BUDGETING AND BUDGETARY CONTROL IN GOVERNMENT OWNED COMPANIES A CASE STUDY OF N.N.P.C

  • Chapters:1-5
  • Pages:119
  • Methodology:Chi-Square
  • Reference:YES
  • Format:Microsoft Word
(Accounting)

BUDGETING AND BUDGETARY CONTROL IN GOVERNMENT OWNED COMPANIES
A CASE STUDY OF N.N.P.C

ABSTRACT

Budget and Budgetary control, both at management and operational level looks at the future and lays down what has to be achieved. Control checks whether or not the plans are realized, and puts into effect corrective measures where deviation or shortfall is occurring. The project was undertaken to determine the Budgeting and Budgetary control in government owned companies.

The Study was also restricted to Nigeria National Petrol um Corporation (NNPC). Data was collected through questionnaire. Investigation further revealed that in the event of deviation in the actual performance from what was budgeted, the management usually investigates into the cause of such deviation and thereafter corrective action taken.

TABLE OF CONTENT
Abstract
Table of content
Chapter One INTRODUCTION  
            Background to the study
            Statement of problem
            Objective of the study
            Significant of the study
            Scope of the study
            Research question
            Limitation of the study
            Definition of terms

Chapter Two      REVIEW OF LITERATURE
2.1    Concept of Budgeting
2,2    Types of Budget
2.3    Master Budget
2.4    Budget Administration
2.5    Budget Period
2.6    Advantages of Budgeting
2.7    Disadvantages of Budgeting
2.8    Budgetary Control
2.9    Objectives of Budgetary Control

Chapter Three   Research methodology
3.1    Introduction
3.2    Research Design
3.3    Sampling Procedure
3.4    Data Collection Method
3.4.1 Primary Data Source
3.4.2 Secondary Data Source      
3.5    Method of data analysis

Chapter Four     Data presentation and analysis discussion of results
4.1    Introduction
4.2    Analysis of primary data and hypothesis testing

Chapter Five Discussion of findings, conclusion and recommendations
5.1    Introduction
5.2    Summary
5.3    Discussion and Findings
5.4    Conclusion
5.5    Recommendations

References      
Questionnaires

CHAPTER ONE
INTRODUCTION
1.1     BACKGROUND OF STUDY

Budgeting is a familiar activity to many as it is practiced in our private lives as well as in business, government and voluntary groups. Ordinarily, one could say that satisfaction is best maximized when available alternatives, future opportunities, potential hazards, and targets or aspiration are considered before decisions or choice are made. In business the choices are much difficult and the outcomes far less certain. However, a budget should always be a realistic expectation and not just a hope. The reason is simple; it would be foolish for an average man to budget for a very big luxurious house, so would it be absurd for a producer to budget for what he cannot make or to produce what we cannot sell.

       What then is this act of budgeting?

A good number of authors have attempted to define the term ‘budget’ we shall however consider some of these definitions in the later part of this work but for the purpose of this introduction, we shall consider the general definition

       Briefly defined, a budget could be seen as a plan showing how resources will be required and used over a specific period of time. It represents a plan for the future expressed in quantitative terms. This definition however may seen over simplified, but it contains a general idea of the budgetary system. However, a more comprehensive definition of a budget will be considered in order to have an insight into the actual meaning of the term.

       The terminology of cost accounting published by the Institute of Cost and Management Accountants (ICMA) defines budget (1999;105) as

“A plan quantified in monetary terms prepared and approval prior to a defined period of time, usually planned income to be generated and or expenditure to be incurred during that period and the capital to be employed to attain a given objective”.

Individuals draw up household budgets for the entire family showing the sources of the family’s income and their day to day expenditure. In the same way, business be it an oil industry, manufacturing, serving and even government draw up their own budgets showing expected revenue and proposed expenditure for a given period of time.

No business remains of future events accurately need to be made. At least, part of what is to come can be foreseen. This should insure against any serious disasters that occur. Even if a forecast is wrong, at least it provides a basis for necessary adjustments hence budgets are kept flexible to accommodate change. A properly constructed operating budget is not a plan that show that will happen to achieve certain profit results. Such a plan breaks down the business into each unit, big enough to influence the total creating figure. It measures these units individually and regulates their actions and interactions to the profit goal.

The management of an organization normally sets objectives or goals, so that the organization clearly identifies what it wants to achieve in a future time period. These targets or goals may be quite different from different organizations. Budgeting therefore involves the setting of targets and monitoring of actual performance against the anticipated performance. It is a technique, which is highly used in business and which involves all levels of management and all functions of the organization.

