Government account process

Modern approaches in budgeting

"Success of a budget is often determined by the way the budget is prepared" (Unknown Author). The budget approach involves ways, philosophy, policies, and procedures for preparing the budget. This includes:

1. Zero-Based Budgeting (ZBB): Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a "zero base," and every function within an organization is analyzed for its needs and costs. The budgets are then built around what is needed for the upcoming period, regardless of whether each budget is higher or lower than the previous one.

2. Incremental Budgeting: Incremental budgeting is a budgeting approach whereby a new budget is from making minor changes to the current budget. The current budget will adjust and add or subtract from the current amounts to have budgeted new quantities.

3. Rolling Budgeting: A rolling budget, also known as a continuous budget or rolling forecast, changes constantly throughout the year. When one month ends, add another month at the end of the budget. For example, your budget covers January-December of 2018. When January 2018 finishes, you can add January 2019.

4. Fixed Budgeting: A fixed budget is a financial plan that is not modified for variations in actual activity. It is the most commonly used type of budget because it is easier to construct than a flexible budget.

5. Flexible Budgeting: A flexible budget adjusts based on changes in actual revenue or other activities. The result is a budget that is fairly closely aligned with actual results. This approach varies from the more common static budget, which contains nothing but fixed expense amounts that do not vary with actual revenue levels.

6. Performance-based budgeting: is the allocation of funds based on programmatic results that contribute to organizational goals. For governments, performance-based budgeting uses evidence to maximize the allocation of funds toward programs that work and away from those that don't. Performance-based budgeting is not intended to punish or reward departments or agencies, but instead to focus on progress toward measurable goals during the budget process. This approach allows cities to make and justify budgetary changes that meet community needs and advance citywide priorities, instead of defaulting to the status quo.

Disadvantages of budgeting

1. Unrealistic Results: A budget is based on a set of assumptions that are generally not too far distant from the operating conditions under which it was formulated. If the business environment changes to any significant degree, the company's revenues or cost structure may change so radically that actual results will rapidly depart from the expectations delineated in the budget.

2. Rigid Decision-Making: The budgeting process only focuses the attention of the management team on strategy during the budget formulation period near the end of the fiscal year. For the rest of the year, there is no procedural commitment to revisit the strategy. Thus, if there is a fundamental shift in the market just after a budget has been completed, there is no system in place to formally review the situation and make changes, thereby placing a company at a disadvantage to its nimbler competitors.

3. Time Required to Complete the Budget: It can be very time-consuming to create a budget, especially in a poorly-organized environment where many iterations of the budget may be required. The time involved is lower if there is a well-designed budgeting procedure in place, employees are accustomed to the process, and the company uses budgeting software.

4. Blame for Outcomes: If a department does not achieve its budgeted results, the department manager may blame any other departments that provide services to it for not having adequately supported his department.

5. Only Considers Financial Outcomes: The nature of the budget is numeric, so it tends to focus management attention on the quantitative aspects of a business; this usually means an intense focus on improving or maintaining profitability. In reality, customers do not care about the profits of a business – they will only buy from the company as long as they are receiving good service and well-constructed products at a fair price. Unfortunately, it is quite difficult to build these concepts into a budget, since they are qualitative in nature.

Sources of government funds

The government of Tanzania collects money from the following sources:

1. Tax: compulsory payments imposed by the government to individuals and business firms.
2. Borrowings: the government borrows money from banks, largest entrepreneurs social security funds, organizations, etc.
3. Grants: these are non–refundable moneys given by other countries.
4. Fines: payments done by law breakers to the government
5. Fees: income received by the government from the services offered to the public.
6. Miscellaneous incomes: incomes earned from the selling of scrap assets.

Government expenditures

This refers to the spending of money by the government in different activities either within or outside the country.

Types of government expenditure

Government expenditures are classified into:

1. Capital expenditure: government spending on physical assets such as roads, bridges, hospital building and equipment
2. Current expenditure: government expenditure on day-to-day activities.
3. Transfer payment: this involves the transfer of money for social security funds, pensions and unemployment benefits.