CHAPTER TWO
REVIEW OF RELATED LITERATURE
The
literature reviewed in the study concerned the silent issues regarding the
budgeting process, budget performance and the variables used in the study.
Budgeting is concerned with the
implementation of the approved programme within the long-rang plan the purpose
of budget system is to serve the need of management in respect of the judgement
and decisions it is required to make and to provide a basis for management
functions of planning control.
Chief
executive officers like the warm feeling they get when they see the year-end
profit forecast. But they are mighty be anxious about the reliability of
assumption and the firm's ability to respect to the range: like the way they
are able traced operating managers to target performance contracts (fixed
target ran forced by incentives). But they also know that the process takes too
long and add too little value.
Operating
manager like knowing where they stand but they are also concerned about
importantly the fixed performance contracts lead to decisions paralysis and
cosmetics accounting rather than decision action and ethical reporting (Hope et
al, 1995).
A
budget is a detailed plan, which sets out, in money terms, the plan for income
and expenditure in respect of the future period of time. It is prepared in
advance of the time period and based on the agreed objective for that period of
time together with the stratages planned to achieve those objective (Weetman et
al, 1996).
To implement the stratages
decision, budget committee be
formed comprising the
senior managers who
are responsible for designing the stratage.
The budget committee
receives the initials budget from each functional manager. If the initial
budget is based on unrealistic target, then the functional manager will be
asked to modify the budget within the organizational overall target.
Rapid
industrialization and development are only possible where there is a sound budgeting process and
budgetary control. Budgeting is a management's tool that facilities goads
achievement.
2.1 BUDGET AND BUDGETING
DISTINGUISHED
Ugwe
(2003) defines budget as " a financial statement of the Government's
proposed expenditure and expected revenue during a particular period of time, usually
a year". Such budgets are usually employed to attain the objects of full
employment in the economy, price stability, rising growth in national output,
balance of payment Equilibrium and equity in income distribution.
Furthermore,
in the word of Ibe (2002). The budget is a financial estimate of expected
Government's hope to incur in a given financial year"
Adams
(2006) defines budget" as a financial and a qualitative statement prepared
and approved prior to a define period of time of the polices to be pursued by
the organization in other to achieve organizational goals and objective".
While,
budgeting is closing related to budget Budgeting is the act of embarking on
budgeting.
2.2 GOVERNMENT BUDGEMENT
A
constitution requirement the national budget is a constitutional requirements.
This is to give focus and direction to government operations. Section 8 (1) of
the 1999 constitution of the federal Republic of Nigeria state that " The
president of the federal Republic of Nigeria, shall cause to prepare and laid
before each houses of the National Assembly at any time in each financial year,
estimates of the revenue and expenditure of the federation for the next
financial year"
This
affirmation as quoted above gives credibility and credence to the act of
budgeting in the public sector.
2.3 BUDGETS IMPROVEMENT TECHNIQUES
There
are so many steps to improve the budgeting in the public sector Budgeting and
planning.
Lay
the foundation for continuous improvement of an organization's fiscal health.
Nailing down the future state early on drives efficiency, improves planning and
beaten a shared vision for success. It is a critical component to transforming any
finance organization, making the best use of critical data to inform key
decisions and stratages.
Remember
how you told yourself to set aside time after last year's cycle to fix the
process and streamline activities so it would be better the next time around?
Most organizations did not. Don't make the same mistake again, or you will be
reading this article next year as you pore over spread subjects at (day table.
While many organizations missed the boat on making wholesale improvements to
their budgeting processes ahead of this year's cycle, there still steps. That
can be this year to make a difference.
2.4 ISSUES THAT CAN IMPROVE BUDGETING
TECHNIQUES
i. Automate: Are
you getting the most out of your current tools? What are your current tools? In
most organization they are spreadsheets, and the majority of excels users take
advantage of Less than 5% of the package's teatimes; it is worthwhile to set
down with an "Excel Wizard to walk through your budgeting and fore casting
Spreadsheets. Small change can make a big difference in unability, accordance
and speed.
ii. Focus on material items: Sure, it's fun to count paper
clips, laptops and data plan cost at the employee level, but in the ground
scheme of the enterprise budget, counting those item as a waste of time and
unlikely to drive great improvement in business results. Instead utilize drive-
based metrics wherever you in these areas (e.g, budget Laptop based on employee
court rather than calculating them separately). Drive- based metrics wherever
you can in these areas and faster, more consistent and easier, plus they allow
you to focus on areas where insight can truly improve business performance.