Traditionally, budgeting was seen as a way of limiting expenditure, hence a great part of management’s time was usually spent on the allocation of fund. However, it has been expressed that budgeting today merely shows expected revenue and project expenditure.

The implies that a budget protects and controls the way management reacts to proposals brought before it, it must look present future cost as well as benefits of that proposal. In doing this it must not loose sight of the environment in which it operates. The same principles go with the preparation of a budget. In preparing a budget, management must realize that it is just a part of the economic system and as such can influence as well as be influenced by even is and activities within the economic system.

A number of controllable and uncontrollable factors do influence business in any company and management must study these factors in drawing up its budget. But because the uncontrollable aspects of these factors do not live within the hands of management, provisions must be made in the budget to allow for favourable and adverse factors depending on the state of the economy at any given time. It is this provision that inputs flexibility in budgeting flexible budget in the ICMA terminology as quoted by Joseph Baggot (1976:213) is

“One which by recognizing the difference in behaviour between fixed and variable cost relative to fluctuation in output and turnover is designed to change appropriately with such fluctuations”

Whereas a fixed budget still is ICMA technology as quoted by Joesph Baggot (1976:214) is one, which is designated to remain unchanged irrespective of the output or turnover actually attained’.

There are common budgets in every organization; capital and cash budget. This does not however, rule out the fact that other forms of budget do exist. Every organization has its own way of classifying the budget that it prepares some organization prepare sales budget, production budget, general and administrative budget, research and development budgets to mention but a few. These budgets could be short term, intermediate or long term.

The capital budget as the name implies indicate the naira amount of funds the company will devote to capital project for the subsequent year. It details the projects assets and activities in which the company will invest these outlays. The capital budget answer these four questions for management
a.          What are the long-lived asset needs of the firm?
b.          What capital fund will the firm need during the coming year?
c.           Who will be responsible for the expenditure?
d.          What optional sources of funds are available to the firm?

In capital budgeting, the profitability of each project has to be carefully evaluated, various techniques can be used to determine the profitability of a project, which include the net present value method, rate of return on investments, benefit/cost ratio method, etc. The technique used should be objective and capable of clearly indicating whether the project should be accepted or not.

The cash budget is a detailed financial forecast presented in a schedule showing cash flows (inflows and outflow) for a firm over a specific period according to J. Batty (1968:86) it is “The estimation of cash receipts and payment for a future plan after due consideration has been given to expected condition and the overall budget plan”.

The cash budget rather than being a budget in itself is derived from other budgets. It gives the financial highlight and takes into account the timing of receipts and payments. The important aspect of cash budget as indicated above is tuning. This is because management might not have tune to rally row for fund when there is liquidity problem and if management funds tune to seek for fund it may encounter the problem of cost and choice.

A decision not to plan cash inflow and outflow early enough for prudence could result to up limited choice of financial sources and high interest rate or opportunity cost of money.

The essence of any budget is to control expenditure and enable management carry out projects in order of importance; hence the budgeting process is seen as a way of improving management efficiency and performance in operations.

The foundation of a firm’s financial plan is a sales forecast or budget. The sales budget provides the source of information and guidance for drawing up other budgets. This is because the sales revenue shows how well a firm is performing or is expected to perform now and later. A good sales budget allows management enough financial caution for other expenditure of management on external sources of fund. Moreover, a good study of the pattern of sales revenue receipts will enable the firm draw up its cash budget for the purpose of liquidity and capital projects.

In drawing up a financial plan, management must set a standard for comparing actual performance with what was budgeted the idea behind this is to control the performance both in terms of production and cost incurred. This is what is called budgetary control; that is the use of budget to control firms activities. The terminology of the Institute of Cost and Management Accountants (ICMA) defines budgetary control (1999:124) as: “The establishment of budget relating the responsibility of executives to the requirement of a policy and the continuous comparison of actual with budgeted result either to be secured by individual action the objective of the policy or to provide a basis for it’s revision”.

It is essential to compare at regular intervals, actual with budgeted results or standard set to ensure that deviations from planned results are kept down to a minimum and that the necessary corrective actions re taken as soon as possible after investigation of such deviations. In some circumstances, it may be necessary to revise the target or goals set, but this should only occur in exceptional circumstances.

Conclusively, the basic concept of budgeting and budgetary control however entails the establishment of a goal by management that will guide it drawing up its budgets. It also involves the comparison of actual performance with the established standard or goal, and if any deviations occur, corrective actions will be taken after investigation into the cause, and then channeled onward as a corrective measure for future planning.    

