ACC 181

GOVERNMENT ACCOUNTING

TOPIC 4 : GOVERNMENT
BUDGETING & BUDGETARY CONTROL
Topic Overview & objectives

 Objectives/functions of Budgeting
 Types of Budgets
 Techniques of Budgeting
 Institutions involved in the Budgetary
process in Tanzania
 Budgetary procedures/Process in
Tanzania
 MTEF Budgeting
GENERAL INTRODUCTION

HIGHLIGHTS ON THE
REQUIREMENTS OF PFA (2001):
(a) Budget Preparation.
 Involvement of the Parliament in budget
preparation
 Clarification of roles of Parliament and the
Executives/ Organs in the control and
management of Public Funds.
 Provision of accurate, timely and
independently verified accounts to the
Parliament after audit by the CAG.
Budget Preparation Cont’d
 Preparation of budget based on well
defined Macro- economic, fiscal and
Medium Term Expenditure
Frameworks (MTEFs).
 Specification of budget outputs,
making them public and performance
to be judged against these verifiable
outputs.
 Involvement of all stakeholders in
budget preparation
(b) Budget Execution
 Implementation of budget to satisfy
stakeholders in the control and
management of public funds, that those
funds have been utilised economically,
efficiently and effectively. i.e (having a
system that is transparent, comprehensive
and adaptable to the future needs)

 Generation of quality information that

supports the accountability expectations of
all stakeholders. i.e (having a system that
enables accurate measurement of effective
utilisation of public funds)
WHAT IS A BUDGET

A financial plan for a future

period; expressed in financial
terms and clearly expressing of
what an organisation can
achieve in a certain time scale.
Usually a time scale of one year
It has two main components-
planning and control
Purposes of Budgets
(i) Planning
to project the financial implications of planned
activities

(ii) Communicating plans

to communicate organisation plans to those
responsible for achieving them indicating clearly the
purpose of expenditure and the legislative
framework

(iii) Co-ordinating
to ensure that there is no conflict between, or slack
arising from the objectives of various units in the
organisation, ie, for efficiency of effort.

(iv) Organising
to schedule the commitment of resources to
planned activities
Purposes of Budgets- Cont’d
(v) Control
to review actual performance against the plan in
order to take corrective measures
(vi) Authorisation of expenditure levels
Limits the expenditure of the individuals upon
whom the organisation has vested authority to
spend. In the public sector, the budget is the
instrument of accountability.
(vii) Motivating staff and evaluating performance
people generally work better when they know
what is expected of them
Targets can be agreed with individuals. In the
context of an agreed budget, it is possible to
evaluate the performance of an individual.
Types of Budgets
Commercial Government

1.Operating Budget 1 Recurrent

Budget

2 Cash Budget

3.Capital Expenditure 2
Development Budget
Budget
BUDGETING TECHNIQUES/
APPROACHES
 Budgeting can be approached in different
ways or using various techniques.The
objective of these techniques is to
allocate resources. These techniques
include:

(i) Incremental budgeting

(ii) Input based budgeting
(iii) Zero based budgeting
(iv) Performance budgeting (or Output
budgeting)
APPOACHES TO BUDGETING
CONT’D

1. INCREMENTAL BUDGETING
Takes the previous year’s budget and
simply adds an increment (additional
amount) to each budget item. This
increment is usually related to the
inflation rate, population growth

ADVANTAGES
 Budgeting is quick and simple because it
is reduced to a technocratic exercise
 Increases in budgets are predictable
DISADVANTAGES

 Assumes current programmes

are functioning and should
continue at current levels
 Perpetuates inefficiencies
 There is no relationship between
inputs and service delivery
outputs
2. INPUT BASED APPROACH

Starts by looking at the resources available

and determining activities within the
constraints of those resources. The
activities selected may not be the most
effective but are viewed as the most
affordable

ADVANTAGE
Ensures compliance with conditions set out
in the appropriations, that is, it acts as a
control mechanism
DISADVANTAGES- INPUT BASED

 It stresses the inputs rather than outputs by

providing data on what government
consumes instead of data about what
government does or the purposes for which
money is spent
 prevents proper political choice amongst
objectives and the rational allocation of
resources.
 Leads to inefficiency and lack of
accountability on the part of the
departmental and programme managers.
3. ZERO- BASED BUDGETING APPROCAH

Budget is built up from a zero base every year

on the basis of clear justifications for all items
of expenditure.
Involves the:
1 determination of decision units
2 development of decision packages that describe
each decision unit
3 ranking decision packages at the operational
level of the organisation
4 consolidation of rankings at higher levels of the
organisation
5 allocation of funds.
Is a bottom-up approach
ADVANTAGES- ZBB
 Managers are forced to consider and
establish operational priorities
 Is an analytical or rational economic
approach as it ensures that the most
efficient methods are used to deliver
programme
 Allows for decentralised decision
making
 When there is a major shift in policy
it is useful to help set new baseline
DISADVANTAGES-ZBB
 A very time-consuming approach to
budgeting, probably not practical to
undertake it on an annual basis
 Intensive information not likely to be
assimilated by decision makers
 Does not recognise that certain
programmes probably do not need to be
costed from zero each year eg education,
health
 Even though the specification of inputs is
likely to be more accurate, it does not
create a direct link between budgets and
outputs
4. PERFORMANCE BUDGETING

 Links budgeting, strategic planning

and financial management i.e
integrates resources and financial
management into the management
process
 It enables analysis and allocation of
resources in terms of purposes to be
achieved and relating resources to
results i.e relates inputs to outputs
and outcomes in a complex
organisational context.
Steps involved in the
Performance Budgeting
1 Formulation of objectives and goals
of the organisation and
determination of priorities for the
attainment of goals and objectives
2 Determination of possible alternative
programmes and comparison of
these based on the effectiveness of
each to achieve objectives
3 Determining the efficiency of each
programme by relating total cost to
the total benefits
Performance Budgeting-
Steps (Cont’d)
4 Selection of the most effective
and efficient programmes,
integration into a comprehensive
programme and implementation

5 Review of actual performance

for control and for future
decisions and forecasts.
ADVANTAGES-PERFOMANCE
BUDGETING
 Provides a framework for accountability
 Provides opportunity for long range
planning
 Promotes an optimization of resources
 Provides opportunities to the programme
staff to give their inputs in the decision
making process
 Compels organisation self study and
analysis
 Promotes rational decisions
DISADVANTAGES- PERFORMANCE
BUDGETING

 It takes a long time to develop

the system
 Requires suitably skilled and
qualified staff to implement
 Implementation is costly and
time consuming
Key points to note about
techniques to budgeting
 Budgeting techniques are often not
mutually exclusive and tend to
overlap.
 All new projects, for example, will
rely on the ZBB technique as there
are no prior figures to build upon.
 A mix and match of approaches
might be an optimal way of taking
advantage of some of the various
approaches while reducing their
disadvantages.