ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINES AND ECONOMICS

ASSIGNMENT

RISK MANAGEMENT ON ETHIPIAN REVENUE AND CUSTOMES AUTHORITY

GROUP MEMBERS NAMES: ID

1. NARDOS YEHALU BEE/2358/09

2. NITSUH BEYABEL BEE/2403/09
3. NATNAEL ASSEFA BEE/3271/09
4. NAOMI ASRAT BEE/2353/09
5. RUHAMA FEKADEE/G BEE/2470/09
6. RUTH HAILE BEE/3286/09
7. MICKAEL WONDIMAGEGE BEE/3255/09
8. NEBIYOU TESFAMARIAM BEE/3273/09
9. MELESE BEGASHAW
10. NARDOS KEBEDE
 Table Of Content

1. Acknowledgment …………………………………………………………………......……………………Page 1

2. Introduction of Risk Management Technics……………………………………..………………Page2

3. Our reasons for choosing Ethiopian Revenue and Customs Authority (ERCA)…..Page3

4. The responsibilities of the Ethiopian Revenue and customs Authorizes …………..Page 4

5. Risk Identification process ………………………...........................................................Page 7

6. Types of risk that the company…………………………………………….…………..….............Page

7. .Measure and analyses the risk level ………………………………………….…………………….Page

8. Risk response used by the Ethiopian Revenue And Customs Authorize……………Page

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 9. Conclusion……………………………………………………………………………………………………….Page

Acknowledgment

This Assignment was made by the 2st year section 5 students of Accounting Department.

We would like to thank our colleagues and our institution and mostly our instructor for providing us with the

Insight and expertise that greatly assisted in our assignment.

We would also like to express our gratitude to our instructor Asamenew

Who gave us the golden opportunity to do this wonderful project on the topic Risk Management which

Also helped us in doing a lot of Research and we came to know about so many new things we are really

Thankful for him. Secondly, we would also like to thank the risk management department of Ethiopian

Revenue and Custom Authority who helped us a lot on providing information and We would also like to

Express our gratitude for everyone we didn’t mention that also helped us morally.

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 Introduction

What is risk? How can risk be defined?

 Risk can be defined as the combination of the probability of an event and its consequences. In all types
of undertaking, there is the potential for events and consequences that constitute opportunities for
benefit or threats to success.

 Risk implies future uncertainty about deviation from expected earnings or expected outcome..
Risks are of different types and originate from different situations. We have liquidity risk, sovereign
risk, insurance risk, business risk, default risk, etc. Various risks originate due to the uncertainty arising
out of various factors that influence an investment or a situation.

What is risk management ?

Risk management definition varies for Institution to Institution

According to our class lesson risk management Is a process that identifies loss exposures faced by an
organization and select the most appropriate technique

According to our Reference manuals Risk management is the process of Identifying, Assessing & Controlling
treat to an organization capital and earnings these threat or risk could steam from a wide variety of source In
other words risk management refers to the practice of identifying potential risks in advance, analysing them
and taking precautionary steps to reduce the risk.

According to the Ethiopian Revenue and costumes authorities It is the skill of the management to identify,
analyse, and evaluate the risks of scientific discovery, thereby reducing or eliminating potential losses
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.

The company we choose to conduct our risk management process is the Ethiopian Revenue and Customs
Authority (ERCA)

Brief Introduction and overview of the company

The Ethiopian Revenues and Customs Authority (ERCA) is the body responsible for collecting revenue from
customs duties and domestic taxes. In addition to raising revenue, the ERCA is responsible to protect the
society from adverse effects of smuggling. It seizes and takes legal action on the people and vehicles involved
in the act of smuggling while it facilitates the legitimate movement of goods and people across the border.
The ERCA traces its origin to July 7, 2008 as a result of the merger of the Ministry of Revenues, the Ethiopian
Customs Authority and the Federal Inland Revenues into one giant organization.

The Authority came into existence on 14 July 2008, by the merger of the Ministry of Revenue, Ethiopian
Customs Authority and The Federal Inland Revenue Authority who formerly were responsible to raise
revenue for the Federal government and to prevent contraband. Reasons for the merge of the foregoing
administrations into a single autonomous Authority are varied and complex.
Some of those reasons include:
To provide the basis for modern tax and customs administrations

The ERCA shall have the powers and duties

establish and implement modern revenue assessment and collection system;

provide, based on rules of transparency and accountability, efficient, equitable and quality service within the
sector; properly enforce incentives of tax exemptions given to investors and ensure that such incentives are
used for the intended purposes;
implement awareness creation programs to promote a culture of voluntary compliance of taxpayers in the
discharge of their tax obligations;
carry out valuation of goods for the purpose of tax assessment and determine and collect the taxes;
conduct study and research activities with greater emphasis to improve the enforcement of customs and tax

