Concept of Budget and Budget Padding

 Concept of Budget and Budget Padding

Perrin (1958) opined that the word budget originated from the French word “bougette” (little bag). In Britain, it was used to describe the leather bag in which the chancellor of the exchange carried to parliament the statement of government needs and sources (Burkhead, 1956). According to CIMA (Chartered Institute of Management Accountants) a budget could be defined as a plan stated in quantitative monetary terms which is 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 capital to be employed to attain a given objective.

 

Budget shows a quantitative expression of a proposed plan of action by management for a specified period and an aid to coordinating what needs to be done to implement the plan (Horngren, Stratton, Sutton, and Teall, 2004). Budgets are central to the process of planning and control which are major activities of management in all organizations (Okpanachi & Muhammed, 2013). According to Kpedor (2012) budget as a profit planning device sets standard of performance for managers. It is seen as a document which predicts revenues and expenditures of a particular economic entity, for a specified period (Ahmed, Suleiman & Alwi, 2003). The major objective of budgeting is to keep control of the activities done in an organization by providing a roadmap for future activities and setting a series of goals to be achieved and the means to achieve those (Abdel-Kader & Luther, 2006).

 

Falana (2016), Padding takes place when legislators resolve to rewrite the budget by introducing new items outside the estimates prepared and presented to them by the president. Neither the Constitution nor the Fiscal Responsibility Act has empowered the National Assembly members to rewrite the national budget by including constituency projects whose costs are arbitrarily fixed by the legislators. According to Falana (2016), about 20 legislators in both chambers of the National Assembly altered the budget by inserting constituency projects worth N100 billion in the Appropriation Bill. Both the Senate and the House allocated to themselves N60 billion and N40 billion respectively. If it is established that the alterations were effected after the passing of the budget by both chambers, the issue at hand goes beyond padding and become a clear case of conspiracy, fraud, forgery and corruption. Padding is an unconstitutional infraction when the  estimates are increased on the floor of the House. The infraction becomes criminal when the

Appropriation Bill is altered by a few legislators after it had been passed by both houses of the National Assembly.

 

According to www.premiumtimesng.com, Honourable Jibrin admitted to some criminal conspiracies jointly perpetrated against the Nigerian people by both chambers of the National Assembly, under his supervision as the Chairman of House Committee on Appropriation. For the fact that budget frequently form an important part of performance evaluation, human behavior suggest that participants in the budget process are going to try to create breathing room for themselves by overestimating expenses and underestimate sales. This deliberate effort to effect the budget is known as creating budget slack or padding the budget. This is done in an attempt to create an environment where budget goals are met or exceeded. However, this does little to advance the goal of the organization.

 

Recent literature has reviewed the motivations of budget slack practices, but very scanty literature is available in budget padding. Budget padding has been very rare occurrence in the developed economies and also in developing economies like Nigeria. Researchers see budget padding as the result of information asymmetry due to conflict of interest between the subordinate and the superior, between the principal and the agent and like in the Nigerian perspective, between the legislative who has the privileged and insider information taking advantage against the Nigerian masses. Young (1985), opined that budgetary slack or budget padding take place when a some staff underestimate their level of productive capabilities in order to make certain that they achieve the standards set in the budget by the top management. Meanwhile, Kren & Liao (1988); Douglas & Wier (2000) postulate that when supervisors use budgets to appraise performance, there are chances that subordinates might try to falsify information in their budgets to increase the possibility of achieving that target to their unacceptable and unfair advantage. On their part, Luft & Shields (2003) said that budget slack is synonym with budget padding as the one of the controversial work widely researched in management accounting; yet no generally accepted sources of this slack and the better means to reduce or avoid it. In the study of Ozer & Yilmaz (2011), the found out that, trust in supervisors and target commitment influence the correlation between justice perception and propensity to create budgetary padding. In the same manner Staley & Magner (2007) stated that trust in supervisor is a key variable that affects superiors‟ opinions of budgetary procedures fairness, but it needs a deeper knowledge about it regarding the specific mental processes by which budgetary padding or slack is bred. Our study tries to align some non-economic variables like trust, confidence and misuse of them as catalyst of budget padding.

Ita (2016) opined that special attention being accorded to sectoral allocation in the country’s annual budget, leaving other details in the hands of appropriation committees of the legislature to handle and approve for government agencies and parastatals, was responsible for padding. He said: “There is also the common practice that after bills may have been passed by the Senate and the House of Representatives; the legal department now re-drafts the bills, perhaps, changing certain words to give them a presentation in a legal draftsman’s perfect legislative draft. This, in my view, is inconsistent with the provisions of the law.” According to him, the practice must stop, if padding of the budget must be brought to an end.

 

From the theoretical perspective, budget padding can result due to information asymmetry existing between the Nigerian executive, the legislature arm and the masses; the economic conflicting interest between the government and the masses; the government’s opportunism or the economic self-interest.