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Budget Process and Standards

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1.0 Introduction

Budgeting process is necessary in simplifying money matters, thus by regulating expenses, a budget can assist in enhancing profits for an organization, business, or an individual. Federal annual budget concerns are to make blue prints of overall government funds to be spent on various state departments. It encompasses taxes to be levied, and effects on local commodities.  “A government budget relies on revenues and is generated from taxes imposed, thus, lack of a budget may make government officials to work hard in developing processes for the same” (Craig-Cooper, 1993, p. 60).

In public and non profit organizations, staff and board members participate in all phases of budgeting process. Budgeting process comprises of the following steps; determination of desired programs and activities for next year(s). This is done by the executive director and program director and others can be involved provided there is availability of resources, whether to expand or add to programming or whether to eliminate or scale back some programs. The next step is budget expenses or revenue, a budget is built on a program by program through use of assumptions that indicates the reasons for or provides explanations for changes realized from the previous year.

The next stage is assemble and review of a draft budget document. After budgeted revenue and expenses amounts are determined, the accountant is charged with the role of assembling the information in a draft format to be reviewed by the staff. The staff and president-elect review the draft format and approve it for recommendation to the board. The draft budget is then presented for approval in which appropriate questions are raised by the board may result into further changes to the draft budget. Once the draft budget is approved, it becomes the final budget for the coming year. The last stage is monitoring the budget versus actual throughout the year and amend the budget if necessary. Changes are made if circumstances have changed substantially from the anticipated results during the budgeting process. The staff should communicate to the management to allow for changes.

According to Craig-Cooper, he stated that “citizen participation in budgeting is the institutional arrangement in which the public is included in the process of budgeting” (pp. 57). They may be passive recipients of budget information, participate actively by soliciting inputs, or exchange their opinions and engage in mutual dialogue with government and local officials in budget making process. This takes form of public communication, public dialogue and negotiation, and consultation. Citizen participation in budgeting includes revenue, tax, election refer, public morality, and other non-financial problems (Mullins, & Joyce, 1996, p. 75).Public participation in  local budgeting is a way of gathering citizens input for budgetary preferences, influence resource allocation, and increase the trust that citizens shave towards government (Ebdon & Franklin, 2006, p. 446 ). Politics have influence on organizational goals, direction and operation hence it foreshadows the level of citizens participation in budgeting. Functional relationships have been developed between politicians and city managers and the adoption of multiple engagement mechanisms that leads to higher level of the involvement of citizens in budgeting process.

1.1.1Definition of key terms

Balance Sheet - Assets and liabilities are measured and difference between assets and liabilities is net position and is comprised of unexpended appropriations and the cumulative result of operations.

Budget- a financial document used for an estimation of the revenue and expenses over a specified future period of time. Public consultation-public input regarding the budget is solicited and conveyed to the local government (Mullins, & Joyce, 1996).

Public dialogue and negotiation- a distinct way of communication and interaction through which people listen to each other intently enough to have their thoughts or opinions changed by what they learn into formal recommendations and incorporated into the final budgetary recommendations (Mullins, & Joyce, 1996).

 Statement of Changes in Net Position - identifies all financing sources used to support its operations.

Statement of Net Cost - This statement displays the cost (measured on the accrual basis) of the federal agency by strategic goal (Mullins, & Joyce, 1996).

Statement of Social Insurance- a requirement for federal agencies administering social insurance programs such as Social Security and Medicare. The Statement projects income and benefit payments so that users of the statements can evaluate the long-term viability of the programs (Mikesell, 2007).

2.0 Mission statement

“The mission statement is to develop a financial operating plan, which provides for and ensures the health, safety, and welfare of citizens. To facilitate the orderly and effective delivery of federal government services as prescribed by federal and state mandates and in response to desired outcomes and citizen needs, and to promote an organizational culture fostering citizen awareness and access to information”  Mikesell, 2007, pp. 250).

Budgeting process has goals and objectives that include; complying with statutory requirements as outlined in the “Local Government Budget Law”, to build the budget as a financial operating plan by outlining organizational activities and outputs, and to demonstrate accountability to the citizens (Mikesell, 2007, p. 255).

3.0 Budget Purposes and the Sources of Revenue

Budget is used to monitor nation’s expenditure and revenue   and to control public spending is controlled. It ensures that expenditures and revenues are properly authorized. Budget has also been developed as a framework allocation of resources can be made more effective and efficient. Administrative budget such as program and zero-base budgeting, current and capital budget, and full-employment budget have been used to deal with the increasing complexity of government roles. Budgeting methods have been used as efficiency measures used to increase money value. Budget is designed to control expenditure by making emphasis on salaries and tasks employees (Mullins, & Joyce, 1996, p. 100).

In the United States, budgets are used to present total payments by the federal government to and from the public including other levels of the government hence serve as a cash flow accounting in business. It also serves in controlling public expenditures, since the government purchase of goods and services to provide services such like education, health care, and defense as well as, the payment of social security and transfers to individuals, payment of subsidies to commercial and industrial firms. All these are public expenditures. Expenditure reforms should be guided by two distinct guiding principles, these includes; efficiency of spending and to ensure equity diversity. Revenue sources should be encouraged and appropriate recovery levels to be established. Programming includes both revenues and expenditure.  In principle, expenditure should be defined first based on society’s preferences and then revenue raised to finance those expenditures. 

