Module - D - Community Based Financial Managment

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA
MINISTRY OF WATER, IRRIGATION AND ELECTRICITY
Rural Water Supply Operation

and Maintenance Manual
Module - D
A Trainer’s Manual for Community Based Financial
Management
DEMEWOZ CONSULTANCY
P.O.BOX 20023 CODE 1000
ADDIS ABABA ETHIOPIA
TEL: +251-(0)118-60 80 12 / 0911-158613
E-mail: d.consultancy02@gmail.com
Ministry of Water, Irrigation and Electricity Training Module - D
Operation and Maintenance Management Manual Community Based Financial
Management
RURAL WATER SUPPLY POINT SOURCES

MODULES MANAUL
MODULE – A FACILITATOR’S GUIDELINE
DESCRIPTION OF POINT WATER SOURCES AND

MODULE – B
TECHNOLOGIES
TECHNICAL OPERATION AND MAINTENANCE
MODULE – C
REQUIREMENTS FOR POINT WATER SOURCES
COMMUNITY BASED SCHEME AND FINANCIAL
MODULE – D
MANAGEMENT
MONITORING AND EVALUATION OF RURAL

MODULE – F
WATER SUPPLY SCHEME
WATER SAFETY PLAN FOR RURAL WATER

MODULE – G
SUPPLY
PREPARATION OF ACTION PLAN AND

MODULE – H
IMPLEMENTATION OF O&M
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MODULE - D: COMMUNITY BASED FINANCIAL MANAGEMENT
Table of Contents
List of Tables ii
List of Annexes ii
3. MODULE – C: COMMUNITY BASED FINANCIAL MANAGEMENT 8
3.1 Introduction 8
3.2 Manual to be referred 8
3.3 Session – C1: Introduction to Community Based Financial Management 9
3.4 Session – C2: Preparation of Annual Budget 11
3.5 Session – C3: Principle of Cost Recovery and Cost Categories 17
3.6 Session – C5: Tariff Setting 24
3.7 Session – C6: Revenue Collection 32
3.8 Session – C7: Procedures for Handling Collected Money 39
3.9 Session – C8: Setting Procurement Procedures 55
3.10 Session – C9: Financial Control 60
Annexes: FORMATS 64
List of Tables
Table 3-1: Suggested Schedule of Spare Part Replacement 21
Table 3-2: Decision on payment for water 32
Table 3-3: Formulation of User Households List 36
Table 3-4: Bank Account Opening 37
Table 3-5: Income and Expenses Book Model 43
Table 3-6: A Typical Cash receipt Registration Form/ Invoice 44
Table 3-7: A Typical Cash Payment Invoice Form 45
Table 3-8: Model of Payroll List 46
Table 3-9: Per-Diem Payment Form 47
Table 3-10: Member’s Register 50
Table 3-11: Asset Register 50
Table 3-12: Purchase Order 51
Table 3-13: Payment Voucher 52
Table 3-14: Delivery Note 52
Table 3-15: Cheque Leaf 53
Table 3-16: Cash Book 53
Table 3-17: Bank Reconciliation Statement 54
List of Annexes
Annex A: Basic Ledger of Water Fee Collection 64
Annex B: Income & Expense Ledger 65
List of Boxes
Box 1: Operation and maintenance costs include 19
Box 2: Example of Running Cost for Hand Pump Scheme 20
Box 3: Options for collection of O&M Fund 35
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DEFINITIONS OF TERMS:
Accounts Payable Accounts Payable are routine expenses that have already been
incurred but not yet paid. The fact that the expense has been
‘incurred’ is evidenced by the supplier’s invoice or statement of
Accounts Receivable account.
Accounts Receivable represents the balance of water bills not yet
Accounts Summary collected from customers. This is entered as a Current Asset.
The Accounts Summary is a worksheet where all accounts of the
water utility from the Bills for Collection Report, Cash Receipts Book
and Cash Disbursements Book are posted. This worksheet also
allows for special adjusting entries. The Balance Sheet and Income
Statement are prepared based on this Accounts Summary.
Accrued Expenses
Accrued Expenses are routine expense that have already been
incurred but not yet paid and unlike the ‘Accounts Payable’ have not
been recorded in the financial statement for the period because no
invoice or statement of account has yet been received.
In common use, ‘depreciation’ is the reduction in value of a fixed

Accumulated Depreciation asset due to wear and tear and passage of time.
Using this principle, in accounting, the cost of a fixed asset is usually
spread over the number of years that the asset can be used (useful
life). The cost attributed for one year is called ‘depreciation.’
Accumulated Depreciation refers to the sum of the year-to-year
depreciation for the period that the asset has been used.
So ‘net asset value’ is the cost of the asset minus ‘Accumulated
Depreciation.’
Accumulated Depreciation is presented in the Balance Sheet as a
deduction to ‘Fixed Assets at cost.’
Accounting Year or “year” means the Financial year
Administration Fee The Administration Fee represents a charge imposed on all

customers during the specified period for the administration of the
billing and collection of accounts of customers.
Advances
Advances are payments made to either employees or third parties
with the intention of collecting them back within one year.
This is a Current Asset account.
Amortization Amortization refers to that portion of a loan that is repaid periodically

until the loan is fully paid. This does not include the interest on the
loan.
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Assets Assets are any resource controlled by the WB/WASHCO to derive

benefits. As presented in the Balance Sheet in this Handbook,
assets can be Current Assets or Fixed Assets.
Current Assets are cash and other assets that may be converted to
cash, sold or consumed within one year. Examples are Accounts
Receivable, Advances to Employees, Advances to Third Parties,
Merchandise Inventory and Prepaid Expenses.
Fixed Assets are acquired for continued and long-term use in the
operations of the WB/WASHCO. Examples are buildings, pumps,
furniture, and vehicles.
Balance Sheet
The Balance Sheet is a financial report showing the financial
condition of the company as of a specific day (for example “as of
Sene 30, 2006 EFY”). It is normally prepared as of the end of the
financial year at the same time as the Income Statement. It may also
be prepared any time of the year. It summarizes the balances of
Assets, Liabilities and Capital as of the specified date.
Bills for Collection Report
The Bills for Collection Report contains all Water Bills issued within a
month. It is recorded in the numerical sequence following the water
bill to ensure completeness. It is summarized monthly and the totals
(per account) are posted to the ‘Accounts Summary Form’.
Capital Capital represents equity contribution of the owners in the CBO as

well as donations from government and donors.
Capital also includes Retained Earnings and the current Net Income.
(See definition below)
Capital Expenditure
Is the expenditure incurred for the purpose of acquiring, extending or
improving assets of permanent nature by means of which the
business may be carried on, or for the purpose of increasing the
efficiency of the project.
Cash Disbursements Book

The Cash Disbursements Book contains all Payment Vouchers
issued. It is recorded in numerical sequence to ensure that all
payments are recorded. It is summarized monthly and the totals (per
account) are posted to the Accounts Summary form
Cash Receipts Book
The Cash Receipts Book contains all Official Receipts issued for all
cash collections. Recording Official Receipts in numerical sequence,
including all canceled or spoiled Official Receipts ensures that all
collections are accounted for.
It is summarized monthly and the totals (per account) are posted to
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Current Liabilities the Accounts Summary Form.
Current Liabilities represent amounts due to third parties within one

year. Examples of accounts falling under this classification are
Accounts Payable, Accrued Expenses, Current Portion of Loans
Double Entry System Payable and Interest Payable
General Administrative Means the recording of two fold effect of every transaction.
Expenses
General Administrative Expenses account is for all expenses not
specifically identify ed for water production or distribution but is
important in the operations of the water utility. This account may
include office supplies, transportation expenses, representation
expenses, and refreshments during meetings.
This does not include expenses incurred that do not support the
business of CBOs, such as contributions to a village party. These
expenses are classified as ‘Non-Operating Expenses’.
General Ledger A General Ledger is a record of the movement of an account in the

Balance Sheet and Income Statement. It contains additions and
deductions and the balance of the account at any time.
Income
In common usage, “income” is often interchanged with “revenue”. In
accounting, “income” refers to net income, where expenses have
been deducted from revenues.
Income Statement
The Income Statement is a financial report of the operations of the
company over a period of time (like “For the Year Ending June 30,
2006 EFY”). Normally, this is prepared at the end of the financial
year of the company. It may also be prepared monthly, quarterly or
as often as needed. It contains the total revenues earned and
corresponding expenses incurred during the specified period. The
resulting net income or loss goes into the Balance Sheet (Capital
portion).
Interest Expense Interest Expense is the cost of borrowed money or a loan. In the
Income Statement, this amount should be the cost of borrowed
money corresponding to the reporting period of the income
statement. It is not necessarily the actual amount paid, which may be
less or more than the amount due for the period.
Interest Payable
Interest Payable represents the amount of interest due and unpaid
as of the Balance Sheet date. This is entered as a Current Liabilities
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account.
Long-term Liabilities
Long-term Liabilities represent obligations that are payable beyond
one year.
If a loan needs to be paid over 5 years, the portion of the loan that is
Merchandise Inventory
due in future financial years is a ‘long-term liability.’
Merchandise Inventory represents items that will be sold to

Net Income customers within a year, like water meters, gate valves, pipes and
fittings. This is a Current Asset account.
Net Income is the bottom line in an Income Statement. It represents

the difference between all the revenues generated and all the
expenses incurred over a specified period. It may also be defined as
Net Operating Income Net Operating Income after deducting Depreciation, Interest
Expense and non-operating income/expenses.
Net Operating Income is the difference between Operating

