1 Budgets and Budgetary Control Prepared and Presented By Gladstone K. Hlalakuhle

2 INTRODUCTION A plan expressed in monetary terms, prepared and approved prior to the budget period and which shows income expenditure and the capital employed. It may be drawn showing incremental effects on former budgeted figures or complied by zero budgeting.

3 Budgets are therefore not prepared in isolation and then filed away but are concrete components of what is known as a budgetary control system. Such a system essentially ensures communication, coordination and control within an organization. The basic functions of management are allocation of resources, planning and control.

4 BUDGETARY CONTROL This is the establishment of a budget relating the responsibilities of executive management to the requirement of a policy and continuos comparison of actual and budgeted results. Control should ensure that actions are accordance with the objective of the policy in question Also provides a basis for its revision.

5 ELEMENTS OF BUDGETARY CONTROL Setting up budgets i.e. planned targets on revenue, expenses, assets and liabilities relating to the activities concerned. Measuring actual results against the budgets on a continuous basis Identifying and analyzing deviations from budgets and modifying both actual operations and subsequent budgets.

6 MAIN AIMS OF BUDGETARY CONTROL To establish the degree of progress to the achievement of short term plans To allow delegation to occur without losing overall control To provide a measure for allowing flexibility in operations To establish short term plans and aid the organization’s planning process

7 PURPOSE OF A BUDGET Co-ordination- Important for the achievement of organization goals e.g. Coordinate inputs and outputs in order to ensure balance of efforts and effects. Coordinate budget lines within the organization to ensure effective implementation of plans and monitoring of results.

8 Coordinate responses to economic trends and challenges posed by the environment within which programmes and activities are undertaken.

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10 PREPARATION OF THE BUDGET 1. Identify objectives 2. Gather data about alternatives 3. Select alternative courses of action 4. Discuss the plans/activities and allocate the budget. 5. Establish monitoring mechanisms. 6. Respond to problems encountered in the previous budget.

11 PURPOSE CONT. Communication: The budget is used to communicate plans and to control information. Once formulated the aspects of the plan having a bearing on a particular division of the organization are communicated to that division. Motivation: The budget seeks to motivate managers to achieve objectives and thereby establish control within the organization.

12 PURPOSE CONT. Performance Evaluation: a budget is used to evaluate the capability of managers to achieve targets. Good performance is associated with achieving better performance targets set on costs of operations and benefits to the organisation.

13 PURPOSE CONT. Authorization: The budget is used to authorize expenditure or to pursue certain initiatives once a budget is approved: –it becomes a permission to spend. –acceptance that either a project or activities should commence.

14 DATA FOR BUDGET PROCESS Internal information Production and operational information Financial information Research and development information Personnel information Sources of internal information-expected outputs - performance targets, control and monitoring and evaluation mechanisms.

15 EXTERNAL INFORMATION Market and competitors Economic conditions Industrial structure Political factors Technological change Demographic trends and social factors Government statistics, commercial data, banks. Media coverage, business trips, conferences.

16 BUDGET COMMITTEE - FUNCTIONS Co-ordinate the preparation of budgets which includes the issue of the budget manual Issue timetables for the preparation of functional budgets Allocate responsibilities for the preparation of functional budgets

17 Provide information to assist in the preparation of budgets Communicate final budgets to the appropriate managers Compare actual results with budget and the investigate variances Continuously assess the budgeting and planning processes, in order to improve the planning and control functions.

18 CONTENTS OF BUDGET MANUAL Foreword The purpose of budgetary planning and control The objectives of various stages of the budgetary process The importance of budgets in the long term planning and administration of the enterprise

19 Organizational structures and responsibilities including: an organizational chart and a list of individual holding budget responsibilities. Principal budgets and relationships between them: explanation of key budgets and outline of main budgets and their accounting relationship Administrative details of the budget preparation: membership and terms of reference of the budget committee, the sequence in which budgets are to be prepared and a time-table.

20 Accounting procedures: name and terms of reference of the budget officer, sample/specimen forms and instruction for completing them, specimen reports and account codes. Timetable for accounting procedures: production of reports and closing dates.