CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The efficiency and effectiveness of the operations of a business depends on the control available to management in most business organization, there are numbers of activities going on at the same time such as producing, purchasing, distributing, selling and financing a product. These are interrelated in such a way that they affect the attainment of the organization goals.

The Institution of Cost and Management Accountants (ICMA) define “budget” as a financial or quantitative statement prepared and approved prior to the defined period of time of the policy to be pursed during the period for the purpose of attaining given objectives. It may include income, expenditure and the employment capital. It can also be defined as a sum of money allocated for a particular purpose and the summary of intended expenditure along with proposals for how to meet them.

The budget is also a financial statement made by the government which spells out estimated government revenue and proposed expenditure for the coming financial year and its consists of a package of proposals regarding revenue which is likely to be met on various items. Most often, the budget includes an appraisal of the performance of the economy during the previous financial year.

Therefore in order to achieve these objectives or goals, the organization must economize resources and discover the means of achieving these goals. These goals can only be realized when there are properly planned uses of available resource, well co-ordinated and controlled effectively. Thus a system of managing a business by making forecast of the different activities and applying a financial budget to each forecast becomes imperative.

These forecast are guided by the information and adoption of planned system such as techniques in budgeting, variance analysis etc.

Pandy (2008) defines budgetary control as the establishment of departmental budget relating the responsibilities of the executive to the requirement of a policy, and the continuous comparison of actual budgeted result either to secure by individual actions. The objective of that policy is to provide a firm basis for its revision. The planning, co-ordination and control are the responsibilities of management. Osisoma, (2013) opined that budgeting is a systematic and formalized approach for accomplishing a goal. It is also a process of preparing in advance of the period to which it relates a summary statement of plans expressed in quantitative terms, which if utilized with sophistication and good judgment, would enhance the attainment of an organization’s objectives.

A budget therefore, is a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planned income to be generated or expenditure to be incurred during that Period, and the capital to be employed to attain a given objectives.

On the other hand a budgetary control is the establishment of policies and periodic review or comparison of the actual result with the budgeted performances either to secure approval for individual action or to serve as a remedial course of action. It can also be referred to as how well a manager utilizes budgets to monitor and control costs and operations in a given accounting period. In other words budgetary control is a process for managers to set financial and performance goals with budgets, compare the actual result and adjust performance, as it is needed.

It was also described by Lucey, (2002) as a quantitative expression of a plan of action prepared in advance of the period to which it relates. Budget may be prepared for the business as a whole, for departments, for functions such as sales and production, or for financial resources items such as cash, capital expenditure, and manpower purchase etc. Although management can set goals and evaluate the progress. There are typically four steps in budgetary control process that managers follow.

Firstly a budget needs to be created. To put it simply, a company performance budget is really just a set of financial goals that management wants to achieve. This could be sales or spending.

Secondly, after the budget is created, management needs to compare, analyze, and interpret the actual performance result with the budgeted goals. Management uses budgetary report for such comparison.

Thirdly, after this comparison has been made, managers need to improve underperforming operations and continue to strengthen the favorable ones. The budget reports easily allow the managers to focus on unfavorable operations because all areas that meet the budget are marked with “F” for Favorable variance while the poorly performing areas are marked with “U” for Unfavorable variance.

Fourthly, which is the final step usually occur at the end of the accounting period. After the management has the chance to observe the entire last period, they can start making budgets for the coming year, for instance they are both likely to review the original budget that was created and why certain goals were set. Then they will compare the actual with budgeted performance over the entire period and try to focus on how to correct the problem operations and develop a plan to fix the next issue.

The process of preparing and agreeing budgets is a means of translating the overall objectives of the organization into detailed, feasible plans of action. It is therefore, germane to say that the level of importance that is attached in this plan and effort made in controlling the finance differ in organizations. Once the goals are set, which must be based on the detailed analysis of feasibility within the content of the political and a business is said to be on the right track if the outcome of the budget estimated is favorable as against the actual. The little that is said concerning this project has encompassed all avenues in which the subject can aid management decision; rather it should be seen as a guide for people business.

1.2 STATEMENT OF PROBLEM

The main problem with budgeting is that it reflects data from the past and present, and will only enable predictions and forecasts to be made out of the future. At the same time numerous pressures in the job may impose constraints upon managers, which affect the quality of information they collect. The problem can be numerous; clearly, nothing can be forecasted with absolute certainty. No matter what, financial making researches take place every organization and it has to take risks.

Though accounting information may reduce the unpredictability of event in the future. It will never eliminate it.

These are some of the factors that can hinder budgetary control

i. If the actual result are completely different from the target, the budget can lose its significance as a means of control whereas a fixed budget is not able to adapt to changes , a flexible will recognize changes in behavior and can be amended to falling line with the changes,

ii. Following the budget rigidly can also restrict organization activities.

iii. If budgets are imposed on mangers without sufficient consultation, they may be ignored.

In addition, it is impossible to state the duration of a budget programme because the longer the budget period the more difficult it become because we cannot anticipate how the general economic problem will affect the business of the company and also the growth of the business hinges, or better put, rests squarely units budgetary control system or techniques hence they are considered as a vital tools in any business situation.

This study then is aimed at assessing and evaluating the event to which budgetary Control has been a tool for the growth and global realization of any organization.

Lack of budgets in planning and control has required in the indiscriminate use of fund meant for more viable activities. Again the inability of many companies to plan and accomplished budget goals is traceable to their inability to apply controls in their budget system.

