are not budgeted for and not
reported on. This is not the case at either the Federal or regional levels of government in
Ethiopia. With the exception of school and health care unit fees, which can be retained and
spent (as long as the proposed spending is reflected in the approved budget), all own-source
revenues must be surrendered to the ORG BOFED bank account; fifteen public bodies earn
revenues. Revenues collected in excess of budgeted spending thereof must be surrendered to
ORG’s treasury account. A comprehensive receipting system (with receipts in triplicate at
minimum – one copy for the client paying the revenue, one copy for the government agency,
and one copy for the Treasury) helps guard against spending of NTR collected by a
government agency that is not covered in the approved budget and against the non-submission
to the Treasury of NTR collected in excess of the amount that can legally be spent.
(ii) Income/expenditure information on donor-funded projects which is included in
fiscal reports
This dimension refers only to donor-funded projects in the case where there is a direct
agreement between the donor and ORG (i.e. the funds are not channeled through the federal
government).12 Channel One funds represent monies channeled by the donor agency directly
through BOFED and the receipt and spending thereof are captured in the approved budget and
budget execution reports (COA codes 2000-2999 under the External Assistance category).
The UN EXCOM funds (mainly UNICEF) funds fall into this category.
Channel Two funds represent monies transferred by donors directly to sector bureaus, which
are in charge of the financial management of the projects. The planned receipt and spending
12
The budget tables disaggregate funding sources according to block grant from MOFED, own revenues, external assistance
and external loans, both via the federal government and through direct assistance. In assessing PI-7 dimension (ii), only
the direct assistance is considered; assistance via the Federal Government is assessed under PI-7 (i).
Page 27
may or not be captured in the approved budget, but are likely not to be reported, therefore
representing unreported EBOs; some JICA programmes (in the education sector) and Italian
Government programmes (in agriculture) fall into this category.
Channel Three funds represent donor operations, including NGO operations, where the
donor/NGO is implementing a project directly, with no funding passing through the relevant
sector bureau. With regard to donor agencies, GTZ and USAID fall into this category,
according to BOFED. Reports on income and spending may be sent to the sector bureau, but
BOFED does not receive them. As BOFED is in charge of fiscal management, such
operations constitute unreported EBOs.
The situation regarding NGOs appears to be better. Under NGO Co-ordination Guidelines
administered by the NGO office at BOFED, NGOs are required to report regularly to sector
bureaus and to BOFED on their operations; if they don’t report, they may lose their license to
operate as an NGO. Diligence in reporting is more likely in the cases where NGOs have been
contracted by donors (particularly UNICEF or WHO) or by the health bureau itself. NGO
operations are substantial in Oromia; BOFED estimates that current NGO projects total about
ETB 1 billion covering 920 projects. The NGO Coordination Guidelines are currently being
revised, according to the recommendations of the BPR exercise completed in 2008/09.
There does not seem be any one source of information on donor operations in Oromia (under
both dimensions above) and BOFED admits it is hard to track what it happening, particularly
under Channel 2 and 3 funding modalities. The assessment team devised a format for
reporting on donor-funded operations and submitted this to the regional bureaus, not for the
purposes of the assessment (as the form might take a long time to complete), but as a format
that the authorities might find helpful to use.
Any extra-budgetary operation has an opportunity cost, as scarce real resources, particularly
human resources, are being used to provide public services, the budgeting for which has not
been reflected in the budget submitted to the Regional Council. Ideally, the funding for all
public services should fall under the scope of the ORG budget in order to increase the chances
of a reasonably optimum use of such resources in providing the range of public services
needed and required by society. Presumably donor agencies agree with this principle, and
therefore should not be funding extra-budgetary operations, even more so, unreported extra-
budgetary operations.

(M1
D+
D i) The level of extra- The Health Bureau does not provide information to --BOFED --Global Fund
budgetary expenditure BOFED on Global Fund operations in Oromia, but the website.
(other than donor-funded Global Fund website indicates funding in Ethiopia of
projects) which is over $800 million over the last five years. Under the
unreported i.e. not very rough assumption that this is spread over regions
included in fiscal reports. according to population size, ORG may be receiving
The level of unreported about $40 million a year, constituting about 16 percent
extra-budgetary of total expenditure. This would indicate a D rating. By
operations (other than way of comparison, GF operations in Amhara (as
donor-funded projects) reported to BOFED) are just over 10 percent of
constitutes more than 10 expenditure. There may also be other unreported
percent of total EBOs under Channel 2 funding.
expenditure.
B (ii) Income/expenditure Loans are not relevant here as regional governments - BOFED ;
information on donor- do not borrow. Direct funding by donors to BOFED - 2009/10 budget
funded projects which is (Channel 1) is provided by UN ExCOM agencies, proclamation.
Page 28

included in fiscal reports. mainly UNICEF and WHO, amounting to ETB 47
(ii) Complete million in the 2008/09 budget. Channel 2 and Channel
income/expenditure 3 funding is not reported, but the Channel 1 funding is
information is included in at least 50 percent of the total; the Channel 1 modality
fiscal reports is included is increasingly being used by donors.
for all loan financed
projects and at least 50
percent (by value) of
grant financed projects

The assessment team was unable to score, due to insufficient information.
3.3.4. PI-8: Transparency of Inter-Governmental Fiscal Relations
This indicator assesses the transparency of inter-governmental fiscal relations against the
following dimensions: (i) transparency and objectivity in the horizontal allocation of fiscal
transfers among sub-national governments; (ii) timeliness of reliable information to sub-
national governments on their allocation; and (iii) extent of consolidation of fiscal data for
general government according to sectoral strategies.
(i) Transparency and Objectivity in the horizontal allocation of transfers to woreda

governments
The horizontal allocation of the block grant from the Federal Government to regional
governments until 2008/09 was based on three criteria: (i) population, 65 percent weight; (ii)
development status (25 percent); and (iii) revenue generating capacity (10 percent). The
subsidies are mainly used to finance recurrent expenditure. With effect from the beginning of
2009/10, this formula is now being phased out over a period of four years (25:75 in first year
to 100% in fourth year) in favour of a new formula that gives more explicit emphasis to the
expenditure needs (numbering 14) per capita of each sector in order to more explicitly and
accurately realize the fiscal equalization purpose of the fiscal transfer formula.
Regional Governments have flexibility in how they apply the federal government formula to
the determination of subsidies to woreda governments. The ORG (as also Amhara Region)
does not use the federal government formula for allocating subsidies to the 303 woreda and
town governments in Oromia. In the interests of achieving more accurate equalization than
under the Federal Government formula, it focuses, in the case of recurrent expenditure, on
service beneficiaries rather than population (unit cost approach, where future recurrent
budgets are estimated on the basis of maintaining current levels of services being delivered
per service beneficiary), and, in the case of infrastructure, on estimated infrastructure
deficits.13 It will commence using the new Federal Government formula in 2011/12 (EFY
2003).
The unit cost approach is used by ORG for five basic service sectors: education, health,
agriculture, water and roads. In the case of education, for example, the first step is to estimate
recurrent costs of providing services per beneficiary by dividing total recurrent costs in a
particular service category (e.g. primary education) by the number of service beneficiaries
(e.g. primary school students). The second step is then to project future recurrent costs
13
As the PBS 2 document points out, two regions may have the same population and, ceteris paribus, receive the same subsidy if the federal
government formula is used, but this penalizes the region with more service beneficiaries.
Page 29
according to the projections of numbers of beneficiaries. The third step is to estimate what
unit costs should be in terms of minimum service standards/norms that were established in
2006/07 (at federal government level, with some flexibility permitted at regional government
level) and a time path for reaching these standards; for example, the standard for student
/teacher ratios may be 50:1 but some woredas may have much higher ratios, implying the
need to hire more teachers, while recognizing this may take a few years.
The capital budget for each woreda is calculated on the basis of an estimated relative
infrastructure deficit index (defined for each sector in terms of desired standards and the
average infrastructure stock in other woredas). 14As capital expenditure has future recurrent
cost implications, projections of the total woreda budget incorporate (approximately) a 75:25
split between recurrent and capital expenditure.
The subsidy is then determined as the difference between the estimated budgetary
requirements and the revenue generating potential of each woreda; the ORG Revenue Bureau
contributes to the estimation of this potential.
The processes for estimating recurrent and capital expenditure needs are described in ORG’s
“Woreda Block Grant Allocation” document (EFY 1998, 2005/06). While the principles are
clear, the processes are not necessarily straightforward (for example, in estimating a time path
for adjusting to minimum standards and norms), while the underlying data required to
estimate unit costs, current and estimated numbers of service beneficiaries, and infrastructure
needs are not necessarily accurate and up-to-date. The inevitable mathematical formulae
required to estimate infrastructure deficit needs may not be easily digestible for woreda
governments.
The estimation of the revenue generating potential of each woreda appears not to be
transparently explained (at least not in the document referred to above). Good underlying
data, forecasting and judgement are required to estimate potential accurately and objectively.
As with the quality of data used to estimate expenditure needs, woreda governments tend to
complain. Complaining about the formulae used to calculate horizontal allocation of grants to
sub-national governments is not peculiar to Ethiopia (for example, the author of this report
came across similar types of complaints in South Africa a few years ago). Some countries
(e.g. South Africa, India) have established independent fiscal commissions (members of
which include experts on the subject) to review transfer formulae every few years.
In addition to the block grant (consisting of the recurrent and capital subsidy), woredas in
Oromia also receive specific purpose grants from other sources:
• The Local Investment Grant (LIG), established with donor support (principally World
Bank) in 2008/09, this is channeled through and managed by WOFEDs, and appears
explicitly in the monthly table prepared by the ORG BOFED showing subsidies to
woredas. Its allocation between woredas is determined under the block grant formula.
The LIG grant comprises about 4 percent of total grants (i.e. 4 percent of the sum of
14
For example, the education sector infrastructure deficit index is based on: (i) schools per 1000 school age population; (ii) Classrooms per 1000
school age population; (iii) student-classroom ratio; and (iv) unit costs of constructing classrooms and schools. Source: “Woreda Block Grant
Allocation”, EFY 1998 (2005/06), ORG BOFED.
Page 30
the block grant and LIG). The criteria for use are laid out in the project agreement
between the federal/regional government and the World Bank. 15
• The Water, Sanitation and Hygiene (WaSH) programme (90 percent funded by
donors), which is a federal government programme, the funds being channeled
through BOFED; the criteria for use are laid out in project agreements.
• Other donor-funded grants from donors, the use of which are less transparent (not
reported on) and are not channeled through BOFED; some of these grants are
channeled through sector bureaus (e.g. Agriculture Bureau, for example the
Agricultural Support Programme), others may be projects being directly implemented
in woredas by donors and NGOs.
The block grant provided by BOFED to woredas is completely additional to the specific
purpose grants (in marked contrast to, for example, SNNPR, where the BOFED practises 100
percent off-setting, that is the block grant is reduced 1 birr for each birr of donor assistance
being provided). The inter-woreda equity argument in favour of offsetting is valid in
principle, but in practice, its implementation can lead to problems, for example insufficient
funds to pay woreda government salaries, as the specific purpose grants are mainly for
projects, not recurrent expenditure. Thus, in a sense, offsetting results in lower predictability.
(ii) Timeliness of reliable information to woreda governments on their allocations
Most of the block grant to woreda governments from ORG is funded through the Federal
Government block grant to ORG. However, ORG only knows for certain how much block
grant it will receive from the Federal Government after the Parliament approves the draft
Federal Government budget at the end of June (i.e. just before the end of the fiscal year). Prior
to the beginning of ORG’s budget preparation cycle in February, MOFED provides
indications to the regional governments on the likely horizontal allocation of the block grant
and, on this basis, regional governments can start preparing their annual work plans (PI-11)
and can notify woreda governments in turn as to how much block grant funding they are
likely to receive.
It is possible, according to BOFED, that the final allocation approved by the Parliament may
differ from the initial indications provided by MOFED. In the same vein, the final horizontal
allocation of the block grant for woredas approved by the Regional Council may be different
from the initial indications provided by BOFED. According to BOFED staff, any adjustments
WOFEDs need to make only takes two-three weeks, so that their draft budgets are usually
ready for submission to woreda councils before the end of July, one month into the new fiscal
year. Woreda budgets are usually proclaimed by September. .16
(iii) Extent of consolidation of fiscal data

As explained in the text box below.
15
The LIG, which started in 2008/09 is funded mainly by the World Bank, and is currently in a piloting phase for 2 years. The grant is used to
construct new/rehabilitate existing infrastructure. It is being distributed to regional governments by the Federal Government according to the
block grant formula. Regional governments then distribute the grant to a sample of woreda governments up to 30 percent of each woreda’s
budget (much higher than capex shares in the past) . Each woreda incorporates the LIG into its annual planning and budgeting cycle
(information source includes the World Bank’s PBS 2 project document, available on the Bank’s website).
16
Woredas and regional governments are on the same fiscal calendar as for the federal government, even though a staggered calendar would at
first sight seem more appropriate.
Page 31

B+
(M2)
B (i) The horizontal The block grant from ORG to woreda governments in -- Meetings with Head of
allocation of most Oromia comprises the bulk of transfers to woredas and Finance and Property
transfers from regional is determined in relation to a formula that is different Administration Bureau and
governments to lower from the formula used by the Federal Government: (i) staff in the Fiscal
level governments (at use of the unit cost method in relation to determining Decentralisation office in
least 50 percent of the grant for recurrent expenditure; and (ii) use of the BOFED.
transfers) is determined infrastructure deficit index method in relation to - Woreda Block Grant
by transparent and rules determining the grant for capital expenditure. Though Allocation” document (2005)
based systems. the formula is rules-based, the method for deriving the provided by Fiscal
formula is not fully transparent, and there are doubts as Decentralisation Office staff.
to the reliability of the underlying data. The doubts are -- World Bank document on
reflected in complaints by woredas. second Protection of Basic
Services (PBS) project
(April 2009, on World Bank
website).
B (ii) Woreda governments The rating cannot be A, as the block grant allocation -- As above for first two
are provided reliable from the Federal Government to the regional bullet points.
information on the government is not known with certainty until
allocations to be Parliament approves the Federal government budget at
transferred to them ahead the end of June. There is still time for woreda
of completing their budget governments to adjust their initial budget proposals.
proposals, so that
significant changes to the
proposals are still
possible.
A (iii) Fiscal information (ex The budget preparation and reporting systems are the -- The budget classification
ante and ex-post) that is same at woreda level and regional level and (as noted system.
consistent with regional under PI-5) is based on sectoral/functional categories. -- Consolidated end-year
government fiscal BOFED produces a consolidated regional/woreda budget performance tables
reporting is collected for government report on the estimated (unaudited) budget prepared by BOFED.
at least 90% of woreda outturn within 10 months of the end of the fiscal year.
government expenditure The manual nature of PFM systems at woreda level
and consolidated into holds up the preparation of reports.
annual reports within 10
months of the end of the
fiscal year.
The assessment notes “There is uniform unhappiness in the seven regions and weredas visited
about the transparency of the transfer formula and the underlying time series data variables
utilized”. It awards a B rating for dimension (i), the same as above, indicating the situation
has not changed. Dimensions (ii) and (iii) are rated B and A, the same as above.
3.3.5. PI-9: Oversight of aggregate fiscal risk from other public sector entities
This indicator assesses the extent to which the central government monitors the fiscal position
of autonomous government agencies (AGA) public entities (PE) and sub-national
governments.
(i) Extent of regional government monitoring of financial position of public enterprises
ORG owns only one public enterprise: Waterworks Enterprise. This does not receive
subsidies, although ORG can provide it with temporary funding in the event of temporary
cash shortages. Waterworks Enterprise submits financial reports and audited annual accounts
to its parent bureau (Water Resource Development) and to BOFED.17
17
Oromia Radio and TV is a public body, not a public enterprise, and its budget is part of ORG’s approved budget.
Page 32
The MOFED guarantees loans contracted by cooperative unions from Commercial Bank of
Ethiopia (CBE) for the purpose of purchasing agricultural inputs for farmers for use during
the pre-harvesting season; the farmers are supposed to repay the unions from their harvest
proceeds. If they run into difficulties in servicing the loans, the guarantee may be called.
MOFED then deducts the debt service payments it then makes to CBE on behalf of the
farmers from the block grant it provides to BOFED. This situation therefore poses an element
of fiscal risk to BOFED. The Agriculture and Rural Development Bureau monitors the
situation, however, thus lowering the element of surprise. 18
(ii) Extent of monitoring of the fiscal position of sub-national governments
Woreda governments are not allowed to borrow. Financial Regulations prohibit over
committing of expenditure (in terms of the approved or adjusted budget) and are enforced,
thus payments arrears through over-commitment are not possible. Woredas do not have their
own revenues and rely for their financing on the block grant and other transfers from the
regional government and donors (PI-8). 19The block grant is very predictable, so it is unlikely
that woreda governments would face resource shortfalls. The main risk of a resource shortfall
arises from delayed or non-arrival of budgeted external assistance. The risk is much greater in
regions which practise off-setting arrangements, as noted in PI-8, but this is not the case with
ORG. In the event of unexpected resource shortfalls, the contingency item (public body code
462) in the ORG budget (ETB 144 million in 2008/09, representing 9.7 percent of the
regional bureau budget) can be used to help finance woreda government resource shortfalls.
The zonal administrations, which fall under the regional bureaus, monitor the financial
situation of the woreda governments within the zone – through the reports that woredas are
required to submit every month. The Single Pool system, under which WOFEDs are
effectively in charge of the PFM systems of the woreda sector bureaus (for example, for
procurement and payments) also facilitates such monitoring.

