Budgeting is the process of allocating available resources towards the fulfilment of certain set objectives either at an individual or corporate level for a given period of time. Governments are able to successfully accomplish their mandate towards citizens by operating on the set budgets. Public budgeting involves the division and allocation of the societys economic and financial resources between the public and private sector. However, public budgeting systems can be defined as the structures tasked with the responsibility of evaluating the current societal conditions and also past performances as a guide towards the allocation of resources for a budget. Budgets have to precisely state details of the amount to be spent, expenditure purposes and also department allocations. The importance of budgeting is to distribute limited resources among competing public needs and ensure attainment of societal objectives. Generally, executive branch is responsible for preparation and execution phases and legislative branch controls approval phase. Budgeting criticism at federal level is that budget is hardly ever considered fully during preparation phase. Within executive branch, only president and immediate staff view the whole budget. The cycles are intermingled thus complicating decision making.
Differences between Private and Public Sectors
The private and public sectors operate differently as they are governed by different operation principles. The differences are seen by evaluating several factors such as:
Resource Availability The private sectors budget is constrained to the available resources whereas the public sector has access to vast underutilized resources.
Profit motive The private sector is generally driven by profits unlike the public sector which is motivated by collective benefit to members of society. The motivation on budget decisions is an important distinction between public and private budgeting. The government mostly focuses on nonprofit making activities but for private sector, profit making is the main motive and it acts as a measure of success. In the long run, revenues must always exceed costs. Profits act as a standard for assessing previous decisions in the private sector and failure to make profits means that the organization is slowly getting out of business. Corporations sometimes forgo profits during short run for example in cases of price wars, they opt to temporarily sell at a loss to maintain their share in a given market. Private corporations also undertake corporate social responsibility (CSR). This involves firms making contributions to the society in order to sustain their corporate existence. Budget decisions in the private sector affect long-term profits but this is not the case for public sector. Governments take on some activities intentionally instead of leaving them to the private sector. Government for instance, work on programs of eradicating tropical diseases like malaria not based on financial or economic gains, but rather on a concept of public interest in eliminating such diseases that affect low income citizens. Government programs are measured on the basis of efficiency and effectiveness (output and outcome) but not profits and losses.
Service provision Services provided by the private sector encourage individualism whereas the public sector allocates its services such as security indiscriminately to all citizens. The differences in service provision include public goods and externalities. Government services provide collective advantages the benefit the whole society. Corporate products, however, are mostly consumed by specific organizations and individuals. If an individual uses a public good or service, he/she does not lessen another individuals use (public goods are non-rival). Externalities show that there are benefits that spill out to the rest of the society. Private sector can only provide such services with a profit motive but the government provides some services that yield significant externalities. Education, for example, if left to private sector only the rich would benefit, thus leaving the needy uneducated.
Ownership Private sector firms are owned by stockholders who are paid annual dividends whereas the public sector is owned by citizens who benefit from public services provided.
Responsible Government and Budgeting
In democratic societies, the constituency dictates that all public officials are held liable by the society to account on how public funds are spent. The government decentralized its power among its three branches; the executive, judiciary and national assembly to ensure proper accountability and governance. For efficiency on government budgeting, an executive budget system had to be set. The budget system holds the ruling government accountable to the amount of funds spent during its regime. The budget system underwent a long vetting process by the congress over the years until its approval. Once approved, the budget system was included as part of the constitution as it plays a crucial role in determining a countrys financial budget.
The importance of budgeting is to distribute limited resources among competing public needs and ensure attainment of societal objectives. A budget cycle is therefore necessary. It enables the system to understand and react to new information thus allowing the government to be responsible for its own actions. The cycle has four phases;
Preparation and submission
This phase has been subjected to many reformulating experiments.
The executive responsibility of budget preparation greatly differs among jurisdictions. At federal level, it is the presidents responsibility to prepare the budget but there other factors which limit the level to which he or she can alter the budget. Prime minister, in parliamentary systems, prepares the budget and submits it to the parliament as government budget.
