The main purpose of government is to provide a variety of services to their citizens.
Most of governmental resources are derived from those who pay taxes, but most tax payer do not pay taxes.
Therefore, It can be said that the various services provided by government must compete with each other for scarce resources.
Budget is a process that provides for accumulating resources and for allocating them among competing programs.
2. Overview:
• The main purpose of government is to provide a
variety of services to their citizens.
• Most of governmental resources are derived from
those who pay taxes, but most tax payer do not pay
taxes.
• Therefore, It can be said that the various services
provided by government must compete with each
other for scarce resources.
• Budget is a process that provides for accumulating
resources and for allocating them among competing
programs.
3. A Budget
-Is a formal estimates of resources that an organization
plan to expend for specific purpose during known time,
and the proposed means of acquiring these resources.
-Budget contains activities the organization plan to
undertake and how the organization expect to finance
its activities.
- Once approved, the budget represents a public policy
in that its adoption implies certain objectives, as well as
the means of accomplishing those objectives, as
determined by the legislative body.
- It is a framework for operations, the budget has the
force of law in most local governments.
4. A Budget
• This means that Revenue can be raised from
authorized sources and that Expenditures can be
incurred only for authorized purposes and in amounts
not to exceed authorized maximums, which is called
Appropriations.
• Budget is standard to measure the efficiency and
effectiveness can be measured.
5. 1. Budget Laws
These laws deal with: types of budget, fund required
to have budget, and putting budget into effect.
Budget law encourages and requires a balanced
budget which means the proposed expenditures do
not exceed estimated money available of the budget
year. Often not balanced
Available money means fund balance and estimated
revenue.
6. 2. Types of Budgets
a. Operating Budget:
It is budget for General and Special Revenue Funds.
Also called current budget, it represents activities proposed to
accomplish for the period.
It displays actual revenue and expenditures for prior period, the
current year to date, and anticipated revenue and expenditures
for budget period.
It contains the following information: (1) personnel and
salaries (2) proposed bonds issues (3) methods of reducing
costs (4) cost of operating specific activities.
7. b. Capital Budget
Plans of expenditures in form of long lived or capital
assets.
It usually covers 4-6 years.
Capital budget are especially helpful when as
organization needs to determine when and if it will be
necessary to incur debt.
8. c. Cash forecasts:
- Predict the amount of cash to be received and expended
during a period of time.
- Gives anticipation of cash surplus and shortage and the
method of financing.
Formula:
Cash Beginning + Cash Receipts = Cash Available
Cash Disbursement + Minimum Cash = Cash required
Cash available- Cash required = (deficit) Surplus.
Deficit + net financing + minimum cash = Cash End
Surplus + Minimum cash = Cash End.
See Table 3-1 Page 62
9. Budgetary Approaches
• Object of Expenditures approach:
Budget are prepared to show as line item every category of
expenditure to be made during the year in term of: (1) physical
goods or services (2) Performance or programs.
Expenditures differ from department to other. Example every
department needs Current operation expenditures such as salaries,
utilities, and supplies. Some department such as police, fire and
street are capital intensive this called capital outlay appropriations.
• Performance and planning-programming budgeting
• Zero-based budgeting
10. 2. The Budget Process:
1. Budget Policy Guidelines:
Discussion by officers abut the policies must be followed to
prepare budget. Such as discussion of the current condition and
forecasting for future. This step contains the following:
* Level of Revenue and Expenditures.
* Possible decrease or increase in tax.
* Types of programs will undertake.
* Financing Issues.
* Current Economic Conditions.
• Capital Spending.
• Policies regarding allowable: Salary adjustments and Inflationary
adjustments
11. 2. The Budget Process:
2. The budget calendar:
• When each step must be completed
• Who is responsible
• Dates may be in the laws
It lists the steps of budgeting preparation with dates
on which each of step must be performed.
12. 3. Budget Instruction:
• Instruction should be prepared and send to
responsible persons.
• It contains the following documents:
• (1) budget calendar (2) policy guideline (3)
summarization of anticipated fiscal condition (4)
policies to be followed when preparing expenditures
request (5) inflationary guidelines to estimate the
future cost (6) Instruction on how each step should be
completed (7) Instruction on where to seek help of
any ambiguities.