A (M1)
A (i) All major AGAs/PEs ORG owns only one enterprise –Waterworks -- Information provided by
submit fiscal reports to Enterprise – , which submits periodic financial BOFED Financial
regional governments at performance reports and annual audited accounts to Administration and
least six monthly , as well its parent ministry and to BOFED. Keeping track of its Property Department staff.
as annual audited fiscal position is straight forward.
accounts, and the regional
government consolidates Pre-harvest loans provided by CBE to farmers’
fiscal risk issues into a cooperative unions and guaranteed by MOFED pose
report at least annually. . fiscal risk for ORG, but Agriculture and Resource
Development Bureau monitors the situation.
A (ii) The net fiscal position Woreda governments are not permitted to borrow or Ditto
of woreda governments is enter into spending commitments that are not covered
monitored at least annually by the approved budget. As their resources derive
for all governments and the mainly from the block grant, the delivery of which is
regional government predictable, the main risk of a shortfall comes from
consolidates overall fiscal delays in receiving budgeted external assistance.
risk into annual reports. ORG does not practise offsetting arrangements, so
delays mainly result in delays in project
implementation, rather than shortfalls of resources for
recurrent expenditure. ORG’s contingency fund can
be used to offset woreda resource shortfalls. Through
the financial reporting system – facilitated by the
18
In a news article (WIC) dated 1 April, 2010, the Agriculture and Rural Development Bureau announced that CBE would lend ETB 1.6 billion from
CBE to cooperative unions for the purchase of agricultural inputs, with MOFED guaranteeing the loan.
19
In practice, in the interests of efficiency, woreda revenue offices are allowed to retain some of the revenue they collect on behalf of the regional
revenue bureau, the amount being deducted from the block grant.
Page 33

Single Pool System -- zonal administrations are able
to keep track of the financial position of woredas,
though this may not be formalized into a
consolidated overall fiscal risk report.
This indicator was not rated, as it was incorrectly deemed to be not applicable.
3.3.6. PI-10: Public access to key fiscal information
Transparency will depend on whether information on fiscal plans, position and performance
of the government is easily accessible to the general public or at least interested groups.
Public access to key fiscal information is still limited at regional bureau level, though at
woreda level it is improving markedly under the Financial Transparency and Accountability
Programme (FTAP) under the PBS programme. Under FTAP, progress is evidenced in the
following areas: (i) posting of budgets and budget performance in simplified form on
noticeboards outside WOFEDs (in formats designed under the PBS programme); (ii) posting
of service delivery information outside education, health and agricultural extension service
delivery units (in formats designed under PBS); and (iii) design of brochures on woreda
budgets for the layman. The media (local radios, newspapers, magazines) are disseminating
information on budgets and budget performance, while communities are playing a more
active voice. Table 5 summarises.
Table 5: PI-10: Elements of information for public access
Elements of information for public access Availability and means
Annual budget documentation when submitted Not met. The budget documentation is not available until the budget has
to legislature been approved by the Regional Council (at which point it is published,
through the Budget Proclamation). The Budget Speech is publicized on
radio and TV, but details on the proposed budget are not provided.
Interested members of the public are allowed to watch the debate on the
draft budget.
In-year budget execution reports within one Not met: BOFED prepares monthly budget execution reports, both at
month of their completion. regional bureau and woreda level, but does not publish them, either in
hard copy or through its website (www.oromiabofed.gov.et). Though
beyond the scope of this study, WOFEDs are now pinning simplified
budget performance reports on notice boards (one of the products of the
FTAP under the PBS project.
Year-end financial statements within 6 months Not met. Audited year-end financial statements are not published, either
of completed audit. by BOFED or by ORAG..
Availability of external audit reports to the public. Not met: Publication is permitted under the law, but ORAG has yet to
publish any of its audit reports, mainly due to resource constraints.
Contract awards with value above US$ 100,000 Not met: Contract awards are not published.
approx. are published at least quarterly.
Availability to public of information on resources Met. Under another FTAP project under PBS, information on service
for primary service units. delivery is beginning to be provided through the posting of information on
service delivery at primary schools, health care units and agricultural
extension centres. The project is in the process of being rolled out to all
woredas. The mass media and community organizations are increasingly
disseminating information.
Page 34
C (i) The government makes available to As described above.

the public 1-2 of the 6 listed types of
information.
Score of C, based on the second and sixth benchmarks being met. The second benchmark is
justified on the basis of submission of reports to the regional council. However, this only
partially represents public access, and in any case, whether the one month benchmark is met
is not mentioned. The evidence of the sixth benchmark being met is not provided, though it
seems unlikely as the FTAP project (service delivery template preparation) had not yet
started. The score should be D, indicating that some progress has been made.
3.4. Policy based budgeting
The indicators in this group assess to what extent the central budget is prepared with due
regard to government policy. The table below summarises the assessment.
No. C (i) Policy –based budgeting Score Dimensions Scoring
Methodology
(i) A
Orderliness and participation in the annual budget
PI-11 B+A (ii) A M2
Process
(iii) C
(i) D
Multiyear perspective in fiscal planning, expenditure policy and (ii) NA
PI-12 D+ M2
budgeting. (iii) C
(iv) C
3.4.1 PI-11: Orderliness and participation in the annual budget process
This indicator reflects the organization, clarity and comprehensiveness of the annual budget
process. Dimensions to be assessed are: (i) existence and adherence to a fixed budget
calendar; (ii) clarity/comprehensiveness of and political involvement in the guidance on the
preparation of submissions (budget circular or equivalent); and (iii) timely budget approval by
the legislature or similarly mandated body (within the last three years).
(i) Existence of and adherence to a fixed budget calendar
Regions follow the Federal Government guidelines with regard to budget preparation, as
described in the Federal Government’s Budget Manual (January 2007). The Financial
Calendar is outlined on pages 38-39 of the manual. The calendar is generally adhered to. The
calendar allows six weeks for the submission of “Budget Requests” after the issue of the
Budget Call (end-January, as indicated in the Calendar). Over 90 percent of bureaus submit
their requests on time. Prior to the issue of the Budget Call, bureaus prepare Annual Work
Plans, which facilitate the preparation of the Budget Requests. Following evaluation by
BOFED of these requests during March-April, budget ceilings are sent out in mid-May to
bureaus, which then have three weeks to prepare detailed estimates to fit within these ceilings
and submit to BOFED; much of the estimation work has already been conducted during the
initial phase of budget preparation.
Section 6.5 of the Federal Budget Manual indicates the small differences between the Federal,
Regional and Woreda budget calendars.
Page 35
(ii) Guidance on the preparation of budget submissions
The Federal Budget Manual includes “Guidelines for Public Bodies Preparing Budget
Requests” (pages 52-58). The main difference between the guidance on preparation of Budget
Requests at federal level and the guidance at regional level is that the ceilings for each bureau
cannot be finalized prior to the issue of the Budget Call (sent out by BOFED to bureaus in
February), as the amount of the federal block grant is not known with certainty. Instead,
bureaus are required to prepare their budget requests by filling out standard format budget
preparation forms (Annex H of the Federal Budget Manual). The forms provide for the
detailed estimation of recurrent and capital expenditures for the coming year on the basis of
the expected outturn for the current year; in other words, on the basis of the existing levels of
services (with adjustments for any efficiency-enhancing cost savings that may have been
identified). They also provide for prioritized and well-justified proposals for new capital
projects.
At a later stage, after the submission of Budget Requests to BOFED and subsequent
discussion of these, the Regional Cabinet may prioritise (partly based on the proposals in the
budget requests for new capital projects) the allocation to bureaus of any extra fiscal resources
(‘fiscal space’) that may be available (including from the federal block grant). Following this,
BOFED sends out letters to each bureau, indicating its spending ceiling, which cannot be
exceeded in the subsequent preparation of detailed budget estimates (which, after submission
to BOFED, permit the preparation of the draft budget proclamation to be submitted to the
Regional Council).
(iii) Timely Budget Approval by the Legislature
The Regional Council approved the draft budget proclamations for 2006/07, 2007/08,
2008/09 and 2009/10 (EFYs 1999-2002) on July 11, July 27, July 18 and July 15 respectively.
These are all after the end of the financial year (July 8). But this reflects the fact that the
financial calendars of the federal and regional governments are the same. Thus, as the federal
government budget proclamation is not approved until the end of the financial year, the
regional governments need time to adjust their budgets if the block grant allocation is
different from the figure indicated earlier.20
Impact Assessment Study of Expenditure Management and Control Program (EMCP)
The budget manual and training module were developed and distributed. The new Chart of
Accounts came into use in 2003, and no problems were reported in using it. With the merger
of the finance and planning bureaus, recurrent and capital budgets have been prepared
together. Most bureaus use the cost centre concept in the budget formulation process.
Adherence to the budget calendar has been very good. Understanding of the budget reforms
was assessed as being very good. Most sector bureaus are not using IBEX yet. High staff
turnover is a problem.
Page 36
Score Minimum Justification Information Sources

Requirements
B+
(M2)
A (i) Existence of and The annual budget calendar is clearly laid out in the - Federal Budget Manual,
adherence to a fixed Federal Budget Manual. Preparation of initial budget January, 2007.-- Head,
budget calendar estimates begins end-January following Budget Call Financial Administration and
A clear annual budget issuance and these have to be submitted by mid-March. Property Department,
calendar exists, is Following evaluation by BOFED of these requests during BOFED
generally adhered to March-April, budget ceilings are sent out in mid-May to -- Head, Financial
and allows regional bureaus, which then have three weeks to prepare Administration Property
bureaus enough time detailed estimates to fit within these ceilings and submit Department, Education
(and at least 6 weeks to BOFED; much of the estimation work has already been Bureau.
from receipt of the conducted during the initial phase of budget preparation.
budget circular) to
meaningfully complete
their detailed estimates
on time.
A (ii) Guidance on the The Budget Call requires preparation of Budget Requests - Ditto.
preparation of budget using standard formats, mainly on the basis of the
submissions estimated outturn for the current fiscal year, forecasts of
A comprehensive and spending next year under existing service levels, ongoing
clear budget circular is and committed capital projects and prioritized and well-
issued to regional justified proposals for new capital projects. Following
bureaus, which reflects discussion with BOFED and then within Cabinet, ceilings
ceilings approved by are sent to each bureau to guide the preparation of
Cabinet (or equivalent) detailed estimates, which form the basis of the drafting of
prior to the circular’s the budget proclamation.
distribution to the
bureaus.
C (iii) Timely budget This is required by the Federal Financial Administration -- Budget proclamations for
approval by the Law (both the 2003 law and the new 2009 law). In 2006/07-2009/10.
legislature practice, due to the notification of the federal budget -- Head, Financial
The legislature has, in subsidy only at the end of the fiscal year, budget approval Administration and Property
two of the last three takes place 1-3 weeks after the end of the fiscal year. Department, BOFED.
years, approved the But this happens only because the financial years are the
budget within two same for the federal and regional governments, thus
months of the start of approval by the Regional Council after the end of the
the fiscal year.budget financial year is not the fault of BOFED or the Council.
before the start of the
fiscal year.
An A rating is provided for ORG, but this seems incorrect.
3.4.2. Multi-year perspective in fiscal planning, expenditure policy and budgeting
This indicator looks at the link between budgeting and policy priorities from the medium term
perspective and the extent to which costing of the implications of policy initiatives are
integrated into the budget formulation process. In particular, it assesses the following: (i)
multi-year fiscal forecast and function allocations; (ii) scope and frequency of debt
sustainability analysis; (iii) existence of costed sector strategies; and (iv) linkages between
investment budgets and forward expenditure estimates.
(i) Multi-year fiscal forecasts and functional allocations
The Federal Budget Manual indicates (under Section 6, Budget Calendar) that regional
governments, as with the Federal Government, should prepare a medium term Macro
Economic and Fiscal Framework (MEFF). ORG does not do this yet, and uses the Federal
Government’s macro-fiscal framework and the Central Statistics Office’s (CSO) projections
Page 37
of regional real GDP growth (which guides revenue forecasts); CSO is a federal government
agency.
ORG used to prepare Public Investment Plans (PIPs) with a medium term horizon, based on
the Plan for Accelerated and Sustained Development to End Policy (PASDEP), 2005/06-
2009/10. The PIPs did not take into account the future recurrent costs associated with planned
investments and they have been discontinued. The Federal Government is currently preparing
for the introduction of programme budgeting, which has a medium term focus and links
recurrent and capital expenditure.
(ii) Scope and frequency of debt sustainability analysis (DSA)
This dimension is not applicable, as Oromia Region does not borrow and has no debt
obligations.
(iii) Existence of costed sector strategies
Sector strategies are prepared at federal government level for the whole country and then
adapted to regional level. Region-wide education spending comprises about 40 percent of
total spending (most education spending is at woreda level, not bureau level, so it is
appropriate to rate this dimension for the region as a whole). The Education bureau informed
the assessment team of its Education Sector Strategic Plan (EDSP) covering 2006-2010. The
website reference that the team was referred to didn’t work, so the team looked at the federal
government EDSP, from which the regional EDSPs are derived.
The EDSP is costed, for both recurrent and capital expenditure. Under a federal government
commitment (as stated in the report), education spending is projected to increase marginally
as a percentage of GDP. This leaves a financing gap of about 23 percent (i.e. the projected
cost of EDSP minus the projected allocations) to be filled by donor agencies. Though not
huge, this is a significant financing gap and indicates an inconsistency between the projected
costs and the amounts of likely funding. Even if the gap could be filled (taking into account
the funding requirements of other sectors), there might still be an inconsistency with the
overall spending ceiling, derived from the macro-fiscal framework, and which is not solely
defined by the amount of resources available.
The assessment team was not able to meet with the Health Bureau and was unable to obtain a
copy of the regional health sector development plan. However, it was able to find the Federal
Government’s Health Sector Strategic Plan on the internet. As with the education sector, this
covers the whole of the country for 2005/06-2009/10 (a new one is being prepared). This is
fully costed, with costs far exceeding the resources likely to be available, even in the most
conservative scenario (public spending on health would nearly double over the 5 year period).
(iv) Linkages between investment budgets and forward expenditure estimates
Investment decisions tend to be closely related to sector strategies, the costs of which include
the recurrent cost implications of investments. The EDSP does not explicitly link investment
budgets and associated future recurrent costs. The linkage is implicit, however, as the number
of classrooms and schools to be constructed ultimately depends on projections of student
enrollments and the recurrent expenditures that these generate.
Page 38
The Guidelines for Preparing the Capital Budget (contained in the Federal Budget Manual)
stipulate that a public body should assess the recurrent budget implications of new capital
projects before it includes them in its Budget Request; the ORG manual on block grants to
woredas (“Woreda block grant allocations”, 2005, as discussed under PI-8) elaborates on this
point. Forward spending estimates are, however, not formally prepared by regional
governments. Although medium term recurrent cost implications may be included in Budget
Requests, these do not have any formal bearing on the preparation of future budgets.

Information Sources
D+
(M2)
D (i) Multi-year fiscal forecasts Unlike at the Federal Government level, there is no formal
-- Deputy Head,
and functional allocations medium term Macro-Economic and Fiscal Framework in
No forward estimates of place. BOFED.
fiscal aggregates are
undertaken.
NA (ii) Scope and frequency of The Regional Government does not borrow and has no
-- BOFED
debt sustainability analysis debt liabilities.
C (iii) Existence of costed The assessment team was informed that regional sector
-- Planning and
sector strategies strategies are adapted from the federal government’s
Statements of sector strategies. The team was unable to obtain copies of the Budgeting Department,
strategies exist for several regional sector strategies, so it reviewed the federal
major sectors but are only government’s education and health strategies. These are Education Bureau.
substantially costed for fully costed, but imply large increases in spending that -- Oromia Education
sectors representing up to are very unlikely to be feasible within the context of
25% of primary expenditure, financial resources likely to be available and the overall Sector Development,
OR costed strategies cover spending ceiling derived from the macro-fiscal framework. 2005/06-2009/10.
more sectors but are Education and health sector spending comprise about 23
inconsistent with broad percent and 6 percent respectively of of total consolidated
fiscal forecasts. ONRS expenditure.
C (iv) Linkages between Investment decisions are closely related to sector
-- Federal Government
investment budgets and strategies, the costs of which include the recurrent cost
forward expenditure implications of investments (at least in the case of Budget Manual.
estimates education).
-- “Woreda Block Grant
Many investment decisions
have weak links to sector .Budget Requests for new capital projects should Allocation” document
strategies and their (according to the Guidelines in the Federal Budget
recurrent cost implications Manual) contain estimates of the future recurrent costs (BOFED, 2005);
are included in forward associated with such projects. BOFED emphasizes the -- BOFED.
budget estimates only in a need to prepare such estimates. But forward budget
few (but major) cases. estimates are not currently prepared in Oromia. A rating
of D would be too low, as budgeting for recurrent and
capital expenditure are not separate processes. A B
rating would be too high, this assumes forward budget
estimates are prepared..
The ratings were C, D and C and overall D+ for dimensions (i), (iii) and (iv). The rating for
dimension (i) appears to be too high, and the rating for dimension (iii) too low.
3.5. Predictability and control in budget execution
This set of indicators reviews the predictability of funds for budget execution and the internal
controls and measures in place to ensure that the budget is executed in an accountable
manner.
Page 39
No. C (ii) Predictability, Control and Budget Score Dimensions Scoring

Execution Methodology
(i) A
PI-13 Transparency of tax payer obligations and liabilities A (ii) B▲ M2
(iii) A
(i) B
Effectiveness of measures for taxpayers registration and tax
PI-14 B▲ (ii) B▲ M2
assessment.
(iii) C ▲
(i) A
Effectiveness in collection of tax payments
PI-15 C++ (ii) C M1
(iii) B
(i) B
Predictability in the availability of funds for the commitment of
PI-16 C+ (ii) A M1
expenditures.
(iii) C
(i) NA
PI-17 Recording and management of cash balances, debt and guarantees. B (ii) B M2
(iii) NA
(i) B
(ii) A
PI-18 Effectiveness of payroll controls B+ M1
(iii) A
(iv) B
(i) D
PI-19 Competition, value for money and controls in procurement C (ii) C M2
(iii) B
(i) B
PI-20 Effectiveness of internal controls for non- salary expenditure B (ii) B M1
(iii) B
(i) C
PI-21 Effectiveness of internal audit C+ (ii) A M1
(iii) C
3.5.1. PI-13: Transparency of taxpayer obligations and liabilities
This indicator assesses the transparency of tax administration by reviewing:

(i) Clarity and comprehensiveness of tax liabilities
(ii) Taxpayer access to information on tax liabilities and administrative procedures,
and
(iii) Existence and functioning of a tax appeals mechanism.
Background
Taxes comprise:
• Personal income tax, which accrues 100 percent to ORG; mainly applies to
civil servants and employees of public enterprises and big companies.
• Agricultural Income Tax and Land Use fees: Collected by woredas on behalf
of ORG. Woredas retain these in the interest of efficiency and the block grant transfer
from BOFED is reduced commensurately.
• Business and Income tax, shared 50:50 between ORG and the Federal
Government;
• Value-Added Tax (VAT); 100 percent of the revenue collected by the
Revenue Bureau (RB) is handed over to the Federal Government.
• Indirect taxes: include excise and sales taxes on locally made goods and
services, and turnover tax: 70 percent of excise taxes goes to ORG, 30 percent to the
Page 40
federal government. Turnover tax (applicable to enterprises with annual sales lower
than the VAT threshold of ETB 500,000) accrues 100 percent to ORG.
• Non-tax revenues, e.g. royalties, casino license fees, rental income, rural land
use fees, stamp duty, accruing 100 percent to ORG.
There are no revenue sharing arrangements between ORG and woreda governments, which
do not have their own revenue sources.
Tax system developments in recent years include:
• The establishment in 2007 of the Standard Integrated Tax Administration
System (SIGTAS), following in the footsteps of the Federal Government; 21 it
is gradually being rolled out to the zones (as of August, 2010, it is operational
in the Revenue Bureau itself, 12 of the 17 zonal administrations and 7 out of
the 39 city administrations). At present; it only covers VAT, but it is planned
to extend the coverage to other taxes in the near future.
• Introduction of Value-Added Tax (2002);
• Introduction of the single Tax Identification Number (TIN);discussed under
PI-14;
• Strengthening of Compliance Handling Teams as a result of the BPR
(discussed under PI-14)
• Strengthening of the tax audit system (PI-14);
• The introduction (in 2008) of biometric finger printing and the electronic
linking of sales register machines cash registers with the Revenue Bureau in
support of greater compliance with tax registration and declaration
requirements.
• Business Process Re-engineering (BPR): The purpose is to strengthen the
efficiency of the revenue bureau through streamlining processes. The review
started during 2006/07 and implementation of the streamlining exercise started
the following year and is still continuing. A performance measurement
system is to be introduced.
• Write-off by the Federal Government in 2004 of all sub-national government
tax debts, as part of the tax reform programme (as mentioned in the 2007
Regional PEFA Assessment).
The combination of the developments listed above helped to increase ONRS tax revenue
sharply to ETB 1.1 billion from ETB 662 million in 1999.
(i) Clarity and Comprehensiveness of tax liabilities
The taxes listed above are all covered by tax proclamations, each tax has its own
proclamation. The proclamations mainly came into effect during 2002/03. Their preparation
was supported by financing under the Tax Reform component of the Public Sector Capacity
Building Programme (PSCAP), with assistance from donors. In the interests of harmonization
and ensuing efficiency gains, the tax laws are very similar between regions and are based on
21
SIGTAS, developed in Canada, is used in a number of countries; for example in the Caribbean with financing from CIDA.
Page 41
the Federal Tax Proclamation (the federal tax proclamations are posted on the Ethiopian
Customs and Revenue Agency website (www.erca.gov.et).
As would be expected, the legislation is reasonably comprehensive and clear, with limited and
clearly stated discretionary powers. In the Income Tax Proclamation, the only discretionary
powers relate to the waiving of tax liabilities in cases of grave unavoidable hardships (higher
level approvals are required above stipulated thresholds, for example, approval of the
Regional Cabinet is required for waivers of tax liabilities greater than ETB 100,000. Similar
discretionary power is provided to the Head of BOFED in the case of the turnover tax (section
39) and to the regional government in the case of the land use fee and agricultural income tax
(e.g. because of drought). Presumptive taxation (businesses with less than EB 100,000
turnover a year) implies discretionary powers by definition (as, in the absence of books of
account, the Revenue Authority has to make an estimate of turnover and reach agreement with
the business on this).
(ii) Tax payers access to information on tax liabilities and administrative

procedures
Explanatory brochures are available to businesses and the general public. The Oromia
Revenue Bureau (ORB) also runs TV programmes every Saturday for 20 minutes, conducts
tax education classes at schools and tax payer training programmes for the public in general.
The training is organized by Bureau of Capacity Building in each woreda and is funded by the
World Bank. Twenty thousand taxpayers have been trained a year over the last 2 years. The
training is oriented towards Category C tax payers, particularly small businesses with an
annual turnover of less than ETB 100,000 a year; the majority of tax payers fall within this
category. Those paying personal income tax under Pay-As-You-Go schemes do not require
much training. The ORB is developing its own website.
A Compliance Handling Team answers queries from the public; it can usually respond within
2 days. The Ethiopian Revenue and Customs Authority has posted explanatory notes on its
website (www.erca.gov.et) about the use of cash register machines and their electronic
connectivity with the Revenue Bureau.
(iii) Existence and functioning of tax appeals mechanism
The tax proclamations provide for a tax appeals mechanism for the four major taxes, the
mechanism being the same for each type of tax (thus, the mechanism is described in detail in
the Income Tax Proclamation and summarized in the other tax proclamations) Tax appeals
processes have three components:
o Compliance Handling Team (CHT): Appeals/complaints over tax matters are

submitted for review by the members of the CHT. The CHT examines tax payer
queries over their tax assessments and, where appropriate, recommends waivers of
assessed tax liabilities and any associated penalties and interest. Prior to the BPR,
the CHT did not have the right to revise assessments, but now it has the right. Also
as a result of the BPR, it is addressing each query within 2 days.
o Tax Appeals Commission: If a tax payer is not satisfied with how CHT has
addressed its complaint, he/she can go to the Tax Appeals Commission. This is an
independent entity; members comprise representatives from the Revenue, Finance
and Economy and Legal Services bureaus, and a representative of the taxpayer
Page 42
(typically, the head of the Chamber of Commerce). The BPR resulted in a

streamlining of the Commission’s procedures in 2007/08. The complainant must
first pay 50 percent of the assessed tax that is due. Submission of an appeal
requires: (i) lodging within 30 days of receipt of the tax assessment notice or the
date of the decision of the CHT concerning the tax assessment; and (ii) deposit of
50 percent of the disputed amount with ORB. The Commission has the authority to
confirm, reduce or annul the tax assessment. The Chair of the Commission is
required to prepare an annual report.
o High Court: A taxpayer dissatisfied with the decision of the Tax Appeals
Commission may appeal to the High Court within 30 days of the decision on the
grounds that the decision is erroneous in terms of the law. First, he/she must
deposit 100 percent of the assessed tax liability.
In practice, 99 percent of complaints are resolved at the CHT stage. The number of
complaints each year has decreased to only 40-50 complaints a year, partly due to the
extensive tax payer education campaign.

Information Sources
A As listed in PEFA
(M2) Framework
A (i) Clarity and The assessment team reviewed the proclamations for -- Tax proclamations listed
Comprehensiveness of the main taxes (listed above), including the sections above.
tax liabilities concerning the powers of the authorities to exercise -- Meeting with staff of ORB
Legislation and discretionary powers, and determined that an A rating
procedures for all major was appropriate.
taxes are comprehensive
and clear, with strictly
limited powers for the
government entities
involved.
B (i) Taxpayers’ access to The ORB has prepared a number of explanatory -- Meeting with staff of
▲ information on tax brochures, uses the mass media to educate tax Revenue Bureau, during
liabilities and payers, and conducts tax payer education which brochures were shown
administrative procedures programmes, including in schools. This is still work in to the assessment team.
Taxpayers have easy progress, and a B rating is warranted, rather than an A
access to comprehensive, at this time. The Bureau is developing its own web-site; Comments on draft report
user friendly and up-to- once functional this will further improve tax-payer provided by ORB at Sept. 16-
date information on tax access to information. 17 workshop.
liabilities and
administrative procedures An upward arrow is assigned, indicating progress being
for some of the major made.
taxes, while for other
taxes the information is
limited.
A (iii) Existence & A tax appeals system is in place, provided for under -- Tax proclamation laws
functioning of a tax the Tax Proclamation Laws, and includes the -- Meeting with ORB staff.
appeals mechanism independent Tax Appeals Commission, members of Comments provided by ORB
A tax appeals system of which include people from outside the Government. staff at the September 16-17
transparent administrative workshop.
procedures with The activities of the Commission are reported on by the
appropriate checks and Chairman.
balances, and .
implemented through
independent institutional
structures, is completely
set up and effectively
operating with satisfactory
access and fairness, and
its decisions are promptly
acted upon.
Page 43

ORG was rated A, C and B (overall B). Progress since then in tax payer education appears to
warrant the B+ rating in this assessment.
3.5.2 PI-14: Effectiveness of measures for taxpayer registration and tax assessment
Effectiveness in tax assessment is ascertained by an interaction between registration of liable

taxpayers and correct assessment of tax liability for those taxpayers. Effectiveness is
determined by reviewing: (i) controls in the taxpayer registration system; (ii) effectiveness of
penalties for non-compliance with registration and declaration obligations; and (iii) planning
and monitoring of tax audit and fraud investigation programs.
(i) Controls in the taxpayer registration system
According to Article 44 of the Income Tax Proclamation (No. 74, 2002), all people with
potential tax obligations are required to obtain a tax identification number (TIN). The issue
confronting the Revenue Bureau is to ensure that everyone (people and businesses) who
should have a TIN does have a TIN. The controls are:
• The requirement, as stipulated in Article 46 of the Income Tax Proclamation, to have a

TIN in order to obtain a business licence;
• The requirement that people/businesses opening bank accounts should have TINs.
• The requirement that businesses registering for VAT have TINs (this applies to
businesses with an annual turnover of at least ETB 500,000). This enables ORBto
check if businesses are compliant with the Excise Tax Proclamation (2002) and if
employees of the business have TINs.
• The use of Tax Inspectors (often in plain clothes) to check that businesses have TINs,
particularly businesses with turnover lower than the VAT threshold and who are
therefore liable for turnover tax.
• The requirement (as from 2008) that all taxpayers (current and potential – students for
example) should have biometric fingerprints22; currently there are about 130,000
taxpayers with TINs, the potential number is half a million.
• The requirement (under Federal Government regulations) that all businesses

(including very small ones) must have Sales Register machines and that these
machines (and the terminals that link them to the Revenue Bureau) are accredited
(according to the accreditation requirements listed in Federal Government Directive
46, August 2007). The Accreditation Board includes the ORB and Addis Ababa
Administration Revenue Agency. All receipts generated by these machines must state
the TIN of the business (as noted by the assessment team members in relation to their
22
Training in this technology was provided through CIDA.
Page 44
hotel and restaurant receipts). This requirement helps the Revenue Bureau to check
that businesses falling below the VAT threshold have TINs.
• Checks with Ethiopian Revenue and Customs Agency and business registries in other
regions are also control points.
In terms of Category C taxpayers (those with no books of accounts and turnover less than
ETB 100,000 a year, and who are therefore liable to presumptive turnover tax), who comprise
90 percent of taxpayers, the culture of tax compliance (including the requirement to obtain a
TIN) has strengthened considerably in recent years as a result of the taxpayer education
campaign (PI-13), a strengthened partnership between government and business (e.g. through
the Tax Appeals Commission (PI-13) and a “door-to-door” approach.
The ORB informed the assessment team that the system is not yet watertight in the sense that
it is not yet certain that all those who should have TINs do have TINs. Further linkages to
other registration systems are being sought.
(ii) Effectiveness of penalties for non-compliance with registration and declaration

obligations
Penalties for non-compliance are set out in the tax proclamations and appear to be high
enough to have potential significant impact. Section VII of the Income Tax Law provides for
seizure of property in the event of default, Section VIII provides for administrative
penalties23. Section IX provides for criminal penalties; the Revenue Bureau has its own
prosecution department.24 The turnover, VAT and Excise tax proclamations have penalties of
similar scale and also interest charges on late payments. The penalty for late payment under
the Agriculture Income Tax proclamation is 2 percent of the amount of tax due for each
month the payment is in default and criminal penalties are according to the penal code.
For newly registered taxpayers who fail to declare or who file late, ORB recently adopted a
policy, whereby the penalty is 10 percent of the penalty laid out in the Tax Code, as an
inducement to pay the penalty and to fully comply with declaration requirements in the future;
failure to comply thereafter would result in the full penalty being applied.
The SIGTAS has made/is making it easier to monitor compliance; for example, it picks up
failure to file a declaration or to file it on time.
The consistency of administration is not so easy to judge. Capacity constraints and the
possibility of less-than-arms-length relations between taxpayers and government imply the
possibility of inconsistent administration.
(iii) Planning and monitoring of tax audit programs

23
(i) Penalties for late filing or non-filing of tax declarations: ETB 1000 for first 30 days, ETB 2000 for next 30 days, ETB 1500 for each 30 days
thereafter; (ii) Penalties for understatement of tax in tax declaration: 10 percent of understated amount, or 50 percent if the understatement
exceeds 25 percent of the tax required to be declared or exceeds ETB 20,000, whichever is smaller; (iii) Penalty for late payment: 5 percent of
unpaid tax on the first day after the due date; an additional 2 percent for each following month; (iv) Penalty for failure to keep proper records:
20 percent of tax assessed and loss of business license if the failure continues for two years; (v) Penalty for failure to withhold tax: .ETB 1000
on manager/senior accountant for each instance of failure; (vi) Failure to meet TIN requirements: a withholding agent who makes a payment
to a person who has not supplied a TIN is required to withhold 30 percent of the payment and the person to pay a fine of ETB 5,000. ..
24
(i) TIN violation: If a person has more than one TIN, he/she is required to pay a fine of ETB 20,000-ETB 50,000 and to imprisonment of years
for each extra TIN; (ii) Tax evasion: At least 5 years in prison; (iii) False or misleading statements: Fines ranging between ETB 1000-200,000
and/or imprisonment of 1-15 years, depending on the extent of underpayment and the extent that the falseness is deliberate; (iv) Obstruction
of tax administration, offences by tax authority employee, unauthorized tax collection: fines of at least ETB 10,000 and 2 years imprisonment;
and (v) Failure to keep receipts generated by sales register machines, 2 years imprisonment.
Page 45
Following the BPR exercise referred to under PI-13, the tax audit system has been
strengthened through the adoption in 2009 of a risk-based audit approach. First, tax payers are
grouped into numerical risk categories: high risk (3), medium risk (2), low risk (1) and no risk
(0). Risk is defined according to various numerically ranked criteria. The maximum number
of risk points is 30. Taxpayers with more than 15 points are the subject of comprehensive
audits every year. Those with 2-15 points (low and medium risk) are subject to sample audits.
Taxpayers considered to be high risk include coffee suppliers, big hotels (the tax system
covering foreign-owned hotels tends to be complex) and contractors.25 The types of tax where
risk tends to be higher are the profits tax, personal income tax and VAT.

B▲(M2) As listed in PEFA Framework
B (i) Controls in the taxpayer Any person or business with potential -- Tax Proclamations
registration system tax obligations are required to have a -- ORB staff
Taxpayers are registered in a unique TIN. A major control point is -- Council of Ministers Regulation
complete database system with the requirement of a TIN in order to 139/2007 on “Provide for the
some linkages to other relevant obtain a business license or open a Obligatory Use of Cash Machines”,
government registration bank account. The introduction of Prime Minister, January, 26, 2007 (on
systems and financial sector biometric finger prints has facilitated ERCA website).
regulations. the increased coverage of actual and -- Directive 46/2007, Minister of
potential taxpayers by the TIN. The Revenues, August, 2007 on “Provision
requirement for all businesses, for the use of Sales Register
regardless of size, to have accredited Machines” (on ERCA website).
sales machines electronically linked to -- Annex 4 on Regulations for Sales
the Revenue Bureau combined with Register Machines: “Tax Payers
checks by plain clothes tax inspectors Obliged to use Sales Register
has also helped to increase TIN Machines” (2008) (on ERCA website);
coverage. Use of financial institutions -- Annex 7, of Regulation 139/2007:”
as check points is likely to increase in Penalties for Failure to observe
the future. Supplier’s Obligations” and “Obligation
and Prohibited Act of Machine
Supplier” (on ERCA website).
Comments provided by ORB staff at
the Sept. 16-17 workshop.
B▲ (ii) Effectiveness of penalties for Substantive penalties, high enough to -- Tax proclamations.
non-compliance with act as a deterrent, are listed in the tax -- ORB staff.
registration and declaration proclamations. The evidence is not
obligations sufficient to demonstrate consistent
Penalties for non-compliance administration. Capacity constraints
exist for most relevant areas, may lead to inconsistent
but are not always effective due administration. The SIGTAS is making
to insufficient scale and/or it easier to detect non-compliance.
inconsistent administration..
C▲ (iii) Planning & monitoring of tax A system of audit plans based on risk -- ORB staff.
audit and fraud investigation assessment criteria was instituted in
programs 2008/09, one of the results of the BPR.
There is a continuous program A B rating might be appropriate, but
of tax audits and fraud the system needs to “bed-down” first.
investigations, but audit
programs are not based on
clear risk assessment criteria.
Overall rating of C (C, B and D for the three dimensions). Increasing coverage of TIN and
strengthened linkages with other systems, plus the strengthening of the tax audit system
beginning early 2009/10 explain the improved score.
25
A PEFA assessment of another country conducted by the author of this assessment identified lawyers as a high risk category.
Page 46
3.5.3 PI-15: Effectiveness in collection of tax payments
Collection effectiveness is determined by reviewing: (i) collection ratio for gross tax arrears
(percentage of tax arrears at the beginning of a fiscal year, which was collected during that
fiscal year); (ii) effectiveness of transfer of tax collections to the Treasury by the revenue
administration; and (iii) frequency of complete accounts reconciliation between tax
assessments, collections, arrears records and receipts by the Treasury.
(i) Collection ratio for tax arrears
The Oromia Revenue Bureau claims that it collects all tax debts, partly through use of
enforcement measures. The SIGTAS is facilitating the recording and tracking of tax debt. The
collection ratio for tax arrears (tax arrears collected during the fiscal year as a percentage of
the stock of tax arrears at the beginning of the fiscal year) averaged 94 percent over the last
three fiscal years. The stock of tax arrears at the end of the fiscal year as a percentage of total
tax collected averaged 1.4 percent over the last three years. Disputes, which often arise,
particularly in the case of presumptive turnover taxes (Category C taxpayers – the majority of
tax payers - with sales of less than ETB 100,000 a year and who do not keep books of
account), may result in delays in the collection of debts; as noted under PI-13, the tax
education campaigns are, however, lowering complaints.
(ii) Effectiveness of transfer of tax collections to the Treasury
A significant proportion of tax collected by ORB branches in woredas and town

administrations, particularly Agricultural Income Tax and Rural Land User fees, is deposited
with WOFEDs/TOFEDs (town administration finance and economic development offices)
and spent by them in accordance with their approved budgets; block grant transfers are
reduced commensurately. Tax collections not deposited with WOFEDs/TOFEDs is kept in the
ORB branches prior to transfer to their accounts (B accounts, see PI-17) held in local
branches of the Commercial Bank of Ethiopia (CBE) or is deposited directly into these
accounts, depending on how close the bank is. Tax payments in cash deposited directly at
Revenue Bureau offices may not be transferred to the local Revenue Bureau bank accounts
(and then to CTA) until the amount of cash reaches ETB 5,000.; the transfer may not be made
for up to a month, depending on the time of year..26 Deposits in ORB bank accounts will be
transferred to BOFED’s Central Treasury Account (CTA) in National Bank of Ethiopia within
a few days via telegram.
The frequency of tax collections is not even during the year, reflecting seasonal influences.
For example, the end of October is a deadline for declaring profits tax, and cash may
accumulate in Revenue Bureau offices up to that point, resulting in a spike in transfers to
CTA (after transfer to the Bureau bank account) after that date. As yet, there is no system for
tax revenue to be paid directly into CTA.
26
Payment of less than ETB 1000 has to be in cash. If a tax payer’s obligations span more than one woreda, then these are paid to the Revenue
Bureau branch where the zonal administration Is located.
Page 47
(iii) Frequency of reconciliations between tax assessments and amounts received by the
Treasury
Until recently, rigorous reconciliation was difficult, as tax arrears records were not complete
or well-defined (due to the bulk of taxpayers in Category C). Facilitated by the expansion in
coverage of SIGTAS and the taxpayer education campaigns (PI-13), rigorous reconciliation is
now practised. Now, complete reconciliation of tax assessments and transfers to the CTA take
place at least quarterly within six weeks of the end of the quarter). In addition, reports on tax
collection are prepared by ORBfor BOFED, showing tax collection for each type of tax at
woreda level, zonal administration level and regional level. The Internal Audit Department
conducts regular reconciliation of records of tax collection with deposits in Revenue Bureau
bank accounts and subsequently in CTA.

