Full Project-APPLICATION OF BUDGETS AND BUDGETARY CONTROL MEASURES IN A NON-PROFIT ORGANIZATION

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CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Budgetary control systems according to Wagh and Gadade (2013) are a control system that motivates as well as monitor the activities and personnel, as they perform all the financial and curricular activities in a patterned and systematic manner. Budgeting and budgetary control occupy an important place among techniques used in planning and control functions of an organization (Kipkembo, 2013). Budgetary control as important management tool propels organizations and enhances improved performance of the economy in a variety of ways (Baiman and Evans, 1983). It also assists administrative officials to make a careful and reasonable analysis of all existing operations, thereby justifying expanding, eliminating, restricting or diversifying the present practice (Fisher et al. 2000).

For Steven (2000) budgetary and control entail a different pattern of decisions in an organization which is capable of determining its objectives, purposes, goals and how these goals are achieved by establishing principle policies and plans. On the other hand, budgets are management tools that put managers in control of the financial health of their company (Manso, 2014). Piercel (2004) stated that limited resources call for the need to plan and exercise control over their use and that budgets are the most effective way of corporate planning and control. The aim of this long paper, therefore, is to evaluate budget and budgetary control practices in educational organizations as a way to assess the effectiveness of budgeting decisions.

The traceability of the origin of the concept of a budget, budgeting, and budgetary control goes back to the Bible time, particularly the days of Joseph in Egypt. Bible records report that nothing was given out of the treasure without a written order (Ohiokha and Igbinosun 2012).

Budgeting and budgetary control in organizations are formally associated with the beginning of industrial capitalism for the industrial revolution of the eighteenth century (Akintoye, 2008). Jensen (2003) states that the emergence of scientific management philosophy with its emphasis on thorough information as a basis for making decisions provided a great stimulus for the development of management accounting and indeed budgetary techniques. However, in the early stages of budgeting focus is on preparation and presentation of credible information to legitimize accountability and transparency as a means to permit correct performance appraisal and consequent rewards (Ohiokha and Igbinosun, 2012).

Budget, a short term finance planning tool of management is used to focus attention on a company’s finance and overall operations of an organization (Jayamaha and Silva, 2012). Howell and Sakurai (1992) define a budget as a plan of dominant individuals in an organization expressed in monetary terms and subject to the constraints imposed by the participants and the environment, indicating how the available resources may be utilized to achieve whatever the dominant individuals agreed to be the organization’s priorities. This definition as noted by Ohiokha and Igbinosun (2012) is that recognition is given to the constraint confronting budget by other participants who are to ensure that objectives, targets, and goals stated in the budget are actualized. A budget is a financial plan for the future that is able to identify objectives and the actions needed to achieve those objectives (Hansen and Mowen, 2008). Smith (2007) views budgets as a collection of plans and forecasts.

As seen budgets reflect the future plan of action of the entire organization. The Chartered Institute of Management Accounts (2000) defines a budget as a quantitative statement for a defined period of time which may include planned expenses, assets, revenues, and liabilities. A budget makes an organization to be objectively focused, accelerates the coordination of activities and enhances control while control naturally is conducted through the comparison of actual costs with a flexible budget (Ohiokha and Igbinosun, 2012).

For every organization, the process of preparing budgets is a means of translating the planned objectives into detailed, workable plans of action. Garrison and Noreen (2003) suggest that budgeting is the most reliable approach to managing if used with care and good judgment fully recognizes the dominant role of the manager and provides a framework for implementing such fundamental aspects of scientific management by objectives, effective communication, continuous feedback, responsible accounting, and management flexibility.

According to Igbuzor (2005), budgeting is simply the process of preparing a budget. It refers to the procedures and mechanisms by which the budget is prepared, implemented and monitored (Naidoo, 2010). Preparing a good budget in today’s organizations requires a responsible leadership. Apart from that, there must be accurate and reliable information, as well as effective monitoring and control over the execution of the budget plan. Budgeting is the process whereby the plans of an organization are translated into an itemized, authorized and systematic plan of operation, expressed in monetary terms for a given period (Jensen, 2003).

1.2    STATEMENT OF THE PROBLEM

In the 21st century, organizations worldwide, both private and public, have realized the need to restructure and revise their activities for a better quality service delivery pattern. One of the most radically affected aspects of these organizations is the budget and budgetary control.

Recognizing the role of budget and budgetary control lending organizations leverage so much on it, in the private sector, several departments, whose main business is the implementation and monitoring of budgets, have been established and in the public sector where budget monitoring and strategy implementation committees have become an integral part of the administrations.

The followings are the problems that can interrupt the system of budgetary control:

If the actual results are completely difference from the target, the budget can lose its significance as a means of control. Whereas a fixed budget is not able to adapt to changes, a flexible budget will recognize changes in behavior and can be amended to fall into line with changing activities. However this calls for checking the overall effective performance of budget and budgetary control on management performance.

Lack of budgets in planning and control has required in the indiscriminate use of fund meant for more viable activities. The inability of many organizations to plan and accomplished budget goals is traceable to their inability to apply controls in their budget system.

1.3   OBJECTIVES OF THE STUDY

This study sought to know the application of budgets and budgetary control measures in a nonprofit organization. Specifically, the study sought to;

1. determine the relationship between budgets and budgetary control measures and non-profit organization.

