BUDGETEING AND BUDGETANCY CONTROL IN GOVERNMENT OWNED PARASTATALS ( A CASE STUDY OF ANAMBRA STATE HOUSING & DEVELOPMENT CORPORATION)

CHAPTER ONE

INTRODUCTION

All organizations whether public or private, have some objectives or goods, which they aim to achieve. These objectives or goals could be the maximization of profit or rendering of services. The realization of an organization’s objective requires the acquisition and utilization of both human and material resources.

To achieve these objectives, the organization tries to economize resources and means of achieving its pre-determined goals. With there resources, the organization determined the most effective way of reducing its cost of production or operation while it maximized its productivity, thus increasing its profitability and the efficiency of the services rendered.

Profit optimization is achieved only by the properly planned use of available resources when the different activities are efficiently controlled. This also applies to the efficient rendering of services by government corporations.

Modern business management requires the use of some techniques in the formulation and adoption of planet and defined systems and tools with a view to achieving set goals such tools and systems include budgeting variance analysis and budgetary control.

The process of setting goals or objectives to be achieve at some future points in time and determining how these goals are to be reached is described as planning, the process of translating this plan into financial targets/estimates can be described as budgeting can be likened to short term tactical planning” which is defined as” the process of preparing a short term and detailed plan of the activities of an organization and so converting the strategic long term plan into actions’.

 The budget is a pre-determined statement of management policy during a given period, which provides a standard for comparism with the results actually achieved. The process of establishing a budget is know as budgeting while the process of assigning responsibilities for achievement of the budget, measuring actual performance and comparing it with the planned performance is known as budgetary control. Consequently, budgetary control is a system of controlling costs, which includes the preparation of budgets, co-ordination the departments and establishing responsibilities comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.

The purpose of control is to ensure that operations and performance conform to the plans. The control aspect of budgetary activities is a management function which involves taking action on adverse variances that are controllable.

According to A Pogue, “a budget is not a control mechanism itself but a yardstick by which actual results can be compared as at and when they occur and thus provide management with an aid to control cost”. Budgetary control, therefore acts as a guard on the executive capacity by controlling their scope of expenditure.

This study is aimed at finding out the budgetary processes will used in government corporations and how these processes help in achieving their goals it also aims at determining the controls applied in cost reduction and the compares between the planned and actual performance. The focal point of this study is Anambra State housing development Corporation that is involved in the building of housing estate that it rants and/or sells out for residential and commercial purposes. It though a government parastatal., it operates as a commercial entering with profit as its main objective.

1.1            STATEMENT OF PROBLEM

The planning of budgeting involves management to anticipate future problems and difficulties and so take corrective action at an early stage. A budget, which is, used f or the purpose is described as “ a formal set of figures written as a piece of paper which is in itself merely a quantified plan for future activities’. Experience has shown that government parastatals in Anambra State have tended to perform poorly both in the formulation and implementation of their budgets. The inability of these parastatals to plan and accomplish budgeted goals is mainly related to their ability to apply control in their budgetary system. It is also as a result of the low level of understanding of the budgetary system by the middle and how management staff and the Lukewarm attitude of top management to the application of budgetary control, in their operations.

Like all other organizations, Anambra State Housing Development Corporation prepares its budgets, which are aimed at the achievement of its goals (profit maximization). However, the realization of the objective of cost reduction and increased profit is usually not achieved because actual expense and revenue differ from usually not achieved because actual expenses and revenue differ from those budgeted, hence accounting for the variance that occur.

This research work is envisaged to help in determining and highlighting the problems that militate against the application and effective utilization of budgeting and budgetary control in Anambra State Housing Development Corporation.

Specifically, the following research questions are addressed;

i.        Does the corporation’s budget serve as a tool for planning, and the achievement of the organizations objective?

ii.       Is the appraisal of the corporation’s performs based on the budget?

iii.      Are the officers in charge of the budget control accountable for their objectives?

iv.      Does the corporation monitor both compliance with deviations from departmental and corporate targets?

v.       Does the budget include a control reporting system that provides insight into their operations?

vi.      Are variances built into the incentives or disciplinary system?

1.2            OBJECTIVE OF THE STUDY

Budge5ts are essentially forward looking and provide the yardstick for the purpose of comparism. It is a means to an end not an end in itself; hence it covers the area of responsibility of one specified person so that his performance can be measured at the end of the budget period. The main objective of this study is to find out the importance of budgeting and budgetary control in the activities of a government parastatals which had the maximization of profit as its principal business objective. This includes the importance of budgetary control to decision making.

The researcher intends to find out the procedures adopted in the formulation and implementation of annual budgets in Anambra State Housing development Corporation. The study will also determine when there is   correction between the type of budget implemented and their actual performance.

Another purpose of this study is to determine whether or not budgetary control as a management tool contributed to the improvement of managerial efficiency and high productivity. It is also intended to find out the impact of the use of budgetary control as an appraisal parameter for assessing managed, budget or cost centers;

1.3            SCOPE AND LIMITATIONS

The structure of an organization affects the scope of  its budgetary control, hence budgetary control differ in manufacturing, merchandizing, and service organization. Budgetary control is a management tool which ensured that an executive of a budget center is held responsible only for expenditure within his control. In all organizations, budgeting is the process of planning and controlling costs.

This study, therefore is the analysis the use of budgetary and budgetary control Anambra State Housing Development Corporation.

Many problems were encountered which acted as a constraint to these study these limitation include;

i.        Un-co-operative attitude to some members of staff who refused to answer vital questions or provide important documents and information.

ii.       Irrelevant and insufficient information supplied by some accounting officers and budget center managers.

iii.              In0depth appraisal of every available document on the corporation’s financial statements and budgets were restricted by insufficient time.

iv.              Literature on the topic as it relates to government parastatals is very few.

v.                 The corporation did not allow access to all information and document needed by the writer.

1.4            DEFINITION OF TERMS

a.       BUDGET:

Accountants defined budget as “a plan quantified in monetary terms, prepared and appeared prior to a defined period usually. Showing planned income to be generated and/or expenditure to be incurred during that period, and the capital to be employed to attain that objective’.

b.       BUDGETARY CONTROL:

This is the establishment of budgets relating the responsibilities of executives to the requirements of a policy and the continuous comparism of actual and budgeted results, either to secure by individual action the objectives of that policy or to provide a basis for revision.

c.       VARIANCE:

This is the difference between planned budgeted)a and actual result

d.       FAVOURABLE VARIANCE

This is the excess of the budgeted results over the actual in case of cost but in case of revenue, it is the excess of actual result over the budgeted.

e.       UNFAVOURABLE VARIANCE

This is the excess of the actual result over that already budgeted in the case of costs and vice versa in the case  of revenue.

f.       BUSINESS

Any establishment, which has profit motive/maximization as its dominant or major objective.

g.       ORGANIZATION:

All establishments whether government or privately owned.