THE IMPLICATION OF BUDGET PADDING ON BUDGET IMPLEMENTATION IN NIGERIA 2015- 2018

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

“Budget Padding is a practice that some people use in business when submitting a budget for approval. Budget padding artificially inflates the proposed budget in order to allow the project room to expand or to cover unexpected costs. Budget padding is unethical, but its practitioners defend it on the grounds of practicality. Padding the budget means that the budget proposal is larger than the actual estimates for the project. This is done by either increasing a project’s expenses or decreasing its expected revenue.  The main aim of budget padding is to get an approval committee to grant an artificially high level of funding to the budget maker’s proposed project.  There is some contention over the definition of padding; some contends that inflating expenses to take expected inflation into account is responsible foresight rather than padding, while others see it as any increase beyond current estimates as padding. First, they want to account for economic factors.  This is true of budget increase that anticipate inflation or, in the case of international projects, fluctuations in exchange rates.  Secondly, they want to avoid red tape.  If an unexpected expense arises, the padding gives the project the flexibility to cover it that is called slack or breathing room.  Thirdly, they want to make a favourable impression on their superiors.  If they propose a larger budget and then outperform the budget, then the project team will be viewed favourably by the bosses.  Finally, they fear budget cuts.  Some budget padders fight against cuts that they see as unfair by anticipating them with an inflated proposal. In theory, projects should spend according to the accurate budget estimates so that padding would have no real effect. In practice, however, budget padding has concrete consequences.  Projects with extra room in their budget tend to use it.  Recurring projects, especially, spend money unnecessarily in order to use up their entire budgets.  That way, the approval committee does not cut their budgets in the following year…Aside from the financial consequences; many people question the acceptability of budget padding because it is a deceptive practice.  They say that it breeds a harmful corporate atmosphere.  Budget padding’s defenders cite its widespread use as a justification of its acceptability.  They also argue that unfair actions on the part of bosses, like budget cuts, force them into pre-emptive budget inflation”. Padding of the budget especially after the second reading is therefore a criminal act. Unfortunately, that seems to be what has been going on since the beginning of the fourth republic. This monumental fraud at the National Assembly is replicated in all the 36 states in the country where governors in most cases operate like sole administrators with state assemblies serving as rubber stamps. The 774 LGAs are not different. The local council chairmen who collect free allocation from Abuja are answerable to no one. The councillors many of who have been known to build houses within a year in office cornered the available road and culvert contracts that get washed away if and when implemented after one rainy season because of usage of substandard materials. Budget padding like some of our other crises of nationhood as many well informed Nigerians have told us is closely tied to our unwieldy and unworkable structure. This however is a fact those who are benefitting from the current anarchy including our over 400 highly paid lawmakers currently engaged in budget padding in Abuja and other parasitic politicians at the state and local council levels are ready to deny. Since no one deliberately sets out to destroy his father’s house, budget padding by elected legislators can only signify lack of faith in Nigeria. Unfortunately self-serving opponents of restructuring are not even prepared to appreciate that the whole essence of a federal arrangement is to make individuals and groups remain proud members of their small group within the greater nation.

STATEMENT OF PROBLEM

Padding is a social evil. It is operated by transgressors who lack social conscience and sobriety. It has the venomous tendency to destroy the economy and the polity of any country that fails to forestall its growth. Nigeria is a victim of a padded economy even when the ruling elite were ready to sincerely combat corruption, a disciplined and motivated leadership-by-example became the norm of public office, and Nigerians is still affected.  At various times, all advanced countries went through such uncivilised and barbaric governance. But they took steps to ameliorate the situation and embraced civilisation before it became too late.  For instance, the state of affairs in England at the ascension of Henry VII, after the War of the Roses in 1485, – 30 years of civil war — was chaotic! The barons kept personal armies and did not care for the law. Records have it that the coasts of England were infested with pirates; farmers and merchants were in constant peril of robbery and destruction; judges were corrupt; the House of Commons was too weak, and its members did not even have the ambition to make it strong. The country was not united; it needed a strong government to restore law and order. The situation then was worse than what we have in Nigeria today. But when the masses observed that the leadership was ready to salvage the country, they followed suit. But unfortunately, the reverse is the case in Nigeria. When in 2015 the present ruling party blew the whistle for “change”, Nigerians, except some of the ruling elite, were ready for real change! Although heads are rolling in the judiciary now, the Federal Government has withdrawn one of the cases against the Senate leadership, and some may no longer see the sun. Similarly, the 2016 budget padding scandal has almost become completely trivialised. These actions are reducing people’s belief and trust in our orchestrated “change” and “corruption crusade”. Basically, budget padding is mostly associated with;