C+
(M1)
A (i) Collection ratio for gross In the past, the instances of disputed presumptive tax • -- Revenue Bureau
tax arrears and ratio of tax assessments (Category C taxpayers, comprising the staff.
arrears to total tax revenue majority of tax payers) and the long period allowed for -- Comments of Revenue
collections making payments complicated formal estimation of Bureau provided at the
The average tax arrears the amount of tax arrears at the end of each year. . September 16-17
collection ratio in the two The tax payer education campaigns combined with workshop.
most recent fiscal years the expansion of coverage of SIGTAS are enabling
was 90% or above OR the much greater compliance with the tax laws and
total amount of arrears is speedier resolution of disputes.. The Bureau pointed
insignificant (i.e. less than out that most taxpayers pay on time. The collection
2% of total annual ratio of tax arrears averaged 94 percent over the last
collections). three fiscal years and tax arrears as a percentage of
total collections averaged 1.4 percent.
C (ii) Effectiveness of transfer Revenues deposited in cash at ORB branches may

-- Revenue Bureau staff.
of tax collections to the not be transferred to ORB bank accounts until up to
Treasury by the revenue one month, depending on when the amount of cash
administration. reaches ETB 5,000. Deposits held in ORB bank
Revenue collections are accounts are transferred to BOFED’s Central
transferred to the Treasury Treasury Account every few days.
at least monthly.
B (iii) Frequency of complete The strengthened compliance with tax registration • -- Head, Revenue
accounts reconciliation and declaration obligations (partly due to the taxpayer Authority
Complete reconciliation of education programmes) combined with the increasing • -- Comments
tax assessments, coverage of SIGTAS is reducing the magnitude of tax provided by
collections, arrears, and arrears and, within these, the amounts of tax Revenue Authority
transfers to Treasury takes assessments in dispute. Complete accounts at the September
place quarterly within six reconciliation is being facilitated accordingly. 16-17 workshop.
weeks of the end of the
quarter..
The ratings were B, A, C and overall C+ (though mistakenly shown as C), for all regions, but the
supporting evidence is scanty.
Page 48
3.5.4. PI-16: Predictability in the availability of funds for the commitment of

expenditures
Effective execution of the budget in accordance with work plans requires that spending
ministries and agencies receive reliable information on the availability of funds within which
they can commit expenditure. This indicator assesses: (i) the extent to which cash flows are
forecast and monitored; (ii) reliability and horizon of periodic in-year information to MDAs
on ceilings for expenditure commitment; and (iii) the frequency and transparency of
adjustments to budget allocations above the level of management of MDAs.
(i) Extent to which cash flows are forecast and monitored
Bureaus are required to prepare cash flow forecasts (based on disaggregated revenue and
expenditure projections, taking into account future payments becoming due on the basis of
commitments entered into earlier and taking into account pre-payment advances to
contractors) at the beginning of the new financial year on a quarterly and monthly basis. If
necessary, these are updated every month on the basis of actual cash inflows and outflows. In
practice, capacity constraints result in quarterly updating as a matter of routine. BOFED uses
the cash flow forecasts to estimate cash balances at the end of each month and then to prepare
monthly spending limits for each bureau.
About 50 percent of ORG’s budgeted domestically-funded expenditure consists of subsidies

to woredas and urban administrations. These transfers are virtually guaranteed and the
monthly disbursement pattern is planned in advance (simply the total divided by 12). Out of
the other 50 percent, about 25 percent is for personnel expenses, which are also highly
predictable on a monthly basis. Thus, cash flow forecasting is of importance to about 37
percent of total ORG expenditure.
(ii) Reliability and horizon of periodic in-year information to regional bureaus on ceilings for
expenditure commitment
The only ceiling on expenditure commitments is the approved budget itself. The internal
control system (PI-20) guards against spending commitments being entered into that are not
covered by the approved budget or that would cause the approved budget limit to be
exceeded. The purpose of the monthly cash spending ceilings, derived from the cash flow
forecasts (dimension i), is to help keep spending to within the amount of cash available.
Given the inherent element of uncertainty in cash flow forecasting, it may be the case that a
cash shortage might arise (borrowing is prohibited), but, in practice, this situation usually
does not arise due to revenue collection being higher than budgeted revenues (PI-3). In the
circumstances where a cash shortage does arise, the BOFED and relevant sector bureaus can
determine the feasibility of an offsetting adjustment or allocate funds from the Contingency
budget. Failing this, BOFED can request MOFED for temporary assistance (supported by a
cash flow forecast for the remainder of the year).
(iii) Frequency and transparency of adjustments to budget allocations, which are

decided above the level of management of regional bureaus
The Federal Financial Administration Law (both the previous 2003 law and the new 2009
law), along with the Financial Regulations under the previous law, and the annual Budget
Page 49
Proclamation laws provide for a degree of transparency in making adjustments (the laws and
regulations at regional government level are very similar to the Federal Government laws).
Two types of adjustments can be made to budget allocations, above the level of sector bureau
management:
o Transfers between public bodies, spending ceiling unchanged: the BOFED head
can authorize transfers between bureaus with respect to capital expenditure that
leave total spending unchanged (allocating from the capital budget to the recurrent
budget is not allowed); prior regional council approval is not required. There is no
reported record of the frequency of adjustments, although the date of each
adjustment is presumably contained in the original source data. Only the total
value of transfers in and out for each bureau is reported, but this says nothing
about frequency. The low score for PI-2 indicates that transfers are substantial in
monetary terms.
o Supplementary budgets, total spending ceiling increased: Only one supplementary

budget per year is presented to the Regional Council for approval. This cannot
happen until January at the earliest. In principle, the Regional Council is supposed
to approve the supplementary budget before the proposed new spending takes
place in exactly the same way that it approves the initial budget before spending
takes place. In practice, as in the case of 2008/09, the proposed spending takes
place first and the supplementary budget is approved by the Regional Council after
the fact (on July 14th, 2009 in the case of 2008/09). In effect, the Regional
Council’s fundamental right to approve withdrawal of public funds from the
Treasury prior to the money being spent is violated.
Recent Developments
The BPR exercise completed during 2008/09 combined with the increased emphasis placed
by the new Federal Government Financial Administration Proclamation (August 2009) on
cash flow forecasting (but yet to be supported in revised Financial Regulations and
Directives) are contributing to improved cash flow forecasting.

C+
(M1)
B (i) A cash flow forecast is Information provided by BOFED. The updating is -- BOFED Financial
prepared for the fiscal year supposed to be monthly, but in practice, due to Administration and Property
and is updated at least capacity constraints, it is quarterly. Management Department.
quarterly on the basis of -- Draft East Afritac (IMF) Aide
actual cash inflows and Memoire on Cash
outflows. Management and Banking
Arrangements in Ethiopia,
February 2010.
A (ii) Bureaus are able to plan The cash flow forecasting framework, combined -- BOFED Financial
and commit expenditure for with the internal controls guarding against over Administration and Property
at least 6 months in advance commitments (PI-20), the favorable revenue Management Department.
in accordance with the situation (PI-3), and the ability to access the
budgeted appropriations. contingency budget or access temporary
financing from MOFED in the event of unexpected
cash shortfalls, enable commitment of
expenditures within a medium term time horizon.
Page 50

C (iii) Significant in-year Significant in-year adjustments take place above -- BOFED Financial
adjustments to budget the level of bureau management through: (i) Administration and Property
allocations are frequent, but transfers between bureaus authorized by BOFED Management Department
undertaken with some Head; and (ii) supplementary budgets (increase in -- Oromia Regional bureau
transparency. total spending ceiling) requiring prior approval of Budget Performance Reports
Regional Council. The Financial Administration -- Financial Administration
Law, Financial Regulations and annual budget Laws and Regulations.
proclamations provide for a degree of -- Annual Budget Proclamation
transparency in making adjustments. Laws.
All three dimensions are rated A, but this seems incorrect (particularly for dimension iii).
3.5.5. PI-17: Recording and management of cash balances, debt and guarantees
This indicator assesses: (i) the quality of debt recording and reporting; (ii) the extent of
consolidation of cash balances; and (iii) the systems for contracting loans and issuing
guarantees.
(i) Quality of Debt Recording and Management
Under the Financial Administration Proclamation, the ORG is not allowed to borrow. It may
be allowed to borrow in future once it enacts a new Financial Administration Proclamation
based on the new (August, 2009) Federal Government Financial Administration
Proclamation.
(ii) Extent of Consolidation of the government’s cash balances
As part of cash management reform aimed at reducing the stock of unutilized cash sitting in
bank accounts, a zero-balance account (Z accounts) system was instituted in 2004/05 and
became fully operational in 2007/08.27 Under this system, bureaus have ‘virtual’ accounts at
Commercial Bank of Ethiopia (CBE) into which funds are deposited each day by BOFED
from its central treasury account (CTA) held at National Bank of Ethiopia up to the cash
availability limits set by BOFED. These limits are set on the basis of the projected cash
balances derived from the requirements of sector bureaus indicated in the monthly cash flow
projections they make at the beginning of each year (PI-16). Bureaus can draw-down from the
virtual account the funds required for making payments (for salaries, non-wage recurrent
expenditure and capital expenditure) up to the monthly limit, subject to the provision of
supporting documentation (for non-wage expenditure). Unused deposits are “swept” back into
the CTA at the end of each day. In effect, the CTA and the Z accounts constitute a Treasury
Single Account (TSA). Balances are calculated on a daily basis. Previous to this system the
ORG BOFED was making direct payments in cash on behalf of the sector bureaus.
In addition to the Z accounts, there are donor project bank accounts and revenue bank
accounts. Donor funds provided through Channel 1 are deposited in bank accounts under the
control of BOFED, but they cannot be zero-balanced at the end of each day; i.e. the balances
27
Under EMCP, a cash management manual was prepared at Federal Government level, which has helped to guide strengthening of cash
management at regional level.
Page 51
are known but are not consolidated into the central treasury account. Donor funds provided
through Channel 2 (including for extra-budgetary funds such as the Global Fund) are
deposited into commercial bank accounts under sector bureau control (but BOFED approval
is still needed to open them). Protection of Basic Services (PBS) funds are effectively budget
support funds and are deposited into the CTA. About 70 percent of all deposits in ORG-
controlled bank accounts are with TSA.
With regard to revenue bank accounts (known as B accounts), these are held by regional
revenue offices and woreda revenue offices for the purpose of depositing revenues into them;
the revenues are subsequently transferred to CTA (woreda revenue offices collect certain
items of revenue, such as agricultural income tax). (see PI-15 ii).
(iii) Systems for contracting loans and issuance of guarantees
The ORG is not allowed to borrow or guarantee loans.
EMCP Impact Assessment Study: With regard to Oromia, the study notes the benefits
associated with the zero balance system in terms of elimination of idle cash balances, less
paperwork and the shorter payments process in terms of time (also a benefit of IBEX, which
has been rolled out to regional bureaus).

(M2)
B (ii) Extent of consolidation of About 70 percent of ORG’s bank balances are -- BOFED Financial
government’s cash balances under the CTA/Z accounts, effectively the TSA; Administration and Property
Most cash balances are consolidation takes place by definition every day Management Department.
calculated and consolidated and balances are calculated daily. Bank balances -- IMF (East AFRITAC) draft
at least weekly, but some outside this arrangement, such as donor project technical assistance report:
extra-budgetary funds remain and extra-budgetary fund accounts, are calculated “Review of Cash Management
outside the arrangement. regularly but not consolidated with the TSA and Banking Arrangements in
balances. the Federal Government of
Ethiopia”, February 2010.
This indicator was deemed to be “Not Applicable” at the regional level (but only correct for
dimensions (i) and (iii)).
3.5.6. PI-18: Effectiveness of payroll controls
As a major component of expenditure, effective control of the payroll is an important

indicator of sound financial management. This indicator is concerned with the payroll of
public servants only; wages for casual labor and discretionary allowances are included in the
assessment of general internal controls ( PI-20).
Given the decentralised nature of personnel and payroll management, the assessment team
met officials from the Oromia Education Bureau as well as from BOFED; their observations
mainly match the observations of BOFED.
Page 52
(i) Degree of integration and reconciliation between personnel records and payroll data
Payroll and personnel management are decentralized to sector bureaus in the Ethiopian
regions. Wages and salaries are paid by the Financial Administration and Property
Management Department (FAPMD) on the 24th of each month on the basis of the list of
personnel (originally prepared by Human Resources Department – HRD) contained in its
payroll system. Prior to this, the Head of the HRD will send a list to Head of FAPMD of any
changes to its personnel records that need to be reflected in the payroll, including attendance
related changes. In this regard, managers of departments are required to submit to HRDs
signed attendance records of the staff under them. From time to time, the Civil Service
Agency checks that the positions of the staff on the lists maintained by HRDs are consistent
with the list of established positions. .
(ii) Timeliness of changes to personnel records and the payroll
Changes to personnel records (hiring, firing, retiring, promotions, demotions, position shift)
are the responsibility of the Human Resource Department, following notification by the head
of the employee’s department. The list of staff sent to FAPMD each month will reflect any
changes made prior to the 24th; changes made after the cut-off date will be reflected in a
subsidiary payroll or the following month’s payroll.
(iii) Internal controls of changes to personnel records and the payroll
The main controls are: (i) the Heads of Human Resource Department and FAPMD and their
subordinates (head of personnel, the chief accountant and cashier); these have to sign off on
the staff list and payroll list, prepared by staff at lower levels; i.e. in line with the principle of
the segregation of duties; (ii) the staff member being paid also has to sign off; (iii) only one
employee is authorized by the Head of FAPMD to access the computerized payroll system,
and then only through the use of a password; the payroll is contained in an Excel file, using
“Format”, which prevents abuse; (iv) the staff in charge of the payroll cannot change the list
of personnel provided by Personnel Department to the FAPMD.
(iv) Existence of payroll audits to identify control weaknesses and/or ghost workers
Payroll audits are conducted as one component of the internal audit system (PI-21) and
external audit system (PI-26). Although the internal audit function was established a few
years ago, it has really only become functional since the beginning of 2009/10, due to the
BPR exercise leading to increased staffing levels (discussed further in PI-21). It is auditing
the payroll every quarter. The scope of the external auditor (ORAG) also includes payroll
audits. The larger bureaus, including the Education Bureau visited by the assessment team,
are audited by ORAG every year (PI-26). Given the decentralized payroll and personnel
management system, ORAG’s audits of bureaus cover this for all bureaus over a period of 2-3
years (as ORAG does not audit all bureaus each year).

Information Sources
B+
(M1)
B (i) Degree of integration and The linkages between the personnel records and the -- BOFED FAPMD
reconciliation between payroll are manual, but the decentralized nature of the -- FAPMD Education
personnel records and payroll payroll system facilitates close linkages. Each month, the Bureau
data Human Resources Department notifies the FAPMD of
Personnel data and payroll any changes to be made to the payroll (e.g. recruitment,
data are not directly linked, changes in attendance – as indicated in signed
Page 53

Information Sources
but the payroll is supported attendance records). The Civil Service Agency also
by full documentation for all checks HRD personnel lists periodically in order to
changes made to personnel determine that staff positions are covered in the civil
records each month and service establishment list.
checked against the previous
month’s payroll data.
A (ii) Timeliness of changes to The decentralized nature of the payroll management -- Ditto.
personnel records and the system supports timely changes to personnel records
payroll data followed by timely changes to the payroll. Changes made
Required changes to the to personnel records after the 24th of each month are
personnel records and payroll reflected in a subsidiary payroll or next month’s payroll.
are updated monthly,
generally in time for the
following month’s payroll.
Retroactive adjustments are
rare.
A (iii) Internal controls of The audit trail is reflected in the letters sent by Human -- Ditto
changes to personnel records Resources Management Department, signed (multiple
and the payroll signatures) forms approving the list of personnel and the
Authority to change records monthly payroll prepared by lower level staff. Only one
and payroll is restricted and person has access to the Excel-based payroll system in
results in an audit trail. FAPMD; formatting features in this system also guard
against abuse.
B (iv) Existence of payroll IADs in sector bureaus have been conducting payroll -- Inspection Department
audits to identify control audits during the year, but the frequency and quality has in BOFED;
weaknesses and/or ghost been significantly strengthened since the beginning of -- FAPMD Education
workers 2009/10 through a large increase in staffing levels of the Bureau.
A payroll audit covering IAD (see PI-21) resulting from the BPR. The scope of -- Internal audit
central government entities ORAG’s annual audits of the major bureaus (such as department, Education
has been conducted at least Education Bureau) includes payroll audits. As indicated Bureau.
once in the past three years under PI-26, ORAG effectively audits every public body -- Auditor General,
(whether in stages or as one over a 3 year period (each year for the larger ministries) . ORAG.
single exercise).
All four dimensions received A ratings for all of the seven regions assessed. The A rating for
dimension (iv) seems too high, given that the internal audit departments were not fully
functioning yet, and given that the external audit function did not cover all public body
payroll systems each year, due to capacity restrictions.
3.5.7. PI-19: Competition, value for money and controls in procurement
A well-functioning procurement ensures that money is used efficiently and effectively. This
indicator assesses: (i) the use of open competition for award of contracts that exceed the
nationally established monetary threshold for small purchases; (ii) justification of use of less
competitive procurement methods; and (iii) existence and operation of a procurement
complaints mechanism.
Procurement legislation at the regional government level is governed by Proclamation 100

