The plan of action
regarding budgeting process
The budget process is safeguarded by the Ministry of Finance but various
other ministries and divisions take part.
In draw round, the procedure is as follows:
• Initial estimates of expenditure are submitted by spending ministries to MoF and copy to C&AG by October 31 each year. MoF then checks and amends these estimates and returns them to the controlling authorities with clarification. Final estimates take outline at Budget meetings between the controlling authorities and MoF in March/April. The final version of the Budget is presented to Parliament in June and approved within a month.
• a similar but less detailed process takes place with regard to the revenue side of the Budget, but critics have noted that non-tax revenues in particular receive less attention as evidenced by the losses of public sector corporations.
• the annual development plan is incorporated into the Budget by a separate process whereby the ADP is approved at the National Economic Council and then forwarded to the MoF for recasting as its “demand for grants”.
Cash (or cash flow) budgets are designed to forecast and organisation’s available cash resources over the short to medium term. The reasons to do this are to
• have warnings of times when insufficient cash is available to pay bills
• to be able to negotiate in advance with banks and other lenders for additional cash resources
• to ensure that cash management is optimised. For example it is poor management to have cash sitting in a current account earning no interest when it could be placed on deposit for 3 months earning say 5% interest.
• to see the effect on cash resources of increasing or decreasing production or changing other assumptions in the cash flow model
• to perform sensitivity analysis – which items in the model are most sensitive to small changes
In view of the above it is evident that Expenditure budgets are concerned with cost
behaviour (how costs vary for a certain degree of output) and also with cost control – whether actual costs are more or less than the budget and the reasons why they differ. Differences between budgeted and actual expenditure are known as variances. These might be positive. A number of schemes of describing cost behaviour have been suggested. Perhaps the most generally familiar is the theory of marginal cost which derives from economics and explains the behaviour of markets and pricing. Another approach which is popular with accountants is to classify costs according to their behaviour. The first distinction is between fixed and variable costs