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INSTITUTE OF ACCOUNTANCY ARUSHA. (IAA)
RESEARCH REPORT ON: THE ROLE OF BUDGET AND BUDGETARY CONTROL IN THE ORGANIZATION. A CASE STUDY OF NGORONGORO CONSERVATION AREA AUTHORITY. (ARUSHA)
Prepared by; Mr. MBWAMBO AMANI ADA III 2008/2009. Supervised by; Mr. MALISA. G.T.N
"A Research Report to be submitted to the Institute of Accountancy Arusha (IAA) in partial fulfillment of the requirement for the award of Advanced Diploma in Accountancy (ADA)" January, 2009.
TABLE OF CONTENTS Page.
DECLARATION. I, Mbwambo Amani, declare that this research report is my own work and has never been submitted for similar Advanced Diploma/Degree in any other University/ Institute in the United Republic of Tanzania or any other country. Candidate: MR. Mbwambo Amani. Signature.. Date:. Supervisor: Mr.Malisa G.T.N Signature:.. Date:.
DEDICATION. I dedicate this entire research report to my be loved mother Mrs. R.A. Mbwambo, my relatives Mr. and Mrs. Swai, my brother H.A.Mbwambo and my sister A.A.Mbwambo for their much concern and support through out my study.
COPYRIGHT Copyright Mbwambo A, 2009. All rights are reserved. No part of this Research report may be reproduced, store in any retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise without a prior written permission of the author or Institute of Accountancy Arusha on my behalf.
ACKNOWLEDGEMENT. The success of my field work has contributed by many people. I owe them my feeling to express my gratitude and appreciation to all who kindly assisted me on report preparation. Special sincere gratitude goes to the management of Ngorongoro Conservation Area Authority for the co-operation which existed for all periods of my field. My thanks go to Mr. S. Kyambile (Director of Finance and Account), Mr. E. Emmanuel (Chief Internal Auditor), Mr. S. Kalembo (Chief Accountant), Mr. M.Msacky (Principal Accountant), Mr.M.Goodbless (Revenue Accountant),Mr. O. Daniel (Cashier), Mrs. V.Baraza and all other employees of Ngorongoro Conservation Area Authority. For their untiring guidance and encouragement. Appreciation should reach my research Supervisors Mr. Malisa. G.T.N for his constructive guidance which leads this paper to look the way it is now. Im also very grateful to my family Mrs. R. Mbwambo, My aunt, Brother and Sister who their kindness and co-operation assisted me financially and encouragement during the process of undertaking this research. Their lovely, understanding and care mean a lot to my life. Lastly, I wish to thanks my friends Mbogoni Mathias, Jacob Erasto, Kaninilo Daniel and my colleges in Advanced Diploma in Accountancy course for their friendly co-operation.
ABSTRACT. The study intends to examine The Role of Budget and Budgetary Control in the Organization. The Internal Auditor and Director of Finance in accounting have become very important persons to any organization due to the role they play notably on the decisions related to daily financial operations for successful budgeting. The research report was comprised of five chapters. Chapter one was about the general overview of the problem such as background of the problem, objective of the study, research questions which would help the researcher to collect data as well as significance of the study, scope of the study and limitations of the study. Chapter two was about the literature review, which shows the meaning of budget and budgetary control, essentials of budgeting, advantages of budgeting, the role of budget and budgetary control and limitations of budget and budgetary control. Chapter three explained about the research instruments such as interviews, questionnaires and documentation would comprise data collection methods. Chapter four, in this chapter findings, data analysis and interpretations were covered. The data were presented, analyzed and interpreted in relation to the objectives of the study and hypotheses. It constitutes the data analysis, sources of funds and discussion of data as per hypotheses. Chapter five, in this chapter the study would provide conclusions and recommendations of Ngorongoro Conservation Area Authority on the role of budget and budgetary control system. From the data collected the researcher come up with some recommendations to improve the efficiency and effectiveness of the organizations performance. Therefore, in this paper the researcher would disclose how the management should improve the role of budget and budgetary control.
LIST OF ABBREVIATION. ADA NCA NCAA NHFR IAA ICMA WHS IBR UNESCO MTEF MDA GMP SMART Advanced Diploma in Accountancy. Ngorongoro Conservation Area. Ngorongoro Conservation Area Authority. Northern Highland Forest Reserve. Institute of Accountancy Arusha. Institute of Cost and Management Accounting. World Heritage Site. International Biosphere Reserve. United Nations Educational Scientific and Cultural Organization. Mid-Term Expenditure Framework. Management Driven Activity. General Management Plan. Specific,Measurable,Achievable,Realistic,Time bound and Transparent.