Budgetary goals are not realized due to low level of understanding of the budget system by middle and low level of management staff. Other problems are shortage of stocks and shut down. These and many more are some of the problem of lack of budgeting control.

1.3 OBJECTIVES OF THE STUDY

The primary objective of budgeting and budgetary control in business organization includes the following:

i. PLANNING: To produce detailed operational plan for the different sectors and facets of the organization and also to determine how budgeting and budgetary control affect the quality of service delivery in government parastatals.

ii. COORDINATION: To bring together and reconcile into a common plan and actions of different parts of the organization and to also determine if there is a connection between the type of budget implemented and their actual performance.

iii. MOTIVATION: To influence managerial behavior and motivate managers to perform in line with the organization objectives and to also determine whether or not budgetary controls as a management tools contribute to the improvement of management efficiency and high productivity.

IV.CONTOLLING: To assist managers in managing and controlling the activities for which they are responsible.

V.PERFOMANCE EVALUATION: To evaluate performance by providing a useful means of informing managers of how well they are performing in meeting the targets that they have previously helped to set out.

VI. CLEARIFICATION OF AUTHOURITY AND RESPONSIBILTY: To make it necessary and clarify the responsibility of each manager who has a budget and also to authorize the plans contained in the budget so that management by exception can be practiced (ability to give a subordinate a clearly defined role and to carry out the assignment designated to him.

1.3 RESEARCH QUESTIONS

i. Do budgeting and budgetary controls affect the quantity of services delivered in government parastatals?

ii. How can budgetary control as management tools contribute to the improvement of management efficiency and high productivity?

iii. What are the connection between the type of budget implemented and their actual performance?

1.4 RESEARCH HYPOTHESES

H0: Budgeting and budgetary control does not affect the quantity of services delivered in government parastatals.

H1: Budgeting and budgetary control affect the quantity of services delivered in government parastatals.

2. H0: Budgeting and budgetary control does not contribute to the improvement of the management efficiency and high productivity.

H1: Budgeting and budgetary control contribute to the improvement of the management efficiency and high productivity.

3. H0: There is no connection between the type of budget implemented and actual performance.

H1: There is connection between the type of budget implemented and actual performance.

1.5 SIGNFICANCE OF THE STUDY

Budgeting and budgetary control is a function that is very important and of great significant to any organization. It is not peculiar to only the manufacturing organization but also necessary to service of the government. The study will contribute towards enhancing profits of the organization, business or an individual. It will help to control one’s income. Budgeting is necessary to make matters simple and hence make life easy to handle.

Budgeting guides people towards the allocation of money in different sectors, such as food, shelter, clothing, household expenses, medical care, utilities etc.

In case of an annual budget of a nation budgeting makes a blueprint of the overall funds that the concerned government will spend on various sectors, the kinds of tax that would be levied and how the prices of essential commodities would increase or decrease in the month ahead.

In summary, this study will be a guide to scholars, researchers or writers who may wish to carry further study on budget and its control apparatus.

1.6 SCOPE AND LIMITATIONS OF THE STUDY

This study is aimed at finding out the impact of budget and budgetary control in Lagos State Development Property and Corporation.

The limiting factors are that of availability of data which might be difficult to obtain following the trend of the attitude of Nigerians with regards to giving out information.

1. Time; Time constraints are also a limiting factor in undertaking this study. The available time and short period of the study made it difficult for the researcher to carry out a wider and more work on the issue, at the same time carry out academic activities.

Also literature on the topic as it relates to government parastatal are very few.

2. Finance; Due to economic recession, enough finance was not available to carry out the project efficiently.

3. Distance; The long distance between Benin Republic and Lagos Nigeria was also one of the major constraint because of shuttling between the field of study and also institution.

TABLE OF CONTENT

Title Page i

Approval page ii

Dedication iii

Acknowledgement iv

Abstract vi

CHAPTER ONE

1.0 Introduction 1

1.1 Background of the study 1-4

1.2 Statement of the problem 4 - 5

1.3 Objectives of the study 5 - 6

1.4 Research Questions 6

1.5 Hypotheses of the study 7

1.6 Significant of the study 7 - 8

1.7 Scope and Limitations 8

Reference 9

CHAPTER TWO

2.0 Review of related literature 10 - 16

2.1 Typology of budgets for planning and control 16 - 18

2.2 Types of budget 19 - 22

2.3 Fundamentals of budgeting and budget

Administration 23 - 28

2.4 Preparation of budgets 29 - 30

2.5 Budgeting controls 31 - 34

2.6 Innovation in the area of budget

Zero- Based Budgeting (ZBB) 35 - 40

2.7 Lagos State Development Property and Corporation

Historical background 40 - 42

References

CHAPTER THREE

3.0 Research design and methodology 44

3.1 Population of the study 44

3.3 Sample size/ technique 45

3.3 Source of data 46

3.4 Research instrument 48

3.5 Procedure for data collection 49

3.6 Method of data analysis 50

Reference 51

CHAPTER FOUR

4.0 Data presentation analysis 52 - 56

4.1 Data analysis 57 - 70

4.2 Testing of hypothesis 71 - 81

CHAPTER FIVE

5.0 Summary of findings, conclusions and

5.1 Recommendations 80

5.2 Summary of findings 80 - 82

5.3 Conclusion 83

5.4 Recommendations 84

Bibliography 85

Appendix