THE ROLE OF BUDGETING IN THE MANAGEMENT OF PUBLIC INSTITUTIONS A STUDY OF IMO STATE MINISTRY OF FINANCE OWERRI

Abstract

The aim of this project is to address the role of budgeting in management of public institutions with emphasis on Imo state ministry of finance Owerri. It stresses the usefulness of budgeting and budgeting controls in government accountability. The major problems is the inability of organizations to plan and accomplish goals which can be traced to their inability to apply controls and accountability in the budgeting system. However, this administrative tool has hardly been used widely by the institutions and as a result the desired transformation or change which budget would have effected in the society has not been achieved.

This short coming in using the budget to actualize organizational goals has compelled the researcher to study the role of budgeting in the management of public institutions in Imo state.

CHAPTER ONE

                                        INTRODUCTION

1.1 Background of the study

Today, organizations put emphasis on planning, budgeting and monitoring of performance. They develop strategies and make plan to deliver. Without a strategic planning process, the budgeting process is the only formal vehicle for strategic thinking and planning. When the budgeting process takes into account everyone’s input and a thorough assessment of strengths, weakness, opportunities, and threats (SWOT), it becomes a true reflection of the organizational goals and work plan (David, 1999). The budgeting system is a traditional way of managing and controlling companies Bergstrand & Olve (2006). Organizations use the budget to plan and co-ordinate the following year (Arwidi, 2001). To motivate employees, allocate resources and coordinate operations within an organization are, and have been, the primary purposes of the budget. Budgeting is aimed to facilitate responsibility distribution and is used to evaluate performance Libby & Lindsay (2003). The life cycle of any business either private or public enterprise lie on its financial power, this entail the management of fund and scarce resource for the advancement of such enterprises. However, before a fiscal year begin such enterprise must draw out its business plan or programme in order to be able to utilize its fund effectively and efficiently for maximum productivity in all the department. It calls for planning and control of fund by the management all units or department must be able to utilize its fund effectively and efficiently for maximum productivity in all the department. It calls for planning all units or department must be able to determine precisely the necessary needs which will contribute to the growth and progress of the enterprise. This vital point will help the management to avoid spending unnecessarily on ideal matter but rather concentrate of matter that will yield interest. Nonetheless, budget serve as financial frame work designed to guide the operation of an organization for futuristic purpose, this helps the management to verify well before fund is released and to ensure that such fund is adequately utilize to achieve its proposed goals or objectives. This study is base on budgeting in the management of public enterprises or institution. Putting into consideration that all public or private enterprise deals with acquisition and use of material (Human and Equipment) which should be effectively and efficiently utilized more maximum output such task falls for planning and control. Budget have be described by different scholar in their own perspective and understanding, according to Henry (2006) he said that many to problems of public administration that concept budgeting have the longest and major impact on the fields of administration, impact on the field of administration. Also according Reed and Swain (2007) put it this way that public budgeting is concerned with the planned budgeting is concerned with the planned acquisition and use of resources by public entities and involves the decisions of what revenues to collect and what expenditure to make that is to say concrete decision must be reach in order to avoid great loss, management must be reach in order to avoid great loss, management must work toward achieving this both in human capital and material as well. However, budget has a great impact  on the behavior of public officer in Nigeria, according to Olewe (2005) states that every January in Nigeria Civil and public servant show particular kinds of interest about our security matters in various state precisely in the worth have no heading solution.  All these are sufficient indications that out national budgets all this years leave much to be desired looking at the words of Schick (2017) budgeting tends to grossly over estimates administration capacity to calculate programme effectiveness and vastly under estimate the important of political and technology constraints.  The views has been shared by the researcher as one of the major problems of budgeting in the public institutions it has been observed that the most public official have been unable to make the calculation needed for their respective department policies.  Also another scholar Obiekewe (2009) observed that our nations national house of assembly and senates do not have the analytical and staff capacities needed to properly analyze the president budgetary (supplementary) proposals required in order to develop worth while policy alternative within the whole, idea about budget in Nigeria boils down to certain factors which have contributed to non-executive of budget plan as it was stipulated and read to the hearing of all Nigerians, these can be attributed to poor man power and capacity, non-monitoring bodies, political dichotomy among public servant and about of internal democracy in our national house and representatives respectively.  Budgets as financial plans that set out anticipated revenues and estimated expenditures over a certain period of time have long been in use. Since their inception in the 1920’s, every serious company has made them the central part of their planning and control system. Their ability to coordinate the allocation of resources through internal communication while at the same time serving as a means of expenditure authorization and evaluation base has made them the most important tool that is at managers’ disposal today when running a company (Banovic, 2005). 2 A budget is a plan of financial operations embodying an estimate of proposed expenditure for a given period of time and proposed means of financing them. Budgets are financial expressions of plans prepared for an enterprise by managers during time period and for changing an organization and changing its physical facilities and capital structure Severe criticism and dissatisfaction towards the Budget have grown during the last decades (Libby & Lindsay, part 1:2003). Companies that operate under rapidly shifting market conditions can make little use of the budget. The budget is slow to detect problems and since unpredictable circumstances cannot be included in the budget, it tends to already be out of date when it is supposed to be used. Further, the budget accused of being too time consuming to establish in relation to the benefits it is aimed to contribute with (Hansen, et al., 2003). A survey made by Libby and Lindsay confirms that the budget does not facilitate adaption to changes in unpredictable environments. Hence, spending time on forecasting and planning the future can be completely useless (Hansen, et al., 2003). The research indicates that firms tend to adjust and improve the budget process and targets when meeting new challenges. In the article “Practice developments in budgeting: an overview and research perspective” by Hansen et al 2003 they refer to Bescos et al 2003 who describe that according to a survey of French companies, organizations that operate under unpredictable circumstances are most dissatisfied with budgets. Although budgets can be a useful control – tool for companies operating in stable environments, Hansen et al., 2003 state that for most businesses budgets are not useful.

