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SECTION4(b) (xi) BUDGET AND BUDGETARY CONTROL
Introduction
1. A Budget is essentially a plan, a statement of expected results expressed in numerical terms. The process of reducing plans to definite numbers forces a kind of orderliness that helps the authority in bringing about co-ordination and effective control over different activities of an organisation. Co-ordination and control leads to methodical forecasts, setting up of some standards and targets. Such standards and targets form the yardsticks for measuring efficiency of various activities. Budget is thus the most effective device of managerial control. It is to plan work and work the plan. The latter is more important.
Essentials of a Budget
2. The use of the Budget as a planning as well as a control instrument has several implications. It should be based upon actual expectations rather than ideal goals. Basing on the performance of previous years and agreed targets of expected performances, taking into consideration the availability of the means of production, budget is made out in such broad details as could be worked out with as meticulous care as possible.
Technique/Procedure of Budgetary Control
3. The following technique/procedure is being used to make the budgetary control effective: -
(a) Funds in the budget are provided by categories of expenditure e.g. there are separate heads for Pay and Allowances of Military Personnel and Civilians. (b) Allotment of funds in the budget for one category of expenditure cannot normally be used for another category e.g. funds provided for Transportation charges cannot be used for miscellaneous expenses. (c) No items of public expenditure should be incurred unless provision exists to meet it in the sanctioned budget. (d) Provision of funds under a particular head does not constitute sanction to incur expenditure unless an authority vested with powers on his behalf by the Govt sanctions it. (e) Powers are vested in different authorities by Government to incur public expenditure only up to defined financial limits and periods. (f) The ultimate responsibility for seeing that expenditure does not exceed the corresponding budget allotment rests on the Head of the Establishment. (g) Budget is broadly divided into centrally and locally controlled heads. Control in respect of centrally controlled heads is exercised at Central Headquarters whereas in case of locally controlled heads allotment of funds is made to lower formations that are responsible to exercise control and to ensure that the expenditure does not exceed the allotment. (h) The controlling authorities at Headquarters are responsible for allotting funds under locally controlled heads. They make these allotments with the concurrence of financial authorities at the Headquarters, after keeping back a certain amount as reserve to meet any unforeseen calls from lower formations. (j) It is the responsibility of the authorities to which allotments are made to watch the progress of expenditure and to see that it does not exceed the allotments. In order to help the controlling authorities to exercise proper control over expenditure against allotments, the Controller of Defence Accounts notify the local controlling authorities by25 th of the month, following that to which they relate showing the serial numbers of claims admitted in audit and the amounts debited against the allotment. (k) Controllers of Defence Accounts are also responsible to watch progress of expenditure against sanctioned allotments and to bring to the notice of the allottees and the immediate higher authorities cases in which the progress of expenditure is, in their opinion, abnormally heavy or unusually low. (l) Where additional funds under a particular heads are required, an application in this regard has to be made to the Central Controlling authority, well in advance, explaining fully the reasons thereof. Similarly, where savings can be foreseen, surrenders are required to be made immediately, explaining the reasons thereof. (m) Saving under one head cannot be re-appropriated to meet excess expenditure under another head unless so authorised by DGQA HQ/Min of Defence.
Budget Heads
All expenditure relating to Defence Quality Assurance Organisation is debited to Major Head2076, Minor Head109. Detailed heads of accounts enclosed as
4. Funds are also allocated by MGO Branch, Army HQ under Head111 for procurement of stores/equipment that are required to be indigenised. These funds are allotted to the Technical Committees of DGQA against Sub Heads allotted to them.
5. Details of funds allotted to various heads and expenditure including to Tech Committees for last three years is enclosed as
Technical Committee
6. A Central Technical Committee has been formed at MOD, which controls, monitors and regulates the activities of all Technical committees in respect of locating sources of supply for Defence stores. It also assists the Central Tech Committee/MOD in vetting, scrutiny floating of tenders, procurement and all of its technical, administrative and financial aspects. It progresses the cases from the time of clearance/approval of procurement to finalisation of the supplies. The Technical Committees also look into the pre and post contractual obligations of the contractor/vendor and or the Department. After completion of supply orders by the vendor/contractor the Technical Committee issues the no-loss/no-inconvenience certificate where necessary. In case of loss/inconvenience, the Technical Committee assess levying of liquidating damages to be paid.
