Public Sector Budgeting - Assignment Example

? Public Sector Budgeting Governments have to prepare budgets each fiscal year in order to operate and to determinethe economic performance. The budget prepared by the relevant departments undergoes several stages and various stakeholders are involved in the process. There are four major steps in budget making: preparation, legislative approval, executive implementation, and accounting and financial reporting. The first stage is the preparation or the drafting stage. The draft budget is compiled and submitted to the legislature for approval at this stage. It is majorly done by the executive and should not be made a secretive process. The first important step of this stage is to set a fiscal policy and it involves estimation of the resources available for spending. The treasury department will then issue a directive of spending to all the departments based on the policy framework (Khan & Hildreth, 2002). Negotiations will follow between the spending departments and the treasury with a bid to allocate the resources. The process then ends with the development of a consolidated draft budget that is approved by the cabinet or a higher political authority that will deliberate on the contentious issues before moving to the next budget stage. After drafting a comprehensive budget, the document will be laid before the legislature for approval. Government regulations bar the executive from making expenditures without obtaining sanction from the legislature. Parliament will closely scrutinize the draft budget and has the option of approving, rejecting, amending or in some cases substituting the draft that is presented by the executive (Khan & Hildreth, 2002). The legislature will also have the mandate of approving the relevant laws on taxation before they take effect. It is important to notice that the period taken by the legislature in approving the budget varies from country to counter. Once approved, the budget process enters the implementation stage, which marks the commencement of a fiscal year. The implementation process is in the hands of the executive, which allocates the resources to the departments in line with the approved estimates. The legislature however may monitor the executive in the process to ensure that they don’t deflect t from the estimates. In the developing economies, the executive may have to cut on some approved expenditures to take care of emerging circumstances. Where the emergency requires substantial amounts, the legislature will have to approve the new estimates to protect the minority rights. The final stage is the accounting and financial reporting stage. At this stage an independent auditor is vested with the mandate of analyzing the government accounts and government reports with the objective of giving an opinion on whether the implementation has been done in a desirable manner. The report should be made in a timely manner and with recommendations that will be reflected in future budgets in order to improve future public accounting and budgeting. Reports should be made in a timely manner to ensure that the official who might be responsible for loss of public resources are convicted for their actions before their retirement or after they had left public service. The budget process is not an event and is an ongoing process that is interconnected. Legislature participation should not be limited to approval and review of the audit findings. Parliament should be empowered to ensure that they make the executive responsible for proper implementation of the budget. B The public sector and private sector budgeting have similarities and differences in some ways. Private sector budgeting is driven by the market and that of the public sector is constrained by resources from taxation. It therefore means that both the public and private sector budgets have some constraints. Secondly, both the private and public and private sector budgeting have objectives. For the private the aim is to make profits while public budgeting is service to the serve the community. The results of the private sector budgeting is identifiable and measurable while the case of public sector budgets are subjective and qualitative in nature. Finally, both private and public sector budgets have to be authorized. For the case of private sector budgeting, the decision is based on the shareholders, management, and customer but for the public sector, the electorate, employees, and the management make the decisions. Both public and private sector budgets are monitored to ensure results are achieved. C Various political, economic, social, and legal factors that affect public budgets. Political factors that affect public budgeting include party affiliation where legislature will support budget drafts or reject based on party stands and not the rationale. Secondly, the politicians may want to allocate resources to particular regions hence bringing discrimination. On the social side, large proportion of the budgets may be allocated in repaying debts or in projects, which does not improve the welfare of the public. Mostly the low-income earners rather than fair contributions by all citizens may also pay taxes. This causes a social problem. On the economic side, the budgets may be affected by economic conditions e.g. inflation, recession or increasing number of people living in poverty. This may affect tax collection or policy formulation with regard to public resource allocation. Legislations also affect the public budget process. Some legislation may slow the pace of preparing a budget or bar the