Organisation for Budgetary Control


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Organisation for Budgetary Control

 

  1. Creation of budget centres: Centres of departments should be established for each of which budgets can be set with the help of the head of department concerned. A budget centre is a centre or department or a segment of a an organisation for which budgets are prepared. Budgets should be set with the help of the heads of these centres so that these may be implemented more effectively.
  2. Preparation of an organisatoin chart: This defines the functional responsibilities of each member of the management, and ensures that he knows his position in the company and his relationship with other members.
  3. Establishment of  a budgeted committee: In small companies budget officer or the accountant may coordinate all the work connected with budgets, but in large companies a budget committee is often established to formulate a general programme for preparing budgets and exercising overall control. The Chief Executive of the company may establish guiding principles but usually he delegates the responsibility for operating the system to the budget officer as secretary of the committee. This committee is composed of the chief executive, budget officer and heads of the main department such as those shown in Fig. 1. Each member will prepare his own initial budget or budgets, which will then be considered by the committee, and all budgets will be coordinated. Usually many changes are necessary before the budgets can be finally integrated and approved.
  4. Preparation of budget manual: This is defined (by the I.C.M.A.) as a document which sets out the responsibilities of the persons engaged in the routine of, and the forms and records required for budgetary control. It is usually in loose-leaf form so that alternations can easily be made as and when required, appropriate sections can be issued to executives requiring them. An index will be provided so that information can be located quickly. Such a manual will usually prove invaluable, as it will include information such as:

 

(a)  Description of the system and its objectives,

(b)  Procedure to be adopted in operating system

(c)  Definitions of responsibilities and duties

(d)  Reports and statements required for each budget period

(e)  The accounts code in use.

(f)   Deadline by which data are to be submitted.

 

  1. Budget Period: There is no “right” period for any budget. Budget periods may be short term and long term. If a business experiences seasonal fluctuations, the budget period will probably extend over one seasonal cycle. If this cycle covers, say two or three years, the long-term budget would cover the period, while the short-term budgets would perhaps be preparation on a monthly basis for control purpose. Short-term budgeting is usually costly to prepare and operate, while long-term budgeting may be considerably affected by unforeseen conditions. Budget periods frequently used in industry vary between one month and one year, the latter probably being the most commonly used as it fits in with the normally accepted  accounting period. However, forecasts of much longer periods than a year may be used in the case of capital expenditure budgets, for example, which must be planned well in advance. A common practice in industry is to have a series of budget periods. Thus, the sales budget may cover the next five years, while production and cost budgets may cover only one year. These yearly budgets will be broken down into quarterly or even monthly periods. Where long-term budgets are operated it is usual to supplement them with short-term ones.
  2. The key factor. This is the factor whose influence must first be assessed in order to ensure that functional budgets are reasonably capable of fulfillment. The key factor-known variously as the “limiting” or “governing” or “principle budget” factor is of vital importance. It may not be the same for each budget period, as the circumstances may change. It determines priorities in functional budget. Among the many key factors which may affect budgeting are the following:
  3. Management

i.    Lack of capital, restricting policy

ii.    Lack of knowhow

iii.    Inefficient executives
iv.    Insufficient research into product design and methods.


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