Following Technical Committees are functioning as on date: -
TCLES under Directorate of Electronic
The MGO Branch under Head111 is allotting the fund for Technical Committee.
Conclusion
Budget allotted under various Heads to an organisation is being utilized for the purpose for which it is meant. The expenditure incurred is being monitored for proper and timely utilization of the funds to avoid surrender/over expenditure. The amount expended during a financial year is also used as a yardstick for estimating future requirements of the organisation.
ORBUDGET
A budget is a plan expressed in quantitative, usually monetary term, covering a specific period of time, usually one year. In other words a budget is a systematic plan for the utilization of manpower and material resources.
In a business organization, a budget represents an estimate of future costs and revenues. Budgets may be divided into two basic classes: Capital Budgets and Operating Budgets.
Capital budgets are directed towards proposed expenditures for new projects and often require special financing. The operating budgets are directed towards achieving short-term operational goals of the organization, for instance, production or profit goals in a business firm. Operating budgets may be sub-divided into various departmental of functional budgets.
The main characteristics of a budget are:
1. It is prepared in advance and is derived from the long-term strategy of the organization.
2. It relates to future period for which objectives or goals have already been laid down.
It is expressed in quantitative form, physical or monetary units, or both.
Different types of budgets are prepared for different purposed e.g. Sales Budget, Production Budget, Administrative Expense Budget, Raw-material Budget etc. All these sectional budgets are afterwards integrated into a master budget, which represents an overall plan of the organization.
ADVANTAGES OF BUDGETS
A budget helps us in the following ways:
1. It brings about efficiency and improvement in the working of the organization.
2. It is a way of communicating the plans to various units of the organization. By establishing the divisional, departmental, sectional budgets, exact responsibilities are assigned. It thus minimizes the possibilities of buck passing if the budget figures are not met.
3. It is a way or motivating managers to achieve the goals set for the units.
4. It serves as a benchmark for controlling on-going operations.
5. It helps in developing a team spirit where participation in budgeting is encouraged.
6. It helps in reducing wastage and losses by revealing them in time for corrective action.
7. It serves as a basis for evaluating the performance of managers.
8. It serves as a means of educating the managers.
BUDGETARY CONTROL
No system of planning can be successful without having an effective and efficient system of control. Budgeting is closely connected with control. The exercise of control in the organization with the help of budgets is known as budgetary control. The process of budgetary control includes:
1. Preparation of various budgets.2. Continuous comparison of actual performance with budgetary performance.3. Revision of budgets in the light of changed circumstances.
A system of budgetary control should not become rigid. There should be enough scope of flexibility to provide for individual initiative and drive. Budgetary control is an important device for making the organization. More efficient on all fronts. It is an important tool for controlling costs and achieving the overall objectives.
INSTALLING A BUDGETARY CONTROL SYSTEM
Having understood the meaning and significance of budgetary control in an organization, it will be useful for you to know how a budgetary control system can be installed in the organization. This requires, first of all, finding answers to the following questions in the context of an organization:
· What is likely to happen? · What can the objectives to be achieved? · What are the constraints and to what extent their effects can be minimized? Having found answers to the above questions, the following steps may be taken for installing an effective system of budgetary control in an organization.
Organization for Budgeting: The setting up of a definite plan of organization is the first step towards installing budgetary control system in an organization a budget manual should be prepared giving details of the powers, duties, responsibilities and areas of operation of each executive in the organization.
1. Budget Manual: "A document which setout, inter alias, the responsibilities of the persons engaged in, the routine of, and the forms and records required for, budgetary control."
2. Web for obtaining the necessary approval of budgets, the authority of granting approval should be stated in explicit terms. Whether one, two or more signatures are to be required on each document should also be clearly stated.
3. Timetable for all stages of budgeting.
4. Reports, statements, forms and other records to be maintained.
5. The accounts classification to be employed. It is necessary that the framework within which the costs, revenues and other financial amount are classified must be identical both in accounts and the budget department.
There are many advantages attached to the use of budget manual. It is a formal record defining the functions and responsibilities of each executive.