1.2 STATEMENT OF THE PROBLEM

The success of any business organization rest upon its ability to adopt a well-organized budgeting and budgetary control system. Lack of budgeting system in planning and controlling has resulted in indiscriminate spending of scarce funds meant for use in viable projects and activities. The results in many problems for many organizations which include; Inability of the company to plan and accomplish goals which can be traced to their inability to apply controls and accountability in the budgeting system. Budgeting goals are not fully realized due to low level of understanding of middle and low level managements .Improper accountability of past jobs performed has resulted in management not being able to use past information to make proper and accurate budget for the future which leads to ineffectiveness and inefficiency .Improper coordination of various cost centres and information on job progress are delayed and this results in delay of prompt management decisions.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to examine the role of budgeting in the management of public institutions, a study of Imo state ministry of finance;

1. i) To examine the role of budgeting in the management of public institutions
2. ii) To examine the impact of budgeting in safeguarding internal control system

iii) To ascertain if there is any significant relationship between budgeting and effective management of institution

1. iv) To examine the effect of budgeting on financial control in public institutions

1.4 RESEARCH QUESTION

The following research questions were formulated by the researcher to aid the completion of the study;

1. i) Does budgeting play any role in the management of public institutions in Owerri?
2. ii) Does budgeting play any role in safeguarding internal control system in an organization?

iii) Is there any significant relationship between budgeting and effective management of institution?

1. iv) Does budgeting have any effect on financial control in public institutions?

1.5 SIGNIFICANCE OF THE STUDY

The study has a lot of significance in that it represent a symbol of academic achievement as having contributed to the already records of research in social science.  Again the study shall be useful to the colleagues of the research and the entire student of the field of management sciences as they shall resort to in their various works on the same topic of study in future. The research should be relevant to public administration in general and budget experts in various ministries and department as it shall assist them in carrying about their budgeting duties. Nonetheless our policy makers are not left out because it will help them in formulation and execution of policies in respect to budgeting.

1.6 RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study;

H₀: there is no significant relationship between budgeting and effective management of institution

H₁: there is a significant relationship between budgeting and effective management of institution

H₀: budgeting does not have any effect on financial control in public institutions

H₂: budgeting does have an effect on financial control in public institutions

1.7 SCOPE OF THE STUDY

The study covers the ministry of finance in Imo state Owerri. Members of staff of all cards of the ministry participated in the same way, all units of the ministry participated in the study. Descriptive analysis was applied in the study the study is a survey research.

1.8   Limitation of the Study

The research has encountered some difficulties in the course of the worker some of the them have been discussed below: most of the department units were not open to disclose some relevant information to the researcher. The staff claimed that disclosing certain information would be an offence.  A few of the respondents were not willing to fill the questionnaire while few of them even host their own copies. Some of the respondents also displayed non-certain attitude to the questionnaire this lead to asking questions in order to avoid collecting it. Time factor was another constrain, the space period to carry out the research has been limited for a more thorough job, more time would have been allowed. This researchers had to attend lecturers as well as attend other official duties as a civil servants. However, financial difficulties is not left out because information needed for this research requires going to the ministry in question in order to get al necessary information, payment for the photocopying of document, payment for the product of the question to mention but few.

