Budget Information Problem - Example

FINANCE AND ACCOUNTING Budget Information Problem number: Executive Summary The report aims to carry out an investigation on the budget information problem in the local municipality, concerned with the delivery of services to the locals. The report also analyses and discusses the budget information problem with a focus on a framework for problem solving. The investigation will dwell on the central issues, budget increment limitations, and budgeting information transparency. Additionally, the report will analyse the proposals for budgeting information of good quality and the financial analysis of the Municipal duties and the costs involved. The analysis from the report is essential in the making of competent decisions by the Local Municipality. Finally, the report wraps up with an analytical assessment of these budget information problems and suggests recommendations to address the local municipality deficiencies. Also, worth outlining in the report are the advantages and disadvantages and the implications. Table of Contents Executive Summary 2 1.0 Introduction 4 5.0 References 11 1.0 Introduction The intention of the report is to carry out a survey on the state of the budget information problem. The budget information problem is as a result of an organization not being transparent enough to itself and the public or parties concerned. The report’s objective is to discuss in brief the efforts meant to ensure there is transparency in the availability of budgetary information. It will ensure accountability in the way the budget funds are used and in this case for local municipalities and governments. By carrying out an examination of a variety of internet sources, magazine articles and journals on the topic of budget information problems, the report examines the importance of budget information. It will consider the effect of the availability of budget information to local municipalities and by extension local government authorities. The report seeks to be a guide for local municipalities on issues associated with the budget information problem (Tyler 2007). It will reflect on the standards required of them to ensure the issues related to budget information are transparent. In so doing, it is essential be familiar with nature and organizational structure of the local authority municipality analysed in this report This report will establish the central issues in the budget information affecting local government organizations. Besides, it suggests the available the policy choices that these organizations can employ in their budgeting processes. The local government is expected to select a policy option that is in line with the goals in its budget financing. The report found that it was essential for the local authority organization to have information on issues regarding the expenditure and revenue budget. Budget information is vital, and when it is unavailable, it could imply the lack of accountability and hence misappropriation of funds. Debt management information is also a constraint for the local government’s budgetary processes. An approach taken by the local government concerning debt management is often not appropriate in the budget stipulation. The report will discuss the criteria and conditions that will enable the elimination of budget information problem (Lindridge 2011). 2.0 Analysis of the Problem There are frequent typical problems that exist in the budgetary making process in Municipal local authorities. One of the fundamental problems is budget information concerning revenue, debt, and expenditure. The inadequacy of the information on these issues is dominant in many Municipalities. The existence of this problem will have an impact on the management of the revenue; debt and expenditure after the budget appropriations are implemented (Tyler 2007). Revenue Budget Information Issues The revenue budget information that municipalities are missing include the total financial resources amounts that the local government collects or receives. The budgetary information established to be missing includes local taxes, user charges, fees, loans, donations, grants and intergovernmental funds transfer. The information above is vital to these local governments since it enables them to account for all the revenues that allow financing of service provision to the locals and meeting of administrative plus operational costs. The study in these local authorities established that the information on revenue was incomplete. It implies that not all revenue sources were recorded or reported. What was evident was that the municipalities only recorded revenues from local sources and omitted those from external sources. It led to their budgetary committees underreporting the real amount of financial resources available for spending. The incomplete financial information on revenues will make the budget not consolidate all revenues but instead reflect them on other parts of the extra budget allocation. In these municipal organizations, it made their financial situation reported in the budget to be inaccurate (Tyler 2007). Another issue noted in the local authorities in terms of its revenue information is the components classification that was incomplete. Information in their records revealed that misclassification of information on revenue was a problem. The problem resulted since there was a mixture in the capital and recurrent revenues into a single classification. They instead should have been categorized into two classifications. As a result, difficulties arise in planning of expenditure on investments and operations. The budget formulated from the misclassification of revenues will make adequate monitoring, evaluation and control of revenue performance difficult. Another