Operating Expenses Revenues and Operating Expenses.
Operating Expenses are the day-to-day expenses of running the
water utility. In the Income Statement, this is the sum of Salaries,
Rent, Electricity, Fuel, Chemicals and Filter, Repairs and
Maintenance, General Administrative Expenses and Other
Expenses.
Operating Revenues
Operating Revenues represents all income generated by the water
utility from its water operations. Th is includes Water Revenues,
Meter Rental Fees or Meter Maintenance Fees, Administration Fees
Other Current Assets and New Connection Fees.
Other Current Asset account holds all other assets that may be
converted to cash or whose benefits can be realized within one year
that cannot be classified in the specific c Current Asset accounts
Other Current Liabilities defined above.
Other Current Liabilities account represents all other obligations due
to be paid within one year that cannot be properly classified in the
specific Current Liabilities accounts shown in the Balance Sheet.
Other Expenses
Other Expenses account may be used for all other operating
expenses that cannot be classified in the specific Operating Expense
accounts in the Income Statement.
Other Operating
Revenues
Other Operating Revenues account represents all other revenue
accounts not specifically identified in the Operating Revenues
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Payment Voucher section of the Income Statement.
The Payment Voucher is the document prepared for all cash

payments made by the Treasurer. It contains the particulars for the
payment and duly supported by the proper invoices or documents. It
also contains all approvals required before the payment is released.
Revenue
Revenue is income from activities that are normally done by the
WB/WASHCO. For accounting purposes, revenues appear in the top
part of the Income Statement, while net income appears at the
bottom after expenses have been deducted from revenues.
Statement of Receipts and
Disbursements
The Statement of Receipts and Disbursements is a financial report
that summarizes all types of cash received and all types of cash
payments made during a specified period. It accounts how the Cash
account moved during the specified period. The bottom line of this
report is the Cash balance available at the end of the period. This
amount may not be the same as the bottom line of the Income
Statement which is the Net Income for the period. Cash received
may include collection of water sales and penalties. It may also
include collection of advances from employees and third parties and
even collection of loan proceeds. So cash received may either be
revenues, a reduction of assets or an addition to liabilities. Cash
payments may include payment of loans, purchase of assets and
payment of expenses. So payments may either be expenses or a
reduction of liabilities or an addition to assets
Subsidiary Ledger
A Subsidiary Ledger is a complementary record providing the details
of the movement of an account under the General Ledger.
For example, the General Ledger account “Advances to Employees”

is supported by Subsidiary Ledgers for all the employees that have
received cash advances. This makes monitoring of the status of
cash advances easier. The sum of all the Subsidiary Ledgers for a
specific account should tally with its General Ledger account at any
time.
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3. MODULE – D: COMMUNITY BASED FINANCIAL MANAGEMENT
3.1 Introduction
This Training manual comprises the following 8 sessions:
Session – D1: Introduction to Community Based Financial Management

Session – D2: Preparation of Annual Budget
Session – D3: Principle of Cost Recovery and Categorise of Costs
Session – D4: Setting Tariff
Session – D5: Revenue Collection
Session – D6: Procedures for Handling Collected Money
Session – D7: Setting Procurement Procedures
Session – D8: Financial Controls
3.2 Manual to be referred

This training module is extracted from operation and maintenance Part-D of the manual.
Please refer it whenever necessary.
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3.3 Session – D1: Introduction to Community Based Financial

Management
MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

SCHEMES
SESSION – D1 INTRODUCTION TO COMMUNITY BASED FINANCIAL

MANAGEMENT
Introduction This module addresses the needs of the water project to raise revenue
through fair and affordable tariffs to handle revenue in a manner that follows
proper accounting practices and to utilize funds according to transparent and
accountable procedures.
Objective By the end of the session participants should be able to:
 Understand the basic principle of community based financial management,

 Understand the sources of finance in managing the O&M of the schemes
Outputs Participants are understood the concept of Financial Management for rural
water supply schemes.
Timing 0.5 hour
Target Group Basically this module is designed form WASHCOs and Water Boards,
however, this training is offered for Regional Water Bureau, Zone and Worda
Water Offices, NGOs who utilize it to cascade the training the primary
audience that is WASHCO.
Step – 1:
In Ethiopia water supply and sanitation have considered as basic social
Introduction to
service which eventually pave way for poverty reduction. This has meant
Financial
adopting a policy that demands users to pay for the service that they getting
Management
as supplying water free or almost free of charge are not possible or treat for
equity. Thus, the government has set a policy in which the beneficiary should
manage water supply and sanitation schemes including its financial
resources.
The financial management such as recording of income and expenditure,
internal auditing has to be conducted regularly. Thus, failure to keep
appropriate financial records resulted with inability to cover costs of operation,
maintenance in the case of rural water supply schemes.
Financial Management involving community participations pave attention for
the following points:
 Partnership, negotiations for O&M cost recovery,
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 WASHCO/WB and role and tasks of main actors, with gender specific
roles.
 affordability and willingness to pay,
 Benefit cost analysis,
 Budgeting for Costs, before, during and after construction: Cost sharing
creating a budget: Estimation of O&M costs,
 Choosing the type of financing system: Tariff setting, vending, community
fund raising, credit schemes and revolving funds periodically, revenue
collection system and flow of collected funds, establishing a payment
system with the village,
 Administration of funds registration of collection funds and payments,
bookkeeping, opening and using an account use of, funds for other
sectors activities, money plan control and reporting to the community,
sanctions for non payments, remuneration of water committee staff, and,
 Management Capacity: Decisions making process, problem solving
capacity (in case of unexpected expenses or high inflation), information
needed in order to make financial decisions, self monitoring, learning
from experience, training needs, relationship with other actors.
Step- 2: Source of
This section looks at financial aspects of water scheme management, which is
Income
an essential part of sustainable O & M and management of water scheme
with regardless of type of water scheme.
In the community-based water scheme management, Cost Sharing for O &
M of a water scheme is an important government policy. The community
needs to pay for maintenance & repair of the water schemes and save the
replacement of the equipment.
Maintenance is your job! When a part wears out, you have to buy a new
part. When the facility breaks down, you have to fix it themselves or pay
service provider to fix it.
To take measures promptly when the water scheme gets broken down, you
need to collect money in advance. With enough financial resource, you can
buy spare parts and pay for a repair works and other necessary expenses.
Some of this money should be used to buy spare parts in advance.
Before starting concrete financial management tasks, you need to
understand about the O & M cost and how to cover O & M cost.
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Sources of Income:
 User fee which shall be paid to cover the project cost or running and
maintenance cost every week / two weeks /month / year in the form of
cash and/or kind.
 Volunteer contribution from beneficiary community or outsiders in the form
of cash and/or kind.
 The committee shall arrange fund raising activity to collect money. In this
case different systems for special contribution shall be arranged including
labour and locally available material that could be converted to money.
 Support of money from government and non-government organization in
cases of a considerable problem encountered to run the activity.
 Revolving fund for spare parts which shall be availed from donor or
government agencies.
Session – D2:
3.4 Session – D2: Preparation of Annual Budget
Introduction Preparation of an annual operating budget is the first step WASHCO’s must
take to ensure that there is an accountable and transparent financial
management system in place and that the WASHCO operates on a financial
sustainable basis. There are various reasons why a budget is important:
1. An annual budget, prepared by the finance committee of the WASHCO, is
submitted to the management committee and subsequently to the
membership for approval.
2. Preparation of an annual budget requires information regarding expected
income and expenditure to run the water project, and requires planning
for O&M costs.
3. Expenditure should be kept within the approved budget according to each
budget line.
A budget helps to enhance transparency and accountability, quality of works,
service provision and efficiency and effectiveness.
 A Budget is merely a plan expressed in quantitative (monetary) terms.
 Its preparation involves setting targets for the revenues and
expenditures of the water supply service office.
The budget is prepared by management, usually during the last quarter of the
year, and should be approved by the Board before being endorsed to the
General Assembly/WASHCO and to the regulatory bodies like RWB, ZWO or
WWO.
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Objective By the end of the session participants should be able to:
1. Explain the importance of an annual budget;
2. Prepare an annual budget and keep it up to date;
3. Evaluate the financial performance of the WASHCO
Outputs  Raised awareness on the value of budgets;
 Ability to prepare an annual budget as demonstrated by drafting a
sample annual budget for an organization.
Timing Approximately 2 hours
Target Group WASHCOs/ WBs
 Demonstration/observation
Methodology
 Illustrations in practice
 Group work
 Short presentations/question and answer
 Practical exercise on budgeting
Materials
 WUA books of accounts
 Illustrations;
 Flip Charts and marker pens;
 Pens (different colors), note books;
 Sample WASHCO budget statements;
 WASHCO By-Law
Session Guide
Support
The following terminology need to be explained:
Information
Term Definition
Budget A summary of the expected income and expenditure

associated with a particular activity.
Fixed Cost These are costs that are not related to how much water
the WASHCO produces
Recurrent cost These are costs that are dependent to how much water
the WASHCO produces.
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Variable cost Same as recurrent cost
Operating Costs incurred in the operation of the WASHCO

Cost
Revenue Income to the WASHCO
Capital Cost Cost incurred for something that has a life span that
extends over several years
Operating Revenue less operating costs (fixed and recurrent costs)

Balance
Operating Revenue divided by operating costs.

Ratio
Capital Describes a situation in which the revenues are sufficient

replacement to cover costs of replacing the assets
A budget has two major components – revenue (income), and expenditure –

fixed costs and recurrent costs:
1. Revenues consists of:
 Money expected to come in during the year from joint venture
payments, workshop incomes, tree seedlings sales, payments of the
water bills, and any other revenues.
2. Costs consist of:
 All expenses/items that the WUA will need to spend money on during
the year in order to carry out its normal business.
 These include cost of fuel for the pump, cost of spare parts,
workman’s fees, office rent, committee allowances, unexpected
breakdowns, etc.
Step - 1: Visioning
Discuss the project vision in terms of the water service and its financial
and Financial
sustainability.
Sustainability
1. Ask participants what they think the project should provide in the way of
a service in terms of:
(i) Water quantity – how much water does each household expect from
the project (this figure should be reasonable, based on the source and
infrastructure, not a wild guess);
(ii) Water quality – treated water, raw water, etc
(iii) Reliability – high reliability means that the project should have extra
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financial, material and staff reserves
2. Discuss the link between the quality of the service and the cost of the
service;
3. Ask participants whether the project should be self-reliant on funds from
revenues. Should revenues cover operational costs (partial cost
recovery) only or also capital replacement costs (full cost recovery)?
Discuss the meaning of these terms.
4. If the project members think that the vision is to provide very cheap or
free unlimited water, then further discussion is required before any
discussion on tariffs;
5. What is the vision of the project in terms of its financial sustainability?
Discuss the fact that a vision is something that you strive to achieve – it
may not be realized immediately but decision making should be
directed towards realizing this vision.
Financial sustainability means that the project can cover

