BUDGETING AND BUDGETARY CONTROL AND EFFECTIVE FINANCIAL MANAGEMENT IN GOVERNMENT PARASTALS IN NIGERIA

Abstract

An organization plan entails the objectives to be, and the policies to enhance their attainment. These policies are transacted into action plans called budgets. The budget is a quantitative expression of managerial plans prepared and approved prior usually a year, while budgetary control compares actual results with budgeted performance and make for corrective action. Budget is as important to a country as to a state and to business organization. As a nation plan ahead in terms of revenue and expenditure within a specific period, so also business organization or state conceptualizes anticipated revenues and disbursement within a specific time. Every establishment, be it business organization, private or public, makes it a point of necessity to prepare a budget and institute budgetary control for the purpose of translating policies coordinating activities as well as financial control in order to achieve the best possible results.
This project sought to examine budgeting and budgetary control and effective financial management in government parastals in Nigeria and highlight the process, type, classification, also, an overview of budgetary and budgeting implementation in Guinness (Nig) Plc

CHAPTER ONE

INTRODUCTION

• Background of the study

T In the year 1962 at Ikeja, Lagos State, Nigeria, a brewery company was incorporated named Guinness (Nigeria) Plc. The Benin branch which is the case study was established in mid 1972 as at the time of incorporation, it was called Guinness (Nigeria) Ltd. It was changed to Guinness Nigeria Plc in the year 1991 due to government directive to distinguish public limited companies from other limited companies. Guinness (Nigeria) Plc, Benin branch is located along the Benin Agbor road, at Oregbeni Housing Estate, Ikpoba Hill in Ikpobookha Local Government Area, Edo State.
The objectives of the company (Guinness Nigeria Plc) include among others:
1. To contribute to the economic development of the nation.
2.  To contribute to the general welfare of the community, where it is situated.
3.   To provide or create employment opportunities to members of the entire community. As a result of the recent structural re-organization of the company, the total number of full time staff of the company is 2250. Moreover, about 250 casual workers are employed on daily pay basis.
However only 106 people are in the management cadre. It is noteworthy to understand that expatriated workers do come from time to time to the company to offer technical and other managerial advice particularly when a new product is to be introduced into the market. The board of directors is made up of sixteen (16) members.

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 1 2 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 3 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 Osuwa (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. 5 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 6 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 semiautonomous 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 Edo State, government parastatals include State Water Board, State Tourism Bureau, State Newspaper Corporation, Edo Broadcasting  Radio; Cross Edo Broadcasting  service, Urban Development Authority, State Hotels Limited and State Cocoa Development Board.

• STATEMENT OF PROBLEMS

The following are the problems faced in the preparation of budgeting.

1. The preparation of budgeting is very expensive and time consuming.
2. It tends to be frustrating when a manager is unable to meet the level of performance expected.
3. The budget holder tends to be rigid with supervision of subordinates so as to be able to meet with the budget expectations.
4. Budget Preparation: This normally begins with the forecast of sales and production.

The resources required for production such as labour, materials and expenses would be forecast so that the cost of manufacture or production cost might be established. We could then budget for administration, selling and distribution overhead where applicable. Often it is necessary to establish the per unit cost of the production and the entire budget can thus be prepared.

Moreover, in per unit cost, distribution must be made between fixed and variable cost. It must be known that fixed and variable costs are expressed in total but not in per unit cost for the purpose of budgeting.

1.3 RESEARCH QUESTIONS

1. Who are the users of budgeting?
2. What is the difference between budgeting and budgetary control?
3. What do government or public sector need budgeting for?
4. What distinguishes plan from budgeting?
5. What is a principal budget factor and why is it important in planning?
6. What do you understand by bias in budgeting?
7. How may we deal with budget slack?
8. What are the limitation of budget?
9. What is the difference between standard costing and budgetary control?

1.4 OBJECTIVES OF THE STUDY

The purpose of this research work is to examine how budgeting and budgetary has been used as an effective tool for organizational planning and control in Guinness Nigeria Plc. Moreover, it will highlight among others the budgeting and budgetary control process and also to make research into budget implementation in Guinness Nigeria Plc.

Objectives of Budget

1. An aid to control revenue.
2. To prevent waste.
3. To review the economy generally.
4. To give estimate both revenues and expenditures arranged in recurrent and capital groupings.
5. To conform with good business practice by planning for the future.
6. To coordinate the various divisions of the economy such as production, marketing, financial and administrative divisions.