However, at municipal level, mayors only have power in budget preparation if they have administrative control over a given executive branch. City managers, on the other hand, have budget preparation responsibility but due to lack of independence their ability to make budgetary proposals is limited
Budget preparation for agencies start by reviewing their programs and taking into account the programs to be revised. The president then issues fiscal policy guidelines and a general budget used by agencies in development of individual budgets which are submitted to the OMB.
Budget cycle phases are completed with both partisan and bureaucratic political considerations together with policy considerations. Each unit in an organization concentrates on survival and advancement though they are also concerned in developing programs for common benefits.
This is a major issue in the preparation phase. Different units in line agencies have a tendency of being concerned with their programs and mostly fail to get a broad view.
Revenue and appropriation bills
It is the responsibility of legislative body to approve the budget. It reviews executives budget recommendations and has regular access to the original agency budget requests which are useful for comparisons. Local legislative organizations may take various introduction votes on budget pieces but eventually adopt the whole budget by a single vote. States separate their revenue measures from spending bills (appropriations). Some create various appropriation bills while others place most of their expenditure provision in one appropriation. State legislatures have freedom to increase or decrease governors budgets though they have restrictions on their ability to augment the budget. At federal level, appropriation and revenue processes are fragmented and involve various committees
In both preparation and approval stages, some issues govern budget considerations. If government projects revenue decline due to a weakening economy the major concern will be closing high expenditure and low revenue gap. Approval phase is finalized by signing appropriation bills into laws by either the president or governors.
For federal government, execution commences on October 1 and July 1 for state governments. Execution begins with impoundment which basically means denial to discharge funds to agencies, a move made by the chief executive. After apportioning of funds, departments and agencies make allotments. This process is used to regulate spending during the fiscal year. The allotments, made on quarterly and monthly basis, grant budgetary authority to various subunits. Pre-audits are then conducted before making an expenditure to ensure commitment of funds for approved purposes only. Execution subsystems then follow, whereby, taxes to the government are collected. At federal level, supplies and materials are procured. Strategies to protect government against property damage or loss are also developed. Local governments sell bonds in order to construct facilities and acquire equipment.
Audit and Evaluation
Auditing, in the recent past, has broadened to include studies of government programs effectiveness. At state level, audit function is performed by one unit that is answerable to legislative body or chief executive. States mainly use legislative and elected auditors. In federal government, General Accounting Office (GAO) is responsible for the auditing. GAO gives congress view on legal issues and whether or not agencies act In accordance with the law.
Besides the mentioned factors, intergovernmental issues and timing of budget years also affect the cycle. Budget cycles are complicated due to lack of consistency in the budget stage. Intergovernmental factors arise due to the interdependence of the three major levels of government. Generally, executive branch is responsible for preparation and execution phases and legislative branch controls approval phase. GAO directs the fourth phase. Budgeting criticism at federal level is that budget is hardly ever considered fully during preparation phase. Within executive branch, only president and immediate staff view the whole budget. The cycles are intermingled thus complicating decision making.
The interaction between the central budget office and the line agencies
After the approval of the budget, the execution phase of the budget cycle begins. Execution is considered the action phase of budgeting, where all plans that are outlined in the budget are put into operations (326). During budget execution, legislative intent is legally binding and has to follow the legal requirements. Before a bill is debated at the state and federal levels, the bill provisions has to be considered before further reports explaining the interpretation of the bill is adopted. The budget office must be noticed on what to be expected during the implementation of the laws (326). The legal challenges on the bill have to be decided by the courts. In cases of ambiguities, the courts refer to the committee reports. To adapt to these challenges, the executive agencies need flexibility in the laws in which they operate. This flexibility leads to further decision-making process that may lead to passing of the agency appropriation.
At the federal and state level, an apportionment process is used, where line agencies submit plans to the central budget office on the manner in which the funds will be used. Such plans include proposed expenditures during the fiscal year. The apportionment oversees the spending process by ensuring the agencies spend within the limits imposed (327). The apportionment plan proposals should be defended based on the work they seek to accomplish and the guidance they offer agencies in using resources effectively.
In the beginning of the fiscal year, agencies consider the difference...
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