its operational and capital replacement costs
Step - 2:
Importance
One of the tools to reach financial sustainability is the development of a
of an annual
budget.
budget
1. Ask participants what they understand by the term „budget‟. Probe for
household level budgets, CDF budgets, constituency support,
2. Help the participants to discuss the importance of these budgeting
processes – what is the advantage of having a budget?
3. How often do you budget at HH level?
4. Who should participate in the budgeting process?
5. What do you do if the HH budget indicates that the costs exceed the
income? - Prioritize the costs
Step - 3: Worked
Example of Annual
Group work:
Budget Let participants form groups of 4 - 5 persons and discuss and prepare a draft
annual budget using the example below. The worked example is presented in
Attachment - 1 with a graph showing changes in income and expenditure.
Discussion questions based on worked example
1. What are the implications of the fact that the scheme starts the year with
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SCHEMES
Birr15, 000/- in the bank and ends with Birr 5,000/-.
2. Does the WASHCO have sufficient funds to purchase the new pump in
June? If not, what are its options?
3. What does the operating balance and net surplus indicate in terms of the
ability of the project to cover operating costs and to cover capital costs?
4. What happens to the budget when the project has finished paying off the
loan?
Step - 4:
The facilitator should assist the WASHCO to draw up the appropriate form
Preparation
using the form in Attachment here. This should be modified depending on the
of WASHCO’s own
type of technology and whether revenue and costs are likely to fluctuate
annual budget
during the year.
This means the groups will need details from the books of accounts. If the
project is new and does not have any books of accounts, then the participants
should estimate actual costs.
Facilitator can reflect with participants on the quality of the books of accounts
for the purposes of providing information on WASHCO income and expenses.
One group should present its draft WASHCO budget, explaining how it has
estimated the figures.
Allow discussion so that each item is agreed as the participants move through
the budget lines.
Once the budget has been prepared, the facilitator should initiate a discussion
on the implications of the budget by asking the following questions:
 Is the revenue sufficient to meet the expected operating expenses in
every month?
 Is the revenue sufficient to meet the expected capital costs?
 If no:
o What will happen to the project if revenue is less than expenditures?
o What can WASHCO do to raise revenue or reduce expenditures so
that revenue is sufficient to cover expenses?
 If yes:
o What is done with the surplus?
o Should the WUA be planning for improvements to the water project?
o How robust is the surplus – revenue may fluctuate during the year due
to rains?
 For existing projects, does the budget reflect the experience of the
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project – either with a surplus or deficit?
 What happens if there is a breakdown and the project cannot sell any
water?
Step - 5:
Once a budget has been prepared, what action is required? Prepare a plan of
Dissemination,
action, using the questions as a guide.
ratification and use
of the budget 1. Are the WASHCO members entitled to see the budget? If so, what
should be done to make the budget details available (e.g. placing budget
on notice board);
2. How should the budget be approved by the management committee and
members?
3. How should the expenditure be checked against the budget?
4. What should be done if the expenditure does not follow the budget?
5. What should be done if the revenue falls below expected amounts?
6. What time of year should the annual budget normal be developed?
7. What does the WASHCO constitution say about preparation and
approval of an annual budget?
Session – 6:  Management must monitor the level of expenditures against the budget
Budget on a monthly basis in order to control overruns that could lead to
Monitoring and unexpected fund shortfalls.
Control  Monitoring the budgeted expenditures enables management to take
cost reduction measures, make decisions on budget realignments, and
consider the need for a supplemental budget if it is forecast that the
approved budget for essential expenditures will be exceeded.
Review
 What happens if the WASHCO does not have any budget?
 What is the final balance (profit/loss) of the annual budget we have
created
Session
 Attachment 1: Worked Example Annual Budget
Attachments
 Attachment 2: Annual Budget Worksheet
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3.5 Session – D3: Principle of Cost Recovery and Cost Categories
MODULE – D: COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL

WATER SUPPLY SCHEMES
Session – D3 Principle of Cost Recovery and Cost Categories

Step – 1:  From time immemorial, mankind used to incur cost intentionally or
Introduction unintentionally in his daily life.
 A man has to get what he wants against equivalent cost.
 Costs are incurred not only during the exchange of transaction but also
invariably incurred in transforming inputs into outputs.
 Hence, one can say that our daily life is subject to various kinds of cost
exposures. Management accounts define costs as the sacrifice or giving up
of economic resources to obtain the given output.
 They are sacrifice because they are usually incurred in the day-to-day
coordinated activities of mankind in the field of production of goods and
services.
Step – 2: Cost  The cost recovery principle emphasizes the coordinated effort of the water
Recovery system to cover the entire cost of running the water supply scheme from
Concept sales of water.
 The cost is said to be fully covered if the ration of total revenue to that of total
O&M cost is grater that 1. This case may be changed in the case of rural
water supply, that the ration can be equal to 1. This clearly stated in the
Ethiopian Water Resources Management Policy.
Step – 3: Why The cost coverage is needed to: -

Cost Recovery
 Mach the current market price,
is needed?
 Facilitate tariff determination,
 To meet Ethiopian Water Resource Management Policy,
 To guarantee replacement of fixed asset,
 Assuming full ownership and independently run the operations of the water
system.
Step – 4: Ability  With regard to income related issues, detailed up-to-date information
and Willingness regarding specific income data of aforementioned beneficiary should be
to Pay collected using structured household survey for sample households 30-50.
 However, experiences show that people are usually unwilling to reveal their
periodic income.
 Affordability deals with the analysis of ability of consumers to pay for water.
In order to analyze the ability of consumers to pay for water, the water supply
consumption of the users and the income level of Consumers (Low-income
section of the society) should be identified and computed. Specially, the
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ability of the very poor households in the area shall be focused upon.
 For reasons of practicality, Affordable Price is defined as maximum amount,
which a household can pay for water without greatly compromising its ability
to buy other basic goods and services for its members.
 Therefore, affordability can be expressed as a fraction or percentage of the
household income. Based on the accepted practice of institutions, which is
derived from analysis of domestic expenditure behaviour in Ethiopia, up to
5% of household’s income is assumed affordable for water. It is advisable if
calculation made for affordability adopts this assumption.
The rational for conducting studies of affordability of water tariffs evolves from
two basic considerations:
 The Ethiopia Water Resource Management Policy recognizes water as a
commodity with not only economic value but also a social value. Therefore
providing affordable water supply to the rural population is one of the major
objectives of the policy. It is of paramount importance to make sure water
price does not limit the access to potable water by the poor.
 The other important consideration is that Price of water that is not affordable
by the majority of the intended beneficiaries makes the water supply system
financially unsustainable.
Step – 5: This consists of introducing progressively an “O&M costs recovery only”, mainly
Recovery of by subsidizing costs (for example the price of spare parts, M&E cost, the cost of
O&M Costs fuel) at the beginning, and providing free technical support for some
maintenance. Although this approach can be necessary for poor communities,
the use of subsidies can send wrong signals to a market, especially for spare
parts. Some arrangement will need to be made about who will recover the other
costs that the community will not cover, and how.
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Management

 Identifying operation and maintenance costs
Box 1: Operation and maintenance costs include
 Material costs – consumables, chemicals, energy, tools, spare parts

and equipment
 Works personnel - staff involved in operation, maintenance, routine
preventive maintenance, repairs, and construction for minor
rehabilitation
 Management personnel - staff involved in planning, supervision,
financial management, administration, and monitoring
 Financial costs - interest, amortization, depreciation, exchange rate
variations, inflation
 Environmental costs - water source protection and conservation,
 Support costs – training support, technical assistance, institutional
strengthening, monitoring and evaluation
 Future investment costs - Major overhauls (rehabilitation),
replacement, and extension
 Other costs – transport, services paid to a private contractor,
unaccounted for water due to leakage, bad administration and
vandalism
All the above types of O&M cost should be considered in calculating and setting
of tariff.
 What is O & M Cost?
The scope of the cost recovery for a water scheme includes three groupings of
cost;
i. Running (operation) cost
ii. Maintenance cost
iii. Replacement cost
For the purpose of simple explanation, the case of a hand pump, which is one
of major water schemes, is shown as an example.
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Management

(1) Running Cost
Running cost, which is also called as operation cost, can be defined as cost
required for day-to-day operation of a water scheme. Such operation cost
includes in general the following items.
 Personnel expenses (salary for a pump attendant or guard)
 Overhead cost (travelling cost, communication, per-diem etc.)
 Office expenses (stationeries, etc.)
Box 2: Example of Running Cost for Hand Pump Scheme
Example:
A WASHCO in XXXX Kebele employs one pump guard. Monthly running costs of
XXXX WASHCO are as follows:
Item Description of Expense Amount (Birr)
No.:
1 Salary of pump guard (Ato XXXXXX): 150.00
2 Stationary expenses: 30.00
3 Per-diem for travelling to Woreda 50.00
Total 230.00
(2) Maintenance Cost
 Maintenance cost is concerned about any cost required for continuity of

operation of a water scheme without any breaks including spare parts
cost, repair cost, technical service fee, and so on.
 With regard to the regular replacement of spare parts for Afridev hand
pump, it is recommended to follow a schedule below. Some parts (U-seal
and bearings) need to be replaced every 6 months, others once a year,
and others once a two years.
 Normally a community would put aside enough money to cover the FAST
WEARING PARTS - parts that need to be replaced frequently. In
addition, WASHCO should buy a few long wearing parts – e.g. rod) - as a
way of investing the money and guarding against inflation.
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Management

Table 3-1: Suggested Schedule of Spare Part Replacement
Part Months
6 12 18 24 30 36
U-seal √ √ √ √ √ √
O-ring (big) √ √ √
O-ring (small) √ √ √
Bobbin √ √ √
Rod Centralizer √ √ √
Bearing (inner) √ √ √ √ √ √
Bearing (outer) √ √ √ √ √ √
Hanger Pin
Fulcrum Pin √
Pipe Centralizer √
On average most pumps will require the following maintenance:
YEAR 1: No major problems - the warranty will cover any costs during first year.
YEARS 2-4: Replacement of fast-wearing parts - but no major repairs.
YEARS 5+: Major faults will occur, which require help from the Woreda Water Office.
(3) Replacement Cost
 The replacement cost includes an amount necessary to replace of

equipment at the end of its service period. A service period of a hand
pump lasts for 10 years under normal handling.
 Conceptually somebody should accumulate financial resources to
procure a new hand pump in assumption that the present pump shall
cease to function forever after 10 years. In other words, depreciation cost
should be covered including water fees.
These above three types of cost are needed to be covered through regular
payment of water fees for only one single purpose. The purpose is to produce
potable water for drinking continually.
How and who bear those costs? Let’s look at the following sub-section.
(1) Basic Concept of Cost Recovery
You (community) need to build up a maintenance fund so that you can
spend money to buy parts and make repairs whenever necessary.
As you have seen the basic formula below, which you have to save is as below
Total Cost = (1) Running Cost + (2) Maintenance Cost + (3) Replacement
cost
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Management

The Total Cost is Supported by Users of the water scheme！
Question: How do Users support the Total Cost? That is revenue, mainly
water tariff paid by users.
Revenue = Tariff x Quantity
(2) Some idea on the cost to be borne: How much do we need to

save?
Based on an extensive study conducted in Ethiopia, a required amount of
maintenance cost is estimated to account for 5 % of total replacement cost
annually. In this manual, cost of a hand-pump is considered. We shall use an
example of average cost of a hand pump at Birr 20,000.00 for this paper.
Example:
Total replacement cost: Birr 20,000.00
Annual Maintenance cost: Birr 20,000 x 5 % = Birr 1,000.00
Monthly Maintenance cost: Birr 1,000 / 12 months = Birr 83.30
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Management

