Ethiopia: Auditor General Exposes Rampant Financial Mismanagement and Overdue Accounts Receivable A recent audit report by Ethiopia’s Auditor General has revealed widespread financial mismanagement and substantial overdue accounts receivable, raising concerns about the country’s fiscal discipline. Key Findings: * Unappropriated Expenditures: Government agencies incurred expenses totaling 332 billion Ethiopian birr (ETB) without proper authorization, violating the Public Finance Management Proclamation. * Unauthorized Salary Payments: Salaries amounting to 6.4 billion ETB were paid to employees who did not meet the required qualifications or had not undergone appropriate training. * Misuse of Public Funds: Government officials misappropriated or misused public funds for personal gain or other unauthorized purposes. * Overdue Accounts Receivable: The government has accumulated 168 billion ETB in overdue accounts receivable, with some debtors owing billions of birr. Consequences: The financial mismanagement has resulted in: * Reduced government revenue and increased fiscal deficit * Misallocation of resources and inefficient spending * Corruption and a lack of accountability * Delays in the delivery of essential services to citizens Recommendations: To address these issues, the Auditor General has recommended measures such as: * Strengthening internal control systems and financial management practices * Improving budget planning and execution processes * Enforcing penalties for unauthorized expenditures and misuse of public funds * Conducting regular financial audits and holding officials accountable * Establishing clear guidelines for the collection of accounts receivable Government Response: The government has acknowledged the findings of the audit report and has stated its commitment to addressing the deficiencies identified. It has announced plans to implement measures to strengthen financial management, recover overdue receivables, and promote accountability. Implications: The rampant financial mismanagement and overdue accounts receivable have серьезные последствия for Ethiopia’s economy and development. It undermines trust in the government, reduces the efficiency of public spending, and hampers efforts to reduce poverty and improve living standards. Addressing these issues is crucial for ensuring sound fiscal management, promoting transparency, and creating a stable and prosperous Ethiopia.Addis Ababa — On Tuesday, June 18, 2024, Meseret Demisse, head of the Office of the Federal Auditor General, presented a surprising report to the House of People’s Representatives.Addis Ababa — On Tuesday, June 18, 2024, Meseret Demisse, head of the Office of the Federal Auditor General, presented a surprising report to the House of People’s Representatives. The audit revealed significant government revenue arrears, tax revenue arrears, and illegal unaccounted expenditures involving 162 federal agencies during the 2022/23 fiscal year. In his annual presentation to lawmakers, Meseret exposed financial mismanagement and irregularities in accounting documentation at several federal government institutions. The audit report identified unaccounted expenditures totaling 43.5 million birr in 11 federal institutions, including the Federal Police Commission. Additionally, the report uncovered illegal disbursements of 16.7 million birr by 30 institutions. However, the highlight of the audit report was the significant amount of overdue accounts receivable, totaling 14.1 billion birr. Although 124 government institutions were involved, three ministries were responsible for more than half of the total amount. Specifically, the Ministry of Health has almost 6 billion birr in overdue receivables, followed by the Ministry of Irrigation and Lowlands with 1.1 billion birr and the Ministry of Education with 1 billion birr. The audit report also addressed issues related to federal government construction projects, highlighting cases where legal violations allowed contractors to improperly handle projects. In particular, the report points out the allocation of 12 construction projects valued at approximately 11 billion birr to only two contractors, which constitutes a violation of established procurement rules. In her report, the chief auditor highlighted the detrimental impact of suspended public projects on government resources. A survey conducted on 41 such projects revealed a loss of 17 billion birr. The report attributed this major loss mainly to the inability of the Ethiopian Construction Authority to recover advance payments made to contractors after the suspension of the project. Dube Jilo was one of the parliamentarians who expressed deep concern over the audit findings and the apparent inability of government institutions to comply with established regulations. He highlighted that the findings of the audit report highlight the critical need for robust public finance monitoring and control mechanisms, with government officials taking primary responsibility for ensuring accountability. Another MP, Bartema Fikadu, criticized the conspicuous absence during the parliamentary session of the majority of officials who oversee budgetary institutions. “To whom is this audit report presented?” she questioned. Bartema noted that this pattern of absenteeism has persisted in previous sessions. “Unless government officials are present to hear the findings and take corrective action,” he said, “it is impossible to achieve meaningful rectification of these problems.” Lomi Bedo, vice president of the House of People’s Representatives, underscored the validity of Bartema’s concerns. “Officials have been notified about this parliamentary session,” he said, adding: “This issue needs to be rectified in the future.” The audit report further identified a critical issue: uncollected revenue and tax revenue arrears totaling 6.4 billion birr for the 2022/23 fiscal year, mainly attributable to the Commission of the Ministry of Revenue and Customs. These arrears pending settlement have expired for periods ranging from one to seven years. Auditor General Meseret noted that a similar problem of significant uncollected revenue and tax arrears was identified in the previous fiscal year. Unfortunately, he highlighted that relevant government institutions have yet to implement the recommendations made by his office to address this issue. “As raising sufficient government revenue is essential to finance economic and social development projects, we urge public agencies to comply with the audit’s recommendations,” he told lawmakers. Dube also highlighted the need for public agencies to adhere to sound financial practices. “This is particularly crucial in times of budget constraints,” he stressed. In the recent presentation of the budget proposal worth almost one trillion birr for the next fiscal year, Finance Minister Ahmed Shide underlined budget constraints by drawing attention to a worrying trend: a widening disparity between anticipated tax revenues and actual collections achieved. Minister Ahmed also linked the decline in federal tax revenues to the increasing share allocated to regions from shared tax revenues. To address the decline in revenue, the government intends to introduce new tax classifications and broaden the tax base with the goal of generating an additional 92.5 billion birr in tax revenue. These initiatives involve reviewing the current value-added tax (VAT) and excise tax statutes, along with the introduction of new levies such as property and environmental taxes.Ethiopia’s Auditor General Reveals Extensive Financial Mismanagement The Auditor General of Ethiopia has uncovered widespread financial mismanagement and substantial overdue accounts receivable within various government entities. An audit conducted by the Office of the Auditor General has identified systemic irregularities in the management of public funds, resulting in significant financial losses and inefficiencies. The audit revealed deficiencies in accounting and financial reporting practices, as well as weak internal controls. One of the major issues highlighted in the report is the accumulation of substantial overdue accounts receivable by government entities. These receivables, owed by individuals and organizations, have not been collected in a timely manner, leading to revenue shortfalls and cash flow problems. The Auditor General emphasized the need for urgent action to address the identified weaknesses and improve financial management within government agencies. The report recommends strengthening internal controls, improving accounting and reporting systems, and implementing effective measures to collect overdue accounts receivable. The Auditor General called upon government officials to take immediate steps to address the findings of the audit and ensure the responsible use of public funds. The report also recommends holding accountable those involved in any cases of financial mismanagement. The revelations contained in the audit report have raised concerns about the efficiency and integrity of Ethiopia’s public financial management system. The findings underscore the need for stronger oversight, accountability, and transparency in the handling of public resources.