Many organizations believe that budget control is essential for corporate internal controls as such; it ensures judicious utilization and proper distribution of available resources to the organization.

Introduction

Many organizations believe that budget control is essential for corporate internal controls as such; it ensures judicious utilization and proper distribution of available resources to the organization. Budgetary control guides the management of the firm to achieve goals and objectives by ensuring that, the plan is implemented to its fullness (Carr and Joseph, 2000).

Majority of non-governmental organizations have adopted budget control as a guarantee for assuring effective servicing delivery. The NGOs have established departments in the organization responsible for budget and budgetary control. They also set up committees responsible for budget monitoring and project implementation and make the committee and integral part of the administration (NGOs Annual Report, 2013).

Epstein and McFarlan (2011), carried out a study in Denmark on measuring efficiency and effectiveness of a non-profit’s performance, it was found out that budgetary control was one of the important tools in achieving efficiency of non-profit making organizations. Serem (2013) , established that there is a weak positive effect of budgetary control on performance of Non-Governmental Organizations in Kenya measured by R square at 14.3%.

This study adopts desktop study and review existing literatures on budgetary control and its impact on the performance of organization. The study further aims at filling the gap and showcase the relationship between budgetary control and how it contributes to the effectiveness of NGOs in Ghana.

2. Literature Review

2.1 Budgeting Theory

According to Hisrt (1987), budgetary control aims at solving and organizational needs to plan and consider how to address the potential risks and opportunities by putting in place the necessary system of control to detect the variations between the organization’s objectives and performance (Shields and Young, 1993). Budget is an important element of efficient control process and consequently vital part to the core concept of an effective budgetary control.

Budgets project future financial performance which enables evaluating the financial viability of a chosen strategy. In most organization this process is formalized by preparing annual budgets and monitoring performance against budgets. Budgets are therefore merely a collection of plans and forecasts (Silva and Jayamaha, 2012). 

Budgetary Control Model

In reference to Robinson and Last (2009), budgeting system is a tool used by the firm as a framework for their spending and revenue allocation. To ensure the firm’s resources are not wasted, the organization must be able to come out with an effective budgeting system. This is important as it ensure that the outputs produced and services delivered achieve the objectives. According to this theory, a good budgeting system must be able to address the efficiency and effectiveness of the organization’s expenditure. A good budget is determined by the level of income of the organization (Robinson, 2009).

The organization has to put proper controls that ensure that the budget is properly maintained and allocated. A firm that is able to run its operations efficiently is able to allocate more revenues for the organization. This is achieved through cutting costs in order to increase the quality of goods and services offered by the firm. However, if an organization has lesser income they might have to find a way to fund their estimated budget by borrowing and tax restructuring (Robinson and Last, 2009). That is why the budget is mostly regarded as the control of expenditure. As the total amount of the annual expenditure; the organization must not exceed the allocation of budget.

Accounting Theory in Budgetary Control

Kaplan and Norton (1996), accounting theory is aimed towards provision of a coherent set of logical principles that form the general frame of reference for the evaluation and development of sound accounting practices and policy development. Otley and Pollanen (2000), the purpose in developing a theory of accounting is to establish standard for judging the acceptability of accounting methods. Procedures that meet the standard should be employed in practice of accounting. Horvath (2009) argues that the accounting methods that fail to meet the standard should be rejected. Accounting theory helps in explaining and guiding management actions in identifying and locating information necessary to be used in budget preparation. The money measurement concept in accounting has contributed to a greater extent in providing yardstick for quantifying, conversion and translating various inputs in relation to materials, and machines required in the preparation of budget (Horvath and Seiter, 2009). 

2.2 Determinants of Effectiveness

There are several determinants to effective budget implementation of budgets among organizations. These included adequate availability of financial resources, competent human resource, and participation of both staff and other stakeholders in the budgeting process, proper planning, evaluation, monitoring and control of the budget process and staff motivation (Srinivasan, 2005).

2.2.1 Adequate Availability of Financial Resources

Adequate availability of financial resources is one of the determinants of effectiveness. To achieve an effective budget, the organization must ensure that it have adequate access to financial resources in order to finance its projects and to carry out its activities. The management team should plan and come up with a budget before implementing projects (Dunk, 2001). The organization must allocate adequate financial resources and other structures that facilitate effective implementation of projects and other organizational for example adequate allocation for funds to facilitate effective budget implementation. These resources should both financial and physical resources (Hancock, 2009). 

2.2.2 Competence of human Resource

Competence of human resource is another determinant of effectiveness. To successfully execute its activities the organization should ensure that it has competent human resource with knowledge and skills on efficient means of budgetary control processes and procedures (Horngren, 2002)

The organization should be well equipped with knowledgeable and skilled employees who are well conversant with budgetary control measures to effectively implement the budgetary control processes and allocation. Employees play an integral role in the process of planning, monitoring control and evaluation processes of budget implementation this highly contributes to monitoring budget expenditures and accountability in the use of the budget (Silva and Jayahama, 2012).

2.2.3 Participation of both Staff and other Stakeholders

All individuals responsible for achieving results should be consulted in the formulation of budgets. No system of budgetary control can succeed without the mutual understanding of superiors and subordinates. The organization should communicate the outcome of budget decisions to all the relevant staff. Budgets have an important part to ply in the communication of objectives, targets and responsibilities throughout the organization. Carried out properly, this can have considerable benefits in promoting co-operation at all levels (Callahan and Waymire, 2007).

Participation assures full co-operation and commitment for making budgets successful. It also makes budgets realistic and workable (Simiyu, 2002).   

