Question

Both the budget process and the budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies (and The Office) is for management to spend any amounts remaining in a budget at the end of the budget period, a practice often called “use it or lose it”. The view is that if a department manager does not spend the budgeted amount, top management will reduce next year’s budget by the amount not spent. To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services. All of us pay for the costs associated with this budget system.

Write a report to management at Dunder Mifflin offering a solution to the “use it or lose it” budgeting problem.

Answer 1

Administrators should be remunerated for viable and effective spending, not punished. In the event that toward the finish of a spending period apparently there will be unspent cash that can't be conveyed into the following financial year for indicated venture, (for example, a capital structure venture), at that point a non-benefit office ought to build up a system whereby unspent and unallocated assets can be placed into a spending thing which is allotted to a key objective of the office to support the public great (ie safe savoring water a rustic/lacking nation or country USA town). The supervisor ought to be needed to state why the subsidizing was not spent in the current year (ie, cost efficiencies in another territory, staff turnover and so forth); the trough ought to likewise be needed to submit composed legitimization on why his/her spending plan ought not be diminished the next year. At the point when the chief's exhibition survey comes around, the composed report for which distinguishes the underexpenditure and supporting documentation for the future year ought to be important for the audit and it ought to be viewed as a positive budger execution for that administrator.