Taking an estimated price of a hand pump at Birr 20,000, a WASHCO
accumulate at least Birr 2,000.00 annually, while this can be interpreted as
monthly reserve with an amount of Birr 167.00.
Example:
Cost of a hand pump: Birr 20,000.00
Service period: 10 years
Annual Replacement Reserve: Birr 20,000/10 = Birr 2,000.00
Monthly Replacement Reserve: Birr 2,000 / 12 months = Birr 167.00
Note: The above calculation is prepared without any considerations on interest rate, inflation rate,
and foreign currency exchange rate.
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Management
3.6 Session – D5: Tariff Setting

MODULE – D COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL WATER
SUPPLY SCHEMES
Session – D5 Tariff Setting
Introduction
The purpose or this session is to establish the financial basis for sustainable
operation, along with the considerations that go into setting a tariff structure.
Without proper agreed tariffs, the community water supply schemes will not be
sustainable as either the members will feel they are paying too much money or
there will be no funds to pay for operation and maintenance.
It is important that members fully appreciate the reasoning behind the tariffs and
why it is important that all pay their bills.
Objectives
By the end of the session, participants will be able to:
1. Explain the reasons for setting water tariffs
2. Identify stakeholders involved in water tariff setting
3. Know factors to be considered when setting a tariff
4. Agree the costs that they need to cover to sustain their water system.
5. Agree appropriate tariffs for their water system.
Outputs Tariff Plan
Timing 2 hours
Target Group WASHCO and Community Members, other stakeholders (e.g. water
boards, Woreda Water Office)
Methodology
 Short presentation
 Question and Answer
 Discussions
 Group exercise on tariff calculation
Materials
 Handout - calculating of tariff
 Flip chart paper and marker pens
 O&M guidelines
 Water Board guidelines
 WUA by-laws
Session Guide
Step-1:
A water tariff is the rate at which users are charged for water. If cost recovery
Definition of
aims to satisfy an increasing demand for water then the tariff should reflect the
Water Tariff
cost of the operation and maintenance for rural schemes as stipulated in Water
Resources Management Policy. However, many water supply tariffs do not
DEMEWOZ CONSULTANCY
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Management
achieve coverage of the current costs of O&M.

Step -2: What
Review the discussion from Session C2: Preparation of an Annual Budget in terms
are revenues
of the vision of the project and the expenses that the project needs to cover.
used for?
Discuss and document on a flip chart the costs that need to be covered for the
WASHCO to operate, prove the quality of service discussed in the visioning
exercise.
Discuss the differences between technologies (e.g. diesel generator-powered
systems) that require fuel and staff to operate versus simpler technologies (e.g.
handpumps) that require periodic servicing and repairs and finally renewable
energy based systems (e.g. solar powered systems) that require specialized
repairs if they breakdown.
Discuss how the technology influences the attitude of the consumers in terms of
paying for the water service. Many consumers and WASHCO members do not
place enough emphasis on the need to raise money on a routine basis to cover
periodic costs.
Important role of WASHCO is to educate the community members !
Step – 3: Basis
Once the WASHCO members and the user community recognize the need to pay
for Setting
for the cost of operating and maintaining the water supply schemes, then the
Tariff
discussion can progress to how to set the tariff.
Ask participants „What should be the basis for setting the tariffs?‟ Facilitate a
discussion on whether the tariff should be set according to one of the following
criteria and what are the consequences of each:
1. What people can afford;
2. What people are willing to pay;
3. What the project requires to cover the operating costs (partial cost
recovery);
4. What the project requires to cover all operating costs and to replace the
assets when they need replacement (full cost recovery);
5. The maximum the project can possibly charge;
The User Communities are generally willing to pay fair prices for
good water services!
The facilitator should direct the discussion towards a consensus on an agreed

basis for setting tariffs.
Discuss what happens if people cannot afford to pay what is needed to operate
and maintain the water supply schemes.
 What happens to the water supply schemes?
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Management
 What happens to consumers if they lose the services provided by the

water project?
 Who suffers most?
Step - 3: The
The facilitator should explain why tariffs are regulated. The following points
need to
should be made:
regulate tariffs
 Water is a basic human need and is a constitutional right;
 The cost of building water supply schemes with safe and reliable water is
 expensive;
 The net result is that there is usually only one water service provider in
any given area – there is no competition between water services
providers in the way that there is competition between two shops selling
the same commodity.
 This means that water service providers have a monopoly and could
charge excessive tariffs. And since consumers do not have an alternative
water supply they could be exploited. People in arid and semi-arid areas
are more vulnerable to exploitation.
 A balance has to be found between setting a tariff that covers the cost of
operating the project and ensuring that consumers are not exploited.
There are two ways to ensure that consumers are not exploited:
1. A WASHCO should be transparent about the costs of operating the project
and how the tariffs have been established. This approach is reflected in the
preparation and approval of the annual budget, and the submission of the
financial and audit report to the User Community and Woreda Water Office;
1. An independent government organization is mandated to check that tariffs
are justifiable. The organization with this mandate is the Water Services
Regulatory Board (WASREB). They set guidelines and use the Water
Services Boards (WSBs) to make sure that these guidelines are
implemented.
The issue is that tariffs should be fair and justifiable with respect to meeting the
genuine costs of operating and maintaining the project.
Discuss the term: „Socially Responsible Commercialization of Water
Services’ Commercialization of water services implies operating the water
project on commercial principles i.e. with the intention of offering good quality
service at an affordable price. This is NOT the same as being profit driven.
WASREB is there to make sure that water service providers do not exploit the
consumers.
Step – 4:
The main consideration in setting tariffs must be to ensure that revenue at least
Discussion on
covers operational costs and from a public health/social perspective that each
Tariff Setting
person can benefit from access to sufficient water to meet basic human needs.
Reflect on whether it is wise and cheaper to set low tariffs that result in
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For a water supply schemes to be financially self-reliant, the tariff should
be set according to one of these two scenarios:
i) Full cost recovery:- The tariff is set to generate sufficient revenue to meet
Management
insufficient revenue to operate the project properly.
Many community managed water projects do not meet the minimum

requirements of partial cost recovery.
It is recognized that many projects need to change their tariffs to meet a partial
cost recovery basis and then move gradually more towards full cost recovery.
For community water schemes we will consider the tariff calculation that is based
on cost recovery on operations and maintenance plus replacement of pumping
equipment (e.g. hand-pump, genset) where the life expectancy is less than 10
years.
Good tariff setting usually differentiates between:
 Communal water point or hand pump
 Individual private household connections
 Connections to institutions (schools, health centers, church/mosque)
 Connections to business premises/commercial enterprises/agricultural use
 Animal watering
Discuss the various options available for tariff setting
Step-3: Step by
Step Tariff
The objective in tariff setting is to raise sufficient revenue to meet the
Calculation
operational (and possibly capital replacement) costs in a way that is:
 Fair and equitable;
 Affordable (takes into account people’s ability to pay);
 Justifiable (does not involve unreasonable profit or exaggerated
costs);
 Easy to administer and control.
The discussion is moved into water tariff. O&M cost recovery shall be taken into
considerations under the subsequent exercises.
Let us refer to the following basic formula in the cost recovery.
Total Cost = (1) Running Cost + (2) Maintenance Cost + (3) Replacement
cost
a) Revenue:
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Management
Taking the above case of XXX WASHCO, let us calculate an amount of required
revenue.
Revenue = Tariff x Quantity
Minimum required revenue accounts for the sum of running cost plus maintenance
cost plus and replacement cost in reference with the above basic formula No. 2
Example:
Monthly running cost: Birr 230.00
Monthly maintenance cost: Birr 83.30
Monthly replacement cost: Birr 167.00
__________________________________
Total Birr 480.00
The answer to an amount of required revenue shall be Birr 480.00.
Then, let us move into a discussion on quantity required.
b) Quantity:
In accordance with technical standard, a hand pump lifts up waters with an
amount of 0.2 liter per second. XXX WASHCO sets service hours separately in
the morning and in the afternoon.
Example:
Service hours:
 Morning service (2 a.m. to 4 a.m.) local time: 2 hours
 Afternoon service (8 p.m. to 12 p.m.) 4 hours
 Hand pump operation hours (hours to lift up waters 6 hours)
(During 6 hours of service hours, it is estimated that a hand pump serves

to lift up waters approximately for 6 hours)
Pumping capacity (l/s): 0.2 litre per second

Pumping capacity (l/h): 0.2 (l/s) x 3,600 (seconds) = 720 liter per
hour
 Daily production of water (=Quantity): 720 l/h x 6 = 4,320 liter
 Daily Quantity in m3: 4,320 / 1,000 = 4.32 m3
Monthly quantity in m3: 4.32 x 30 (days) = 130.0 m3
Cross-check exercise:
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Is the above estimated quantity sufficient enough to serve for
people’s demand? Let us see as follows;
A hand pump is ideally set to serve 250 people (50 households).
Management
Example:
Required amount of monthly revenue: Birr 480.00
Monthly amount of water production (quantity): 130.0 m3
Required tariff: 480.00 / 130 = 3.70 Birr / m3
Monthly consumption per household:
Daily consumption: 15 liter per person per day
Average size of a household: 5 people
Daily Household consumption: 15 l/c/d x 5 = 75 liter
Monthly household consumption:75 x 30 (days) = 2,250 liter
Monthly household consumption-2: 2,250 / 1,000 = 2.25 m3
Monthly Water Tariff per household: 3.70 x 2.25 = Birr 8.35
Through the above simple exercise, it is suggested in the case of XXX WASHCO
that each household shall be requested to make a monthly payment with an
amount of Birr 8.35 in order to reach the O&M cost recovery.
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Management
Step - 6:
Repeat the exercise in groups but this time focus on setting the tariffs for the
Setting
participants‟ WASHCO. Based on the exercise the annual budget that was
Tariffs for
WASHCO developed in Session - C2: Preparing an Annual Budget.
Note:
 Convert the annual costs to average monthly costs;
 If the quantity of water consumed per water point/hand pump or per
household is not known, then make some reasonable assumptions.
Let each group present their draft WASHCO tariff plan
Let the group explain about how they arrived at the figures, what were the
considerations? Why they think the tariffs would work for their project etc.
Facilitator should direct the discussion towards a consensus on the tariff plan.
Note the following challenges and ask participants to reflect on how these
factors should be incorporated into the tariff plan:
1. Seasonality of water availability (for seasonal sources)
2. Seasonality of demand
3. Unaccounted for water (or Non-revenue water). This is water that is
2. produced but does not appear in any consumer meter
3. Non-payment
4. Vulnerable groups who could be considered for exclusion from
5. payments
Step 7: Action
The proposed Tariff Plan has to be explained to the management committee, the
Plan
WASHCO membership and the consumers.
For
Dissemination Make a Plan of Action that deals with:
And  Dissemination/explanation of the proposed Tariff Plan;
Implementation
of Tariff Plan  Approval of the Tariff Plan;
 Implementation of the Tariff Plan;
 Monitoring of the revenues to see whether the tariff plan has resulted in the
revenues that are expected/required.
Plan of Action
Task Who By When
Review
1) Why is it important to pay for water?
2) What are examples of operational costs? What are examples of maintenance
DEMEWOZ CONSULTANCY
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Management
costs in a community water project?