CHAPTER ONE. INTRODUCTION. 1.0 HISTORICAL BACKGROUND. The Ngorongoro Conservation Area (NCA) covers 8292 square kilometers. It is one of the three divisions that comprise Ngorongoro District in Arusha Region.NCA was established in 1959 by the NCA ordinance No. 413 of 1959 as a multiple land use area, designed to promote the conservation of natural resources such as flora and fauna including quinine trees found at Lerai forest,pilar wood trees found along headquarters northern highland forest to loduare gate, lions, elephants and rhino, safeguard the interests of Ngorongoro Conservation Area, indigenous residents (Maasai people who are pastoralists living in the Ngorongoro Conservation Area with their cattle, goats and sheep) and promote tourism like wildlife, forest and archaeological. Ngorongoro conservation Area (NCA) is a unique protected area in the whole of Africa where conservation of natural resource is integrated with human development like employment, constructions of roads, bridges and building of the school and workers house. It is bounded by Lake Eyasi in the south. The main features of the Ngorongoro Conservation Area (NCA) include the Ngorongoro Crater and the catchments forest, Northern Highland Forest Reserve (NHFR) known as Entim Olturot in Maasai language, in English language Entim mean vegetation or forest and Olturot mean the place where water is settled .Other important features are the archeological site located at Oldupai/ Olduvai and the early human footprints that were discovered at Alaitole in Ngarusi area. Because of these spectacular features Ngorongoro Conservation Area was accorded the status of World Heritage Site and an International Biosphere Reserves a tourists rewarding destination. World Heritage Reserve, Heritage is our legacy from the past, what we live with today, and what we pass on to future generations. World Heritage Sites belong to all the people of the world, irrespective of the territory on which they are located. Biosphere Reserve is the official name for an area under the protection of the state and the United Nations Educational, Scientific and Cultural Organization (UNESCO) program Man and Biosphere (MAB).Biosphere Reserves are extensive and representative parts of natural and cultural and cultivated land scapes characterized by particular conditions and trend setting concepts for the
protection, conservation and development of the landscape, it was established by the UNESCOS man and Biosphere Reserve Programme in 1979. Ngorongoro Conservation Area Authority (NCAA) was the headquarters of conservator and all workers in the organization were among the members of the headquarter. 1.1 BACKGROUND TO THE PROBLEM. Budget and Budgetary Control is one of the mechanisms set to make organization operate smoothly and at the reasonable profit. However in most cases, the role of budget and budgetary control is not adequately honored, and as a result many organizations either operate under loss or are forced to be liquidated. Budgeting is an action plan and control document, regulating many aspects, for example, at Ngorongoro Conservation Area Authority, the budget helps in sectors such as Engineering services, Conservation services, Internal audit, Planning and Finance, community development, Tourism services and Human Resources and administration. Ngorongoro Conservation Area Authority (NCAA) has different sources of income such as tourism income, resident permits, mortorvehicle permits, camping fees, walking safaris, electricity, water and medical fees. Therefore, it gets both foreign and local currency. Ngorongoro Conservation Area Authority money is used to pay workers salary, for running their project like construction, maintenance and repair, living quarters and the Government takes one hundred percent of money remaining which is used for different planning and goals of the current budget. Without budget and budgetary control it is difficult to secure the value of money, which is used to achieve its goals in the organization. So procedures, policies are very important for guiding the organizations budget and budgetary control. Therefore, the act of preparing and agreeing to a budget is a means of translating overall objectives of the firm into detailed action. It is how organization aiming to have a budget for the annual or for a certain time in order to control the income, expenditure within any organizations. On the other hand, other researchers have noted that effectiveness of budget and budgeting control is among the existing problems causing failures in the general operations of many organizations. Is the task of this study to reveal the role of Budget and Budgetary control and to ascertain if the organization operates under loss or at profit and measures taken.
1.2 STATEMENT OF THE PROBLEM. Budget and Budgetary control has been the most active feature on the financial success of many business firms. In Tanzania many studies have shown that the majority of the organizations fail to prepare viable budgets and hence operate under loss or sometimes collapse completely. Related studies conducted by Mishkin, F.S (2004) and Harson, K.D (1988) did not explore adequately the role of budget and budgetary control and its contributions towards sustainability of the business firms. Therefore the study investigated the roles of budget and budgetary control in the organization of Ngorongoro Conservation Area Authority and how the budgeting processes take place. 1.3 OBJECTIVES OF THE STUDY. The research was aiming to observe the following in the organization. To examine types and roles of budget and budgetary control in the organization of Ngorongoro Conservation Area Authority. To investigate the challenges posed by budget and budgetary control in the organization of Ngorongoro Conservation Area Authority. To investigate the budget provided and its strength within the organization. To examine the extent to which a budget can measure the performance of the organization. 1.4 RESEARCH QUESTIONS. The following research questions would be used in order to support the research objectives of the study. What are the types and roles of budget and budgetary control? What are the challenges posed by budget and budgetary control in the organization? Who is/are involved to prepare the budget in Ngorongoro Conservation Area Authority? How does a budget measure the performance of the organization? How does the budget facilitate the planning and control of Ngorongoro 11
Conservation Area Authority? 1.5 SIGNIFICANT OF THE STUDY. i. ii. iii. The study is expected to add to the existing knowledge of the Role of Budget and Budgetary Control into the organization. It will also assist Managers to sharpen their investigative capacity on Budget and Budgetary control. The study is expected to be useful not only for academic purposes, but also may be useful to policy makers especially those engaged in the area of Budget and Budgetary control in the organizations. 1.6 SCOPE OF THE STUDY. The study focused on the roles of budgeting and budgetary control in the organization. Finance and business departments were the areas of interest; other departments were consulted to get further information, cross checking and some other evidences. 1.7 LIMITATION OF THE STUDY. All possible obstacles that might hinder the researcher during the process of research. The following were the limitations. Lack of Enough Money. The amount of money that Ministry of Finance provides was likely to be insufficient for the research purpose. This was due to the cost of living, transport fare and stationary be very high after the on going world economic crisis hit our country. Officers Fear.
Some officials were afraid to give the required information due to on going scandal of corruption. They were oversensitive even for minor information.
Time factor. 12
Since the study is very wide and needs an in depth analysis the scheduled time was not enough to explore every part. Respondents Ignorance. Other respondents failed to answer the research questionnaire as require because they had little knowledge of budget and other respondents were very tight with their day to day obligations (eager to meet the deadlines) hence insufficient data.
LITERATURE REVIEW. 2.0 INTRODUCTION. The aim of budget and budgetary control is to provide a formal basis of monitoring the process of the organization as whole and components parts. Organization management processes, planning and budgeting are the most pervasive. Lying at the heart of financial administration, they enter into both policy-making and control. Organizations would be unworkable without the annual budget, which is the center piece of the financial year income and expenditure. All departments and most officers participate in its making, and all must abide by its contents. Budgets should distinguish between recurring and non recurring expenditure and should identify expenses relating to a part year, those over which the department has no control, and those involving new policy. In normal practice, the organization sets their objectives to be archived during the financial year and the budget is prepared for the purpose of archiving those objectives. 2.1 CONCEPTS OF BUDGET AND BUDGETARY CONTROL. This chapter discuses the theoretical aspects of budget and describes the benefits derived from a budgetary control system. Theoretically, it is believed that a good budgetary control system can lead towards achieving the organizational objectives. The concepts of budget and budgetary control can be discussed within the framework of the following headings. 2.2 CONCEPTS OF BUDGET. Budget is a concept which has been applied in many organizations. The need for budgeting in any organization is either success or failure to achieve the objectives and goals, to a large extent, measured by its profit. The resources of the organization can be effectively utilized by efficient conduct of its operations. This necessarily involves proper planning, coordination and control of activities on the part of management. Organization budgeting has been considered to be one of the most effective tools of managerial performance. It has been developed to solve complex managerial problems. Besides assisting efficient conduct of organization operations and solving problems, a budget also acts as a tool of planning, coordination, motivation and control.