(EFY 1997; 2004/05 in the Gregorian calendar), itself based on the federal procurement
proclamation approved that same year, and supporting directives and manuals. The Federal
Government enacted a new procurement proclamation dated September 2009, the main
difference being the extension of coverage to property administration (one of the products of
BPR). The ORG is currently revising its procurement legislation to bring into line with the
new federal government proclamation.
Page 54
Procurement is mainly the responsibility of public bodies. As a result of BPR, the

responsibility for procurement, previously under a separate department, has been subsumed
under the newly created (as of the beginning of 2009/10) Financial Administration and
Property Management Department (FAPMD). Some efficiency gains are being achieved,
notably a sharp reduction in the number of days required to evaluate tenders. The BOFED
plays a regulatory, standard setting, technical advisory, training, inspection, monitoring, and
complaints addressing role.
(i) Use of open competition for award of contracts that exceed the nationally
established monetary threshold for small purchases
As specified in the legislation, open competition is the preferred method of tendering above
ETB 1,500. Purchases up to this amount can be made directly, with the annual maximum
amount not exceeding ETB 7,000; a pro-forma invoice is required for purchases above ETB
300. Procurement methods other than through open competition (international or national) can
be used above this threshold under circumstances specified in the legislation: restricted
tendering, request for proposals, two stage tendering, and direct procurement (sole source
supplier). The maximum thresholds for restrictive tendering are ETB 400,000 for goods, ETB
2 million for construction and ETB 300,000 for consultancy services.
The Bureau Head has to approve procurement using restrictive tendering methods. Above the
maximum thresholds for restrictive tendering, National Competitive Bidding or International
Competitive Bidding procedures must be used. Only International Competitive Bidding
procedures can be used for contracts above ETB 10 million, ETB 50 million and ETB 2.5
million, for goods, construction and consultancy procurement respectively.
In principle, procurement sections of FAPMDs in sector bureaus can collate data on contracts
awarded, in terms of numbers, values and type of procurement method and send the
information to the procurement section in the BOFED FAPMD. In practice, this is not done
systematically, due to capacity constraints in the sector bureaus, although the information can
be marshaled for auditing purposes. For example, the procurement section of the Education
Bureau FAPMD only has one person working in it. Thus BOFED is unable to collate
information on procurement, even though the procurement legislation requires sector bureaus
to send the information to BOFED if requested.
(ii) Justification for use of less competitive procurement methods above the threshold
The procurement legislation clearly outlines the criteria under which less competitive
procurement methods above the threshold can be used. As indicated in (i), BOFED does not
keep an official record of contracts awarded the extent and the reasons for the use of less
competitive procurement methods, notwithstanding its legislated inspection role. The internal
audit departments in the sector bureaus are supposed, inter alia, supposed to assess how well
the procurement law and its directives are being complied with by procurement sections. As
mentioned in PI-21, however, the internal audit function has only recently started to function
fully.
Nevertheless, the procurement section of BOFED claims, on the small sample of procurement
contract data that it obtains, that the use of restrictive tendering is generally well-justified, in
accordance with the legislation.
Page 55
(iii) Existence and operation of a procurement complaints mechanism
The procurement legislation provides for a mechanism for submitting complaints (Chapter
VIII: Submission of Complaints on Public Procurement). In the first instance, any complaints
about the way the procurement process has been conducted are submitted to the head of the
procuring entity. The complaint has to be submitted within 5 days of the circumstances
justifying a complaint become known. The head of the procuring entity has up to 15 days to
reply. If he/she doesn’t reply or the complainant is not satisfied with the reply, the complaint
may be submitted to the procurement section in BOFED, which has 15 days to reply. If still
dis-satisfied, the complainant can take the matter to the courts.
At present, there is no procurement-specific external body that can impartially review

complaints (though the establishing of such a body is being considered).
In practice, very few complaints BOFED receives very few complaints a year, less than 10.
Many complaints reflect inadequate knowledge of the procurement procedures and are
therefore resolved by the procuring entity through explanation of the procedures to the
complainant.
EMCP Assessment Study
The study indicates: (i) the procurement law and directives have been implemented region-
wide since 2005 (EFY 1998), procurement manuals distributed and training delivered; (ii) the
standard bid document distributed to all offices in the region and implemented by most of the
sector bureaus (less so for ZOFED and WOFEDs); (iii) BOFED approved a procurement
service structure comprising 5 staff, though the full complement of staff has not yet been
reached in some cases; (iv) a directive on pool procurement method for zones and woredas
was distributed; (v) the survey indicated perceived improvements in the system, but also
pointed out issues concerning inconsistency of rules as per the procurement manual and
directives, lack of flexibility on the procurement of urgently needed goods, repeated
cancellation of awards, lack of adequate training, absence of qualified experts, poor
procurement planning, lack of attention to quality of goods received, and insufficient
technical support from MOFED/BOFED.
Score Minimum Requirements Justification Information

Sources
C
(M2)
D (i) Use of open competition Procurement is in most cases the responsibility of -- Procurement
for award of contracts that procuring entities established within sector bureaus. legislation.
exceed the nationally These do not send procurement information to the -- Head of
established monetary procurement department in BOFED, because capacity procurement section
threshold for small purchases constraints within the bureaus hinder the collation of in BOFED FAPMD.
Insufficient data exist to information, and also, it seems, because BOFED does -- Head of
assess the method used to not request it (although the legislation provides for such procurement section
award public contracts. requests). in Education Bureau
FAPMD.
C (ii) Justification for use of The procurement legislation indicates the criteria for -- As above.
less competitive procurement using less competitive procurement methods above the
methods threshold. BOFED collects only little information on
Justification for use of less justifications for using less competitive methods, but
competitive methods is weak claims that the case for using less competitive methods
or missing. is generally well-justified (the sector Bureau Head has to
first approve the use of such methods). The IAD has a
role in assessing whether justification has been
demonstrated in terms of the criteria listed in the
proclamation, but the internal audit function is still
Page 56

Sources
developing.
B (iii) Existence and operation The procurement legislation provides for a complaints --- As above.
of a procurement complaints submission mechanism. This is operative. A
mechanism procurement-specific external higher authority is not
A process (defined by provided for in the legislation; complaints above the level
legislation) for submitting and of BOFED have to go through the court system. In
addressing procurement practice, most complaints are resolved by the
complaints is operative, but procurement entity itself.
lacks ability to refer
resolution of the complaint to
an external higher authority.
A C+ rating was assessed, but on the basis of insufficient supporting evidence.
3.5.8. PI-20: Effectiveness of internal controls for non salary expenditure
The control systems in the Federal Government date back the time of Emperor Haile Selassie,
who adopted a mix of French and British-type systems. The regions, prior to decentralization,
used the same control systems and have continued to use them since decentralization. The
financial control systems are embedded in the Financial Regulations (themselves derived
from the Financial Administration Proclamation) and associated internal directives and other
control systems, such as those related to personnel management, are embedded in the Civil
Service regulations. The Internal Audit Manual of the Federal Government, contains the basic
principles of internal control systems. The recently (mainly during 2008/09) BPR exercises
are resulting in streamlined control systems in the interests of greater efficiency.
(i) Effectiveness of expenditure commitment controls
Section 25 of the 2003 Federal Government Financial Administration Proclamation (the

regional government proclamations are virtually the same) and Section 32 of the 2009 Federal
Government Financial Administration Proclamation states that expenditure commitments
cannot be entered into without approval of the head of the public body (or a person authorized
by him) and without a “sufficient unencumbered balance from the budget to discharge any
debt that will be incurred during the fiscal year in which the contract or other arrangement is
made”. Penalties for spending commitments entered into without supporting budget
appropriation are fines and up to 10 years’ imprisonment (Section 70 of the Financial
Administration Proclamation, paragraph 4).
As noted under PI-16 (ii), this means that commitments depend only on the approved budget,
not on actual cash availability. However, cash flow forecasting (PI-16 i), the quality of which
is gradually improving, and more efficient cash management on the basis of the expanded
Treasury Single Account system (PI-17 ii) help to reduce the risks of cash not being available
when the time comes up for payment (which may be a few months away, depending on the
nature of the commitment).
Managers in all the regional BOFEDs met by the assessment team strongly emphasized the
strength of the controls over expenditure commitments, in terms of compliance with the
approved budget.
Page 57
(ii) Comprehensiveness, relevance and understanding of other internal controls and

processes
Basic internal controls in place are: segregation of duties and multiple signature systems (at
least two for each transaction), prompt and proper recording of transactions and events, pre-
numbering (sequentially) of originating documents (such as goods’ received notes, cash
receipts (as noted in PI-7) and invoices, and accounting for these; independent recording of
transactions in control accounts and periodic checking of these with the balances on the
appropriate ledger; reconciliation of cash books with bank statements; cross-checking of
documents (e.g. invoice with purchase order and goods received note); and verification of
physical assets.
The BPR is resulting in some streamlining, for example, reduction in the number of signatures
required and greater flexibility for department managers (e.g. a department manager can
provide budget execution information directly to the Accounts Section rather than go through
the Bureau Head each time).28 As the internal audit function develops (PI-21), further
streamlining and managerial flexibility will evolve.
With regard to personnel management, controls include: (i) Leave approval: 30 days annual
leave are allowed. Leave is approved by the Personnel Office and further approved by the
Bureau Head; (ii) Sick leave: a physicians note is required; (iii) Study Leave: if the study
leave is for 2 years, for example, the officer must return to service for at least four years,
otherwise he/she must pay back any public monies received to finance the study leave.
Standardised forms must be used for applying for the types of leave indicated above.
Documentation on regulations and procedures is readily accessible in offices, enabling good

understanding by staff.
(iii) Degree of compliance with rules for processing and recording transactions
Compliance appears to be good, not just because of a general culture of compliance that goes
back several years, but also because of administrative penalties that may apply if rules and
procedures are violated; for example, leave taken in excess of the approved amount without
prior notification may be deducted from salary payments.
Minimum Requirements
Justification Information
Score Sources
B Listed in PEFA Framework
(M1)
B (i) Effectiveness of expenditure Commitments are authorized on the basis of the -- Financial
commitment controls approved budget allocations (as specified in the Administration
Expenditure commitment legislation).. Good revenue performance (PI-3), proclamations (2003
controls are in place and strengthened cash flow forecasting and cash and 2009) and
effectively limit commitments to management systems (PIs 16 and 17) help to minimize Regulations (2003).
actual cash availability and the risk of cash unavailability at the time of actual -- BOFED FAMPD
approved budget allocations for payment. In addition, if there is a serious risk of a cash and Inspection
most types of expenditure, with shortfall, managers try to find offsetting adjustments in Department staff.
minor areas of exception. other parts of the budget. .
B (ii) Comprehensiveness, Financial and non-financial control systems are -- As above.
28
The Education Bureau FAPMD provided the assessment team with an example of process streamlining resulting from the
BPR: reduction in the number of signatories required from five to two for any kind of expenditure request (in this case, an
advance), the person who prepares a form and the person who approves.
Page 58
relevance and understanding of comprehensive, well documented and generally

other internal control understood. The BPR exercises identified areas where
rules/procedures controls could be streamlined, resulting in efficiency
Other internal control rules and gains, partly taking into account the embedding of
procedures incorporate a IBEX. Some streamlining has already taken place (e.g.
comprehensive set of controls, reduction in the number of signatures required) but the
which are widely understood, process is not yet finished, and an A rating is probably
but may in some cases be premature.
excessive and lead to
inefficiency.
(iii) Degree of compliance with The annual report of ORAG for April 2007-March 2008 -- BOFED FAPMD
B
rules for processing and identified some areas of insufficient adherence to and IAD staff
recording transactions internal controls, particularly related to procurement. -- ORAG annual
Compliance with rules is fairly The Chairman of the Finance and Budgeting report to FBC,
high, but simplified/emergency Committee (FBC) in the Oromia Regional Council Regional Council.
procedures are used confirmed this to the assessment team. -- Regional Council
occasionally without adequate FBC.
justification.

The indicator received an A rating, which seems too high.
3.5.9 PI-21: Effectiveness of internal audit
Regular and adequate feedback to management is required on the performance of the internal
control systems, through an internal audit function (or equivalent systems monitoring
function). This indicator assess: (i) coverage and quality of the internal audit function; (ii)
frequency and distribution of reports; and (iii) extent of management response to internal
audit findings.
The internal audit (IA) function is provided for in the Financial Administration Proclamations
and Financial Regulations, and its development is one of the components of the EMCP. The
pre-audit function was phased out during 2006/07 in tandem with the phasing in of the post-
audit function. Key features are:
• IA departments in sector bureaus formally report to both the heads of the bureaus in
which they are established and to the Inspection Department (ID) in BOFED (i.e. dual
subordination), which has overall responsibility for overseeing the development of the
IA function.
• The single pool system includes the internal audit function (i.e. ZOFEDs and
WOFEDs perform the IA function on behalf of sector offices):
• An internal audit manual and training manuals have been developed (based on the
Federal Government IA manual and with help from an international consultant in
MOFED), with focus on meeting professional standards (as per the International
Standards for the Professional Practice in Internal Audit (ISPPIA), issued by the
Institute of Internal Auditors). The focus of internal audit is, accordingly, on system
issues.
• As a minimum qualification, internal auditors at sector bureau are required to have a

bachelors of arts degree in Accounting, Economics and Management; at zonal
administration level, the minimum qualification is a diploma.
Page 59
• With help from ORAG, the ID has organized training courses (through Training
Management Institute) for internal auditors at both sector bureau and woreda levels,
monitors and evaluates audit reports and provides technical assistance; a training
course was delivered to woredas during 2009 (no training courses for woredas are
planned for 2010.
• ORAG “accredits” internal auditors through issuance of certificates (MOFED has

provided training in this regard).
• Up to 2009/10, IADs were typically manned by only one staff person. As a result of
the BPR, the numbers of staff positions have been increased to 5-8 (5-6 in the
Education Bureau), with effect from the beginning of 2009/10.
(i) Coverage and quality of the internal audit function.
According to the ID in BOFED, IA units are operational in all 42 bureaus and 18 zonal
administrations and in most woredas (WOFEDs perform the IA function through the single
pool system). They generally meet professional standards as established by ISPPIA and focus
on systemic issues.
On paper, this dimension would appear to score A or B. In practice, however, the IA function
is still developing and cannot be said to be fully operational, mainly because IA departments
have had insufficient numbers of staff until very recently. Even with increase in the number of
positions as of the beginning of 2009/10, recruitment of staff to fill these positions takes time.
As with the rest of the civil service, pay and benefit levels are issues constraining the
recruitment and retention of staff.
(ii) Frequency and distribution of reports.
Prior to 2009/10, IADs were submitting reports on a quarterly basis to their bureau heads and
to ID. Reports on the payroll have been included in these. For 2009/10, the frequency is in the
process of being increased to 2 months. There is no legal requirement to submit reports to
ORAG (which is accountable to the Regional Council and not the executive), but ORAG can
(and does) obtain IA reports on request.
(iii) Extent of management response to internal audit findings.
According to ID, most managers take actions in response to the findings of internal audit
reports. The speed and quality of response depends mainly on the nature of the audit report
findings (some issues can be resolved more quickly than others). However, given that the IA
function and the recognition of its importance are still evolving, it is doubtful that
management response is quick and comprehensive.
EMCP Impact Assessment Study
The report notes the progress made in introducing the internal audit function. Better
transparency and service delivery, effective control, more accountability at the local level and
efficiency in audit report preparation, are among the results achieved by the internal audit
reform programme. Shortages of staff (including problems in retaining trained staff, except
for WOFEDs) and budget and insufficiency of continuous training are mentioned as
problems.
Page 60
Specific observations of the study:
• 11 percent of the sample sector bureaus did not have any approved positions for
internal audit functions.
• Management did not take actions on IA findings in 27 percent of sector bureaus

(management follow-up was much higher for WOFEDs).
• 36 percent of sector bureau staff had a good understanding of internal audit (18
percent of Heads of Bureaus), though a much higher percentage for WOFED staff).
Score
Information
C+ Scoring Criterion Justification
Sources
M1
C (i) Coverage & quality of the On paper, the IA function is operational for all regional -- Federal
internal audit function government entities, meets professional standards and Government
The function is operational focuses on systemic issues. In practice, insufficient internal audit
for at least the most numbers of positions (up until the end of 2008/09) and manual.
important government the time it takes for a pool of professional auditors to be -- Meeting with ID
regional government entities established has resulted in the function only now (BOFED) staff.
and undertakes some beginning to be fully established. As a result of the -- Meeting with IA
systems review (at least 20 BPR, the numbers of positions in IA departments has department in
percent of staff time), but been sharply increased to 5-8 since the beginning of Bureau of
may not meet recognized 2009/10 and the positions are gradually being filled. Education.
professional standards.
A (ii) Frequency & distribution Up to 2009/10, IA departments prepared quarterly -- ID, BOFED
of reports reports and submitted to the head of the bureau in
Reports adhere to a fixed which they are located and to ID in BOFED. Reports
schedule and are distributed are provided to ORAG on request (the legislation does
to the audited entity, BOFED not provide for obligatory submission of reports to
and ORAG. ORAG).
C (iii) Extent of management With the IA function and the perception of its importance -- ID, BOFED;
response to internal audit still evolving, and IADs understaffed until only recently, IA department in
findings a B rating would be too high. A rating of D would be too Education
A fair degree of action taken low; the culture in Ethiopia of following rules indicates bureau.
by many managers on major that IAD recommendations would not be largely ignored.
issues but often with delay.

ORG was rated at C, B and A for the three dimensions and at B+ overall (which is incorrect, according
to the M1 scoring method, the score should be C+). The A rating for dimension (iii) seems too
optimistic. The report mentions that the IA function is still being developed, and strengthening was
expected.
3.6 Accounting, recording and reporting
This set of indicators assesses the timeliness of accounting, recording and reporting. A summary of the
scores is tabulated below.
Page 61
No. Accounting, Recording and Reporting Score Dimensions Scoring

Methodology
PI-22 Timeliness and regularity of accounts reconciliation B+ (i) B M2
(ii) A
PI-23 Availability of information on resources received by services delivery C▲ (i) C▲ M1

units
PI-24 Quality and timeliness of in-year budget reports C+▲ (i) C▲ M1
(ii) A
(iii) C▲
PI-25 Quality and timeliness of annual financial statements C+ (i) C M1
(ii) B
(iii) C
3.6.1. PI-22: Timeliness and regularity of accounts reconciliation
(i) Regularity of bank reconciliations
Reconciliation between the Central Treasury Account (CTA) held in National Bank of
Ethiopia (NBE) and the general ledger (held in IBEX in BOFED) takes place (by FAPMD of
BOFED) on a monthly basis within 10 days of the end of the month.29 About 70 percent of
ORG deposits are held in CTA/Z accounts. Movements on the CTA account and Z accounts
in CBE (see PI-17) are reconciled daily (the CTA and Z accounts are effectively the TSA).
Reconciliation is at both aggregate and detailed level. The movement of the transfer accounts
(IBEX codes 4001-4017) and zero balance accounts are reconciled against the aggregate
balance of the CTA. Bureaus’ bank accounts are reconciled against the ledger by the
respective FAPMDs in the bureaus.
There are no significant unreconciled differences between the bank accounts and the records
of the Treasury; the reconciliation items mainly consisting of unpresented cheques, deposits
and transfers made on the closing date, uncleared bank deposits and late recording by some
budgetary institutions. Differences are normally cleared within the same month and are not
carried forward.
BOFED requires monthly bank reconciliation reports in relation to donor-supported

programmes and funds, notably the Food Security, Safety Net, PSCAP and WaSH
programmes and the Roads Fund (but not, it seems, for the Global Fund, and for donor-
funded projects. Opening by donors of bank accounts for projects (known as A accounts) has
to be approved first by BOFED; there are less than ten of these, under the control of sector
bureaus. The BOFED requires monthly bank reconciliation and submission of reconciliation
reports to it by the donors. This is more difficult to check at detailed level for projects being
implemented by UN agencies (e.g. UNICEF), which use their own charts of account, but the
agencies perform the reconciliations at aggregate level.
(ii) Regularity of reconciliation and clearance of suspense accounts and advances
Suspense accounts and advances are classified in the Chart of Accounts under code 4201 for
suspense accounts and codes 4203-4211 for advances. Suspense accounts may include
revenue deposits (held in ‘B’ bank accounts) awaiting deposit into CTA. It is possible that
these may have uncleared balances that are carried forwards to the next period. Advance
accounts include advances to staff and ‘purchase’ advances. Staff advances are supposed
29
IBEX account 4105: “Cash at Bank at Central Treasury”.
Page 62
(under the Financial Regulations) to be retired within a short space of time (7 days for travel
advances), and, according to BOFED, this requirement is adhered to. For the purposes of
scoring this dimension, advances exclude prepayments to contractors, as these may not be
retired until the end of a project, which may not be until the following year.
The trial balance sheet for the regional bureaus at the end of 2008/09 (EFY 2001) indicates
ETB 5.2 million in suspense accounts (recorded as debit), advances to staff of ETB 4.2
million, and purchase advances of ETB 60.9 million. The trial balance sheets for subsequent
months also indicate suspense account balances and the stock of advances, but in themselves
do not provide enough information to score, as the breakdown between items retired and new
items is not shown; i.e. the age profile is not shown. The assessment team was informed by
BOFED that such details are contained in the trial balance sheets of individual bureaus and
that generating reports at the bureau level was very time-consuming.