2. examine the nature of budget and budgetary control measures of Apostolic Church Delta.

3. identify the challenges that Apostolic Church, Delta faces in their budget and budgetary control practices.

1.4    RESEARCH QUESTIONS

1.  What is the relationship between budgets and budgetary control measures and non profit organization.

2.  What is the nature of budget and budgetary control practices of the Apostolic Church Delta?

3.  What are the challenges the Apostolic Church Delta face in their budget and budgetary control practices?

1.5      Research Hypothesis

Ho: There is no relationship between budgets and budgetary control measures and non-profit organization

1.6      Significance of the Study

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

1.7    Scope/Limitations of the Study

This study is on application of budgets and budgetary control measures in a non-profit organization. The study will be carried out at apostolic church, Delta.

Limitations 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.

1.8       Definition of Terms

Budget:  A budget is an estimation of revenue and expenses over a specified future period of time.

Budgetary control:   A system of management control in which actual income and spending are compared with planned income and spending, so that you can see if plans are being followed and if those plans need to be changed in order to make a profit.

Non-profit organization: is a group organized for purposes other than generating profit and in which no part of the organization’s income is distributed to its members, directors, or officers.

References

Andrews, M. and Hill, L. (2003). The Impact of Traditional Budgeting Systems on the Effectiveness of Performance based budgeting: A different viewpoint on recent findings. International Journal of Public Administration, Volume 26, Number 2.

Anohene, J. (2011). Budgeting and Budgeting Control as Management Tools for enhancing Financial Management in Local Authorities, Afigya Kwabre District Assembly as a Case Study. Thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in Partial fulfillment of the requirements for the degree of Commonwealth Executive Masters of Business Administration.

Anthony, R.N., and Govindarajan, V. (2003). Management Control System. 4th Edition.

Baiman, S. and Evans, J.H. (1983). Pre-decision Information and Participation Management Control System.  Journal of Accounting Research, Volume 21, Number 2. Pp371-391.

Chartered Institute of Management Accountants and the ICA EW (2007). Faculty of Finance Management.

Chartered Institute of Management Accountants. (2000). Official Terminology.  London  CIMA.

Chow, C.W., Cooper, J.C., and Walter, W.S. (1988). Participative Budgeting: Effects of a truthinducing pay Scheme and Information Asymmetry on Slack Performance.  The Accounting Review. Volume 6, Number 3.

Drury, C. (2004).  Management and Cost Accounting. 6th edition: Singapore, Seng Lee Press.

Drury, C. (2008). Management and Cost Accounting. 7th edition: Cengage Learning.

Falk, S. (1994).  When Budgeting, Focus on Value: Nine Strategies for Value Basing Public Management. Pp20. www.questia.com.

Fisher, S., Frederickson, J. and Peffer, S. (2000).  Budgeting: An Experimental Investigation of the Effect of Negotiation. The Accounting Review 76 (January) pp93-114.

Garrison, R.H. and Noreen, E.W. (2007). Management Accounting. 10th edition. New York: Mc-Graw Hill Irwin.

Gyasi, K. (2005).  Management Accounting. Accra: Excellent Publishing and Printing. 13

Hensen, D.R. and Mowen, M.M. (2008). Cornerstones of Managerial Accounting. 2nd Ed. USA: Thomson South Western.

Hofstede, G.H. (1998).  The game of Budget Control. Tavistock, London

Igbuzor, O. (2005). A Handbook on Budgeting. A Guide to the due Process Approach. Lagos: Centre for Democracy and Development.

Jayamaha, A and Silva, L.M.D. (2012). Budgetary Process and Organizational Performance of Apparel Industry in Sri Lanka. Journal of Emerging Trends in Economics and Management Sciences. Volume 3, Number 4.

Jensen, M.C. (2003). Paying People to Lie: The Truth about the Budgeting Process. European Financial Management Review, Volume 9.

Kaplan, R.S. (1993). Putting the balanced scorecard to work. Harvard business Review, Sep/Oct edition.

Manso, E.F. (2014). Budgeting and budgetary Control Practices and Procedures in Timber Firms within Kumasi Metropolis. International Journal of Research in Social Sciences, Volume 4, Number 3.

Naidoo, B. (2010). Financial Management in selected public primary schools in Gauteng. A Thesis submitted in accordance with the requirements for the degree of Master of Education in the subject Education Management at the University of South Africa.

New York: McGraw-Hall. Ashford, J.K. (1989). Management accounting process in non-profit making organizations. Management Accounting (CIMA) UK December pp36-37.

Ohiokha, F.I. and Igbinosun, F.E. (2012). Budget and Budgetary Control: A tool for enhanced performance in Nigeria organizations. Journal of Knowledge Review, Volume 26, Number 3. Pp114.

Otley, D.T. (1990). The Contingency Theory of Management Accounting, Achievement and Prognosis. Accounting in Organizations and Society, Volume 5, Number 4.

Pandy, L.M. (1999). Financial Management. 8th edition: Vikas Publishing house, PVT Ltd. New Delhi.

Pierce, J.L. (2004). The budget comes of age. Harvard Business Review. Volume 32, Number 3. Pp58-66

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