Objectives of Budgetary Control

1. To smooth out sensational variations.
2. To centralize management control.
3. To indicate where action is needed.
4. To provide a method of measurement.
5. To obtain a more economical use of funds

1.5 RESEARCH HYPOTHESIS

In order to provide researchers towards effective conduct of investigation, the following tentative statement are made as the cause of the problem faced by budgeting department.

Hypothesis One-

H₀: The budget department of the Brewery will be ineffective where management do not restricts budgeting activities.

H₁: The budget department of the Brewery will be ineffective where management restricts budgeting activities

Hypothesis Two-

H₀: The inadequacy of business experience and general educational background under the achievement of the service objective do not affects budgeting.

H₂: The inadequacy of business experience and general educational background under the achievement of the service objective affects budgeting.

Hypothesis Three-

H₀: The apathy or influence of management in budget department, findings and recommendation does not affect the performance of budget department

H₃: The apathy or influence of management in budget department, findings and recommendation affects the performance of budget department

1.6 SIGNIFICANCE OF THE STUDY

The study will be useful to the company by a detached critical and practical view of the area, in which the company needed useful information concerning making of its product, this would be of benefit to the management of the company by providing the theoretical and practical framework from which useful and quality decision for future plans on matters affecting the company’s business operations can be taken.

Scope of the Study This research work will be limited in scope to Guinness Nigeria Plc, Benin City. However, it will extend to all the departments division and units within the organization to the extent of their involvement in the budgeting and budgetary control of the organization.

1.7 LIMITATIONS OF THE STUDY

Generally, the increase in cost of transportation restricted the number of trips that could have been made to the case study.Moreover, much money is also spent in purchasing stationary and materials for the production of this project. Apart from that, there are other issues like:

1. Time: There is also time constraint, this project is handled along side with numerous class exercises. That notwithstanding, the period of time expected to complete and submit the project is too short.
2. Distance: The problem of distance is another factor of limitation. The case study is situated at Benin City, kilometers away from Auchi, where the school is situated, the information (data) and other documents to be used in making the project work among others.

In spite of these constraints, the research have to remark that the study has a good degree of validity.

1.8 DEFINITION OF TERMS

1. Budget: A budget is a plan quantified in monetary terms prepared and approved, prior to a defined period of time usually one year showing planned expenditure; to be incurred during that period and the capital to be employed to attain a given objective (ICMA).
2. Call Circular: This is a notice issued by the budget department to every department, unit, containing detained information and guide line to be followed by the units, departments in the preparation and submission of their budgets.
3. Budget Centre: This is a section of an organization for which separate budget can be prepared and control exercised. It is a functional location such as a section or department which exists for the attainment of the organizations objectives and in respect of which a budget is prepared.
4. Budget Officer: The budget officer is the management accountant because of the requirement of accounting skills of the budget, he plays a very important role in budget administration. He provides technical and unbiased help to budgeters and take overall responsibilities for the budget programme. He is also in charge of establishing preparatory procedures, designs relevant forms, educates others, collects and coordinate data, verifies information received and compiles the budget.
5. Budget Holder: This is the head of such section, division or department; (Budget Centre).
6. Budget Committee: This is a body that administers the budgeting process, it is usually comprise of members drawn from the top management of all divisions in the organization. The committee develops and scrutinized long terms plans, offers advice on the budget, reconciles divergent views, coordinates the budgeting activities and sets the budget time table.
7. Budget Time Table: This is a plan of the timing process of the budget from the moment of objective setting-up to the adoption and communication of the budget. It ensures that the budgeting process does not lag behind time as it states when each activity will begin and when it should end.
8. Budget Manual: This present instruction and pertinent information about the budget and its preparation. It serves as a rule and reference book for the preparation and implementation of budget programme.
9. Budget Period: This is the time for which a budget is prepared and used (ICMA).
10. Budget Administration: This involved the management of the budgeting process from the time of preparation to implementation.
11. Budgeting: This is a process of drawing up a budget that aid managers in coordinating their effort so that objective of the organizations as a whole harmonized with the objective of the parts.
12. Budgetary Control: This is an exact and rigorous analysis of the past and the probable and desired future experience with a view to substituting considered intention for opportunism in management. (Akinyoade, S. O.) broadly speaking, it can be said that budget is concerned with policy making while budgetary control result from implementation of the policy.

1.9 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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