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CHALLENGE IN USING CAPITAL PROJECT FUND THE CASE OF

BISHOFTU TOWN EDUCATION OFFICE

A RESEARCH PROPOSAL SUBMITTED FOR PARTIAL FULFILLMENT

OF B.A DEGREE IN ACCOUNTING AND FINANCING

BY TADELECH ZENBABA

ID 1304/07

ADVISOR TADELE.H

ARSI UNIVERSITY COLLEGE

OF BUSSINES AND ECONOMICS

DEPARTMENT OF ACCOUNTING

AND FINANCING

JANUARY 2018

ASSELA ETHIOPIA
Table of content page

1. Introduction………………………………………………………………………1

1.2 Statement of the problem …………………………………………….…...2

1.3 Objectives of study………………………………………………………….3

1.3.1 General objective……………………………………………….…...….3


. 1.3.2 Specific objective……………………………………………..….…...3

1.4 Significant of the study……………………………………………………..3

1.5 Limitation of the study……………………………………………..………3

1.6 Scope of the study ………………………………………………….….…..3

1.7 Research design and methodology……………………………….………..4

1.7.1 Sampling method and sample size………………………….………...4

1.8 Source of data ………………………………………………….……….…4

1.9 Methods of data analysis …………………………………………….……4


2 Literature Review………………………………………………………………5

3. Time and Financial budget……………………………………………………..7

4 Bibliography…………………………………………………………………. .8
Acrimony

CPF- capital project fund

Gov`t- government

GASB- government accounting standard board


1. Introduction

1.1 Back ground of the study

There are organization whose objectives is not to make profit, these not for profit organization
account their resources and financial activities under different accounting system.One of these
organizations is the government units. The government units are federal, state, regional and city
administration. The budget becomes highly important in government entities since expenditures
are divorced from revenue collection. This budget is categorized as general fund, special revenue
fund, capital project fund, debt service fund.(unpublished work).

The objective of creating a fund to account for capital project is to provide a formal mechanism
that enables administrators to ensure revenue deducted to a certain purpose are used for that
purpose and no other. Capital project fund account for financial resources to be used for the
acquisition or construction of major capital facilities. CPF are usually established on a project by
project basis and need good financial management. The focus of the CPF is the entire life of the
project since it is expendable fund all of its resources are expected to be used up .CPF do not
have the same year to year focus as the general fund because of multi- year focus of CPF
annually will depend on the unique factors of each case and will be strongly influenced by the
requirement of the financing source. [C .Rollin Niswonger].

The decision to use budgetary account will also depend on the features and financing source of
the particular project and be strongly influenced by the requirement of the financing source. The
decision to use or not to use budgetary account is influenced by the number of project in CPF,
amount of detail in budget and project life. A number of factors combine to make capital budget
decision among the most important financial managers must make. The impact of capital budget
is short or long term thus the firm loses some decision making flexibility during capital project
construction. Time is important in capital project that they must be ready to come on line when
they are needed otherwise, opportunities might be lost.(Fundamental managerial accounting 3rd
edition) Due to these the management of all level of the organization has responsibility of
planning and controlling CPF. Cost accountants and Engineers will be asked to estimate
construction costs .if those estimation show the project will be under taken. In estimating cash
flows, anticipated inflation must be taken into account .often there is a tendency to assume
erroneously that price levels will remain unchanged throughout the life of a project.[C Rollin
Niswonger,1973]

The performance of an organization can be measured in actual budget that used and time taken
to complete the project. That is the efficiency and effectiveness of the organization can be
measured on the use of CPF.

In order to be effective, managerial planning must be accompanied by control. The control


feature of budget lies in periodic comparison as disclosed by budget performance reports
between planned objectives and actual performance. This ‘feedback’ enables management to
seek corrective action for areas where significant variations between the budget and actual
performance are reported. [C. Rollin Niswonger,1973]

Continual monitoring of the project is necessary next step to help ensure project success. There
fore, companies should perform progress reviews followed by post-completion audits. A key
element is feedback. So that future decision making can be improved. [James C Van Horne,
2008]

1.2 Statement of the problem

Fund account for capital project is to provide a formal mechanism that enable administrators to
ensure revenues dedicated to a certain purpose are used for that purpose and no other. These fund
will be used for construction of capital facility that the resource for such project are used legally
and also in most economic manner that provide information for legal compliance as well as
sound financial management good reporting to designated body.

In CPF all of the source should be use up and the project should be completed in the project
life. It implies that CPF require careful planning where the actual expenditure must be equal to
the budgeted fund. Many companies continue to struggle to deliver project on time, within
budget and in line with original design specification. But whether in Africa or elsewhere many
project experience delay because they do not get off to a good start to begin with. There could be
ill defined cost and schedule estimates [www.pwc.co.za/infrastructure] even if many companies
have desire to be effective and efficient in using CPF environmental scanning shows most
projects are left uncompleted & unused after the life of the project due to certain challenges
faced by the organization in using CPF. Some are found in the problem of time boundary or time
life of the project while others are in the limitation of cost (budget] . The researcher found
Bishoftu educational office show lag [delay] during building of preparatory school and Babogaya
primary school. Hence the researcher develop desire to came across the difficulty in using CPF
under the question what are the challenges in using CPF in organization under consideration?

What are the sources of challenges in using CPF?

Do budgeting of the fund be challenges in using CPF?

Is there segregation of duty to control CPF?

How do lag in project life be challenges in using CPF?

1.3 Objectives of the study

1.3.1 General objective

The general objective of the study is to investigate the challenges linked to the use of CPF in the
organization under consideration. .

1.3.2 Specific objective of the study

 To identify challenges linked to financing


 Identify source of challenges in CPF
 To identify challenges with regard to delayed project over fund.
 To make clear with how to treat deficit in CPF.

