Budget Analysis and the Budgetary Process - Essay Example

? Budget Analysis By: Teacher: The budgetary process is used to access the needs of each department which then accesses the needs of the city as a whole. The process should begin with an analysis of the prior year’s budget to see what variances arose. This should be followed by an analysis of what is needed for the coming year and how it will be financed if necessary. Each department should conduct a detailed review of their needs and wants and categorize all of them according to importance. The process is important because it is necessary to make sure a set plan is followed that includes everyone. The budget can be used as a policy document, a financial plan, and even as a way to communicate to all departments. 2. There are many types of budget systems such as the zero-based budget, target budget, and management by objective. The zero-based budget is based on the idea that each year’s budget begins fresh. You start off each budget from scratch and work your way through it by going through each and every department. The target budget is a budget that is based on a goal. If you want to have a certain amount left in each account you basically work your way backwards. For example, if you want 200,000 in the capital budget account at the end of the year and only have 1,000,000 of revenue coming in then you would need to base all of the other expenditures on the difference or 800,000. The 800,000 would be the money left over to budget with since you want to have a certain amount left in the account at the end of the budget year. The management by objective is based on results. Management attempts to align the objectives and goals of their employees with the company’s overall goals and then measure their goals based on feasibility. Zero-based budgeting is used because it makes the most sense. Each year the city would analyze the prior year’s budget and come up with a variance report. This report shows how well they hit their budgeted amounts and would also explain why they exceeded the budget or came under budget. This information would then be used to plan out the next year’s budget. 3. The budget calendar is basically a calendar that details when each department will be able to present their budget for their departments to the board, the city manager, and the director of finance (sometimes called the budget director). The budget cycle is basically the process that each department goes through to make sure they have included everything in their budget. This may include preliminary meetings with the city manager and budget director to determine what is needed or necessary for the year. The budget cycle and calendar interact in tune with one another because the calendar basically dictates how much time each department has to go through their budget cycle. 4. The city’s budget process is greatly affected by the economic backgrounds of their citizens because the backgrounds determine what is needed within the city. If the city is primarily made up of individuals who drive all the time then it might determine how much money in street repairs are needed. If the city is constantly seeing an increase in children then it might determine that another school is needed. . 5. Revenue is any money coming into the city. The city has various revenue streams such as taxation, the sale of public services and property, transfers, borrowing, funds from other sectors such as grant giving foundations. The major source of income for most if not all cities is taxation. Taxes come in the form of sales tax and property tax. For the most part, the revenue from taxation can be predictable if there is little fluctuation in the population. If citizens are not homeowners then the property taxes would decline. 6. A fixed expense is an expense that does not change. This can be almost anything within the city’s budget such as equipment maintenance, salaries, etc. This fixed expense must be addressed before any other expenditures are added to the budget. Regardless of how much the other expenses are, the fixed expenses are the minimum that must be covered year after year. These costs are not dependent on the number of citizens that live in the city and they do not depend on how much revenue is brought in. A utility or insurance cost might be an example of this in a city. 7. A budget variance is how far you met or exceeded the proposed budget. Excessive budget variance should be avoided because it might show lack of planning or even incompetence. It can show a lack of planning because certain things might have been overlooked in the budget and if it continues year after year, it might be said that employees are not doing their jobs. This can be true even if you come under budget every year. The council might look at this as a practice to deceive them into making you think that you are planning correctly but coming under budget due to great management when in actuality it could be that you purposely increased the budget to make yourself look good. 8. The GFOA uses an extensive list of criteria for the presentation of a budget. Budgets have to include statements showing an overview of goals, objectives, and strategies. They should also include detail on how these goals, objective, and strategies were formulated and the process that it took to bring them to reality. The accounting system that was used should also be documented and explained. This includes the name of the software and why it was chosen. The benefits of the software should also be included. The departmental relationships should also be explained. This means that the finance department’s relationship with the codes department should be explained as well as how they normally would interact with one another. Communication is the key to the criteria and the information should be explained as if someone reading it has no idea about finance, government, etc. This could make it difficult for someone to write the budget based on all of the criteria. Normally the person or persons involved in the writing of the budget are financial people who might have a hard time explaining finance in everyday language. A table of contents must be included so that people can flip through it and go to where they need to get to. A glossary of terms is ideal. As stated before it might be difficult to explain financial terms in everyday language so it is a great idea to have a glossary available for people to look up words they do not understand. The criteria are a total of 26 points with only half of them being required to be considered for an award. The document should have a statement about long term budgeting and goals. It should also include an explanation of the budget process so that people can see how the final budget decisions are made. This needs to include as much detail as possible such as dates and steps. Also there needs to be an outline of what some of the more basic policies are. Read More