Question

Jane, controller in the division of social services for the state, recognizes the importance
of the budgetary process for planning, control, and motivational purposes. He 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, Jane 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 budget cuts and special funding needs. The amount and use of this
contingency fund is left to the discretion of the division manager.
ASSIGNMENT
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• 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 department 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.
Jane believes his 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. He 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 unfavourable performances.

Identify at least four deficiencies in Jan's participative policy for planning and
performance evaluation purposes. For each deficiency identified, recommend how it can
be corrected.

Answer 1