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Budgeting - Essay Example

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BUDGETING Date Organizations prepare budget to show the financial plan and to act as a control on their expenditure. Through a budget, a company gets to allocate its scarce resources to the most productive projects in order to maximize returns…
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BUDGETING Organizations prepare budget to show the financial plan and to act as a control on their expenditure. Through a budget, a company gets to allocate its scarce resources to the most productive projects in order to maximize returns. However, having a budget without instituting budgetary controls is useless. Budget controls are necessary to ensure that the company utilizes its finances as planned and to help detect deviations for correction purposes (Wiseman, 2010). Monitoring of a budget is something that is assiduous and must not be ignored at any particular time of the financial year. A budget can also be used in measuring performance by comparing standards to actual. Possible Risk In the case Money cares investment provides an example of a company without financial control and one that risk of incurring huge financial losses. Financial procedures that are made in accordance with the accounting standards will help in preventing and deterring occurrence of losses to the business. Money cares investment is a small organization and has the risk of collusion among the employees. Employees of the organization can collude to inflate expenses in order to defraud the business of its income. This could be attributed to the high supplies and transportation cost. The second financial risk factor is the lack of separation of duties. In managing finances, it is important that different individuals to avoid consolidation of roles perform different organization functions. Separation of duties further assists in the deterrence of fraud and uncovering of mistakes. This organization, by the virtue of having few employees is likely to have one employee doing the recording, purchasing, receiving, storing, and releasing goods from the stores. Such concentration of roles provides a breeding ground for occurrence of theft and fraud. There is also the risk of having weak internal controls. Internal controls are the policies and procedures that are developed by a business to help in smooth operation of the business. Since the business is small and have few employees, it may lack the capacity and ability to develop necessary procedures that will help in eliminating inefficiencies and promoting accountability (Ratliff, 1988). In the case of money cares investments, each investment specialist is given credit card and making the company risk exceeding its credit limits and recording high costs. The internal controls to be developed should ensure that the business processes are conducted smoothly and that assists the management in detecting inefficiencies and fraud in the business. The internal controls will also be instrumental in making the business be governed in a manner that promotes service delivery to the customers and the stakeholders. Factors that could help make company succeed In order to succeed, money cares investment must develop budget-monitoring procedures as this is the only way in which the company will adhere to the company’s budget. Monitoring the budget will also assist in controlling costs and reducing expenditures that should be avoided (1994). The monitoring procedures should also assist in raising alerts when costs limits are exceeded. Policies should be formulated to ensure that there are basis followed in making appropriating the company resources. Through monitoring on how the budget is implemented, a track on the company performance will be recorded and this would ensure that the business achieves the goals by correcting any anomalies that may hinder the company from realizing its management objectives. Secondly, money cares investment must restrict the use of credit card to particular individuals. Not all the employees’ should use credit cards, as this would result into reduction in costs. The use of credit cards should also have limits so that managers do not spend without getting control (Brookson, 2000). To avoid paying for non-company expenses, proof should be made that the expenses relate to the business activities and not for employee gain. Moreover, there should be separation of duties and employment of qualified auditors to help in detecting fraud and in establishing strong internal controls. To further assist in ensuring accountability, the management should seek the services of external auditors who will give an opinion on the financial statements and give technical advice on the effectiveness of the internal controls of the business. The company hospitality segment and transport sector are more vulnerable to the business. This is because the items in these departments are portable and are sometimes difficult to prove their occurrences (Dopson, Hayes & Miller, 2008). The management of Money cares investment should place checkups at the exit point of the business where employees are searched to ensure that no employee leaves the premises with any of the company assets. Similarly, the number of transactions in these departments is numerous and hence will require detailed analysis to prove their occurrences. The areas are therefore likely to have heavy expenditures that do not benefit the business. The company assets include the investments in bonds, assets for supply and transport equipments. Most expenditure will be incurred in workshop items because of the nature of the products. Items like food and drinks are faster utilized and are their existence is difficult to prove. In order to ensure that the costs are controlled. The budget should be controlled through approval of all expenditures before they are incurred. At the same time, limits on maximum expenditures and need for proof of transactions should not be made. In addition, money cares investment should ensure that different departments are charged with different roles to ensure separation of duties. Finally, monitoring of the budget has to be done within some time limits. In summary, cost control require close monitoring of the budget and assiduous analysis of expenses. References Brookson, S. (2000). Managing Budgets. London: Dorling Kindersley. Budgeting and financial controls. (1994). Chicago, IL: Institute of Real Estate Management. Dopson, L. R., Hayes, D. K., & Miller, J. E. (2008). Food and beverage cost control (4th ed.). Hoboken, N.J.: John Wiley & Sons. Ratliff, R. L. (1988). Internal auditing: principles and techniques. Altamonte Springs, Fla.: Institute of Internal Auditors. Wiseman, B. (2010). Budgeting. 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