legislature and public from closely scrutinizing the implementation of the budget process. Moreover, tax legislations may also be biased and unfavorable to particular segment of the society hence affect public budgeting. D The public sector budget reforms have been aimed at improving financial management in the public finances. The two types of reforms is the top down budgeting and increased participation of finance committee. In top down budgeting, the reform gives parliament power to decide on the amount of money to spend before starting the allocation process. This ensures that government does not budget for projects it lacks the capacity to undertake. For the case of strengthening the finance committee, the reform aims at ensuring close monitoring of implementing the budget process. This reform will ensure that public interest is maintained during the budget phase. E The forecasting of revenue by the government workers has always been inaccurate and one marred with errors. This has not been because of unskilled labor or incompetent workforce but because of the uncertainties in the process. The major revenue forecasting tools are basic extrapolations, use of econometric methods and the use of disaggregate data (Chen, 2008). Each of the tools has its own limitations and complexities. F The budget preparation phases are similar to all the public budgets. The first phase is the preparation phase done by the executive; it is followed by legislative approval executed by the legislature. The budget phase then enters the implementation phase before proceeding to the audit and review phase in which the implementation is closely monitored to determine whether the process has been effectively done. G Iron triangle is a term used to refer to the relationship between the congresses, the regulators an d the regulated. It explains that regulators decisions are meant to protect and oversee the interest of the regulated and that the regulated can influence the decision of the regulators by making their courses known. The three actors thus need to play and act in a manner that promotes interest. Even in the budget process, the electorate, the treasury, and the congress have to interact to ensure that budgetary policies will favor the interests of the citizens. H The budget process has been market by perennial strife among the different parties. Each party has his own interest to protect. The first potential source of conflict is between the executive and the congress on their power on the budget process. Each wants to be dominant. Savers and spenders are the second lot with conflicting interests. The treasury in their aim of collecting taxes faces resistance from the taxpayers who demand to save. The third conflict is in the resource allocation. Different departments will want more resources allocated to them hence resulting into conflicts. Moreover, conflict also arises between the auditors and the departments on accounting for the money used. The political parties’ interest often causes conflicts because of the different policy priorities. In addition, conflicts are bound to arise from the policy makers who have diverse opinions on priorities of the government. I Government budget policy statement fixes the tax obligation on the citizens and the determines the quantity of revenue that will be collected to undertake government projects. The budget policy will also have implications on income distribution both for the individuals and the in the society. A budget policy statement will therefore contain the objective of the budget, sources of revenue for the government, the way the resources will be distributed, and the expected outcome of the process. J Public projects performance measure can be done based on the cost measure, net social benefit measure and benefits to the public. If the projects are cost effective and are productive then they will be considered desirable to be undertaken. Consider the social benefit of the projects i.e. improving quality of life, education standards or eradicating poverty can also in determining the worth of the investments. Finally, the performance measures must take into account the government key role of providing public goods and services to the public i.e. health and education. Such projects should be undertaken in making public investments. K The government just like the private sector is interested in the performance of its projects in order to achieve the intended goals. The government measures are based on the adherence to the laws, obedience to the ethics and measurement based on the satisfaction of the public. The government uses its departments and other contracted organization to determine if the projects have been well implemented. In most cases, the government compares the results to the term plans to detect deviations that are then corrected. Performance targets and performance contracts are some of the tools used in measuring performance of the government. L There are various limitations of performance measurements. First, the information on performance measures only provides information on the performance but gives no forecast on future performance or why the results were realized. Moreover, there are some measures that are not easy to measure i.e. intangible performance and those of services are difficult to measure. The third limitation is that of cost, time, and complexity in measuring performance (Bowyer, 1993). Performance measurements are thus expensive, time consuming and require high skills that are likely not be available. M Capital improvement plan are the assessment