In practice, programming must iterate back and forth from forecast revenue to expenditure, to reach a package consistent with the overall policies and targets for the economy as a whole.  It is important to analyze fiscal prospects as a whole and no item should be exempt from scrutiny or defined as a mere residual.  The federal budget cycle is divided into three phases; the first phase is budget formulation phase. The next phase acts upon laws that constitute the enacted budget. After enacting the laws the executive agencies carry out the laws in the budget execution phase. Thus, the “Federal budget cycle is governed mainly by; Budget and Accounting Act, congressional budget Act, antideficiency Ac, Impoundment Control Act, Government Performance and Results, and Federal Credit Reform Act, these are the constitutional sources for all government revenue & expenditures” (Mullins, & Joyce, 1996, p. 96).

4.0 Budget implementation and execution systems

Budget execution is the phase in which resources are used to implement policies in the budget. Successful budget execution depends on the ability to deal with changes in the macroeconomic environment, and the implementation capacities of agencies. Budget execution involves many players than its preparation (Mullins, & Joyce, 1996, p. 99). Budget execution should ensure that the budget will be implemented in conformity with the authorizations provided by law in the financial and policy aspects. It should adapt to the execution of the budget to significant changes in the macroeconomic environment, it should resolve problems that may occur during budget implementation. In addition, it should manage the purchase and use of resources efficiently and effectively.

A budget execution system should comply with budgetary authorizations and have adequate monitoring and reporting capabilities to be able to identify budget implementation problems promptly while giving flexibility to managers (Mullins, & Joyce, 1996, p. 78). Furthermore, a budget execution system should meet the three major objectives of a public expenditure management system that includes aggregate expenditure control, strategic resource allocation, and operational efficiency. Budget execution procedures should ensure that fiscal targets are effectively enforced and managers should comply with the budget authorized by the legislature (Mullins, & Joyce, 1996, p. 100).

5.0 Government financial statements

A budget emphasizes on initiatives and how resources are used and managed. Thus, it focuses on the spending surplus deficit of the government. “Government financial statement focuses on the net operating costs and how resources have been utilized to fund government programs and services” (Mikesell, 2007, p. 250). The budget shows receipts and cash paid to the government such as income tax payments, while the government report presents revenues and the amounts earned by the government. The budget also reports outlays in cash when the government pays individuals, businesses and other parties. Hence, the financial statement indicates the costs in the period in which the resources are utilized or liabilities increased.

For an improvement to exist in financial management, management audit should be used in the identification of problems or weaknesses in an organization or department. Management audit has been widely used in business fields for many years. “An important part of management audit is vested in the composition of the team which uses both internal and external analysts which depend on factors such as independent appraisal, lack of human financial resources to conduct an audit, and the need to have an external audit to make a contrast against internal finding” (Mikesell, 2007, p. 260).

6.0 Modern financial management techniques

US government brought an agenda to improve management in the federal government. The agenda known as The President’s Management Agenda (PMA) set objectives and obtainable standards for five government priorities that included Budget and Performance Integration (Miller, 1976, p. 78). However, budget and planning reforms in US have been everywhere. There have been efforts to incorporate rationality in the traditionally political budgeting process. Despite the endurance of strategic planning practice in the private sector, there is little evidence of the use of strategic planning in the public sector.

According Mikesell (2007), “the economic expansion made states to push for strategic planning through performance based budgeting (PBB) law” 256. The need for new public management also contributed to the numerous budget reform efforts relevant to the integration of strategic planning and performance budgeting. This has been attributed by the advancement of financial reporting, development of commercially minded, market oriented management systems and structures responsible for pricing and provision of public services, with more emphasis on cash management, contracting-out arrangements and internal and external charging/pricing mechanisms. There has been development of a performance measurement approach that includes techniques such as financial and non-financial performance indicators, league tables, output and outcome performance measures and benchmarking. Furthermore, there is the devolvement and decentralization or delegation of budgets. In addition, this has been coupled with intentions to integrate financial and management accounting systems and economic based information sets (Mikesell, 2007, p. 247).

Accounting standards known as Statements of Federal Financial Accounting Standards are recognized as the highest level of authoritative standard in the AICPA’s Code of Professional Conduct (Mikesell, 2007, p. 247). The reporting requirements or financial statements of federal agencies include; balance sheet, statement of Net coast, statements in changes in net provision, statements of budgetary resources, statements of custodial activity, and statements of social insurance. The consolidated report presents the financial position and results of operation measured on the accrual basis (Mikesell, 2007, p. 200). It includes Managements’ Discussion and Analysis, Financial Statements, unaudited Supplemental and Stewardship Information, and the auditor’s. Consolidated government report are  financial statements such  Balance Sheet, Statement of Net Cost, Statement of Operations and Changes in Net Position, Reconciliation of Net Operating Cost and Unified Budget Deficit, Statement of Changes in Cash Balance from Unified Budget and Other Activities, Statement of Social Insurance. The purpose of budgetary accounts is to provide a record by which federal expenditures may be traced back to the budgetary authority granted by Congress through appropriations. Proprietary accounts are those accounts which comprise the accrual basis financial statements prepared by the federal government and its agencies. 

7.0 Conclusion

Budgeting is very much influenced by both the impacts of the federal system and executive-legislative conflict. Competition between the executive and legislative branches is evident at the national and state levels of government (Mikesell, 2007, p. 250). However, when working with groups is necessary to understand that transparency and proper use of funds are not only a management element that will enable an organization show their clients proper management of resources. Improvements should be made in the field of American budgeting in future considering what begun at the beginning of the century and the trends underway, in order to improve the efficiency and effectiveness in the budgeting system.

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