2.2.4 Proper Planning

In order to carry out budgetary control, it necessary to formulate a fully co-ordinated detailed plan in both financial and quantitative terms for a forthcoming period. The duration of the period is usually one year. The plan needs to be in line with long term development strategy of the organization, although in the shorter term of a budget year, conditions may prevail which could dilute this aim. For example, a depressed economy could lead to a temporary departure from the long term plans. Therefore, before formulating the budgets, the policy to be pursued during the forthcoming trading period need to be established (Dunk,et al, 2001). 

Once budgets are operating throughout an organization, it is important that feedback is made available to the managers responsible for its operation. This is often done by means of monthly reports. These reports contain comparisons between the budget and the actual position and throw up differences which are known technically as variances. The budget plans must be properly co-ordinated in order to eliminate bottlenecks. Individual budgets should be co-ordinated with one another to ensure that implementation process is conducted effectively in order to save time and costs (Horngren, Forster and Dater, 1997).

 2.2.5 Evaluation

Evaluation is a key determinant for effectiveness, through an evaluation plan, the firm can clarify what direction the evaluation should take based on priorities, resources, time, and skills needed to accomplish the evaluation. To enhance effectiveness and transparency, the management team should be actively involved in the process of monitoring and evaluation of budgetary control processes and procedures (Hancock, 2009)

The process of developing an evaluation plan in cooperation with an evaluation workgroup of stakeholders will foster collaboration and a sense of shared purpose this highly contributes towards achieving an effective budgetary control (Simiyu, 2002).

2.2.6 Monitoring and Control of Budget Process

Monitoring and control of budget process is a determinant of effectiveness, once the budgets have been implemented, they need to be monitored and controlled to ensure effectiveness in aligning budgets over a defined period of time (Horngren et al., 1997).

A professional and transparent approach to budget planning will help convince investors, development banks and the national or international donors to make financial resources available if the organization implements proper monitoring and control of budget process. This is achieved through ensuring that the estimated budget does not deviate from the actual outcome in order to take appropriate actions where necessary (Otley and Van der Stede, 2003). 

2.2.7 Staff Motivation

By setting challenging but realistic targets well designed budgets can play a significant part in motivating mangers. The targets must be clear and achievable, and the manager should participate in setting his or her own budget (Hansen et al., 2003). The budget gives senior management a means of judging the performance of their teams. It must be remembered; however, that adherence to the budget alone cannot measure all aspects of a manager’s performance. 

For effective budget implementation, the budget plan should be more clear and accurate, the financial resources should be readily available and enough, both the staff and interested stakeholders should be involved in the budget process, the staff actively involved in the budget should be motivated to facilitate successful implementation of the budget process (Hansen et al, 2003). 

3. Data Analysis and Discussion of Results

To achieve the objective of the study, desktop studies was conducted to source data from various literatures on the topic and the dependent variable was measured using performance indicators from the recent annual reports. 

The independent various consists of budgetary control which involves planning, monitoring, control and evaluation. These variables were used in measuring the extent of budget control. The data on the budget control was obtained using structured questionnaires by use of a likert scale.

The study adopted a linear regression model to test the relationship between the variables in budgetary controls as the independent variables and NGO’s effectiveness as the dependent variable. 

Organizational performance was used to measure effectiveness, organizational performance indicators. All the variables in the present study was measured by interval and ratio scales. The study used organizational performance indicators of NGOs in Ghana to measure effectiveness. The independent variables such as planning, control, monitoring and evaluation were used to measure budgetary control in Ghana. This is done by measuring the frequency at which budgetary control is implemented. 

Data Validity

Internal consistency reliability was to measure the construct reliability; it produces homogenous items of measurement scale (DeVellis, 2003). Internal consistency gives the extent at which items in a model are inter-correlated. Therefore, high inter-items correlations means that items on the scale have a strong relationship to the latent construct and are possibly measuring the same thing.   

Reliability Coefficient

The internal consistency of the measurement scale is usually measured by Cronbach’s coefficient alpha and it is acceptable at above 0.50 to pave way for further analysis. Form the table above; all the scales are above 0.50 which shows that the scales are acceptable.  

Correlation Analysis

From the Pearson product-moment correlation coefficient in the table 5 below, reveals that there is a positive association between the indicators at a 0.05 significant level. This implies that, there is a strong relationship between the independent and the dependent variables.  

Linear Regression Model

The analysis of the table below shows that the coefficient of determination r = 0.326,   = 32.6% of the total variation in organization effectiveness is explained the changes in planning, control, monitory, evaluation, adequate availability of finance, cost reduction and performance. The analysis of variance (ANOVA) was used to check how well the model fits the data. The results are presented in table 4.6  

Regression Coefficients 

The study accepted the hypothesis that all the population values for the regression coefficients are not 0. Contrary, if the significant value of F was larger than 0.05, then the independent variables would not explain the variation in the independent variable, and the null hypothesis that all the population values for the regression coefficients are 0 should have been accepted. 

Conclusion

The study concludes that the NGOs in Ghana have budgetary controls at different levels of organization; it establishes that most of NGOs have planning, monitoring, controls, and budget participation. Planning contributes highest towards the positive performance of the NGOs followed by Monitoring and Control and finally budget participation. It also established that there is above average performance indicators which include revenue growth, community participation, dollars spending, new donor acquisition and efficiency are above average at 71.11%. Most of the organizations have the required 30% administration cost and 70% program costs which a standard requirement for NGOs.

It was recommended that employees should be sensitized on how the importance of budgetary control can enhance the performance of and organization.

The organizations should develop more formal practice in the development of budgetary controls.  

Finally, this research determined the effects of budgetary controls on performance of NGOs using correlations and regression methods to establish the relationship. It further concludes that there exists a low positive relationship between budgetary controls and performance. This means that budgetary controls might not be the only reason for high performance; other factors may affect the performance of an NGO.  

Author: Stanley Gladstone

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