BUDGETARY CONTROL PRACTICES OF GOVERNMENT PARASTATALS IN CROSS RIVER STATE IMPLICATIONS FOR REFORMS

This study focused on budgetary  control practices of government parastatals  in Cross  River State with implications for reforms. Four research questions guided the study while four null hypotheses  were formulated and tested at probability of 0.05 level of  significance.  The study adopted descriptive  survey  research  design. The study was  carried out in Cross River State made up of 18 local government areas and 3 senatorial districts. The population of the study was 332 made up of 53 management staff, 95 heads of departments and 184 accounting staff in ten government parastatals. There was no sampling since the population was manageable; the entire population constitutes the sample. A structured questionnaire was used for data collection while the data generated were analyzed using the mean and standard deviation to answer the research questions  and analysis of variance (ANOVA) for the null hypotheses. Three experts validated the questionnaire items, two from the Department of Vocational Teacher Education, University  of  Nigeria,  Nsukka  and  one  from  the  Department  of  Accounting,  University  of Calabar. The questionnaire  items  were  tested  for reliability  using  cronbach  method  which yielded coefficients of 0.95, 0.86, 0.92 and 0.91 for the four sections A, B, C, and D while the overall cluster was 0.91. Three research assistants helped in administering 339  copies of the questionnaire  to  the  respondents.  Only  332  were  retrieved  and  analyzed  using  mean  and standard  deviation  to answer  the questions  and analysis  of variance  (ANOVA)  for the null hypotheses of no significance difference. The null hypotheses tested revealed that there was no significant difference in the mean ratings of the respondents on the physical budgetary control practices  in government  parastatals.  The  study  also  revealed  that there  was  no  significant difference in the mean ratings of the respondents on the financial budgetary control practices in government  parastatals.  Based  on  the  findings,  it  was  recommended  that:  (1)  government parastatals should adopt a medium term budgetary framework where arrears and shortfall of revenue and expenditure are carried over to the new year within the medium term and (2) since due process,  accountability and transparency are the hallmarks of a new budgeting system, a consultative  forum  should  be  convene  where  stakeholders  are  kept abreast  of the  previous

budget and what is expected in the new budget.

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CHAPTER I

INTRODUCTION

Background of the study

A brilliantly prepared business plan can fail at any time if not backed up with relevant information required for effective decision making. Failure may occur as a result of either the use

of wrong financial information, incorrect criteria in business appraisal, uncontrolled waste of resources and misrepresentation of financial results. Planning for these different time scales need different approaches, as it takes note  of  the  broad  business  objectives  and  sets  out  how  these  are  to  be achieved in the form of detailed plans known as budgets.

A budget is a financial statement prepared and approved prior to a defined period of time of the policy to be pursued during that period for the purpose of attaining a given objective. According to Lucey (2003), budget is a qualitative statement, for a defined period of time, which may include planned  revenue,  expenses,  assets,  liabilities  and  cash  flows.  A  budget provides a focus for the organization; aids the co-ordination of activities and facilitates  control  through  the  comparison  of  estimated  costs  with  actual costs.

The policy of a business or an organization for a defined period is represented by the master budget, the details of which are given in a number

of individual budgets called functional budgets. According to the Institute of

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Chartered Accountants of India (2010), these functional budgets are broadly grouped   under   the   following:   (a)   physical   budgets   which   contains information in terms of physical units about sales, production among others ; for example, quantity of sales, quantity of production, and inventories; (b) cost budgets which provide cost information in respect of manufacturing, selling, administration and research and development cost budgets; (c) financial budgets which facilitates in the ascertaining of the financial position of a concern for example, cash budgets, capital expenditure budget and budgeted   balance   sheet   and   (d)   labour   budgets   which   provide   cost information   in   the   ascertainment   of   labour   or  personnel   cost   in   an organization within the budgeted period for example, wages and salaries, overtime and shifting allowance, fringe benefits and bonuses.

According to Adedeji (2004), the budget is one of the most effective tools of communication and integration as it shows how each part of the organization relates to the end and needs of the whole.  Budget therefore requires that the manager is in charge of the whole and each person in charge of parts discuss the budget jointly in order to arrive at better result. Management must ensure that resources all levels are commensurate with those required to enhance the long-term future effectiveness and success of the organization.

Due   to   the   uncertainties   prevailing   in   the   Nigerian   business environment today, managers and stakeholders are poised and prepared to

compete  favourably  under  these  rapidly  shifting  conditions.  In  order  to survive under these  environmental complexities and  vagueness,  managers and stakeholders of these parastatals  need sharp tools, proven management techniques  to  forecast  the  major  changes  which  are  likely  to  affect  the business  while  they  choose  future  direction  and  dimension  of  resources needed to attain selected goals through an effective budgeting system.