Information Sources
B+ As listed in PEFA Framework
(M2)
B (i) Regularity of bank Reconciliation of the bank accounts held under -- BOFED F(FAPMD)
reconciliations CTA/Z accounts (representing about 70 percent of -- Example of a bank
Bank reconciliation for all ORG deposits) with the ledger held in BOFED (in reconciliation
Treasury managed bank IBEX) takes place every month within 10 days of the statement.
accounts take place at least end of the month. Reconciliation of other accounts
monthly, usually within 4 (donor-supported programmes and funds) also takes
weeks from the end of the place every month in most cases, though not
month. necessarily at detailed level, with statements
provided to BOFED.
A (ii) Regularity of reconciliation BOFED claims speedy clearance of advances -- Trial balance sheet
and suspense accounts and (within 7 days for travel advances, as required by for total regional
advances the financial regulations). Suspense accounts, bureaus, end-2008/09
mainly representing temporary deposit of revenues (provided by BOFED
Reconciliation and clearance in bank accounts (B accounts) may be carried FAPMD).
of suspense accounts and forward, but are normally transferred to CTA within a
advances take place at least month, according to BOFED (also see PI-15).
quarterly, within a month from
the end of the period and with End-month and end-year trial balance sheets and
few balances brought those of subsequent months do not indicate an age
forwards. profile. The assessment team’s rating is therefore
based on BOFED’s verbal assurances that
suspense accounts and advances are cleared
rapidly.

Dimension (i) is rated as A, but this does not appear to take into account non-Treasury
managed accounts. Dimension (ii) is rated as C; external audit reports note reconciliation and
clearance issues.
3.6.2. PI-23 Availability of information on resources received by service delivery units
The primary education and primary health care post service delivery units (SDUs) at woreda
government level are not cost centres in terms of recurrent expenditures; they do not have
individual budget classification codes assigned to them. Thus budget execution reports cannot
explicitly report on the financial resources they receive relative to their approved budgets.
Primary health care centres (catering to outpatients as well as in-patients) are cost centres in
terms of recurrent expenditures and can therefore explicitly report on the financial resources
they receive relative to their approved budget. Service delivery unit capital expenditures –
Page 63
both primary education and primary health -- mainly implemented by regional governments,
are recorded under project codes in the budget classification system.
The woreda education bureaus (which are cost centres) are responsible for allocating the
physical resources purchased under their budgets to the SDUs. In the case of primary schools,
the number of students enrolled is the main determinant for the allocation of resources
between schools.
Woreda education bureaus forward physical activity reports to zonal education bureaus,
which then send to the regional bureau, which then sends to the Regional Cabinet. In
principle, these could show the financial and physical resources received by SDUs relative to
what they should be receiving through the budget, but, in practice, many schools do not send
in reports, mainly due to capacity constraints. The assessment team met Oromia Education
Bureau but was unable to meet the Oromia Health bureau.
Information on resources being provided to service delivery units is being increasingly

disseminated through the media. In addition, a system for recording resources received, by
type of resource (e.g. teachers, books) relative to minimum standards established at federal
level (and adapted to regional level), on notice boards posted outside SDUs was developed
during 2007-2009 under the Financial Transparency and Accountability Programme (FTAP)
and is in the process of being rolled out. The system forms a good basis for monitoring
resources received by SDUs.

C▲ Collection and processing of information to Information provided by the -- Oromia Education
demonstrate the resources that were actually Oromia Education Bureau Bureau, Head, Planning
received (in cash and kind) by the most concerning the use of mass and Budgeting Department.
common front-end delivery units (focus on media and the posting of
primary schools and primary health clinics) in information outside service
relation to the overall resources made delivery units on resources
available to the sector (s), irrespective of received. It was not possible to
which level of government is responsible for meet the Oromia Health Bureau..
the operation and funding of those units.
(i) Special services undertaken within the last An upward pointing arrow is
3 years have demonstrated the level of assigned to indicate progress
resources received in cash and in kind by being made.
either primary schools or primary health clinics
covering a significant part of the region.

The indicator was rated A, but this appears to be incorrect.
3.6.3. PI-24: Quality and timeliness of in year budget reports
This indicator assesses the scope of reports, their timeliness and the quality of information on
actual budget implementation.
(i) Scope of reports in terms of coverage and compatibility with budget estimates
Quarterly detailed budget performance reports are prepared by BOFED through IBEX for
senior management and for MOFED for revenues, recurrent and capital expenditures for each
regional bureau (and sub-agencies within each bureau) according to economic classification.
Page 64
The reports show actual expenditures and not expenditure commitments, though the reports
submitted by the bureaus include the expenditure commitments, which are recorded semi-
manually (i.e. not through IBEX, which is not yet rolled out to sector bureaus). They do not
include capital expenditure financed through donor assistance, except for those donors
providing assistance through Channel 1, using the government’s budget classification system
(not necessarily the same thing). The reports are just tables.
(ii) Timeliness of the issue of the reports
The reports are issued quarterly, within one month of the end of the quarter. In terms of
consolidated regional bureau plus woreda reports, these tend to take longer, as IBEX has not
yet been rolled out to woredas.
(iii) Quality of information
BOFED checks information submitted by the bureaus for accuracy. There are no material
concerns for the accuracy of data, as every finance officer is liable to provide on request
supporting documents for payments. Senior accountants – and the internal audit department --
check the documents. At the woreda government level, however, (beyond the scope of this
study), accuracy may suffer due to high staff turnover, and difficulties in handling the double
entry book-keeping system that was introduced in EFY 1998 (2005/06), partly because
manual methods are still being used; (insufficiently trained staff may make mistakes when
selecting the correct debit code for each entry under a credit code (or vice versa), leading to
reconciliation problems).
Ongoing actions and plans
Although IBEX has been rolled out to the regional bureaus, sector bureaus are not yet
electronically linked with BOFED. Financial performance data is hand-carried to BOFED in
the form of CDs. The next stage of roll-out is the networking of the sector bureaus with
BOFED; work is commencing this year. IBEX is also to be rolled out to woredas. Work on
preparing an upgraded and more user-friendly version of IBEX (IBEX 2), which should lead
to fewer mistakes being made, is close to completion.

Information Sources
C+ As listed in the PEFA
(M1) Framework
C▲ (i) Scope of reports in terms Detailed comparison is possible for revenues, recurrent -- BOFED FAPMD
of coverage and expenditures, domestically-financed capital expenditure staff;
compatibility with budget and some items (under Channel 1) of externally-financed -- Budget performance
estimates capital expenditure for each public body (and sub-agency reports.
Comparison to budget is within the body) and by economic classification. Actual
possible only for main expenditure is shown, not expenditure commitments,
administrative headings. though the semi-computerised information provided by
Expenditure is captured sector bureaus to BOFEDs includes expenditure
either at commitment or at commitments. A higher rating requires that commitments
payment stage, but not are reported on. IBEX is currently being rolled out to
both. sector bureaus, thus enabling the inclusion of expenditure
commitments in reports. Thus an upward pointing arrow
is assigned to the C rating.
Page 65

Information Sources
A (ii) Timeliness of the issue Information provided by BOFED. Reports on regional -- BOFED: FAPMD
of reports bureau budget performance can be generated each staff.
Reports are prepared month, within a few days of the end of the month. -- Budget
quarterly, or more Performance reports.
frequently, and issued
within 4 weeks of the end of
period.
B▲ (iii) Quality of information BOFED checks the information provided by sector -- As above.
There are some concerns bureaus. Checking in principle has been made easier by
about accuracy, but data the introduction of double-entry book-keeping.
issues are generally Nevertheless, there is potential for making mistakes, for
highlighted in the reports example, in selecting the correct contra-entries,
and do not compromise particularly in the context of semi-manual recording
overall methods still used (as IBEX is still being rolled out to
consistency/usefulness. sector bureaus). BOFED discusses accuracy issues with
sector bureaus and usually resolves them. With IBEX
being rolled out to sector bureaus, accuracy should
increase..
ORG is rated A, B, A for the three dimensions and overall B+, but this does not seem to be
correct.
3.6.4. PI-25: Quality and timeliness of annual financial statements
The dimensions to be assessed are: (i) Completeness of the financial statements; (ii)
timeliness of the submission of the financial statements; and (iii) accounting standards used.
(i) Completeness of the financial statements
BOFED prepares a consolidated government financial statement annually, covering both

regional bureaus and woredas. This contains mainly full information on revenues,
expenditures, financial assets and liabilities, but coverage of donor-funded projects and extra-
budgetary funds is not complete, particularly in the context of donor-funded funds (e.g.
Global Fund) and projects that use the Channel 2 mechanism (funds by-pass BOFED and go
straight to the sector bureaus) and which do not necessarily contain information on financial
assets and liabilities, and also some projects that use the Channel 1 mechanism but not the
budget classification system.
(ii) Timeliness of the submission of the financial statements
There used to be a 2-3 year lag between the end of the financial year and the submission of
annual financial statements to ORAG, but this has been reduced to about a year; the legal
deadline is 3 months after the end of the fiscal year.. The introduction of IBEX is one reason.
The accounts for EFY 2001 (2008/09) were finally closed in February 2010, and the financial
statements submitted to ORAG in May, 2010, eleven months after the end of the financial
year. (. The financial statements cover woreda governments as well as the regional
government, so preparation takes longer than it would if the statements covered only the
regional government. Timeliness will strengthen further as regional bureaus are networked to
the IBEX electronically, and as IBEX is rolled out to woredas (even more so, if it is rolled out
using the more user-friendly and upgraded IBEX 2 currently being tested).
Page 66
(iii) Accounting standards used.
The accounting standards used are those of the Federal Government, consistent with
Generally Accepted Accounting Practices (GAAP). International Public Sector Accounting
Standards (IPSAS) are not yet used, nor are standards used that are consistent with IPSAS on
a cash basis. But IPSAS on a cash basis is not yet fully used. As noted in the PEFA
Secretariat’s “Clarifications to the PFM Performance Measurement Framework, June 2005
(updated September 2008), financial information on externally-funded projects should be
included in annual financial statements under IPSAS. If they are not, the statements are not
compliant with IPSAS. In the case of ORG (and bureaus in other regional states), information
is lacking on actual expenditure under Channel 2-type projects, even though these projects
may appear in the approved budget proclamation, and even under Channel 1 projects,
information on actual expenditure is not complete if the projects do not use the government’s
budget classification system and therefore are not reported on and accounted for in IBEX (see
narrative under D-2)
Ongoing actions and plans
A new financial statements model is being piloted by MOFED.
EMCP Assessment Study
ORG introduced the modified cash basis for accounting and the double entry accounting
system in 2004/05 (EFY 1997). BOFED prepared the accounting manuals and training
modules and distributed to sector bureaus and woredas. The new accounting system has
improved the preparation of reports and closing of accounts, through less paperwork, fewer
processing steps, better tracking of expenditure items, greater accuracy and ease of
reconciling accounts (but note the comments under PI-24 dimension iii). IBEX has been used
for the accounting function since 2006/07 (EFY 1999), with many benefits reported. Lack of
ownership of IBEX, insufficient continuous training and problems in retaining trained staff
are noted as significant issues.
Page 67

C+
(M1)
B (i) Completeness of the Full information is not provided on donor-supported -- BOFED FAPMD staff.
financial statements projects, programmes and funds, with the partial
A consolidated government exception of those that use the Channel 1 funding
statement is prepared modality and the government’s budget classification
annually. It includes, with few system..
exceptions, full information on
revenue, expenditure and
financial assets/liabilities
B (ii) Timeliness of submission of The statements for 2007/08 (EY 2000) and 2006/07 -- BOFED FAPMD staff.
the financial statements were submitted to ORAG in November 2008 and
The statements are submitted November 2007 respectively, within six months of the
for external audit within 10 end of the financial year. Due to problems with IBEX,
months of the end of the fiscal the accounts for 2008/09 were not closed until
year. February 2010, and not submitted to ORAG until
May 2010, 11 months after the end of the financial
year.. On average, the submissions are within 10
months of the end of the financial year.
C (iii) Accounting Standards The federal government standards are used, which -- Ditto
used meet Generally Accepted Accounting Practices -- PEFA Secretariat
Statements are presented in a (GAAP), which are not the same as IPSAS (required “Clarifications to the PFM
consistent format over time for a B rating). IPSAS on a cash basis requires Performance Management
with some disclosure of information in the annual financial statements on Framework, June 2005
accounting standards. expenditures of donor-funded projects, where these (updated September
are included in the budget proclamations. However, 2008)”
as noted in the text above, this is not the case. -- IFAC (IPSAS on cash
basis).
Progress since 2007 Regional PEFA Assessment
An A rating is provided for all dimensions, but this seems too high.
3.7. External oversight and legislative scrutiny
This set of indicators looks at the quality and timeliness of external scrutiny of the
government’s budget estimates as well as the public accounts.
No. External Scrutiny and Audit Score Dimensions Scoring

Methodology
(i) C
PI-26 Scope, nature and follow-up of external audit C+ (ii) A M1
(iii) B
(i) C
Legislative scrutiny of the annual budget law (ii) C
PI-27 D+ M1
(iii) D
(iv) D
(i) A
Legislative scrutiny of external audit reports.
PI-28 C+▲ (ii) C▲ M1
(iii) C▲
3.7.1. PI-26: The scope, nature and follow up of external audit
A high quality external audit is an essential requirement for creating transparency in the use
of public funds. Dimensions to be assessed are: (i) scope/nature of audit performed; (ii)
timeliness of submission of audit reports to the legislature; and (iii) evidence of follow-up on
audit recommendations.
The Office of the Regional State Auditor General (ORAG) was “re-established” in March
2005 (EFY 1997) under Proclamation No. 90/2005, consistent with Article 49(3) of the
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Constitution of Oromia Region (it was originally established under a proclamation the
previous year, but this was repealed under the new proclamation). Key provisions include:
o The Auditor General and Deputy Auditor General are appointed by the Regional
Council (“Caffee” in Oromia language), which also approves their salaries; the
term of office is six years.
o The Office and the Regional Auditor General are accountable to the Regional
Council.
o Issuance of ‘certificates of competence’ of private auditors and accountants who

provide auditing and accounting services to ORAG;
o Penalties for auditees who fail to provide the information required by ORAG in
the course of its auditing duties; penalties are 5-7 years imprisonment or a fine of
ETB 10,000 or both.
The proclamation is currently being revised in order to provide a deadline of the end of
September for public bodies to close their accounts; the current proclamation does not provide
time limits (except for the submission by BOFED of the consolidated annual financial
statements). The draft proclamation has been submitted to the Regional Council.
ORAG has a staff of 197, of whom 118 are auditors. It is hiring 36 new graduates this year.
New staff must have a diploma as a minimum, previously only a 12th grade pass was required.
A new Human Resources Management Department is being planned.
ORAG considers that the planned introduction of IBEX 2 will help to strengthen reporting
and accounting and thereby facilitate the audit process.
ORAG does not yet have its own website. ORAG publicises its activities to an extent through
TV and radio. The language used is Oromia’s own (Orimfaa), as required by Oromia’s
constitution; Orimfaa is significantly different from Amharic.
(i) Scope and nature of audit
This dimension comprises three sub-dimensions. The lowest sub-dimension score is the score
for the dimension as a whole (i.e. if the lowest sub-dimension score is D, the score for the
dimension is D). The sub-dimensions are: (a) extent of coverage of regional government
bureaus in terms of percentage of total public expenditure; b) the nature of the audit: e.g.
financial audits, compliance audits, performance audits; and (c) adherence to appropriate
auditing standards (e.g. as specified by INTOSAI), including the extent of focus on systemic
issues.
(a) Extent of audit coverage of regional government bureaus
The Office of the Regional Auditor General (ORAG) covers the 203 woreda governments as
well as the 42 regional government bureaus (including their sub-agencies); altogether, 376
public bodies. About one quarter of these is audited every year; the larger ones, in terms of
expenditure (Education, Health, Agriculture, Water, Rural Roads Authority) are audited every
year. At woreda level, the Single Pool system, introduced in 2006/07 (whereby the WOFED
manages the finances of the woreda sector offices) permits aggregation, so that an external
audit can cover several public bodies as one aggregate body. In monetary terms, about 70
Page 69
percent of domestically-financed public expenditure is being covered under the audit for
2008/09.
ORAG also audits donor-financed projects. It has the right to audit the Roads Fund and the
water works enterprise, but, as provided for in the proclamation (Section 9), delegates this to
private sector auditors. In addition, ORAG’s scope includes private companies under contract
to ORG (for contracts exceeding EB 500,000, as indicated in Article 8 in the ORAG law, but
in practice this has not been exercised. The Office of the Auditor General (OFAG) at federal
government level audits funds that are under the control of the federal government, notably
the Food Security and Safety Net funds.
(b) Nature of Audit

The emphasis is on financial (covering revenue, expenditure, and financial assets and
liabilities) and compliance audits (covering internal controls, including those for the payroll,
procurement and property administration systems). ORAG is starting to conduct performance
audits. It has not yet conducted any IT audits and environmental audits. If requested by the
Regional Council, it will conduct special audits where legal matters are involved (e.g.
covering suspected fraud).
c) Adherence to Auditing Standards

ORAG follows the audit standards of the federal level Office of the Auditor General (OFAG),
which is a member of INTOSAI.
Publication of Audit Reports (INTOSAI Standard):
Publication of audit reports is not prohibited by law, but in practice no reports have been
published, mainly because of resource constraints. The Regional Council can authorize
publication. The BPR study, completed during 2008/09, recommended that audit reports
should be published, and ORAG is accordingly preparing to publish its audit reports covering
2008/09 (probably in July 2010, after their submission to the Regional Council).
Independence of ORAG from the Executive (INTOSAI Standard)
As noted above, ORAG is accountable to the Regional Council and thus is independent in
principle from ORG. This independence is compromised to some extent, however, as
ORAG’s budget is included in the ORG budget.
Co-operation and Public Relations
The law governing ORAG provides for the right to access to all the information required for
ORAG to fulfil its responsibilities (Article 17, paragraph 12), thus meeting another INTOSAI
standard.
Audit Methodology
The focus is increasingly on audit of internal control systems (as stipulated in paragraph four
of Article 8 in the ORAG law on powers and duties of ORAG) as per INTOSAI/AFROSAI
standards rather than of individual transactions. Payroll systems, for example, are tested on a
sample basis (e.g. checking if new staff recruited according to the law, examining samples of
Page 70
personnel files and attendance sheets, and checking that signature protocols are being
followed); ORAG has not yet come across any instance of ghost workers. ORAG looks at
internal audit department reports (PI-21) as part of its work, but does not depend on them, as
the internal audit function is still developing and there are still issues concerning capacity
(e.g. level of appropriate training).
(ii) Timeliness of submission of audit reports to legislature
By law, ORAG should audit the annual accounts of ONRS (i.e. regional bureaus and woreda
governments) within 8 months of their submission by ORG, and then submit its opinion to
BOFED (Section 17.1 of proclamation). Section 17.2 stipulates that ORAG submit an annual
report on its audits of public bodies and the annual accounts to the Regional Council, but no
deadline is given. In practice, the annual report is provided close to the end of each fiscal year
(annual reports cover the period May-April).
The time taken to audit the annual accounts has fallen to 3-4 months in recent years. ORAG
received the annual accounts for 2007/08 in late May, 2009 and completed its audit in August
2009. and the time taken to audit the annual accounts for 2008/09 (received in May 2010)
should take about the same. With regard to the audit of public bodies, ORAG starts its audits
in the second quarter of the fiscal year. Smaller bureaus/offices take about 10 days to audit,
larger ones up to 2 months. The draft proclamation, by stipulating a deadline of end-
September for the closure of accounts, would facilitate more timely audits. Every month
ORAG receives copies of the budget performance reports prepared by bureaus, thereby
facilitating its work. ORAG transmits copies of its audit reports to the Regional Council every
quarter.
(iii) Evidence of follow up on audit recommendations
Under Section 21.3 of the proclamation governing ORAG, audited entities are obliged to take
corrective measures and respond within 30 days from the date of receipt of the audit report
sent to them by ORAG. ORAG first discusses its audit findings with the relevant staff of the
audited organization (exit conference), who then discuss with their management. ORAG
requests a written reply from management within 13 days. ORAG may then return if it has
more queries, otherwise it produces its opinion and sends its report to BOFED (including the
Management response), and BOFED then sends this to the Regional Council (as from this
current fiscal year, to the newly formed – January 2010 -- Public Accounts Committee, in
previous years to the Budget and Finance Committee). ORAG checks during the following
year’s audit whether its recommendations have been implemented.
As a result of the BPR, ORAG created a new department earlier this fiscal year (2009/10) to
provide more effective scrutiny of extent to which bureau/office management implements
ORAG recommendations.