3) How is the proposed tariff „pro-poor‟?
Session Attachment 1: Form to support Tariff Calculations

Attachments Attachment 2: Worked Example of Setting Tariffs for Handpump Supply
DEMEWOZ CONSULTANCY
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Management
3.7 Session – D6: Revenue Collection

MODULE - D COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL WATER
SUPPLY SCHEMES
Session – D6 Revenue Collection
Introduction
This session aims to support new or existing water supply schemes with revenue
collection problems by examining various issues associated with revenue
collection.
Objectives
By the end of the session participants should be able to:
1. Explain how bills are developed, distributed and collected
2. Discuss challenges involved in revenue collection (defaulters, illegal
connections, burst pipes, etc)
3. Develop mitigation plans for defaulters
Outputs
Appreciation of challenges associated with revenue collection
Timing 1 hour
Target Groups WASHCOs and User Communities
Methodology Short presentations, Question and Answer, Discussions, Practical exercise on
meter reading
Materials
Illustrations, Flip Charts, Pens, books, Record book for daily collections for water
point, Water Meter, Meter Book
Session Guide
Step-1:
Once the amount of water supply fee is determined, WASHCO will decide how to
decision of
collect the fee. Let community users decide what method will work best for them.
payment
When the community helps to choose the method of collection and the amount
Method
to be collected, they are more likely to contribute.
The WASHCO should organize a general assembly or user communities to meet
with the whole community to decide on how money is to be collected and
managed.
Table 3-2: Decision on payment for water
Financial Decision on Payment Method (through Community
Activity1: Consultative Meeting)
Objective  To set the basic rules for collection and any sanctions
for those who fail to contribute.
Main  Woreda Water Office (WWO), WASHCO
Organizers
Procedure  WASHCO organize a community consultative meeting
 WWO explains to users the importance of users
contribution to O & M fund and possible payment
options
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Management
 WASHCO facilitate users to discuss the following;

 Who Pays? Some communities levy money from
each individual adult; other communities levy
money from each family or compound.
 Frequency: Some communities with a regular
income pay on a regular (e.g. monthly) basis; other
communities (e.g. farming communities) pay on a
seasonal basis (e.g. at harvest).
 Amount: Some communities collect the same
amount of money from men and women; others
collect different amounts from men and women.
Households that cannot affordable to pay from economic

reasons may be exempted from payment or accepted to
pay reduced amount through communal decision.
 When to Collect Money?
When money is collected will depend on when people

have money to pay. People who earn a regular income
(e.g. traders) can pay on a monthly basis.
 Date of collection shall be fixed.
For example: every 25 date of each month.
Farmers, however, are more likely to contribute once a
year at harvest. There may be a need to design different
payment systems for the different sections of the
community. Traders may want to pay a small amount after
every market day, whereas farmers will prefer to pay a
large amount at harvest.
 Seasonal Variation of Water Fee
Some of WASHCO can handle water fee collection by
setting different rates of water charge by season. Some
cases indicate that each household pays Birr 1.0 per
month during non-harvest season, while they agree to
make payment of Birr 2.0 per household for six months
after harvest.
 Who to collect?
The number of collectors will depend on the size of the

kebele and the payment system. If money is collected from
each household, several collectors will be needed to go
from house to house. If payment is done at a central
location, then only a few collectors will be needed.
The casher may visit each household to collect water tariff
if the community size is small to cover.
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Management
 Money collected should not stay with collectors

for more than 24 hours. Money should be paid to
a casher of the WASHCO who deposit to the bank
promptly.
 Don't let the money be used by the collectors.
They may be tempted to take out some money for
their own use with the intention to refund it
immediately. If this practice is not stopped,
however, the small amounts may build up to a huge
sum that collectors cannot easily refund.
 Any penalty to the non-payment? Penalty shall
be determined by the General Assembly.
For example;
Penalty against the first failure in payment: Oral warning by
WASHCO
 Penalty against two consecutive failures in
payment: Last warning by WASHCO
 Penalty against three consecutive failures in
payment: Measure to be taken by WASHCO (e.g.,
double payment)
 If the users fails to pay in three consecutive, the
users will be omitted to utilize the scheme however,
it is needed to study why the users do not pay
DEMEWOZ CONSULTANCY
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Management
Step-2:
Options for The following box illustrate the available options for collection of O&M fund,
collection of whichever is applied based on the agreement of the user community.
O&M Fund
Box 3: Options for collection of O&M Fund
 Options for collection of O & M fund

There are many ways to raise funds for O & M :
1. CASH CONTRIBUTIONS:
i) FLAT RATE: this is the common method for point sources. Each
household or individual makes a regular payment at fixed amount.
ii) BUCKET LEVY: In some villages money is levied at the water point on
each bucket of water collected. For example, 10 cents per one Jerry-can
with 20 liter capacity. Any cash transaction should be transparent with
proper accountability. In some case a ticket shall be used for this
payment.
 Pump Operator shall prepare a pile of tickets.
 Each ticket shall be piled in order with sequential number.
 A pump operator shall give collected cash with numbers of tickets
that were sold to a cashier.
 After cross-checking between an amount of cash and tickets, a cashier

shall enter cash transaction into an account book.
Date Description In Out Balance

10 – 10 - 2006 XXXXXXXXX XXX XXX 120.00
11 – 10 - 2006 Sales of waters (70 tickets) 14.00 0.00 134.00
2. INKIND CONTRIBUTIONS:
Some farming communities ask households to contribute in the form of
produce on an annual basis (i.e. after harvest)
3. COMMUNAL FARMS OR LABOUR:

Some communities establish communal farms or organize communal labour to
raise funds for maintenance.
DEMEWOZ CONSULTANCY
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Management
Step-3:
WASHCO needs to have an updated list of all household users in the
Formulation of
community. Based on that households list, WASHCO prepare “Household
User
Payment List (see attached list) which can be used every month for record
Households
keeping.
Lists
Table 3-3: Formulation of User Households List
Financial Formulation of User Households List
Activity 2
Objective Toset the basic management document for proper record
keeping and transparency of fee collection
Main Organizers WASHCO
Procedure  WASHCO make a user household list (in a notebook)
in collaboration with kebele chairman, kebele
executives
 WASHCO uses the above list to check when collecting
O & M fee from user households
 WASHCO needs to update regularly the household
lists so as not to miss households who have newly
joined in the community.
How to Use
Money should be collected in a way that promotes trust!
Payments should be carefully recorded in a register of payees and receipts
should be issued for all payments. The minimum record of cash transaction
should be kept by the casher that is accountable to users as well as WASHCO
members. Based on experiences prevailing in the region, a sample form of
minimum record is presented in Table below.
Table: WASHCO Basic Ledger of Water Fee Collection
No. Name of Rate of Month
Household Water 1 2 3 4 5 6 7 8 9 10 11 12
Fee in Birr
1 Kefel 1.5
Genzeb Birr/Month
2 Tamen 18
Mulate Birr/Year
3 Chala Tulu 9 Birr/6
Months
Some advanced WASHCO can also prepare a membership booklet as

individual record of monthly payment of water fee.
DEMEWOZ CONSULTANCY
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Management
Sample of household check book
Step-4: Bank
For proper and safe keeping financial resources, collected cash is deposited in
Account
an account of financial institution of either the nearest bank or micro-finance
Opening
institute (MFI).
Woreda Water Office shall follow ordinary procedures in reference with their own
experiences, so that each WASHCO can have its own the bank account or the
Micro-Finance account soon as possible.
Table 3-4: Bank Account Opening
Financial
Bank Account Opening
Activity 3
To save collected money in safe and to avoid misuse of O
Objective
& M fund by WASHCO
To keep accountability to the water scheme users
Main WASHCO
Organizers
Procedure
 WASHCO submits a letter of application to WWO
 Upon an official acknowledgement of the letter of
application by WASHCO, the WWO issues a supporting
letter to a financial institute.
 WASHCO goes with cash to the designated financial
institute with the official supporting letter for opening an
account.
 WASHCO is given a bank account book or statement by
the financial institute.
Minimum requirement of cash to open a bank account.
Tips!
It is said that Birr 500 is required to open an account in a
certain bank. Some cases can be shared herewith to
respond to such conditions.
Formulation and collection of seed money. Some of
WASHCO succeeded in meeting this minimum
DEMEWOZ CONSULTANCY
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Management
requirement of Birr 500 through collection of seed

money. In this case, each registered household shall
contribute equal amount of money to form group fund.
For instance, there is a case that more than 50
registered households accumulated Birr 500 through
even contribution of Birr 10 per each household.
Step-5:
1. Brainstorm on the risks to the WUA revenue. Document risks on flip chart.
Develop a
Risks to consider include:
Risk Mitigation
Plan  Defaulters, illegal connections, burst pipes, vandalism
 Low water quantity/yields in dry spell
 Identify causes of these challenges
 Double receipt books and other corrupt practices
 Discuss any other challenges that affect revenue base
2. For each risk, identify steps that can be taken to mitigate the risks. Steps to
be considered include:
 Written warnings to the culprits
 Effective monitoring and evaluation mechanisms
 Disconnections and penalties for reconnection
 Customer contract
 Improving customer care – complaints box
 By-laws
Review
 What is the main risk to the WASHCO revenue? How has this risk been
mitigated?
 What happens to the water supply scheme if the revenue is less than
required?
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3.8 Session – D7: Procedures for Handling Collected Money

MODULE - D COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL WATER
SUPPLY SCHEMES
Session – D7 Procedures for Handling Collected Money
Introduction
Handling funds properly is an important task within the WUA. The success or
failure of the WASHCO may depend on whether the funds are handled accurately
and transparently.
Although the actual financial recording is usually handled by the treasurer or
accounts clerk, the committee members need to know the systems so that they
can confirm that the proper systems are being followed.
Objective
By the end of the session, participants should be able to:
1. Confidently handle WASHCO funds, following proper accounting procedures
Outputs
 Proper financial accounting systems are set up (new schemes) or reviewed
(existing schemes)
Timing 4 hours
Target All members of the WASHCO plus a number of community resource persons.
groups
Methodology  Demonstration/Observation
 Illustration in practice
 Short presentation
 Practical exercise
Materials  Illustrations
 Flip charts and marker pens, pens and notebooks
 Pens, note books and blank ruled sample receipt books, vouchers,
invoices, cheque books, LPOs,
 WASHCO By-law
Session
Guide
Supporting
Information a) Primary documents are records where initial information of transaction in a
WASHCO is indicated. They provide evidence that a transaction has taken or took
place.
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Primary document What it is used for
1) Receipts Issued to buyer of goods

