THE IMPACT OF BUDGETING AND BUDGETARY CONTROL SYSTEM IN AN ORGANIZATION

THE IMPACT OF BUDGETING AND BUDGETARY CONTROL SYSTEM IN AN ORGANIZATION

 

ABSTRACT

This research work is an attempt to examine the impact of budgeting and budgetary control in an organization. The objective of the study are targeted at knowing the necessity of budgeting control system in the public sector with particular emphasis on the budget office of Niger state Minna, and also to access the roles played by budget towards the control of government fiscal policies. In the course of the research eighty (80) questionnaires were administered and 60 were returned based on the simple random sampling method, where each element or member of the population has an equal probability and independence chance of being selected. In the end of the study, the study revealed that budgeting and budgetary control has a great impact in every organization. The researcher came up with some recommendations through which an effective development will be carried out/achieved in the budget office of Niger state Minna.

CHAPTER ONE

1.0     INTRODUCTION

Budgeting control has been widely accepted as management techniques which are aimed at controlling the operations of an enterprise towards the realization of pre – determined objectives. Organizations are structured into various departments according to individual requirement with specific targets set at each unit for the attainment of corporate objectives.

Budgeting control system is premised on co-ordinating and controlling various activities within the division levels such that the overall corporate goal is achieved. Budgeting is of age as the world itself, as it was used to check the kings power over taxaion and to control government expenditure (WIXON, 1997, 7-3).

The benefit of budgeting control is presently being used as an essential tool for planning the limited resource in any organization as well as the economy in general. Budgeting control though has received wide acceptance because of its crucial importance to government and organizations; its controversial nature can generate conflicts, frustration and accurate competition from the core organizational resources (Umoren 1982: 12). Budgeting is a good setting strategy where conflicts, power differentials and uncertainty are inherent, the system influenced behaviour and action positively and negatively.

Unfortunately, when control breakdown rather than seeking solutions, some executive are lamed yet others indulge in disclaiming responsibilities (Oliver 1975: 125). Budgeting simply implies a political statement aimed at attaining certain economic and social welfare goal by the government or the agencies involved. Budget is used as a means of spelling out objectives and goals which compete for scarce financial resources. Budgeting is a series of goals. A more inclusive definition of budget has been given as a plan quantified in monetary terms to be prepared and approved prior to a defined period of time usually showing planned income to be generated and expenditure to be incurred during that period and the capital to be employed to attain a given objective. Budgeting system encourage active concern for the future delegation of responsibilities, authority and influence in organization. There should be adequate organizational structure to form a foundation for a sound budgetary system.

Management should maintain a level of authority and responsibility, a good communication network, proper departmentalization and good relation. Management must however, be contented with behaviour of customers, government agencies, trade unions, customs, economic climate and politics, which are considered to be external influences. Budgeting system could assist the management in planning, co-ordinating, inter-relating activities and performance evaluation, planning as it is widely accepted in determination of objectives or setting targets, formulation of policies, strategies and alternative priorities. It involves critical examination and analysis of sources and application of funds. Approval of annual budget communicates what management intends to do during the following periods, systems of reporting performances, participation by all members of the organization is an essential factor for a successful budgeting system.

1.1     STATEMENT OF THE PROBLEM

Based on the purpose of the study, the problems under study can be seen in this context.

1.     Due to the dependence of Nigeria on revenue, a crisis in the world market will result to the following:

a.     A reduction of oil revenue which will cripple the economy and shalter national development.

b.     Abandoning of capital projects or programmes due to insufficient fund in the economy

2.     Inefficient allocation of limited resources to provide the right caliber of manpower and necessary infrastructure as basis for our national growth.

3.     The inability of the management to prepare a concise budget that will enable the organization to achieve its set goal and objectives.

1.2     OBJECTIVE OF THE STUDY

The significance of this research work cannot be over emphasized because it is inevitable in every organization. It will be appreciated by administrators of public utilities as it sets standard of performance which act as day to day guide time for the successful realization of the budget plan and the attainment of government objectives.

It serves as a document of reference, the study is also relevant to all public and private sectors as financial resources these days are scarce and limited, this budgetary control is inevitable because the limited funds available has to be judiciously utilized, allocated and this can only be made possible through budgeting control.

1.3     SIGNIFICANCE OF THE STUDY

The significance of this research work cannot be over emphasized because it is inevitable in every organization. It will be appreciated by administrators of public utilities as it sets standard of performance which act as day to day guide time for the successful realization of the budget plan and the attainment of government objectives.

         

It serves as a document of reference, the study is also relevant to all public and private sectors as financial resources these days are scarce and limited, this budgetary control is inevitable because the limited funds available has to be judiciously utilized, allocated and this can only be made possible through budgetary control.