It was hinted in Lucy (1996), Lucy (2003) and Welsch (2001) that a budget is a quantitative expression of a plan of action prepared in advance for the business as a whole, for functions such as sales and production or financial and resources items such as capital, cash, workers and purchases. The process of preparing and agreeing to a budget is the means of translating the overall objectives of the organizations into a detailed feasible plan of action. Budgeting was importance when prepared properly, centers on its ability to forecast when additional resources will be needed. At this time, the organization will either have to collect fund from its debtors or asking for a loan to the bank or any other source. Solomon et al (1986), Hongeen (1982) and Mwisho (2002) define a budget as a formal quantitative expressional of management expectations or as a shorterm financial plan or an action plan to guide managers in archiving the objectives of the firm or it may be defined as a comprehensive and coordinated plan expressed in financial terms, for the operations and resources of the firm for some specific period of time. He emphasized that a budget is the plan of the firms expectation in the future. Planning involves the control and manipulation of relevant variables controllable and non-controllable and reduces the impact of uncertainty. It makes management act to influence the environment in the interest of the firm. A budget expresses the plan in formal terms and helps to realize the firms expectations. It is a comprehensive plan in the sense that all the activities and operations are considered when prepared. It is a budget of the firm as a whole. Haley (1997) on the other hand defined a budget as a forecast of all the transactions of an organization for a stipulated period, organized in such a way to bring to the attention of specific managers, the financial results of those activities over which they have control and to enable the preparation of the financial statement such as the budget income statement, balance sheet and cash flow statement. Therefore a budget is a comprehensive and coordinated plan, expressed in financial terms, for the operations and resources of an enterprise for some specified period in the future. According to this definition, the essentials elements of a budget are: - plan,
operations and resources, financial terms, specified future period, comprehensiveness and coordination. 2.3 ESSENTIALS OF BUDGETING. It is urged by Mwisho (2002) and Lyengar (1994) that a successful and sound budgeting system is based upon certain prerequisites/principles. These prerequisites include management attitude, organizational structure and managerial approaches necessary for the effective efficient application of a budgeting system. The following are some of the important essentials of successful budgeting as per Mwisho. Top Management Support. a) Understand the nature and characteristics of budgeting. b) Be convinced that this particular approach to managing is preferable for their situation. c) View the results of the planning process as performance commitments. Clear and Realistic Goals. Budgeting is a means to achieving goals and objectives. Budgeting will not succeed if the goals to be achieved are not clear, budget implementation will not be systematic. In the absence of goal clarity, employees will lack a proper direction; the efforts of management will be wasted. Therefore, the financial manager must ensure that objectives and goals have been properly laid down. Assignment of Authority and Responsibility. A sound organizational structure is essential for the success of a budgetary system. Authority and responsibilities of each manager should be clearly identified and established. A sound organizational structure and clear-cut assignment of the authorities and responsibilities provide an effective means of achieving the firms objectives and budget goals in a coordinated and efficient manner. Adaptation of the Accounting System. Budgeting is based on the data generated by the accounting system. Assessing performance involves the comparison of actual performance (results) with the 16 He considers that top management must;
planned performance (budget) Accounting system should be suitably adapted to facilitate the planning and control process. Full participation of all workers. The lead manager and their subordinates at all levels should be consulted in developing the budgeting system. If the employees have effectively participated in developing the budget goals and targets, they will make special efforts to see that the budget process succeeds. Comprehensive Budgeting.
Budgeting should not be partial, covering one or two business functions, but it should cover all phases of operations. Further, budgeting should not be a temporary phenomenon. Once budgeting is taken up, it should be made permanent so that it becomes perpetual. 2.4 ADVANTAGES OF BUDGET TO THE BUSINESS FIRM. It has been noted by Lyengar (1994), Macdonald et al (1997) and Charles et al (2002) among others that budget and budgetary control brings the following benefits which are major features of most management control systems. Compels management to think about the future, which is probably the most important feature of a budget planning and control system. Promotes coordination and communication. Clearly defines areas of responsibilities .Requires managers to be made responsible for the achievement of budget targets for the operations under their personal control. Improve the allocation of scarce resources. Economizes management by using the management by exception principle. Provides a basis for performance appraisal. A budget is basically a yardstick against which actual performance is measured and assessed. It avoids sales of unprofitable and less profitable products.
