Question

Patricia Eklund, controller in the division of social services for the state, recognizes the importance of the budgetary process for planning, control, and motivational purposes. She believes that a properly implemented participative budgetary process for planning purposes and an evaluation procedure will motivate the managers to improve productivity within their particular departments. Based upon this philosophy, Eklund has implemented the following budgetary procedures.

• An appropriation target figure is given to each department manager. This amount is the maximum funding that each department can expect to receive in the next year.

• Department managers develop their individual budgets within the following spending constraints as directed by the controller’s staff.

*Expenditure requests cannot exceed the appropriation target.

* All fixed expenditures should be included in the budget. Fixed expenditures would include such items as contracts and salaries at current levels.

* All government projects directed by higher authority should be included in the budget in their entirety.

The controller’s staff consolidates the budget requests from the various departments into a master budget submission for the entire division.

• Upon final budget approval by the legislature, the controller’s staff allocates the appropriation to the various departments on instructions from the division manager. However, a specified percentage of each department’s appropriation is held back in anticipation of potential budget cuts and special funding needs. The amount and use of this contingency fund is left to the discretion of the division manager. .

• Each department is allowed to adjust its budget when necessary to operate within the reduced appropriation level. However, as stated in the original directive, specific projects authorized by higher authority must remain intact

. • The final budget is used as the basis of control. Excessive expenditures by account for each depart-ment are highlighted on a monthly basis. Department managers are expected to account for all expenditures over budget. Fiscal responsibility is an important factor in the overall performance evaluation of department managers.

Eklund believes her policy of allowing the department managers to participate in the budgetary process and then holding them accountable for their performance is essential, especially during times of limited resources. She further believes that the department managers will be positively motivated to increase the efficiency and effectiveness of their departments because they have provided input into the initial budgetary process and are required to justify any unfavorable performances.

Required:

To complete all parts of the problems correctly you should start each assignment with preparing an Excel equation and then adding a written response per question.

1. Describe several operational and behavioral benefits that are generally attributed to a participative budgetary process.

2. Identify at least four deficiencies in Patricia Eklund’s participative policy for planning and perfor-mance evaluation purposes. For each deficiency identified, recommend how it can be corrected.

Answer 1

Participative budgeting is a process of budgeting involving active participation of people impacted by the budget. Budget with active participate of employees is more achievable

1.

Operational benefits attributables to a participative budgetary process are as follows:

Participative budgeting involves the active participation of employees and thus it clearly defines the area of responsibility. Manager are responsible for the achievement of budget targets for operation under their control. Thus it helps better conduct of operations.

A budget acts as a yardstick for performance measurement as defines the budgeted performance which is compared to the actual performance to identify and analyze the variances

Behavioral benefits attributable to a participative budgetary process are as follows:

It enhances managerial perspective as manger consider all the aspects of a company's activities. Budget identifies the potential deviations there by affecting the behavioral aspect of the management

participation of employees in budgeting process will create a sense of belongingness in the employees. They will feel motivated to achieve the budgeted targets and thus this will improve the employee behavior towards the organization.

2.

Identify deficiencies in the participative policy and recommend correction for the same as follows

Deficiency 1:A Specified percentage of budget amount is held back

Recommendation : This should not be done as department has prepared budget to the point of their requirement. Holding back the amount results into shortage of fund in the department. A contingency budget should be prepared separately.

Deficiency 2: Revision of budget after approval of budget

Recommendation: Whenever departmental budget revises, all associated budget changes accordingly. This should not be done once the budget is approved or effect should be given to overall budget