1.2     STATEMENT OF PROBLEM
Planning and control is the essence of profit planning in any business organization and the budgeting system provides an integrated picture of the firm’s operation as a whole. All companies require for their successful operation and continuity in business, effective financial planning and control. Budget represents planning and control devices that involves management to anticipate changes and adopt them.

Business operations in today’s economic environment are complex and are subject to heavy competitive pressures. In such an environment many kinds of changes take place. The rate of growth of the economy as a whole, fluctuates and these fluctuations affect different industries in a number of ways.

A government owned company like the Nigerian National Petroleum Corporation (NNPC) which prepares budget for production, sales, capital expenditures, research and development etc is faced with these changing situations which are likely to affect its budget. These changing situations as related to the oil industry includes; fluctuations in oil price and production quota as regulated by the organization of Petroleum Exporting Countries (OPEC) and in fact government financial policies e.g. S.F.E.M.

How then do these companies adapt to these changes? This is one of the problem areas to be addressed by this research work.

The central feature of budgetary control is that of variance and this is the responsibility of individuals within the organization.
-             Does government own companies in the design of their budgets report variance to officers who have responsibility for them?
-             How are actual performances compared with established standards and are corrective actions taken after investigation into the cause of deviations (if any)?
-             Do government owned companies adhere to budgeting principles and requirements in the preparation of budgets?
-             Is there any relationship between budgeting and budgetary control in government owned companies?
-             Does budgetary control contribute to managerial efficiency and high productivity in government owned companies?

These are some of the questions this research work tend to answer.

1.3     OBJECTIVES OF THE STUDY
In carrying out this research work, the research intends to achieve the following objectives.
1.   Whether the attainment of organisational goal (rendering effective services) is a direct result of proper budgeting and  budgetary control practice in NNPC.
2.   The importance of budgeting and budgetary control in the activities of a NNPC. This includes the importance of the above in decision making.
3.   The implication  of annual budgets in NNPC.
4.   Examine the relationship between budgeting and budgetary control in government owned companies.
5.   Study the benefit of budgetary control in government owned companies.
6.   Examine the budgetary system and the realization of their policy objectives.

It is believed that an adherence to the recommendation as may be seen later in the study based on the findings of this research will act as a guide or tool and suggest polices aimed at rectifying the negative effects of the existing budgetary system on the general development of government owned companies.

1.4     SIGNIFICANCE OF STUDY

In general the study will be of great significance to lecturers, students, managers and financial analysts and particularly to the government and the general public. The government can basically, with the outcome of the study restructure and encourage effectiveness and efficiency of budgeting and budgetary control as a tool for managerial appraisal in its companies. This would reduce the cumulative effect is would have had on the nation’s troubled economy as is currently experienced.

The public individuals and institutions will on its part be relieved of the problems inefficient or ineffective budgeting since it is true that they constitute the major sources of these funds, if nothing it places the shareholders of commercial venture that seeing their investments being well utilized, budgeted and accounted for by management. The citizens and institution will regard their investment in the form of taxes paid to government as disbursed by offices at the help of affairs.

1.5     SCOPE OF STUDY

Budgeting and budgetary control is a vital issue in every organization whether profits oriented or otherwise. However, the researcher intends to study Budgeting and Budgetary Control of Government Owned Companies: A Case Study of NNPC.

1.6     RESEARCH HYPOTHESIS
The following Iiypothesis will be tested will this stuldy.
I.     Null Hypothesis  (H0): That budgets are effective means of planning organisational activities.
Althernative Hypothesis  (H1): Budgets are not effective means of planning organisational activities.
2.    Null Hypothesis  (H0):       Budget controls and aids management in decision making.
Althernative Hypothesis  (H1): Budget does not controls and aids management in decision making.
3.   Null Hypothesis  (H0):       Department heads are not properly educated on the budgeting and budgetary control system.
       Alternative Hypothesis  (H1)  That Departmental heads are properly educated on the budgeting and budgctary control system.

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Project Details

Department Accounting
Project ID ACC0020
Price ₦5,000 ($14)
Chapters 1-5 Chapters
No of Pages 119 Pages
Methodology Chi-Square
Reference YES
Format Microsoft Word

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    Project Details

    Department Accounting
    Project ID ACC0020
    Price ₦5,000 ($14)
    Chapters 1-5 Chapters
    No of Pages 119 Pages
    Methodology Chi-Square
    Reference YES
    Format Microsoft Word

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