Top management can decentralize responsibility to lesser executives without losing control. It forces management to give timely and adequate attention to the effect of expected trends of general business conditions, and it is stabilizes conditions in industries which are subject to seasonal and cyclical fluctuations. 2.5 MEANING OF BUDGETARY CONTROL. Duck and Lervis (1984) and Boland et al (1985) note that budgets are of no use if they cannot be controlled and activities regulated to be in line with the budget. Controlling the budget means monitoring the actual performance with budgeted figures isolating variance, explaining causes of variance and taking corrective action. The mere preparation of budget is only a first step towards achieving control in organizations. Budgetary control is a management technique which is adopted to control the business more effectively. Likewise Brown (1985) and Lyenger (1994) both defined the budget control as the establishment of department budgets relating the responsibilities of executives to the requirements of a policy and continuous comparison of actual with budgeted results either to secure by individual action of the objectives of that policy or to provide a firm basis for its revision. Budgetary control is the planning in advance of the various functions of a business so that the business as a whole can be controlled. Brown (1985) and Lyengar (1994) give a definition from ICMA (Institute of cost and Management Accounting) terminology book which defines budgetary control as establishment of budget relating the responsibilities of the executives to the requirements of the policy and the continuous comparison of actual with budget results either to secure by individual action the objective of the policy or to provide a basis for its revision 2.6 TYPES OF BUDGETING. According to Matthew (1977) and Mwisho (2002) and Shim (1994), there are different types of budgeting. These types are cash budget, capital budget and operating budget. i. Cash budget. This type of budget is simply a projection of future cash receipts and cash disbursements of a firm over a various interval of time. It revels to the 18
financial manager the timing and amount of expected cash inflow and outflows over the period of the studied. With this information the financial manager is better able to determine the future cash needs of the firm, plan for the financing of these needs and exercise control over the cash and liquidity of the firm. Preparation of the cash budget. Receipts:-The key to the accuracy of the cash budget is the forecast of the sales revenues .This forecast can be based on internal analysis, an external one or both. With the internal approaches salesmen are asked to project sales for the forth coming period. But many firms use the external analysis as well. With an external approach, economic analysts make a forecast of the economy and of the industry sales for several years to come. ii. Disbursements: Next comes a forecast of cash disbursements. When the sales forecast a production schedule may be established. Capital budget. This covers capital expenditure during the year. Capital budget plans the capital structure and liquidity of the enterprises over a long period of time. It is concerned particularly with equity, liabilities and fixed current assets especially the year end balances. Capital expenditure is the estimated expenditure on fixed assets during the period concerned. iii. Operating budget. Defines budget as a realistic statement of income and cost objectives for the year. It is a plan against which actual performance is compared so as to achieve control by detecting and correcting off-standard performance. In a non- profit organization operating budget will include source of funds and all operating costs. Operating budget plans the day to day use of resources and creation of utilities. Budgetary control includes all activities which aim at regulating the actual performance so that it matches with the budget. It means that all activities which aim at making sure that the budget attain its aims.
Budget control involves a comparison between the budgeted or the standard set before the actual period of budget and the actual performance. 2.7 THE ROLE OF BUDGET AND BUDGETARY CONTROL. Local Authority Accounting Manual 1992: 187-188 and Dec Coster and Schafer (1985) indicate the roles of budget and budgetary control in any business firm as follows:a) To aid a plan, budgeting is the comprehensive financial plan setting for the expected route for achieving the financial and operation goals of organization. b) To communicate the plan to various mangers. Once a budget is prepared, it becomes a means of informing the organization, not only of the plan that has been approved by management but also of the budgeted actions management wishes the organization to take during the budget period. c) To evaluate the performance of managers to the control functions of management requires that performance to be evaluated in light of some norms or objectives. d) On basis of this evaluation, appropriate corrective actions can be implemented in evaluating performance. e) To control activities, the budget helps to search out weakness in the organization or budget (spending lower than what was expected to be spent or collecting much less than what was expected to be collected). 2.8 LIMITATIONS OF BUDGETING AND BUDGETARY CONTROL. Apart of pros of budgeting and budgetary control, there also cons of budgeting and budgetary control. According to Wood (1996) and Matthews (1997), they pointed some of the limitation of budgeting as follows:i. The education budget has been spent therefore the director will not let any one go on courses for the rest of the year, as a result, the organization starts to fall behind in a modern service, the staff concerned become fed up, and the better staff start to look for jobs in other firms which are more responsive to the need to allow personal development to keep in touch with changing technology. ii. The work manager turns down a request for overtime work, because the overtime budget has already been exceeded. The result may be that the job is not completed on time and the organization has to pay a large sum under a
penalty clause in the contract for the job which stated that if the job was not finished by a certain date the penalty would become payable. iii. Budgeting and changing economy. The preparation of a budget which gives a realistic position of the firms affairs under inflationary pressure and changing policies is really difficult. Thus the accurate position of the business cannot be estimated. iv. Management complacency (not a substitute for management). Budgeting is a management tool, a way of managing and not the management. The presence of a budget system should not make the management. v. Implementation. Skillfully prepared programs will not it self improve the management of an enterprise unless it is properly implemented. It should be well understood by managers and subordinates. vi. Continuous Adoption (Time factor). The installation of the perfect system of budgeting is not possible in a short period. Accuracy in budgeting comes through experience. Management must not expect too much during the development period. The same ideas were developed by Lyengar (1994), who noted that a budget cannot be considered to be a managerial tool which is perfect. The limitations of budgetary control can be summarized as follows. a. The budget plan is based on the estimates. The usefulness of budgeting depends upon the extent to which forecasts can be relied upon. Since forecasting cannot be considered to be an exact science, the accuracy of the data on which the estimates are based determines the adequacy or otherwise of a budgetary programme. If the forecasts are made on the basis of inadequate and inaccurate data, the budgeted figures would be far from reality and targets set would also be inaccurate. b. Execution of a Budget Plan will not Occur Automatically. Budgetary control implies the preparation of budgets and their administration also. As such, mere preparation of budgets does not mean that their execution is automatic.
Since budgets are related to the executives concerned, their implementation demands a unified effort of all the personnel in the organization. In other words, budgetary control demands active co-operation between the different levels of management.
CHAPTER THREE. RESEARCH METHODOLOGY.
3.0 INTRODUCTION. This chapter discusses the methods and procedures employed in the execution of the study. It describes research design, population and sample involved, the instruments used and finally give the procedures for data collection. 3.1 RESEARCH DESIGN. Research design can be defined as the structure of research specifying what to be done and how to do it. In carrying out this study a case study design was adopted in order to assess the research objectives dealing with Budget and Budgetary control. 3.2 POPULATION SAMPLE. Ideally the population of this study was all National Parks in the Country. These comprised fifteen National Parks scattered all over the Country starting from the Northern part circuit to the Eastern, Southern and Western parts of Tanzania. One National Park had been Chosen out of the fifteen National Parks that was Ngorongoro Conservation Area Authority. 3.3 SAMPLING TECHINIQUES:For the researcher to obtain the relevant information, he drew the required number of employees for the study from the large population of workers in the organization. Since it was difficult to collect data from every individual in the whole population, the researcher did sampling. The purposive sampling technique had been applied to select the Park as well as the respondents. The study respondents included Chief Internal Auditor, Chief Accountant, Cashier and Principal Accountant. The sample selected based on the position of the individuals in the organization (Park) i.e. Chief Account, Chief Internal Auditor, Cashier and Principal Accountant were well informed about the functioning of the park, also their day to day activities enriched them about the strength and weaknesses of the Budget and Budgetary Control.