1.4     SCOPE AND LIMITATION OF THE STUDY

For simplicity and easy analysis of data, the scope of this study is restricted to the budget office of Niger state Minna. It would have been an interesting and an academic exercise to cover other branches of the budget office within the country, but for easy analysis and data presentation, the researcher decided to restrict her study to Niger state budget office.

The following are the basic limitation of the study:

1.     SECURITY: Some of the workers contacted were not only just unco-operative but were also non-approachable. Some of the vital information needed to give this project a better look was not easy to come across.

2.     HIGH COST OF TRANSPORTATION: As at the time of this research work, there was increase in the cost of transportation, so the researcher finds it a little bit difficult transporting herself from one place to another in search of research materials.

3.     FINANCIAL CONSTRAINT: Another factor that limits the wider coverage of this study is financial constraint as situation of things were not very pleasant at the time of this project work.

1.5     RESEARCH HYPOTHESIS

          This research work solely rest on the assumption that:

HI: The effective and proper implementation of a good budgetary control system in an organization is a determinant factor of the organizations prospect.

HO: The effective and proper implementation of a good budgetary control system in an organization is not a determinant factor of the organizations prospect.

1.6     DEFINITION OF TERMS

1.     FISCAL POLICY: Fiscal policy refers to that part of government policy concerning the raising of revenue through taxation and other means and deciding on the level and pattern of expenditure for the purpose of influencing economic activities. (Anyanwu J.C. 1995).

2.     DEFICIT: This can be defined as the excess of debts over income or estimated revenue of budget. (Public finance in Nigeria by A.S. Ilemobayo 1999).

3.     RESOURCES: In its organizational context, it is defined as anything that could be thought of as a strength or weakness of a given firm including tangible and intangible assets (Werner felt, 1984:127).

4.     PUBLIC EXPENDITURE: Public expenditure is the expenses, recurrent or capital expenses, incurred by the government in the performance of government functions (Anyanwu, 1977).

5.     BUDGET: Budget is a plan for financing an enterprise or government during a definite period, which is prepared and submitted by a responsible executive to a representative body (or other dully constituted agent) whose approval and authorization are necessary before the plan may be executed. (Frederick A. Cleveland)

6.     BUDGET EVALUATION: Budget evaluation is a process that determines a systematically and objectively as possible as the relevancies, efficiency, effectiveness, impact and sustainability of activities in the light of budget. (Wikipedia).

7.     POLICY: Policy can be defined as “What the government choose to do or not to do” in response to a problem (Thomas Oye: 1984).

CHAPTER TWO

2.0     LITERATURE REVIEW

          MEANING OF BUDGET

Any attempt to discuss budgeting control will be futile without defining budget, just as budgetary control will not exist without budgeting.

Hilton (1997) defined budgeting as a detailed plan expressed in quantitative term that specifies how resources will be acquired and used during a specific period of time.

The Chattered Institute of Management Accountant (CIMA) defines budget as a financial and / or quantitative statement prepared and approved prior to a defined period of time of the policy to be pursued for the purpose of attaining the objective, it may include income, expenditure and employment of capital.

HORNGREM (1982) defined budget as a financial plan that provides a basis for directing and evaluating the performance of individual or segments of an organization.

         

CHENHIL et al (1981:240) defines budget as a plan of financial operation embodying and estimate in proposed revenue and expenditure as well as the proposed means of financing them for a given period usually one year.

OMERGIC (1999:81) defines budget as a plan of financial operation embodying and estimate in proposed revenue and expenditure as well as the proposed means of financing them for a given period usually one year.

In another development G.C. OBIAGBOSO (1996:25) is of the opinion that budget can be conceptualized as a cost plan relating to a period of time.

Federal Ministry of Finance Publication (2004) defines budget as a presentation of government estimates of its revenue and expenditure for the fiscal year. It describes how the federal government will raise revenue and how this revenue will be directed towards rebuilding Nigeria’s economy, reducing poverty, creating employment and improving the standard of the generality of its citizens. A budget is a plan relating to a period of time expressed in quantitative terms.

However, it has been defined by the Chattered Institute of Management (CIMA) as a plan quantified in monetary terms prepared and approved prior to a defined period of time usually showing planned income to be generated and / or expenditure  to be incurred during that period and the capital to be employed to attain a given objectives.

The definition above reveals the following characteristics of budget:

A.   A budget may be expressed in terms of quantity or money or both.

B.   A budget is prepared in advance of the period during which it is to operate.

C.   The purpose of budget is to implement the policies formulated by the management for attaining the given objectives.

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