Budget Behavior in Non-Profit Governmental Institutions - Article Example

Governmental as well as private entities utilized budgets to administer and determine the expenses the organization will incur during a fiscal year. A budget is defined as an itemized summary of estimated or intended expenditures for a given period along with proposals for financing them (Yahoo, 2007). Budgeting is an accounting mechanism which serves the purpose of a control device that helps organization plan the future utilization of economic resources. The accountant responsible for tracking activities within a budget is called a budget officer. The benefits of budgeting are the ability to plan ahead, define objectives, early warning system, coordination of activities, management awareness and it serves as a motivation tool for personnel (Weygant & Kieso & Kimmel, 2002, p.983). This paper studies and analyzes budget behavior in non-profit governmental institutions. The budget process and resulting internal and external actions in the system involve four key stakeholders who are the clientele, the legislature, the executive and the agency and another two secondary players: the media and courts (Smith & Lynch, 2004). The clientele are the general public living in the area of a country that the budget covers. They are the direct beneficiaries of the budget and are the main contributors of the funds that make a budget. The government’s objective is to maintain and improve the well being of its citizens, but monetary constraints within budgets limit the amount of programs and initiatives a government can undertake to provide services to its community (Marks & Raman, 1996). Conflict arises among the four main stakeholders or institutions over what are the true needs of the beneficiaries of the budgets. The institution with the most power to influence a governmental budget is the executive. Their influence is most evident during the early stages of the budget creating process. The legislature is also very influential in the budget process since they can determine the internal allocation and the purpose of the different funds within a budget. The legislature is the body the clientele can turn to if they are not happy with the allocation or administration of a governmental budget. The agencies are the administrators of budgets and are the entity with the greatest expertise about the fiscal necessities of the governmental unit utilizing a budget. The agency runs the governmental unit that is assigned a budget. This budget is divided into various programs each having a budget within the budget. Governmental accounting is non-profit accounting. Non-profit accounting has different funds for different purposes. With a grand governmental budget there are multiple funds linked to the budget that have a certain amount of resources allocated to it. The agency has to justify the different allocation of money for its different programs. The way an agency runs its operations is of great concern to the executive of a government since the actions of all agencies are one of the main factors that determine the overall effectiveness of the government the executive is responsible for. The chief executive has the power to veto or reallocate items in line-items budget (Smith et. al., 2004, p.119). There are outside parties that can become enemies of the state regarding budget matters and decision. These outside parties are part of the clientele. An example could be a group of environmentalist opposing a governmental program that can cause damage to mother earth. The environmental may protest and intervene to stop the government from investing in a program. The media can play a large role in these situations by covering the story which raises public awareness on the issue and forces the government to react to the news story. The clientele is divided into different groups. These groups try to influence the government to allocate more economic resources to certain areas of the budget based on their beliefs and what they believe are the top priorities of the residents of an area. An example of a way an agency targets the needs of subgroup of its clientele can be seen at the National Institute of Health. The National Institute of Health uses its subunits to focus upon specific diseases that correspond to the active health clientele groups (Smith et. al., 2004, p.121). The groups that utilize numerous effective lobbying techniques are the ones that receive the greatest attention in the budget of governmental agencies. The office responsible for the budgets of the different agencies is called the agency budget office. The budget officers working in these premises work both on the accounting necessary to keep the budget up to date and on planning and analytical work independently. An example of the type of work the agency budget office performs can be seen at the agency budget office of the International Boundary and Water Commission of the United States and Mexico. The types of duties and responsibilities this office performs include: Review and validate budget requests Allocate funds to the different agencies within the organization Provides advice over financial matters Reviews budget execution documentation Data entry into the Federal Financial System (FFS) Prepares monthly execution and expenditure reports Monitors and investigates unliquidated obligations (Ibwc, 2007). Budget Officers are the people doing the work behind the scenes in the budget offices and in the other accounting departments in governmental agencies. The profile of a person doing this type of work involves a person who is responsible, hard working, analytical, professionalism, politically savvy, mathematically inclined, and a good listener among other characteristics. The budget officer has in-depth knowledge of the system and experienced budget officers are a valuable commodity. They become powerful players in the inner politics of an agency. The administrator