Budgeting In Public Sector Economy
(Case Study Of Enugu State Government)
Budgeting in the public sector economy is a complex process that involves the allocation and management of financial resources to meet the diverse needs of society. Unlike in the private sector, where profitability is the primary goal, public sector budgeting focuses on achieving social welfare objectives, such as providing public goods and services, promoting economic stability, and addressing income inequality. This process typically involves various stages, including revenue estimation, expenditure prioritization, and performance evaluation, all of which are subject to public scrutiny and accountability. Effective budgeting in the public sector requires careful consideration of competing demands, transparency in decision-making, and adherence to fiscal responsibility principles to ensure the efficient and equitable use of taxpayer funds.
The purpose of the study is to determine the effect of budgeting on the economic development of the state to determine the factors which account for the difference between the capital expenditure and the recurrent expenditure and to take an overview of the analysis of the relationship between estimated and actual expenditure in the last five financial years. The study is aimed at improving budgeting as an effective tool for financial planning and control in the state public sector. Some of the problem associated with this study include , ascertaining whether the budget is usually prepared aimed at realizing the states objectives or if the budgets and make them look ambitious why are budget bigger or smaller over the year? What account for deficits or surplus budgets?
Five years consolidated financial statement of estimates of Enugu state of Nigeria , approved revenue estimated , actual revenue and revised revenue estimates. The instrument of data collection was a structured questionnaire and it was self-administered. The data so collected was put in a form that allowed for easy comparison.
The findings reveal the “call circulars” are issued in July and that the “estimates committee” is the only body charged with reviewing proposals from every ministry and government bodies. The state has not adopted the planning programming and budgeting system [ PPBS]. The states major source of revenue are the federation account and states internal revenue though the states share of the federation account is received monthly , it is received short of the expected revenue. It was also found that while the civilian budget was mostly done at a deficit, that of military government is either a balanced one or a surplus one.
The implication of this findings for budget preparations ,revenue control and budgeting techniques , measurement and assessment are discussed. Some recommendations are made regarding how budgeting can be improved to help check the up- surge of recurrent expenditure and improving the internally generated revenue.
Title page
Approval
Dedication
Acknowledgement
Abstract
CHAPTER ONE
1.0 INTRODUCTION
1.1 Objective of the study
1.2 Purpose of the study
1.3 Significant of the study
1.4 Statement of the hypothesis
1.5 Limitation of the study
1.6 Scope of the study
1.7 Definition of terms
CHAPTER TWO
2.0 REVIEW OF RELATED LITERATURE
2.1 The historical literature framework
2.2 Revenue allocation formula in Nigeria
2.3 Enugu state budgeting
CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 Source of data
3.2 Primary source of information
3.3Secondary source of information
CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS
4.1 Data analysis
4.2 Test of hypothesis
CHAPTER FIVE
5.0 SUMMARY OF FINDING, CONCLUSION, AND RECOMMENDATION.
5.1 Findings
5.2 Conclusion
5.3 Recommendation
Bibliography
Appendix: questionnaire.
INTRODUCTION
In his budget of December 23, 2003 presented the year 2004 budget, there the governor of Enugu state governor CHIMAROKE NNAMANI said that the thrust of the 2004 budget is poverty reduction of the people. The state government appreciated the dangers of delaying OF delaying the narrowing of gay between the tow socio-economic order ,the rich and the poor so as to provide equal footing for both .
For proper integration of social and economic environment in the state ,it has become imperative to reduce unemployment and poverty in the state to the barest minimum . For us in Enugu state it meant drastic reduction in personnel cost ,recovery of government funds and properly filtered away during the civilian administration ,increase in internal revenue generation ,judicious spending and accountability . Though ,a budget can be prepare simply on the basis of what was done on the pervious year ,adjusted for any change in condition or scope of the activity that may be anticipate for the coming year, a soundly conceived budgetary plan should be such that will simulate the executive to take a more critical view of his own operation .
The fundamental difference between the public sector and private sector is that the later is organics and operated to make a profit for its owner while the former exists to provide services to its citizens substantially on a non-profit basis . The Enugu state Annual Budget like any other state in the federation consists of tow segments: the recurrent expenditure and the capital expenditure .However the drastic collapse in oil revenue over the year is one factor that has seriously affected state budgets .Also the recent federal government ban on the state from securing loan from external or internal sources and the heavy dependence on imports for essential raw material spare parts and capital goods has continued to affect the state budgeting . Others include unacceptable high rate of inflation and unemployment ,low productively ,and an adverse debt repayment position .it is this state of affairs that made Enugu state government to adopt the following strategies to achieve the derived goals .
A} Maximization of internal revenue by improving the revenue collection machinery and policies .
B} judicious management of expenditure so as to conserve scare fund .
C} concentration of attention on the execution and completion of some selected project in the various sector ; thereby avoiding the used mistakes of preaching scarce resources thing over tow many project and achieving little or nothing .