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laws, regulations and directives and the collection of other revenues; and based on the result of the study
and research initiate laws and policies and implement the same up on approval;

Management Hierarchy
The ERCA has its headquarters in Addis Ababa. It is led by a Director General who reports to the Prime
Minister and is assisted by five Deputy Director Generals, namely D/Director General for Program Designing
of Operation and Development Businesses; D/Director General for Branch offices' Coordination and
Support; D/Director General of Enforcement Division; D/Director General, Corporate Functions Division;
Change Management and Support Sector; and Enforcement Sector. Each deputy director general oversees
at least four directorates. Both the Director General and the Deputies are appointed by the Prime Minister.

Up to June 2011, the ERCA has about 6095 employees and its workforce is projected to rise to 12,000 in the
future. Until June 2011, the ERCA's annual operating budget is 458 million birr and is appropriated by
Ministry of Finance and Economic Development.

The responsibilities of the Ethiopian Revenue and customs Authorises

 Law enforcement  Exchange of information

 Flexible hosting  Information and Risk Analysis
 Powerful procurement system  National and international security
 Low cost  Public revenue safety
 Advanced service  Better revenue collection

Purpose of Customs Clearing Agency

The purpose of customs clearance Agency is to establish a system of taxation by providing a systematic and
efficient way of identifying, analyzing, classifying, prioritizing, and focusing attention on the risks of customs
clearance.
Impacts risk on customs clearance
 Effect on efficient reception and control
 Increasing crime, terrorism, and illegal activity
 Inadequate revenue collection for the government in time
 Weakness of resources (human, money, time, and other material resources limited)
 Inability to control everything
Custom’s two main objectives:
1. Give the business community (and especially the formal / accredited hosting) &
2. Legalization is a legal issue.
In order to achieve these goals, it is necessary to apply a well-developed risk management technics based on
a well-functioning management system and normal thinking.
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The principle of risk management are the followings
Explain the risk management activities at all levels It requires transparency in decision-making
We need to plan on each of our individual plans Training / capacity building
and actions, not just what others look like. Exercise free
It is not governed solely by a specific division but Continuous monitoring and evaluation
should be governed by ownership
Risk management process
Measuring and rating risk and prioritizing risk contexts
1. Identify Risks
2. Analyzes risk
3. risk response
4. Monitoring and Evaluation
5. Monitor and Review

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1.Risk Identification process
The first step in the risk identification process is the following when we ask ourselves these questions, we can
begin to identify the risk that the company (ERCA) faces.
1. What are our risks the company faces? 4. Why does it happen?
2. Where does it happen? 5. How can it happen?
3. When can it happen? 6. Who can make it happen?

We can also use the following ways to identify the risk

 Brainstorming  Using the test results report

 By interview  Using audit findings
 Examining documents

The Risks the company faces may be internal and external

Internal risk are the following External risk are the following

 Operations, Rules, Regulations, Guides,  Political - Government policy

Management Policies, Procedures etc.  Technology - e-commerce
 Occupational health and safety eg working  Economic Conditions-Price Trends
environment  Power, network latency
 Work Issues/ Work Skills, Skills, Experience

Some of The Types of Risk that ERCA faces

1) Tariff Risk 3) Value of goods

2) Source of origin of the country of goods 4)CPC (Customs Procedure Code

Tariff risk
Tariff risk is an average of five sub-criteria, and each sub-criterion is responsible for risk analysis and
statistical calculation.

1. Aggregate Computation Risk Based on Gross Income Tax Credit

2. Contribution for Revenue Collection
 3. The Likelhood and Consequence (HDL)
4. Confusing Description for Confiscation Ratio
5. Classification in to outhers: Classification in to outhers

The value of goods

 The price level of appliances works at statistical calculation based on the average number of two sub-
criteria.
 Commodities for Collective and Tax Credit (contribution to revenue collection
 Performing risk analysis based on minimum value / reference value

Source of origin of the country of goods

An analysis of how goods are analyzed will determine how much fraudulent inventories are coming from
different countries, based on previous income information.
The rating of the Regional Emergency Level will be determined based on four sub-criteria
Preferential and non-preferential trade agreement risk)

 Vulnerability and Consequence Risk (likelihood and consequence risk)

 Examination result Risk
 Risk Based on Knowledge

CPC (Customs Procedure Codes)

 A CPC code will be used to determine the level of risk of a particular user, investor and other codes.
 It will enable embassies, international organizations, and on the basis of the unique rights of regional
organizations.