done in the facility requirement of the state in line with the objectives and the goals of the government. Capital budget is the document that authorizes expenditure by the government on various projects. In making their capital budgets, the government will consider the capital improvement plans and incorporate the prioritized projects in the capital budgets (Bowyer, 1993). Capital budgets are thus legally binding as opposed to improvement plan that documents the government facility needs and does not necessarily bind the government. N Capital projects can be classified as either independent or mutually exclusive capital projects. Mutually exclusive projects are those which are substitutes i.e. the undertaking of one projects rendered the other unimportant. Independent capital projects are those that the government can undertake differently e.g. constructing a highway and building a hospital. They serve different purposes. Capital projects can also be classified based on the amount of resources required as either large or small capital projects. Time is also a premised of classifying projects i.e. long term, medium term or short-term capital projects. O The capital budgeting process faces potential conflicts from various sources. The fact that the resources are the limiting factor makes the different departments scramble for the scarce resources. There is as well a potential conflict from the taxpayers who have diverse preference on which projects the government should undertake i.e. while some proportion may view constructing a highway essential others might view free education as the top most agenda. Another potential source of conflict is the politicians who have different interest and serve different parties. This will make them prefer different projects hence result into conflicts. Finally, conflict can arise between the taxpayers and the tax authority. Taxpayers in their bid to save will prefer low taxes and this might conflict to the government policy and requirement of collecting revenue for capital projects. P Various benefits will accrue from a separate budget cycle. First is accountability. One way of ensuring that there is accountability is through separating duties. Separate duties will help realize transparency and accountability. Secondly, it assist in ensuring control i.e. the work of a cycle can be subject to approval by another cycle hence control will be realized (Bowyer, 1993). Separate cycle will further ensure close analysis of budget values hence instrumental in detecting and deterring possibility of errors and mistakes. In addition, budget cycle makes the budget execution process be done in a timely and effective manner since each cycle will be given a specific period to execute their mandate. Q There are five phases involved in the capital improvement plan. First is the organizing on the process, which involve designating lead department, developing process forms and criteria, identifying stakeholders to be involved in the process of improvement plan. Second phase is the identification of the projects from the capital needs and the funding options for such projects. After identifying the projects, they will then be evaluated and assessed to help in the prioritizing and selection of the most valued projects. The fourth stage involves the preparation and recommendation of a capital plan and budget to the decision makers for approval purposes. Workshops and hearings may be organized for stakeholders to provide feedback. The final phase is the adoption of the capital budgets where the approved projects are adopted either in phase or once. R Since there are scarce resources that cannot meet all the projects of the government, a selection has to be made on which projects to pursue. Projects are selected after conducting a cost benefit analysis in which only projects with many benefits are chosen for investment purposes. In doing so, the government also has the role of ensuring that all the essential services are made to the public. Some projects will also be picked based on their profitability i.e. these are those sectors that the government intend to earn some income. Besides, the government will also select some projects whose sources of capital are provided from outside sources with specific conditions e.g. the world bank can allocate some money for specific projects without giving the country an opportunity to reconsider its worth. S The government in undertaking their projects is always constrained by resources. They are therefore forced to borrow loans or obtain funding that are given based on some specific terms. Before obtaining the loans, the government must ensure that the terms are clear and that they are in a position to repay the debt without defaulting. Some repayments can be made from the cash generated from the respective projects. The debts can be financed within a short time frame or spread after an extended duration. Project feasibility has to be done to ensure that the projects are worth the cost of the loan and the interest that is charged on the borrowing. References Bowyer, R. A. (1993). Capital Improvements Programs: Linking Budgeting and Planning. Chicago, Illinois, American Planning Association: 1-49. Although this is over 10 years old, a very good primer for planners on how planning and the budgeting process interface and what this means for the planner. Chen, G. G. (2008). Budget tools: financial methods in the public sector. Washington, D.C.: CQ Press. Khan, A., & Hildreth, W. B. (2002). Budget theory in the public sector. Westport, Conn.: Quorum Books. Read More