Sources
C+
(M1)
C (i) Scope/nature of audit Out of 376 regional bureaus and woreda offices in Oromia, -- Auditor
performed (incl. Adherence about 90 are audited every year on a rotating basis, except for General, Oromia
to auditing standards). the larger bureaus (in terms of their expenditure), which are ORAG.
ONRS entities (regional audited every year. About 70 percent of ONRS domestically -- Proclamation
Page 71

Sources
bureaus and woredas) financed expenditure is covered each year. Full financial audits 90/2005
representing at least 50 and compliance audits are conducted, broadly in compliance with governing ORAG.
percent of total expenditures INTOSAI standards (following OFAG), with the main focus on
are audited annually. Audits systemic issues. Audit reports are not published, in violation of
predominantly comprise one of the INTOSAI standards The limiting factor in rating this
transaction level testing, but dimension is the scope of coverage, which is less than the 75
reports identify significant percent required for a B rating, and the non-publication of audit
issues. Audit standards may reports.
be disclosed to a limited
extent only.
A (ii) Timeliness of submission In the case of audit reports for each public body, ORAG starts -- Oromia Auditor
of audit reports to the the auditing process 3 months after the end of the fiscal year and General.
legislature. takes up to 2 months to audit, thus five months in total from the
Audit reports are submitted end of the fiscal year (in relation to the last two completed fiscal
to the legislature within 4 years). In the case of the audit of the annual accounts, ORAG
months of the period took 3-4 months to audit the 2006/07 accounts after their receipt
covered and in the case of from BOFED, and 3 months to audit the 2007/08 accounts. It
financial statements from expects to take about 3 months to audit the 2008/09 accounts,
their receipt by the audit received from BOFED in May, 2010. Taking a simple average of
office. the rating for the annual accounts and the audit reports as a
whole, the score is A. .
C (iii) Evidence of follow-up on Formal responses are made in a timely manner, as required -- Oromia Auditor
audit recommendations under the ORAG proclamation. The assessment team was General .
A formal response is made unable to obtain a copy of ORAG’s annual report, but, on the
in a timely manner, but basis of the annual reports of the Amhara and SNNPR ORAGs,
there is little evidence of the formal responses tend to be provided in a timely manner, but
systematic follow-up. evidence of systematic follow-up by management is limited.
The ratings for dimensions (i) –(iii) are D, B and A respectively and thus an overall ranking of
D+. The coverage has probably improved, partly due to the single pool system. An A rating
for dimension (iii) seems too high (the report mentions that Oromia had introduced a Public
Accounts Committee (PAC), thus increasing the probability of effective and timely follow-up,
but the PAC was only established in January 2010). The timeliness of the audit of the annual
accounts is not differentiated from the timeliness of the audit reports covering individual
public bodies.
3.7.2: Legislative scrutiny of the annual budget law
The power to give the government authority to spend rests with the legislature, and is
exercised through the passing of the budget law.
Until January 2010, the Budget and Finance Committee (BFC) of the Oromia Regional
Council scrutinized both the draft budget and the audit reports prepared by ORAG; the BFC
was established five years ago. A Public Accounts Committee (PAC) was established in
January, with the mandate to scrutinize audit reports submitted to it by ORAG, so BFC is now
only responsible for scrutinizing the draft budget. The BFC has five members, of which two
are full-time (Head and Vice Head); the others work on an ad-hoc basis.
(i) Scope of the Legislature’s Scrutiny
The BFC scrutinizes the draft budget proclamation submitted to it by the Regional Cabinet.
As noted under PI-6, the draft proclamation contains only estimates of revenue and
expenditure and subsidies to woredas.
Page 72
(ii) Extent to which the legislature’s procedures are well-established and respected
The BFC’s procedures are:

o The BFC starts to examine the draft budget proclamation after receiving it from
the Speaker of the Regional Council, to whom it has been submitted by the
Regional Cabinet; the BOFED and sector bureau managers may be invited to
explain and discuss the budget.
o The Head of BFC then sends the draft budget proclamation, and BFC’s comments
on it, to the Coordinating Committee of the Regional Council: this committee
comprises 20 members, drawn from the eight Standing Committees of the
Regional Council. It is then sent to the Regional Council as a whole for approval.
To aid BFC’s (and also now PAC’s) analytical scrutiny of the budget and external audit
reports, a number of manuals have been/are in the process of being drafted covering the
different components of PFM, including one manual covering budget preparation issues.
The BFC’s procedures are not always fully respected, mainly due to the difficulties in
convening all its members as and when they are required. This is because they tend to work in
other jobs part-time and to live elsewhere in Oromia.
(iii) Adequacy of the time for the legislature to provide a response to budget proposals
The BFC is supposed to receive the draft budget proclamation at the end of May and then to
have one month to review it, prior to the end of the fiscal year. The Regional Cabinet,
however, tends to delay the submission of the draft proclamation. Over the last few years, the
BFC has had only one week to review it. The BFC considers that at least 3 days is necessary
and that it should take 10 days at the most to provide a comprehensive review (as the
proclamation consists almost entirely of tables covering only the next fiscal year with no
textual explanation, including reasons for changes from the current fiscal year, it would seem
unlikely that a meaningful review could be achieved in only 10 days).
(iv) Rules for in-year amendments to the budget without ex-ante approval by the legislature
As per the Financial Administration Proclamation, based on the Federal Government’s

Financial Administration Proclamation, in-year amendments to the budget without ex-ante
approval by the legislature are permitted for transfer within public bodies and transfers
between public bodies (the latter requiring prior approval of the Regional Cabinet) that do not
result in an increase in overall spending. As noted in PI-16 (iii) reallocations between public
bodies during the year are extensive.
Ex-ante approval by the legislature of amendments is only required for supplementary

budgets that would result in an overall spending increase. There is at most one supplementary
budget a year that is presented to the Regional Council. Due to the limited number of
Regional Council meetings (only 2-3 a year), the supplementary budget tends to be presented
at the end of the fiscal year at the same time as the draft budget for the following year; the
approval is therefore ex-post rather than ex-ante, in contravention of the Financial
Administration proclamation.
Page 73

Information Sources
D+ Listed in PEFA Framework
(M1)
C (i) Scope of the legislature’s The documentation submitted to Budget and Finance -- Head, FAPMD,
scrutiny Committee (BFC) consists only of the detailed revenue and BOFED.
The legislature’s review spending estimates for the next financial year. -- Head and Vice
covers details of Head, BFC, Oromia
expenditure and revenue, Regional Council.
but only at a stage where -- Budget Proclamation
detailed proposals have for 2009/2010.
been finalized.
C (ii) Extent to which the The procedures are simple (as explained in the narrative). -- Head and Vice
legislature’s procedures are With three out of the five members of BFC appointed on an Head, BFC
well-established and ad-hoc basis and tending to live elsewhere in Oromia
respected. Region, the procedures are only partially respected.
Some procedures exist for
the legislature’s budget
review, but they not
comprehensive and only
partially respected.
D (iii) Adequacy of time for the The budget calendar allows one month for the legislature -- Chairman, BFC
legislature to provide a to review the draft budget proclamation. However, in
response to budget recent years, the Regional Cabinet has submitted the draft
proposals. very late, allowing only one week for BFC to review (given
The time allowed for the that the draft proclamation is supposed to be approved
legislature’s review is clearly prior to the end of the fiscal year). BFC says this is clearly
insufficient for a meaningful insufficient time.
debate (significantly less
than one month).
D (iv) Rules for in-year The rules are contained in the Financial Administrative -- Head and Vice
amendments to the budget Proclamation, which is based on the Federal Government Head, BFC.
without ex-ante approval of equivalent. As indicated in PI-16 (iii), in-year reallocations -- Financial
the legislature. between public bodies are permitted without ex-ante Administration
Rules regarding in-year Regional Council approval as long as total spending does Proclamation.
budget amendments may not increase. Such reallocations are extensive. Ex ante
exist, but they are either approval by the Regional Council is required for proposed
very rudimentary and supplementary budgets that result in increased total
unclear OR they are usually spending, but the approval tends to be ex post, at the end
not respected. of the fiscal year, in apparent violation of the Financial
Administration Act. Thus the requirement for ex-ante
approval by the Regional Council is not respected.

The dimension are rated A, A, D and A (overall D+), but the evidence appears to be at
variance with the evidence presented above, except for the third dimension.
.
3.7.3. PI-28: Legislative scrutiny of external audit reports
The legislature has a key role in exercising scrutiny over the execution of the budget that is
approved. This indicator assesses: (i) timeliness of examination of audit reports by the
legislature (for reports received within the last three years); (ii) extent of hearings on key
findings undertaken by the legislature; and (iii) issuance of recommended actions by the
legislature and implementation by the legislature.
As indicated under PI-27, the BFC until January, 2010 reviewed both the budget
documentation and the audit reports prepared by ORAG. The Public Accounts Committee
(PAC) was established in January 2010 (a BPR recommendation) and has the mandate to
review audit reports. It has five members, of which the Chairman is from the ruling party and
the Vice Chairman is from the opposition party. As with the BFC, the other members attend
meetings on an ad-hoc basis.
(i) Timeliness of examination of audit reports
Page 74
Audit reports are reviewed by BFC/PAC on a quarterly basis. ORAG also submits quarterly
activity reports to BFC/PAC that provide information on what audit reports it is preparing.
The annual report prepared by ORAG is presented to the Regional Council close to the end of
the fiscal year.
(ii) Extent of hearings on key findings
The PAC (previously the BFC) has the power to summon government staff to answer
questions related to issues raised by ORAG in its reports. This power was not exercised over
the last 18 months (up to March 2010) as in previous years. . PAC, once it has organized
itself, is likely to fully exercise its power to summon staff and prepare recommendations for
them to implement.
(iii) Issuance of recommended actions by the legislature and implementation by the executive.
The BFC/PAC has the power to make recommendations to bureaus and offices on the basis of
the audit reports it receives. If the recommendations are not implemented then BFC/PAC has
the power to take the offending bureaus/offices before the Regional Cabinet.
Recommendations are prepared by BFC and the President submits these to the public bodies.
In practice, as implied under dimension (ii), this power was exercised in recent times to a
lesser extent than previously. The new PAC is expected to resurrect this power.
Score
Minimum Requirements Justification Information Sources
C+▲
Listed in PEFA Framework
(M1)
A (i) Timeliness of examination of Audit reports are reviewed by BFC/PAC on a -- Head and Vice Head,
audit reports by the legislature. quarterly basis. The Regional Council reviews the BFC, Oromia Regional
Scrutiny of audit reports is annual report prepared by ORAG and submitted to it Council.
usually completed by the near the end of the fiscal year.
legislature within 3 months of
receipt of the reports.
C▲ (ii) Extent of hearings on key Hearings over the 18 months up to March 2010 -- Head and Vice Head,
findings undertaken by the have been less frequent than previously. The pace BFC, Oromia Regional
legislature. and depth of these hearings is expected to pick-up Council.
In-depth hearings on key under the newly-established PAC.
findings take place
occasionally, cover only a few
audited entities and may
include ministry of finance
officials only.
C▲ (iii) Issuance of recommended The BFC/PAC has the power to issue -- Head and Vice Head,
actions by the legislature and recommendations and report on non-implementation BFC, Oromia Regional
implementation by the of these to the Regional Cabinet. As referred to Council.
executive. under (ii), this power was used less extensively
Actions are recommended, but during the 18 months up to March 2010. The extent
are rarely acted upon by the of use of this power is expected to pick up under the
legislature. newly established PAC.
ORG was rated A for all dimensions. The lessened extent of BFC scrutiny referred to under
dimensions (ii) and (iii) is reflected by lower ratings in this assessment.
Page 75
3.8. Donor practices

No. Donor Practices Score Dimensions Scoring
Methodology
Not Not
D-1 Predictability of direct budget support M1
applicable applicable
(i) C
Financial information provided by donors for budgeting and reporting
D-2 D+ (ii) D M1
on project and program aid
D-3 Proportion of aid managed by use of national procedures D (i) D M1
3.8.1. D-1: Predictability of Direct Budget Support
This indicator is not used as Oromia Region does not receive direct budget support (i.e.
unearmarked funds that are deposited by donors into the Central Treasury Account and co-
mingled with domestic revenues). Budget support is provided to the Federal Government and
helps to finance the block grant from the Federal Government to the regional governments.
One of the conditions is adequate funding of the Protection for Basic Services (PBS)
programme; in effect, donors fund about one-third of PBS.
3.8.2: D-2: Financial information provided by donors for budgeting and reporting on
project and programme aid
The dimensions to be assessed are: (i) completeness and timeliness of budget estimates by
donors for project support; and (ii) frequency and coverage of reporting by donors on actual
donor flows for budget support.
A substantial proportion of donor aid is provided to Oromia Region through Channel One,
that is assistance and loans provided to MOFED, which then channels this to BOFED (but the
loans are on the account of MOFED) and assistance provided directly to BOFED by donors,
which BOFED then passes on to sector bureaus. The proportion is not exactly known, as
BOFED has incomplete information on the amount of donor aid provided through Channel 2
(donor aid provided to sector line ministries at federal level, which then channel the funds
directly to sector bureaus at regional level, plus donor aid provided directly to sector bureaus)
and has even less information on donor aid provided through Channel 3 (donor aid provided
directly to projects without going through sector bureaus; this includes NGO projects –
though increasingly these are being reported on to BOFED) and aid-in-kind).
Guidelines for Donor Fund Coordination and Management in Oromia Region were published
by ORG in 2005. The objective is to provide guidance on the regular reporting of work plans,
budgets and the performance thereof. Development of work plans by bureaus, at the initial
stage of budget preparation, takes into account donor plans; workshops may be held to discuss
these.
The donor agencies that are known, to have significant presence in Oromia (in the form of
funding of projects) are World Bank, ADB, EU, DFID, Italy, Korea and the UN executing
agencies (UNICEF, WHO, UNDP and UNFPA).30 Donor agencies with suspected significant
presence in Oromia include USAID, JICA, GTZ and the mainly donor-supported Global Fund
and Roads Fund (the Food Security and Public Safety Net Programmes, and PSCAP are
30
Donor agencies also provide funding through PBS.
Page 76
excluded from the analysis as they are included in the federal government budgets, with the
regional government playing an implementing role)
The proportion of aid being provided under Channel 1 appears to be growing. Assistance
from UN agencies (UNICEF in particular), used to be provided through Channel 2, but is now
provided through Channel 1. The Budget Performance reports generated through IBEX
indicate this. The approved budgets include some donor projects provided through Channel 2.
The performance of these projects relative to the approved budget is, however, not captured
by the budget performance reports as, being Channel 2, expenditure is not captured in IBEX
and thus is not reported to BOFED. The reports for 2006/07 and 2007/08 indicate actual
spending under donor projects to be much lower than that shown in the approved budget,
indicating possible non-reporting. The report for 2008/09 indicates, however, expenditure
significantly higher than budgeted. Table 8 summarises:
Table 8: Capital Expenditure financed by External Loans and Assistance, ONRS

ETB millions 2006/07 2006/07 2007/08 2007/08 2008/09 2008/09
Budget Actual Budget Actual Budget Est. Actual
External loans 153 1.6 181 103 203 232

& Assistance
(i) Completeness and timeliness of budget estimates by donors for project support
The budget proclamations include estimates of external loans and assistance, financing about
4 percent of total estimated ONRS expenditure, mainly in the agriculture, water resources,
education and health areas. This includes estimates of loans and assistance to be provided
through Channel 2 (as reflected in Table.. above). The donor agencies mentioned in the
budget proclamation (for 2009/10) are the ones referred to above. They may not be the
biggest ones (as expenditures funded by USAID and Global Fund may be large but are not
included in the budget proclamation and are not known). Only ABD and World Bank use the
Government’s budget classification system, according to the broad economic classification
categories.
(ii) Frequency and coverage of reporting by donors on actual donor flows for project
support
Reporting can be provided in full in principle for projects funded through Channel 1
modalities as they can be captured in the IBEX system and therefore in the quarterly budget
performance reports and monthly trial balance sheets. In practice, this does not appear to
happen, except under the WASH programme, and, even then, the expenditure reports are not
reflected in the overall budget performance reports. Outside WASH, the information shown to
the assessment team, as reflected in the budget performance reports and end-year trial balance
sheets, shows only annual actual disbursements, and then only for ADB and UNICEF.
Page 77

D+ As listed in PEFA Framework
(M1)
C (i) Completeness & timeliness of The budget proclamations indicate donor -- 2009/10 Budget
budget estimates by donors for assistance and loans in aggregate and according Proclamation
project support to the projects they finance. They incorporate loans -- Annual budget
At least half of donors (including the and assistance from the five largest donors for performance reports for
five largest) provide complete which information is available (it is possible that capital expenditure
budget estimates for disbursement other donors, such as Global Fund, are larger, but funded by donor loans
of project aid for the government’s no information is available on its planned annual and assistance.
coming fiscal year, at least three expenditures). Only ADB and World Bank use the -- FAPMD staff, BOFED
months prior to its start. Estimates government’s budget classification system.
may use donor classification and
not be consistent with the
government’s budget classification
system.
D (ii) Frequency & coverage of Quarterly expenditure reports are only provided -- Annual budget
reporting by donors on actual under the WASH programme. Annual performance report for
project flows for project support expenditures under UNICEF and ADB funded 2008/09 concerning
Donors do not provide quarterly projects (but not all ADB funded projects) are capital expenditure
reports within two months of end-of- reflected in the end-year budget performance financed by loans and
quarter on the disbursements made report and trial balance sheet. assistance.
for at least 50 percent of the -- End-2008/09 monthly
externally financed project trial balance sheet
estimates in the budget. (codes 2001 and 2025
for ADB and UNICEF
respectively).
The responsibility for monitoring donor-funded projects in the Oromia BOFED is spread over
a number of offices. As a result it is difficult to obtain an overall picture on the amount and
type of project aid being provided. Moreover, it is incomplete, as donor-funded projects
executed through the Channel 2 and Channel 3 modalities are not reported to BOFED.
In this regard, the assessment team drafted a spreadsheet format designed to provide a
complete picture of donor aid flows to Oromia. This is reproduced in Annex B.