2) Payment vouchers Signed by person paid
3) Petty Cash Vouchers Signed by person paid where there is no

receipt
4) Purchase order book Issued to one from whom we intend to get
goods
5) Invoice Issued as demand for payment
6) Goods receipt Note Issued by supplier to be signed by one
receiving goods
7) Cheque Issued to supplier of goods or services to be
presented to the bank for payment.
b) The recorded information is then transferred to the books of accounts, which are
referred to as secondary documents. These include Cashbook and Ledger.
Step 1:
Why should a WASHCO keep records? Points to consider include:
Importance
of  Planning purposes;
Proper
 Stock and asset management;
Record
Keeping  To know WASHCO debtors/creditors;
 To know cash position;
 To be able to explain to the WASHCO membership the revenue and
utilization of the revenue;
 To maintain credibility of consumers that tariffs are fair;
 To be able to account for any donations to the WASHCO.
Corruption thrives where there is:

 Confusion;
 Ambiguity;
 Incompetence;
 Lack of oversight and monitoring;
 No disclosure of information;
 Lack of proper procedures;
Step 2:
Describing
1. What type of records should a community organization keep and who should
the different keep them? [List and discuss the types of records in one column of a table
and show against each record who should keep it.]
types
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of records The object in this step is to help WASHCO members become familiar with the
terminology and the look of each kind of record.
2. Ask different participants to explain the type of record, its purpose, who keeps
the record, who signs it.
Members register: This contains a list of members and their personal names
among other details
Assets register: This register maintains record of WASHCO assets. An asset is

what an organization owns.
Invoice: An invoice is issued by the supplier of goods or services showing their

condition, quantity, and price demanding for payment. Another form of an invoice
is a fee note.
Water bill: Is a form of invoice indicating cost of water services rendered.
Receipt Book is a document showing evidence that money paid into the
WASHCO is received and records are kept. It is issued to the person paying in the
money such as member paying for membership fees.
Payment Voucher is a document showing evidence that money is paid OUT of

the WUA.
Petty Cash Voucher is a document showing money was paid OUT in cash.
Order book: Order Book is used by a WUA to order for goods or services. It is
also called local purchase order (LPO) by some organizations.
Delivery Note: Delivery note is a document specifying that goods/services have

been delivered. It is sent with the goods or services so the customer signs to say
he has received the goods.
Cheque is a promise issued to supplier of goods or services to be presented to the

bank for payment. When ordering a cheque book, the organization provides the
number of signatories who must sign the cheque before it can be honored by the
bank.
Step-3 Bank
For proper and safe keeping financial resources, collected cash is deposited in an
Account
account of financial institution of either the nearest bank or micro-finance institute
Opening
(MFI).
Woreda Water Office shall follow ordinary procedures in reference with their own
experiences, so that each WASHCO can have its own the bank account or the
Micro-Finance Institute account soon as possible.
Procedure
 WASHCO submits a letter of application to WWO
 Upon an official acknowledgement of the letter of application by WASHCO, the
WWO issues a supporting letter to a financial institute.
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 WASHCO goes with cash to the designated financial institute with the official
supporting letter for opening an account.
 WASHCO is given a bank account book or statement by the financial institute.
Tips!
Minimum requirement of cash to open a bank account. It is said that Birr 500 is
required to open an account in a certain bank. Some cases can be shared
herewith to respond to such conditions.
Formulation and collection of seed money. Some of WASHCO succeeded in
meeting this minimum requirement of Birr 500 through collection of seed
money. In this case, each registered household shall contribute equal amount
of money to form group fund.
For instance, there is a case that more than 50 registered households
accumulated Birr 500 through even contribution of Birr 10 per each household.
Step-4:
The WASHCO will keep its own FINANCIAL RECORDS. The record-keeping
Managing
system should be simple – mainly a record of payees and an account book to
the daily
record monies collected and used.
Cash
Movement  Basic Elements of Financial Records
The basic account registration and documentation instruments required in financial

management system are presented below.
Tool - 1: Income and Expenses

Book
This book is maintained and kept in the hand of the casher or secretary of the
WASHCO. The casher or secretary keep copies of receipts and payments and
reconcile records in the income and expense books. Accordingly receipts and
expenses are recorded by date, reasons and amounts and serial numbers in the
income and expense books. In the income and expenses books, invoices of
receipts and payment vouchers are recorded according to their sequential serial
numbers and coded to their budget line numbers.
Records are kept daily in the income and expenses book and closing are
processed on monthly basis.
The differences between income and expenses recorded in the account book are
reconciled against cash in the hand and bank account.
Payment vouchers and receipt invoices should be maintained in separate files;

payment vouchers in payment box files and receipts in a receipt box files. Filing
should be according to sequenced numbers and box files should be labeled
according to their orders say 1, 2, 3, - - - this will facilitate and expedite processes
for internal audit and control activity. An explanatory of the income and expenses
book model are show below.
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Table 3-5: Income and Expenses Book Model

June, 2006
Date Details Income Expendit Balance

ure
Cash Bank Total
Balance
01/10/05 - 150.00 150.00
Forwarded
from the
previous month
05/10/05 User fees 200.00 200.00 150.00 350.00
07/10/05 Stationery 10.00 190.00 150.00 340.00
28/10/05 Guard fee 50.00 140.00 150.00 290.00
30/10/05 Transportation 10.00 130.00 150.00 280.00

to WWO
Deposit to the
30/10/05 30.00 250.00 280.00
Bank (100Birr)
Total 200.00 70.00
This can be carried out with Excel spreadsheet.
Tool - 2: Cash Receipt Registration
 Cash receipt registrations are invoices issued for the cash amount paid for
the water service by employees, other individuals or organization.
 Other revenues collected from sales of water at public fountains or on water
consumption bills are also invoiced in the cash receipt registration.
 Receipt invoice pads should be printed in sequenced numbers in three
duplicates. The original receipts are forwarded for payer; the copy is passed
to the casher or tiller while the third copy shall remain in the pad.
 In the receipt first the date shall be filled, full name of the payer, signature of
payee, and delegated authority are required.
The casher should keep the copy of the receipt in file and record in the book of the
account all the details such as receipt number, date, reasons of receiving, amount
in figures and words in sequence.
If receipts are invalid or when there is an error in the preparation of the receipt, the
receipts is cancelled by writing “CANCELLED” diagonally across the face of the
receipt.
A typical cash receipt registration form/ invoice is shown below.
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Table 3-6: A Typical Cash receipt Registration Form/ Invoice
XXX Regional Administration

YYY Woreda Water Office
Water Supply Scheme
CASH RECEIPT INVOICE
No.________
Name of payer: __Kefel Alemu_________ Date:- Sene 30, 2005
Amount in figure: Birr 100.00
Amount in words: Birr Hundred
Payment Reason: Remuneration to the pump guardian
Prepared by: Name and signature
Name and signature of cashier ___________________________
Distribution
Original for payer
Copy for cashier/tiller
Second copy in the pad for account section
Tool - 3: Cash Payment Invoices/Vouchers
 Cash payment vouchers are legal documents for payment of cash approved
and authorized by committee or Head of WWO.
 Before processing cash payment voucher, all supporting documents and
invoices are carefully examined for completeness and then cash payment
vouchers are signed by the secretary and chairperson of the WASHCO or
Woreda Finance Head and office superintendent on the amount for payment.
 Supporting documents for village water schemes or WWO could be:
o Purchase requisition or application for purchase of fuel oil and lubricant, the
recommendation given by the committee or the office on the application and
stores good receiving notes.
o For spare parts, the operator purchase application, the copy of water
committee verbal for purchase of spares addressed for WWO and stores
goods receiving models.
 Similar to cash receipt registration, cash payment pads are printed in
sequence numbers in three duplicates and the original payment leaflet are
attached with source document and kept in box files with cashers. The second
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copy of the payment leaf should be maintained in other box file for
reconciliation for account head the third copy shall remain in the pad.
 In the cash payment voucher the following details should be presented, date,
paid name, amount paid in numbers and words, reason for payment, prepared
by, approving authority signature, recipient signature; moreover the recipient
address and ID number if kept in the receipt are recommended.
 The account clerk maintaining payment registration should reconcile the
source document against the voucher there by coding the expenses and
record them in the book of expenses sequentially by date, voucher number,
reason, amount and filing them in box files.
A typical cash payment invoice form is shown below
Table 3-7: A Typical Cash Payment Invoice Form
XXX REGIONAL ADMINISTRATION

____________WASHCO
CASH PAYMENT INVOICE
S.No.000001
Date: Sene 30. 2005

 Name of Payee: Kebede Tolla
 Amount in Figure: Birr 500.00
 Amount in Words: Five Hundreds Birr only
 Payment Reason: For the purchase of office table and chair
 Prepared by: Tolera Degefa
 Received by: ______________
 Name & Signature: _________________________
 Name & Signature of payee:__________________
 Approved / Authorized by:_____________________
 Name & Signature: __________________________
Tool - 4: Payroll
Employees recruited and employed by the water committee or Woreda Water,

Mining and Energy Offices are paid their salaries in pay rolls. Salary pay rolls are
prepared for the number of days that employees are on duty in the month.
In processing pay roll all legal deductions such as income taxes and pension
contributions are netted out from gross salary and passed to tiller. The casher
effects payment for each employee with signing of pay roll by respective
recipients.
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Model of a payroll list is shown below.