The methods and procedures of budgetary control are standardized. There is synchronization of the efforts of all which result in maximization of the profits of the organization.
The responsibility for preparation and implementation of the budgets may be fixed as under:
Budget Controller
Although the chief executive is finally responsible for the budget programme, it is better if a large part of the supervisory responsibility is delegated to an official designated as Budget Controller or Budget Director. Such a person should have knowledge of the technical details of the business and should report directly to the president or the Chief Executive of the organization.
Fixation of the budget period
Budget period mean the period for which a budget is prepared and employed. The budget period depends upon the nature of the business and the control techniques. For example, a seasonal industry will budget for each season while an industry requiring long periods to complete work will budget for four, five or even larger number of year. However, it is necessary of control purposes to prepare budgets both for long as well as short periods.
Budget Procedures
Having established the budget organization and fixed the budget period, the actual work or budgetary control can be taken upon the following pattern:
STEPS IN BUDGETARY CONTROL
1. Organization for budgeting2. Budget manual + Theory
"A document which sets out, inter alias, the responsibilities of the persons engaged in, the routine of and forms and records required for budgetary control."
The budget manual is a written document or booklet that specifies the objectives of budgeting organization and procedures. Following are some of the important matters covered in a budget manual:
1. A statement regarding the objectives of the organization and how they can be achieved through budgetary control.2. A statement regarding the functions and responsibilities of each Executive by designation both regarding preparation and execution of budgets.3. Procedures to be followed for obtaining the necessary approval of budgets.4. The authority of granting approval should be stated in explicit terms.5. Whether one, two or more signatures are to be required on each document6. Should also be clearly stated.7. Timetable for all stages of budgeting.8. Reports, statements, forms and other records to be maintained.9. The accounts classification to be employed. It is necessary that the framework within which the costs, revenues and other financial amount are classified must be identical both in accounts and the budget departments.
There are many advantages attached to the use of budget manual. It is a formal record defining the functions and responsibilities of each executive. The methods and procedures of budgetary control are standardized. There is synchronization of the efforts of all which result in maximization of the profits of the organization.
Making a forecast
Consideration of alternative combination of forecasts: Alternative combinations of forecasts are considered with a view to contain the most efficient overall plan so as to maximize profits. When the optimum -profit combination of forecasts is selected, the forecasts should be regarded as being finalized.
Sales budget
Past sales figures and trend. The record of previous experience forms the most reliable guide as to future sales as the past performance is related to actual business conditions. However the other factors such as seasonal fluctuations, growth of market, trade cycles etc., should not be lost sight of salesmen's estimates. Salesmen are in a position to estimate the potential demand of the customers more accurately because they come in direct contact with the customers. However, proper discount should be made for over-optimistic or too conservative estimates of the salesmen depending upon their temperament.
Plant Capacity. It should be the endeavor of the business to ensure proper utilization of plant facilities and that the sale budget provides an economic and balanced production on the factory.
General trade prospects. The general trade prospects considerable affect the sales. Valuable information can be gathered in this connection from trade papers and magazines.
Orders on hand. In case of industries where production is quite a lengthy process, orders on hand also have a considerable influence in the amount of sales.
Proposed expansion of discontinuance of products. It is affects sales and therefore, it should also be considered.
Seasonal fluctuations. Past experience will be the best guide in this respect. However, efforts should be made to minimize the effects of seasonal fluctuations by giving special concessions or off-season discounts thus increasing the volume of sales.
Potential market. Market research should be carried out for ascertaining the potential market, for the company's products. Such an estimate on the basis of expected population growth, purchasing power of consumers and buying habits of the people.
Availability of material and supply. Adequate supply of raw materials and other supplies must be ensured before drafting the sales programme.
Financial aspect. Expansion of sales usually require increase in capital outlay also, therefore, sales budget must be kept within the bounds of financial capacity.
Other factors:
a. The nature and degree of competition within the industry; b. Cost of distributing goods; c. Governments controls, rules and regulations related to the industry; d. Political situation - national and international as it may have an influence upon the market.
The sales manager, after taking into consideration all these factors, will prepare the sales budget in terms if quantities and money, distinguishing between products, periods and areas of sale.
