17656748 Budgeting in a Public Sector Power Point

7/28/2019 17656748 Budgeting in a Public Sector Power Point

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BUDGETING IN

A PUBLIC

SECTOR


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Definition

A budget is a quantitative expression of a

plan of action prepared in advance of the

period to which of relates.

A budget expresses what is to be

undertaken next year and authorizes the

financial recourses that are needed.


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OBJECTIVES OF ANNUAL

BUGDET


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1. The establishment of the

required income

It must be noted that in the public sector

come from taxes, charges and fees that

are levied by the government. Budget

income is arrived at by examining thecurrent levels of income and the level of

expenditure for the coming year.


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2.Planing Service expenditure

levels


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Authorization of expenditure

Money must be spent on what has been

authorized in the annual budget.


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4. The Central of Expenditure


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5.A Common action device


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6. Focus attention

The budget process focuses attention on

the future. It there fore makes the service

manages plan method and cost of service

delivery.


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7. Motivation of Managers

The managers are motivated by the

budget but more so if they played the role

in formulating it. There is therefore alll

attachment that is created.


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Revenue Budgets

It must be understood that most compelling

reasons for revenue budget is to

determine the income level and the

expenditure levels.

For services that are funded through

taxation and charges, the central

government need to fix the level of taxesand charges to be levied.


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Line Items Budgets -1.0

This type of budget places its emphasis on

the nature of the income and expenditure.


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Disadvantage

Cannot identify the amount allocated to

each individual service and would

therefore fail to reflect the planned level of

activity for each service.


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Program Budget Structure

This type of budgeting places its emphasis

on the purpose of expenditure e.g. crime

prevention, mental health care etc.

This approach is believed to lead to better

planning and control because recourses

could be allocated more precisely to

specific activities and actual achievementscould be monitored more effectively.


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Capital Budgeting

If a public sector organization is be successful in

achieving its objectives it is to give consideration

to planning of capital expenditure.

A Useful approach to the problem of planningand controlling expenditure is to develop capital

programs which express the overall plan of start

, medium and long term capital schemes, and

reveal the allocation of priorities betweendifferent parts of the organization.


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APPROACHES TO THE

BUDGETARY PROCESS

We shall consider four modules that any

public sector can choose from


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1. Incremental /Department

This model bases next years budget on

current results plus extra amount for

estimated growth and inflaction.


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2. Rational/ Corporate

This is less concerned with the budget

base or past, but are more concerned with

using recourses to meet current

established objectives.


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THE BID SYSTEM


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Stage 1

Do the separate departments or services

prepare next years budget estimates inisolation using the current expenditure aid

service levels as a starting point

Separate estimate Preparation


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Sage 2

The separate estimates or bids are thenaggregated and then total compare with

what can be raised via taxation and

charges.

Aggregation & Comparison


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Sage 3

When the gap between the income and

expenditure is narrow proposals are madeto reduce the proposed expenditure by a

given percentage.

Reduction in expenditure levels


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Stage 4

When faced prospects to make substantial

cuts in proposed expenditure the followingguidelines are often used

Detail Estimate Reduction


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1. Proposed expenditure is dealt

with first.

Cut out new projects

Post pare the start of the projects


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2. Revenue expenditure is reduced

New services are cut

New services are delayed

Level of services reduced Service deferred to following group.


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FINANTIAL PLANNILNG SYSTEM

Feature which distinguishes financialplanning system from the bid systemsinclude

1.There are multi-year nature2.The issue of expenditure giddier

3.Joint consideration of capital and revenue

budgets documents.4.Specific and classification in the budget

document.


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1. Multi-year Nature

A medium tom plan say 2-3 commitment

and forecast are considered including the

annual budget is seen as the first year of

the rolling budget.


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2. Expenditure Guideline

A target growth percent is established for

each service prior to the prevention of

detailed estimates for a department


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3. Joint Consideration of Capital

and Revenue

There is no simultaneous consideration of

capital and revenue estimates due to the

fact that estimates are considered for

several periods.


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4. Detailed specification and

classification

Instead of base expenditure incremental we

now have Base Exp + Inflation-

Reductions+ Committed growth+ New

growth.

Programming planning based budgeting

systems (PPBS)


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Traditional budgeting

approach which isdepartment is not very

suitable for non-profit

making organizations such

as government ministries.


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A major citizen of the

traditional approach is atluck of information on the

activities actually beingperformed by the ministries.

Cast are analyzed by theirnature rather than purpose.


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PPBS intended to overcomesuch criticisms. The aim is to

enable the management ofnon-profit organizations tomake more informed decisions

about the allocation ofrecourses to meet the overallobjectives of the organization.


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Sages

1. Review the objectives and activitiesundertaken by the organization.

2. Identification of programs which would

be undertaken to achieve the objectives.3. Identification and evaluation of various

methods of the objectives of the various

programs.4. Selection of appropriate programs on thebasis of costs- benefit principals.


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Advantages

1.Forces management to identify activities

to provided.

2.Provide information that enable

management assess the effectiveness oftheir plans.

3more efficient allocation of resources.


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Budget preparation in public sector

Two steps in budget preparation

1.Estimated out-turn for the current year.

2.Estimate for next year


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Estimated out-turn

Involves forecasting the out-turn for the

current year which form the budgetary

based for the contraction of budget for

next year.


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Estimate for next year

This is based on the estimated out-turn


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Determining the estimated out-turn

for the current financial year

Establish the actual to date

Adding estimated expenditure for the

reminder of the current year.

Estimating the expenditure for the


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Estimating the expenditure for theremainder of the year the following

should be considered The preparation of the year remaining

The anticipated inflation for the remainder

of the year Impact pay awards on stuff costs

Costs of new products to be commenced

in the current year.

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17656748 Budgeting in a Public Sector Power Point

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