Role Of Budgeting In The Public Sector Of The Economy
(A Case Study Of Nkanu West Local Government Area)
Budgeting plays a crucial role in the public sector of the economy, serving as a vital tool for effective financial management and resource allocation. In the context of government operations, budgeting is the process of planning, estimating, and allocating financial resources to various public programs, services, and projects. It helps government entities prioritize their spending based on the identified needs and objectives, ensuring that resources are allocated efficiently and in alignment with public priorities. Additionally, budgeting in the public sector promotes transparency and accountability, as it provides a clear overview of how taxpayer money is being utilized. The budgeting process involves input from various stakeholders, including citizens, to incorporate diverse perspectives and address the diverse needs of the population. Moreover, a well-structured budget facilitates monitoring and evaluation of government performance, enabling timely adjustments and improvements in resource utilization for the benefit of the community.
This research work was carried out on the Role of Budgeting in the public sector of Nigerian Economy with particular reference to Nkanu west Local Government Area. This study is divided into five chapters, each dealing with particular aspect of the study.
Chapter one covered general introduction and overview of the subject including the statement of problem which is the fact that budget are made for development projects in the Local Government every year. But this development projects is the Local Government Projects in the Local Government are not fully executed. It also include the objective of the study which is to ascertain how far the Local Government adheres to its approved budget estimates a formulation of the hypothesis which include that the activities of the budget review committee is responsible for poor budget formulation and implementation in Knanu West Local Gov. Area. The chapter also dealt on the limitation of the study which include the fact that the researcher found it very difficult to obtain the approved budget estimate of the Local Government Area for this year.
Chapter two dealt on the review of related literature on the subject matter. The subject of chapter three was research methodology which describe the research population and sample, source of data, instrument for data collection which are oral interview and questionnaire, method of data analysis which is through the use of chi-square.
Chapter four was on the presentation and analysis of data. Data collection were critically analyzed and discussed relative to the problem stated in chapter one. The data collected upheld the hypothesis.
Chapter five was on the summary of the findings, recommendations which include that top management should display its total commitment to the success of each budget from its planning to the implementation. It was concluded that when budgets are made, they are supposed to be adhered to and ensure that it acts as a guide to management.
Title Page II
Approval Page III
Dedication IV
Acknowledgement V
Abstract VII
List of Table
Table of contents IX
CHAPTER ONE
1.1 Introduction 1
1.2 Statement of problem 5
1.3 Objective of study 6
1.4 Research hypothesis 7
1.5 Research questions 8
1.6 Significance of the study 9
1.7 Scope and Limitation of the study 9
1.8 Operational definition of terms 10
CHAPTER TWO
2.0 Review of related literature 13
2.1 History of budgeting 13
2.2 The concept of budgeting 15
2.3 Types of budgeting 20
2.4 Techniques of budgeting 26
2.5 Budget preparation 30
2.5.1 Principal/key Limitating budget factor 31
2.5.2 The manual and Time Table 33
2.5.3 The budget committee 35
2.5.4 The budget process 36
2.6 Administration of budget 38
2.7 Human factors in budgeting 40
2.8 Relevance of review to the study notes 43
2.9 Budgeting Techniques use in Nkanu West LGA44
CHAPTER THREE
3.0 Research Methodology 49
3.1 Population and sample 49
3.2 Source of data 50
3.3 Instrument for data collection 51
3.4 Distribution and collection of questionnaire 52
3.5 Method of data analysis 53
CHAPTER FOUR
4.0 Presentation and analysis of data 56
4.1 Presentation of data 56
4.2 Data analysis 57
4.3 Testing of hypothesis 67
4.4 Summary of data analysis 71
CHAPTER FIVE
5.0 Summary of findings, Recommendation and Conclusions
5.1 Summary OF Findings 80
5.2 Recommendation 82
5.3 Conclusion 85
Bibliography 87
Appendix A 88
Appendix B 90
INTRODUCTION
The practice of budgeting is as old as modern
civilization and is central to effective management of lean resources. Its principles are applicable both in the private and public sector. Business environment is characterized essentially by uncertainties these uncertainties can reduce the business profit opportunities. If the management can look into the future in order to see area where problem are likely to occur, suspected uncertainties can be taken care of. We inquire into the future with predictions which tends to reduce the future uncertainties. The economic environment is filled with foreseeable and unforeseeable events. These events in the economic environment are built in the budget. Budget is futuristic and because of this, those who make the budget try to look into the future when making it.
