CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
There is the need for optimization of the scarce resources available to organizations, that is available resources are to be put to their most optimal or profitable use. Since these resources are scarce, a plan has to be drawn to eliminate wastage and arbitrary resource allocation. This trend of thought brings us to the “concept of budgeting”. An organization plans ahead in terms of sources of revenue and avenues of expenditure within a specific time frame. Irrespective of the fact that it is privately or publicly owned, organizations find it of utmost importance to prepare budgets and put in place budgetary controls for the purpose of achieving the best possible results. Omolehinwa (2001 :309) defines budgeting as “the plan of the dominant individuals in an organization expressed in monetary terms and subject to the constraints imposed by other participants and the environment indicating how the available resources may be utilized to achieve whatever the dominant individuals agree to be the organization’s ‘priorities’. In real world policy- and decision-making, information is intertwined with, and therefore reflects, interests and ideologies of various stakeholders (Weiss 1983). The information-content of (performance) measurement systems has an impact on how management and policy are defined, controlled, reported on and legitimized (Bouckaert 1995:384). Thus the information-content of budgetary control systems can be part of strategies to create meaning, exercise control or establish legitimacy. (Meyers 1994; Rubin 1997). Schick (1996) identified three ideal-type budget functions: control, management and planning and throughout the 20th century, other functions have been added to those outlined by Schick, for instance achieving savings or increasing accountability (Rubin 1996). As a result budget processes have gradually accumulated functions (Caiden 1988). Contemporary budget systems can thus be understood as multi-functional, multi-formatted and multi-procedural phenomena. Budget reform then can be described as shifts in functions, formats and procedures.
1.2 STATEMENT OF THE PROBLEM
The focus on improving financial control has resulted in introducing more sophisticated financial accounting techniques in organizations, requiring long-term financial planning, and more comprehensive financial statements and financial audits. The performance oriented reforms at this level have focused on strategic and performance planning, aligning budget formats to these performance plans, linking performance monitoring with accrual and cost accounting and conducting performance audits. It is a common practice for corporate bodies to prepare their yearly budget proposals for approval, the budget approval in most cases is hinged on the performance and actualization of the previous years’ budgets. However the underlying problem of the budgetary system is its strict implementation within the dynamic of an ever changing business and political environment of the corporate business world. Thus for corporate management, budgeting and budgetary controls may be reviewed periodically to attain given objectives with organizational goals. That practice of performance measurement against plans would make management able to take remedial action against variances in order to bring the deviating operations/departments back on course.