observation in the municipalities was reporting of information on revenue forecasting that was inadequate. It made revenue forecasting meaningless because of the absence of correct inputs. Expenditure Budget Information Issues Same as the revenue information problem; local government municipalities face the problem of expenditure information that is incomplete. It was evident that the local authorities lacked all the information on their expenditures, and furthermore even the expenditures were not being accounted for. There existed a mismatch on the information reported on expenditures budgeted for and the actual approved budgetary expenses. It meant that the local authorities were not reporting some of the expenditure information and data accurately as they are. In most cases, the budget for the expenditure of the municipalities were over reported, not reported or under reported in more than one category. Further investigation revealed that an efficient and effective budgetary control was lacking making information on some categories of expenditure to be inaccurate. In general, expenditure analysis, forecasting, evaluation, and performance became meaningless to the local municipalities (Tyler 2007). Another problem as a result of incomplete information on expenditure budget is the inaccurate reflection of the financial situation and actual expenditure in the municipalities. Also evident was the problem of expense budgets components that were being inadequately classified. Capital and recurrent expenditures mixing, and misclassification was predominant in many of the local authorities and municipalities. It created difficulties in that the controller of the municipality budget will find it impossible to make a determination on balancing between investment and operations. Debt Budget Information Issues The local authorities failed to report adequately on information concerning local public debt. Another information mismatch is between capital and recurrent debt mix up and misclassification by the municipalities’ budget committees. As a result, the local authorities budgeting and accounting of debt became inadequate. Budget Information Transparency Problem It was being observed that the local authorities were not that transparent and accountable with the information regarding its budget appropriations. It was because they were possibly misappropriating its budget revenue resources. The diagram below shows how information flow should have been flowing in a transparent manner to allow for oversight by the relevant authorities. 3.0 Conclusions To conclude the report, it becomes evident that the local governments and municipalities have problems with understanding the information they should record in their budgets. They are as a result of policy issues and options they choose in the financing of their budgets. It is vital for them to facilitate their gaining understanding and knowledge on the options available in terms of expenditure and budget. The problems facing municipalities and local authorities’ budget information differ in the debt, revenue and expenses management areas of concern. To achieve expected results, the budgetary process needs to ensure inclusive participation of all parties. Consultation with the external agencies and benchmarking from other local government organizations and municipalities is also equally essential. Budget information is vital, and when it is unavailable, it could imply the lack of accountability and hence misappropriation of funds. Debt management information is also a constraint for the local government’s budgetary processes. An approach taken by the local government concerning debt management is often not appropriate in the budget stipulation. The inadequacy of the information on these issues is dominant in many Municipalities (Tyler 2007). 4.0 Recommendations, Implications, advantages and Disadvantages The municipalities and local governments should ensure information on public procurement; general spending; debt and revenues should be as accurate as possible and above all transparent. The local government has the responsibility of publishing and availing documents on expected revenue, debt levels and expenditure. The above mention approaches must be implemented in an expeditiously to ensure that public resources are not lost. The time scale ought to be clearly stipulated (Lindridge 2011). If the approaches mentioned above are being adopted by the local government and municipalities, the implication of them will be a positive one. The local governments will be in a position to bridge the gap of information mismatch and mix up in the budget making process. Another implication of the approaches is that it will ensure ethical practices are being undertaken in the budget making process. The advantage of the methods mentioned above that the local governments and municipalities are that the budget information problem will be minimised if not eliminated. Besides, the municipalities will be able to save resources since all funds are being accounted for. Also, appropriate allocations will be made to the correct sectors that will spur development in the concerned local authorities (Lindridge 2011). The major disadvantage with the approaches mentioned above to eliminate the budget information problem is that they are facing a rebellion. The forces behind it are from those benefiting from the leakages in the system. Another disadvantage is that the implementation of the approaches is indeed costly in terms of cost and time too. 5.0 References Lindridge, A. (2011). Understanding marketing and financial information ([2nd ed.). Milton Keynes: Open University. Tyler, S. (2007). The managers good study guide (3rd ed.). Milton Keynes: Open University. Read More