3.4 METHODS OF DATA COLLECTIONS.
A combination of instruments and techniques had documents of the organization and questionnaires. 3.4.1 Interviews.
been employed, all aimed at
realization of the objectives of the study. These instruments included interviews, written
This involves oral questioning of a few respondents such as administrators in the organization. For the collection of primary data interviews were important. It was also found that respondents were more likely to agree to be interviewed rather than complete questionnaires. 3.4.2 Questionnaires. This is the list of questions, applied in order to give respondents enough time to conceptualize and making references for accurate and detailed information. Questionnaires were distributed to twenty (20) staff members of NCAA who were targeted during the research basing on finance department, as well as to those members who were involved in budgeting preparation in their departments. See sample in appendix. The questions considered of closed and open ended questions to facilitate the recording and analyzing data. 3.4.3 Documentation. The researcher would looked for written documents of the organization such as official documents, and individual worker documents which were maintained by firm, journals, magazines, pamphlets books and booklets. Documentation technique include passing through organization laid down policies, rules and procedures on budget and budgetary control to see if they were properly adhered to. 3.5 TYPES OF DATA TO BE COLLECTED. The researcher expected to collect both primary and secondary data into the organization of NCAA.
3.5.1 Primary data.
Are those, which were collected a fresh and for the first time and thus happen to be original in character. The data was collected by using questionnaire and interviews for the heads of department in the organization. 3.5.2 Secondary data. The data was obtained from various documents sources such as files, journals, books, annual reports and pamphlets which found to the organization for the related study. 3.6 PROCEDURES FOR DATA COLLECTION. Administrations of instruments were preceded by a briefing of the Conservator and later the other respondents on the purpose of the study so as to secure their cooperation. 3.7 DATA ANALYSIS PROCEDURES. The data gathered by the above instruments were both qualitative and quantitative in nature.
CHAPTER FOUR. 25
4.0 DATA PRESENTATION, INTERPRETATION AND ANALYSIS. In this chapter the data are presented and analyzed in relation to the objectives of the study and research questions. The analysis is mainly centered in Ngorongoro Conservation Area Authority. Therefore this chapter presents the empirical findings, descriptive and statistical results. OVERVIEW OF THE NCAA BUDGET. The NCAA has employed the Mid-Term Expenditure Frame Work (MTEF) in preparing budget. This is based on output oriented system and as such is more or less similar to operating budget. This method was adopted in 2002/2003 financial year. The main features of MTEF include three years ceilings, review of the organizational policy and strategic plan of Management Driven Activity (MDA). In view of this, the objectives, strategies, service delivery targets and activities in the Mid-Term Expenditure Frame Work are more specific, measurable, achievable, realistic, time bound and transparent (SMART). So it gives room to plan and implement activities for up to a three years period and break the implementation on annual basis. Also this budget has being prepared in a participatory manner where by initial budget exercise started at the sectional level, followed by reviewal by the relevant departments (departmental level), the NCAA management, the organizational level which include workers council, board of directors level for approval of the budget and finally the ministry level (Tourism ministry). Therefore all these level of participating in preparing the NCAA budget were the stages followed in budget preparation. These levels focus on the objectives to be achieved by the NCAA, formulating the necessary plans to ensure that the desired objectives are achieved, translating plans into budgets, evaluating available resources, relating the responsibilities of executives to the budgets or particular sections of the same, continuous comparison of the actual results of the previous budget with current budgets and ascertainment of deviations, investigation into the deviations to establish the causes,Pressentation of the information to the management relating the variances, coordinating and reviewing components, corrective action of management to prevent recurrence of variances, final approves and then distributing the approved budget. 4.1 PRESENTATION OF FINDINGS.
4.1.1 NCAA Type of Budget. The NCAA budget was operating budget, which gives a realistic statement of income, expenditure and cost objectives for the year. It is the plan against which actual performance is compared so as to achieve control by detecting and correcting offstandard performance, more than 70% up to 100% of NCAA budget was fulfilled in each year of financial. 4.1.2 The Roles of Budget and Budgetary Control in the Organization of NCAA. a) To defines clearly the objectives and policies of the organization. b) To compel NCAA members of management at all levels to participate in setting objectives and goals. c) Being a means of communication, it enables lower levels of management of NCAA to understand the basic objectives and policies of the organization. d) To compelling departmental managers to make plans in harmony with the plans of other departments, it brings coordination of the activities of the various departments. e) The preparation of budgets for various parts of NCAA identifies, emphasizes and clarifies the responsibilities of each executive. f) To evaluate the performance of departments to the control function of management which require that performance to be evaluated in light of some norms or objectives. g) To take appropriate corrective actions to be implemented in evaluating performance in each departments of the organization. The estimated recurrent expenditure was allocated to NCAA departments as follows, according to the budget of the respective year of income. The total budgeted income for the year 2007/2008 was Tshs 39,920,036,309/-
RECURRE % S/ N DEPARTMENT 2006/2007 OF % OF NT TURE A PERCENT OF TOTAL INCOME 1. 2 3 4 5 6 7 8 Conservation Services Tourism Services Community Development Engineering Services Human Resources & Administration Accounting Legal Services Ecological 6,545,813,372 178,831,372 152,185,098 304,342,000 76,050,000 152,180,750 372,276,000 14,331,192,502 45.7 1.2 1 2.1 0.5 1 2.6 100 10,415,928,032 242,391,900 211,493,250 372,091,100 105,700,900 211,493,150 322,482,450 27,742,959,213 37.5 0.9 0.8 1.3 0.4 0.8 1.2 100 26.1 0.5 0.5 0.9 0.3 0.5 0.8 69.4 402,148,200 1,328,786,331 2,074,750,940 2,743,834,033 3 3 14.5 19.1 598,503,000 2,697,528,355 1,825,871,001 10,738,476,075 2.1 9.7 6.6 38.7 1.5 6.8 4.6 26.9 AS 2006/2007 2007/2008 TOTAL BUDGET 2007/2008 EXPENDI TOTAL BUDGET
Monitoring 9 Internal Audit 10 Public Relations 11 Planning& Finance TOTAL
Source: - NCAA Annual Budget Report 2007/2008. As revealed above the preparation of 2007/2008 budget is line with the NCAA Corporate plan which stipulates that the total recurrent expenditure as a percentage to the total income should range between 70% and 80%. The aim is to ensure that there are some funds for investments. 28
