Budgeting And Budgetary Control And Effective Financial Management In Government Parastatals In Nigeria
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.
1.1 Background to the Study
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:
- To contribute to the economic development of the nation.
- To contribute to the general welfare of the community, where it is situated.
- 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.
1.2 Statement of Problems
The following are the problems faced in the preparation of budgeting.
- The preparation of budgeting is very expensive and time consuming.
- It tends to be frustrating when a manager is unable to meet the level of performance expected.
- The budget holder tends to be rigid with supervision of subordinates so as to be able to meet with the budget expectations.
- 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.
- Who are the users of budgeting?
- What is the difference between budgeting and budgetary control?
- What do government or public sector need budgeting for?
- What distinguishes plan from budgeting?
- What is a principal budget factor and why is it important in planning?
- What do you understand by bias in budgeting?
- How may we deal with budget slack?
- What are the limitation of budget?
- What is the difference between standard costing and budgetary control?
1.3 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
- An aid to control revenue.
- To prevent waste.
- To review the economy generally.
- To give estimate both revenues and expenditures arranged in recurrent and capital groupings.
- To conform with good business practice by planning for the future.
- To coordinate the various divisions of the economy such as production, marketing, financial and administrative divisions.
Objectives of Budgetary Control
- To smooth out sensational variations.
- To centralize management control.
- To indicate where action is needed.
- To provide a method of measurement.
- To obtain a more economical use of funds.
1.4 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.
The budget department of the Brewery will be ineffective where management restricts budgeting activities.
The inadequacy of business experience and general educational background under the achievement of the service objective affects budgeting.
The apathy or influence of management in budget department, findings and recommendation affects the performance of budget department.
1.5 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.
1.6 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:
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.
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
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.
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
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to ascertain the impact of budgeting and budgetary control and effective financial management in government parastatals in Nigeria
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of budgeting and budgetary control and financial management
Having examined in details the uses and importance of budgeting and budgetary controls in the organization and the role the play towards determining the corporate objectives (profit making) one could rightly conclude that it is indespensible to any business organization. If budget are carefully planned and implemented by management, it could lead to decrease in cost and an increase in revenue. Though budgeting and budgetary controls enhance the efficiency of the organization performance, it should be 56 noted that it is not the magic stick that could replace effectively planned and efficiency implemented at all levels, it will become an essential standard in measuring actual performance. This in above all makes budget an essential tool for management accountability.
Based on the findings of this study, the following conclusions were made to knowledge and budgetary control practices in government parastatals for effective management and performance with a view to instituting reforms that would ensure all year round services to the public. Cash from customers should be received only by authorized staff. Large cash deposits and withdrawals must be made with security escort. Signing of blank cheques must be prohibited and all cheques payments must be restrictively crossed. All special obligations to suppliers and creditors must be approved by the management. All source documents on sales and purchases must be received and issued on every transaction.
Based on the findings, discussions and conclusions of the study, the following recommendations are made:
- The adoption of a medium term budgetary framework where arrears and shortfall of expenditure and revenue are carried over to the new budget year within the medium term.
- Since due process, accountability and transparency are the hallmarks of a new budgetary system; a budget consultative forum should be convene where stakeholders are kept abreast of the previous budget and what is expected in the new budget.
- Provision for private partnership fund (PPF) to receive compulsory deductions from budgetary allocation without any form of arbitrariness and making substantial reduction in recurrent spending and overheads cost through rightsizing of the workforce and the number of parastatals to reduce duplications and unnecessary spending in the system.
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