1. Inflation: Padding a national budget constitutes tools for inflation, (demand pull inflation) because it draws more liquid cash into the economy, and more money in the hands of people leads to increased demand over less supply, thus making suppliers to raise their prices. Padding the national budget however puts more money in the economy because the increased (false) monetary estimate of projects and or expenditures, away from the actual monetary estimates (known as the budgetary slack) floods the economy.
2. Unrealistic projections and goals: Budget padding may over stretch a business’s resources, this mostly occurs because even the estimated figures are unreal, and the presence of the budgetary slack doesn’t allow for realistic projections and thus goals. This is mostly in private enterprises.
3. Many people consider budget padding as ‘’Unethical’’: People consider padding as not morally bad, and a padded budget as an unrealistic estimates of expenses and lacks integrity.

AIMS OF THE STUDY

The major purpose of this study is to examine the implication of budget padding on budget implementation in Nigeria. Other general objectives of the study are:

1. To examine nature of budget and budget paddling in order determine whether budget padding is a crime or not.
2. To examine how budget padding affects the implementation of 2015-2018 budget in Nigeria.
3. To examine the impact of budget padding on budget implementation in Nigeria from 2015-2018.
4. To examine the consequences of budget padding on budget implementation in Nigeria.
5. To examine the relationship between budget padding and budget implementation.
6. To examine if there is a way out of budget padding in Nigeria.

RESEARCH QUESTIONS

1. How is the nature of budget and budget padding in Nigeria?
2. How does budget padding affects the implementation of 2015-2018 budgets in Nigeria?
3. What is the impact of budget padding on budget implementation in Nigeria from 2015-2018?
4. What are the consequences of budget padding on budget implementation in Nigeria?
5. What is the relationship between budget padding and budget implementation?
6. Is there a way out of budget padding in Nigeria?

RESEARCH HYPOTHESES

Hypothesis 1

H0: There is no significant impact of budget padding on budget implementation in Nigeria from 2015-2018

H1: There is a significant impact of budget padding on budget implementation in Nigeria from 2015-2018

Hypothesis 2

H1: There is no significant relationship between budget padding and budget implementation

H1: There is a significant relationship between budget padding and budget implementation.

SIGNIFICANCE OF THE STUDY

This study will provide useful information for researchers regarding budgeting techniques, process, benefits and its impact on the Nigeria economy. Other than that, the researchers can also use the study as their basis for further research. This study will provide useful information for researchers regarding effects of budget padding in a national economy, thus a deterrent for practitioners or national budget and planning office as against budget padding. The study will be important to academicians who may wish to carry out further research in budget padding and budget implementation as this will add more to the existing body of knowledge.

SCOPE OF THE STUDY 

The study is based on the implication of budget padding on budget implementation in Nigeria 2015-2018.

LIMITATION OF STUDY

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).

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: An estimate of costs, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals. One of the most important administrative tools, a budget serves also as a (1) plan of action for achieving quantified objectives, (2) standard for measuring performance, and (3) device for coping with foreseeable adverse situations.

Budget Padding: Padding the budget means to make the budget proposal bigger than the project actually demands. It is either increase in expenses of its projects or reduction of the expected incomes. The purpose of such addition consists in forcing committee on approval to provide the high level of financing to this or that offered project. There are some disagreements concerning this term and different types of budgets according to some people. Some people claim that budget padding is created to accept the expected inflation and is responsible anticipation instead of addition. Other people consider that budget padding is an addition.

Budget Implementation: This is the final stage of the budgeting process before the control lap. This involves the actual usage or application of public funds in carrying out the activities and projects that have been enumerated in the project.