depends on them and thinks highly of their opinions. The biggest issue budget officers which they have to constantly deal with are deadlines. Deadlines in their business are bread and butter. Sometimes the deadlines are impossible to meet; when these situations occur a good budget officer will recognize the situation and will not pay attention to the deadline. If an administrator comes to them demanding the work, the budget officer can always calmly explain the repercussions of turning in a the work before is done which basically means the information within a report is not accurate and can lead to further trouble down the road if its turned in too early. Within an agency all the employee in particular the budget officers are loyal to their program because they believe in the things the agency is trying to accomplish (Smith et. al., 2004, p.123). The administrator of an agency responds to the needs of executive. The budget professionals learn the how government works internally and they realize the politics involved in the game. Their decision making abilities open up doors to these professional within government. Many of them are very loyal with the hope of moving up in the food chain and obtaining better a position within the organizations. Budget professionals are affected by governmental actions and many times develop views based on concepts such as incrementalism theory. Incrementalism theory is a theory about change that supports two basic assumptions based on the budgeter’s limited room for analysis and the political feasibility of action (Willie, 2003). Budgets are allocated for a specific time period. At the end of the period which is typically one year the money allocated must be utilized completely without going over the budget. Since budgets are period based at the end of each one year cycle a new budget must be created for the following fiscal year. This process involves planning by agencies and it also involves a formal presentation of the budget for approval to a reviewer board. The agency has to justify its expenditures and provide evidence that the previous budget was utilized efficiently. Sometimes the political and economical climate requires the agency to intentionally submit a lower budget to the reviewers committee since a higher budget would not get approved anyways and is good politics to follow a governmental policy of cutbacks if that is the scenario the government is facing. The message given to the budget reviewing committees must be a confident one that clearly demonstrates the accomplishments of the agency and the need for additional funds to be allocated to a particular agency. Rehearsals for budget hearings are mandatory in order to be well prepared for the event. Extensive research is required and a mitigation plan must be in place that provides alternatives courses of action if tough questions are raised during the presentation. Agencies utilize different strategies in order to raise the probabilities of its budget being approved. The two major categories in which strategies are classified are spenders and cutters strategies. A basic spender strategy is to inflate the numbers within the budget so after the typical downward adjustments of the budget before approval the quantity the agency receives becomes the desired budget amount. During the presentation of a budget request the agency should highlight all the good aspects of its programs and hide as much as possible any negative characteristics of the agency programs (Smith et. al., 2004, p.138). Rounding up the numbers and high utilization of fund transfers are two subtle spender strategy techniques to confuse the review boards and obtain more money from them. A smart psychological warfare type of strategy which is at times very effective is to ask for a program of the agency to be eliminated for that is a politically important for the executive in charge. The committee will be hesitant to due to so to minimize the political backlash of the decision. The end result of such a strategy is that the agency can receive a higher budget amount after the inclusion of money for the key program. Cutters strategies are another way to get budgets approved. Safe cutter strategy approaches include reducing increases, hiding revenue streams and employing delay (Smith et. al., 2004, p.141). Budgets are very important tools to manage the finances of an institution. Within the government there are different battles occurring between the people involved in the budgeting process since each stakeholder wants the government’s money to be utilized in a certain manner. The four key stakeholders are the legislature, agency, executive and the clientele. The professional that is closer to the budgeting process is the budget officer. These people are very important players in the process and have power to influence the behavior of budgets. Budgeting helps determine how money is utilized in a system, thus its function if of vital importance for all institutions. References Ibwc.gov (2007). Budget Office. International Boundary and Water Commission: United States Mexico. Retrieved October 2, 2007 from http://www.ibwc.state.gov/Organization/Administration/budget.html Marks, B., Raman, K. (1996). The Behavior of Inter-period Equity Related Performance Measures Over Time. Accounting Horizons, 10(4). 52. Retrieved October 2, 2007 from EBSCOhost database. Smith, R.W., Lynch, T.D. (2004). Public Budgeting in America (5th ed.). Pearson Prentice Hall. Weygandt, J., Kieso, D., Kimmel, P. (2002). Accounting Principles (6th ed.). New York: John Wiley & Sons, Inc. Willie, S. (2003). Modernity, Modernization and Deinstitutionalization of Incremental Budgeting in Local Programs. Financial Accountability and Management, 10(4). 52. Retrieved October 2, 2007 from EBSCOhost database. Yahoo.com (2007). Budget. Houghton Mifflin. Retrieved October 2, 2007 from http://education.yahoo.com/reference/dictionary/entry/budget Read More