The donor practice indicators were not covered.
3.8.3. D-3: Proportion of aid that is managed by use of national procedures
The dimension to be assessed is the overall proportion of aid funds to the regional
government that are managed through national procedures (banking, authorization,
procurement, accounting, audit, disbursement and reporting).
Donors providing assistance through the Channel 1 modality are increasingly using country
financial management systems, though mainly only the accounting and reporting systems.
The UN Executing Agencies are, however, still using their own accounting systems (they use
a different COA). Donor agencies do not yet use the government’s budget execution and
banking systems (donor project bank accounts controlled by BOFED are not yet part of the
zero balancing system, which is part and parcel of the budget execution system). Government
procurement systems are coming closer to international best practice standards (BOFED
considers that ORG is three quarters of the way there) though donors still mainly use their
own procurement systems. Donors also tend to recruit their own external auditors, mainly
Page 78
because of manpower constraints in the Office of the Regional Auditor General (ORAG)
rather than capability constraints.

D Less than 50% of aid Donor-financed projects do not generally use the -- BOFED FAPMD staff.
funds to regional Government’s budget execution system, banking
government are managed arrangements (project accounts are not part of the TSA),
through national procurement systems and audit systems. Accounting and
procedures. reporting systems are used, except by UN agencies, which
use different COA. Even so, as not all donor projects are
classified according to the Government’s budget classification
system (only ADB and World Bank), expenditures under
donor projects can’t be reported on, according to this
classification.
3.9. Predictability of Transfers from Federal Government
This indicator (HLG-1) assesses the predictability of funding from the Federal Government.
Most of the funding is in the form of the block grant. This is very predictable, the amount
provided being virtually equal to the budgeted amount. The disbursement during the year is
also very predictable, as it is provided in 12 equal monthly instalments. Other funding is in
the form of assistance and loans channeled to BOFED, which then transfers the funding to
sector bureaus (Channel 1 funding). This is not so predictable. Actual amounts transferred
may be less than budgeted for, due to delays in disbursements by donors (perhaps because
conditionalities attached to the assistance are not being met). The federal government block
grant comprises 95 percent of the combined block grant and donor loan/assistance resources,
so this indicator rates A.
Page 79
Oromia Regional Government PEFA Assessment
4. Government reform process

4.1 Recent and on-going reforms
PFM reforms have been ongoing for several years under the auspices of the EMCP and
PSCAP. The EMCP covers the following components: legal framework reform, procurement
reform, budget reform, accounts reform, internal audit reform, cash and disbursement reform,
government property administration reform, and information system reform. The reforms
have focused on getting the basics right first (thus, MTEFs, programme budgeting and full
accrual accounting have not yet started, and IBEX has only just been rolled out to regional
bureaus), building enabling capacity and attempting to ensure that the reforms under each
component move in step with each other.
Recognising that slow business and administrative processes can undermine the success of
reforms, the Federal Government, followed by the regional governments, embarked on a
Business Process Re-engineering (BPR) exercise three years ago, looking at all business
processes. Implementation of the recommendations arising from this exercise started during
2008/09 and has continued into 2009/10. Examples of efficiency-improvement measures
taken are re-organisation of bureaus in some cases and reduction of the numbers of signatures
required for each process (e.g. payments approval).
4.2 Institutional factors supporting reform planning and implementation
Government leadership and ownership

The MOFED, with political support, has being in the driving seat of the PFM reform
programme. Through pushing through reforms at the federal level, preparing manuals and
methodological guidelines (e.g. accounting reform, cash management reform, budget
preparation) and taking the lead in introducing and then strengthening the IT system in
support of PFM reform, it paved the way for regions to implement the same reforms. The
reforms were not introduced to all the regions at once, the generally stronger ones being the
first candidates for reform. With line ministries and sector bureaus having considerable
responsibilities for public expenditure and finance management, the federal government
appears to have been successful in involving them in the implementation of the reform
programmes and thus winning their ‘buy-in’.
Technical assistance appears to have been used well by the Government in support of the
reforms: for example, the preparation of the various manuals through the Decentralisation
Support Activity (DSA) project during the early 2000s.
The Joint Budget and Aid Reviews have been a useful mechanism for federal and regional
governments to review the reform programmes with the donor partners and to resolve any
issues that have been identified.
Page 80
Annex A: Calculation of Performance Indicator Two on

Budget Variance
Table A1: Budgeted and Allocated Expenditure by Public Body, 2006/07, ETB
` Data for 2006/07 (EFY 1999)
Code Administrative Unit head Budget Actual Difference Absolute %
311 Education 306,908,581 344,644,106 37,735,525 37,735,525 12.3%
341 Health 213,732,543 227,541,117 13,808,574 13,808,574 6.5%
211 Agriculture & Rural Development 89,869,000 101,100,509 11,231,509 11,231,509 12.5%
122 Supreme Court 44,335,245 48,003,395 3,668,150 3,668,150 8.3%
129 Prison Administration 54,413,127 54,324,181 (88,946) 88,946 0.2%
127 Police Commission 59,228,870 85,132,309 25,903,439 25,903,439 43.7%
111 Regional Council 10,872,688 11,391,433 518,745 518,745 4.8%
213 Agriculture Research Institute 29,626,353 27,427,418 (2,198,935) 2,198,935 7.4%
221 Water Resources Development 125,722,784 109,753,646 (15,969,138) 15,969,138 12.7%
273 Rural Roads Authority 173,027,831 109,309,262 (63,718,569) 63,718,569 36.8%
152 Finance & Economic Development 32,501,158 30,967,345 (1,533,813) 1,533,813 4.7%
153 Information & Public Relations 11,316,771 12,280,153 963,382 963,382 8.5%
278 Housing Development Project 36,595,800 119,136,323 82,540,523 82,540,523 225.5%
332 Culture 14,033,216 15,198,013 1,164,797 1,164,797 8.3%
318 Capacity Building 37,579,363 38,503,477 924,114 924,114 2.5%

Trade, Industry & Urban
231 Development 29,614,900 20,035,059 (9,579,841) 9,579,841 32.3%
115 Regional State President 39,504,149 46,631,267 7,127,118 7,127,118 18.0%
156 Revenue 13,153,531 16,414,181 3,260,650 3,260,650 24.8%
333 Public Organisation & Social Affairs 21,832,840 21,354,839 (478,001) 478,001 2.2%
224 Irrigation Development Authority 15,833,886 9,638,141 (6,195,745) 6,195,745 39.1%
21 (= sum of rest) 234,411,799 100,561,129 (133,850,670) 133,850,670 57.1%
total expenditure 1,594,114,435 1,549,347,306 (44,767,129) 44,767,129 2.8%
composition variance 1,594,114,435 1,549,347,306 422,460,183 26.5%
Page 81
Data for 2007/08 (EFY 2000)
Code Administrative Unit budget actual difference absolute percent
311 Education 395,673,635 393,087,928 (2,585,707) 2,585,707 0.7%
341 Health 361,466,666 339,134,607 (22,332,059) 22,332,059 6.2%
211 Agriculture & Rural Development 222,470,548 206,346,337 (16,124,211) 16,124,211 7.2%
122 Supreme Court 80,229,474 66,325,647 (13,903,827) 13,903,827 17.3%
129 Prison Administration 68,199,624 67,219,681 (979,943) 979,943 1.4%
127 Police Commission 148,251,229 122,676,434 (25,574,795) 25,574,795 17.3%
278 Housing Development Project 29,947,700 34,705,506 4,757,806 4,757,806 15.9%
152 Finance & Economic Development 44,088,677 38,294,137 (5,794,540) 5,794,540 13.1%
154 Oromia Mass Media Organisation 30,459,596 64,496,490 34,036,894 34,036,894 111.7%
277 Urban Development & Work 42,364,536 37,374,319 (4,990,217) 4,990,217 11.8%
121 Justice 17,981,801 14,113,530 (3,868,271) 3,868,271 21.5%
318 Capacity Building 45,000,942 38,605,860 (6,395,082) 6,395,082 14.2%

231 Development 35,148,320 20,228,821 (14,919,499) 14,919,499 42.4%
156 Revenue 23,127,123 20,416,502 (2,710,621) 2,710,621 11.7%
333 Public Organisation & Social Affairs 26,551,902 25,674,965 (876,937) 876,937 3.3%
123 Legal Research & Training Institute 23,571,624 17,370,647 (6,200,977) 6,200,977 26.3%
21 (= sum of rest) 284,387,068 168,125,498 (116,261,570) 116,261,570 40.9%
Page 82
2008/9 (EFY
Data for year = 2001)
functional head budget actual difference absolute percent
311 Education 334,395,027 327,802,937 (6,592,090) 6,592,090 2.0%
341 Health 454,358,662 444,993,244 (9,365,418) 9,365,418 2.1%
211 Agriculture & Rural Development 53,537,640 228,721,486 175,183,846 175,183,846 327.2%
122 Supreme Court 41,000,000 37,934,056 (3,065,944) 3,065,944 7.5%
129 Prison Administration 73,690,480 125,364,191 51,673,711 51,673,711 70.1%
127 Police Commission 134,270,024 121,219,074 (13,050,950) 13,050,950 9.7%
278 Housing Development Project 26,745,896 23,758,886 (2,987,010) 2,987,010 11.2%
152 Finance & Economic Development 42,924,031 55,930,566 13,006,535 13,006,535 30.3%
154 Oromia Mass Media Organisation 61,265,666 51,046,866 (10,218,800) 10,218,800 16.7%
277 Urban Development & Work 135,578,877 131,443,732 (4,135,145) 4,135,145 3.0%
312 Technical & Vocational Education 194,866,382 180,826,490 (14,039,892) 14,039,892 7.2%
318 Capacity Building 25,700,687 46,647,125 20,946,438 20,946,438 81.5%

231 Development 39,670,379 50,867,755 11,197,376 11,197,376 28.2%
156 Revenue 24,360,433 24,500,064 139,631 139,631 0.6%
333 Public Organisation & Social Affairs 26,791,320 16,456,135 (10,335,185) 10,335,185 38.6%
123 Legal Research & Training Institute 18,720,769 18,604,424 (116,345) 116,345 0.6%
21 (= sum of rest) 391,329,586 281,839,972 (109,489,614) 109,489,614 28.0%
Page 83
Oromia National Regional State: Table A4: Budgeted and Actual Revenue, ETB
2006/07 2006/07 % 2007/08 2007/08 % 2008/09 2008/09 %
Budget Actual Diff. Budget Actual Diff. Budget Actual Diff.
Domestic Revenue 600,000,000 762,837,938 27.1 700,000,000 1,088,221,678 55.5 950,000,000 1,357,905,433 42.9
Tax revenue 476,628,147 560,805,589 17.7 565,698,147 806,872,544 42.6 780,858,285 935,390,803 19.8
Direct Taxes 446,909,604 519,454,802 16.2 503,554,550 748,144,294 48.6 737,164,372 864,448,858 17.3
Income, Profit & Capital Gains 446,909,604 519,454,802 16.2 503,554,550 748,144,294 48.6 737,164,372 864,448,858 17.3
Other direct taxes
Indirect Taxes 29,718,543 41,350,787 39.1 62,143,597 58,728,250 -5.5 43,693,913 70,941,945 62.4
Excise locally made goods
(lmg) 593,718 685,742 15.5 606,069 1,604,357 164.7 867,723 121,904 -86
Sales turnover tax on lmg 9,865,430 12,879,597 30.6 15,339,489 17,437,308 13.7 14,187,238 19,194,057 35.3
Services sales tax 5,128,741 20,473,590 299.2 24,566,183 32,197,645 31.1 23,021,274 41,583,110 80.6
Other indirect taxes 14,130,654 7,311,858 -48.3 21,631,856 7,488,940 -65.4 5,617,678 10,042,874 78.8
Non-tax revenue 123,371,853 202,032,349 63.8 134,301,853 281,349,134 #### 169,141,715 422,514,630 149.8
Recurrent 122,570,234 191,784,273 56.5 132,657,764 278,265,884 109.8 169,141,715 356,348,297 110.7
Capital revenue 801,619 10,248,076 1178.4 1,644,089 3,083,250 87.5 - 66,166,333 #DIV/0!
Source: IBEX Tables, BOFED
Page 84
ANNEX B: Donor Loans and Assistance Template

External Assistance and Loans Template: Birrs
A: Through Federal Government 1999 1999 2000 2000 2001 2001
& included in budget proclamation Bud Act Bud Act Bud Act
Channel One (MOFED to BOFED)
World Bank
ADB
EU
Itemise others
Channel Two (sector ministry to sector bureau)

Itemise donors, including donor-supported Funds
B: Through Regional Government

& included in budget proclamation
Channel One (Donor to BOFED)

UN agencies
SIDA
FINNIDA
Itemise others
Channel Two (donor to sector bureau)

Itemise donors
Channel Three (donor direct to project)

Itemise
C: Aid not included in budget proclamation
Itemise
Page 85
Annex C: List of People Met

Oromia Region
Ato Tolasaa Gaddafaa, Bureau, Head, BOFED.
Ato Tesfaye, Deputy Bureau Head, BOFED
Ato Elema Kampe, Head, Financial Administration and Property Management Department,
(FAPMD) BOFED
Ato Thomas Dego, Chief Accountant, FAPMD, BOFED
Ato Kumara, Legal Advisor, BOFED.
Ato Assefa Dinku, Fiscal Transfers Unit, BOFED
Ato Tesfa Kejeia, Fiscal Transfers Unit, BOFED
Ato Zelalem Bacha, Fiscal Transfers Unit, BOFED
Ato Gezu, Officer in charge of multilateral agencies, BOFED
Ato Tesfaye, Donor agency programmes (e.g. PSCAP), BOFED
Ms. Amaz, Senior Accountant for PSNP, BOFED
Ms. Meseret Chala, Senior Accountant for Food Security Programme, BOFED.
Ms. Faskika Woldu, Accountant, WaSH programme, BOFED
Ato Alemayehu Sambi Dinka, Head, NGO Affairs Department, BOFED.
Head, Revenue Bureau,
Auditor General, ORAG
Ato Fekadu Dechasa, Head, Budget and Finance Committee (BFC), Regional Council
Ato Tesfaye Dejenu, Vice Head, BFC, Regional Council
Ato Samuel Keno, Head, FAPMD, Education Bureau
All Regions
Mr. Ephraim Zewdie, Economist, EU Delegation, Addis Ababa
Ms. Benedetta Musillo, Economic Attache, EU Delegation, Addis Ababa
Mr. Christoph Wagner, Head of Section, Economic, Trade, Social, Regional Integration, EU
Delegation, Addis Ababa
Ato Hiwot Mebrate, Social Development Advisor, Embassy of Ireland, Addis Ababa.
Mr. Hans Poley, First Secretary Economic Affairs, Netherlands Embassy, Addis Ababa
Dr. Paul Dorsey, Dulcian, Ethiopia (IBEX Project)
Dr. Stephen Peterson, former project manager of DSA project.
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Federal Government of Ethiopia

Ministry of Finance and Economic

OROMIA REGIONAL GOVERNMENT PEFA

FWC Beneficiaries 2009 – Europe Aid/127054/C/SER/Multi

October 17, 2010 (Final)

Programme financed by the European Commission Project implemented by

IDC - SAFEGE Group

Abbreviations and Acronyms iv

2. Oromia Region Background Information 9

3. Assessment of the PFM Systems, Processes and Institutions 14

4. Government reform process 80

Annex A: Calculation of Performance Indicator Two on Budget Variance 81

ANNEX B: Donor Loans and Assistance Template 85

Annex C: List of People Met 86

CURRENCY AND EXCHANGE RATES

Government Fiscal Year (FY): July 8 – July 7

Ethiopian Fiscal Year (EFY) Gregorian (European year Equivalent)

Abbreviations and Acronyms

Strong positive factors in principle supporting budget credibility and predictability

• Strengthened budget preparation, execution, revenue administration, cash

• Strengthening external audit function (PI-26)

(i) Strengthening Comprehensiveness, and transparency of the budget

• Including the elements under PI-6 (Comprehensiveness of information included

• Further increasing the proportion of donor-funded projects and programmes

• Further improving the comprehensiveness and transparency of information

• Strengthening the transparency of the procurement system (PI-19): Systems

(ii) Strengthening External Scrutiny:

Strong demand by the legislature for accountability supported by an effective

• The quality of budget documentation currently submitted to the Budget and

• As provided for by legislation, the BFC has an official ex-ante role in

• The quality of the legislative scrutiny of external audit reports (PI-28)

(iii) Strengthening the medium-term perspective to the budgeting process:

(ii) Prospects for reform planning and implementation

Note: Shaded areas represent M2 scoring methodology Overall I ii iii Iv

1.2. Process of preparing the report

regional government representatives to discuss their comments and fill in remaining

1.3. Scope of the Assessment

2. Oromia Region Background Information

Oromia’s economy is based on agriculture (mainly rain-fed, subsistence), accounting for 69

Implementation of development strategies requires effective government, for which a well-

2.2 Description of Budgetary Outcomes

Total Financial Resources 3728 3739 5519 5829 6724 7250

Total Expenditures 3803 3803 5626 5480 6932 7161

Capital 721 607 1135 1068 1714 1760

Balance -76 -63 -107 349 -208 89

Note: Budget refers to approved budget

Table 2 summarises expenditure by broad economic classification.

Table 2: Economic Classification of

Total Expenditure 5480 100.0 7166 100.0

Source: IBEX tables and end-year trial balance sheets.

2.3. Legal and Institutional Framework for PFM

Legal framework for PFM

Institutional Framework for PFM

Internal and External Audit

Planning and Budgeting

Budget Execution, Cash and Debt Management, Reporting and Accounting

In the meantime, the donor-financed IT project team located in MOFED is preparing an

Business Process Re-engineering (BPR)

• Re-organisation of bureaus; e.g. in BOFED, the procurement, property management