13. 3. Revenue Estimates:
Estimate total revenue available for spending. The
responsible person requires to do the following:
* Estimate the fund balance in each fund.
* Project revenue to be realized.
* Summarize the estimates in a statement of
estimated revenue.
14. 5. Expenditures Request
Expenditures classified into two categories:
a. Departmental Expenditures.
b. Non Departmental Expenditures.
a. Departmental Expenditures.
-Should be prepared by each department or unit.
-These documents show the total expenditures for prior year, total
estimated expenditure for current year, and proposed amount of
expenditures.
-Detailed supporting schedule for each major object of expenditure.
- Expenditure request enable legislative body to evaluate the
performance of each subunit.
- Force managers to take a close look at the objectives.
15. b. Nondepartmental Expenditures.
This type of expenditures that do not relate to any one specific
department or activity. They benefit the organization as a
whole. For example: utilities, maintenance used for several
department or programs such as a city hall or cleaning after
flood.
It also includes the inter fund transfer which mean transfer
existing resource from fund to another.
17. 7. Budgetary Review:
This step in budget preparation is very important to ensure:
* All supported documents for expenditures properly
prepared.
* No errors have been made when information transferred.
* Whether each requested item justifiable and realistic.
* Ensure that total proposed expenditures do not exceed total
budgeted resources.
The purpose of review is to obtain the input of the CEO into
budgeting process and enable CEO to prepare specific budget
recommendation.
18. 8. The Budget Document:
The budget document should contain the following:
1. A budget message.
which discuss the following:
* The fiscal experience of current year.
* Present financial condition.
* Major financial issues during past year.
* Assumptions used in budget preparation.
* Significant revenue and expenditures changes.
* New programs anticipated to accomplish.
* Future Economic outlook.
19. 2. A budget summary
•Which lists the total estimated revenue by sources.
•The total budgeted expenditures by program or department
and for the organization as a whole.
3. Detailed support schedules.
4. Capital Project schedules.
5. Supplementary Information.
6. Drafts of appropriations and tax levy acts.
21. Property Tax Levy:
Two approaches can be used to determine the taxes to be
assessed:
First: Use of flat or fixed rate determined by law.
Second: Subject to fiscal needs of government. In second
approach tax determined by desired amount of revenue as a part
of revenue estimation with legal limit. This calculation requires
consideration of:
1. Uncollectable taxes percentage.
2. Property exempt from taxation (such as land belong to
religious organization)
22. Computation:
1. Compute the required tax levy as a follows:
Amount of tax to be collected /
(1-uncollectable %)
Ex. Tax to be collected $3,500,000 uncollectable% =5%
3,500,000
1-5% (0.95)
= $3,684,210
2. Compute Net assessed value of property equal:
Total assessed value of property – property not taxable –
Exemptions.
Ex. Property assessed value = 50,000,000.
Property not taxable = 2,000,000
Exemptions = 1,500,000.
50,000,000 – 2,000,000 – 1,500,000 = 46,500,000
23. Cont.
Tax Rate = Required tax levy
Net assessed value of property
= 3,684,210 / 46,500,000 = 7.9%
If owner of property has assessed value of 200,000 will
require to pay property taxes of (200,000 * 7.9% = 15,846)
27. 2. Expenditures Classification:
Expenditures classified by the concept of (Legal Level of
Budgetary Control). This refers to the level of expenditures
cannot legally exceed budgeted amounts.
The level of control is defined in budgetary or organizational
term as a following:
1. Fund: Highest level.
2. Government Department: Intermediate Level and classified
to: (a) Function/Program (b) Organizational Unit (c) Activity
3. Object of Expenditures: Low level.
28. 2. Expenditures Classification: Cont.
* Function/ Program:
Group of activities intended to accomplish specific objectives.
Example: Public Safety, Education, and Health Care.
* Organizational Unit:
Specific departments of the government. Example: Fire,
Police, and Education Ministry.
* Activity:
Example: Investigations of Crimes, Teaching, and Supervision.
29. Example:
Fund General
Function Public Safety, Roads
(within A Fund)
Department Police Department
(within a Function)
Activities Investigation
(within a Department)
Objects of Expenditures Salaries Expenditures
(within Activity)