That is the point of budgeting, after all.
iii. Be honest: Many organizations
budget at the department and line items levels, rolling up forecast into
summary report and presenting them to management, only to be told that budget
have ready been set and plans needs to "certain contributions, regardless
of the bottoms up analysis. This is not to say that department heads should
consider or "occupy budget sheets" in protest. But rather that both groups
should consider the product and the need for outs and tailor the approach and
workload to the reality that exists. Communication around expectation and end
product will sure time and effect and result in happier budgeters all around.
iv. Make time to do it
right: Budgeting and setting plans and most important, thinking about
budget decision and future direction it incredibly valuable if it is done
right. If you on the hook to budget for your department, sector, or business
units, block your calendar, close your door and think about what you accomplish
in fits and spurts.
v. Iterate: Budgets
are often thrown together in the eleventh hour to meet artificial deadlines. No
one like this approach and it does not achieve much in the end. An ideal
budgeting process narrows broad goals into specific business plans and matrix
through iterative group decision, but only after initials metrics and numbers
are generated by group responsible for each area. In transforms organization,
continually rolling for update with actual as the business are proceeds against
plan, In many successful organizations, initials budget are viewed during
retreats or other gathering, promoting dialogue and thinking, and
providing a narrative to so why not talk about it.
vi. Review and improve: set the
meeting now to scrutinize this year's process and think through improvements
for next year while the current pain points are fresh in your mind. Include
review of both the process and enabling technology long term, consider
upgrading to an enterprise grade system with alternated work flow and built in controls.
2.5 TYPES OF BUDGETING
i. PERFORMANCE BUDGETING
The
performance management concepts for budget management practices produced a
performance budgeting. According to the ministry of finance budget division of
the definition of performance budgeting performance budgeting is a goal-
oriented budget, it is based on the achievement of the government's public
sector objectives and it is in budget preparation, control and evaluation of a
budget management model (Rober Grandfield, 2000).
In
contrast with the traditional budget management, performance budget, focus the
effectives of fiscal spending in the stresses, at the same time it advocate to
give manger sufficient autonomy in budget management and reporting system
through the public sector, public sector reporting system in the traditional
budget system to inject a kinds of incentive and restraint mechanisms to
effectively, contribute the organizational goals.
In
the performance budget management, budget expenditure performance evaluation as
core content in performance budget management. The so called budget expenditure
performance evaluation refers to the use of certain assessment methods,
quantitative indicators and appraisal criteria and functions of the department
to achieve its performance goals established by the realization of the extent,
as well as to achieve this goals; the implementation of the budget was carried
out by the resulted of a comprehensive assessment and evaluation.
The
aim of the department of performance objectives is rational allocations of
resources, optimizing effectives and efficiency of the use of budgetary control
or budgetary funds through a comprehensive evaluation. Performance evaluation of
scientific conclusion of the performance of expenditure is the key to the
successful implementation of a performance management. This relates to how to
organize the implementations, how to choose the scope of evaluation, how to
determine the performance objectives, performance indicators and evaluation
methods and so on; In order to obtain one scientific conclusion question on
public expenditure in the" economic", "efficiency" and "
effectiveness" of the three.
From
the definition of performance budgeting, performance budget has two core
elements one is performance evaluation to solve how to set up performance
evaluation system of science to arrive at a performance of scientific
information and budget integration to solve performance information (PI) how to
combine of management and budget issues, which is how to combine the
performance. Information and budget preparation, executive and reporting system
in order to achieve the efficient budget management and the promotion of
organizational performance improvement (Jack Diamond, 2003). Both of these two
aspect are interlinked and mutually distinction, which constitute a complete
performance of the budget system.
i.
PLANNING PROGRAMME
Budgeting
system (PPBS) refers to the analysis of the output of a given programme. The
idea here is that, just as business provide goods to consumers, so does
Government department provides services. It could also be described as the
analysis of alternative to find the most effective means of reading basic
programme objectives. See the associated point of the planning programme:-
i. Approaches to budgeting
ii. Leading definitions and
iii. Leading theorist.
Planning programme can also
describe a management tool to provide a better analytical basis for decision
making and for putting such decision in operation. A planning programme
budgeting (PPB) is a constitute, basically, of five element.
1. A programme structure - a classification for attaining its
objective.
2. An approved programme
document that include precise, quantitative data on needs,
resources input, and programme outputs extending a number of years into the
future.
3. A decision making process that established the functions, rules
and timetables for the actions required by the planning programme budgeting.
4. An analysis
process for measuring
effectives and for weighing
alternatives.
5. An information system
that suppliers data
required to implement the
system.
iii. ROLLING BUDGET OR CONTINUOUS BUDGET
Continuous or rolling budget
can be defined as the continuous updating of short-term budget by adding, say
further month or quarter so that the budget can reflect current conditions.
Thus, a rolling budget is a
device which attempts to help an organization overcome the problem rebuffing
from frequent unexpected or under cable changes in activities and on future.
iv. ZERO BASED BUDGETING
Zero based budgeting implies
starting from a zero situation and justifying each segment of the budget rather
than merely adding to historical budget or actual. Each activity is thought of
a mission, it is challenged as to its needs, than as the required level of
activity.