Budgeting is initiated with the establishment of specific targets of performance. This is followed by executing plans to achieve such desired goals and from time to time comparing actual results with the targets of performances/goals. These targets include both the overall business targets as well as the specific targets for the individual units within the business. Establishing  specific  targets for future  operations is part of  the planning function of management, while executing actions to meet the goals is the directing function of management.  According to 0suwa (2002), budgeting is the   only   comprehensive   approach   to   management   if   utilized   with sophistication and good judgment fully recognizes the dominant role of the manager and provides a framework for implementing such fundamental aspects of  scientific management  as management by objectives, effective communication, participative management, dynamic control, continuous feedback, responsibility accounting, management by exception and management flexibility.

According to Okache (2010), the budget had grown beyond a financial tool as it is used for making sure that key resources, especially performance resource are assigned to priorities and to results. It is a tool that enables the manager to know when to review and revise plans, either because results are different from expectation or due to  environmental, economic conditions, market conditions or technological change, which no longer correspond to the assumptions of the budget. Okache emphasized that budgets should be used as a tool for planning and control.

Budgetary control is the system of management control and accounting in which all the operations are forecasted, planned in advance and the actual results compared with the forecasted and planned ones. According to the Institute of Chartered Accountants of Nigeria (2010), budgetary control is the establishment of budgets, relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objectives of that policy or to provide a base for its revision.

When a budgetary control system is in use, budgets are established which set out in financial terms, the responsibility of the management in relation to the requirement of the overall policy of the parastatal. Continuous comparison is made between the actual and budgeted results which are intended  to either secure, thorough action of managers, the objectives of policy or to even provide a basis for policy revision.

Budgetary   control   system   helps   organization   management   and enhances improved performance in different ways. Its primary function is to serve as a guide in financial planning operations. It also establishes limits for departmental excesses and helps administrative officials to make careful analysis of all existing operations, thereby justifying expanding, eliminating or restricting present practice.

Budgetary control system entails a distinct pattern of decisions in an organization or parastatal  which is capable of determining its objectives, purposes or goals, and how these goals are achieved by establishing principal policies and plans.  According to Oti (2003), some parastatals only look for narrow ranges of alternatives which they arrive at from their past expenses and  present  situation,  other  management  levels  even  avoid  long-term planning and budgeting in favour of today’s problems thereby making the problems of tomorrow more severe.

Budgetary control system, in varying degrees of complexity and coverage, can be found in most organizations of any size in both the public and private sectors. There are genuine benefits to be gained from the use of such system but these benefits do not automatically accrue. They have to be worked for and there must be continual appraisal of all aspects of the system and   its   implementation.   Awareness   of   the   problems   which   may   be encountered and those control practices which prevent the most effective and

efficient use of budgetary system is also valuable in order that, these may be overcome to achieve the overall objectives of the organization.

According to Russell (2006), control practices involve the making of decisions based on relevant information which will improve the utilization of the productive assets and services available to organization’s management. Effective control is said to be based on standard practices with which actual performance can be compared. If there are no standards, then there can be no effective measure of attainment. Russell identified and elaborated on five categories into which control practices or standards fall in government parastatals, they are; quantity, quality, time, complaint and value.

Government parastatals are those agencies or departments of the state that provide basic services to the people at reduce rate. In the opinion of Falodun, Omogiafo and  Ezeaku (2002), government parastatals are  semi- autonomous bodies or agencies that are created or established by an Act of parliament or decree to provide basic essential services to improve the living standards and welfare of the citizenry at affordable rate. In Cross River State, government parastatals include State Water Board, State Tourism Bureau, State Newspaper Corporation, Cross River Radio Calabar and Ikom; Cross River   Television Calabar and Ikom, Urban Development Authority, State Hotels Limited and State Cocoa Development Board.

These parastatals provide certain services which are beneficial at reduced costs to the people in the state. Their services are very important that

when left in the hands of private individuals, the citizens may not be able to pay for such services because of exploitation by private individuals or entrepreneurs. The foregoing reflects on the need for government parastatals to set up a formal mechanism for scanning its environment for opportunities and give early signs of future problems, this course of action will improve the budgetary control practices and enhance effective and efficient performance in government parastatals as seen in this study.

Statement of the Problem

Growing concerns over exploitation of the populace by private entrepreneurs  compelled  the Government  of  Cross River  State  to  ideally conceptualize and designed  various programmes and  projects through the establishment of a number of parastatals. These parastatals were to operate as semi-economic outfits rendering goods/services to the people at reduce rate. What the people are actually experiencing is the fact that these parastatals are failing to deliver results because of their budgetary control practices.

These budgetary control practices in public parastatals   include; high incidence   of   fraud,   financial   indiscipline,   dishonesty,      poor   product marketing,  overstaffing,  pervasive  political  affiliations,  defective appointment of board members, parliamentary dysfunctions and bureaucratic red-tapism. It is worth pointing out that these parastatals are lacking issues such as: low use of IT system and its practice of using previous year as the

base  to  project  the  current  years.  Furthermore,  management  viewed  the process of budget preparation as too time consuming to undertake, encourage internal politics and gaming behaviour, too inward looking, short-termist culture that focuses on achieving a budget figure.

