Application of Budgets and Budgetary Control

Application of Budgets and Budgetary Control

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Chapter one on Application of Budgets and Budgetary Control

INTRODUCTION

Background of the Study

Budgetary control systems according to Wagh and Gadade (2013) are a control system that motivates as well as monitor the activities and personnel, as they perform all the financial and curricular activities in a patterned and systematic manner. Budgeting and budgetary control occupy an important place among techniques used in planning and control functions of an organization (Kipkembo, 2013). Budgetary control as important management tool propels organizations and enhances improved performance of the economy in a variety of ways (Baiman and Evans, 1983). It also assists administrative officials to make a careful and reasonable analysis of all existing operations, thereby justifying expanding, eliminating, restricting or diversifying the present practice (Fisher et al. 2000). For Steven (2000) budgetary and control entail a different pattern of decisions in an organization which is capable of determining its objectives, purposes, goals and how these goals are achieved by establishing principle policies and plans. On the other hand, budgets are management tools that put managers in control of the financial health of their company (Manso, 2014). Piercel (2004) stated that limited resources call for the need to plan and exercise control over their use and that budgets are the most effective way of corporate planning and control. The aim of this long paper, therefore, is to evaluate budgetary and budgetary control practices in educational organizations as a way to assess the effectiveness of budgeting decisions.

The traceability of the origin of the concept of a budget, budgeting, and budgetary control goes back to the Bible time, particularly the days of Joseph in Egypt. Bible records report that nothing was given out of the treasure without a written order (Ohiokha and Igbinosun 2012).

Budgeting and budgetary control in organizations are formally associated with the beginning of industrial capitalism for the industrial revolution of the eighteenth century (Akintoye, 2008). Jensen (2003) states that the emergence of scientific management philosophy with its emphasis on thorough information as a basis for making decisions provided a great stimulus for the development of management accounting and indeed budgetary techniques. However, in the early stages of budgeting focus is on preparation and presentation of credible information to legitimize accountability and transparency as a means to permit correct performance appraisal and consequent rewards (Ohiokha and Igbinosun, 2012).

Budget, a short term finance planning tool of management is used to focus attention on a company’s finance and overall operations of an organization (Jayamaha and Silva, 2012). Howell and Sakurai (1992) define a budget as a plan of dominant individuals in an organization expressed in monetary terms and subject to the constraints imposed by the participants and the environment, indicating how the available resources may be utilized to achieve whatever the dominant individuals agreed to be the organization’s priorities. This definition as noted by Ohiokha and Igbinosun (2012) is that recognition is given to the constraint confronting budget by other participants who are to ensure that objectives, targets, and goals stated in the budget are actualized. A budget is a financial plan for the future that is able to identify objectives and the actions needed to achieve those objectives (Hansen and Mowen, 2008). Smith (2007) views budgets as a collection of plans and forecasts. As seen budgets reflect the future plan of action of the entire organization. The Chartered Institute of Management Accounts (2000) defines a budget as a quantitative statement for a defined period of time which may include planned expenses, assets, revenues, and liabilities. A budget makes an organization to be objectively focused, accelerates the coordination of activities and enhances control while control naturally is conducted through the comparison of actual costs with a flexible budget (Ohiokha and Igbinosun, 2012).

For every organization, the process of preparing budgets is a means of translating the planned objectives into detailed, workable plans of action. Garrison and Noreen (2003) suggest that budgeting is the most reliable approach to managing if used with care and good judgment fully recognizes the dominant role of the manager and provides a framework for implementing such fundamental aspects of scientific management by objectives, effective communication, continuous feedback, responsible accounting, and management flexibility.

According to Igbuzor (2005), budgeting is simply the process of preparing a budget. It refers to the procedures and mechanisms by which the budget is prepared, implemented and monitored (Naidoo, 2010). Preparing a good budget in today’s organizations requires a responsible leadership. Apart from that, there must be accurate and reliable information, as well as effective monitoring and control over the execution of the budget plan. Budgeting is the process whereby the plans of an organization are translated into an itemized, authorized and systematic plan of operation, expressed in monetary terms for a given period (Jensen, 2003).

Statement of the Problem

In the 21st century, organizations worldwide, both private and public, have realized the need to restructure and revise their activities for a better quality service delivery pattern. One of the most radically affected aspects of these organizations is the budget and budgetary control.

Recognizing the role of budget and budgetary control lending organizations leverage so much on it, in the private sector, several departments, whose main business is the implementation and monitoring of budgets, have been established and in the public sector where budget monitoring and strategy implementation committees have become an integral part of the administrations.

The followings are the problems that can interrupt the system of budgetary control:

If the actual results are completely difference from the target, the budget can lose its significance as a means of control. Whereas a fixed budget is not able to adapt to changes, a flexible budget will recognize changes in behavior and can be amended to fall into line with changing activities. However this calls for checking the overall effective performance of budget and budgetary control on management performance.

Lack of budgets in planning and control has required in the indiscriminate use of fund meant for more viable activities. The inability of many organizations to plan and accomplished budget goals is traceable to their inability to apply controls in their budget system.

Objectives of the Study

1. The study sought to know the application of budgets and budgetary control measures in a nonprofit organization. Specifically, the study sought to;
2. determine the relationship between budgets and budgetary control measures and non-profit organization.
3. examine the nature of budget and budgetary control measures of Apostolic Church Delta
4. identify the challenges that Apostolic Church, Delta faces in their budget and budgetary control practices.

Research Questions

1. What is the relationship between budgets and budgetary control measures and non profit organization?
2. What is the nature of budget and budgetary control practices of the Apostolic Church Delta?
3. What are the challenges the Apostolic Church Delta face in their budget and budgetary control practices?

Research Hypotheses

Ho1: There is no relationship between budgets and budgetary control measures and non-profit organization

Significance of the Study

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

Scope/Limitations of the Study

This study is on application of budgets and budgetary control measures in a non-profit organization. The study will be carried out at apostolic church, Delta.

Limitations of study

1. Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
2. Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Definition of Terms

budget:  A budget is an estimation of revenue and expenses over a specified future period of time.

Budgetary control:   A system of management control in which actual income and spending are compared with planned income and spending, so that you can see if plans are being followed and if those plans need to be changed in order to make a profit.

Non-profit organization: is a group organized for purposes other than generating profit and in which no part of the organization’s income is distributed to its members, directors, or officers.

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