1.9 THEORETICAL FRAMEWORK

Agency theory

The agency theory was developed by Jensen and Meckling (1976, cited in Mitzkus, 2013) who described the agency relationship as “a contract under which one or more persons (the principal(s) or entity owner(s)/shareholder(s)) engage another person (the agent or manager) to perform some service on their behalf which involves delegating some decision making authority to the agent” (Jensen & Meckling, 1976, p. 308). The main purpose of agency theory concerns determining the most efficient contract governing the principalagent relationship. Therefore, agency theory describes the conflict between managers and shareholders that arises when managers choose actions that are not in the best interest of shareholders in order to maximize their own utility (McDermott, 2011). This moral hazard problem is caused by the existence of information asymmetry between managers and shareholders and can result in managers choosing investments with negative net present value. The current study finds the agency theory relevant in explaining the effectiveness of budgeting as a management tool for organizational performance. In public institutions like the Imo state ministry of finance, managers and staffs act as agents for the owner of the institution which in this case happens to be the government. The managers are entrusted by the government to run these institutions on its behalf. Therefore, managers are mandated to formulate budgets and present to the government for funding. They are also required to publish the budget to all stakeholders in a transparent manner without any hidden selfish interest which may create the moral hazard in the public institution.

Contingency theory

The contingency theory (Otley, 1980) proposes that there is no single approach to budgeting suitable for all an organization. Instead, the suitability of a particular approach is argued to be contingent upon characteristics of a business including its size, strategy, structure, and also management’s perception of the uncertainty of the environment within which the business operates to best link the core functions of budgeting (coordination, motivation, outlook) (King, et al., 2010). Therefore, it is worth to argue that while budgeting, ministry of finance should not rely on one approach but rather adapt to different approaches in regard to the prevailing economic conditions.

 1.10 DEFINITION OF TERMS

Accountability

In ethics and governance, accountability is answerability, blameworthiness, liability, and the expectation of account-giving. As an aspect of governance, it has been central to discussions related to problems in the public sector, nonprofit and private and individual contexts.

Budget Negotiation

The process of arriving at mutual agreement on the provisions of a contract. The principle of negotiation applied in several contexts and situations

PPBS: Planning programming budgeting system which is a technique used to analyze activities in strategic terms

ZBB: Zero base budget which is a technique of evaluating from time to time the continued reference of ongoing programs

Public expenditure: It is the action or practice or laying out public money presumably in pursuit of public goals.

It is the process by which public money is consumed

 Reference

Adeneji, A.A. (2011), An Insight into Management Accounting. Lagos Value Analysis Publishers, pg. 379.

Anyigbo, C.I. (1999), Cost and Management Accounting, Enugu, Hugotez Publishers, pg. 196.

Baggot, J. (1985), Cost and Management Accounting Made Easy London, McDonald and Evans Ltd p. 125.

Bryman, A. (2001), Social Research Method, New York: Oxford University Press.

Broom, J.L. and Howard, L.R. (1975), Principles and Practice of Management Accounting, London, McDonald and Evans Ltd, p.82.

Cooper, D.R. and Schander, S.P. (2008), Business Research Method, 10th Ed.; New York, McGraw/Irwin.

Cooper, C. and Locke, E. (2000), Industrial and Organizational Psychology, Blackwell Business, Qualitative.

Gesswill, J.W. (1994), Research Design and Quantitative Approach, London, Sage Publications.

Deenscombe, M. (2002), The Good Research Guide, England, Open University Press.

Eneje, B.C. (2005), Cost Accounting Made Easy, Enugu: Computer Edge Publishers. 60 Eze, J.C. (2001), Principles and Techniques of Management Accounting, Enugu, JTC Publishers p.158.

Ezeugwu, V.U. (1999), Intermediate Accounting, Enugu,Hugotez Publishers. Foot, M. and Hook, C. (2005), Introduction to Human Research Management 4th ed.

Esseze, F7/Prentice Hall. Hussey, J. and Hussey, R. (1997), Business Research – A Practical Guide for Undergraduate and Post-graduate Students, London: Macmillian Business.

Ikpe, D.N. and Obah, G.S. (2004), Management Accounting An Introduction Test. Lagos, Masdoc Pub.

Jankoweez, A.D. (2005), Business Research Projects 4th ed. London, Thomson Learning. Kumar, R. (1999), Research Methodology,

A Step by Step Guide for Beginners, London, Sage Publishers. McQueen, R. and Knussen, C. (2002), Research Method for Social Science, An Introduction, Harlow: Pearson Limited.

Punch, K.F. (1998), Introduction to Social Research, Qualitative abnd Quantitative Approach, London, Sage Publications. 61

Strauss, A. and Corbin, J.M. (1997), Grounded Theory in Practice, Thousand Oaks, California, Sage Pub.

Saari, L.M. and Schneider, B. (2001), Going Global: Surveys and Beyond”, Professional Workshop Paper Presented at the Sixteenth Annual Conference of the Society for Industrial and organizational Psychology, San Diego CA

Related Project Topics :