BUDGETING IN

A PUBLIC
SECTOR
 Definition
• A budget is a quantitative expression of a
plan of action prepared in advance of the
period to which of relates.
• A budget expresses what is to be
undertaken next year and authorizes the
financial recourses that are needed.
OBJECTIVES OF ANNUAL
BUGDET
 1. The establishment of the
required income
• It must be noted that in the public sector
come from taxes, charges and fees that
are levied by the government. Budget
income is arrived at by examining the
current levels of income and the level of
expenditure for the coming year.
2.Planing Service expenditure
levels
 Authorization of expenditure
• Money must be spent on what has been
authorized in the annual budget.
4. The Central of Expenditure
5.A Common action device
 6. Focus attention
• The budget process focuses attention on
the future. It there fore makes the service
manages plan method and cost of service
delivery.
 7. Motivation of Managers
• The managers are motivated by the
budget but more so if they played the role
in formulating it. There is therefore alll
attachment that is created.
 Revenue Budgets
It must be understood that most compelling
reasons for revenue budget is to
determine the income level and the
expenditure levels.
 For services that are funded through
taxation and charges, the central
government need to fix the level of taxes
and charges to be levied.
 Line Items Budgets -1.0
This type of budget places its emphasis on
the nature of the income and expenditure.
 Disadvantage
• Cannot identify the amount allocated to
each individual service and would
therefore fail to reflect the planned level of
activity for each service.
 Program Budget Structure
• This type of budgeting places its emphasis
on the purpose of expenditure e.g. crime
prevention, mental health care etc.
• This approach is believed to lead to better
planning and control because recourses
could be allocated more precisely to
specific activities and actual achievements
could be monitored more effectively.
 Capital Budgeting
• If a public sector organization is be successful in
achieving its objectives it is to give consideration
to planning of capital expenditure.
• A Useful approach to the problem of planning
and controlling expenditure is to develop capital
programs which express the overall plan of start
, medium and long term capital schemes, and
reveal the allocation of priorities between
different parts of the organization.
 APPROACHES TO THE
BUDGETARY PROCESS
We shall consider four modules that any
public sector can choose from
 1. Incremental /Department
• This model bases next years budget on
current results plus extra amount for
estimated growth and inflaction.
 2. Rational/ Corporate
• This is less concerned with the budget
base or past, but are more concerned with
using recourses to meet current
established objectives.
THE BID SYSTEM
 Stage 1
Separate estimate Preparation
• Do the separate departments or services
prepare next years budget estimates in
isolation using the current expenditure aid
service levels as a starting point
 Sage 2
Aggregation & Comparison

• The separate estimates or bids are then

aggregated and then total compare with
what can be raised via taxation and
charges.
 Sage 3
Reduction in expenditure levels
When the gap between the income and
expenditure is narrow proposals are made
to reduce the proposed expenditure by a
given percentage.
 Stage 4
Detail Estimate Reduction
When faced prospects to make substantial
cuts in proposed expenditure the following
guidelines are often used
 1. Proposed expenditure is dealt
with first.
• Cut out new projects
• Post pare the start of the projects
2. Revenue expenditure is reduced
• New services are cut
• New services are delayed
• Level of services reduced
• Service deferred to following group.
FINANTIAL PLANNILNG SYSTEM
Feature which distinguishes financial
planning system from the bid systems
include
1.There are multi-year nature
2.The issue of expenditure giddier
3.Joint consideration of capital and revenue
budgets documents.
4.Specific and classification in the budget
document.
 1. Multi-year Nature
A medium tom plan say 2-3 commitment
and forecast are considered including the
annual budget is seen as the first year of
the rolling budget.
 2. Expenditure Guideline
A target growth percent is established for
each service prior to the prevention of
detailed estimates for a department
 3. Joint Consideration of Capital
and Revenue
• There is no simultaneous consideration of
capital and revenue estimates due to the
fact that estimates are considered for
several periods.
 4. Detailed specification and
classification
Instead of base expenditure incremental we
now have Base Exp + Inflation-
Reductions+ Committed growth+ New
growth.
Programming planning based budgeting
systems (PPBS)
Traditional budgeting
approach which is
department is not very
suitable for non-profit
making organizations such
as government ministries.
 A major citizen of the
traditional approach is at
luck of information on the
activities actually being
performed by the ministries.
Cast are analyzed by their
nature rather than purpose.
PPBS intended to overcome
such criticisms. The aim is to
enable the management of
non-profit organizations to
make more informed decisions
about the allocation of
recourses to meet the overall
objectives of the organization.
 Sages
1. Review the objectives and activities
undertaken by the organization.
2. Identification of programs which would
be undertaken to achieve the objectives.
3. Identification and evaluation of various
methods of the objectives of the various
programs.
4. Selection of appropriate programs on the
basis of costs- benefit principals.
 Advantages
1.Forces management to identify activities
to provided.
2.Provide information that enable
management assess the effectiveness of
their plans.
3more efficient allocation of resources.
Budget preparation in public sector
Two steps in budget preparation
1.Estimated out-turn for the current year.
2.Estimate for next year
 Estimated out-turn
Involves forecasting the out-turn for the
current year which form the budgetary
based for the contraction of budget for
next year.
 Estimate for next year
This is based on the estimated out-turn
Determining the estimated out-turn
for the current financial year
• Establish the actual to date
• Adding estimated expenditure for the
reminder of the current year.
 Estimating the expenditure for the
remainder of the year the following
should be considered
• The preparation of the year remaining
• The anticipated inflation for the remainder
of the year
• Impact pay awards on stuff costs
• Costs of new products to be commenced
in the current year.