ABSTRACT
Budget and budgetary control, both at management
and operational level looks at the future and lays down what has to be
achieved. Control checks whether or not the plans are realized, and puts into
effect corrective measures where deviation or shortfall is occurring. This study
examines how budget and budgetary control can be a control measure in an
organization using the using Ado-Odo Ota local government, as considered in
this study. We employed the use of descriptive research design. The hypothesis
result that budget is an effective tool of planning in an non-profit making
organization
CHAPTER
ONE
1.0 INTRODUCTION
Budgeting has come to be
accepted as an efficient method of short-term planning and control. It is
employed, no doubt, in large business houses, but even the small businesses are
using it at least in some informal manner. Through the budgets, a business
wants to know clearly as to what it proposes to do during an accounting period
or a part thereof. The technique of budgeting is an important application of
Management Accounting. Probably, the greatest aid to good management that has
ever been devised is the use of budgets and budgetary control. It is a
versatile tool and has helped managers cope with many problems including
inflation.
The Chartered Institute of
Management Accountants, England, defines a ‘budget’ as under: ” A financial
and/or quantitative statement, prepared and approved prior to define period of
time, of the policy to be persued during that period for the purpose of
attaining a given objective.” According to Brown and Howard of Management
Accountant “a budget is a predetermined statement of managerial policy during
the given period which provides a standard for comparison with the results
actually achieved.”
Budgetary Control is the process
of establishment of budgets relating to various activities and comparing the
budgeted figures with the actual performance for arriving at deviations, if
any. Accordingly, there cannot be budgetary control without budgets. Budgetary
Control is a system which uses budgets as a means of planning and controlling.
According to I.C.M.A. England
Budgetary control is defined by Terminology as the establishment of budgets
relating to the responsibilities of executives to the requirements of a policy
and the continuous comparison of actual with the budgeted results, either to
secure by individual actions the objectives of that policy or to provide a
basis for its revision.
A 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. Non-profit corporations are often termed “non-stock corporations.”
They can take the form of a corporation, an individual enterprise (for example,
individual charitable contributions), unincorporated association, partnership,
foundation (distinguished by its endowment by a founder, it takes the form of a
trusteeship), or condominium (joint ownership of common areas by owners of
adjacent individual units incorporated under state condominium acts).
Non-profit organizations must be designated as nonprofit when created and may
only pursue purposes permitted by statutes for non-profit organizations.
Non-profit organizations include churches, public schools, public charities,
public clinics and hospitals, political organizations, legal aid societies,
volunteer services organizations, labor unions, professional associations,
research institutes, museums, and some governmental agencies.
Non-profit entities are organized
under state law. For non-profit corporations, some states have adopted the
Revised Model Non-Profit Corporation Act (1986). For non-profit associations, a
few states have adopted the Uniform Unincorporated Non-Profit Association Act
(See Colorado 7-30-101 to 7-30-119). Some states exempt non-profit
organizations from state tax and state employment programs such as unemployment
compensation contribution. Some states give non-profit organizations immunity
from tort liability (see Massachusetts law giving immunity to a narrow group of
non-profit organizations) and other states limit tort liability by enacting a
damage cap. State law also governs solicitation privileges and accreditations
requirements such as licenses and permits. Each state defines non-profit
differently. Some states make distinctions between organizations not operated
for profit without charitable goals (like a sports or professional association)
and charitable associations in order to determine what legal privileges the
respective organizations will be given.
Some NPOs may also be a charity
or service organization; they may be organized as a nonprofit corporation or as
a trust, a cooperative, or they exist informally. A very similar type of
organization termed a supporting organization operates like a foundation, but
they are more complicated to administer, hold more favorable tax status and are
restricted in the public charities they support. Their mole is not to be
successful in terms of wealth, but in terms of giving value to the groups of
people they administer to.
1.1 BACKGROUND OF THE RESEARCH
There is hardly any aspect of
human Endeavour that does not have economic implication because economics as a
science is essentially concerned with the study of scarce resources, there
allocation, management and utilization. This reality is what gave birth to a
business budget in the 20th century. The term budget was first put to use in
Europe to refer to first, a leather bag used to carry statement of revenue and
expenditure, and later the term was referred to as the statement itself and not
just the container.
Today, a budget play a greater
role in the planning and control process of basically all organization, be it
private or public sector, ministries and non profit-making organizations.