2.6
FUNCTION AND OBJECTIVE OF GOVERNMENT BUDGET
Every
budget be it in the public or private sector of the economy has focus or
directions it has goals it intends of a typical budget as capture by Ugwe
(2003) is as follow:
i. The Allocation
function: One function of the budget may be seen in its allocation of
resources. Because both Government expenditure and taxation, polices influences
the allocation of resources in both the private and public sectors. The budget
decision-making process must take account of allocation consequences.
ii. Distribution
function: In Nigeria as well as many other countries the Government accepts
responsible for the degree of inequality in wealth and income distribution. It
therefore uses its budgetary polices from time to time to narrow the garments
the society.
iii. Stabilization
function variation in Government expenditure and taxation inherent pin budget
decisions from time to time are some3time used in stabling the economy.
Inflation and unemployment are typical economy problems, which the Government
might try to control through the use of budgetary decisions.
iv. The control and
management function: The budget many also be used as a tool to manage and
control government expenditure. This deals with accountability as well as
efficient use of resources by Government ministries, parastatals agencies etc.
v. Protection for Local
Industries: A budget through its provisions may also be in protecting Local
Industries.
2.7 COMPOSITIONOF A TYPICAL GOVERNMENT BUDGET
Although
there could be minor variation from time to time, a typical Government's annual
budget's composition as expatiates by Ugwu (2003: 45) is as shown below.
2.8 THE BUDGET PROCESS IN NIGERIA
In a
pure democratic state as it currently practiced in the Nigeria; the
constitution is and remain the Government as it carries out its operation. This
help to eliminate, minimize friction in and among the tiers of Government.
Accordingly the budget
process in Nigeria is as follows:-
(a) President Budgetary Policy Directives: The
president after taking into consideration the micro-economics environment, articulate the broad budget strategy for next, fiscal
year on the basis of the policies of his administration and issues a directive through the minister
responsible for budget and National Planning to the action plan for
implementing the strategy.
(b) Ministerial
Call Circulation: The central budget office/Bureu interprets and further
amplifies the president budget policy guild lines in a call circular to the
federal ministries, extra ministerial department and parastatals, requesting
them to forward to his offices copies of the proposed estimates / budget for
the forth coming fiscal year.
(c) Advance proposal and ministerial
budget Hearing:
The ministries extra-
ministerial departments call circular, turn - in their advance proposals to the
central budget which examines them and where necessary invites the respondents
to ministerial budget hearing towards effectives desirable adjustments and
corrections.
(d) Draft Estimate Consolidation: The central
budget office aggregates the advance proposals into a consolidated draft estimate of revenue and
expenditure and routes it through
the minister in charge of budget and national planning to the president.
(e) Federal Expenditure Council Review of Draft
Estimate: The consolidated draft estimate is presented by the president
before the Federal Executive Council Comprising the Ministers.
(f) Federal
Executive Council Approval of Draft Estimate: The consolidated draft
Estimate is examined by the federal Executive Council, which will examine it critically make its impact on and approve it
for the president's presentation
to the National Assembly.
(g) President's Presentation
of draft Estimated for national Assembly's Examination: The
1999 constitution charges the president to prepare and present before each
house of the National Assembly at any time in each financial year, estimate of the
revenues and expenditure of the federation for the next following financial
year. The draft estimate is included in the bill known as an appropriation
bill.
(h) Ministerial Defense of
Draft Estimate before National Assembly: Every ministry of the
government of the federation is invited to appear before each house of the
National Assembly to explain to the house the conduct, of the ministry and in
the same context, to defend justify the ministry budget proposals.
The National Assembly will
therefore examine and debates upon as specified in Section 67 (2) of the 1999
Constitution.
(i) Approval Estimate is
passed as Appropriation Bill: The Appropriation bill is
passed by the National Assembly (having critically scrutinized the estimates)
and subject to all correction and necessary amendment. Therefore transforming
the draft estimate into an approved Estimate.
The approved estimated is
again lectured or sent to the president to sign the bill into law as an
appropriation act.
(j) Approved Estimate
Assembly by the President: As soon as the president assents to the
appropriation bill passed by National Assembly, by signing it into law, it
becomes an appropriation act and gives a legal force to the approve Estimate.
This has to be transmitted to the minister responsible for budget and National
planning or any other finance oriented ministry as the case may be to issue
expenditure warrants as appropriate.
(k) Approval Estimate
Implementing Warrants: Budget minister assigned with the
responsibility by the president (most likely, the minister of budget and
National planning) issues warrants as may be necessary to the ministries,
extra-ministerial department and parastatals for the purpose of implementing
the approved budget.
2.9
Preparation of Government Annual Estimate:
