Agents and Representatives in Budgeting Process - Research Proposal Example

Agents and Representatives in Budgeting Process Introduction Budgeting is defined as the allocation and use of all the available resources at the states disposal. Besides, the process entails identification of how these resources will be obtained, how they would be financed, how effective these resources would be managed. In summary, budgeting is the process of allocating scarce resources available to ensure effective service delivery and the transfer on the non-market basis. This paper seeks to focus on the role agents and representatives in budgeting process. In addition, the paper explores the international regulations relating to financial allocation, the politics behind the whole process of budgeting, and recommends how agency can be useful in fiscal budgetary processes. The role of agents in budgeting is of great significance and, hence, should not be overlooked. During the preparations of the annual budgets and reports from all the state organs, profit, and non-profit enterprises, all the stakeholders are represented via agents. The representing agents should be individuals with deep understanding of finance and knowledgeable in accounting. It is the participation of all the agents representing the relevant institutions in the budgetary process that is commonly referred to as departmental agency budgeting (Goodman and Clynch, 2004). This process entails four major stages, namely: i. Comprehensive Fiscal Policy Formulation Under this umbrella, the overarching institutional objectives are formulated and determined. It is these policies that regulates the decision making process regarding aggregate expenditure and revenue of the firm. ii. Preparation and Enactment of the Budget It is in this stage that the government decides on proportions of financial allocation to be advanced to each agent, and also the government outlines the purpose for which the funds are allocated to a given agent. The guiding principles relating to these are set out clearly by the legislations enacted by the state. iii. Budgetary Execution This is the actual stage in budgeting. It involves carrying out the stipulated expenditure as developed in the budget plan. It is in this stage that contractual agreements are signed between the budgetary committee and the contractors (Goodman and Clynch, 2004). iv. Accounting, Auditing, and Reporting This being the final stage in budgeting, it is the post-ante process of preparing the accounting records regarding revenues and expenditures executed by the organization within a given fiscal period. These records must have been audited by both internal and hired external experts/auditors to ensure that they meet the international accounting and auditing standards. The final reports (audited reports) are then presented to the financers, government agencies, ministers, the public and the parliament. Objectives of Budgeting The following are the key objectives of budgeting: Sound Macro-Fiscal Result: This forms the backbone to aggregate fiscal policy objective in budgeting. To ensure fiscal sustainability, sound fiscal policies must be put in place to regulate financial operations and to ensure that organization short-term debts are paid when they fall due. This policy also acts as macro-stabilizer to the economy by regulating taxation policies during boom and recession. Appropriate Expenditure Prioritization: This policy advocates for effective allocation of resources to those projects that are deemed socially profitable. The corollary under this objective is to avoid misallocation of resources especially to least priority sectors of the economy, but instead to maximize on the social gains. Service Efficiency and Effectiveness: This implies that the state services delivery is made more efficient and effective in a manner that is socially justifiable and acceptable by all the stakeholders. 1. Budget Overview Taking an example of HIV/AIDS funding program, during the financial allocation process, all the departments involved must have their representative on board. Each group present to the national committee their expenditure estimates for the coming fiscal year. The groups commonly act as independent entities with each interested in serving their personal interests. However, the agency budget is supervised and reviewed by the national council committee drawn from the health sectors, finance department, and the executive supervisory board. In case the funds to be invested are donations, then, the donor community too would be represented (Robinson, et al., 2007). The federal government would classify the budget based on basic needs to be meet, capital and recurrent expenditures, investments and financing activities. In terms of distribution statistics, the health budgetary committee would consider the spread of the infection and then give priority to the adversely affected communities. As always been the case, the worst affected regions tend to receive more resources than the less affected regions. Other factors that are considered when making resource allocations are effectiveness in financial management, previous allocations, and demographic statistics. The following is the budgetary outlay REPUBLIC OF GHANA, MINISTRY OF HEALTH AND MEDICAL SERVICES, BUDGETARY ALLOCATION, FISCAL YEAR, 2012 Department/ Region Allocation, 2011 ‘000’$ Balance from 2011 Reimbursement, 2012 Primary Health Care 180,000 20,000 160,000 Secondary Health Care 320,000 80,000 240,000 Social Health Insurance Scheme 45,000 ---- 45,000 Salaries and Remunerations 500,000 (50,000) 550,000 2. Evaluation of the Agency’s Budgeting and Cumulative Report To enhance this process (budgeting), the sample questionnaire should be filled by the corresponding respondents. Questions Yes No a) Is agency budgeting important to the federal government? if yes why……………………………………………………………. If no, what are the alternatives to agency in budgeting? ………………………………………………………………… b) Do you agree with me that international budgetary regulatory authorities are no longer active in monitoring the implementation process of the budget to match the international standards? If no, what is your opinion? ………………………………… c) To enhance accountability and uphold to the international expectations of the donor community, the implementing authority and their representations/agents should focus on effectiveness, quality rather than output. Do you confirm this statement? d) Political economy and structural factors hinders effective delivery of transparent budgeting processing, especially in developing economies? How can we limit political and institutional factors from derailing the execution of this exercise? …………………………………………………………………. 3. Budgeting Assessment The process of resource allocation in the health sector just like other sectors of the economy is highly politicized. Politics is the order of the day in the budgetary process because the whole process revolves around the scarce resources at our disposal. Political power-house are very keen on this process. It starts right from the head to the tail. At the helm are the relevant ministers whose ministries are forming part of this process. With the political economy dominance in the developing economies, this process is biased and flowed. Rather than being a pure technical process, budgeting is more of a political process. As been disclosed by earlier findings, it is theoretically possible but empirically impossible to separate technical budgetary process from the political governance environment in which they are embedded. Budget politics acts as drivers to public budgeting process, by shaping the statutes governing the entire process, and shaping the rules regulating this game (budgetary game). These would have influence on ownership, timing of the budget, and accountability (Le Loup, 1984). However, with strong political economy in place, this process of resource allocation would be very transparent, effective, and efficient both in management and administration. It is these features that would lead to maximization of social welfare of the common citizens. Political governance has massive influence on the management and administration of justice especially in the financial sector. Sound political economy would reduce the bureaucracy in budgeting process (ibid.). Moreover, since health sector receives a lot of donor funding, the international community takes close interest in the administration and political economy to ensure accountability and effectiveness in service delivery. 4. Analysis of Budgeting Plans and Actual Expenditures Intergovernmental agencies play a fundamental role in budgeting process. Since budgeting is a multi-corporation process that brings together all the departments that are relevant, it is noted that different branches of the government are to be represented in the entire process to restore sanity. Using the above example (health financing), we realize that all that state organs plays a role in the development and drawing of the annual budget. In particular, these representatives influence the entire process by lobbying for the interest of their mother. The role of these agencies in matters relating to resource allocation focuses on fairness, justices and maximization of the social wellbeing of the interested partners (Robinson, et al., 2007). These agents act as observers to their organizations, thus ensuring that the resource allocation process favour no firm at the expense of others. By being watchdogs, agents ensure sustainability of the whole process within the period of financing. Therefore, these agencies act as regulators to the budgetary process within a limited period of time (usually five years). Agents provide timely and updated information relating to the use of these resources. In particular, these units of representations present before the general/national committee the priorities in every sector covered by the organization. Since they are the implementing authority, agents would act in such a way they protect the organization’s interest, even as they maximize other secondary objectives. 5. Implications of Foreign Policy Since most of these projects in the health sector are donor funded, they draw a lot of international interest. Through the international committee meetings which establish legislations to regulate donor funding, international policies are govern these processes. After an agreement to finance a specific project, the financers through the international policies will ensure that the resources distributed are not misappropriated nor are these resources embezzled. In doing so, international policies governing budgeting are signed. Such treaties form the basis on which the local budgeting committees act. Any deviation results into ultra-vires and may lead to withdrawal of the sponsorship or funding (Frank, 2007). Through such evaluation mechanisms, possibilities of unaccountability, irresponsibleness, redundancy, and inefficiencies are eliminated. International policies on budgeting are the pillars on which further funding are rested on. With strong policies, the future of budgeting is very bright. 6. Budget Request and Recommendations Agency has the potential of improving the budget for the subsequent fiscal years in any institution. This would be achievable through enhanced accountability and proper prioritization of needs. With the agents involved in the entire budgeting process, it is believed that the outcome would be more productive in terms of accountability, reliability, efficiency and quality. It is the agents who have at their finger tips the basis societal needs because it is them who are in constant interaction with their clients (Lee Jr., Johnson, and Joyce, 2008). Other factors are exogenous. These include the state of the economy, political factors, and institutional environment which surrounds the federal budgeting process. If all the underlying institutional factors are well observed, then it would be possible for the agency to significantly constitute budgetary process for the coming financial year. Finally, it noted that these institutional environments provide a level play ground for all the actors in the budgeting exercise. References Goodman, D., & Clynch, E. (2004). Budgetary Decision Making by Executive and Legislative Analysts: The Impact of Political Cues and Analytical Information. Public Budgeting and Finance 24(3), 20. Frank, H. A. (2007). Budget Theory: New Perspectives for a New Millennium. In Handbook of Public Administration, 3rd ed., eds. J. Rabin, W. B. Hildreth, and G. J. Miller. Boca Raton, FL: Taylor and Francis, 227–247. Le Loup, L. T. (1984). Appropriations Politics in Congress: The House Appropriations Committee and the Executive Agencies. Public Budgeting and Finance 4(4), 78–98. Lee, R. D. Jr., Johnson, R. W., & Joyce, P. G. (2008). Public Budgeting Systems. 8th ed. Sudbury, MA: Jones and Bartlett Publishers. Robinson, S. E., et al. (2007). Explaining Policy Punctuations: Bureaucratization and Budget Change. American Journal of Political Science, 51(1), 140–150. Read More