In economic theory, resources are said to be scarce and have to be employed prudently to achieve maximum benefit. Budget provides a rational and objective basis for allocation of scarce resources in an economic. With so many competing needs and lean resources the discipline of budgeting compels people in charge to be discrete in allocation limited resources to meet unlimited expenditure possibilities. This does not suggest the absence of sentimentality and not irrationally but at least thee are minimized.
Planning in the public sector is essential control on the other hand is virtually inseparable from planning because control standard arise from plans, which are consistent with objectives, translated into convenient stages for measurement and perhaps, resultant corrective action. Control is inseparable from planning as control standards arise from plans which must be consistent with objectives, translated into convenient stages for measurement and resultant corrective action if any.
Section 81 (1) of the 1999 constitution off the Federal Republic of Nigeria states that “the presedent shall cause to be prepared and laid before each House of the National Assembly at any time in each financial year estimates of the revenue and expenditure of the Federation for the next financial year. The requirement remains the same in state government, organization and enterprises, that estimates of revenue and expenditure for each financial year have to be prepared.
In the light of wide acceptance of budget by managers both in the public and private economic, various school of though view differently. In the words of Hand 1985, budget is viewed as, “A plan quantified in monetary terms, prepared and approved price to a defined period of time, usually showing planned income to be generated and/or expenditure incurred during that period and the capital to be employed to attain a given objective. Here budgeting is viewed as a planning tool. Budget can also be views as a control tool. Nwoko 1988 is of the view that “Budgeting are not more intention, they are prudent, honest, painstakingly assembled plans for future actions which then act as a guide for performance”. According to Anyawu (1992) “Budgeting is generally regarded as the process of formulating into a plan as the process of formulating Into a plan all estimates of income and expenditure of an organization for the financial year with the ultimate intention of using it to direct, co-ordinate and control the activities of all persons involved in achieving the objectives of the organization as contained in the budget”. In the words of Mr. Ani, Wilson, A budget is a plan of financial operation embodying an estimate of proposed expenditure for a given period and the proposed means of financing and income heads, so that if could be used as a means of controlling the actual process of generating income and incurring expenditure under the relevant income and expenditure heads. in Government system, the budget focuses on anticipated income from both internal and external sources and expenditure of goods, services and personal emolument. Having seen the vast and important roles played by budgeting in both public and privates sectors of the economy, the researcher aimed at evaluating these roles played by budget in Nkanu West Local Government Area. Nkanu west Local Government Area is one of the Local Government Area in Enugu State of Nigeria. It has 32 (thirty two) communities including Agbani, Amodu, Awkananaw, Amuri, Umueze 1, Obuofia, Nomeh, Amechi, Idodo, just to mention but a few. The researcher wants to know the extent to which the local government adheres to and guided by its budget.
1.2 STATEMENT OF PROBLEM:-
Every year as it now applies to Nigeria, the government makes her annual budgets. In it, if estimates how much that will come into the purse (revenue) and how much that will be spent for the period. The state and local government are not left out. They also make their own budgets. This not withstanding, it is formal on Nigeria for the local and state governments to obtain government subventions and subsidies or some other forms of assistance from the Federal Government yearly.
This study entitled “Role of budgeting in the public sector of the Nigerian economy” tries to look into the roles, process and system of budgeting in various local government with particular reference to Nkanu West Local Government Area. In the budget at hand, it can be seen that budget were made for the provision of public utilities such as water, electricity good transport systems and communication. It can equally be seen that some of the communities have developed more than others while citizens play their civic duties to the local government especially in public sector management especially in Nkanu west local government area. This study is aimed at finding out how far the Local Government put its budgets into practice.
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is:-
1. To examine the organizational structure, the management and the financial tools of Nkanu West Local Government Area.
2. To ascertain whether the Local Government Area strictly adhered to budget being seen as mere estimates whose purpose and usefulness expire no sooner than they are drawn up.
3. How far ineffective budget has adversely affected the performance of the Local Government Area.
4. To afford the reader a better understanding of the budget and government policies so as to be in a position of criticize government action objectively.
5. To analyse critically the budget statement of the Local Government Area from 1992 to 1999 with regards to their content and output.
6. The offer useful suggestion and recommendation where necessary.
1.4 RESEARCH HYPOTHESIS
1. HI:- Budgeting is indispensable to public sector management.
Ho:- Budgeting is not indispensable to public sector management.
2. Hi :- The activities of the budget review committee is responsible for poor budget formation and implementation.
Ho:- The activities of the budget review committee is not responsible for poor budget formation and implementation.
3. Hi:- Budget indiscipline is the cause of incremental budgeting in Nkanu West Local Government Area.
Ho:- Budget Indiscipline is not the cause of incremental budgeting in Nkanu West Local Government Area.