Organizations developed plans on
how to go about its future operations. While control measures are used to
correct any deviation from the plans. The budgetary process is an integral part
of both planning and control. Budgeting is making plans for the future, implementing
those plans and monitoring activities to see whether they conform to plans. To
do this successfully, it requires maximum commitment by the top management,
corporative and motivated middle management and staff, and well organized
reporting system.
The importance of budget to
households, business organization can never be over emphasized. Most families
or members of households have at point developed a budget to guide them in
allocating resources over a specific period of time. The family budget is a
planning tool, but it also serve as control behaviour of family members by
setting limits on what can be spent within each budget category. Budget enables
house to know how much of their money is being spent. Such a situation can
easily lead family into unexpected debt and severe financial difficulties.
Likewise, budgets play a similar
planning and control role for managers within business units and budgets are a
central part of a design and operation of management accounting system. As in
household budget, budget in business organizations reflects in quantitative
term, how to allocate financial and other resources to each organizational
subunit, based on its planned activity objective. Budgeting activity to
organizational unit can reflect how well unit managers understand the
organizational and provides an opportunity for the organization’s top planners
to correct misperceptions about the organization’s goal. Budgeting also aims at
coordinating the organization’s many activities. For example, budget show the
effect of sales level or volume on purchasing, production, administrative
activities etc.
In reality, budgeting is the
most widely used accounting tool for planning and controlling the activities of
organizations. Budgeting system helps managers to forecast. By looking into the
future and planning managers are able to anticipate and correct potential
problems before they arise. Managers can then focus on exploiting opportunities
instead of fighting fires as one observer said ‘‘few businesses plan to fail,
but many of those that flop fail to plan’’ (Horngren, et al, 2002; 178).
The research is deeply concerned
with the extent to which management of Brewery companies seize the advantages
associated with budgeting process. The researcher is interested in finding out
if managers of Brewery companies effectively and efficiently design and
implement realistic budgets. Do they use budgets as a potent tool for resource
allocation and control?
The choice of Catholic Church as
a case study for this research work is informed by the industry’s relatively
long-life span of production. Secondly, the relative low level of production at
the industry has also prompted the researcher to investigate its budgetary
system.
1.2STATEMENT OF RESEARCH PROBLEM
Budgeting and budgetary control
is one of the essential functions of every organization (business, Nonprofit or
governmental). Survival and growth of any corporate organization depends on
effective budgetary control measures. This implies that if budgets are
effectively designed and implemented, an organization can achieve massive
results.
On the other hand, in Nigeria
today, there are incidences of corporate failure in most organizations. It
appears managers are not taking advantage of the budgetary process to the
success of the organizations.
The behavioral or human aspect
of budgeting is equally worrisome; how do people’s attitudes affect the
budgets, and in turn, how do budget affect people’s behaviour? The questions
intrigued social scientist to engage in extensive study about the human factors
involved in budgeting.
Moreover, the research is aimed
at knowing if budgeting and budgetary control is playing a significant role in
controlling measure in the organization, to investigate the problems associated
with the designing and implementation of budgets in organization, to find out
whether poor performance and low productivity and development in some of the
NPO is attributed to poor implementation and finally, to investigate the human
aspect of budgeting.
1.3 OBJECTIVE OF THE STUDY
The
objective of the study include;
1. To
determine problem of budgeting in an organization
2. To
find why there was variance between budgeted and actual performance
3. To
ascertain why there has been delay in formulation of budget
4. To
monitor deviation from budget target
1.4 RESEARCH QUESTION
1. What
are the problems of budgeting in an organization
2. What
the causes of variance between budgeted and actual performance
3. What
are they delays in the formulation of budget
4. What
are reason for deviation from budget target
1.5 RESEARCH HYPOTHESIS
HI=
Budget are effective means of planning
H0=Budget
are not effective means of planning
1.6 SIGNIFICANCE OF THE STUDY
This
study will be significant to the following stakeholder which include;
1. It
will aid the non-profit making organization to know if the budget are actually
directing the cause of their duty.
2. It
will aid the non-profit organization to know the budgetary process of the
committee of the budget in the organization
3. It
will aid the non-profit making organization to know the effective of budget in
planning and management responsibilities.
4. It
will aid future researchers to know the impact of budgetary control in the
non-profit making organization.
1.6 SCOPE OF THE STUDY
The
study will employ the use of the questionnaire and will take Ado-Ota local
government as the site of study. The study will use the descriptive research
design.
1.7 OPERATIONAL DEFINITION OF TERMS
Budget;
it is the annual plan of all revenue and expenditure in an organization
Budgetary
Control; it is the process of controlling the revenue and expenditure of an
organization in one calendar years.