Evidence  indicates that majority  of  the  parastatals are  operating  at substantial  losses as a result of inadequate/ineffective accounting system; weak budgetary control practices; poor product marketing system; and defective  deficit financing system.  Drawing  from  the above  submissions, budgetary control is considered crucial to the parastatals as it acts as powerful brake on possible deviations from pre-determined objectives and policies. It comprises financially-based concepts, techniques, rules and procedures which promote the smooth functioning of organizations and attainment of fundamental corporate missions.

As  a  result,  these  practices  will  have  a  pervasive  effect  on  all operational plans and budgets, the limiting constraints for the planning period must be identified so that the various budgets can be developed having regard to the expected limitation. These constraints can and does change, when one constraint  is  removed,  some  other  limitation  will  occur,  otherwise  there would be no limit to the parastatals activities.   In view of the foregoing, therefore, there is the need to determine the budgetary control practices in government parastatals in Cross River State with a view to instituting reforms in management practices and employees’ attitude.

Purpose of the study

The main purpose of this study is to determine the budgetary control practices in government parastatals in Cross River State with implications for reforms.

Specifically, the study sought to determine:

1.       the physical budgetary control practices in government parastatals in

Cross River State;

2.       the cost budgetary control practices in government parastatals in Cross

River State;

3.       the financial budgetary control practices in government parastatals in

Cross River State;

4.       the labour budgetary control practices in  government parastatals in

Cross River State.

Significance of the study

The findings from this study will be beneficial to the following parastatals: Cross River Water Board, Cross River Tourism Bureau, State Newspaper Corporation, Cross River Radio Calabar and Ikom; Cross River Television Calabar and Ikom,  State Urban Development Authority, Cross River Hotels Limited, Cross River Cocoa Development Board, the management, employees and the Ministry of Budget and Economic Planning and the State Planning Commission.

The findings of this study will be beneficial to the State Water Board for effective and sustainable provision of sufficient and affordable drinking water and safe sanitation services to the people of the state toward meeting the Millennium Development Goals (MDGs) targets of safe and affordable drinking water for all. The findings of this study will also be useful to the State Tourism Bureau for the development and promotion of programmes that will make Cross River an enjoyable place to live; work and the tourism destination of Nigeria and beyond.

The findings of this study will also be useful to the State Newspaper Corporation; the State Broadcasting Corporation and  the State  Television Authority  for  effective  dissemination  of  government  programmes  and policies. Also the findings of this study will be of immense benefits to the State Urban Development Authorities for good environmental conditions and promoting cleanliness by making Cross River one of the cleanness states in Nigeria.

The findings of this study will also be beneficial to the State Hotels Limited for the provision of adequate, affordable and secured hotels accommodation for the ever increasing number of local and foreign visitors to Tinapa Business Resort, Obudu Ranch Resort and other tourist attraction sites  in  the  state.  For  the  State  Cocoa  Development  Board;  it  will  be beneficial through the provision of adequate and affordable improve variety of cocoa nursery and subsidized agro based chemicals to boast the revenue

base of the farmers and making the state one of the leading states in cocoa production in Nigeria.

Finally, the findings of this study will be of immense benefits to the management of these parastatals for effective and efficient controls in rendering their services to the people in the state. The findings of this study if adopted would be of immense benefit to the employees for job security and the consuming public for efficient and effective services in return for their tax money. The findings will also be beneficial to the Ministry of Budget and Economic Planning and the State Planning Commission for efficient sectoral allocation  of  resources  thereby  ensuring  effective  control on  government parastatals in the state. The findings of this study will be of immense benefits to the Cross River State Government for solving the problem of overstaffing and defective appointment of Board Members which have hindered effective performance of these parastatals through wrong budgetary control practices.

Research Questions

The following research questions guided the study:

1.       What  are  the  physical  budgetary  control  practices  in  government parastatals in Cross River State?

2.       What are the cost budgetary control practices in government parastatals in Cross River State?

3.      What are the financial budgetary control practices in government parastatals in Cross River State?

4.       What  are  the  labour  budgetary  control  practices  in  government parastatals in Cross River State?

Research Hypotheses

The following null hypotheses were postulated to guide the study and tested at 0.05 level of significance.

HO1:     There  is  no  significant  difference  in  the  mean  ratings  of  the Management Staff, Accounting Staff and Head of Unit/Departments on the physical budgetary control practices of the government parastatals in Cross River State.

HO2:  There   is   no   significant   difference   in   the   mean   rating   of   the management staff, accounting staff and heads of unit/department on the cost budgetary control practices of government parastatals in Cross River State.

HO3:  There  is   no   significant  difference  in   the   mean   ratings  of   the management staff, accounting staff and heads of unit/department on the financial budgetary control practices of government parastatals in Cross River State.

HO4:  There   is   no   significant  difference  in   the   mean  ratings  of   the management staff, accounting staff and head of unit/department on the

labour budgetary control practices in government parastatals in Cross

River State.

Scope of the study

This study was delimited to the determination of the budgetary control practices  in  government  parastatals  in  Cross  River  State.  The  budgetary control practices in government parastatals include: physical budgets, cost budgets, financial budgets and labour budgets. The study will involve management staff, accounting staff, and head of units/departments of government parastatals in obtaining information  through questionnaire  on budgetary control practices for effective management of these parastatals.

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