In the case for 2007/2008 budget the total recurrent expenditure as a percentage of total income was 69.4% and funds available for investments amount to 30.6% of total expected. 4.1.3 Challenges posed by Budgeting and Budgetary Control in the Organization of NCAA. a) Uncertainty in getting the revenue, this was due to failure of exchange rate (fluctuation of exchange rate) and too much relying. b) Inflation, It was another challenge in the organization of NCAA. Example the budget which organization planned for buying Petrol, diesel and kerosene changed dramatically; therefore this was a challenge to management. c) Mid-Term Expenditure Framework (MTEF), this approach making the departmental to be aware if they have been used the budgeted amount exactly, or less than or more than the budgeted into the organization. d) Operating reports of NCAA would results the challenges to be made by the management to know the exactly amount they have used. These challenges were the following. To provide grant to support the growth and stability of NCAA indigenous residents (Maasai people who were pastoralists) through controlling their own economic and cultural development in a manner that leaves exceptional resources unimpaired. To coordinate initiatives to expand the role of natural resources and tourism this benefits the local, regional, national and international economy. To increase support to the district council through various projects such as rehabilitation and maintenance of roads. 4.1.4 Performance of NCAA Budget. The performance of the budget was measured in terms of the attainment of the goals of the organization; the budgeted amount was compared to actual amount and considering vision, mission, objectives and strategies, which are setup by NCAA. The actual expenditures help to give the real picture of the next budget but this would 29
depend upon the objectives stipulated by the heads of department. Fluctuation of expenditure were commonly to occurred, this was caused by either the budgeted amount was lower or the rise of unexpected situations like increases in expenses of running day to day transaction and the price of fuels like petrol, diesel and kerosene varies frequently. Therefore, the Expenditure Accountant who controls the budget and examination section under account departments should observe the plans, vision, mission, objectives and strategies of NCAA in order to make sure that the budgeted amount was used effective so as to achieve the budget performance of the organization. The substantial increase of NCAA income was attributable to rise of various fees with effect from 1st July 2007 up to June 2008 which leads the performance of the organization to be well done about 70% up to 100%. The table below shows the performance of NCAA due to increase of income; % NO. PARTICULAR FROM USD 1 Non Resident Entry Fee per 2 3 4 person. Special Campsite Fee Per person. Ordinary Campsite Fee per person. Crater Service Fee Vehicle. per 100 200 100% 30 40 20 TO USD 50 50 30 OF INCREASE 66.67% 25% 50%
Source: - NCAA Annual Budget Report 2007/2008. 4.1.5 Budget Facilitates the Planning and Control in the Organization of NCAA. The budget facilitates the planning and control of Ngorongoro Conservation Area Authority through the management control. Management control involves the measurement and evaluation of program activities to determine if policies and objectives are being accomplished as efficiently and effectively as possible. Management control provides the basic structure of coordinating the day to-day activities of an organization, encompassing all those activities involved in ensuring that the organizations resources are appropriately used in the pursuit of goals and objectives. 30
Management controls are often designed to anticipate and identify problems before they happen. An obvious approach to try to anticipate possible deviations from some established standards or criteria of performance. This is the primary objectives of statistical quality control. This approach also can be applied as a budgetary control of the organization. The possibility that a major proposed expenditure might exceed the budget for example should be ascertained a head of time rather than after the fact. Such control involves various forecasting and projection techniques. The following was the management control stages of Ngorongoro Conservation area authority. Establish standards (Budgets). Measuring performance against stands. Compare and evaluate. Initiate corrective action. Assess corrective action. Project initiation (Modification). 4.2 DATA ANALYSIS. The method is applied in the relation to the data collected in this study, the following methods were used in collecting the data and these were questionnaires, interview and documentary sources. The data collected were analyzed by using both quantitative and qualitative analyses. In analysis and processing collected data, the researcher edits, code and tabulates them. The main objective was to investigate the role of budget and budgetary control system in achieving the NCAA goals.
The following were summarized data of income in the organization of few transactions studied. Code Particulars Budgeted income(2005/06) 600101-100 Tourism Income. 600102-100 Residents Permits. 600103-100 Motor vehicle Permits. 600201-100 Water Supply & Electricity. 600206-100 Medical Income. 600207-100 House Income. Source:-NCAA Annual Budget Report 2005/2006. As the NCAA measuring the performance of the operating budget, 70% up to 100% of organization budget was fulfilled for the budgeted they prepared. This was applicable to all years of the financial income. So in this financial year of 2005/2006 the budget was fulfilled. Ngorongoro Conservation Area Authority also established the expenditure budget for the year. The following table shows the Budgeted and actual expenditure for the financial year of 2005/2006. Rent 4,440,000 4,190,000 94.4% Fees 1,400,000 1,250,550 89.3% 81,300,000 77,134,974 94.9% 725,000,000 745,238,399 102.8% 417,666,480 326,210,590 78.1% 10,607,789,250 10,299,671,018 Actual(2005/06) % of
Actual Expenditure 1,667,991,573 13,751,899 57,070,230 2,183,550
700101-103 700103-103 700107-103 700111-103
Salaries & Wages Acting Allowance Casual Laboures Leave Allowance
1,806,891,600 10,000,000 30,000,000 15,000,000
Source: - NCAA Annual Budget Report 2005/2006. As the above budget expenditure for the year shows budgeted and actual expenditure, it shows that some of the organization budget varies, so the organization of NCAA was required to observe during another year of income the deviation of the expenditure budget and which cause the budget to deviate so as to improve the other budget. Due to variation of the budgeted expenditure the particular which does not meet the required income should be compensated with other budgeted expenditure for the year. 4.3 INTERPRETATION OF FINDINGS. The data collected were comprehensively analyzed to show the achievement on the preparation of budget. The following were the achievement of budget and budgetary control to NCAA, these were: Plan of activities was made effectively and achievable, this was attained since each was coded in the sense that might not be forgotten easily for being the part of Mid-Term Expenditure Framework (MTEF). NCAA budget and budgetary control help to review whether activities are the most effective by means of activating the goals of the organization. NCAA budget is reviewed for the coming year by showing the obstacles and opportunities in order to improve the performance of the organization.
Limited resources and time were directed to activate those results into good services and achievement of specific organization goals.
The attainment of success in its various activities, this was due to the reason that scarce resource was efficiently and effectively exploited for the maximum uses.
Effectiveness and Efficiency of NCAA Role of Budget and Budgetary Control. The effectiveness of NCAA relates to the accomplishment of an organizations goals and objectives. An organization is effective when its goals and objectives are accomplished, so NCAA goals were effective because it was fulfilled into 70% up to 100%. The concept of efficiency, on the other hand was linked to the use of NCAA resources. When fewer resources are used to accomplish the same results, then a program or set of activities is said to be more efficient. Both effectiveness and efficiency are paramount objectives of budget and budgetary control. Therefore management of NCAA makes use of goals, objectives, programs, budget and budgetary control in carrying out their responsibilities. The study revealed that the budget as a tool of control, budgetary control was necessary for the budget to be effective and yield the achievement of goals. The approximation of NCAA budget to be effective range from 80% to 90%, the committee always ends up with encouraging the next year financial income to increase the effectiveness up to 95% or 100%. The above effectiveness and efficiency of the organization was due to the following hidden secret. a) Participation:-The NCAA involves many people as possible in drawing up a budget. b) Comprehensiveness: - It embraces the whole organization. c) Standards: - NCAA budget based on establishing the standards of performance.
d) Flexibility: - Allow for changing circumstances. e) Feedback:-Organization was constantly monitoring the performance. f) Analysis of cost and revenues: - This can be done on the basic of product of lines, department or cost centre. NCAA organization was adhering to organizing and administering a budget system, in this the budget committee was applied. The budget committee was consisting of senior members of the organization, example departmental heads and executives (with the managing director). Every part of the organization had been represented on the committee, so there was a representative from Planning and Finance, Human resources and Administration, Tourism services, Conservation Services, Accounting, Ecological Monitoring, Internal Auditor and so on. The functions of this budget committee to NCAA including: Coordination of the preparation of budgets, including the issue of a manual. Issuing of time tables for preparation of budgets. Provision of Information to assist budget preparations. Comparison of actual results with budget and investigation of variances.
CHAPTER FIVE. 5.0 CONCLUSION AND RECOMMENDATIONS. 5.1 CONCLUSION. The overall view of budget and budgetary control system of Ngorongoro Conservation Area Authority (NCAA) shows a well defined, designed procedure used, documented system, implementation of policy and performance. The respondents answered the questions; all based on the resemblance answers, the difference were very minor with a number of points. 35
Ngorongoro Conservation Area Authority is very active in establishing their budgets in order to increase the efficiency and effectiveness of performance. The aim of budgeting can be analyzed as planning and control, that they provide a detailed plan of action important to achieve the organization objectives. According to this analysis of the case study research design at Ngorongoro conservation Area Authority (NCAA) on the role of budget and budgetary control. There is persuasive evidence provided by empirical observation that Ngorongoro Conservation Area Authority has succeeded in achieving its objectives by the use of budget. Therefore, they assist in the coordination of activities between the various departments of the Ngorongoro Conservation Area Authority (NCAA) who were aware of each others problems and work towards a common goal. The role of budget and budgetary control enables an organization to achieve its performance goals as the trend of performance showed. Ngorongoro Conservation Area Authority make sure that objectives should be achievable and care should be exercised during budget and budgetary control process and continue in establishing proper procedures or policies in achieving those goals through the budgets otherwise the organization can find itself wasting its resources without achieving goals. Therefore for this the Ngorongoro Conservation Area Authority had been able to prepare and implementing effective budget properly. A budgeting system had been successful through objectives which the organization put forth and clearly stated without proper assignment of authority and responsibility. On the basis of this study, it can be concluded that, the role of Budget and Budgetary control in the Organization is very important as it provides a detailed plan of action necessary to achieve the organization objectives. It normally assists in the coordination of activities between the various departments as the study revealed. The study also reveals that in order for the organization to survival, Budget should be controlled and managed effectively. Therefore budget and budgetary systems tend to be successful if the objectives to be attained have the blessings of the management under consideration of the present goals to be achieved at the present period. The fully participation is very importance, this is
required for all heads of departments and their subordinates at all levels while preparing budget. 5.2 RECOMMENDATIONS. Through those data collected, the research revealed the following recommendations as a major to improve the effectiveness and efficiency of the Ngorongoro Conservation Area Authority performance. a) Full Participation. Full participation of top management/heads of department like Director of Financial Accounting, Chief Internal Auditor, Chief Accountant and their subordinates at all levels should be sought in developing the budget system. If employees have effectively participated in developing the budget goals and targets, they would make special efforts to see that budgeting process succeeds. Therefore meaningful participation creates positive motivation. Participation tends to increase commitment, commitment tends to increase motivation, Motivation which is job- oriented tends to make head of department work harder and more productively, harder and more productive work of head of departments tends to enhance the organization prosperity, therefore participation was good. A non-serious effort on the part of heads of departments and their subordinates will not motivate them, rather, at times, it produces negative motivation and objectives of Ngorongoro Conservation Area Authority will be attained at specific time. b) Effective communication. Communication is the process of transmitting ideas or information from one person to another. The basic purpose of communication is to instill mutual trust between two or more persons by creating similar understanding of ideas or thoughts. Communication is a device to bring people together in the organization. A sound budget system requires effective communication of organization objectives and budget goals and means of implementing the budgets through the organization of Ngorongoro Conservation Area Authority so that a unified effort may be directed to accomplish those objectives and goals.
c) Budget Committee. The heads of department are responsible persons in execution, preparing and implementing the budgets. Thus we advice these staff should participate in the budget committee where the budget proposals were reviewed and amended. Their participation would enable them to defend their proposals and provide necessary explanations. This would facilitate the exercise of budgetary control. d) Training. The organization should encourage a training program, which embraces every body in the community to attend courses; this will enable those people to be aware of vision, mission, policy and strategies of Ngorongoro Conservation Area Authority. (NCAA) for preparation of budget to records. e) Formal organization. Budgetary control can be effective if every executive knows clearly the scope of his/her authority and responsibility. It is, therefore necessary to have formal and sound organizational structure with authority relationship and assignment of responsibilities. Once the duties are clearly defined and assigned, it is easy to identify the heads of department of a particular activity to be controlled in the organization. f) Computer application. Through the development of technology, Ngorongoro Conservation Area Authority faced with shortage of computer, as it was not corresponding to present offices. Therefore management should be advised to increase number of computers to a required extend to suit the needs of them especially in the Finance and Accounting Department. This will help to simplify work and it encourages the workers for doing their work effectively and efficiently. g) Measuring of performance, evaluation and control. Budget facilitates control by providing definite expectations in the planning phase that can be used as a frame of reference for judging the subsequent performance in the organization. A heads of department for promotion or for a salary increase or for some other form of recognition, a heads of department budget record and his ability to meet the targets incorporated in budgets is often an important factor.
So Ngorongoro Conservation Area Authority performance, evaluation and control would be altitude to the whole budgeting process of the organization.
BIBLIOGRAPHY. 1. Brown, J.L and Owler L.W.J (1984), Cost Accounting.Cassell Ltd Great Britain. 2. Boland R.G. A and Feathers J.A (1985), budgetary control. Hodder and Stoughton London. 3. Charles T.H, George .F and Srikant M.D (2002), Cost Accounting: A managerial Emphasis, 10th Ed Prentice Hall of India Private Limited. 4. Duck R.E.V & Lervis, F.R.J (1984), Management Accounting, a practical approach, George Harrap, London.
5. Dec Coster, D.T and Schafer.E.l (1985), Management Accounting: A decision emphasis. 6. Lucy .T (1996), Management Accounting, Chapman and Hall, London. 7. Lucy .T. (1993), Costing Dp.Publication Ltd London. 8. Local authority Accounting Manual (1992) Dar-es-salaam. 9. Lucy .T. (2003), Management Accounting, 5th Ed Chapman and Hall, London. 10. Lyengar S.P (1994), Cost Accounting: Principles and Practice, 6th Ed Published by Sultan Chard and Sons. 11. Mwisho. A .M (2002), Financial Management. Mzumbe manual. 12. Mattews.M.L (1977), Practical Operation Budgeting. Mac Graw Hill, Inc.Newyork. 13. Metthews .M.L (1997), Practical Operating Budgeting, Mac Graw Hill Newyork. 14. N.J.Macdonald& D.C.B. Cheng (1997) Basic Finance for Marketers. Publication by the FAO Regional Office for Africa.Www.FAO.Org/docrep/w434E.Htm 15. Solomon L, M et al (1986), Accounting principles 2nd Ed, Harper & Row publishers. 16. Shim. K.J and Siegel (1994), Budgeting Basics and Beyond: A complete step by step Guide for Nonfinancial Managers. Englewood Cliff, New Jersey. 17. Welsch, A.G et al (2001), Budgeting: Profit Planning and controls. Hall of India Private ltd New Delhi. 18. Wood.F (1996), Business Accounting 2. Pitman publishing APPENDIX. QUESTIONNAIRE. INSTITUTE OF ACCONTANCY ARUSHA. (IAA) FIELD PRACTICAL QUESTIONNARE TO THE NGORONGORO CONSERVATION AREA AUTHORITY. Dear respondents, These questionnaires were designed to collect the information required for the purpose of the study which was the part of my academic requirement at Institute of Accountancy
Arusha for the award of Advanced Diploma in Accountancy (ADA) Particular data that would be obtained would assist the researcher in critical analysis of the role of budget and budgetary control to the management Ngorongoro Conservation Area Authority. I request therefore, your co-operation in answering the questions here under. The loyalty of your time in filling this questionnaire will be highly appreciated. Thank in advance, Mbwambo Amani. 1.What is your title in the organization.......................... 2. How long have you been working with staff ... 3. Who prepare the budget for your organization......
4. Who is/are responsible to participate for the budget committee...... 5. If the organization prepares the budget what kind of budget (put a tick to the correspond answer) a. Operating budget b. Cash budget c. Capital budget 6. Do you have stage in preparing budget (put a tick to the correct answer)? a. Yes b. No 7. (a.) If yes what are the stages used by the organization in preparing budget. Mention them
(b). If no, is the budget prepared in the organization........................ 8. What are the roles of budget and budget control in your organization.. 9. What are the visible limitations of budget and budget control in flow organization?
10. What percentage is your organization fulfilled for the budget they prepared (tick the correct answer) A 20%-30% B 30%-50% C 50%-70% D 70%-100% 11. When do you consider your budget to be effective? ..
12. Who keep the day to day income ad expenditure? ..................... 13. Who keep the record of budget in your organization ..................... 14. What alternative measure do you take to verify performance of the organization in terms of budgeting and budgetary control? .. 15. What are the challenges posed by budgeting and budgetary control in the organization?.......................................................................................................................... ............................................................................................................................................... . 16. How does the budget facilitate the planning and control of Ngorongoro Conservation Area Authority?..................................................................................................................... .