1.1 OBJECTIVE OF THE STUDY
The study aims at collecting quantities information on budgeting control measures. Data generation from such information are essential for :
(A) providing a base and framework for improving the quantity and quality of current budgetary control statistics
(B) planning problem ,formulating and appraising the budgeting techniques of the public sector .
(C) The measurement and assessment of the contribution of the role of budget in the economy of the state .
(D) Budget implementation committee .
1.2 PURPOSE OF STUDY
THE PURPOSE OF THE STUDY IS TO:
(A) To take an overview of the a analysis of the relationship between approved estimates and actual expenditure in the last five financial year ,and whether there is a wide or narrow gab between financial provision in the budget and what was achieved and to draw conclusion from such analysis .
(B)To determine the factors which account for the difference between the capital expenditure and the recurrent .
(C) To determine the effect of budgeting on the economic development of the state .,
1.3 SIGNIFICANCE OF THE STUDY
The study will contribute toward improving the budgetary planning control techniques in Enugu state .
Thy study will also help the state government a technique for effective financial contor and control over revenue collection .The study will enable the government and the ministries broaden their understanding of the role of budgeting as a planning and control device in the public sector .This could be done by allowing the respective ministries ,Parastatals corporation etc .have second look at their budgeting techniques .
1.4 STATEMENT OF HYPOTHESIS
For the purpose of this research work the following assumption were made in order to employ a scientific approach to the recitations of the following hypothesis were analyzed.
1 HO: There is no effective budgeting in public sector economic .
HI :There is effective budgeting in public sector economy ,
2 HO internal revenue generation is not effective in the public sector economy .
HI ! internal revenue generation is effective sector economy .
1.4 LIMITATION OF THE STUDY
The finding of the study and generalization are limited to Enugu state of Nigerian . Due to time and financial contract it will be wrong to claim that the findings are exhaustive and conclusive as far as this subject is concerned .
Another limitation is that the researcher relied entirely on data from Enugu state official gazette ,previous budget proposal AND speeches of pass head of government of Enugu state ,journals and past student publication and this is therefore the only means of acerbating validity and reliability .
However ,these sources can only provide quantitation information about budgeting but could not be a good guideline to behavioral implication of budgeting .
Also during the data collection provides the respondents were not variable in their offices and several visit had to be made before the interview and questionnaires could be administered .The interview had the tendency not to talk about their areas of difficulties and showed little interest in the other ,thus to there night have been some falsification of information .
1.6 SCOPE OF THE STUDY
The scope of the study is that in public sector economy in Nigerian consist :-
(A) The government Parastatals partly or completely financed by the government Parastatals operate in some private sector fashion , government presence coming only in the from of control ,directive and subvention .E.G mass transit services of state an local government rural electrification bounds , state housing corporation .
(B) The federal government visit its ministries ,department and agencies like, INEC, NDE ,NBTE ,NUE, ETE .
(C) The state government represented by its ministries and departments.
(C) The local government .
1.7 DEFINITION OF TERMS
In this study certain term are to be used and whenever it found are to be given the following meaning: –
(A) THE FEDERATION ACCOUNT
It is the distributable pool account into which all revenue collected by the federal government departments or an authority by the states on behalf of federal government.
(c) EXCLUSIVE REVENUE OF THE FEDERAL GOVERNMENT
Federally collectable revenue is made up of two disproportionate parts. The first and often the smaller parts is the revenue which accrues exclusively to the federal government from its own independent sources such as from income tax of the personnel for the armed force of federation of the Nigeria police force the ministry of external Affairs and residents of the federal capital territory , Abuja. The second and is whatever that is not included in the first part above.
CONCLUSION REVENUE
It is a special fund into which all revenue and money receivable by the federal government is paid. Except in some few cases where some revenue are received into some other funds like capitals receipt into the capital development fund.
CONTINGENT REVENUE
Contingent revenue or contingencies fund could be defined according to sector 15 {1} of the constitutional Amendment order 1958 provided that a sum of one million pounds be transferred from the consolidated Revenue fund for its creation in 1958 .This amount is set aside to take care of unforeseen expenditure
And is operated by the issue of a warrant . if the contingences for which the fund is provided do not arise within the financial year under review ,the fund relents to the consolidated revenue fund at the beginning of the financial year .The and any other unspent revenue form what is generally termed consolidated revenue fund “surplus ‘.
REVENUE ALLOCATION FORMULA
It is a model indicating the proportion into which the distributable pool account is to be divided between federal and state governments .
GOVERNMENT OPERATION
These operation do not resemble commercial activities .Thy include providing primary services financed from tax revenue .Example are Education ,public safety , judiciary ,social services and Administration .
PROPRIETORY OPERATION
Proprietary operation resemble commercial activities .Usually financed wholly or partially from used changed ,these operation may be considered secondary services . Example are utilities ,public transportation ,parking facilities .proprietary usually have the objective of earning a profit or recovering operational cost .