Additional risk types that the company face

 Government Agencies  Custom Service seeking Companies

 Diplomat, international and continental
organizations  raw materials

2.Measure and analyse the risk level(mainly concerned on the severity and frequency of the risk)

 Ranking the perils based on their level of severity and frequency

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  How much is the risk / priority level?
 How much resources the company has manage or control the risk?
 What is the result of containing or avoiding the risk?
 What are the advantages and disadvantages?

Risk Probabilities

Risk and their probabilities Description Indicators

The probability of occurrence is
high
The probability is moderate /
probable
Low probability of occurrence
Mostly happening and in the
future
Occasionally
Particularly happening
Occur many times (eg, three times
a year)
Occurs occasionally (for example,
once every six months)
Long-Term Exemption (e.g. once a
year)

The likelihood and measurement of a risk management in the company plan is as follows

Probability of likely hood Risk level

≤10% Low
10 < x ≤ 20% Medium
> 20% High

The effects of cause in the following risks

The level of risk Description Concern bodies

Impacts on the desired objectives/ Risk that need the attention of the
High
goals top management
Risk that is not high but it affects High and Medium management
Medium
income highly level
Can be solved by Capable and
Low Low impact
resourceful Individual

The impact of the risk management policy is measured as follows:

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 Impact / Consequence Risk level
≤5% Low
5> x≤7.5% Medium
> 7.5% High

The survey TABLE in which the company assess its risk

Priority to
Chance of The effect of Level of the The owner of
Purpose Fear of Risk
loss the casualty vulnerability Resurrection the fault
of risk
Bulky Customs
company Occasionally High Medium High priority Clearing
procedure Process
Risk
Measurement

3.Risk response (selecting combination of techniques to manage the risk).

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Once the risk happens methods in which it will be dealt or controlled by ERCA

We can follow the following ways:

Avoiding the perils, Financing or accepting the risk, Transfer the risk to another party, reducing the causality
of the risk using different the management technics.

Avoiding the perils

This technique is used when the risk level is high and the damage that this risk brings is highly uncorverable.
The company tries to avoid the risk because it bring more disadvantages, than the advantages it brings to
the company

Financing or accepting the risk

When the risk level is low there is enough resources to deal with the damages that the risk brings depending
on the degree of risk of finance is involved here in the company and the risk is identified by the company
and it accept the risk and try to do as much as possible, to control the risk using the company financing

Transfer the risk to another party

The company transfers the risk that cannot be cared or handle by our company for other entities (like
insurance)

Risk response used by Ethiopian revenue and customs authority

Merchant Profiles RED Inspection and

Customs Brokerage documentation
Report
Tariff /
The value of goods /
Item of a product Yellow Document check
Shipping Country
CPC
Documents Unique license
CSOs
Diploma and International Green Release
Specialty / Manufacturer
AEO
Car
Raw material Release (pca,
Rhythm selection Blue
Intelegence, Spot

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 How to control risk

 The company specifically use the following risk control mechanism such as

1. Inspection and documentation

2. Document check
3. Release
4. Release (pca, Intelegence,

 Systematic corrections and risk ratings are adjusted by systematic improvements in the systematic risk
of system interruption and risk improvement at all times as necessary in the systematic modifications
 Increase risk and weight according to information obtained from 3rd party, agency, profile, and more.
 Identifying, Analyzing and Suppressing New sample on the Offices, Transferring to Headquarters
 Develop strategies for different threats at the center and collaborate with relevant stakeholders and
evaluate its impact.
 Provide regular reports to relevant parties and headquarters
 The Authority is working to ensure the safety of incomes, preventing the smuggling and keeping the
community safe, with the help of the scanning Technology Support Center at the entrance to the
transit stage
 Their Risk Level Improved Testing and Documentation Testing Results shall evaluate the effectiveness
of the assessment and evaluate the results to the principal office and inform the results thereof to the
headquarters.

Monitoring and Evaluation

It is important to monitor and evaluate the effectiveness of risk management at every level. We can follow
these steps:

 What are the New factors risk / Factors Measures?

 How effective was of the entertainment risk controlling strategies?
 Are the pertinent issues correct?
 What must we do have the most Efficient result?

Conclusion...

According to our observation and assessment we got to see the following point

 The company has structured risk management policy and procedures such as well organized risk
identification process, risk prevention, as well as an excellent risk measurement and controlling
system how ever the insurance transfer policy and procedures is not acceble to the general public
we also observed that it is very important that the support and commitment of the leadership, the
involvement and ownership of all employees is needed to implement the risk policy that the
company brought.
 Generally, risk management will create conducive conditions for efficient oversight and efficient
operation.

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