Table 3-8: Model of Payroll List
Name No of Gross Income Other Total Net
N of days Sign
o. on Salary Tax Contributi Deductio Pay ature
Emplo on n
yee duty
Birr C Birr C Birr C Bir C Birr C
r
1 Tolera 30 200 00 5 00 1 50 6 50 193 50

Degefa
2 Alemu 30 350 00 20 00 2 50 22 50 327 50

Kebed
e
Prepared by Checked by Authorized by Name and

Name and Name and Name and signature of
signature signature Signature Casher
Note: This payroll shall be prepared in excel spreadsheet!
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Tool - 5: Per Diem Payment Form
Table 3-9: Per-Diem Payment Form
XXX REGIONAL ADMINISTRATION

____________WASHCO
PER-DIEM PAYMENT FORM
Date: Sene.30, 2005
Per diem Recipient Name: Geremew Bekele

Reasons for redeem payment: Training participation in WWO
Per diem amount per day in figure: 100.00 birr, in words: Hundred Birr
No of days allotted: 4 days
Total amount of per diem in fig. 400.00 Birr, in words Four Hundred Birr
Transport cost amount paid: 50.00 Birr, in words Fifty Birr
Total: 450.00 Birr (Four Hundred Fifty Birr) in words
Payer Name and Signature: Alemu Bekele
Received by: Kebede Zeleke
Approved and Authorized by: Kassa Ali
Document Prepared by: Tadesse Berega
Step 5:
Records from the primary documents discussed above are then transferred to the
Secondary
secondary documents. These include the ledger and cash book
Documents
and Facilitator to demonstrate how to transfer information from primary to secondary
Bank financial documents ensuring all primary documents are used:
reconciliatio Cash Book: A cash book is a record of all cash or cheques received (in) and paid
n
(out) in the transaction of business. The information recorded in the cashbook is
from primary documents. Which primary documents would provide information for
the cash book? Discuss. Receipts, incoming cheques for the receiving side;
payment vouchers, outgoing cheques for paid (out) side.
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Date Description PV/R Receipt (Birr) Payment (Birr)

No. Cash Bank Cheque Cash Bank Cheque
1/12/14 Share RI 800.00
5/12/14 Donation 2,000 0040
7/12/14 Materials 300
9/12/14 Share 200.00 600 04324
10/12/14 Salary
Total 1000 200 300 600
Ledger: The ledger is a summary of all transactions in a business. It is a

document of secondary entries. Final accounts are drafted from the accounts in
the ledgers. When writing a ledger one should:
Identify the account then use the Rule of:
 Value Received “IN”
 Value Given “OUT”
Step 5: Bank
Reconciliatio
 Bank reconciliation (See sample Attachment ):
n Bank reconciliation is a very important procedure for a WASHCO as it is a way of
checking that the books of accounts tally with what is in the bank and/or petty cash
box.
A WASHCO that does not undertake bank reconciliation on a

regular (monthly) basis is at risk.
Bank reconciliation is the process of harmonizing the balances of money at the

bank and in petty cash against all recorded income and expenditures. Bank
reconciliation is done by taking the current bank statement and checking all the
entries – receipts and withdrawals - to see if all the cheques issued have been
presented and cleared. At the same time it is also helpful to confirm if all the
cheques issued to the organization have been cleared before making a decision to
pay from the account.
The Bank Reconciliation Statements is a tool to ensure that the accounts balance.
Principally the question being asked is:
 Does the money you started with (A)
 Plus the additional money received (B)
 Less the amount expended (C)
 Less the amount you remain with (D)
 Equal zero?
In other words does (A+B = C+D) = 0
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If it does NOT then there is a problem that needs to be found and/or explained.
The Bank Reconciliation Statement should be made at the end of each month.
In reviewing the Bank Reconciliation Statement the Chairman should:
1) Refer to the Bank Reconciliation Statement for the previous month, to

ensure that the figures in relation to the amounts present in the bank account
and in the petty cash at the end of the month are the same as those found
Carried Forward at the start of the month in question.
2) Refer to the Bank Account Statement, and 3 Column Cash Book, to ensure
that all funds received have been taken into consideration.
3) Refer to the VOUCHERS and the 3 Column Cash Book to ensure that all
transactions have been documented.
4) Physically count the money in the Petty Cash and review the Bank
Statement to ensure that the funds remaining at the end of the month are
accurately reflected in the Bank Reconciliation Statement.
When the Bank Reconciliation Statement does NOT Balance for whatever reason
say a cheque has been signed but has yet to be cashed then the Chairman MUST
ensure that the discrepancy is adequately explained. The Bank Reconciliation
Statement Format allows for such explanations.
Review  When should bank reconciliation be undertaken?
Session Attachment 1: Sample Financial Records

Attachments
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Attachment 1: Example of Financial Forms
Table 3-10: Member’s Register

No. Name Membership Fee Date of Entry Nominee Remarks
(Birr) Witness
1 Gemerda Tolla 20.00 12/01/2007 E.C Alemu Challa
Table 3-11: Asset Register

Date Supplier Asset Serial Quantity Unit Total Registry
No. Cost (Birr)
20/02/2007 GS Office 2 500.00 1,000.00 WG/table/1

Supplier Table
WG/table/2
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Table 3-12: Purchase Order
LOCAL PURCHASE ORDER
Date:-------------------
Order No. 0004
From………………………………………………………………….
……………………………………………………………………….
To…………………………………………………………………………
……………………………………………………………………………
Please supply the following goods / services and charge to our A/C
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
…
Quote the above Order No. on all invoices.
Sign…………………………… Date ………………………………………
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Table 3-13: Payment Voucher
PAYMENT VOUCHER
Date...................................
M/S………………………………………………………………….
No. Description Amount (Birr)
Amount in words Birr ……………………………………………………………………………..
Prepared by ………………………………………….. Date ………………………….
Authorized by ………………………………………….Date …………………………..
Received by……………………………………………Date ……………………………
Table 3-14: Delivery Note
Delivery Note
Date……………………
M/S………………………………………………………………
…………………………………………………………………….
From order………………………………………………………
No………………………………………………………………….
Please receive the under-mentioned goods/services in good condition.

…………………………………………………………………….
……………………………………………………………………..
Received in good condition by …………………………………… Date…………
Signed by Customer’s Agent
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Table 3-15: Cheque Leaf
Date: ……………
Pay………………..……………………..………….
Birr:
Amount in words Birr:.………..……….………………………………………………Only
Signed: ….…….…………………………………………
Table 3-16: Cash Book

Date Description PV/R Receipt (Birr) Payment (Birr)
No. Cash Bank Cheque Cash Bank Cheque
1/12/14 Share RI 800.00
5/12/14 Donation 2,000 0040
7/12/14 Materials 300
9/12/14 Share 200.00 600 04324
10/12/14 Salary
Total 1000 200 300 600
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Table 3-17: Bank Reconciliation Statement

Name of Water Supply Scheme
Date Sum (Birr)
A Funds brought forward/ Opening balances
Cash in Hand
Bank Accounts
Total monies brought forward
B Money Received
C Expenditure (as detailed in the monthly expenditure statement)
D Closing Balances/Money left
Cash in Hand
Bank Accounts
Total monies left
E Reconciliation Check
E = (A + B) – (C + D) = 0
Differences between Bank Reconciliation and actual funds remaining
Cash in Hand
Bank Accounts
Explanation for differences between Bank Reconciliation and actual funds
remaining
1.
2.
3.
4.
Statement by Accountant
I certify that the accounts for the Month ______ Year_______ as reflected in
this bank reconciliation provides a true representation of the statement of
funds used for purposes intended.
Name: _____________________Signature:____________________ Date:
_____
Statement by Financial Sub-Committee
I certify that I have reviewed the accounts in detail for the Month ______
Year_______ as reflected in this bank reconciliation and that the funds have
been used for purposes intended.
Name: _____________________Signature:____________ Date:
____________
Statement by Chairman
I certify that I have reviewed the accounts in detail for the Month ______
Year_______ as reflected in this bank reconciliation and that the funds have
been used for purposes intended.
Name: ___________________Signature:______________ Date: __________
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3.9 Session – D8: Setting Procurement Procedures

MODULE - D COMMUNITY BASED FINANCAIL MANAGEMENT
Session – D8 SETTING PROCUREMENT PROCEDURES
Introduction
The purpose of this session is to appreciate the need for procurement guidelines
for any WASHCO. Procurement of goods and services is an important aspect of
the life of any organization. Procurement rules ensure that organizations remain
transparent and leaders are accountable to members.
Objective
By the end of the session, participants will be able to:
1. Discuss the role of procurement sub-committee
2. Develop terms of procurement of goods and services
Outputs
WASHCO procurement procedures established
Timing 2 hours
Target Group WUA committee members and community leaders

Session Guide
Supporting
The term to procure means to buy or acquire goods or services.
Information
 Procurement Sub-Committee
The WASHCO procurement sub-committee should comprise at least three

persons who should not be members of the monitoring or finance sub-
committees to avoid conflict of interest.
 Transparent and Accountable Procurement Processes
Procurement is a process which is vulnerable to collusion between the

suppliers/contractors/service providers and those making the decision. The
WASHCO should take steps to ensure that procurement is done in a way that
results in the best value for money for the project and in a way that this is seen to
be done. Essentially this means that procurement should be done competitively
and publicly.
Procurement processes include:

 Establishing specifications for the materials/services required;
 Public notices requesting for bids;
 Clear criteria for evaluation of bids;
 Public disclosure of the tender process and results.
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Step 1:
1. Facilitator can ask participants what they understand by the term procurement.
Importance
of 2. Discuss scope of procurement process: covers goods and services.
Procurement 3. What is the purpose of procurement?
4. Discuss what can happen if procurement is not done properly?
Weak procurement can result in:

1. Suspicion of corruption or favoritism which undermines credibility
of WASHCO management committee;
2. Sub-standard partial goods or services because terms of
reference for quantities or specifications were not properly
prepared;
3. Generates conflicts within WASHCO or between WASHCO and
others because proper procedures were not followed;
4. Over-inflated prices due to lack of proper competition;
5. Delays in getting something done or goods purchased
Step 2:
Every organization often has to set rules to guide the procurement processes for
Establishing
goods and services.
procurement
responsibilities Discuss the following points:
1. Who should set the rules and procedures for procurement?
 Management committee with AGM approval.
2. Where should procurement rules be documented?

 Procurement rules may be found in the WASHCO constitution or bylaws
or in a separate document that has been approved by the AGM
3. Who should implement the procurement activities?
 Procurement sub-committee;
 Management committee.
4. Does WASHCO have a procurement sub-committee?