CAPITAL BUDGETS
These are long range budget often prepared for particular project . E.G Road construction companies etc .
CAPITAL PROJECT FUNDS
These are fund designed to be used for the acquisition of construction of major capital facilities {other than those financed by proprietary fund ,special assessment fund and trust funds }.
BUDGET COMMITTEE
The budget committee is a group of representatives of various function in the public sector who have been brought together for the purpose of :-
_ Receiving and reviewing budget estimate form the respective department or division .
_ Recommending decision on budget matter where there may be conflicts between department or divisions .
_ Recommending change an approval of revised budgets .
_ Receiving studying and analysis periodic report and comparing the budget with the actual performance .
_Considering and making recommendation for revision of the budget when warrant .
PLANNING PROGRAME AND BUDGETING SYSTEM.
This is a system of budgeting introduced by the united state department of defiance that was intended to improve the existing system by concentrating on the output of the department ,improving the pre-allocation budgeting together with quicker estimates of requirement and looking further ahead than just one or two year ,the planning, programe and budgeting system {PPBS}requires that the objective of the organization be clearly defined ,and that all feasible alternative means of achieving this objective be considered and a cost beefiest analysis done to choose the most effective alternative .
RECURRENT EXPENDITURE.
These may be defined as the working capital of the government . it is the expenditure set aside for satisfying on –going activities of the state during the budget period ,[example ,the payment of salaries ],while capital expenditure is said to be the contraction of roads , bridges the provision and redemption of capital “etc-and for the completion of existing capital projects .
ADVERSE VARIANCES
Adverse variance occurs when the actual budget is greater than the planned or approved estimates .
FAVORABLE VARIANCE
Favorable variances occur when the actual budget is less than the planned or approved estimates .
Budgeting In Public Sector Economy:
Budgeting in the public sector is a critical process that involves planning, allocating, and managing financial resources to achieve the goals and objectives of government entities. It’s a complex and highly regulated process that differs from budgeting in the private sector in several ways. Here are the key aspects of budgeting in the public sector economy:
- Transparency and Accountability: Public sector budgeting is characterized by a high degree of transparency and accountability. Governments are accountable to their citizens, and the budgeting process must be open and accessible to the public. This often includes public hearings and consultations.
- Multi-year Budgets: Many governments adopt multi-year budgeting cycles, typically spanning three to five years. This allows for longer-term planning and better alignment with policy goals.
- Legal Framework: Public sector budgets are typically governed by laws and regulations that outline the budget process, responsibilities, and reporting requirements. In some countries, the constitution may even require a balanced budget.
- Revenue Sources: Governments rely on a variety of revenue sources, including taxes, fees, grants, and borrowing. The budget must detail these revenue streams and how they will be collected and allocated.
- Expenditure Categories: Public budgets are typically divided into various categories, including operating expenditures (day-to-day expenses like salaries and supplies) and capital expenditures (investments in infrastructure and assets). There may also be specific allocations for different programs or departments.
- Performance-Based Budgeting: Some governments adopt performance-based budgeting, where funding is tied to the achievement of specific outcomes or performance metrics. This approach emphasizes results and efficiency.
- Contingency and Reserve Funds: Public sector budgets often include contingency and reserve funds to deal with unexpected events or emergencies. These funds are set aside for specific purposes, such as disaster relief or economic stabilization.
- Debt Management: Public sector entities often need to borrow money to finance capital projects. Budgets should include provisions for servicing debt and managing liabilities.
- Accounting Standards: Governments typically follow specific accounting standards, such as Generally Accepted Accounting Principles (GAAP) or International Public Sector Accounting Standards (IPSAS), to ensure consistency and transparency in financial reporting.
- Auditing and Oversight: Independent auditing bodies review public sector budgets to ensure compliance with laws and regulations. This provides an additional layer of accountability.
- Political Considerations: Public sector budgets are often subject to political negotiations and compromises. Elected officials, including legislators and executives, play a significant role in shaping the final budget.
- Monitoring and Reporting: Continuous monitoring and reporting are crucial in the public sector to ensure that the budget is being executed as planned. Regular financial reports are published to inform the public and stakeholders about budget performance.
- Public Participation: Many governments encourage public participation in the budgeting process through public consultations, feedback mechanisms, and citizen engagement initiatives. This fosters a sense of ownership and accountability among citizens.
- Economic and Fiscal Policy: Public budgets can be tools for implementing economic and fiscal policies, such as inflation control, economic stimulus, and income redistribution.
- Long-Term Sustainability: Governments must also consider the long-term sustainability of their budgets, particularly with regard to issues like pension obligations and healthcare costs.
In summary, budgeting in the public sector is a complex process that involves multiple stakeholders, legal and regulatory frameworks, and a strong emphasis on transparency, accountability, and the achievement of public policy goals. It plays a critical role in shaping the economic and social landscape of a country or region.