1.5 RESEARCH QUESTIONS
1. Oo budgeting plays any positive role in public sector administration.
2. How far has the ineffective budgeting adversely affected the performance of the local government?
3. Does the local government strictly adhere to budget being seen as mere estimates whose purpose and being seen as mere estimates whose purpose and usefulness expire no sooner than they are drawn up
4. What is the organizational structure of Nkanu West Local Government Area?
1.6 SIGNIFICANCE OF THE STUDY
It is aimed that at the completion of this work, it will help those who have not been opportuned to see a budget statement, method of preparation and execution to be aware of it. Though much attention will be paid to Nkanu West Local Government Area in particular.
For the future researchers, the work will be useful and helpful to them because they can make reference to it as they carry out their own work. Even present researcher’s difficulties is lessened because guidelines on this topic was given to me.
1.7 SCOPE AND LIMITATION OF THE STUDY
Scope:- The study aims to determine the role of budgeting in Nkanu West Local Government Area. The period over which this study is having a detailed look is as from 1994 – 1998.
LIMITATION:- In the course of the study the researcher was not able to lay hands on approved budget estimates of the Local Government Area from 1994 to 1996. The reasons being that the staff in charge of the approved budget estimates could not be reached the researcher did all she could but could not get them.
Therefore was a lot inco-operation from the officers in Nkanu West Local Government Area and this severely limited the depth and quality to this study. A lot of money was spent on transportation, books and production of this project. Despite these constraints, I am very confident that the study would reliability.
1.8 OPERATION DEFINITION OF THE TERMS
1. Budgeting:- A plan of financial operation embodying an estimate of proposed expenditure for a given period and the proposed means of financing them.
2. Incremental budgeting:- Here, certain percentage is placed over the previous years budget.
3. Budget Committee:- Budget committee is composed of executives in charge of major functional area of business.
For effective and efficient performance of the committee some form of collective responsibility is desirable to ensure realistic planning, co-ordination and ensure control. In some companies, the management committee will also function as the budget committee.
Role Of Budgeting In The Public Sector Of The Economy:
Budgeting plays a crucial role in the public sector of the economy. It is a fundamental tool for governments at all levels (local, state, and national) to plan, allocate resources, and manage their finances effectively. Here are some key roles and functions of budgeting in the public sector:
- Resource Allocation: Budgets help governments allocate limited resources to various programs and projects. This allocation is often guided by the government’s priorities and the needs of the public. It ensures that funds are distributed to areas where they are needed the most.
- Policy Implementation: Budgets are a means to translate government policies and objectives into concrete action plans. They provide the financial framework to implement and achieve the goals and promises made to the public.
- Fiscal Discipline: Budgets impose fiscal discipline by setting spending limits and revenue targets. This helps governments avoid overspending and accumulating excessive debt, which could have long-term negative consequences for the economy.
- Transparency and Accountability: Public budgets are usually open to scrutiny by the public, media, and various oversight bodies. This transparency fosters accountability and allows citizens to assess whether their tax dollars are being used efficiently and effectively.
- Long-Term Planning: Budgets can incorporate long-term planning by outlining multi-year expenditure and revenue projections. This is particularly important for addressing issues like infrastructure development and pensions.
- Resource Management: Budgets help governments manage their resources efficiently. They provide a framework for tracking expenses, revenues, and the overall financial health of the government.
- Prioritization: Budgets force governments to prioritize their spending. This means making tough decisions about which programs to fund and which to cut or reduce. It ensures that resources are channeled into areas of greatest need or benefit.
- Economic Stability: Public budgets can play a role in stabilizing the economy during times of recession or inflation. Through fiscal policy, governments can adjust their budgets to stimulate or cool down economic activity.
- Allocating for Contingencies: Budgets can allocate funds for unexpected events or emergencies, such as natural disasters or economic crises. This allows for a more effective response when such events occur.
- Monitoring and Evaluation: Budgets are not static documents; they are used as tools for ongoing monitoring and evaluation of government programs. This allows for adjustments and improvements based on actual performance.
- Equity and Social Justice: Budgets can be used to address social inequalities by allocating resources to programs and initiatives aimed at improving the lives of disadvantaged groups.
- Debt Management: Public budgets include provisions for managing and servicing government debt. Effective budgeting helps control debt levels and ensures that debt obligations can be met.
In summary, budgeting is a critical function in the public sector as it guides the allocation of resources, supports policy implementation, ensures fiscal responsibility, and promotes transparency and accountability. It plays a vital role in achieving the government’s goals while managing the financial health of the public sector.