1.4 Significance of the study


It is expected that the research paper give clue for the organization to identify the challenges
moreover it help the researcher to develop research skill at the same time it may be base for
further researches and ways of investigating possible solution for the challenges.
1.5 Limitation of the study

The expected limitations are

 Difficult to inspect all aspects of the company


 Lack of transparency in the respondents by misunderstanding of the objective.
 Difficulty to inspect all aspect of challenge (outside organization)
 Lack of related research on challenges of CPF
1.6 Scope of the study

The study will cover the challenges in using capital project fund in Bishoftu town educational
office.

1.7 Research methodology

According to Kotheria [2004] methodology refers to the way in which the researcher plan to
collect data. It constitutes research design, data source, data gathering tool, sample and sampling
techniques, data analysis and interpretation.

1.7.1 Research design

Research design is a planning method to be adopted for the collection of the relevant data and
techniques used to analysis keeping in view the objective research of this study.

1 .8 Sampling method and sample size

Sampling is used for large population in research .If population size is limited all are considered
as sample. This research will use judgmental sampling (purposive) with sample size of nine [9]
since the concerned bodies in the study are the budget department and cost accountants which
are only nine the researcher will be obliged to restrict the study to this sample.
1.9 Sources of data

Source of data selection to conduct the study is important because the more valid information
source, the reliable will be the information receives which leads to good communication to the
organization. To conduct the study primary data using open ended and closed ended
questionaries’ will be used.

1.10 Method of data analysis

Data analysis begin by editing and classifying data Editing means examining collected data and
gathering similar idea together Then interpreting data drawing summary of finding will be
analyzed in the forms of table.
2. Literature review

A fund is fiscal and accounting entity with self-balancing set of accounts recording cash and
other financing resources together with all related liabilities and residual equities or balances and
changes there in, which are segregated for the purpose of carrying on specific activities of
attaining certain objective in accordance with special regulation, restriction or limitation .Fund
accounting for government was developed in response to the need for governments to be fully
accountable for their collection and use of public resource. In February 2009, the governmental
accounting standards board (GASB) issued GASB statement no 54.Fund balance reporting and
governmental fund type definition. It also offers guidance on the appropriate use of the different
governmental fund types. Those are general fund, special revenue fund, capital project fund and
debt service fund. (Basic governmental accounting concepts including fund accounting)

Current authoritative standards state that capital project funds are properly used to account for
financial resources to be used for the acquisition or construction of major capital facilities (other
than those financed by proprietary fund or trust fund). It is expenditure for capital outlays
including the acquisition or construction of capital facilities and other capital assets. [un
published work].

A capital project funds have a project life focus. In some jurisdictions governments are allowed
to account for all capital projects within a single capital projects fund. In others jurisdictions laws
are construed as requiring each project to be accounted for by a separate CPF.Even in using
single fund managers may prefer to use separate funds in order to enhance control over each
project. [Earl R. Wilson ,2000].

The number of categories and types of revenue and other financing source found in CPF are
fewer than other funds since the acquisition and construction of capital assets through use of long
term debt and CPF may be account for receipt of resources in the form of non-exchange
transaction from Federal ,State and other program. Due to limitation, restrictions and need for
special regulation in CPF different firms face different challenges.

In some organization challenges are arise from estimation of cost [Alferd M.King 1997] in his
article. Many business decision makers cope with enormous challenges. They frequently make
decision with incomplete information yet are also faced overabundance of useless information
that lead under estimation of resource.

As stated above organization must prepare budget for the life of project with full of information
of cost in direct material, labor and overhead moreover they must seek to minimize avoidable
cost by making specific chooses such as interest on debt shopping bag, stolen materials during
construction as it is one of the source of challenges.

Beside this regulatory requirement in using CPF will require effective responsibility accounting
requires line of authority and responsibility. Division of authority and responsibility normally
occur a natural consequence of managing business operation [Alferd .M.King 1997].

Lack of clear line of authority and continuity in supervision and monitoring procedures lead
delay in project that brings market variability with in educate project operation. Another source
of challenge may be lack of contingency planning to meet emergency or unanticipated delay and
insufficient detailed that lead for frequent design changes which are source of unplanned
expenditure.

In addition to this the challenges in using CPF may arise from managerial turnover in the
organization which results delay in authorization of expenditures in ongoing project due to lack
of experience that leads to delay in project that result economic un certainty.

In order to be effective managerial planning must be accompanied by control. The control lays in
periodic comparison between budget performance and plan. These may be another challenge.

The last issue in source of challenge is retention recording and control that lead to challenges in
using capital project outside the organization.
Budget plan

Item measurement Unit cost quantity Total

Stationary cost
Pen Number 5 1 5
Pencil Number 3 2 6
paper Pack 200 3 600
Perdeim Birr 170 10 1700
Transport cost Birr 500 500
Communication Birr 300 300
fee
Total 1178 16 3111

Time plan

Item December January February March April May June


Preparation of 
proposal
Data collection 
Data encoding 
Data analysis 
First draft 
Second draft 
Final paper 
Bibliography

1 Alfred M. King, (1997), Fundamental managerial accounting 3rd edition

2. Capital project fund accounting, WASBO Annual conference, 2014

www.pwc.co.za/infrastructure.

3 . C .Rollin Niswonger,[1973],Accounting principle Eleventh edtion

4 Earlr.Wilson accounting for governmental and non profit entities

5 Guerrier, Haber, Hoy, Tuner ( ), Basic principle and application, 562

6 https://www.andrews.edu/~geddes/Not_for_Profit/Chap006.ppt, capital project and


infrastructure, 2014

7. Kotharia, CR [2004] Research methodology, method and techniques 2 edition

8. Teaching material in government accounting, unpublished work