 Does constitution allow for a procurement sub-committee?
 Define membership of procurement sub-committee?
 Define terms of reference for procurement sub-committee
 Review terms of reference for management committee with respect to
procurement activities.
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Step 3:
Facilitator should divide participants in groups of five and provide them with the
Undertaking
case studies provided.
a procurement
process Each group will be required to convert themselves into a procurement
subcommittee for a WASHCO and simulate the discussions that would go on in
procuring services and goods for their organization and present the winning
bidder to the plenary.
Facilitate the presentations and guide the ensuing discussions from the
presentations.
Review the following steps:
1. Specifying precisely what is needed;
2. Drawing up a notice;
3. Advertising;
4. Evaluation of bids;
5. Documenting procurement process;
6. Final selection;
7. Disclosure of results;
8. Handling complaints.
Step 4:
With reference to Attachment 1, ask the participants to draw up Procurement
Defining
Guidelines for their WASHCO.
WASHCO
procurement
guidelines
Step 5: If If the Revolving Fund Office or Enterprise is established by the respective
Revolving regional states to operate and managed the revolving fund for ensuring the
Fund applied sustainability of water supply schemes in spare part supply chain. This method of
provision of spare parts, local service providers (Micro or small Enterprises) as
spare part retailer in the Woreda town involves as one of the potential
stakeholders. The WASHCOs thus buy spare parts from these retailers.
Therefore, the above procurement procedures can be modified with this revolving
procedure. See Module – E for more clarification.
Review What may happen to a WASHCO if procurement guidelines are not followed?
Session Attachment 1: Sample Procurement Guidelines

Attachments
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Attachment 1: Sample Procurement Guidelines for a WASHCO

The WASHCO, through its constitution, by-laws or Annual General Meeting (AGM) may set up
procurement rules that can be structured as follows:
1) Up to Birr 2,000 by direct purchase
In regard to items to be procured at any one time for which the total amount to be procured does not
exceed Birr 3,000 procurement can be made through direct purchase on the checking of prices.
Written quotations will not be required.
2) From Birr 2,001 to Birr 10,000
For all procurement of goods and/or services (including Area Mechanical) for the project, between a
total of Birr 2,001 to a total Birr 10,000 a minimum of three written competitive offers will be required.
The selection of the supplier will be made by the procurement sub-committee based on the quotations,
taking into account price, quality, availability and timeliness of delivery.
In each case the procedures followed must be documented and all quotations/bids collected and /or
submitted must either:
 Be filed as supporting documents attached to the voucher reflecting the purchase, or
 Be filled separately with a reference made on the voucher as to the location (file name of the
supporting documents)
3) For purchases over Birr 10,000
In regard to items to be procured at any one time for which the total amount to be procured exceeds
Birr 10,000, the procurement sub-committee will:
 Prepare the list of items to be procured;
 Determine the closing date for the submission of quotations;
 Determine the list of suppliers/contractors to be invited to quote. The list shall be approved by
the management committee prior to requesting quotations and shall be displayed on the
WASHCO notice board;
 Send out requests for quotations ensuring a reasonable period of time for suppliers to prepare
their quotations;
 Arrange the opening and evaluation of quotations;
 Evaluate and determine the preferred supplier/contractor.
 In each case the procedures followed must be documented and all quotations/bids collected
and /or submitted must either:
 Be filled separately with a reference made on the voucher as to the location (file name/page of
the supporting documents)
In each case the procedures followed must be documented and all quotations/bids collected and
/or submitted must either:
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 Be filled separately with a reference made on the voucher as to the location (file name of the
supporting documents)
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3.10 Session – D9: Financial Control

MODULE - D COMMUNITY BASED FINANCIAL MANAGEMENT
Session – D9 FINANCIAL CONTROL
Introduction
This session is intended to be an AWARENESS CREATION session on the
need to carry out regular monitoring so that the:
 Books of accounts are properly kept and the actual cash in hand and in
bank corresponds to what is described in the books;
 Actual expenses do not exceed the amount budgeted;
 Actual income corresponds to plans;
 Actual cash can cover expected expenses
Objective
By the end of the session, participants should be able to:
 Explain the elements of a financial report
 Explain regularity of financial reports
 Distinguish between different kinds of financial controls and reporting.
Outputs Financial Control Plan
Timing 1 hour
Target Group All members of management committee
Session
Guide
Supporting
Information
Tools for Financial Controls
 Approved Annual Budget;
 Bank Reconciliation;
 Financial Report;
 Internal Audit Report;
 External Audit Report;
 Procurement Guidelines;
 Procurement Report.
Step 1:
Facilitator to make a presentation to introduce the topic.
Introduction
to financial Financial controls are a set of procedures that assist the WASHCO and its
controls members to have confidence that:
 Funds are being spent in line with intended use and according to the
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approved budget;
 That discrepancies in financial records are noticed early on and rectified;
 That revenue is in line with expected amounts and any discrepancies are
noticed and acted on;
 That procurement activity follows the guidelines agreed by the WASHCO or
as set out in the Constitution or by-laws.
Step 2: Role
Use the following role play to help illustrate the need for proper and regular
Play
financial controls.
Undertake the role play involving the trainer, the WASHCO chairman, the treasurer
and community members.
Role Play on Need for Financial Controls:

 At a meeting with WASHCOs, a trainer is informed that a water project
which manages 20 handpumps does not have sufficient funds to purchase
the spares and pay the pump mechanic to fix the five handpumps that are
not operational. The trainer is informed that the community members
have been paying their fees and are not willing to contribute to the fund
raiser that has been proposed by the committee to raise the required
funds.
 The treasurer has been ill and proper records have not been kept for the
last six months.
 The project recently purchased a motorbike for the pump mechanic
which was not planned for in the annual budget and it is not known how
much was spent on the motorbike.
 What information should the trainer ask for to investigate the problem?
What should the project do to solve the problem?
In moderating the role play, the facilitator should draw out the following points:
1) Is there an approved annual budget?
2) Does anyone check monthly income and expenditure against the approved
budget?
3) What should the project do if the treasurer is unwell and cannot perform
his/her duties? Why did the problem persist for six months?
4) What is the procedure for checking monthly income and expenditures
against the bank accounts and petty cash box? (Monthly bank
reconciliation)
5) Why was the motorbike purchased without being budgeted for and how
should this be avoided in future? What systems does the project have to
move funds from one budget line to another?
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6) Why were the WASHCO members not aware of how much the motorbike
cost?
7) What has been the impact of the cash flow problem on water supply
services within the community?
Step 3:
Using Attachment 1, ask the participants to identify the financial controls that would
Establishing a
improve the accountability of the project.
financial
control For each issue identify what should be done, how often and by whom.
plan Important points to emphasize are that financial controls only work if:
1. There are agreed procedures that should be followed;
2. That there is a check or audit to ensure that the procedures are being followed;
3. That any discrepancies are addressed immediately
Step 4:
As specified elsewhere in this manual, auditing of WASHCO’s on annual basis
Auditing
should be carried out by assigned Auditor of the Woreda or else if the revolving
fund office/enterprise is established the local service provider can do this work. See
Module – C for further clarification.
Review
 Do participants feel that the Financial Control Plan would have prevented
the situation as discussed in the role play?
 Who has the responsibility to ensure that Financial Control Plan is adhered
to?
Session
Attachment 1: Sample Financial Control Plan
Attachments
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Attachment 1: FINANCIAL CONTROL PLAN

Issue Action Needed By Whom When
Ensuring that monthly Monthly bank Accountant Chairman of Monthly
income and expenditures reconciliation Financial Sub-Committee
tally with money in bank and
petty cash box
Ensuring that all receipts, Audit External Auditor Chairman External audits
vouchers, accounts etc are of Audit Sub-Committee - annually
being properly kept
Ensuring that assets Update Asset Accountant Quarterly

belonging to the project Register Counterchecked by
are properly recorded Chairman of Financial
Sub-committee
Ensuring that expenditures Check Chairman of Audit Sub- Monthly or
are consistent with approved expenditures Committee quarterly
budget against approved
budget
Revenue is consistent Reconcile monthly Accountant Chairman of Monthly

with budget revenue against Financial Sub-Committee
budget
Procurement is Procurement Audit Chairman of Audit Sub- Quarterly

following approved Procurement Committee
guidelines notices placed in
project office and
public places
Members/consumers are The following Project Chairman Annually

informed of project documents should
accounts be presented at the
AGM:
 Annual budget
 Financial Report
 Auditor Report
Audit queries are dealt Maintain record of Accountant Chairman of Quarterly

with properly Audit Queries and Audit Sub-
action taken Committee
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Annexes: FORMATS
Annex A: Basic Ledger of Water Fee Collection
No. Name Rate of Month and Signature
Water Fee
(Birr)
1 2 3 4 5 6 7 8 9 10 11 12
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Annex B: Income & Expense Ledger

Date Details Income Expense Balance
Cash Bank Total
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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

MINISTRY OF WATER, IRRIGATION AND ELECTRICITY

Rural Water Supply Operation

RURAL WATER SUPPLY POINT SOURCES

MODULE – A FACILITATOR’S GUIDELINE

DESCRIPTION OF POINT WATER SOURCES AND

MONITORING AND EVALUATION OF RURAL

WATER SAFETY PLAN FOR RURAL WATER

PREPARATION OF ACTION PLAN AND

MODULE - D: COMMUNITY BASED FINANCIAL MANAGEMENT

In common use, ‘depreciation’ is the reduction in value of a fixed

Accounting Year or “year” means the Financial year

Administration Fee The Administration Fee represents a charge imposed on all

Amortization Amortization refers to that portion of a loan that is repaid periodically

Assets Assets are any resource controlled by the WB/WASHCO to derive

Capital Capital represents equity contribution of the owners in the CBO as

Cash Disbursements Book

Current Liabilities the Accounts Summary Form.

Current Liabilities represent amounts due to third parties within one

General Ledger A General Ledger is a record of the movement of an account in the

Merchandise Inventory represents items that will be sold to

Net Income is the bottom line in an Income Statement. It represents

Net Operating Income is the difference between Operating

Payment Voucher section of the Income Statement.

The Payment Voucher is the document prepared for all cash

For example, the General Ledger account “Advances to Employees”

3. MODULE – D: COMMUNITY BASED FINANCIAL MANAGEMENT

This Training manual comprises the following 8 sessions:

Session – D1: Introduction to Community Based Financial Management

3.2 Manual to be referred

3.3 Session – D1: Introduction to Community Based Financial

MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

SESSION – D1 INTRODUCTION TO COMMUNITY BASED FINANCIAL

Objective By the end of the session participants should be able to:

 Understand the basic principle of community based financial management,

Timing 0.5 hour

 Partnership, negotiations for O&M cost recovery,

MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

Budget A summary of the expected income and expenditure

MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

Variable cost Same as recurrent cost

Operating Costs incurred in the operation of the WASHCO

Revenue Income to the WASHCO

Operating Revenue less operating costs (fixed and recurrent costs)

Operating Revenue divided by operating costs.

Capital Describes a situation in which the revenues are sufficient

A budget has two major components – revenue (income), and expenditure –

MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

Financial sustainability means that the project can cover

MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

MODULE – D FINANCIAL MANAGEMENT FOR RURAL WATER SUPPLY

3.5 Session – D3: Principle of Cost Recovery and Cost Categories

MODULE – D: COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL

Session – D3 Principle of Cost Recovery and Cost Categories

Step – 3: Why The cost coverage is needed to: -

MODULE – D: COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL

MODULE – D: COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL